2020
ANNUAL REPORT
more than
280K
loans funded
$30B
to advance
racial equity
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
2020
2019
2018
Selected income statement data
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
Book value per share
Tangible book value per share (TBVPS)(a)
Cash dividends declared per share
Selected ratios
Return on common equity
Return on tangible common equity (ROTCE)(a)
Liquidity coverage ratio (average)(b)
Common equity Tier 1 capital ratio(c)
Tier 1 capital ratio(c)
Total capital ratio(c)
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
$ 119,543
66,656
52,887
17,480
29,131
$
$ 115,399
65,269
50,130
5,585
$ 36,431
$ 108,783
63,148
45,635
4,871
32,474
$
$
$ 8.89
8.88
81.75
66.11
3.60
12 %
14
110
13.1
15.0
17.3
10.75
10.72
75.98
60.98
3.40
15 %
19
116
12.4
14.1
16.0
$ 1,012,853
3,386,071
2,144,257
249,291
279,354
$ 127.07
387,492
3,049.4
$ 997,620
2,687,379
1,562,431
234,337
261,330
$ 139.40
429,913
3,084.0
$
9.04
9.00
70.35
56.33
2.72
13 %
17
113
12.0
13.7
15.5
$ 1,015,760
2,622,532
1,470,666
230,447
256,515
$
97.62
319,780
3,275.8
256,105
Headcount
255,351
256,981
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP
Financial Measures on pages 62–64 for additional information on these measures.
(b) Refer to Liquidity Risk Management on pages 102–108 for additional information on this measure.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach. Refer to Capital Risk Management on pages 91–101
for additional information on these measures.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $3.4 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.
$30B
ADVANCE RACIAL EQUITY
#1
INVESTMENT BANK
100
HUMAN RIGHTS EQUALITY
$30 billion to advance
racial equity
#1 globally in both investment
banking fees and Markets revenue
100: Score on Human Rights
Campaign’s Corporate Equality Index
$200B
SUSTAINABLE DEVELOPMENT
$2.3T
CREDIT AND CAPITAL RAISED
Committed to finance and facilitate $200
billion to drive action on climate change and
advance sustainable development
$2.3 trillion in credit and capital
raised for consumers and clients of
all sizes, including those in some of
the hardest-hit industries
#1
CUSTOMER SATISFACTION
#1 in customer satisfaction with
online banking among national
banks according to J.D. Power
#1
TRADITIONAL
MIDDLE MARKET LENDER
TOP 10
#1
MULTIFAMILY LENDER
#1 traditional Middle Market
bookrunner in the U.S.
Named to Fortune magazine’s
Most Admired Companies list
#1 U.S.
multifamily lender
#1
WEALTH MANAGEMENT APP
$276B
AWM CLIENT ASSET INFLOWS
#1
COVID-19 RESPONSE
#1 digital wealth management app
according to J.D. Power
$276 billion in total Asset & Wealth
Management client asset inflows
#1 bank for COVID-19 response
according to JUST Capital
Dear Fellow Shareholders,
Jamie Dimon,
Chairman and
Chief Executive Officer
2020 was an extraordinary year by any measure. It was a year of a global
pandemic, a global recession, unprecedented government actions, turbulent
elections, and deeply felt social and racial injustice. It was a year in which each of
us faced difficult personal challenges, and a staggering number of us lost loved
ones. It was also a year when those among us with less were disproportionately
hurt by joblessness and poverty. And it was a time when companies discovered
what they really were and, sometimes, what they might become.
Watching events unfold throughout the year, we were keenly focused on what we,
as a company, could do to serve. As I begin this annual letter to shareholders,
I am proud of what our company and our tens of thousands of employees around
the world achieved, collectively and individually. As you know, we have long cham-
pioned the essential role of banking in a community — its potential for bringing
people together, for enabling companies and individuals to reach for their dreams,
2
and for being a source of strength in difficult times. Those opportunities were
powerfully presented to us this year, and I am proud of how we stepped up.
I discuss these themes later in this letter.
As I look back on the last year and the last two decades — starting from my time
as CEO of Bank One in 2000 — it is remarkable how much we persevered and have
accomplished, not only in terms of financial performance but also in our stead-
fast dedication to help clients, communities and countries throughout the world.
2020 was another strong year for JPMorgan Chase, with the firm generating record
revenue, as well as numerous other records in each of our lines of business. We
earned $29.1 billion in net income on revenue of $122.9 billion versus $36.4 billion
on revenue of $118.5 billion in 2019, reflecting strong underlying performance across
our businesses offset by additional reserves under new accounting rules. We gener-
ally grew market share across our businesses and continued to make significant
investments in products, people and technology, all while maintaining credit
discipline and a fortress balance sheet. In total, we extended credit and raised
$2.3 trillion in capital for businesses, institutional clients and U.S. customers.
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate beneficiaries are the individuals in our commu-
nities. More than 100 million people in the United States own stock, and a large
percentage of these individuals, in one way or another, own JPMorgan Chase stock.
Many of these people are veterans, teachers, police officers, firefighters, health-
care workers, retirees or those saving for a home, school or retirement. Your
management team goes to work every day recognizing the enormous responsibility
that we have to perform for our shareholders.
While we don’t run the company worrying about the stock price in the short run, in
the long run our stock price is a measure of the progress we have made over the
years. This progress is a function of continual investments in our people, systems
and products, in good and bad times, to build our capabilities. Whether looking
3
21_JD_earnings_diluted_03
4/6/21 r2 4:50pm
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TYPESET; 3/16/21; v.21_JD_earnings_diluted_03
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2020
($ 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
15%
(cid:30)
(cid:30)
$5.19
$17.9
11%
(cid:30)
(cid:30)
$4.34
$21.7
13%
(cid:30)
(cid:30)
$5.29
$19.0
(cid:30)
15%
(cid:30)
$4.48
$17.4
(cid:30)
15%
(cid:30)
$3.96
$6.00
(cid:30)
(cid:30)
13%
$6.19
(cid:30)
(cid:30)
13%
(cid:30)
$6.31
(cid:30)
12%
(cid:30)
19%
(cid:30)
17%
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
21_JD_TBVPS_02
(cid:31) Net income (cid:31) Diluted earnings per share (cid:31) Return on tangible common equity (ROTCE)
2007
2011
2012
2006
2013
2008
2009
2010
1 Adjusted net income, a non-GAAP financial measure, excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
4/6/21 r2 4:50pm
Footnotes adjusted for style
2014
2015
2016
2017
2018
2019
2020
$36.4
$10.72
(cid:30)
$29.1
(cid:30)
$8.88
(cid:30)
14%
Adjusted
ROTCE1 was
13.6%
for 2017
Tangible Book Value and Average Stock Price per Share
2004–2020
3-9-21 r1
TYPESET; 3/09/2021; v.21_JD_TBVPS_02
High: $141.10
Low: $76.91
$110.72
$113.80
$106.52
$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
$48.13
$44.60
$51.44 $53.56
$66.11
$60.98
$56.33
$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
2019
2020
4
21_JD_Stock_Total_Return_02
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3/9/21 r1
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000—12/31/2020)1
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004—12/31/2020)
Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2020
Compounded annual gain/(loss)
One year
Five years
Ten years
TYPESET; 3/9/21 v. 21_JD_Stock_Total_Return_02
Bank One
S&P 500 Index
S&P Financials Index
11.9%
928.1%
6.5%
268.0%
4.1%
128.8%
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
10.4%
412.0%
9.7%
362.0%
3.7%
82.3%
(5.5)%
17.2%
14.7%
18.4%
15.2%
13.9%
(1.8)%
11.1%
10.8%
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.
back over five years, 10 years or since the JPMorgan Chase/Bank One merger
(approximately 15 years ago), these investments mean our stock has significantly
outperformed the Standard & Poor’s 500 Index and the Standard & Poor’s
Financials Index. These important investments will also drive our company’s
future prospects and position it to grow and prosper for decades.
We have consistently described to you, our shareholders, the basic principles and
strategies we use to build this company — from maintaining a fortress balance
sheet, constantly investing, nurturing talent, fully satisfying regulators, and
continually improving risk, governance and controls to serving customers and
clients while lifting up communities worldwide.
Adhering to these principles allows us to drive good organic growth and prop-
erly manage our capital (including dividends and stock buybacks), which we have
consistently demonstrated over the past decades. All of this is shown in the charts
in this introduction. In addition, we urge you to read the CEO letters in this Annual
Report, which will give you a lot more specific detail about our businesses and what
our plans are for the future.
5
21_JD_client franchises_12
Client Franchises Built Over the Long Term
Consumer &
Community
Banking
4/06/21 r2
Active digital customers (M)
Active mobile customers (M)
Active mobile customers growth rate
% of digital payment transactions1
% of digital payment volume1
# of branches
Average Consumer Banking deposits ($B)2
Average Business Banking deposits ($B)
Average Consumer & Business Banking
deposits ($B)
Average Business Banking loans ($B)
Client investment assets ($B)
Deposits market share3
# of top 50 Chase markets where we
2006
2019
2020
4.9
—
NM
<25%
<30%
3,079
$152
$37
$189
$13
~$80
52.5
37.3
12%
64%
58%
4,976
$548
$136
$684
$24
$501
55.3
40.9
10%
72%
62%
4,908
$657
$175
$833
$38
$590
3.6%
9.3%
9.8%
are #1 (top 3)
11 (25)
14 (40)
14 (41)
Business Banking primary market share4
5.1%
9.4%
9.5%
Credit card sales ($B)
Debit card sales ($B)
Debit & credit card sales volume ($B)
Credit card loans ($B, EOP)
Credit card sales market share5
$257
NA
NA
$153
$763
$352
$1,114
$169
$703
$379
$1,081
$144
16%
22%
22%
4/6/21 r2 4:50pm
Footnotes adjusted for style
(TYPESET; 4/6/21r2 v. 21_JD_client franchises_12
Serve >63 million U.S. households including
4.3 million small business relationships
55 million active digital customers6, including 41
million active mobile customers7
#1 primary bank within Chase footprint8
#1 U.S. credit card issuer based on sales and
outstandings9
#4 mortgage servicer10
#2 bank auto lender11
Provided customer assistance to ~2.0M accounts,
representing balances of ~$83B12
#1 PPP lender on a dollar basis
Corporate &
Investment
Bank
Global investment banking fees13
Market share13
Total Markets revenue14
Market share14
FICC14
Market share
Equities14
Market share
14
14
Assets under custody ($T)
Average deposits ($B)15
Daily payment processing ($T)16
Average daily security purchases and
sales ($T)
Average total deposits ($B)
Commercial
Banking
# of top 75 MSAs with dedicated teams
Bankers
New relationships (gross)
Average loans ($B)
Average deposits ($B)
Gross investment banking revenue ($B)20
Multifamily lending21
Asset & Wealth
Management
U.S. Private Bank (Euromoney)25
Ranking of 5-year cumulative net client
asset flows26
China inbound funds AUM27
Global Funds AUM ($T)
Global active long-term fund AUM
market share
28
Global Institutional AUM ($T)
Global Private Bank client assets ($T)29, 30
U.S. ultra-high-net-worth client assets
market share31
Average loans ($B)29
Average deposits ($B)29
# of Global Private Bank client
advisors29, 30
#2
8.7%
#8
6.3%
#7
7.0%
#8
5.0%
$13.9
$190
NA
NA
NA
36
1,203
NA
$53.6
$73.6
$0.7
#28
#1
NA
NA
$0.3
1.8%
$0.5
$0.5
#1
8.9%
#1
11.4%
#1
11.6%
co–#1
11.0%
$26.8
$465
>$7
#1
9.2%
#1
12.9%
#1
13.1%
co–#1
12.3%
$31.0
$611
>$8
$2.3
$516
$2.7
$655
67
2,101
1,706
$207.9
$172.7
$2.7
#1
67
2,020
1,856
$218.9
$237.8
$3.3
#1
>80% of Fortune 500 companies do business with us
Presence in over 100 markets globally
#1 in global investment banking fees for the 12th
consecutive year13
Consistently ranked #1 in Markets revenue since
201214
J.P. Morgan Research ranked as the #1 Global Research
Firm17
#1 in USD payments volume18
#2 custodian globally19
137 locations across the U.S. and 30 international
locations
Credit, banking and treasury services to ~18K
Commercial & Industrial clients22 and ~33K real estate
owners and investors
17 specialized industry coverage teams
#1 traditional Middle Market Bookrunner in the U.S.23
23,000 affordable housing units financed in 202024
#1
#2
#6
$0.6
#1
80% of 10-year JPMAM long-term mutual fund AUM
#2
#3
$0.8
performed above peer median32
183 4/5-star rated funds33
Business with 56% of the world’s largest pension
funds, sovereign wealth funds and central banks
Positive client asset flows across all regions, segments
2.5%
2.7%
and products
$1.1
$1.4
$1.3
$1.6
63% of Asset Management AUM managed by female
and/or diverse portfolio managers34
NA
$26.5
$50.6
11%
12%
$147.4
$135.3
$166.3
$162.0
1,506
2,419
2,462
NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
MSAs = Metropolitan statistical areas
USD = U.S. dollar
EOP = End of period
PPP = Paycheck Protection Program
AUM = Assets under management
B = Billions
T = Trillions
M = Millions
K = Thousands
For footnoted information, refer to page 67 in this Annual Report.
6
21_JD_new_renew_01
4/6/21 r2 4:50pm
Footnotes adjusted for style
TYPESET; 3/30/21 r1 v. 21_JD_new_renew_01
4/3/21 r2
New and Renewed Credit and Capital for Our Clients
2008–2020
($ in billions)
$2,496
$2,357
$2,307
$227
$1,866
$1,820
$2,102
$274
$2,144
$197
$326
$265
$258
$2,044
$233
$399
$430
$480
$2,345
$226
$460
$2,263
$262
$476
$252
$222
$1,567
$312
$167
$1,494
$243
$136
$1,577
$252
$167
$275
$309
$368
$281
21_JD_assets entrusted_03.eps
$1,088
$1,158
$1,115
$1,621
$1,519
$1,443
$1,392
$1,264
$1,789
$1,693
$1,619
$1,659
$1,525
4/6/21 r2 4:50pm
Footnotes adjusted for style
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(cid:31) Corporate clients (cid:31) Commercial clients (cid:31) Consumer
TYPESET; 4/5/21 r7 v. 21_JD_assets entrusted_03
Assets Entrusted to Us by Our Clients
at December 31,
4-5-21 r7
Deposits and client assets1
($ in billions)
$4,820
$4,227
$4,211
$718
$3,617
$464
$824
$3,255
$439
$755
$3,011
$398
$730
$3,740
$3,633
$3,802
$660
$679
$503
$861
$558
$722
$618
$757
$784
$792
$844
$3,258
$2,783
$2,740
$2,681
$365
$573
$2,811
$372
$558
$2,424
$361
$648
$1,415
$1,743
$1,881
$1,883
$2,329
$2,061
$2,376
$2,353
$2,427
$5,926
$959
$1,186
$3,781
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
(cid:31) Client assets (cid:31) Wholesale deposits (cid:31) Consumer deposits
Assets under custody2
($ in trillions)
$13.2
$14.9
$16.1
$16.9
$18.8
$20.5
$20.5
$19.9
$20.5
$31.0
$26.8
$23.5
$23.2
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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.
7
21_JD_best-in-class_peers_03
4/6/21 r2 4:50pm
Footnotes adjusted for style
4-4-21 r2
(TYPESET; 4/4/21 r2; v. 21_JD_best-in-class_peers_03
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
JPM 2020
overhead ratio
Best-in-class
peer overhead ratio1
Returns
JPM 2020
ROTCE
Best-in-class
peer ROTCE2, 3
Consumer &
Community
Banking
Corporate &
Investment
Bank
Commercial
Banking
Asset & Wealth
Management
55%
48%
41%
70%
49%
COF–CB & DC
53%
C–ICG
39%
USB–C & CB
60%
CS–PB & TROW
15%
20%
11%
28%
17%
BAC–CB
16%
MS–IS
15%
PNC
34%
UBS–GWM & MS–IM
Overhead ratio5
JPM
C
BAC
GS
MS
WFC
JPMorgan Chase compared with peers4
54%
58%
65%
65%
70%
ROTCE
MS
JPM
GS
BAC
C
80%
WFC
1%
15%
14%
12%
9%
7%
ROTCE = Return on tangible common equity
For footnoted information, refer to page 67 in this Annual Report.
footnotes on
back page
8
Bar graphs
21_JD_best-in-class-percent-graphs_02.eps
21_JD_fortress_balance_sheet_06
4/6/21 r2 4:50pm
Footnotes adjusted for style
4-5-21 r6
TYPESET; 4/5/21r6 v. 21_JD_fortress_balance_sheet_06
Our Fortress Balance Sheet
at December 31,
CET1
Tangible
common equity
Total assets
RWA
Liquidity
2008
7.0%1
$84B
$2.2T
$1.2T1
+610 bps
+$118B
+$1.2T
+$0.4T
2020
13.1%2
$202B
$3.4T
$1.6T2
~$300B
+~$1,137B
$1,437B
1 CET1 and RWA reflect the Tier 1 common ratio and risk weighted assets under the Basel I measures.
2 Reflects the Basel III Standardized measure, which is the firm's current binding constraint.
3 Operational risk RWA is a component of RWA under the Basel III Advanced measure.
4 Represents quarterly average HQLA included in the liquidity coverage ratio. Total reported eligible HQLA
excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A. that are not transferable to nonbank
affiliates. Refer to Liquidity coverage ratio on page 103 for additional information.
CET1 = Common equity Tier 1 ratio. Refer to Regulatory capital on pages 92-98 for additional information
RWA = Risk-weighted assets
B = Billions
T = Trillions
bps = basis points
Liquidity = HQLA plus unencumbered marketable securities, includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High-quality liquid assets include cash on deposit at central banks and high-quality liquid securities as defined in the LCR rule (predominantly
U.S. Treasuries, U.S. government-sponsored enterprises and government agency mortgage-backed securities, and sovereign bonds)
LCR = Liquidity coverage ratio
UST = United States Treasuries
2020 Basel III
Advanced is
13.8%, or 18.7%,
excluding $385B
of operational
risk RWA3
2020 Basel III
Advanced is $1.5T,
including $385B
of operational
risk RWA3
>~$450B of cash,
~$400B of UST,
and ~$250B of US
agency securities;
reported HQLA is
$697B4
If you look deeper, you will find that our success and accomplishments are founded
on our commitment to our shareholders. Shareholder value can be built only if you
maintain a healthy and vibrant company, which means doing a good job taking care
of your customers, employees and communities. Conversely, how can you have a
healthy company if you neglect any of these stakeholders? As we have learned in
2020, there are myriad ways an institution can demonstrate its compassion for its
employees and its communities while still upholding shareholder value.
Ultimately, the basis of our success is our people. They are the ones who serve our
customers and communities, build the technology, make the strategic decisions,
manage the risks, determine our investments and drive innovation. Whatever your
view is of the world’s complexity and the risks and opportunities ahead, having a
great team of people — with guts and brains and enormous capabilities who can
navigate personally challenging circumstances while dedicating themselves to
professional excellence — is what ensures our prosperity, now and in the future.
9
Within this letter, I discuss the following:
I. The Corporate Citizen: The Purpose of a Corporation
1. Businesses must earn the trust of their customers and communities by
acting ethically and morally.
2. Being a responsible community citizen locally is critical, and it is easy to
understand why.
3. Being a responsible community citizen nationally, or globally, is more
critical and more complex.
II. Lessons from Leadership
1.
Enforce a good decision-making process.
2. Examine raw data and focus on real numbers.
3. Understand when analysis is necessary and when it impedes change.
4. Before conducting an important analysis, assess all relevant factors
involved.
5. Always deal with reality.
6. Remain open to learning how to become a better leader.
III. Banks’ Enormous Competitive Threats — from Virtually Every Angle
1. Banks are playing an increasingly smaller role in the financial system.
2. The growth in shadow and fintech banking calls for level playing field
regulation.
3. AI, the cloud and digital are transforming how we do business.
4. Fintech and Big Tech are here … big time!
5.
JPMorgan Chase is aggressively adapting to new challenges.
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IV. Specific Issues Facing Our Company
1.
Cyber risk remains a significant threat.
2. Brexit was finally accomplished — but uncertainties linger.
3. New accounting requirements affect reserve reporting but not how we run our
business.
4. While we disbanded Haven, we will continue to build on what we learned.
V. COVID-19 and the Economy
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1. Bold action by the Fed and the U.S. government effectively reversed financial panic.
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2. Banks entered this recent crisis in great shape and were part of the solution
coming out.
3. The confusing interplay of monetary, fiscal and regulatory policy continues
through recessions.
4. The regulatory system needs to keep up with the changing world — and finish
Dodd-Frank to get it right.
5. The pandemic accelerated remote working capabilities, which will likely
carry forward.
VI. Public Policy
American Exceptionalism, Competitiveness and Leadership: Challenged by
China, COVID-19 and Our Own Competence
1.
Laying out the problems is painful.
2. Why did — and didn’t — these failures happen?
3. We need a comprehensive, multi-year national Marshall Plan, and we must strive
for healthy growth.
4. We need to take specific action steps.
5. America’s global role and engagement are indispensable to the health and
well-being of America.
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11
Business Roundtable’s Statement on the
Purpose of a Corporation
In August 2019, Business Roundtable released the below Statement on the
Purpose of a Corporation, signed by 181 CEOs, including Jamie Dimon, then
chair of the association. This statement repositioned the definition of corporate
success as serving shareholders principally to endorsing a modern standard
of corporate responsibility: to serve all stakeholders — customers, employees,
suppliers, communities and shareholders.
Americans deserve an economy that allows each person to succeed through
hard work and creativity and to lead a life of meaning and dignity. We believe
the free-market system is the best means of generating good jobs, a strong
and sustainable economy, innovation, a healthy environment and economic
opportunity for all.
Businesses play a vital role in the economy by creating jobs, fostering
innovation and providing essential goods and services. Businesses make and
sell consumer products; manufacture equipment and vehicles; support the
national defense; grow and produce food; provide health care; generate and
deliver energy; and offer financial, communications and other services that
underpin economic growth.
While each of our individual companies serves its own corporate purpose, we
share a fundamental commitment to all of our stakeholders. We commit to:
• Delivering value to our customers. We will further the tradition of American
companies leading the way in meeting or exceeding customer expectations.
•
Investing in our employees. This starts with compensating them fairly and
providing important benefits. It also includes supporting them through
training and education that help develop new skills for a rapidly changing
world. We foster diversity and inclusion, dignity and respect.
• Dealing fairly and ethically with our suppliers. We are dedicated to serving
as good partners to the other companies, large and small, that help us
meet our missions.
• Supporting the communities in which we work. We respect the people in
our communities and protect the environment by embracing sustainable
practices across our businesses.
• Generating long-term value for shareholders, who provide the capital
that allows companies to invest, grow and innovate. We are committed to
transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them,
for the future success of our companies, our communities and our country.
Released: August 19, 2019
12
I. THE CORPORAT E CIT IZEN:
THE PURPOSE OF A CORPORATION
We need to build and maintain a healthy
and vibrant company, over the long run,
to be able to deal with the uncertainties of
life, to invest, to innovate and to grow. To
be healthy and vibrant, a company must do
many things well: It must do a great job for
customers; attract, develop and retain talented
employees; and serve its communities.
The problem with the American public’s
impression of “shareholder value” is that too
many people interpret it to mean short-term,
rapacious profit taking – which, ironically,
is the last thing that leads to building real,
long-term shareholder value. And when they
hear the word “fiduciary,” they think we are
standing behind our lawyers.
It is vital that we do all of these things,
as the failure to perform any one of them
with excellence could lead to the failure
of all. Over the years, we have extensively
described the efforts we make to take care
of our customers and our employees. The
purpose of this section is to describe our
corporate responsibility efforts in more detail
and explain their importance.
To be healthy and vibrant – and to create long-
term shareholder value – a company must be
financially successful over the long run.
Obviously, companies have fiduciary respon-
sibilities. However, legal and fiduciary
language does not represent how most CEOs
and boards actually run their companies.
We should not be buttonholed by the debate
about whether there are “fiduciary” reasons
to think of “shareholder value” narrowly
and to the exclusion of those who work at
the company, our clients and communi-
ties. When most CEOs and board members
wake up each morning, they worry about all
of the things that they need to do right to
build a successful company. A company is
like a team. We must do many things well
to succeed, and, ultimately, that leads to
creating shareholder value.
1. Businesses must earn the trust of their customers and communities by acting ethically
and morally.
To a good company, its reputation is every-
thing. That reputation is earned day in and
day out with every interaction with customers
and communities. This is not to say that
companies (and people) do not make mistakes
– of course they do. Often a reputation is
earned by how you deal with those mistakes.
While all businesses are different, there are
some fundamentals: good products, fair and
transparent pricing, thoughtful and respon-
sive service, and continuous innovation.
Great companies constantly set high stan-
dards, acknowledge their mistakes and prop-
erly discipline or dismiss bad actors.
Great companies are strict about having fair
dealings with their customers. I have always
loved that Home Depot’s company policy
is not to raise lumber prices in the imme-
diate aftermath of a hurricane, regardless
of whether it can. (I want to remind readers
that banks essentially did not raise the price
of credit when they renewed loans during
the financial crisis.) Pricing to customers
should be what’s fair – not what a company
can get away with.
Banks, in particular, have to be rigorous
about standards. Unlike many companies
that will simply sell you a product if you
can pay for it, banks must necessarily turn
13
customers down or enforce rules that a
customer may not like (for example, cove-
nants). This makes open and transparent
dealings even more important. When I hear
examples of people doing something that
is wrong because they could be paid more,
it makes my blood boil – and I don’t want
them working here. And I can’t believe it
when I hear about a company, or a hedge
fund, causing loans and a company to default
so they can trigger credit default swap
hedges – it’s completely unethical.
We must always strive, particularly in tough
times, to earn the trust of our customers and
communities.
2. Being a responsible community citizen locally is critical, and it is easy to understand why.
If you live in a small town and run a corner
bakery, it is very easy to understand the
value of being a responsible community
citizen. Most businesses on “Main Street”
keep the sidewalk in front of their store
clean so people don’t slip and fall. They often
participate in the community by supporting
local sports teams or religious institutions.
A bakery or a restaurant will often donate
surplus food at the end of the day to a local
homeless shelter. Most businesses under-
stand that everyone doing their part to
make the community a better place is both
the moral thing to do and a driver of better
commercial outcomes for the town.
When JPMorgan Chase enters a community,
we take great pride in being a responsible
citizen at the local level – just like the local
bakery. We lend to and support local busi-
nesses. We help customers with banking,
lending and saving. And our local corpo-
rate responsibility efforts and philanthropic
programs (examples of which are described
in the following features in this section) help
make these communities stronger.
3. Being a responsible community citizen nationally, or globally, is more critical and
more complex.
Most people consider corporate responsi-
bility to be merely enhanced philanthropy.
This is understandable. But it is far harder
to understand what being a responsible
community citizen means in terms of macro
corporate responsibility. While we are
devoted to philanthropy – we spend $330
million a year on these efforts – corporate
responsibility is far more than that.
JPMorgan Chase takes an active role in
large-scale public policy issues. We are
fully engaged in trying to solve some of
the world’s biggest issues – climate change,
poverty, economic development and racial
inequality – and the accompanying features
that follow describe the extensive efforts we
are making. With well-designed policies, we
think these problems can all be solved. In
the last section of this letter, I detail certain
policy issues, which – if forcefully and
effectively addressed – would be great for
America and the world at large. We engage
at this level because companies (like ours)
have an extraordinary capability to help. We
help not just with funding but with devel-
oping strong public policy, which can have
a greater impact on society than the collec-
tive effect of companies that are respon-
sible community citizens locally. This year,
for example, our PolicyCenter published
research based on the actual experiences of
our customers and communities, showing
how new policies could drive a more inclu-
sive economic recovery and help small
businesses. JPMorgan Chase has always
recognized that long-term business success
depends on community success, and that is
14
I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION one of the reasons for our enduring achieve-
ment. When everyone has a fair shot at
participating – and sharing – in the rewards
of growth, the economy will be stronger, and
our society will be better.
We also believe that businesses’ extraordi-
nary capabilities are even more powerful
when put to use in collaboration with
governments’ capabilities, particularly when
seeking to solve our biggest economic and
societal ills at the local level. As Washington,
D.C., and central governments around the
world struggle with partisan gridlock and
an inability to get big things done, local
communities are coming up with some of
the best ideas to make civic society work for
more people. Mayors, governors, educators,
major employers, entrepreneurs, community
leaders and nonprofits are making serious
progress developing innovative approaches
that address our greatest challenges, but their
work often flies under the radar. We must
elevate these thoughtful ideas and find ways
to share them with others facing similar situ-
ations, enabling more communities to benefit
from proven, localized solutions. After busi-
nesses have had success with some of these
efforts locally, they can be adopted across the
country and, in fact, around the world.
Our effort is substantial and permanent and has
support throughout the company.
Importantly, these civic efforts are supported
by senior leadership and are managed by
some of our best people (these initiatives are
not an afterthought and are sustainable). For
our part, we are making significant, long-
term, data-driven business and philanthropic
investments. And while we try to be creative,
we analyze everything, including philan-
thropy, based on measurable results.
Executing Our Corporate Purpose
We go to great lengths to be there for our clients, customers, employees and communities. Moreover,
this unwavering commitment has been a hallmark of our company since its founding. During this time of
corporate self-reflection, it’s important to understand and reaffirm the magnitude of our contributions.
Helping Clients and Customers in 2020
• We extended credit and raised capital totaling
$2.3 trillion for consumers and clients of all
sizes around the world, including some of the
industries and communities most affected by
the pandemic’s economic fallout. This includes
critical financing for companies such as Boeing
and its 145,000 employees. J.P. Morgan helped
them raise $25 billion to help fund their ongoing
operations as the pandemic led to less air travel.
• We provided consumers with $226 billion in
credit to help them afford some of their most
important purchases, including new homes and
vehicles. This included more than $32 billion to
help customers in underserved communities
purchase a new home.
• We raised $1.1 trillion in capital for corporations
and non-U.S. government entities and offered
$865 billion in credit for corporations. For
example, we helped Meals on Wheels build a
new 36,000-square-foot commercial kitchen
and food production facility to help maintain
good nutritional health of older adults with
limited financial resources.
• We raised $103 billion in credit and capital for
nonprofit and U.S. government entities, including
states, cities, hospitals and universities. This
included funding for NewYork-Presbyterian
Health System — which saw a significant increase
in patients as a result of COVID-19 — to help them
acquire vital medical supplies and equipment
and to bring on additional staff.
15
I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION
• We committed more than $45 billion in lending
and investments to support community
development, affordable housing and small
business growth in underserved communities
across the United States. This included Eden
Housing, a nonprofit that provides low-income
residents with safe, modern and affordable
housing in California’s Bay Area.
• We provided more than $18 billion in credit to
small businesses around the country, as well
as more than $32 billion in funding ($28 billion
excluding Small Business Administration (SBA)
safe harbor refunds) under the SBA’s Paycheck
Protection Program (PPP). For example, we
helped Kids Klub Child Development Centers —
which offer preschool, daycare and after-school
programming — revamp their centers to enable
care for essential workers’ children.
• We provided critical development financing
and attracted additional investment, such
as funding through our new development
finance institution (DFI) to support sustainable
development. In 2020, the DFI mobilized
$140 billion toward these goals — helping, for
example, with Uzbekistan’s first local currency
issuance in international markets to finance
the country’s health, education and transport
sectors and with the Republic of Georgia’s
debut green bond to support that country’s
access to water, power and sanitation.
Helping Communities
• We have supported and continue to support a
range of community initiatives — from assisting
underserved small businesses outside of Paris
to facilitating skills training for high-growth
jobs in India to helping residents of Harlem
increase savings and reduce debt. In 2020, we
provided more than $500 million in low-cost
loans, equity and philanthropic grants to
address immediate needs brought on by the
COVID-19 crisis, drive an inclusive recovery
and advance racial equity. These efforts will
help 1.3 million individuals receive financial
coaching, enable 172,000 people to enroll in
jobs and skills training programs, assist 64,000
underserved small businesses and create or
preserve 43,000 affordable housing units.
16
• We raised $12 billion in capital and credit to
help finance infrastructure projects across
the United States. This included $1.3 billion
in credit assistance to New York City’s
Metropolitan Transportation Authority to help
deal with the serious impacts of COVID-19 on
the city’s transportation system and $800
million in capital for Michigan’s Department of
Transportation to help rebuild the state’s roads
and bridges.
• We designed branches, products, services
and digital solutions to help clients and
customers better manage their financial daily
lives, with particular focus on underserved
communities and families. Examples include
low-cost, low-fee accounts, such as Chase
Secure BankingSM, and financial tools, such
as Chase Credit Journey and Chase Autosave.
In 2020, we continued to open new branches
in new markets across the United States with
30% opening in low- to moderate-income
communities by 2023.
• We have committed employee time and talent
to tackling communities’ greatest challenges.
In 2020, employees participated in nearly
50 Service Corps programs to help local
nonprofits; mentored hundreds of Black and
Latinx young men as part of The Fellowship
Initiative; and supported local organizations
focused on racial equity.
• We are dedicated to addressing climate change
and sustainability around the world. In 2020,
the firm committed to finance and facilitate
$200 billion to drive action on climate change
and advance sustainable development,
including renewable energy, cleaner water
and waste management; improve access
to housing, education and healthcare; and
promote infrastructure, innovation and growth
around the globe.
Supporting Employees
• We have taken extensive steps to support our
employees, who are our greatest strength.
We offer 300 accredited skills and education
programs and have helped 15,000 employees
(to date) assess their skills, which may lead
to opportunities for career mobility at the
firm. And we have been increasing wages for
thousands of employees, including branch and
customer service employees, to between $16
and $20 an hour, depending on where they
work in the United States, while providing an
annual benefits package worth about $13,000.
• As part of our strategy to diversify our talent
pipeline, we have implemented a range of
changes to expand opportunities for individuals
with a criminal background. In 2020, we hired
approximately 2,100 people with a criminal
background — roughly 10% of our new hires in
the United States. And through the JPMorgan
Chase PolicyCenter, we are advancing federal
and state policies that help qualified workers
with an arrest or conviction record compete
for employment in federal agencies and with
federal contractors. We are reforming Federal
Deposit Insurance Corporation (FDIC) hiring
rules and setting up automatic record clearing
for eligible offenses to help individuals move on
from their record. We also supported a measure
signed into federal law in 2020 restoring access
to Pell Grants for incarcerated individuals,
which allows them to pursue postsecondary
education in prison and increase employment
opportunities after their release.
Our $30 Billion Path Forward Commitment
JPMorgan Chase introduced The Path Forward in October 2020, committing $30 billion over the next five
years to address the key drivers of the racial wealth divide, reduce systemic racism against Black and
Latinx people, and support employees. The firm has made tangible progress to date.
Promote and expand affordable housing and homeownership for underserved communities
• Expanding affordable housing in underserved
communities: The firm’s inaugural $1 billion
social bond builds on its strategy to use its
business expertise to create opportunity
for underserved communities. The bond’s
co-managers solely comprise minority- and
women-owned businesses, as well as service-
disabled, veteran-owned firms.
• Helping Black and Latinx families buy
homes and refinance loans: Our Home
Lending business has committed to helping an
additional 40,000 Black and Latinx families
buy a home over the next five years, with the
firm dedicating $8 billion in mortgages for
this purpose. The firm is committing up to $4
billion in refinancing loans to help an additional
20,000 Black and Latinx households achieve
lower mortgage payments. In addition, the
firm is working to improve key home lending
products and offerings: A $5,000 grant, for
example, will help cover closing costs and down
payments for people buying a home in 6,700
minority communities in the United States.
17
Grow Black- and Latinx-owned businesses
• Helping small businesses thrive: A $350
million, five-year global commitment
underscores our dedication to grow Black-,
Latinx- and women-owned businesses among
other underserved small businesses, help
address the racial wealth divide and create
a more inclusive recovery from the COVID-19
pandemic. This ambitious endeavor combines
low-cost loans, equity investments and
philanthropy and will help reduce barriers to
capital for underserved small businesses to
support their immediate needs and long-term
growth. As part of this commitment, the firm
is investing $42.5 million in low-cost loans and
philanthropy to expand the Entrepreneurs of
Color Fund to more cities in the United States,
in collaboration with Local Initiatives Support
Corporation and a network of community
development financial institutions (CDFI).
•
Investing in middle-market businesses:
The firm is co-investing up to $200 million
alongside Ariel Alternatives and Project Black,
an initiative that aims to close the racial wealth
gap by investing in middle-market businesses
that are minority-owned — or will become
minority-owned — to develop a new class of
Black and Latinx entrepreneurs.
• Expanding our business with Black and Latinx
suppliers: The firm’s internal Buy Black and
Latinx Portal, led by Advancing Black Pathways,
encourages our lines of business to purchase
goods and services from diverse businesses.
This year-long campaign is designed to support
the firm’s commitment to spend $750 million
with Black- and Latinx-owned suppliers over the
next five years.
Improve financial health and access to banking in Black and Latinx communities
• Helping 1 million people open low-cost
• Strengthening diverse-led financial
checking or savings accounts: Chase will open
16 new community branches in traditionally
underserved neighborhoods and hire 150
community managers by 2022. Branches in
Chicago, Dallas, Minneapolis and New York
(Harlem) have already been redesigned under
this new model. This model has expanded
outreach to local small businesses — and to
consumers with financial education — and serves
as a hub for overall community engagement.
Another 100 new branches are being opened in
low- to moderate-income communities across
the United States as part of the firm’s market
expansion initiative. We want to build trust in
the communities we serve and become our
customers’ primary bank. We offer Secure
Banking — a low-cost, no overdraft checking
account — for those new to banking, those who
have had trouble getting or keeping a bank
account, and for Black and Latinx unbanked and
underbanked households, thereby expanding
access to traditional banking.
institutions: To promote financial institutions in
underserved neighborhoods, we are providing
additional access to capital, connections to
institutional investors through new products
and services, specialty support for Black-led
commercial projects, and mentorship and
training opportunities. In October 2020, the
firm committed to investing $50 million in
Black- and Latinx-led minority depository
institutions and CDFIs. With $40 million of that
investment already committed or deployed to
Louisiana-based Liberty Bank, North Carolina-
based M&F Bank, New York-based Carver
Federal Savings Bank and Los Angeles-based
Broadway Federal Bank, the total investment
has been increased to $75 million, which could
generate access to as much as $750 million
in community lending. In addition, the firm’s
new Empower money market share class will
allow these institutions to develop new revenue
streams by serving institutional clients.
18
Our Sustainability Efforts
Climate change is a critical issue of our time.
Reducing greenhouse gas (GHG) emissions — the
main cause of climate change — requires collective
ambition and cooperation across the public and
private sectors.
Coal, oil and natural gas — the primary sources of
GHG emissions — have powered the world’s energy
economy for many decades, advancing significant
economic growth and social development for
billions around the world. But our reliance on
these resources now threatens the very growth
they have enabled.
The challenge we face is significant. While
continuing to generate power for all of our needs,
big and small — lighting and heating our homes,
commuting to work, and charging our phones and
computers, as well as operating manufacturing
facilities that produce goods used around the
world each day — we also need to bring energy to
the nearly 800 million people who still don’t have
reliable access to electricity. And we need to find a
way to do all of these things while setting a path for
achieving net-zero emissions by 2050.
The fact is we’re long past debating whether
climate change is real. But we need to acknowledge
that the solution is not as simple as walking away
from fossil fuels. We will need resources such as
oil and natural gas until commercial, affordable
and low-carbon alternatives can be developed to
meet all of our global energy needs. This is where
business and government leaders need to focus
their time and attention.
While wind and solar technologies have made
huge strides, they’re principally deployed for
electricity generation. We don’t have clean
alternatives for industrial and manufacturing
energy needs, for example. Nor do we yet have
solutions for heavy transportation, such as
trucking and air travel. What’s more, the projected
growth of technologies like electric vehicles is
going to place huge pressures on the need for rare
earth minerals — which also presents geopolitical
and environmental challenges.
Policymakers have taken some important steps.
The Paris Agreement is one such success, but we
must put a price on carbon. A carbon tax (with a
commensurate carbon dividend — directly returned
to the people) is an excellent way to dramatically
reduce carbon while investing in communities most
adversely affected by this much-needed transition.
Without a benchmark like this, businesses and
economies won’t be able to properly factor the
cost of carbon and the benefit of alternatives into
their long-term strategic planning and capital
investment decisions.
Companies are figuring out how to manage amid
these challenges. And many are also dealing with
a growing chorus of pressure from customers,
regulators, shareholders and activists with strong
perspectives on how corporations and other
institutions should address climate change.
When we cut through all the noise, here’s what
we know to be true:
Traditional energy resources play an essential
role in our global economy today. We can agree
on the need to make our energy system much less
carbon intensive. But abandoning companies that
produce and consume these fuels is not a solution.
Furthermore, it’s economically counterproductive.
Instead, we must work with them.
There’s huge opportunity in sustainable and
low-carbon technologies and businesses. While
many of these technologies and companies are
mature, many more are just getting started —
and more will need to be created in the coming
decades. In addition, all companies will need
capital and advice to help them innovate,
evolve and become more efficient while staying
competitive in a changing world.
This is why we made a commitment in 2020 to
align our financing activities in three carbon-
intensive sectors — oil and gas, electric power
and automotive manufacturing — with the Paris
Agreement.
To do so, we will measure our clients’ carbon
performance against sector-based GHG reduction
targets that we’re setting for 2030 — with the goal
of helping them reduce emissions from their direct
operations and, in the case of oil and gas and
automotive companies, reduce GHGs from the use
of their products.
19
Currently, we have plans to install 40 megawatts of
solar capacity across our corporate office buildings
in the United States and the United Kingdom. This
includes a 14.8-megawatt rooftop and carport solar
installation at our corporate campus in Columbus,
Ohio, which will produce about 75% of its power
needs. We’re also installing 30 megawatts of solar
capacity at 900 retail branch locations across the
United States, which will provide approximately
35% of each branch’s power needs.
We have an opportunity to make the world a
better place for ourselves, for our children and
grandchildren, and for all living things that share
this planet with us.
The key metric we plan to use for evaluating
climate performance is carbon intensity, which is a
measure of GHG emissions per unit of output. Using
intensity will enable us to evaluate the relative
efficiency of companies and to adjust for factors
such as size, clearly showing which are performing
the best (or getting better).
We also want to take advantage of the huge
opportunity to support existing and new green
companies and to help others lower their
carbon footprint — all while advancing economic
development and standards of living for people
around the world. This includes helping our clients
invest in significant and continuous performance
improvements, new technologies, alternative
energy solutions, and research and development
(R&D). Through our recently launched Center
for Carbon Transition, clients will have access to
information resources, as well as advisory and
financing solutions that will help them evolve in a
changing world.
We’re also working to make our own company
as sustainable as possible. We’ve committed
to becoming carbon neutral for the emissions
generated to power our buildings, branches and
data centers, as well as those related to employee
travel. A big focus of our strategy is to generate our
own power using solar.
20
II. LESSONS FROM LEADERSHIP
Great management is critical to the long-term
success of any large organization. Strong
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 no uneducated guesswork.
Test, test, test and learn, learn, learn. And
accept failure as a “normal” recurring
outcome. Develop great models but under-
stand they are not the answer – judgment
has to be involved in matters related to
human beings and extraordinary events.
You need to have good decision-making
processes. Force urgency and kill compla-
cency. Know that there is competition
everywhere, all the time. But even if you do
all of this well, it is not enough.
1. Enforce a good decision-making process.
A good decision-making process involves
having the right people in the room with all
information fully shared (all too often I have
seen precisely the opposite). There is also the
need for constant feedback and follow-up. A
bad decision-making process kills. If neces-
sary, review the information over and over
– often the answer is simply waiting to be
found – and if you don’t have to, don’t rush.
While intuition matters, and it can be the
final deciding factor, intuition is not guessing
– it is usually based on years of experience,
hard work and practice.
2. Examine raw data and focus on real numbers.
It is helpful to try to separate and examine
actual raw data versus calculated numbers.
A few examples will suffice:
You always learn a lot more when you dig
deep into the numbers. Look at total car
sales, the number of people employed or
the actual price of goods compared with
calculated data like gross domestic product
(GDP), inflation or productivity. For the
latter, examine all of the methodologies and
assumptions that go into those calculations.
For instance, productivity tries to adjust for
(or simply sometimes can’t adjust for) new
products that are superior to old products,
such as smartphones versus dumb phones;
similarly, calculations for inflation factor in
something called “owners’ equivalent rent,”
which generally differs substantially from
actual home prices or rental costs.
Applied to corporate operations, examine
the details. Many companies look at “net
new accounts,” which could be going up
dramatically because of prices or marketing
– masking attrition or consumers’ dissatis-
faction with the product. In detail, look at
errors, complaints, attrition, competitors and
other new entrants.
Look at market share by customer segment
so as not to miss behavior shifts. Frequently,
raw data tell a different story from what
management may be saying: Too often
management teams use the facts to justify
what they already think or to celebrate what
they believe is a great success.
Being true to these principles requires
relentless discipline – which you should
expect of us.
21
3. Understand when analysis is necessary and when it impedes change.
While I am fanatical about detail and multi-
year analysis, it’s important to be cautious
about its application. Assumptions are
frequently involved, and small changes
in a few variables can dramatically change
an outcome.
Even net present value analysis fails to
capture the true value of something after a
certain period of time. For instance, people
commonly look at the five-year net present
value of a customer acquisition, which
can mask the true compounding effect of
keeping that client for 20 years. And we have
often seen net present value analysis fail
to capture ancillary benefits (like customer
happiness) that can often be more important
than the analysis itself.
Sometimes a new product or an investment
should simply be considered table stakes
– meaning there’s no need to do analysis
at all. Think about banks adding the capa-
bility of opening new accounts digitally, for
example, or maintaining a strong technology
infrastructure and adopting new technolo-
gies, like cloud or artificial intelligence (AI).
These could be life-or-death decisions for
a company, so instead of focusing on net
present value, the emphasis should be on
getting the work done properly, efficiently
and quickly.
Bureaucrats can torture people with analysis,
stifling innovation, new products, testing
and intuition.
In the last section, I go into further detail
about how certain analyses fail to guide us to
the right answer in public policy – particularly
around complex issues like healthcare, job
creation, mortgage markets and infrastructure.
4. Before conducting an important analysis, assess all relevant factors involved.
I frequently see people trying to understand
a complex situation without considering
all the factors involved. In the final section,
I attempt to analyze China as a strategic
competitor. It’s critical to weigh all the
factors: cultural, psychological and historical.
Also, what are the legal factors, and how is
the rule of law applied? What is the coun-
try’s situation with raw materials? What is
the country’s geography and relationship
with its neighbors? It is important to lay out
all the important variables before you start
an assessment to ensure that they are all
carefully reviewed and that one’s judgment
is not clouded early on by overfocusing on
just a few issues.
In business, this type of assessment should
also be applied to your competitors and to
those you deem to be future competitors, as
well as to your own strengths and weak-
nesses. In the next section, I describe the
evolving competitive landscape for banks.
22
II. LESSONS FROM LEADERSHIP While we also try to keep things as stream-
lined as possible, making things simpler than
they really are is equally flawed. Too many
times people seek simple, cookie-cutter solu-
tions that sound good but just don’t work.
For example, class size in schools matters
but not necessarily in all types of classes. In
Vietnam, when a major city once had a rat
population problem, the government devised
what it thought was an easy, foolproof solu-
tion: Pay people to kill rats. All people had to
do was bring in a rat tail to be paid. What the
government didn’t consider was that people
would breed rats for a supply of rat tails to
sell. (All compensation schemes should be
continuously re-evaluated.)
5. Always deal with reality.
In business, as in life, we must deal with
both certainty and uncertainty. A simple look
at history and our economic past illustrates
the rather unpredictable nature of things.
As a result, at the firm we try to look at all
the possibilities, as well as their probabili-
ties. For example, we conduct well over 100
stress tests each week to make sure we are
prepared for what we are not predicting.
We even evaluate the laws and regulations
we live under today and project how they
might be interpreted 10 years from now – we
call this “reinterpretation risk.” We look at
a broad range of possibilities and probabil-
ities to ensure that we understand, as best
as we can, all of the possible outcomes –
recognizing that we are not trying to make a
forecast with certainty. Sometimes the action
you take may not be the one that gives you
the best outcome but the one that gives you
a good outcome and reduces the possibilities
of bad outcomes.
It also is often very difficult to capture the
inflection points in the economy. Most people
imagine the future as being roughly equiva-
lent to the past, give or take a bit. However, we
know there are significant inflection points,
which are sometimes easy to see in hindsight
but almost impossible to predict.
23
II. LESSONS FROM LEADERSHIP 6. Remain open to learning how to become a better leader.
In addition to the above thoughts on anal-
ysis, assessment and good decision making,
some softer leadership lessons are equally
important.
As companies get bigger and more complex,
leaders need to be more like coaches and
conductors than players. If CEOs are running
a smaller business, they can literally be
involved in virtually everything and make
most of the decisions – they often rely on
traditional command-and-control tactics.
This approach does not work as companies
get bigger – the CEOs simply cannot be
involved in every major decision. Command
and constant feedback may be better than
command and control. Here is where leaders
would be better off providing clear direction
and letting people do their job, including
making mistakes along the way. Soft power –
essentially trust and maturity – may become
more important than hard power. Soft power
creates respect among team members, with
the coach offering honest assessment and
support while allowing flexibility. Here the
boss makes fewer but tougher decisions, such
as removing people – when it must be done
– and even then, it is handled respectfully.
People will give to the best of their ability for
leaders they respect and who they know are
trying to help them succeed.
Respect and learn from your people. Managers
and leaders get spread pretty thin. While they
should have a wide grasp of many subjects,
they could not possibly know everything their
people know. Leaders should continually be
learning from their people. They should go to
a sales conference and ask lots of questions of
their salespeople. Gather technology people
in the room with branch managers and ask,
“How are things working?” Taking a road trip
should not be only for the purpose of showing
the flag but also for learning from your
employees and customers.
Have curiosity. It’s important to ask questions
to try to understand varying points of view.
Be willing to change your mind. Read every-
thing. Don’t defend decisions of the past.
Leaders should be happy when their people
prove them wrong. Do not have a rigid
mindset. And do not be complacent.
Skip hierarchy. If everything in a large orga-
nization must go up and down the hierar-
chical ladder, bureaucratic arteriosclerosis
along with CYA sets in, and that company’s
life expectancy is substantially shortened.
It should be routine that data, memos and
ideas are shared – skipping hierarchies – and
aren’t vetted by all in the chain of command.
This makes people more responsible for
what they are doing, improves the dissem-
ination of new information and new ideas,
and speeds things up overall. In addition,
it’s good to have a few mavericks who are
not afraid to shake things up. The ones who
challenge authority or convention often get
far more done than the ones who go along to
get along. Collaboration is wonderful, but it
can be overdone.
Act at the speed of relevance. When leaders
have plenty of time to make decisions, they
should analyze all factors over and over –
take the necessary time, as choices can be
hard to reverse. And there are other deci-
sions that are more like “battlefield promo-
tions” where there’s no luxury of time, and,
in fact, going slow may make things much
worse. I’ve also seen people take a tremen-
dous amount of time to make an unim-
portant decision, which just wastes time and
slows things down.
In business, some decisions should be made
carefully – for instance, putting the right
people in the right job. But others, such
as making pricing decisions, dealing with
customer problems and handling reputa-
tional issues, must be done quickly, for these
problems do not age well.
24
II. LESSONS FROM LEADERSHIP The Importance of Developing Leaders
Reprinted from my 2009 Letter to Shareholders
Earlier in this section, I mentioned that my number
one priority is to put a healthy and productive
succession process in place. As I will be increasingly
focused on this process, I would like to share my
thoughts about the essential qualities a leader
must have, particularly as they relate to a large
multinational corporation like JPMorgan Chase.
Leadership is an honor, a privilege and a deep
obligation. When leaders make mistakes, a lot of
people can get hurt. Being true to oneself and
avoiding self-deception are as important to a
leader as having people to turn to for thoughtful,
unbiased advice. I believe social intelligence
and “emotional quotient,” or EQ, matter in
management. EQ can include empathy, clarity of
thought, compassion and strength of character.
Good people want to work for good leaders. Bad
leaders can drive out almost anyone who’s good
because they are corrosive to an organization; and
since many are manipulative and deceptive, it often
is a challenge to find them and root them out.
At many of the best companies throughout history,
the constant creation of good leaders is what has
enabled the organizations to stand the true test of
greatness — the test of time.
Below are some essential hallmarks of a good
leader. While we cannot be great at all of these
traits — I know I’m not — to be successful, a leader
needs to get most of them right.
Discipline
This means holding regular business reviews, talent
reviews and team meetings and constantly striving
for improvement — from having a strong work ethic
to making lists and doing real, detailed follow-up.
Leadership is like exercise; the effect has to be
sustained for it to do any good.
Fortitude
This attribute often is missing in leaders: They need
to have a fierce resolve to act. It means driving
change, fighting bureaucracy and politics, and
taking ownership and responsibility.
High Standards
Leaders must set high standards of performance all
the time, at a detailed level and with a real sense
of urgency. Leaders must compare themselves with
the best. Huge institutions have a tendency toward
slowing things down, which demands that leaders
push forward constantly. True leaders must set the
highest standards of integrity — those standards
are not embedded in the business but require
conscious choices. Such standards demand that we
treat customers and employees the way we would
want to be treated ourselves or the way we would
want our own mother to be treated.
Ability to Face Facts
In a cold-blooded, honest way, leaders emphasize
the negatives at management meetings and focus
on what can be improved (of course, it’s okay to
celebrate the successes, too). All reporting must be
accurate, and all relevant facts must be reported,
with full disclosure and on one set of books.
Openness
Sharing information all the time is vital — we should
debate the issues and alternative approaches, not
the facts. The best leaders kill bureaucracy — it
can cripple an organization — and watch for signs
of politics, like sidebar meetings after the real
meeting because people wouldn’t speak their mind
at the right time. Equally important, leaders get
out in the field regularly so as not to lose touch.
Anyone in a meeting should feel free to speak his
or her mind without fear of offending anyone else.
I once heard someone describe the importance of
having “at least one truth-teller at the table.” Well,
if there is just one truth-teller at the table, you’re in
trouble — everyone should be a truth-teller.
25
Setup for Success
Fair Treatment
The best leaders treat all people properly and
respectfully, from clerks to CEOs. Everyone needs
to help everyone else at the company because
everyone’s collective purpose is to serve clients.
When strong leaders consider promoting people,
they pick those who are respected and ask
themselves, Would I want to work for him? Would I
want my kid to report to her?
Humility
Leaders need to acknowledge those who came
before them and helped shape the enterprise —
it’s not all their own doing. There’s a lot of luck
involved in anyone’s success, and a little humility is
important. The overall goal must be to help build
a great company — then we can do more for our
employees, our customers and our communities.
An effective leader makes sure all the right
people are in the room — from Legal, Systems and
Operations to Human Resources, Finance and Risk.
It’s also necessary to set up the right structure.
When tri-heads report to co-heads, all decisions
become political — a setup for failure, not success.
Morale-Building
High morale is developed through fixing problems,
dealing directly and honestly with issues, earning
respect and winning. It does not come from
overpaying people or delivering sweet talk, which
permits the avoidance of hard decision making and
fosters passive-aggressive behaviors.
Loyalty, Meritocracy and Teamwork
While I deeply believe in loyalty, it often is
misused. Loyalty should be to the principles for
which someone stands and to the institution:
Loyalty to an individual frequently is another
form of cronyism. Leaders demand a lot from
their employees and should be loyal to them
— but loyalty and mutual respect are two-way
streets. Loyalty to employees does not mean that
a manager owes them a particular job. Loyalty
to employees means building a healthy, vibrant
company; telling them the truth; and giving them
meaningful work, training and opportunities. If
employees fall down, we should get them the help
they need. Meritocracy and teamwork also are
critical but frequently misunderstood. Meritocracy
means putting the best person in the job, which
promotes a sense of justice in the organization
rather than the appearance of cynicism: “Here
they go again, taking care of their friends.”
Finally, while teamwork is important and often
code for “getting along,” equally important is an
individual’s ability to have the courage to stand
alone and do the right thing.
26
III. BANKS’ ENORMO US COMP ET ITIVE
THREATS — FROM VIRTUALLY EVERY ANGLE
I am completely in favor of open compe-
tition, and much of the competition that
I cover in this section will be good for
America. One of the necessities for a healthy
economy, and one at the core of America’s
success, is a strong, vibrant financial system.
The disciplined allocation of capital, and the
constant search for new opportunities for
capital, is critical to growth (a corollary of the
free and intelligent movement of capital is
the free movement of human talent, which,
ultimately, may be even more important).
America’s financial system is the best the
world has ever seen, from our regulatory
system and rule of law to exchanges, venture
capital and private capital, banks and shadow
banks. As our system changes, our govern-
ment and regulators need to understand
that maintaining the vibrancy, safety and
soundness of this system is critical – and
this includes maintaining a relatively fair
and balanced playing field. While I am still
confident that JPMorgan Chase can grow and
earn a good return for its shareholders, the
competition will be intense, and we must get
faster and be more creative.
To fairly assess the competitive landscape
for banks, you must fairly evaluate their
strengths and weaknesses to deal with both
the current competition and evolving compe-
tition. Banks have significant strengths
– brand, economies of scale, profitability,
and deep roots with their customers and
within their communities. Many companies,
including banks, have flaws of their own
making – usually due to bureaucracy, compla-
cency and lack of a deep competitive spirit.
Banks have other weaknesses, born somewhat
out of their success – for example, inflexible
“legacy systems” that need to be moved to the
cloud if they are to remain competitive. Banks
are also required to deal with extensive regu-
lations, which can hinder new competition
and/or create an opening for both existing and
evolving competitors. Banks fiercely compete
with each other and now face fierce competi-
tion from multiple vectors.
Banks already compete against a large and
powerful shadow banking system. And
they are facing extensive competition from
Silicon Valley, both in the form of fintechs
and Big Tech companies (Amazon, Apple,
Facebook, Google and now Walmart), that is
here to stay. As the importance of cloud, AI
and digital platforms grows, this competi-
tion will become even more formidable. As
a result, banks are playing an increasingly
smaller role in the financial system.
27
1. Banks are playing an increasingly smaller role in the financial system.
In the chart below, you will see that U.S. banks (and European banks) have become much
smaller in size relative to multiple measures, ranging from shadow banks to fintech competi-
tors and to markets in general.
Size of the Financial Sector / Industry
($ in trillions)
Size of banks
U.S. banks market capitalization1
U.S. GSIB market capitalization
European banks market capitalization1
U.S. bank loans2
Total U.S. broker dealer inventories
U.S. bank common equity3
U.S. bank liquid assets2, 4
Market size
Total U.S. debt and equity market
Total U.S. GDP5
Shadow banks
Total private direct credit
Total U.S. passives and ETFs6
Total U.S. money market funds
Hedge fund and private equity AUM7
Size of evolving
competitors
Google, Amazon, Facebook, Apple8
Payments9
Private and public fintech companies9
2000
2010
2020
1.2
0.9
1.1
3.7
2.0
0.4
1.1
33.6
13.3
7.6
6.9
1.8
0.6
NM
NA
NA
1.3
0.8
1.5
6.6
3.5
1.0
2.8
57.2
15.8
13.8
13.6
2.8
3.0
0.5
0.1
NA
2.2
1.2
1.1
10.5
3.7
1.5
7.0
118.4
18.8
18.4
30.8
4.3
8.0
5.6
1.2
0.8
Sources: FactSet, S&P Global Market Intelligence, Federal Reserve Z.1, Federal Reserve H.8, Preqin and Federal Reserve Economic Data (FRED)
GSIB = Global Systemically Important Banks
NA = Not applicable
NM = Not material
For footnoted information, refer to page 67 in this Annual Report.
Whether you look at the chart above over 10
or 20 years, U.S. banks have become much
smaller relative to U.S. financial markets and
to the size of most of the shadow banks. You
can also see the rapid growth of payment
and fintech companies and the extraordinary
size of Big Tech companies. (As an aside,
capital and global systemically important
financial institution (G-SIFI) capital rules
were supposed to reflect the economy’s
increased size and banks’ reduced size within
the economy. This simply has not happened
in the United States.)
Some regulators will look at the chart above
and point out that risk has been moved out
of the banking system, which they wanted
and which clearly makes banks safer. That
may be true, but there is a flip side – banks
are reliable, less-costly and consistent
credit providers throughout good times
and in bad times, whereas many of the
credit providers listed in the chart above
are not. More important, transactions made
by well-controlled, well-supervised and
well-capitalized banks may be less risky to
the system than those transactions that are
pushed into the shadows.
28
III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE
4-05-21 r7
2. The growth in shadow and fintech banking calls for level playing field regulation.
The chart below shows the potential regula-
tory differences between being a bank and
being a nonbank or a fintech company –
though this varies for each type of company
on each item depending upon its legal and
regulatory status. In some cases, these regula-
tory differences may be completely appro-
priate, but certainly not in all cases.
When I make a list like this, I know I will be
accused of complaining about bank regula-
21_JD_bank_nonbank regulations_07
tions. But I am simply laying out the facts
for our shareholders in trying to assess the
competitive landscape going forward.
It is completely clear that, increasingly,
many banking products, such as payments
and certain forms of deposits among others,
are moving out of the banking system. In
addition, lending in many forms – including
mortgage, student, leveraged, consumer and
non-credit card consumer – is moving out of
the banking system. Neobanks and nonbanks
are gaining share in consumer accounts,
which effectively hold cash-like deposits.
Bank and Nonbank Regulation Requirements
Payments are also moving out of the banking
system in merchant processing and in debit
or alternative payment systems.
4/6/21 r2 4:50pm
Footnotes adjusted for style
We believe that many of these new compet-
itors have done a terrific job in easing
customers’ pain points and making digital
platforms extremely simple to use. But growth
in shadow banking has also partially been
made possible because rules and regulations
imposed upon banks are not necessarily
imposed upon these nonbanks. While some of
this may have been deliberate, sometimes the
rules were accidentally calibrated to move risk
in an unintended way. We should remember
that the quantum of risk may not have
changed – it just got moved to a less-regu-
lated environment. And new risks get created.
While it is not clear that the rise in nonbanks
and shadow banking has reached the point
of systemic risk, this trend is accelerating and
needs to be assiduously monitored, which we
do regularly as part of our own business.
TYPESET; 4/5/21r7 v. 21_JD_bank_nonbank regulations_07
Bank
Fintech / Nonbank
1. Higher capital requirements (which also require expensive
debt and non-tax-deductible preferreds), even on deposits
1. Lower capital requirements, set by market
2. Operational risk capital
3. Extensive liquidity requirements
4. FDIC insurance (this cost JPM ~$12B over the last 10
years — and not tax deductible beginning in 2018)
2. No operational risk capital
3. No liquidity requirements
4. No FDIC insurance
5. U.K. bank levy and surcharges (this cost JPM $3.2B over
5. No U.K. bank levy or surcharges
the last 10 years)
6. More costly regulations (e.g., loans, CFPB, OCC), including
6. Less costly regulations
resolution planning and CCAR
7. Heavy restrictions around privacy and use of data
7. Fewer privacy restrictions, virtually no data restrictions
8. Extensive KYC / AML requirements
8. Less extensive KYC / AML requirements
9. Substantial social requirements (CRA)
9. No social requirements (CRA)
10. Extensive public and regulatory reporting requirements
10. Limited public and regulatory reporting requirements
(e.g., disclosure, compensation)
11. Lower revenue opportunities (i.e., Durbin — this cost
11. Higher debit card income
JPM ~$17B over the last 10 years)
FDIC = Federal Deposit Insurance Corporation
CFPB = Consumer Financial Protection Bureau
OCC = Office of the Comptroller of the Currency
CCAR = Comprehensive Capital Analysis and Review
KYC = Know your customer
AML = Anti-money laundering
CRA = Community Reinvestment Act
29
III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE A few items need further explanation. On
capital requirements, you should always
remember that the market determines this
level, not regulators, and to the extent that
capital requirements in one entity are much
higher than another, activities will move.
Ironically, because standardized capital and
G-SIFI capital do not recognize credit risk,
banks have a peculiar incentive to hold
higher risk credit rather than lower risk
credit. All companies have operational risk,
and most companies absorb operating losses
through earnings. Banks are required to hold
substantial capital against this risk. (I’m
not debating that there is operational risk.)
And because of the Durbin Amendment, if a
bank has a customer with a small checking
account who spends $20,000 a year on a
debit card, the bank will only receive $120
in debit revenue – while a small bank or
nonbank would receive $240. This differ-
ence may determine whether you can even
compete in certain customer segments. It’s
important to note that while some of the
fintechs have done an excellent job, they may
actually be more expensive to the customer.
Finally, it’s important to point out that not
only has private credit been moving to the
private markets but so have companies them-
selves. The number of public companies in
the United States has been dropping dramat-
ically over the past two decades, which has
corresponded to an even larger increase in
the number of private companies. Following
its peak at 8,000 in 1997, the number of
public companies is now around 6,000, and
if you exclude non-operating companies,
such as investment funds and trust compa-
nies, the decline is even more dramatic.
This is worthy of serious study. The reasons
are complex and may include factors such
as onerous reporting requirements; higher
litigation expenses; annual shareholder
meetings focused on matters that most share-
holders view as frivolous or inappropriate
for company actions; costly regulations; less
compensation flexibility; and heightened
public scrutiny. It’s incumbent upon us to
figure out why so many companies and so
much capital are being moved out of the
transparent public markets to the less trans-
parent private markets and whether this is in
the country’s long-term interest.
We need competition – because it makes
banking better – and we need to manage
the emerging risks with level playing field
regulation in a way that ensures safety and
soundness across the industry.
3. AI, the cloud and digital are transforming how we do business.
We cannot overemphasize the extraordinary
importance of new technology in the new
world. Today, all technology is built “cloud-
enabled,” which means the applications and
their associated data can run on the cloud.
This brings many extraordinary advantages,
but the one that I’d like to spotlight is the
immediate ability to access data and associ-
ated machine learning with virtually unlim-
ited compute power. Essentially, in the cloud,
you can “access” hundreds of databases and
deploy machine learning in a split second –
something mainframes and legacy systems
and databases simply cannot do. To go from
the legacy world to the cloud, applications
not only have to be “refactored,” but, more
important, data also must be “re-platformed”
so it is accessible. This availability of data
– and banks have a tremendous amount of
data – makes data enormously valuable and
digitally accessible. All of this work takes
time and money, but it’s absolutely essential
that we do it.
We already extensively use AI, quite success-
fully, in fraud and risk, marketing, pros-
pecting, idea generation, operations, trading
and in other areas – to great effect, but we are
still at the beginning of this journey. And we
are training our people in machine learning –
there simply is no speed fast enough.
30
III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE 4. Fintech and Big Tech are here … big time!
Fintech companies here and around the
world are making great strides in building
both digital and physical banking products
and services. From loans to payment systems
to investing, they have done a great job in
developing easy-to-use, intuitive, fast and
smart products. We have spoken about this
for years, but this competition now is every-
where. Fintech’s ability to merge social media,
use data smartly and integrate with other
platforms rapidly (often without the disadvan-
tages of being an actual bank) will help these
companies win significant market share.
Importantly, Big Tech (Amazon, Apple, Face-
book, Google – and, as I said, now I’d include
Walmart) is here, too. Their strengths are
extraordinary, with ubiquitous platforms
and endless data. At a minimum, they will
all embed payments systems within their
ecosystems and create a marketplace of bank
products and services. Some may create
exclusive white label banking relationships,
and it is possible some will use various
banking licenses to do it directly.
Though their strengths may be substantial, Big
Tech companies do have some issues to deal
with that may, in fact, slow them down. Their
regulatory environment, globally, is heating up,
and they will have to confront major issues in
the future (banks have faced similar scrutiny).
Issues include data privacy and use, how taxes
are paid on digital products, and antitrust and
anticompetitive issues – such as favoring their
own products and services over others on
their platform and how they price products
and access to their platforms. In addition, Big
Tech will have very strong competition – not
just from JPMorgan Chase in banking but also
from each other. And that competition is far
bigger than just banking – Big Tech companies
now compete with each other in advertising,
commerce, search and social.
5. JPMorgan Chase is aggressively adapting to new challenges.
As tough as the competition will be,
JPMorgan Chase is well-positioned for the
challenge. But our eyes are wide open as
the landscape changes rapidly and dramat-
ically. We have an extraordinary number of
products and services, a large, existing client
base, huge economies of scale, a fortress
balance sheet and a great, trusted brand. We
also have an extraordinary amount of data,
and we need to adopt AI and cloud as fast
as possible so we can make better use of it
to better serve our customers. We need to
make our extraordinary number of products
and services a huge plus by improving ease
of use and reducing complexity. We need
to move faster and bolder in how we attack
new markets while protecting our existing
ones. Sometimes new markets look too small
or appear not to be critical to our customer
base – until they are. We intend to be a little
more aggressive here.
While we will argue for a level playing field,
both in terms of how products and services
are treated by regulators and possibly how
competition should be treated across plat-
forms, we are not relying on much to change.
So we will simply have to contend with the
hand we are dealt and adjust our strategies
as appropriate.
We have mentioned that our highest and
best use of capital is to expand our busi-
nesses, and we would prefer to make great
acquisitions instead of buying back stock.
We are somewhat constrained by how much
we can grow our balance sheet because our
capital charges will grow with our size, so
sometimes buying back stock may still be
the best option. But acquisitions are in our
future, and fintech is an area where some of
that cash could be put to work – this could
include payments, asset management, data,
and relevant products and services.
We will continue to do everything in our
power to make JPMorgan Chase successful –
and are confident we can do so.
31
III. BANKS’ ENORMOUS COMPETITIVE THREATS — FROM VIRTUALLY EVERY ANGLE IV. SP EC IFIC ISSUES FACING OUR COMPAN Y
In this section, I review and analyze some of the current critical issues that affect our company.
1. Cyber risk remains a significant threat.
We cannot overemphasize the importance
of cyber risk, not just to our bank (we
spend more than $600 million a year on
cybersecurity) but also to our customers,
countries, economies and critical industries
(i.e., telecom and power). We have pointed
out to our shareholders before that having
disciplined cyber hygiene is almost as
important as the money you spend. Threats
to our cybersecurity need urgent attention
from our government as issues of national
security and impediments to trade. Govern-
ments should build on prior agreements in
the United Nations, recognizing the appli-
cability of international law to cyberspace
and enforcing obligations to hold bad actors
accountable. Acknowledging that govern-
ments and their regulatory agencies are
prime targets for cyber criminals, these
agencies need to provide transparency to
those affected by incidents (e.g., financial
institutions and others that hold sensitive
data), invest in the uplift to cybersecurity,
and adopt safe and sound practices for data
protection and handling.
Much of our extraordinary cyber capabil-
ities are also used to train and protect our
customers, particularly in the areas of risk
and fraud.
2. Brexit was finally accomplished — but uncertainties linger.
Brexit was accomplished, but many issues
still need to be negotiated. And in those
negotiations, Europe has had, and will
continue to have, the upper hand. In the
short run (i.e., the next few years), this
cannot possibly be a positive for the United
Kingdom’s GDP – the effect after that will be
completely based upon whether the United
Kingdom has a comprehensive and well-
executed strategic plan that is acceptable
to Europe. Included among the unresolved
questions is how financial services will
operate. London has been a major financial
center that, under all laws and regulations,
could conduct business throughout Europe.
For most of us, the bulk of our operations
(i.e., risk, compliance, audit, legal, regula-
tory, market-making, investment banking,
research and asset management) were
performed centrally in London. It was hugely
efficient for all of Europe – and for finan-
cial services companies as well. London is
a magnificent place to do business in terms
of the rule of law, human capital, tech-
nology, transportation, language and many
other facets. But future financial regulations
were left uncertain in Brexit; and it is clear
that, over time, European politicians and
regulators will make many understandable
demands to move functions into European
jurisdictions. Because of this – and because
of strong European efforts to compete with
London – Paris, Frankfurt, Dublin and
Amsterdam will grow in importance as more
financial functions are performed there.
Even so, few winners are likely to emerge
from this fragmentation.
During this transition, our costs (most
of which will probably be passed on to
customers in one form or another) will go
up as functions become duplicated. We may
reach a tipping point many years out when
it may make sense to move all functions that
service Europe out of the United Kingdom
and into continental Europe. But London still
has the opportunity to adapt and reinvent
itself, particularly as the digital landscape
continues to revolutionize financial services.
Innovation is key to preparing for doing the
business of tomorrow versus relying on the
shifting ways of the past.
32
3. New accounting requirements affect reserve reporting but not how we run our business.
Hundreds of variables go into the scenarios
and calculations shown in the chart below.
During periods of stress, the firm leaned
more heavily to the downside to reflect
uncertainties not fully captured by the
scenarios themselves. Uncertainties included
a substantial drop in headline employment
without corresponding job creation, the
degree of permanent job losses, the extent
and timing of federal government assis-
tance, unknowns around vaccine efficacy
against new virus strains, and the poten-
tial for economic scarring from changes
in consumer behavior and the recovery of
directly impacted sectors.
4/6/21 r2 4:50pm
Footnotes adjusted for style
A new loan loss reserving method called
the current expected credit losses (CECL)
standard was adopted by large financial
institutions, effective January 1, 2020. To
oversimplify, there were two main changes.
First, you must reserve for expected credit
losses over the full remaining expected life of
the loan, whereas in the past, we reserved for
losses that had already been incurred using
a forecast over a loss emergence period, for
example the ensuing 12 months or so for
credit cards. Second, you were to incorporate
different reasonable and supportable macro-
economic forecasts (for multiple scenarios)
21_JD_allowance_range_of_downside_04
in estimating losses. Given the benign macro-
economic environment when this new CECL
standard was adopted, it increased reserves
by only $4.3 billion, which was primarily
attributed to moving to lifetime loss coverage
for Card, with only a small amount of
reserves for the probability of a far worse
economic environment.
TYPESET; 4/04/21r3 v. 21_JD_allowance_range_of_downside_04
Allowance: Range of Downside Uncertainty
($ in billions)
4-04-21 r3
$19
$14
Actual UER
3.6%
4Q19
(Incurred loss)
1/1/2020
(CECL adoption)
$25
3.8%
1Q20
$52
$34
$28
20.7%
10.8%
13.1%
2Q20
$34
8.8%
3Q20
(cid:31) Reported allowance
(cid:31) Extreme adverse case
(cid:31) Central case
(cid:31) Unexpected downside
(cid:31) Expected downside
Extreme Adverse UER, next 4Q average
Central UER, next 4Q average
CECL = Current expected credit losses
UER = Unemployment rate
$45
$31
$22
12.5%
6.5%
6.8%
4Q20
33
IV. SPECIFIC ISSUES FACING OUR COMPANY The best way to look at this is to analyze our
loan loss reserves as of December 31, 2020.
Our central case is essentially our baseline
forecast (and is roughly similar to the Federal
Reserve’s current forecast at the time),
which would have unemployment over the
ensuing 12 months at 6.5%. If we reserved
to this case, our reserves would total $22
billion. But we run multiple scenarios – one
of which is an extreme adverse case. This
worst case, which is slightly more severe
than the Federal Reserve’s extreme adverse
case, would have unemployment over the
ensuing 12 months at 12.5% (among other
variables). If we reserved as if this scenario
had a 100% chance of happening, we would
require $45 billion in reserves. After proba-
bility weighting multiple scenarios, we ended
the year with $31 billion in reserves.
Clearly in turbulent times, these scenarios
and the probabilities assigned to them are
highly uncertain and volatile. The following
are also clear and extremely important:
The firm earns almost $50 billion +/- pre-
provision profit annually; it is able to easily
handle large increases in reserves; and we
could easily have done substantially more
while maintaining high capital and high
liquidity. This is also why we saw no reason
to cut our dividend. If, however, the worst-
case scenario had happened (which means
it could have gotten even worse from there),
we might have cut our dividend to retain
capital out of prudence.
Importantly, CECL does not change risk
management or the way we run the
company. We have been lending, and will
continue to lend, to our clients and customers
throughout the pandemic with prudent risk
management. Our credit risk decisions and
broader risk appetite are mostly driven by
our clients’ needs and market conditions
rather than solely by reserve methodology.
While reserve levels are an estimate reflecting
management’s expectations of credit losses at
the balance sheet date, they may not reflect
the amount of losses ultimately realized.
4. While we disbanded Haven, we will continue to build on what we learned.
Although the United States has some of the
best healthcare in the world (i.e., doctors,
pharmaceutical care and innovation) and
many people from other countries come here
when they need serious medical attention,
the problems associated with healthcare are
serious, rampant and obvious. Our costs are
more than twice those of the developed world
without justification by better outcomes.
There is no transparency in pricing, with
patients legitimately complaining of hidden
costs. And chronic care is not necessarily
managed properly. More than 30 million
Americans are uninsured, and we are falling
short in basic wellness.
Amazon, Berkshire Hathaway and
JPMorgan Chase set up Haven to address
some of these problems, and, in the process,
we learned a lot about how the healthcare
system could be improved. Although we
decided to disband Haven, JPMorgan Chase
will continue to build on what we learned.
We will invest in healthcare innovation and
other approaches to improve the health and
well-being of our employees and address
this critical national issue. More details will
be shared as we progress.
34
IV. SPECIFIC ISSUES FACING OUR COMPANY V. COVID-19 AN D THE ECONOMY
Within days of realizing that COVID-19 was a global pandemic that would virtually close
down large parts of the world’s economies, the U.S. government moved with unprece-
dented speed. Fortunately, banks were part of the solution – unlike in the Great Recession.
And unlike the Great Recession, the U.S. economy was actually in good shape going into
the COVID-19 recession. Though there are many differences, it’s instructive to compare the
recovery from the Great Recession with the expected recovery from the COVID-19 recession.
1. Bold action by the Fed and the U.S. government effectively reversed financial panic.
The Federal Reserve (critically, with the
support of the U.S. Treasury) immediately
rolled out facilities that financed Treasuries,
corporate bonds, mortgage-backed secu-
rities and other securities that effectively
reversed the financial panic taking place. A
full-blown financial crisis would have made
the COVID-19 recession far worse, deeper
and longer. Markets reacted extremely posi-
tively, and companies, over the next nine
months, raised an unprecedented $2 trillion
in debt and equity at good prices, dramati-
cally improving their financial condition and
balance sheets.
the sidebar on page 36 for more detail on the
Paycheck Protection Program.
Suffice it to say while real damage was
done, the size and scope of these programs
dramatically reversed the deterioration of
the economy and unemployment, which hit
14.8% in April 2020 but made steady prog-
ress back to 6.7% by the end of the year
– though this number underrepresents the
damage that was done because of the large
deterioration in labor force participation
and the potential permanent loss of many
small businesses.
Congress, importantly, also took immediate
action to provide fiscal stimulus, the Corona-
virus Aid, Relief, and Economic Security Act,
also known as the CARES Act, totaling $2.2
trillion. This largely consisted of stimulus
payments to individuals, enhanced unem-
ployment insurance and loans, which could
be forgiven, to small businesses. Please see
One last important point: The speed and
breadth of the programs were critical, and
there is no way they could have been done
perfectly. While it always makes sense to do
a thorough postmortem review and to prop-
erly punish those who deliberately misuse
emergency government programs, we should
try to avoid excessive finger-pointing.
2. Banks entered this recent crisis in great shape and were part of the solution coming out.
The banking system was in excellent shape
going into this crisis, and just about every
bank took extensive actions to help their
customers, employees and communities.
The sidebar on page 37 details how JPMorgan
Chase responded to support various stake-
holders. It’s important to note that many of
these programs went far beyond what was
requested by the government.
Of course, banks are always affected, for the
better and worse, by just about everything
that impacts the economy. Some have said
that banks were helped, or even bailed out,
by the government’s actions. The govern-
ment took these actions to help those who
needed it – not to help the banks. These
actions helped just about everyone – and
they had a collateral benefit to the banks.
35
The Paycheck Protection Program
The Paycheck Protection Program, while not
perfect, was a tremendous achievement.
In the spring of 2020, lenders had seven frantic
days to get ready to accept applications for $349
billion in loans through the newly created Paycheck
Protection Program. Often known simply as PPP,
the federal program provided desperately needed
cash to help businesses sustain payroll so their
employees could put food on their tables and make
their rent or mortgage payments. If a business
used the loan to pay its employees and certain
other permitted expenses, the Small Business
Administration would fully forgive the loan.
Not surprisingly, there were bumps in the road
as the SBA and lenders worked around the clock
to establish and implement specific rules and
processes, as well as develop the technology to
support the program. Ultimately, though, it was a
lifesaver for millions of U.S. businesses. In Business
Banking, we processed more than four years’ worth
of loan applications in 23 days — a combination of
digital prowess and the efforts of more than 1,000
people who manually reviewed applications and
contacted clients after hours and on weekends to
correct errors.
All told, in 2020, we funded over 280,000 PPP
loans for more than $32 billion — the most of any
lender — to companies that employ a total of 3+
million people. We are especially proud that we
helped some of America’s smallest businesses:
childcare centers, social service agencies, schools,
grocery stores, physicians’ offices and restaurants.
In fact, half of our loans went to companies with
fewer than five employees. And we’re fully engaged
in the 2021 edition of PPP: Through March 2021,
we’ve funded in excess of 130,000 loans for
more than $10 billion — again, the most of any
lender. And more than 90% of those loans went to
businesses with fewer than 25 employees.
Given that most small businesses keep just two
weeks of cash on hand, the government and
lenders had to act with exceptional speed. What
they created in record time was unprecedented
and really quite extraordinary. The program
accomplished what it set out to do. Together, we
helped many small businesses survive and kept a
painful recession from becoming far, far worse.
JPMorgan Chase Helped Thousands of Small Businesses in 2020
more than
280K
loans funded
more than
$32B¹
in relief
more than
3M
employee jobs
$112K
average loan amount
~80%
~80%
~50%
~30%
of loans were for
less than $100K
of loans went
to businesses with
fewer than
10 employees
of loans went
to businesses with
fewer than
5 employees
of loans went
to businesses in
majority-minority
census tracts
1 $28 billion excluding Small Business Administration safe harbor refunds.
36
JPMorgan Chase: Supporting the “Real Economy” during the COVID-19 Crisis
To support the “real economy” — our customers, clients, employees and communities impacted by the global crisis — JPMorgan Chase
has brought the full force of its core business and expertise.
In 2020, we raised capital and provided credit totaling $2.3 trillion for customers and businesses of all sizes, helping them meet
payroll, avoid layoffs and support operations.
Through March 2021, we’ve provided more than $40 billion to more than 400,000 small businesses through the PPP program.
Since March 13, 2020, we’ve delayed payments and refunded fees for customers on over 2 million accounts.
We committed $250 million in global business and philanthropic initiatives, with particular focus on the most vulnerable people and
communities hardest hit by the pandemic.
Our ability to do all this, and more, is the result of the actions and investments we’ve made over many years to build a strong and
resilient company.
CUSTOMERS
SMALL BUSINESSES
EMPLOYEES
• Offered delayed payments and
• Supported distribution of funds
forbearance options for around
2 million mortgage, auto and credit
card accounts representing $85 billion
in loans
• Refunded $120 million in fees on
consumer deposit accounts for nearly
1 million customers
• Streamlined relief benefit enrollment
and renewal processes and required
no evidence of hardship
through the SBA PPP
• Provided $18 billion in new and
renewed credit for U.S. small businesses
(outside of PPP) in 2020
• Delayed payments for 21,000 loans
and refunded $24 million in deposit
fees for more than 130,000 small
businesses
• Committed $350 million to support
underserved small businesses,
including Black and Latinx companies
• Continued to pay employees for
regularly scheduled hours even if
hours were reduced by temporary site
closures or other circumstances
• Provided a special payment to select
full- and part-time employees whose
role required continuing on-site work
• Enhanced support for working parents,
including childcare and tutoring
• Expanded access to medical resources
LARGE EMPLOYERS AND ESSENTIAL
SERVICES
• Helped many large employers avoid
layoffs and furloughs for countless
Americans
LANDLORDS AND RENTERS
COMMUNITIES
• Provided more than $70 million in loan
relief through nearly 1,500 multifamily
loans, affecting housing for more than
27,000 tenants
• Committed $200 million to help
underserved small businesses and
nonprofits access low-cost capital
through community partners
• Extended funding to nonprofit and
• Offered landlord borrowers periods
• Committed $50 million to address
government services, such as hospitals
and transportation, to support
continued essential services for their
communities
of interest-only payments, deferral of
mortgage payments and the ability
to capitalize prior deferred payments
over two years or more
• Provided $865 billion in credit for
corporations that, collectively, employ
tens of millions of workers
• Provided payment assistance to millions
of Chase customers, freeing up capital
for rent or other critical expenses
public health and long-term economic
challenges resulting from COVID-19
37
But many companies, large and small, may
not have survived had JPMorgan Chase not
taken extraordinary efforts to help them.
While the government’s actions were a
benefit to banks, there is no question the
banks were able to weather a terrible storm
while reserving extensively for potential
future loan losses. Importantly, the Fed
conducted two additional severely adverse
Comprehensive Capital Analysis and Review
(CCAR) stress tests, which projected bank
results under extreme unemployment,
GDP loss, market disruption and a smaller
government stimulus. The result showed
that banks could withstand this extreme
outcome while continuing to finance the
economy. I also have very little doubt that
if the severely adverse scenario played out,
JPMorgan Chase would perform far better
than the stress test projections.
3. The confusing interplay of monetary, fiscal and regulatory policy continues through
recessions.
Prior to the Great Recession in 2008, banks
operated under a completely different regu-
latory, capital and liquidity regime. Banks
held less capital (for many banks, it was too
little), they left virtually no money deposited
at the Fed, they generally lent out an amount
roughly equal to their deposits and they had
less liquidity, mostly in the form of Trea-
suries and mortgages (the securities portfolio
was also used for interest rate exposure).
This completely changed with Dodd-Frank
(the Dodd-Frank Wall Street Reform and
Consumer Protection Act) capital/liquidity
rules in 2010, and it changed again dramati-
cally with the COVID-19 recession of 2020.
The quantitative easing and fiscal stimulus taken
after the Great Recession were partially offset by
changes in regulatory policy.
As the chart on the next page illustrates,
until the Great Recession of 2008, banks
were generally able to lend out 100% of
their deposits. In addition, they maintained
liquidity in the form of securities. Dodd-
Frank created a new rule called the liquidity
coverage ratio (LCR), which required banks
to permanently “lock up” a lot more liquidity
and also created more restrictions around
what counted as liquidity. The new regula-
tions generally limited liquidity sources to
cash deposits at central banks, Treasuries and
a portion of government-guaranteed securi-
ties. It should be noted that while the historic
bank reserve requirement is now zero, it has
effectively been replaced with LCR, which
is substantially the same thing as a reserve
requirement but far more stringent. In addi-
tion, we obviously saw an increase in capital
requirements and their complexity. Taken
together, these changes resulted in the loan-
to-deposit ratio dropping to approximately
75% – and it is likely to stay approximately
there unless regulations are changed. While
loans are, of course, subject to supply and
demand, this is a structural reduction that
was clearly due to regulatory changes. The
effect was also enduring: As banks phased in
these rules, this new restriction limited their
ability to extend credit, and that, in turn, may
have held back the economy from reaching
its maximum potential output.
To understand this in more specific terms,
look at the chart on the next page that shows,
prior to the COVID-19 recession, banks had
$13 trillion in deposits and only $10 trillion
in loans. This $3 trillion in “lost” lending
(this is, in part, directly related to the new
liquidity requirements) may very well have
contributed to the secular stagnation experi-
enced in the last decade. If $3 trillion more
had been lent, the banking sector would have
fostered a more dynamic economy, and GDP
growth over the past decade would almost
certainly have been faster.
3838
V. COVID-19 AND THE ECONOMY 21_JD_bank_bank deposits and loans through time_05
4/6/21 r2 4:50pm
Footnotes adjusted for style
TYPESET; 4/6/21r2 v. 21_JD_bank_bank deposits and loans through time_05
Bank Deposits and Loans through Time
($ in trillions)
4-06-21 r2
99%
$3.8
$3.7
2000
76%
64%
$16.3
$13.3
$10.1
$10.5
2005
2010
2015
2019
2020
(cid:31) Deposits (cid:31) Loans (cid:31) Loan-to-deposit ratio
Source: Federal Reserve H.8 data for all commercial banks in the U.S.
If you aren’t convinced yet – consider how
surprising it is that $3.4 trillion of quan-
titative easing (QE) and deficit spending
averaging 5% of GDP over the 10-year period
4/6 7:00pm correction: Sources was changed to Source
after the Great Recession did not result in
higher GDP growth and possibly higher infla-
tion. As a reference point, in the mid-1970s,
there was no QE – and deficit spending hit
4%, which many people thought was the
main reason for the overheated economy and
inflation, which, at its peak, was over 12%.
And so why did all this quantitative easing
not have the effect you would have thought?
QE was never effectively tried prior to the
Great Recession, and it is different from
fiscal spending. QE is the purchase of securi-
ties from security holders who tend to rein-
vest in the same or similar securities. Clearly,
QE reduces interest rates, pushes up asset
prices and creates some spending (through
the wealth effect). QE, on the one hand, may
have some inflationary effects, mostly on
asset prices. But on the other hand, it also
may have some disinflationary effects –
lower interest rates themselves, which is an
input cost for businesses, and lower income
to savers – which may reduce consumption
and may increase the propensity to save (e.g.,
we may need to set aside more money to
protect retirement income). And finally, in
this most recent round of QE, much of the
money simply made a round trip – because
of the new liquidity rules, it ended up back
as deposits at the Fed, not as loans.
The fiscal deficit is, pure and simple, giving
various individuals and institutions money
to spend – which they will spend over time.
All things being equal, this is, and always
has been, inflationary. Of course, in a reces-
sionary environment with low inflation,
like after the Great Recession, this might be
precisely what is needed without causing
overheating or excessive inflation.
My own view: The anemic growth in the
decade after the Great Recession was due to
some of the factors I mention above but also
due to many of the public policy failures that
I outline in the next section.
3939
V. COVID-19 AND THE ECONOMY 4-05-21 r6
The QE and deficit-spending response to the
COVID-19 pandemic is of a completely different
magnitude and without some of the offsetting
drags that trailed the Great Recession.
The chart below shows that for the United
States, QE actual in 2020 and QE projected
for 2021 total $4.6 trillion or almost 25%
of GDP. Deficit spending for the two years
combined is projected to total $6.8 trillion,
or about 35% of GDP. These numbers are far
21_JD_deficit spending-QE_ALT_03
larger than the first couple of years of the
Great Recession, and it is important to note
that the rest of the world is showing similar
actions, compounding the global effect.
As another reference point, during World
War II the deficit hit almost 30%, and it
averaged 16% over the five-year period from
1941 to 1946. This period did not create
lasting inflation as the circumstances were
completely different – we were coming out
of a deep depression, and the money was
spent financing a war.
Circumstances and starting points matter.
Before the Great Recession, you had an over-
leveraged financial system and overleveraged
consumers. For years after the Great Reces-
sion, there was a massive deleveraging in the
United States by consumers, many investors
and financial institutions, somewhat due to
regulations. Today, this is not the case.
In the United States, the average consumer
balance sheet is in excellent shape. The
consumer’s leverage is lower than it has
been in 40 years. In fact, prior to the last $1.9
trillion stimulus package, we estimate that
consumers had excess savings of approxi-
mately $2 trillion. Corporations also have
an extraordinary amount of cash on their
balance sheet, estimated to be approxi-
mately $3 trillion. And the financial system
and investors have already adopted more
conservative leverage requirements due to
regulations – so they have very little need
to deleverage. The QE in this go-around
will have created more than $3 trillion in
deposits at U.S. banks, and, unlike the QE
after the Great Recession, a portion of this
can be lent out.
4/6/21 r2 4:50pm
Footnotes adjusted for style
I have little doubt that with excess savings,
new stimulus savings, huge deficit spending,
more QE, a new potential infrastructure bill,
a successful vaccine and euphoria around the
end of the pandemic, the U.S. economy will
likely boom. This boom could easily run into
2023 because all the spending could extend
well into 2023. The permanent effect of this
boom will be fully known only when we see
the quality, effectiveness and sustainability
of the infrastructure and other government
investments. I hope there is extraordinary
Quantitative Easing and Deficit Spending of G4 Nations
TYPESET; 4/5/21r6 v. 21_JD_deficit spending-QE_ALT_03
Quantitative Easing
Deficit Spending
2020
% of GDP
17%
22%
20%
$T
3.2
4.5
7.7
2021 Estimate
$T
1.4
2.0
3.4
% of GDP
7%
9%
8%
2020
% of GDP
17%
14%
15%
$T
3.1
2.9
6.0
2021 Estimate
$T
3.7
1.7
5.4
% of GDP
19%
8%
13%
U.S.
Other G4 nations
Total G4 nations
T = Trillions
GDP = Gross Domestic Product
4040
V. COVID-19 AND THE ECONOMY discipline on how all of this money is spent.
Spent wisely, it will create more economic
opportunity for everyone.
While equity valuations are quite high (by
almost all measures, except against interest
rates), historically, a multi-year booming
economy could justify their current price.
Equity markets look ahead, and they may
very well be pricing in not only a booming
economy but also the technical factor that
lots of the excess liquidity will find its way
into stocks. Clearly, there is some froth and
speculation in parts of the market, which
no one should find surprising. As Captain
Louis Renault said in Casablanca, “I’m
shocked, shocked to find that gambling is
going on in here!”
Conversely, in this boom scenario it’s hard
to justify the price of U.S. debt (most people
consider the 10-year bond as the key refer-
ence point for U.S. debt). This is because of
two factors: first, the huge supply of debt
that needs to be absorbed; and second, the
not-unreasonable possibility that an increase
in inflation will not be just temporary.
In 2020, the Federal Reserve bought essen-
tially 100% of all new issuance of Treasury
notes and bonds. In 2021, with the Fed’s
current QE commitments, the market (not
the Fed) will have to absorb $2.2 trillion in
government debt – approximately 85% of
which will be in longer duration maturities.
This is a large number, even for the United
States. We should also remember that many,
if not most, buyers of U.S. debt are essen-
tially required to buy; i.e., foreign central
banks, banks, insurance companies, foreign
exchange reserve managers and duration
hedgers. A notable exception is investors
who buy the 10-year bond to take risk-off
positions. However, all of these buyers will
seek out alternatives – and there are always
some – if they become worried about the
long-term, sustainable value of Treasury
bonds. And remember, annual inflation is
already running at 1.7%.
We don’t know what the future holds, and
it is possible that we will have a Goldi-
locks moment – fast and sustained growth,
inflation that moves up gently (but not too
much) and interest rates that rise (but not
too much). A booming economy makes
managing U.S. debt much easier and makes
it much easier for the Fed to reverse QE and
begin raising rates – because doing so may
cause a little market turmoil, but it will not
stop a roaring economy.
And, of course, being who we are, while we
are going to hope for the Goldilocks scenario
– and we think there is a chance for that to
happen – we will anticipate and be prepared
for two other negative scenarios: 1) the new
COVID-19 variants may be more virulent and
resistant to the vaccine, which could obvi-
ously reverse a booming economy, damage
the equity markets and reduce interest
rates as there is a rush to safety, and 2) the
increase in inflation may not be temporary
and may not be slow, forcing the Fed to raise
rates sooner and faster than people expect.
Much of the stimulus may very well hit
when the economy is doing quite well.
During the pandemic, it was appropriate that
fiscal and monetary policy be fairly well-
coordinated – working in concert to counter
the pandemic-related downturn. In an infla-
tionary case, fiscal and monetary policy may
very well be at odds. I am reminded of when
Paul Volcker effectively raised interest rates
by 200 basis points on a Saturday night.
Also in this case, the cost of interest on U.S.
debt could go up fairly dramatically making
things a little worse. Rapidly raising rates to
offset an overheating economy is a typical
cause of a recession. One other negative: In
this case, we would be going into a recession
with an already very high U.S. deficit.
The government did the right thing by
moving extraordinarily quickly to stop the
COVID-19 recession from being extremely
damaging. If we spend this money wisely,
react quickly to changing circumstances and
fix many of the public policy failures that are
outlined in the next section, we can build a
stronger and more equitable nation.
4141
V. COVID-19 AND THE ECONOMY 4. The regulatory system needs to keep up with the changing world — and finish Dodd-Frank
to get it right.
We have a lot of experienced and hard-
working regulators in the United States and
globally. But I’m afraid that we gave them a
virtually impossible job. The financial world
21_JD_spaghetti chart_04
is complex and rapidly changing. We gave
them a regulatory system that is slow and
backward-looking. A few years ago, my letter
to shareholders included a “spaghetti chart” to
illustrate how complex the regulatory environ-
ment in the United States had become. We’re
republishing it here to make a few points.
4/6/21 r2 4:50pm
Footnotes adjusted for style
TYPESET; 4/5/21r7 v. 21_JD_spaghetti chart_04
Complexities of the Regulatory System
Complexities of the Regulatory System
Reprinted from the 2011 Chairman and CEO Letter to Shareholders
Reprinted from 2011 Chairman and CEO Letter to Shareholders
4-05-21 r7
(cid:31) New agency or new powers and authority
(cid:31) Old agency
Authority to request information
but no examination authority
OFAC/FinCEN
SEC
CFTC
Market oversight and
enforcement functions.
Authority over swaps,
swap dealers and major
swap participants.
Regulates trading
markets, clearing
organizations
and intermediaries.
Regulates securities
exchanges; mutual funds
and investment advisors.
Examination authority for
broker-dealers.
Authority over
security-based swaps,
security-based swap
dealers and major
security-based swap
participants.
FINRA
Regulates brokerage firms
and registered securities
representatives. Writes
and enforces rules.
Examination authority over
securities firms.
Financial Stability Oversight Council
Identify risks to the financial stability of the United States from activities of large,
interconnected financial companies. Authority to gather information from financial
institutions.1 Make recommendations to the Fed and other primary financial
regulatory agencies regarding heightened prudential standards.
State Regulatory
Authorities and AGs
Power to enforce rules
promulgated
by Consumer Financial
Protection Bureau
Office of the Comptroller
of the Currency
Focus on safety and
soundness. Primary regulator
of national banks and
federal savings associations.
Examination authority.
Examines loan portfolio,
liquidity, internal controls,
risk management, audit,
compliance, foreign branches.
Federal Reserve
Focus on safety and soundness.
Supervisor for bank holding
companies; monetary policy;
payment systems.
Supervisor for systemically
important financial institutions
and their subsidiaries. Establish
heightened prudential standards
on its own and based on
Council recommendations.
Examination authority.
Office of Financial
Research
Office within Treasury,
which may collect
data from financial
institutions on behalf of
Council. No examination
authority.
FDIC
Focus on protecting deposits
through insurance fund; safety and
soundness; manage bank
receiverships.
Examination authority.2 Orderly
liquidation of systemically important
financial institutions.3
Consumer Financial
Protection Bureau
Focus on protecting consumers
in the financial products
and services markets. Authority
to write rules, examine
institutions and enforcement.
No prudential mandate.
4/6/21 r2 4:50pm
Footnotes adjusted for style
Investment
Advisory
Mutual and
money market
funds; wealth
management;
trust services
Derivatives
Futures,
commodities and
derivatives
Consumer
Lending
Credit cards;
student and
auto loans
Commercial
Lending
Commercial and
industrial lending
Broker-Dealer
Retail Banking
Institutional and
retail brokerage;
securities lending;
prime broker
services
Deposit
products;
mortgages
and
home equity
Alternative
Investments
Hedge funds;
private equity
Investment
Banking
Payment and
Clearing Systems
Securities
underwriting;
M&A financial
advisory services
Payments
processing;
custody
and clearing
Note: Green lines from SEC and CFTC represent enhanced authority over existing relationships
This chart assumes these activities are conducted in a systemically important bank holding company (BHC)
For footnoted information, refer to page 67 in this Annual Report.
Timeline of U.S. Capital and Liquidity Regulation
TYPESET; 4/6/21r2 v. 21_JD_timeline_08
4-06-21 r2
2011
Banks required to
submit capital plans
Resolution/“living wills”
effective
2013
Implementation
of Basel III
2015
GSIB final
2017
TLAC final
2019
Tailoring rule final
Resolution modified
frequency
2021+
Basel III finalization
proposal
SLR modifications
proposal
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
(cid:31)
2010
Dodd-Frank is finalized
SCAP ÒCCAR
2012
DFAST and stress
testing final
2014
LCR final
eSLR final
2016
CCAR enhancements
Resolution enhancements
2018
eSLR modifications
proposal
2020
SCB final
CECL capital impact
NSFR final
TLAC enhancements
CCAR = Comprehensive Capital Analysis and Review
CECL = Current Expected Credit Losses
DFAST = Dodd-Frank Act Stress Tests
eSLR = Enhanced Supplementary Leverage Ratio
GSIB = Global Systemically Important Banks
LCR = Liquidity Coverage Ratio
SCAP = Supervisory Capital Assessment Program
SCB = Stress Capital Buffer
NSFR = Net Stable Funding Ratio
TLAC = Total Loss-Absorbing Capacity
4242
V. COVID-19 AND THE ECONOMY
We have multiple regulators with overlap-
ping rulemaking, oversight and examination
authorities. All of the agencies are indepen-
dent, and there is no one real authority that
can coordinate all the moving parts and bridge
differences. The Financial Stability Oversight
Council, chaired by the U.S. Secretary of the
Treasury, is really just a convening body – no
one agency has the ability to adjudicate deci-
sions. Any one agency can hold up major deci-
sions – and this unnecessarily politicizes and
slows the regulatory policymaking process.
We don’t give our regulators the political
cover they need. Proper regulation requires a
finely tuned, thoughtful and often-changing
balance between competing needs and risks.
This, in particular, puts the Federal Reserve,
the key oversight regulator, in a terrible
position. Monetary policy is so critical to our
country that the Fed must necessarily subju-
gate and sacrifice regulatory policy to achieve
its monetary policy goals.
That said, I will look at the regulatory
system from the regulators’ point of view
and describe what I would want to do if I
were in their shoes. Let’s start with basic
regulatory principles:
• Ensure that safety and soundness come
first but not at the expense of maximum
long-term growth
• Keep the banks funding their clients
through the inevitable downturns and crises
• Create a fairly level international playing
field (we don’t need to see perfection here,
but it needs to be fair)
• Constantly assess emerging risk to the
system
Dodd-Frank worked.
While Dodd-Frank included a lot of things that
had nothing to do with safety and soundness
and the Great Recession, to be fair, it accom-
plished its basic objectives – higher levels and
quality of capital and liquidity, more strin-
gent stress testing, strong resolution capabil-
ities and better governance that created a far
healthier banking system, which we’ve just
seen. Nothing like what happened to the banks
in the Great Recession can happen again.
But it’s bogged down in the past — it needs to
focus on the future.
It is obvious, however, that we are bogged
down. Ten years after the financial crisis,
we still have not put the finishing touches
on Basel III (aka Basel IV). And it’s not clear
when it’s finished if it will be an international
level playing field. In addition, there are
many things that need to be recalibrated. For
example, we have not corrected mortgage
rules to make mortgages more accessible to
more Americans.
Not only are we slow in dealing with the
past, but it distracts us from dealing with
the future. There are serious emerging issues
that need to be dealt with – and rather
quickly: the growth of shadow banking, the
legal and regulatory status of cryptocurren-
cies, the proper and improper use of financial
data, the tremendous risk that cybersecurity
poses to the system, the proper and ethical
use of AI, the effective regulation of payment
systems, disclosures in private markets, and
effective regulations around market structure
and transparency (payment for order flow,
high-frequency trading and exchanges).
We need to actively decide what we want in the
regulatory system.
Regulators need to decide what they want
included in the regulatory system – and
what they don’t want included. They can
do this by product and by service; however,
to do so, they need to apply the same rules
to everyone. We need to recognize that if a
regulated system has higher capital require-
ments than the market demands, then the
product will move outside of the regulated
system. If we are going to do this, we should
do it deliberately and with aforethought.
Today, there are extensive differences
between the requirements placed on banks
versus nonbanks engaging in the same
activity. I will give one example of the impact
of market capital versus regulatory capital.
Under standardized capital, whether we
4343
V. COVID-19 AND THE ECONOMY make a AA loan or a BB loan, approximately
10% of equity capital is required to support it
(plus other expensive debt). In the nonbank
market, institutions and securitizations can
possibly finance the investment grade debt
effectively with 5% equity capital. Ironically,
this pushes high-grade credit out of banks
and incentivizes more risky lending.
We need to calibrate how much liquidity and
capital should be required for banks in a way that
balances what you want in the regulatory system
while maximizing both safety and soundness of
banks and the growth of the economy.
One day, someone is going to ask why the
banking system has $4 trillion either in
the form of cash or deposits at the Fed or
as Treasury securities. Shouldn’t we use
some of this liquidity to help the economy
grow? It’s a good question, and I’ve yet to
see agreement on the right answer. Under
the old regulatory regime, banks could turn
to the Fed’s discount window to create a
tremendous amount of liquidity by pledging
their securities and loans at times of surging
demand – it no longer works this way. In
today’s regime, using the discount window is
so stigmatized that far fewer banks consider
it a viable option, meaning that liquidity
never reaches the banking system and, by
default, the broader economy.
This calibration will be one of the main
factors in determining what ends up in the
regulatory system – and what doesn’t. It is a
fine balance. Too much capital and liquidity
could possibly slow down the economy and
push lots more to the shadow banking system.
Too little capital and liquidity could make
banks riskier and more subject to failure.
And remember, products and services inside
a well-regulated system will generally have
higher scrutiny, transparency and reporting
supporting them. This decision will be a key
factor in determining the probability of a large
bank’s failure, which raises the question …
Should large banks be allowed to fail?
It is very easy to take one side of this argu-
ment. After the Great Recession of 2008,
the answer was generally “never again!”
4444
The system was rebuilt to minimize the
odds so that no large bank would ever fail
again – regardless of the consequences. The
Fed has to decide if it is willing to accept a
large bank failure, provided that failure isn’t
going to bring the market down or put the
average customer in harm’s way. To me, the
obvious answer should be “yes.” The market
can easily absorb a bank failure, particularly
since the government now has the tools to
have an orderly unwind of even the largest
financial institutions. In addition, if you look
at the market price of bank debt, failure is
priced in (just like all other corporates) –
bank debt and bank preferreds are not cheap.
The market can deal with the failure of bank
debt – in fact, resolution maximizes the odds
of recovering your money. The cost to the
economy of having fail-safe banks may not
be worth it. Dodd-Frank accomplished two
very important things. First, the chance of a
bank failure is dramatically lower. Second,
and maybe more important, a failing large
bank can be managed in a way that it does
not affect the economy any more than any
other large company that fails. A yoke that is
too tight may throttle the economy.
Finally, banks need to be allowed to properly
manage their capital to maintain any kind
of premium in the market. Proper capital
management means consistent dividends,
the ability to reinvest in your business and
incentives to buy back stock when it’s cheap
– not when it’s expensive. The procyclicality
of both accounting and bank regulatory
management virtually assures the opposite.
It is one of the reasons that bank stocks may
not trade particularly well.
We need to decide who we want to intermediate
in the markets when there is stress.
Several times in the last few years you have
seen dislocation in our repo markets, Trea-
sury markets and, in March 2020, all of our
markets. In many cases, the Fed has had
to step in to intermediate and help finance
these markets.
Part of the reason for this is the probably
unintended confluence of new regulations.
We now manage our bank to try to maxi-
V. COVID-19 AND THE ECONOMY mize and optimize across more than 20
capital and liquidity factors (we run the bank
to serve customers, but we maximize capital
and liquidity requirements for economic
reasons). But the confluence of three main
constraints (the LCR, the supplementary
leverage ratio (SLR) rule and G-SIFI) created
red lines that we cannot cross. Over the past
two years, we saw significant dislocation in
the U.S. Treasury (UST) repo markets, which
were certainly linked to these regulations. At
those moments of stress, by simply reducing
the regulatory cost of UST repo, we could
have supplied hundreds of billions of dollars
in additional UST financing to the market
(this activity would be properly collateral-
ized and very safe) – and remember, we are
only one market player. In addition, when
the market had high stress, we could also
have lent hundreds of billions of dollars
against corporate bonds, mortgage securi-
ties or equities to help market participants
sell or deleverage in an orderly way. We did
much of this in the Great Recession, but
today’s new rules precluded us from taking
these actions this time. JPMorgan Chase was
essentially “the discount window” for the
marketplace before Dodd-Frank – we would
lend freely against good collateral just as the
central bank was the discount window for
banks in a crisis. This system is broken.
The main point is that if large players cannot
intermediate in markets because of regula-
tory requirements, the Fed will have to do
it – and far more frequently than just in
the worst crises. I do not believe that this is
good, long-term central bank policy.
Finally, more thought should be given to how
stress tests and buffers can and should be
used in a financial crisis. The main question
is when you are in the depths of a crisis,
how do you stress test without going down a
rabbit hole? And is that the time when bank
boards are going to allow people to reduce
their capital buffers? Plain and simple, coun-
tercyclical buffers do not work.
Public rhetoric and the politicization of
complex regulations aside, proper design
of these systems should be done to maxi-
mize the health of the U.S. economy for all.
Overall, the banks – and, importantly, your
bank – stand ready to do more.
5. The pandemic accelerated remote working capabilities, which will likely carry forward.
While we are continually preparing for
multiple business resiliency scenarios (i.e.,
data center failures, closures of cities, major
storms, even pandemic planning), we never
prepared for a global pandemic, which also
entailed a large-scale shutdown of the global
economy. And while many of our employees,
particularly in the branches, continued to
work on our premises every day, it was
amazing how quickly we were able to set up
the technology – from call centers and opera-
tions to trading and investment banking – to
enable our employees to work from home.
We learned that we could function virtually
with Zoom and Cisco and maintain produc-
tivity, at least in the short run.
The COVID-19 pandemic changed the way
we work in many ways, but, for the most
part, it only accelerated ongoing trends. And
while working from home will become more
permanent in American business, it needs to
work for both the company and its clients. I
believe our firm’s on-site versus remote work
will sort out something like this:
• Generally speaking, we envision a model
that will find many employees working in
a location full time. That would include
nearly all of the employees in our retail
bank branches, as well as jobs in check
processing, vaults, lockbox, sales and
trading, critical operations functions and
facilities, amenities, security, medical staff
and many others.
4545
V. COVID-19 AND THE ECONOMY • Some employees will be working under a
hybrid model (e.g., some days per week in
a location and the other days at home).
• And a small percentage of employees,
maybe 10%, will possibly be working full
time from home for very specific roles.
In all cases, these decisions depend upon
what is optimal for our company and our
clients, and we will extensively monitor and
analyze outcomes to ensure this is the case.
Of course, we will also continue to reopen
following health authority and govern-
ment guidelines and our own established
processes. Remote work will change how we
manage our real estate. We will quickly move
to a more “open seating” arrangement, in
which digital tools will help manage seating
arrangements, as well as needed amenities,
such as conference room space. As a result,
for every 100 employees, we may need seats
for only 60 on average. This will significantly
reduce our need for real estate.
The virtual world also presented some
serious weaknesses. For example:
• Performing jobs remotely is more
successful when people know one another
and already have a large body of existing
work to do. It does not work as well when
people don’t know one another.
• Most professionals learn their job through
an apprenticeship model, which is almost
impossible to replicate in the Zoom world.
Over time, this drawback could dramati-
cally undermine the character and culture
you want to promote in your company.
• A heavy reliance on Zoom meetings actu-
ally slows down decision making because
there is little immediate follow-up.
• And remote work virtually eliminates
spontaneous learning and creativity
because you don’t run into people at
the coffee machine, talk with clients in
unplanned scenarios, or travel to meet
with customers and employees for feed-
back on your products and services.
Finally, we still intend to build our new head-
quarters in New York City. We will, of course,
consolidate even more employees into this
building, which will house between 12,000 to
14,000 employees. We are extremely excited
about the building’s public spaces, state-of-
the-art technology, and health and wellness
amenities, among many other features. It’s
in the best location in one of the world’s
greatest cities.
4646
V. COVID-19 AND THE ECONOMY VI. PUBLIC PO LICY
AM ERI CA N EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP:
CHALLENGED BY CHINA , COVI D-19 AND O UR OWN COM PE TEN CE
Our nation is clearly under a lot of stress and
strain from various events: the COVID-19
pandemic, of course, which has taken more
American lives than the total lost in World
War II, the Korean War and the Vietnam
War combined, resulting in acute economic
distress for millions more; the brutal murder
of George Floyd and the racial unrest that
followed; the divisive 2020 presidential
election, culminating in the storming of the
Capitol and the attempt to disrupt our democ-
racy; and the seemingly inevitable, but none-
theless alarming and unnerving, rise of China,
threatening America’s global preeminence.
America has faced tough times before – the
Civil War, World War I, the U.S. stock market
crash of 1929 and the Great Depression that
followed, and World War II, among others.
As recently as the late 1960s and 1970s, we
struggled with the loss of the Vietnam War,
political and racial injustice, recessions,
inflation and the emergence of Japan as an
economic power. But in each case, Ameri-
ca’s might and resiliency strengthened our
position in the world, particularly in relation
to our major international competitors. This
time may be different.
China’s leaders believe that America is in
decline. They believe this not only because
their country’s sheer size will make them
the largest economy on the planet by 2030
but also because they believe their long-term
thinking and competent, consistent leader-
ship have outshone America’s in so many
ways. The Chinese see an America that is
losing ground in technology, infrastructure
and education – a nation torn and crippled
by politics, as well as racial and income
inequality – and a country unable to coordi-
nate government policies (fiscal, monetary,
industrial, regulatory) in any coherent way
to accomplish national goals. Unfortunately,
recently, there is a lot of truth to this.
Perhaps we were lulled into a false sense of
security and complacency in the last two
decades of the 20th century as we enjoyed
relative peace in the world and a position
of global dominance, validated by the fall
of the Soviet Union. During those two
decades, we experienced relatively unin-
terrupted and strong growth, resulting in
broad improvement in income for almost
all Americans. That stability was shattered
by the September 11, 2001, terrorist attacks,
which were followed by nearly 20 years
of overseas combat for American soldiers.
Economic growth over the last two decades
(including the Great Recession of 2008) has
been painfully slow, with increasing income
inequality and virtually no growth in income
at the lower rungs of the economic ladder.
The COVID-19 pandemic, for which our
nation was totally unprepared, capped by
the horrific murder of George Floyd, shoved
into the spotlight our country’s profound
inequities and their devastating effects –
inequities that had been there for a long
time. Once more, our country suffered, and
its least well-off individuals suffered the
most. Unfortunately, the tragedies of this
past year are only the tip of the iceberg –
they merely expose enormous failures that
have existed for decades and have been
deeply damaging to America.
Today, the United States and other countries
around the world are grappling with many
other critical issues. To name just a few:
capitalism versus other economic systems;
access to healthcare; immigration policy; the
role of business in our society; and how, or
even whether, the United States intends to
exercise global leadership. Many Americans
have lost faith in their government’s ability
to solve these and other problems – in fact,
most people would describe government as
ineffective, bureaucratic and often biased.
Almost all institutions – governments,
schools, media and businesses – have lost
credibility in the eyes of the public. And
47
perhaps for good reason: Many of our prob-
lems have been around for a long time and
are not aging well. Politics is increasingly
divisive, and government is increasingly
dysfunctional, leading to a number of poli-
cies that simply don’t work.
Americans know that something has gone
terribly wrong, and they blame this coun-
try’s leadership: the elite, the powerful,
the decision makers – in government,
in business and in civic society. This is
completely appropriate, for who else should
take the blame? And people are right to
be angry and feel let down. Our failures
fuel the populism on both the political left
and right. But populism is not policy, and
we cannot let it drive another round of
poor planning and bad leadership that will
simply make our country’s situation worse.
To explain how and why this all happened,
we tend to look for convenient reasons –
some blame greed and “short-termism,”
some blame immigration and others blame
the uncontrolled effects of new technolo-
gies, trade or China. Many of our citizens
are unsettled, and the fault line for all this
discord is a fraying American dream – the
enormous wealth of our country is accruing
to the very few. In other words, the fault
line is inequality. And its cause is staring us
in the face: our own failure to move beyond
our differences and self-interest and act for
the greater good. The good news is that this
is fixable.
Some Americans think that the country’s
can-do attitude, innovative entrepreneurism
and great resiliency, which served us so well
in prior crises, still exist and will re-emerge
to help us self-correct. At the other end of the
spectrum, there are those who think we are
simply a great empire whose glory days have
passed and we should cede global leadership
to China. These advocates would add that
democracy itself does not work – our failures
being prime evidence of democracy’s ineffec-
tiveness. Both views fall short.
The problems that are tearing at the fabric of
American society require all of us – govern-
ment, business and civic society – to work
together with a common purpose. And that
common purpose should be our ongoing
quest to be a more perfect union and to
maintain America’s preeminent role in the
world. To do this, we need to demand more
of both ourselves and of our leaders. And we
can’t fix our problems if we don’t acknowl-
edge them and the damage they have caused.
Hoping that things will self-correct is not a
strategy – working on solutions is.
One last thing: The raw power of America is
often represented by our incredible military
might. In reality, however, our raw power
emanates from our economic vitality and
strength, which have always been predi-
cated upon freedom, free enterprise, and the
promise of increasing equality and opportu-
nity for all. If income inequality is the fault
line, returning to the basic morality at the
core of America’s founding principles can
lead us to a common purpose and help bind
us together again.
48
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE 1. Laying out the problems is painful.
What actually are our problems? If we can
agree on what they are, as well as their
symptoms and their causes, then we can start
to address them. I hope you find what I’m
about to say as painful as I do.
While the average American high school
graduates approximately 85% of its students,
many of our inner city schools don’t grad-
uate half of their students and often don’t
give our children an education that leads
to a livelihood. No one can claim that the
promise of equal opportunity is being
offered to all Americans through our educa-
tion systems. Our healthcare system is
increasingly costly – now over $11,000 per
person, more than twice our global compet-
itors. In addition, almost a decade after the
adoption of the Affordable Care Act, over
30 million Americans still don’t have any
medical insurance. And, shockingly, life
expectancy has gotten worse – particularly
for poor and minority communities – nutri-
tion and personal health aren’t being taught
at enough schools, and obesity, a main driver
of diabetes, cancer, stroke, heart disease and
depression, has become a national scourge.
Our education and health issues come
together in this alarming statistic: Seventy
percent of today’s youth (ages 17-24) are
not eligible for military service, essentially
due to a lack of proper education (basic
reading and writing skills) or health issues
(commonly obesity or diabetes).
Of course, there’s a litany of other problems.
I’ll give some examples, but if I tried to
address them all, this letter would become
a book. We have a litigation and regula-
tory system that is costly, crippling small
businesses with red tape and bureaucracy;
terrible infrastructure planning and invest-
ment; and huge waste and inefficiency at
both the federal and state levels. We have
failed to put effective immigration policies
in place; our social safety nets are poorly
designed; and we fail to properly fund
pension obligations. The growth in American
incomes from 1980 to 2000 was healthy, and
for the lowest and second-lowest quintiles, it
was 18% and 19%, respectively, both cumula-
tively and inflation-adjusted. Growth slowed
dramatically in the decades from 2000 to
2019, but it was the worst for the lower two
quintiles, which were up only 1% and 8%,
respectively. Income inequality has gotten
worse. Nearly 30% of American workers earn
less than $15 an hour, which is barely a living
wage even if two adults are working in a
family of four. Another key driver of growth
has dropped over the past 20 years: Labor
force participation of prime working age men
peaked at 92% in 2000; in 2020, it was 88%.
If we returned to the peak year, 2 million
more men would be working. (An estimated
1.6 million Americans were addicted to
opioids in 2019, which some studies show is
one of the major reasons why men aged 25-54
are permanently out of work.)
In addition, 30% of Americans don’t have
enough savings to deal with unexpected
expenses that total as little as $400, such as
medical or car repair bills. This obviously
adds to the economic anxiety of our lower-
paid people.
Trillions of government dollars were spent
on social programs even before these latest
crises – clearly, our broken systems leave too
many of our fellow citizens trapped. Simply
put, the social needs of far too many of our
citizens are not being met. And, surprisingly,
approximately 25% of those eligible for
various types of federal assistance programs
don’t get the help to which they’re entitled.
49
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE Governments, both federal and state, fight to
keep military bases open that we don’t need
and Veterans Affairs hospitals functioning
that are broken – making the military more
costly and less effective. Our shortcom-
ings are not just about inefficiencies; they
border on being 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 carriers
that we needed in Iraq and Afghanistan to
protect our soldiers from improvised explo-
sive devices. While we dallied, many of our
soldiers died or received terrible lifelong
injuries. Although the government does
certain things well, no one believes that it
does most things well or that it gives an
honest accounting of what it does do. We
merely throw up our hands in frustration.
All of this broken policy may explain why,
over the last 10 years, the U.S. economy has
grown cumulatively only about 18%. Some
think that this sounds satisfactory, but it
must be put into context: In prior sharp
downturns (1974, 1982 and 1990), economic
growth was 40% over the ensuing 10 years.
Had we had 20% more growth, our GDP
would have added $3 trillion, which certainly
would have driven wages higher and given
us the wherewithal to broadly build a better
country. Tax receipts would have been
higher, and we easily could have afforded
better social safety nets.
Anemic growth may account for our wors-
ening productivity and income inequality.
Included among the common explanations
for this growth is that “secular stagnation”
is the new normal or that there is a “savings
glut.” Faster growth would not only have
spurred higher incomes, more jobs and
increased opportunities but also would have
created far more consumption and increased
demand for investment, eliminating any
potential “savings glut” or secular stagnation.
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. And,
unfortunately, our extraordinary strengths as
a nation cover up our weaknesses. This is the
new normal – and it does not need to be this
way. We should first look at how and why we
became so inept at public policy.
2. Why did — and didn’t — these failures happen?
Before we discuss how to fix our problems,
it would be helpful to understand why some
of them happened – and why we failed to
design and implement good public policies.
Clearly, increasing political partisanship –
possibly structural – deserves part of the
blame, but I’ll leave that subject to others. It’s
also clear that our failings are not deliberate
since no one wants these terrible outcomes.
What has changed, however, is the scale
of our challenges: They are bigger, global
and increasingly complex, and they are
happening in a world that is transforming
itself far more rapidly than before. History
teaches us that as a successful society ages,
the common social purpose that binds it
becomes less important. Instead, the society
becomes more balkanized and often is crip-
pled by powerful agendas of special interest
groups – even if they all have good inten-
tions. Let’s examine some of the reasons why
we have failed to design effective policies.
We are hampered by short-term thinking that’s
never comprehensive.
As a nation, we don’t think long term, which
hampers our ability to design proper policies
that are based on thoughtful analysis. In
my view, we don’t perform the deep analysis
required to fully understand what we’re
trying to solve. One of the reasons for this
is that our outlook is often too limited; i.e.,
examining only how things have changed
50
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE year-over-year or even quarter-over-quarter.
We frequently fail to look at trends over a
multi-year period or across decades – and we
miss the forest for the trees.
When you step back and take a comprehen-
sive multi-year view, considering the situa-
tion in its totality, it is the cumulative effect
of many of our policies that has resulted in
our present-day failures.
We are over-reliant on economic models and use
them inappropriately.
Economic models are a great discipline that
force you to think through the interplay of
many factors, often over many years. Unfor-
tunately, however, a lot of people use models
like they do certain facts: to justify what they
already believe. While we should definitely
use models as tools, they should not be deter-
minative, as they simply cannot account for
much of humankind.
Certain pivotal factors are too complex or
qualitative to incorporate into a model. In
evaluating a company or the economy, for
example, models quite often fail to prop-
erly account for culture and morality, the
character of players involved, the increasing
importance of education and skills, the value
of dignity of work, the power of self-confi-
dence as a secret sauce and the emergence of
new technologies, just to name a few.
Even worse, many models use inputs that
are so inaccurate that their outputs cannot
be remotely relied upon. For instance,
accounting itself (particularly government
accounting) may be the worst culprit.
Good investments are treated as expenses
(including education, R&D and infrastruc-
ture) – indistinguishable from incarcera-
tion costs and homelessness. And incred-
ibly, federal government budgeting rules,
like PAYGO (or Pay-As-You-Go) or budget
caps, mandate that many expenses have to
be offset by revenue increases or have to
be traded off against other priorities. The
economy is frustratingly complex, and many
times overusing models devalues basic
commonsense.
We cloud debate with unfair thinking and
arguing.
One of the best pieces of advice I have ever
received was that people should use their
intelligence to seek out the answers, not to
justify what they already think or to win
the argument. Here are some of the favorite
tricks people use to win the argument and
obviate issues:
• Presenting issues as if they are binary.
This is a habit of sloppy thinking. Two
of my favorite quotes illuminate this.
One by Albert Einstein: “Everything
should be made as simple as possible,
but not simpler.” And the second by H.L.
Mencken: “For every complex problem
there is an answer that is clear, simple and
wrong.” We frequently seek out conve-
nient and simplistic answers, which are
often wrong. The same is true for how
we listen. Instead, we should try to find
common ground with parts of someone’s
argument as opposed to rejecting the
entirety of it offhand.
• Creating and blaming scapegoats like trade,
China, immigration or capitalism. While
scapegoating is easy, it mostly hides
the truth – in fact, when you dig a little
deeper (which we do in the following
pages), other causes, possibly self-inflicted,
become clear.
• Unfairly assigning motives to people, which
may or may not be true. The goal is simply
to denigrate an individual and/or win an
argument – but this tactic has nothing to
do with the actual facts.
• Creating strawmen (representing your
opponent). This strategy makes it easier to
attack foes for things they did not actually
think or say.
Media hype and people’s willingness to be
weaponized derail thoughtful strategies.
Much has been said about the role of social
media, but some things are clear. Most media
and individuals barely have time to focus
on the issues – and often default to overly
51
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE simplistic, binary and incorrect conclusions
that neatly fit into false political narratives.
The urgency of today and the hyperactive
and frequently hysterical focus on irrelevant
issues crowd out thoughtful strategy and
policy for tomorrow. Lack of civility and
humility make it hard to work together and
to respect each other. Moral indignation is
blinding – it stops you from trying to agree
on what the problems are; it disguises itself
as policy, and it turns expertise into elitism.
I am often surprised how people allow
themselves to be completely riled up – yes,
it happens to me, too. And when politics and
media meet, we are whipsawed by false argu-
ments of fanatics, the certitude of ideologues
and cycles of intolerance. We all should try
not to be drawn into this vortex.
We are stymied by self-interest, selfishness,
and the buildup of bureaucratic plaque and
institutional sclerosis.
Now willingly, I’m about to go down a
slippery slope. I’m going to cite some very
specific examples, but I essentially apply
them to all of us and make my point as
simply and strongly as possible: We are
bogged down, sometimes crippling our
nation, because of self-interest and the asso-
ciated bureaucracy and bad thinking that
follow. Much of this is not done deliberately
– it’s just built up over time – like arterio-
sclerosis. Historians sometimes point to this
disease as a cause of the decline and fall of
great empires.
This self-interest is virtually everywhere.
There are 17,000 registered lobbyist contracts
for special interest groups in Washington,
D.C., including business-related groups and
banking and financial services. We all deserve
our share of the blame for using the balkan-
ized government, bureaucracy and lack of
transparency to further our own interests –
not necessarily the country’s. This includes
business, unions, state and local governments,
and individuals. All of us failed to properly
heed President John F. Kennedy’s appeal:
“Ask not what your country can do for you –
ask what you can do for your country.”
52
For years, business, government and commu-
nity leaders, including myself, voiced
concerns about the inequities and other
crises in our economy and communities.
Business did not cause many of these soci-
etal issues – large companies, generally, pay
their workers a higher-than-average salary,
offer more training, provide more extensive
insurance and medical and pension bene-
fits for their employees and fundamentally
drive our country’s growth and competi-
tiveness, as these companies account for
approximately 80% of capital expenditures
and R&D. Frankly, we punted too much of
the responsibility to our government. But
we are partly responsible – for we priori-
tized shareholder interests and sometimes
narrow self-interests over creating broader
opportunity for all in America. Successful
businesses can literally and figuratively
“drive by” our worst problems (think inner
cities) and still thrive. These large companies
can and should be more aggressively part of
the solution because they can uniquely help
with job planning, skills training, infrastruc-
ture investment and community develop-
ment. And doing so, over the long run, is
both morally right and commercially right
because it will be good for business.
State and local governments are equally to
blame. Take, for instance, five states (Cali-
fornia, Connecticut, Illinois, New Jersey and
New York) that continue to fight for unlim-
ited state and local tax deductions (because
those five states reap 40% of the benefit)
even though they are aware that over 80%
of those deductions will accrue to people
earning more than $339,000 a year.
Few of our institutions are blameless. Hospi-
tals fighting to keep their prices unpublished
and teachers’ unions arguing to continue to
keep failed schools open are just two such
examples.
Then there’s our tax code – buried in it
are an extraordinary number of loopholes,
credits and exemptions that aren’t about
competitiveness or good tax policy: Private
equity, venture capital and real estate still
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE get carried interest, and sugar and cotton, for
some unknown reason, still get government
subsidies. Suffice it to say, industry gets its
share of tax breaks and forms of protection
from legitimate competition.
Our public policy failures are not partisan issues.
Our problems are neither Democratic nor
Republican – nor are the solutions. Unfor-
tunately, however, partisan politics is
preventing collaborative policy from being
designed and implemented, particularly at
the federal level. We would do better if we
listened to one another.
Democrats should acknowledge Republi-
cans’ legitimate concerns that money sent to
Washington often ends up in large wasteful
programs, ultimately offering little value to
local communities. They could acknowledge
that while we need good government, it is
not the answer to everything. Democrats
could also acknowledge that a healthy fear of
a large central government is not irrational
(like a Leviathan).
Republicans need to acknowledge that
America can and should afford to provide a
proper safety net for our elderly, our sick and
our poor, as well as help create an environ-
ment that generates more opportunities and
more income for more Americans. Republi-
cans could acknowledge that if the govern-
ment can demonstrate that it is spending
money wisely, we should spend more – think
infrastructure and education funding. And
that may very well mean higher taxes for the
wealthy. Should that happen, the wealthy
should keep in mind that if tax monies
improve our society and our economy, those
same individuals will be, in effect, among the
main beneficiaries.
Democrats and Republicans often seem to
be ships passing in the night – with both
parties talking at cross purposes even when
they may share the same goals. Compro-
mise is not incompatible with democracy
– in fact, compromise is a core principle
of democracy. When major policies are
enacted on a purely partisan basis (think
healthcare and tax reform), it virtually guar-
antees decades of fighting. It’s not unrea-
sonable to think that major policies should
be bipartisan or not at all.
We must remember that the concepts of
free enterprise, rugged individualism and
entrepreneurship are not incompatible
with meaningful safety nets and the desire
to lift up our disadvantaged citizens. We
can acknowledge the exceptional history of
America and also acknowledge our flaws,
which need redress.
Our problems are complex and frustrating — but
they are fixable with hard work.
If our Founding Fathers were here today,
they would be very proud that the Constitu-
tion they enacted has survived, thrived and
helped to build this great country. But I also
believe they would be disappointed. Those
leaders were students of history, society and
economics (just read the Federalist Papers)
and drew upon that knowledge to structure a
government that would function properly.
Our country would do well to study the
successes of the rest of the world. Germany
and Switzerland have created impressive
work apprenticeship programs; Singapore
has developed effective healthcare programs;
Hong Kong has excelled with infrastruc-
ture; and some countries, with no natural
resources and starting from terrible base-
line positions (think South Korea after the
Korean War), have done a terrific job in
growing their economies and lifting up all of
their people. Another inspiring example is
Ireland. After decades of sectarian strife and
terrorism, a poor, male-dominated country
was transformed. A few years ago, the
country elected an Indian immigrant who
is gay as Prime Minister – Ireland is now a
melting pot with a thriving economy due to
good government policies. Bad government
is prevalent in some countries, and we would
also do well to study those examples: Argen-
tina, Cuba and Venezuela, to name a few – all
countries with tremendous natural resources
that allowed, in the name of their people,
their economies to be destroyed.
53
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE Any economic society, not just capitalism,
involves billions of decisions made by indi-
viduals and institutions every day. These
interactions are complex and can operate
in mysterious ways. Capitalism has lifted
billions of people out of poverty. Capitalism,
and the continuous and free movement
of capital and, more important, of human
talent, in the pursuit of happiness (the invis-
ible hand of Adam Smith), creates a contin-
uous exchange of information and ideas –
and constant innovation. But, of course, capi-
talism has always had its shortcomings. Good
government and the guardrails of properly
designed laws and regulation have always
been necessary for the process to work fairly
and efficiently.
Fixing America’s problems is going to take
hard work. But if we divide them into their
component parts, we will find many viable
solutions. With thoughtful analysis, common-
sense and pragmatism, there is hope.
3. We need a comprehensive, multi-year national Marshall Plan, and we must strive for
healthy growth.
We need a coherent, consistent national
strategy to match the severity of the existing
structural challenges that are driving our
country’s racial and economic crises. Just as
careful planning and analysis would have
prepared us for the current pandemic, careful
planning and analysis can address many of
the challenges we face. These plans need to
be comprehensive, integrated, sustainable
and regularly reported on. If we throw a lot
of money at infrastructure without fixing
the regulations that cripple it, it won’t work.
If we throw a lot of money at education but
don’t report on the outcome (i.e., good jobs),
we will lose credibility. Lurching from policy
to policy and having boondoggles and special
interest groups abound will make things
worse. We need to do the right things and
the hard things very competently.
We need to recognize the essential and irre-
placeable importance of healthy growth and
our global competitiveness. The best way
to address our problems, and perhaps the
only way to solve them without accelerating
inequality further, is to promote healthy
economic growth. A healthy growth strategy
should be the primary economic policy of
both political parties. Healthy growth may
be the only way out of our current situation
(slow income growth and rapidly increasing
debt). We must unleash the extraordi-
nary vibrancy of the American economy.
Economic growth will give us the where-
withal to deal with the issues stemming from
inequality in ways that are sustainable. It is
the engine that will drive and secure Ameri-
ca’s global leadership.
This can be a moment when we all come
together and recognize our shared responsi-
bility – acting in a way that reflects the best
of all of us. During this terrible COVID-19
crisis, we are, in some ways, being forced
to count on each other. It is moving to see
the respect and gratitude that most of us
now show our essential workers – and that
is something we should do for all of our
workers, all of the time. This crisis also
reminds us that we all live on one planet.
Let’s hope that civility, humanity and
empathy will drive us forward toward the
goal of improving America. We have the
resources, and the solutions are there – just
waiting to be found.
54
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE 4. We need to take specific action steps.
In this section, I offer my views and anal-
ysis on specific solutions to our problems.
Neither the diagnosis nor the proposed cures
are purely my own. Our nation’s issues have
been studied intensively by many people
with deep knowledge. And given the space
and other constraints of this letter, I admit to
violating Einstein’s maxim about simplicity.
I do make some of these issues simpler than
they are, sometimes by giving only conclu-
sions instead of providing reasoned analysis.
In the following pages, we review 15 policies
(many of which, of course, are interrelated)
where we believe we need to – and can do –
a far better job. We would do all of them if
we could, but fixing even some of them will
make a significant difference.
Training for Jobs: We need to build an education
system that includes training for skills that lead
to good jobs (and this will improve labor force
participation).
Our high schools and community colleges
(and all colleges) need to provide our youth
with training for certified and apprenticed
skills that lead to good paying jobs. With
nearly 7 million job openings and 10 million
workers unemployed in the United States,
creating an effective training and retraining
program is a high-impact opportunity. Busi-
ness must be involved in this process, and
it needs to be coordinated locally because
that is where the actual jobs are. Proper
training and retraining mean being sensitive
to our rapidly changing technological world.
Expanding digital skills and training oppor-
tunities for workers and students will be
critical, as the pace of AI will likely accelerate
to meet future business demands and foster
innovation in high-risk jobs, especially across
healthcare and the supply chain. Many
students in our high schools and colleges
are unaware that, with a little bit of training,
they can qualify for jobs paying $65,000 or
more a year. You can major in philosophy or
history, but taking a few courses in coding
will help to ensure you a good job. Our
education system should bear responsibility
for our children to graduate with an educa-
tion that leads to a good livelihood.
Germany has one of the strongest educa-
tion and training systems in the world,
with about 1.3 million young people annu-
ally participating in paid apprenticeship
programs that provide them opportunities to
gain in-demand skills along with an educa-
tion. Vocational school and apprenticeship
programs work directly with local businesses
to ensure students are connected to avail-
able jobs upon graduation. Germany’s youth
unemployment rate is one of the lowest in
the world.
Many companies have numerous jobs for
which a “college degree is required,” but
this often turns out to be unnecessary and
even harmful. Much more can be done in
terms of making a degree requirement truly
relevant for specific jobs. Over 80 Busi-
ness Roundtable member companies – and
counting – are participating in a new multi-
year targeted effort to reform companies’
hiring and talent management practices to
emphasize the value of skills, rather than
just degrees, and to improve equity, diver-
sity and workplace culture. The initiative
will support measures that address inequity
in employment practices, including how
people are hired and how they advance, and
it will work toward eliminating bias that may
prove to be a barrier to hiring and advance-
ment. According to a recent study, employers
frequently require a four-year college degree
for 74% of new jobs in America – this
screening excludes roughly two-thirds of
American workers, and its impact is most
pronounced on minority applicants.
In addition to the Business Roundtable
initiative, companies are partnering with
educators in regions throughout the country.
For example, in New York City, the New
York Jobs CEO Council is working with
City University of New York (CUNY) to
develop new two-year associate degrees.
55
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE These degrees are explicitly designed to
enable students to graduate with a market-
able college degree (and paid apprenticeship
experience) in two years, debt free and with
an employment opportunity in an in-demand,
high-potential field of their choosing.
ment rates, to make further adjustments.
Simply stated, our policy goals should focus
on maximizing incentives to get more people
working while minimizing incentives for
employers to lay off workers, especially
low-paid employees.
One last point: Although there are wide
variations across the United States, teachers
in public institutions, on average, earn
33% less than their peers with equivalent
degrees (college level and above) – this is the
lowest ratio in the OECD (Organisation for
Economic Co-operation and Development).
While we should attack waste in the system,
we should pay teachers more money and
base their salaries upon clear standards that
will measure success – not just graduation
rates and standardized test scores but certi-
fication of skills – and lead to actual good
paying jobs.
Paying for Jobs: We need to improve wages for
low-skilled work (again, this would improve labor
force participation).
Decades ago, an unskilled worker, who may
not have graduated from high school but
was willing to work hard, could get a job
at a manufacturing plant that would soon
lead to a living wage and the ability to earn
a middle-class income. That may no longer
be the case. Today, it may be that unskilled
or low-skilled workers would not natu-
rally earn a living wage. All jobs are good
jobs: They bring dignity; people who start
working generally continue working; and
the first job is often the first rung on the
employment ladder. Jobs also lead to better
social outcomes – less crime, more household
formation and less mental illness.
While a living wage differs by state, the
national average is currently $68,000 a year
for a family of four. With two adults working
full time, each would need to earn $16.50 an
hour to reach that level. We should strive
to make every job generate a living wage –
and do two things to accomplish this goal.
First, we should, at the very least, increase
the federal minimum wage and allow states,
based on local conditions and unemploy-
56
Second, we should ensure that federal efforts,
like the Earned Income Tax Credit (EITC) and
the Child Tax Credit, are effective enough so
that every job essentially pays a living wage.
The higher wages resulting from these credits
would go a long way toward improving our
labor force participation, which is a key driver
of productivity and economic growth.
Opportunities for Jobs: We need to make it
easier for those with a criminal record to get
a job (which will also improve labor force
participation).
We need to reduce recidivism, reform the
criminal justice system and eliminate barriers
to a good job. One such barrier is a criminal
record, which one in three adults (more than
70 million people) in our country has. Our
criminal justice system disproportionately
impacts people of color – Black adults are over
five times more likely to be incarcerated than
white adults. This is institutional racism in its
clearest form. Reforms to the criminal justice
system and business screening and hiring
practices can open the door of opportunity to
significantly more people. JPMorgan Chase
supported a measure signed into federal law
in 2020 restoring access to Pell Grants for
incarcerated individuals, which allows them to
pursue postsecondary education in prison and
increase employment opportunities after their
release. Other steps that we can – and must
– take are: adopting “ban the box” measures
for employment applications and reforming
clean slate laws so anyone with a record of
minor offenses can more easily qualify for a
job. JPMorgan Chase has taken many of these
steps, and, in 2020 alone, we hired more than
2,000 people with a criminal background.
America believes in second chances and
redemption. Getting a second chance will
give people dignity and enable them to earn
a higher lifetime income while reducing
recidivism and all of its related costs.
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE We need to reform and improve our social safety
net programs (which can also improve labor force
participation).
Our varied and various public assistance
programs (Medicaid, food assistance, income
support, unemployment, housing and util-
ities benefits for individuals who cannot
work, due to disability or childcare respon-
sibilities, to name a few) are a complete
mishmash of uncoordinated federal, state
and local policies. People qualifying for
public benefits may be eligible for various
programs but often don’t apply because
they are unaware, ill-informed or unable to
navigate the complexities. These programs
frequently have different applications and
application processes, including different
places to apply, with benefits often disap-
pearing at different income levels and at
different speeds. It is accurate to say that
the complexity and variability in eligibility
rules have negative consequences for both
program administration and access to
assistance. For example, beneficiaries often
have to provide the same information for
different federal programs and visit multiple
offices in order to apply. The Government
Accountability Office has provided reports
about this maze of programs to Congress;
in addition, the Center on Budget and Policy
Priorities has created guides for state and
local use to help streamline the application
and enrollment process, utilizing eligibility
determinations made by other programs to
jump-start approvals.
Public assistance programs need to be
coordinated, consolidated and connected
to trends in the larger economy, as well as
to the individual’s transition to employ-
ment. For example, unemployment insur-
ance should have automatic stabilizers that
increase benefits when and where jobs are
lacking and reduce them when and where
jobs are abundant. Application to all social
welfare benefits should be available through
one single form and phased in and phased
out on a common grid, not on a cliff. Coordi-
nated with an individual’s transition to work,
benefits should gradually be reduced, making
them a true safety net.
Finally, providing affordable childcare
programs or lowering the starting age for
public school would make it far easier for
parents to work. Some countries are now
implementing universal access to preschool
for children at three years of age. This is a
wonderful policy. It makes childcare less
expensive and has proved to be extraordi-
narily good for student education over the
short and long term. Parents like it, too. Of
course, the benefits may not be fully realized
for years, but this is precisely the type of
long-term thinking in policymaking that we
need. Women, in particular, suffered in the
COVID-19 crisis as an estimated 2.5 million
left the workplace, largely because they had to
become full-time caregivers for their children
or elderly parents. Many of the programs
listed above will make it easier for women to
return to the workforce if they so choose.
We need to try to make the healthcare
system work better (better health drives both
productivity and labor force participation).
We have the best healthcare in the world in
terms of doctors, hospitals, and pharmaceu-
tical and medical device companies, but we
certainly do not have the best outcomes. As
I discussed earlier, 30 million Americans do
not have any insurance; obesity, high blood
pressure, asthma, diabetes and other condi-
tions are rampant; and costs are far too high
with little transparency into their calculation.
Annual medical costs per person in the United
States are now $11,000 versus $4,000 for other
developed nations. There are ways we can
make significant improvements. Here are a
few: allow bigger incentives for becoming
and staying healthy; eliminate bureaucracy
and waste in the healthcare system, including
administrative complexity and fraud (this
represents approximately 25% of total health-
care spending in the United States); empower
employees to make better choices through
more transparent employer plan pricing and
options that include the actual cost of medical
procedures; eliminate surprise bills (these
usually come from unexpected out-of-network
services); develop better corporate wellness
programs that target obesity and smoking;
create better tools to enable comparison shop-
57
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE ping for nonemergency care and help manage
healthcare expenses; and reduce the extraor-
dinary expense for unwanted end-of-life care.
There should be national, not state-by-state,
insurance exchanges, which would be far
more efficient. And exchanges should also
offer a low-cost, catastrophic-only insurance
package as an option. Plus all healthcare data
should belong to the individual, not to various
healthcare companies. Another obvious incen-
tive is to dramatically enhance how effectively
wellness, nutrition, health and exercise are
taught in K-12 classrooms nationwide.
We need proper, rigorous and multi-year
budgeting, planning and reporting.
Companies perform extensive budgeting,
planning and reporting, some of it conducted
on a multi-year basis. Real investments – in
training, data centers, manufacturing plants
and other categories – are needed on a multi-
year basis and cannot be stopped and started
without incurring enormous additional costs.
But this stopping and starting is exactly what
takes place in the federal government, which
inevitably leads to waste and inefficiency.
One striking example: The military esti-
mates that it spends more money per year
on procurement than is necessary because of
this inefficiency. In total, the stop-start nature
of our government’s budgeting processes
most certainly costs us tens of billions of
dollars a year in complete waste.
Proper budgeting and planning – on a
multi-year basis – should be implemented
at all levels of government. 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 talks about spending
money, it should not lead with the amount
spent or budgeted to be spent – as if that’s
the measure of success. Instead, the expected
outcome of the spending and then the actual
outcome should be described. We desperately
need honest and transparent accounting,
accountability and evaluation about every-
thing we fund with government dollars. Every
department should have an outcome report.
58
It would be beneficial to review government
accounting practices and look for a better
way to differentiate between investments
and expenses, for instance. There are also
examples that show it would be good if the
government conformed to public company
accounting, particularly around how it
accounts for loans and guarantees.
An honest accounting would go a long way
to rebuilding trust in government – and in
government spending.
We need proper management and periodic review
of regulatory red tape and bureaucracy.
The American can-do system is now being
bogged down in a maze of regulatory red tape
and bureaucracy. All you need to do is to take
10 small business owners out to lunch and
ask them what they need to do to meet local,
state and federal regulations, and you will
understand the problem. And while we all
want a legal system that brings justice to all
our citizens, our litigation system now costs
1.6% of GDP, 1% more than what it costs in
the average OECD nation. And most business-
people think that it is excessively litigious,
slow, and somewhat arbitrary and capricious.
One example, which works in many other
countries, is to have the losing party pay in
some circumstances. Clearly, this would have
to be done in such a way as to ensure that the
aggrieved parties are not denied appropriate
access to our justice system.
The cost of the now over 1 million federal
regulations is estimated at approximately
$14,000 per household. And while we want
good regulations and good “guardrails,”
there is an excessive amount of licensing,
paperwork, employment laws and insurance
requirements, and anyone who deals with
the application process knows how wasteful
and unnecessary it can be. Red tape like this
cripples small businesses and, worse, reduces
the formation of new enterprises. Very
often local regulations are simply a form of
low-level corruption in which bureaucrats
are paid to slowly … move … paper … around.
Smart regulation includes continual
improvement, constant cost-benefit anal-
ysis and a review of purpose and objectives,
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE which are reported honestly. Bad regula-
tion often stifles competition – think of the
airlines and telecom industries before they
were deregulated.
Here are few examples. The Federal Avia-
tion Administration is unable to adopt new
technology for air traffic control, which most
of the world has already adopted, that would
reduce the average flight time by more than
10 minutes and reduce greenhouse gases by
12%. President Dwight D. Eisenhower’s Feder-
al-Aid Highway Act of 1956 was 29 pages long
and originally authorized $25 billion for the
construction of the interstate highway system
during a 13-year period, creating a 41,000-
mile interstate highway network. And 13
years later, the interstate highway system was
largely built. Fast forward to current times, it
took 10 years and 47 local, state and federal
approvals to rebuild the Bayonne Bridge
connecting Staten Island and New Jersey,
which was badly in need of replacement and
was, in fact, quite dangerous to cross. If this
is the way we are going to go about fixing our
infrastructure, we will never get it done. And
it’s not just the time element – long delays
increase the costs and risks involved.
We need to properly invest, on an ongoing basis,
in modernizing infrastructure.
Virtually everyone agrees that we have done
a woefully inadequate job investing in our
infrastructure – from highways, ports and
water systems to airport modernization
and other projects. 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 hundreds of billions of dollars
per year. Some economists estimate that a
proper infrastructure investment plan could
add 0.3% growth annually to our GDP – and
it would improve competitiveness across
many industries while opening up new
investment opportunities.
Such a plan would also create many new jobs
with competitive salaries and spur workforce
innovation. It could intentionally provide
employment opportunities for disadvantaged
and young workers, including those with a
criminal background. There are many efficient
ways to properly build and finance infrastruc-
ture, from the local, state and federal level
or public-private partnerships, which have
the added benefit of increasing the invest-
ment discipline. It is important to point out,
however, that building ineffective “bridges to
nowhere” while temporarily creating jobs is
actually a huge value destructor. This kind of
waste would ultimately undermine Ameri-
cans’ faith in our system.
We need proper and consistent tax and fiscal
policy — done right, it can actually help drive
healthy growth and improve income equality.
It would be good to have a tax and fiscal
strategy, which is premised upon maxi-
mizing healthy growth and redistributing
income effectively. It would include the
following features:
1. A system that is consistent, highly trans-
parent and as simple as possible.
2. A tax collection system that enables collec-
tion of all taxes owed. My view is that
everyone should pay the taxes they owe,
and it should be strictly enforced. Many
estimates project that with increased head-
count and greater input from data scien-
tists, we could collect between $30 billion
and $100 billion more per year.
3. A target for what the federal government
should expect to collect in taxes over time.
A good starting point would be 18% of
GDP (it has been running at an average
of about 16% over the last decade). In
good times, we should run a small surplus
(~1%), and in bad times, we should have
a small deficit (~4%-5%), such that debt
to GDP stays fairly constant over time. A
side benefit of this is that the government
would know that it would have more
money to spend – but only if we grow.
We should think about good taxes and bad
taxes in terms of spurring growth. Taxing
primary capital formation or labor are
growth reducers. Having capital retained
and reinvested in the United States should
59
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE be a sine qua non for healthy growth, and
that means that our business tax rates should
be globally competitive. Today, the average
corporate tax rate for OECD nations is
around 22% versus our 21%. The retention
and reinvestment by businesses of capital in
the United States is ultimately the primary
driver of productivity and growth. Even if
that capital is distributed in dividends or
stock buybacks, it is simply being put to a
higher and better use – this is completely
normal capital reallocation. The free flow of
money capital and human capital is funda-
mental to our growth and innovation (and
fundamental to our freedoms as individuals).
Unfortunately, taxes that minimize damage
to growth would involve taxing high incomes.
The wealthy are less likely to complain about
taxes if the money is actually used to help the
less fortunate or help build a better country.
Even with the redistribution of income, there
will be items that help growth and items that
hurt growth. Redistributing income through
the EITC will be money spent to improve
labor force participation. Redistributing
money to inefficient and poorly run bureau-
cracies will not improve growth.
In addition, there is a maze of tax breaks
in the tax code that should be eliminated.
There are hundreds of examples, but I will
mention just a few: carried interest, the
special tax breaks for race cars, private jets
and horse racing, and a special land conser-
vation tax break for golf courses. Hidden tax
breaks have the additional stigma of being
perceived by the American public as just
another example of institutional bias and
favoritism toward special interest groups.
If the wealthy paid more in taxes and the
money was put to good use, they would be
the main beneficiaries of a stronger economy.
Due to government stimulus packages as
a result of the COVID-19 crisis, external
government debt to GDP is now a high
102%. We can afford that percentage and
even more, particularly because interest rates
are low. But in 10 to 20 years, mostly because
of out-of-control healthcare expenses, the
debt-to-GDP ratio will start to rise dramati-
60
cally – and at some point, that will become
a problem. The sooner we deal with it, the
better. The best way to counteract that is
with healthy growth. After World War II,
in 1946, the United States still had a 120%
debt-to-GDP ratio, which over the next 10
years fell to 60%. This was not because the
government raised taxes or dramatically cut
expenses but because the country grew at
almost 4% for the decade.
We need intelligent industrial policy.
Being a free market economy, the United
States has never been a great believer in
government-driven industrial policy. But we
have done it and ought to do it intelligently
in discrete areas that make sense (and where
free markets alone don’t necessarily provide
needed products or services), such as rural
broadband, healthcare and cybersecurity.
We also need to boost our investment in
R&D; we’re now #8 in the world in terms
of GDP spend on R&D. Government R&D
could focus on AI and quantum computing,
climate innovation and other areas.
We need thoughtful trade policies.
The United States needs to take a leadership
role in establishing global free and fair trade
rules. If we don’t, they will likely be estab-
lished to the detriment of American busi-
ness. Free and fair trade rules do not have
to be completely equivalent and reciprocal
– just fair. Working with our allies and other
countries, we should negotiate the gold stan-
dard of trade – not just rules around tariffs
but fair regulations that address subsidies to
state-controlled enterprises and other forms
of unfair competition, bilateral investment
and protection for intellectual property,
among other issues.
In addition, we should recognize that trade,
while positive for the United States as a
whole, has caused the loss of jobs, both in
specific geographies and in specific industries.
Americans who have been affected by these
disruptions need better support in terms of
income assistance, retraining and relocation.
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE We need to maintain a strong financial system.
The United States has the best financial
system in the world. This financial system
encompasses asset managers, investors, banks,
investment banks, private equity, hedge
funds, pension plans and shadow banking. It
is protected and enhanced by the rule of law
(including banking laws), and it offers investor
protections and transparency around gover-
nance and accounting and provides complete
and free access to global investors. While
nothing is ever perfect and can always be
improved upon, most of the world would give
an arm and a leg for our system.
The free flow of credit and investments – disci-
plined capital allocation – is critical to being
globally competitive. It is the flywheel of the
economy as capital is seeking out good invest-
ments (across the risk spectrum) and individ-
uals and ideas that drive growth and innova-
tion. A country’s economy can hardly be better
than its financial system and vice versa.
The United States’ extraordinary and open
economy gives us the extraordinary privilege
of being the world’s reserve currency. The
U.S. dollar is the currency of choice for the
majority of trade transactions, and it is held
by governments, central banks and corpora-
tions as the reserve currency (approximately
$7 trillion, or 60% of total world reserves).
This helps provide cheaper financing for the
United States and gives us enormous clout
in foreign and economic policy. However,
we should not overly “weaponize” the dollar,
and we should use this authority judiciously
and in support of building a healthy, global
economy (see accompanying feature that
follows).
The United States has the best financial
system in the world, and we must strive to
maintain it.
The U.S. Dollar Is the World’s Reserve Currency for a Reason
While there may be faith involved, the U.S. dollar
is the reserve currency of the world for a reason.
First, the dollar is supported by the full faith and
credit of the United States. The dollar, which is a
liability of the Federal Reserve (i.e., the federal
government) in digital or in currency form, is
always supported by an asset — and that asset
is generally Treasury bonds. Treasury bonds are
supported by the full taxing authority of the U.S.
government, which, in turn, is supported and paid
for by the full power of the U.S. economy. These
assets and liabilities, including the economy, are
supported by powerful institutions, the rule of law
and, ultimately, the full might of the U.S. military.
Of course, a central bank can debase a currency,
but our central bank, the Federal Reserve, is meant
to protect the currency’s value. Faith is only a small
part of these calculations.
Second, and equally important, the U.S. dollar is
the world’s reserve currency because anyone who
legally has a U.S. dollar can move it freely around
the world, buy and sell what they want, and invest
in the United States. By comparison, the Chinese
currency, the renminbi (RMB), cannot be freely
moved around the world; it can leave China only
in limited amounts and can be invested only as
the Chinese see fit. It is subject to their laws and
regulations. While the Chinese have done a good
job building their economy and are slowly moving
toward a more transparent society and financial
system, they are a long way from having a currency
that is fully “convertible” like the U.S. dollar.
As an aside, JPMorgan Chase moves more than $8
trillion (99% digital) a day for more than 52 million
payments (94% digital). Approximately 98% of
value is done the same day, 78% is done in real
time and 20% is executed the same day. When
these dollars are moved, they go through extensive
screening for risk and fraud matters. While systems
can always be improved upon, this process seems
to be safe and efficient.
61
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE We need proper immigration policies.
Thirty percent of foreign students who
receive an advanced degree in science, tech-
nology or 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
immigration policies that will prevent such a
brain drain. In addition, 43% of the growth
of our workforce over the past 10 years has
come from immigrants. Today, we have 10
million undocumented people living and
working in our country; on average, they
have resided in the United States for more
than 15 years. Most Americans would like
a permanent solution to DACA (Deferred
Action for Childhood Arrivals), as well
as a path to legal status for law-abiding,
tax-paying undocumented immigrants.
Americans also would like to see, and
deserve to see, border security, and there
would be far more support for immigration
reform if it included proper border security.
These issues are tearing the body politic
apart. The Congressional Budget Office esti-
mates that the failure to pass immigration
reform earlier this decade is costing us 0.3%
of GDP a year. Immigration has been one of
the great strengths of this country – and we
should never forget that.
Affordable housing remains out of reach for too
many Americans.
Prior to the COVID-19 pandemic, the demand
for affordable housing significantly outpaced
supply in nearly every U.S. county. In addi-
tion, rising home prices made it increasingly
difficult for individuals and families to live
near their workplace or within easy access
to grocery stores, pharmacies and other
essential services. There are many legisla-
tive actions that could dramatically increase
the availability and affordability of housing
(offering tax credits and changing local
zoning laws are two examples). While the
subprime mortgage crisis and the recession
that followed were terrible, the overreac-
tion to it made housing too costly for many
individuals (without creating more safety).
Excessive origination, servicing and securiti-
zation requirements have increased the cost
of the average mortgage by approximately
20 basis points. This has mostly affected
smaller mortgages and lower-income individ-
uals who have a slightly higher delinquent
rate – but who still deserve a mortgage. In
fact, J.P. Morgan analysis shows that, conser-
vatively, more than $1 trillion in additional
loans might have been made over a five-
year period had we reformed our mortgage
system. Our analysis also indicates that the
cost of not reforming the mortgage markets
could be as high as 0.2% of GDP per year. We
believe that percentage includes an addi-
tional $500 billion a year in mortgages that
could be written predominantly for lower-in-
come households. This alone could dramat-
ically lead to growth in America and help
lower-income individuals build wealth.
We need to implement several additional
programs and policies specifically to assist Black
and Latinx communities.
We need to address hiring and advancement
targets, help develop minority-owned small
businesses and improve financial educa-
tion products for the unbanked. In addition,
minority-owned small businesses, which
employ nearly 9 million people and generate
$1 trillion in annual economic output, have
been hit especially hard by COVID-19 and
will need serious assistance going forward,
including capital to restart and run their
businesses. We should consider requiring
companies, such as grocery stores, pharma-
cies and other retailers, to provide locations
in low-income neighborhoods, as banks
must do (this would reduce the cost of goods
purchased by minority individuals and
increase local hiring and engagement). These
efforts would be a form of redress for the
low-income community that is sustainable
and reinforcing.
62
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE Companies can go further by building a
more diverse and inclusive workforce,
including in their top ranks; tying executive
compensation to diversity commitments;
developing a more robust pipeline of
diverse talent; improving supplier diversity;
cutting ties with customers who make racist
comments and treat employees disrespect-
fully; helping young men and women of
color get ahead personally and profession-
ally; and increasing the diversity of busi-
nesses with whom they partner. Above all,
it means building a company culture that
respects and listens to everyone. Compa-
nies might not always get it right, but they
should keep trying. The feature in The
Path Forward in Section I outlines many of
the specific efforts underway at JPMorgan
Chase to help advance racial equity.
The cumulative, multi-year effect of doing just
some of the measures mentioned above would
lead to a healthier, more resilient and robust, and
fairer America.
It is my belief that the underlying U.S.
economy is so strong that it could over-
come many of the things we have failed to
do and still grow at 2%. If we could grow
at 3% versus 2% over a 10-year period, that
would lead to $2.3 trillion in additional GDP
by the end of the decade or an increase in
household income of about $18,000. A 3%
growth rate is what we used to have – and it
is achievable again. This growth will help all
Americans, but particularly poor and disad-
vantaged citizens (even before implementing
special assistance programs) by increasing
opportunities for better jobs, higher incomes,
affordable housing and other benefits.
We owe it to ourselves to restore our compet-
itiveness, our common purpose and our true
sense of civility in the pursuit of building a
more perfect union.
5. America’s global role and engagement are indispensable to the health and well-being
of America.
One of the biggest uncertainties today is
America’s role on the world stage. A more
secure and prosperous world is not only
good for the rest of the world but also for
our country’s long-term security and pros-
perity. Our role in building that more secure
world has been, and will likely continue to
be, indispensable. It is a complex role, and
if we don’t fulfill it, others will – and not
with our best interests in mind. It is even
more complex now because since the Cold
War, the United States has not had to deal
with another great world power. Now we
have the relentless rise of China, which will
likely overtake America in the next 20 years
as both the world’s largest economy and
the largest financial market. Throughout
history, the rise of a second great power has
always been disruptive. Increasingly and
appropriately, most of the world, including
Americans, looks at our global position,
particularly our economic and military
strength, and compares it with that of China.
There is no question that the relationship
with (and intense competition between) the
United States and China will be the most
critical relationship for the next 100 years so
it is important to deeply understand all of
China’s strengths and weaknesses.
China has done a good job in building its economy
— but it still has a way to go.
Over the last 40 years, China has done a
highly effective job of maneuvering itself to
this point of economic development. China’s
leadership has been strategic, consistent
63
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE and coherent. And unlike developed demo-
cratic 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 metrics they want, and they
have the control and wherewithal to do it.
Unlike Western democracies that frequently,
and increasingly, have changes in govern-
ment leadership and policy approaches,
China’s system allows for consistent lead-
ership and consistent execution of policies
and regulations over the long term. But their
most important economic advantage is their
huge home market, which they can use to
develop their economy and their companies.
They have, as a result, been able to use this
home market to subsidize some very compet-
itive industries.
But in the next 40 years, the country will
have to confront some serious issues: The
Chinese lack enough food, water and energy
to support their population; pollution is
rampant; corruption continues to be a
problem; state-owned enterprises are often
inefficient; corporate and government debt
levels are growing rapidly; financial markets
lack depth, transparency and adequate rule
of law; income inequality is higher than in
the rest of the world; and their working age
population has been declining since 2012.
America’s demographics, by contrast, will
remain strong, particularly if we continue
to have healthy immigration. China will
continue to face pressure from the United
States and other Western governments over
human rights, democracy and freedom in
Hong Kong, and activity in the South China
Sea and Taiwan.
Asia is a very tangled part of the world,
geopolitically speaking. Unlike America,
which is at peace with its neighbors and is
protected by the Atlantic and Pacific oceans,
many of China’s neighbors (Afghanistan,
India, Indonesia, Japan, Korea, Pakistan, the
Philippines, Russia and Vietnam) are large,
complicated and not always friendly to China
– in fact, China has had border skirmishes
64
and wars with India, the Soviet Union and
Vietnam since World War II. These neigh-
bors do not all look at the rise of China as
being completely beneficial.
Autocratic and authoritative leadership
works well when you can manage top down
and you are starting from a very low base.
China’s recent success definitely has its
leadership feeling confident. Many believe
that America is in permanent decline and
that democracy is failing. Regardless of
their opinions, we should neither over- nor
underestimate them. Only 100 million
people in China effectively participate in the
nation’s one-party political system. No other
developed nation has such low participa-
tion. Growing middle classes almost always
demand political power, which helps explain
why autocratic leadership almost always
falters in a larger, more complex economy.
Under autocratic leadership, a major risk
is the allocation of economic assets (capital
and people), which are, over time, used to
further political interests, leading to ineffi-
cient companies and markets, favoritism and
corruption. In addition, autocratic leadership
diminishes the rule of law and transparency
– damaging the ability to create a well-
functioning financial system (this certainly
restricts the internationalizing of the RMB).
Disruption of trade is another risk China
faces. The United States’ trade issues with
China are substantial and real. They include
the theft or forced transfer of intellec-
tual property; lack of bilateral investment
rights, transfer of ownership or control of
investments; onerous non-tariff barriers;
unfair subsidies or benefits for state-owned
enterprises; and the lack of rapid enforce-
ment of any disagreements. Our position
is supported, though, in an uncoordinated
way, by our Japanese and European allies.
We should expect China to do only what is
in its own self-interest. Near term, we expect
challenge and conflict to characterize the
relationship between China and the West
over a range of economic, human rights and
strategic issues. There may, however, be areas
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE where we will simply never agree. As the two
largest economies in the world, China and
the United States should continue to have
a long-term interest in collaborating where
we can on critical global issues, including
climate change, global health and stability on
the Korean Peninsula. This will not be easy,
but we will need to mature the management
of this relationship so we can deal head on
with our differences while continuing to seek
common ground on our common challenges.
China does not have a straight road to
becoming the dominant economic power.
To put this in perspective, America’s GDP
per person in 2019 was $65,000 and China’s
was $10,000. Even if we do a rather poor
job at managing our economy (growing at
2%), our GDP per person in 20 years would
be $85,000. And if the Chinese do a good
job managing their economy, their GDP per
person in 2040 would still be under $35,000.
While China is well on its way to becoming
a fully developed nation, it may face more
uncertainty and moments of slower growth
in the future (like the rest of us) than in
the past. For the near term, if China and
the United States can maintain a healthy
strategic and economic relationship, it could
greatly benefit both countries – as well as the
rest of the world.
America is in a very strong position.
We have the resources to emerge from this
latest economic crisis as a stronger country.
Sometimes we forget how blessed we already
are. 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, the sanc-
tity of the individual, and the promise of
equality and opportunity for all. These gifts
have led to a bold and dynamic economy –
one that nurtures 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.
America has strong and deep economic and
geopolitical relationships with a large part of
the world – mainly, but not exclusively, with
our allies, including Canada and Mexico,
countries of the European Union, Great
Britain, Japan, South Korea and Australia, to
name a few. With these allies, we respect the
values of democracy, individual rights and
economic freedoms. Collectively, we need to
reassert our foundational strengths, which
are grounded in our common principles,
mutual trust and cooperation, and shared
prosperity. As a nation, America needs to
reassert its confidence in democracy and
re-establish that it can function competently
in the interest of our people. Fundamentally,
we need not fear the success of China; we
need to fear only our own failure because
that is the only thing that will truly limit us.
America should engage and exercise its
power and influence – cautiously, judiciously
and respectfully – with various international
organizations (the North Atlantic Treaty
Organization, the United Nations and the
World Trade Organization). While there are
many legitimate complaints about these
organizations, the world is better off with
these institutions. Americans should under-
stand that global laws, standards and norms
will be established whether or not we partic-
ipate in setting them. However, it is certain
that we will be happier with the evolution of
global standards around trade, immigration,
corporate governance and other important
issues if we help craft and implement them.
We should not abdicate this role – if we do,
that void will simply be filled by China and
65
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE others. Our engagement and leadership in
the world are as important for our country as
they are for the rest of the globe.
My fervent hope is that America will roll up
its sleeves and bring bold leadership to our
self-inflicted problems. Business and govern-
ment collaborating together can conquer
our biggest challenges – income inequality,
economic opportunity, education and health-
care for all, infrastructure, affordable housing
and disaster preparedness, to name a few.
We can be unabashed about the exception-
alism of America while acknowledging that
we have problems. As we work together for
an inclusive recovery that is long lasting, we
must never forget that America’s economic
prosperity is a necessary foundation for
our military capability, which keeps us free
and strong and is essential to world peace.
America is still the arsenal of democracy.
While I have a deep and abiding faith in the
United States of America and its extraordi-
nary resiliency and capabilities, we do not
have a divine right to success. Our chal-
lenges 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.
IN CLOSIN G
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.
They have faced these times of adversity with grace and fortitude.
I hope you are as proud of them as I am. Finally, we sincerely hope
that all the citizens of the global community will be able to move beyond this
unprecedented pandemic and look forward to a brighter future.
Jamie Dimon
Chairman and Chief Executive Officer
April 7, 2021
66
VI. PUBLIC POLICY AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
Client Franchises Built Over the Long Term (page 6)
1 Digital includes outflows for ACH, BillPay, PayChase, QuickPay, Real-time Payments, external
transfers and some wires.
2 2019 and 2020 Consumer Banking deposits include JPM Wealth Management
3 FDIC 2020 Summary of Deposits survey per S&P Global Market Intelligence. Limits all branches
to $500 million deposits. Includes all commercial banks, savings banks and savings institutions
as defined by the FDIC. 2006 excludes non-retail branch locations and all branches with over
$500 million in deposits within the last two years (excluded branches are assumed to include a
significant level of commercial deposits or are headquarter branches for direct banks).
4 Barlow Research Associates, Primary Bank Market Share Database, as of 4Q20. Rolling 8-quarter
average of small businesses with revenue of more than $100,000 and less than $25 million.
5 Represents 2020 general purpose credit card spend, which excludes private label and
Commercial Card. Based on company filings and JPMorgan Chase estimates.
6 Represents users of all web and/or mobile platforms who have logged in within the past 90 days.
7 Represents users of all mobile platforms who have logged in within the past 90 days.
8 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor
(~3,000 surveys per quarter or ~12,000 per rolling 4 quarters). Data are based on Chase
footprint, excluding recent expansion markets.
9 Based on 2020 sales volume and loans outstanding disclosures by peers (American Express
Company (AXP), Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc.
and Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private
label and Commercial Card. AXP reflects the U.S. Consumer segment and JPMorgan Chase
estimates for AXP’s U.S. small business sales. Loans outstanding exclude private label, AXP
Charge Card and Citi Retail Cards.
10 Inside Mortgage Finance and JPMorgan Chase internal data, as of 4Q20.
11 Experian AutoCount data for 4Q20. Reflects financing market share for new and used loan and
lease units at franchised and independent dealers.
12 ~$83 billion represents the December 31, 2020 balances for accounts provided payment relief,
including those currently enrolled in relief and those who have exited relief. Includes residential
real estate loans held in Consumer & Community Banking, Asset & Wealth Management and
Corporate.
13 Dealogic as of January 4, 2021.
14 Coalition Competitor Analytics, preliminary 2020 rank; market share analysis reflects
JPMorgan Chase’s share of the global industry revenue pool and is based on JPMorgan Chase’s
business structure. 2006 rank analysis is based on JPMorgan Chase analysis.
15 Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities
Services businesses.
16 Based on Firmwide data. 2006 data not archived. 2019 restated based on 2020 methodology
using Regulatory reporting guidelines.
17 Institutional Investor.
18 Based on third-party data.
19 Assets under custody based on Company filings.
20 Represents total JPMorgan Chase revenue from investment banking products sold to Commercial
Banking clients.
21 S&P Global Market Intelligence as of December 31, 2020.
22 Commercial and industrial groupings for CB are generally based on client segments and do not
align with regulatory definitions.
23 Refinitiv LPC, FY20.
24 Affordable housing consists of Community Reinvestment Act qualified, rent-restricted and
naturally occurring affordable units; i.e., includes affordable housing units that are in
low-to-moderate income neighborhoods.
25 Euromoney; 2020 results released February 2021.
26 Based on Company filings and JPMorgan Chase estimates. Rankings reflect publicly traded peer
group as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon
Corporation, BlackRock, Inc., Credit Suisse Group AG, DWS Group, Franklin Resources, Inc., The
Goldman Sachs Group, Inc., Invesco Ltd., Morgan Stanley, State Street Corporation, T. Rowe Price
Group, Inc. and UBS Group AG. JPMorgan Chase ranking reflects Asset & Wealth Management
client assets, Chase Wealth Management investments and new-to-firm Chase Private Client
deposits.
32 All quartile rankings, assigned peer categories and the asset values used to derive the 10-year
J.P. Morgan Asset Management long-term mutual fund AUM are sourced from Lipper,
Morningstar and Nomura based on country of domicile. 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. Quartile rankings are
done on the net-of-fee absolute return of each fund. The data providers redenominate the asset
values into U.S. dollars. This percentage of AUM is based on fund performance and associated
peer rankings at the share class level for U.S.-domiciled funds and at the primary share class
level or fund level for all other funds. 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.
Performance data could have been different if all funds/accounts had been included. Past perfor-
mance is not indicative of future results. The classifications in terms of product suites and
product engines shown are J.P. Morgan’s own and are based on internal investment management
structures.
33 Represents the Nomura star rating for Japan-domiciled funds and Morningstar for all other
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.
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 performance figures associated with a fund’s three-, five- and 10-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 and the assigned peer categories used to derive this
analysis are sourced from these fund rating providers as mentioned. Past performance is not
indicative of future results.
34 Represents AUM in a strategy with at least one listed female and/or diverse portfolio manager.
“Diverse” defined as U.S. ethnic minority.
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns (page 8)
1 Best-in-class peer overhead ratio represents the comparable business segments of
JPMorgan Chase (JPM) peers: Capital One Consumer Banking & Domestic Card (COF–CB & DC),
Citigroup Institutional Clients Group (C–ICG), US Bancorp Corporate and Commercial Banking
(USB–C & CB), Credit Suisse Private Banking (CS–PB) and T. Rowe Price (TROW).
2 Best-in-class peer ROTCE represents implied net income minus preferred stock dividends of the
comparable business segments of JPM peers when available, or of JPM peers on a firmwide basis
when there is no comparable business segment: Bank of America Consumer Banking (BAC–CB),
Morgan Stanley Institutional Securities (MS–IS), PNC Bank (PNC), UBS Global Wealth Management
(UBS–GWM) and Morgan Stanley Investment Management (MS–IM).
3 Comparisons are at the applicable business segment level, when available; the allocation
methodologies of peers may not be consistent with JPM’s.
4 Citigroup Inc. (C), Bank of America Corporation (BAC), 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.
Size of the Financial Sector / Industry (page 28)
1 Banks over $5B in assets as of 2020.
2 H.8 data.
3 US Banks over $50B in assets as of 2020.
4 Consists of cash assets and Treasury and agency securities.
5 Real Gross Domestic Product, Billions of Chained 2012 Dollars, Quarterly, Seasonally Adjusted
Annual Rate.
27 Ranking as of December 31, 2020. Source: Morningstar, as of February 28, 2021, including
6 Federal Reserve Financial Accounts Z.1 data composed of total financial assets of the following
long-term open-end mutual funds and ETFs only, excluding feeder funds and fund of funds. China
inbound funds AUM is aggregated based on equity, fixed income and allocation funds domiciled
outside of China that invest primarily in Greater China as defined by J.P. Morgan Asset
Management.
28 Reflects J.P. Morgan Asset Management global long-term active fund AUM market share as of
December 31, 2020. Source: ISS Market Intelligence Simfund retrieved March 17, 2021. Excludes
index, fund of funds and money market funds.
29 In the fourth quarter of 2020, the Firm realigned certain Wealth Management clients from Asset
& Wealth Management to Consumer & Community Banking. Prior-period amounts have been
revised to conform with the current presentation.
30 Effective in the first quarter of 2021, the Wealth Management business was renamed Global
Private Bank.
31 Source: IXI, J.P. Morgan estimates
subcategories: mutual funds, ETFs, closed end funds, brokers and dealers and funding
corporations.
7 Data from Preqin; Hedge Fund AUM is not included in 2000; 2020 figure is annualized based on
available data through 3Q.
8 Represents market capitalization; Facebook not included in 2010.
9 Represents market capitalization; Private companies use the latest valuations.
Complexities of the Regulatory System (page 42)
1 The Council, through Office of Financial Research, may request reports from systemically
important BHCs.
2 The FDIC may conduct exams of systemically important BHCs for purposes of implementing its
authority for orderly liquidations but may not examine those in generally sound condition.
3 The Dodd-Frank Act expanded the FDIC’s authority when liquidating a financial institution to
include the bank holding company, not just entities that house FDIC-insured deposits.
67
FOOT NOTES Consumer & Community Banking
competition, both traditional and
new. I often remind the team of this
wisdom from the late Andy Grove,
former Intel CEO: “Only the para-
noid survive.”
Big Tech and fintech companies are
competing with all of our businesses:
offering new credit cards and banking
services, demystifying stock and
retirement investing, simplifying
financing options for large purchases
and making it effortless to send
money – to a friend down the street
or a family member in another coun-
try. Other companies are catering to
business owners, making it easier
than ever to start a business, accept
payments, invoice customers and bor-
row money. These competitors start
with the customer’s pain points,
obsess over them and strive to deliver
a superb customer experience.
There are many examples of how
these competitors have reset cus-
tomer expectations with simple and
easy digital experiences. As they
build customer relationships, they
also test, learn and develop new
capabilities that customers want, try
and adopt quickly. These companies
release new features with urgency
and grow their customer bases with
speed. We are in a race to match
their expertise in simplicity and ease
of use before they can match our dis-
tribution and scale.
2020 financial results
Consumer & Community Banking
delivered a 15% return on equity on
net income of $8.2 billion. Our $51.3
billion in revenue was down 7%
year-over-year, while our overhead
ratio increased to 55% as we contin-
ued to invest heavily for future
growth. Our customer base was rela-
tively stable with over 63 million
When we planned for 2020, we
could not have imagined the circum-
stances that would unfold. It was a
challenging year for the world, for
the country and for JPMorgan Chase.
We are fortunate to be a part of one
of the world’s greatest companies.
Our Consumer & Community Bank-
ing (CCB) franchise is resilient, and
2020 demonstrated that. Throughout
the COVID-19 crisis, we supported
our consumer and small business
customers – and our employees –
with compassion and flexibility.
Our performance in 2020 reflected
the state of the broader economy and
of our customers. While our deposit
businesses were impacted by low
rates and our credit card business
was affected by lower spending, our
Home Lending, Auto and Wealth
Management businesses performed
well. Despite many challenges, our
largest businesses still reached nota-
ble milestones. For the first time, we
led the nation in retail deposit market
share at 9.8%. We maintained pri-
mary bank relationships with more
than 75% of our Consumer Banking
checking households. In Business
Banking, we held the highest market
share among all banks. We main-
tained our position as the #1 U.S.
credit card issuer based on sales vol-
ume and outstanding balances.
Home Lending originations reached
their highest level since 2013. In the
fourth quarter, we were ranked the
#1 bank in auto lending. During the
year, we also realigned and rebranded
our Wealth Management business
unit, J.P. Morgan Wealth Manage-
ment, to capture the opportunity to
help more customers manage their
investments. We accomplished these
achievements while responding to a
global pandemic and continuing to
invest in our businesses.
While we are proud of our accom-
plishments, we take nothing for
granted and are intensely focused
on our increasing and formidable
#1
#1
63+M
#1 in total U.S. credit card
sales volume and outstandings
#1 in U.S. retail
deposit share
More than 63 million
U.S. households served
#1
#1
#1 most-visited banking
portal in the U.S.
#1 primary bank
within our footprint 1
$1.1T
More than $1 trillion
in credit and debit card
sales volume
1 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor (~3,000 surveys per
quarter or ~12,000 per rolling four quarters). Data are based on Chase footprint, excluding recent expansion markets.
68
60+%
55+M
40+M
Digital share of consumer
Home Lending Applications (Q4)
More than 55 million
active digital customers
More than 40 million
active mobile customers
~10
PERCENTAGE POINTS
158
NEW
BRANCHES
Chase Business Complete
BankingSM with QuickAcceptSM
account launched
Increase in share of
checks deposited
158 new branches,
including 87 in
through QuickDepositSM (Q4)
new markets, in 2020
NEW TOOLS FOR CUSTOMERS
In 2020, customers engaged even more with
our digital tools. We accelerated the rollout of
some features and added functionality to help
customers navigate the impacts of the pandemic.
With Chase Digital AssistantSM, we added the
ability to inquire about stimulus payments,
change travel plans booked with rewards and
dispute transactions. We also made it easier
for customers to schedule an in-person meet-
ing or a phone call with a banker or advisor
from their local branch.
Chase Digital
Assistant
Through a text-
based conversation,
customers can use
the assistant to
complete tasks in
their account, such as
replacing or locking
their card, viewing
account balances or
getting help with an
investment rollover.
Additionally, we remained committed to offer-
ing new tools that support our customers’
financial education and well-being. To help
parents teach their kids good money habits,
we launched Chase First BankingSM — an account
that puts parents in control but gives their
children the freedom to learn how to earn,
spend and save through the Chase Mobile® app.
We also launched new goals-based savings and
budgeting tools. New features in the Chase
Mobile app give customers a more personal-
ized look at their finances. SnapshotSM, for
example, provides easy-to-digest daily insights
into customers’ everyday spending, saving,
earning and more.
We continue to innovate and invest in our
digital capabilities to complement our strong
branch network, enabling our customers to
bank how and where they want.
Transaction disputes
Customers can now
report a problem with
a debit or credit card
transaction via the
Chase Mobile app and
chase.com.
Snapshot
Customers received
more than 7 billion
personalized insights.
U.S. households, including 4.3 mil-
lion small business relationships.
Our average deposits of $851 billion
were up 22% over 2019, and client
investment assets reached $590 bil-
lion, up 18%. We ended 2020 with
$448 billion in average loans, down
6%, reflecting the decline in credit
card spend and loan balances during
the year. Our customer base of active
mobile users is the largest and the
fastest growing among U.S. banks:
40.9 million, up 10% year-over-year.
We built our credit reserves by
$7.8 billion in response to the
pandemic’s economic impacts.
Losses did not materialize at the
pace we expected in the early stages
of the crisis; critical federal govern-
ment support to consumers and
small businesses provided a bridge
to our customers; and, as a result,
credit performance was better than
we anticipated.
As in years past, our performance
in 2020 resulted from our contin-
ued focus on four key areas: cus-
tomers, profitability, people and
controls. Below are some of the
noteworthy accomplishments in
each of these areas.
Customers
We supported our growing base of
consumer and small business cus-
tomers throughout the year in mul-
tiple ways: 1) direct relief, including
payment deferrals and fee waivers,
2) facilitation of federal government
relief and 3) commitments to
advance racial equity in the U.S.
The firm provided customer assis-
tance to approximately 2 million
accounts with balances totaling
roughly $83 billion. We facilitated
federal stimulus payments to tens of
millions of our customers. Through
the Small Business Administration’s
(SBA) Paycheck Protection Program
(PPP), we delivered firmwide $32
billion in loans to small businesses
($28 billion excluding SBA safe
harbor refunds), more than any other
lender on a dollar basis. No less than
75% of our branches continued oper-
ating throughout the pandemic. We
also committed $30 billion across the
firm to advance racial equity over the
next five years, promoting and
expanding affordable housing and
financial health, among other initia-
69
#1
#1
63+M
#1 in total U.S. credit card
sales volume and outstandings
#1 in U.S. retail
deposit share
More than 63 million
U.S. households served
#1
#1
#1 most-visited banking
portal in the U.S.
#1 primary bank
within our footprint 1
$1.1T
More than $1 trillion
in credit and debit card
sales volume
60+%
55+M
40+M
Digital share of consumer
Home Lending Applications (Q4)
More than 55 million
active digital customers
More than 40 million
active mobile customers
~10
PERCENTAGE POINTS
Chase Business Complete
BankingSM with QuickAcceptSM
account launched
Increase in share of
checks deposited
through QuickDepositSM (Q4)
158
NEW
BRANCHES
158 new branches,
including 87 in
new markets, in 2020
tives. As an example, we will provide
$12 billion in home loans for Black
and Latinx households.
Customers continue to choose Chase
– and stay with us – because of our
best-in-class products and the value
they offer. Still, we have an opportu-
nity to improve the customer experi-
ence, particularly for those who
use more than one of our products.
Navigating across our products and
channels can be disjointed. While we
remove friction wherever we detect
it, we must step up our progress
toward simplifying the experience
for our customers.
Profitability
We entered this challenging year in a
position of strength and were able to
adapt quickly, adjusting risk decisions
throughout. While the events of
2020 interrupted the recent down-
ward trend in our overhead ratio,
they did not disrupt our focus on
becoming more efficient and serving
70
our growing customer base more
profitably. We invest in our busi-
nesses to drive long-term, profitable
growth – and one of the ways we
have done that, over time, is by
investing in efficiency.
Our digital and mobile capabilities
are a great example. Digital adoption,
including mobile, increased at an
accelerated rate due to the pandemic.
Overall, 69% of our customers are
digitally engaged. Among Business
Banking customers, that figure is
86%. During the pandemic, we
encouraged – and drove – self-service
to reduce the need to visit a branch
or speak with us by phone.
We created new ways for customers
to self-serve, including digital and
interactive voice response tools,
which we launched within days so
customers could request help
quickly. These tools also enabled us
to serve a greater volume of custom-
ers and proved to be critical when so
many of them needed us urgently
and all at the same time. We also
built a digital intake process and
application for PPP loans in a matter
of days and revised those applica-
tions as new SBA guidance or
requirements evolved.
In addition to tools created to facili-
tate much-needed pandemic relief, we
continued to release and refine digital
features and capabilities so they could
be used more widely by our custom-
ers. Our digital account opening prod-
uct processed nearly 80% of all new
accounts last April. We processed
more than 40% of all checks through
QuickDepositSM in the last quarter of
2020, up nearly 10 percentage points
year-over-year. More than 60% of con-
sumer home loan applications were
opened digitally in the fourth quarter,
a rate six times higher than the prior
year. In addition, customers were able
to dispute credit and debit card
charges digitally. We also developed
convenient, less intrusive and more
effective ways to communicate with –
and collect payments from – custom-
ers who fall behind. By updating our
communication strategy and tactics,
we reduced the time required to set
up a payment plan and, as a result,
doubled the share of digital payment
plans year-over-year.
We continue to seek out opportuni-
ties to invest in future growth. In
2020, we saw such an opportunity
and acquired cxLoyalty, a leading U.S.
travel and loyalty business. We are
optimistic that consumer travel will
rebound after the pandemic. This
transaction allowed us to upgrade our
travel-focused credit card products so
we can own the end-to-end travel
experience. This offering also allowed
us to address a pain point for our
customers: Millions of travel plans
were disrupted simultaneously at the
start of the pandemic, and customers
needed our help making adjustments.
While these investments drive
returns, they also serve to position
Chase as the financial partner of
choice for all our customers. We
want to build deeper, lifelong cus-
tomer relationships that allow us to
do more for them. When we already
know a customer, we can make it eas-
ier to do more with us. For example,
we can often pre-approve existing
customers for credit and provide
certainty of ultimate approval. We can
verify income when deposit custom-
ers apply for a loan, prefill the infor-
mation we have on file and so on.
These stronger relationships also last
longer and, as a result, are more profit-
able. As an example, deposit custom-
ers who also have a Chase credit card
are almost 60% less likely to leave us
than those without a card relationship.
People
Our team of more than 122,000
continued to shine during this
challenging year. I have such deep
appreciation for everything they
have done and continue to do for our
customers, clients and communities
each day. This is especially true for
those on the front lines in our
branches interacting with our cus-
tomers face to face. Those who could
work from home pivoted quickly to
do so, and, after an adjustment
period, most performed their job
remotely as well as they had on-site
before the crisis. Those who could
not do their job remotely continued
to serve our customers from our
offices and branches, executing criti-
cal processes that kept our business
running – generating cards for cus-
tomers, printing statements, moving
currency and much more.
We took additional steps to make sure
our employees could work safely and
to give them peace of mind during
an uncertain time. All employees
received extra days off to deal with
impacts of the crisis. We distributed
special payments to employees serv-
ing customers in branches and call
centers, recognizing their exceptional
contributions. Employees who worked
in locations that were temporarily
closed or had reduced operating
schedules continued to be paid for
full-time work. We offered alternative
positions to those who were unable
or unwilling to return to their pre-
pandemic role. We also provided extra
benefits for employees with children
to help with childcare and education.
We have a sustained commitment to
diversity and inclusion on our team.
In 2020, we made progress toward
establishing new representation goals.
Our actions took on even greater
meaning and importance amid our
country’s social unrest in response to
profound racial inequalities.
Controls
Our customers rely on us to protect
them, especially during a crisis. That
responsibility guides all our work.
We use many systems, processes
and procedures to ensure we exe-
cute within all the laws and require-
ments that govern us. Crisis situa-
tions demand even more focus and
attention so we can respond quickly
but in a well-controlled manner.
Where we miss the mark, we work
tirelessly to address it so that we
resolve issues and ensure they don’t
reoccur. We evaluate and upgrade
these safeguards as an ongoing,
evergreen practice.
Our resiliency planning is a key disci-
pline we leaned on heavily through-
out the year. Although we test and
revise our resiliency planning annu-
ally, 2020 proved to be its greatest
test yet. While we learned our limita-
tions, we also discovered that we had
underestimated what was possible
out of our remote work capabilities.
Providing work-from-home capabili-
ties to customer service specialists –
sending work-from-home technology
kits to employees across the globe –
is one such example.
Conclusion
We always aspire to be better, faster
and more efficient. Customers expect
it, competition is fierce and we take
nothing for granted. We strive every
day to improve and make it both
simple and easy for customers to
manage their finances with us.
Despite the challenges of 2020 –
some of which we still are facing –
I remain hopeful and optimistic
about our future. We demonstrated
what we are capable of doing under
the most trying of circumstances,
and what we learned will continue to
inspire us to achieve even more.
Gordon Smith
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Consumer & Community Banking
71
Corporate & Investment Bank
In the dozen years since the global
financial crisis, the banking system
has been rigorously stress tested to
ensure it can withstand severe mar-
ket shocks. In 2020, the COVID-19
pandemic offered a stress test
beyond any that our industry has
experienced to date.
The demand for our balance sheet –
in terms of capital and liquidity –
was unprecedented last year. In the
months of March and April alone, we
helped clients raise more than $940
billion in the capital markets and
extended more than $80 billion in
credit, giving companies and govern-
ments the lifelines they needed.
As the pandemic took hold, markets
saw the most rapid sell-off in history.
Amid spiking volatility, our Equities
business witnessed many days of
record volumes, while at the height
of the crisis, our Wholesale Payments
team processed up to $11 trillion in
payments in a single day.
Our firm’s strategy – to be global,
complete and at scale – has cemented
its reputation as a port in the storm,
able to shore up crisis-hit firms and
national economies while continuing
to grow even as margins tighten and
capital buffers increase. That strategy
has also provided the springboard for
our growth into new markets and
geographies and has enabled our
heavy investment in technology. In
2020, that investment meant that we
could not only move forward with
advancements in artificial intelli-
gence, cloud and blockchain but also
ensure that more than 90% of our
employees could work securely from
home in a matter of days.
An exceptional performance
The Corporate & Investment Bank
(CIB) achieved a 20% return on
equity in 2020 by generating earn-
ings of $17.1 billion on revenue of
$49.3 billion – a historic performance
in a tumultuous, impossible-to-
predict year. Discounting that excep-
tional performance, over the last five
INVESTMENT BANKING FEES AND MARKET SHARE HAVE RISEN STEADILY
($ in billions)
(cid:31) (cid:31) Market share (cid:31) (cid:31) Investment banking fees
8.6%
(cid:29)
8.9%
(cid:29)
8.1%
(cid:29)
$7.4
$7.5
$7.6
9.2%
(cid:29)
$9.5
7.9%
(cid:29)
$6.5
2016
2017
2018
2019
2020
Source: J.P. Morgan; Dealogic
72
years our return on equity has stood
consistently between 14% and 16%
on an adjusted basis1. In fact, during
that time, we have increased revenue
by 16% and net income by 32%.
Our Investment Banking business
ended the year with 9.2% of global
market share, its highest since 2009,
and generated record fees of $9.5 bil-
lion to maintain our #1 ranking.
As COVID-19 spread across the globe,
we helped clients bolster their balance
sheets, including those in hard-hit
sectors like retail, travel and hospital-
ity. As a result, underwriting fees in
our Debt Capital Markets business hit
an all-time record. The business,
which has ranked #1 for the last five
years, extended its leadership posi-
tion with nearly 10% of market share.
Stimulated by unprecedented cen-
tral bank support, the reversal in
market sentiment and the activity
that followed in the second half of
the year were extraordinary. In 2020,
our Equity Capital Markets team
helped clients raise $389 billion of
capital in 563 deals around the
world, which represented one-third
of the total market.
One major development in 2020 was
the evolution of the initial public
offering (IPO) market as special pur-
pose acquisition companies (SPAC)
became mainstream, a byproduct of
low interest rates and excess capital
stockpiled by investors. These “blank
check” companies, which are formed
for the sole purpose of acquiring a
private company, accounted for more
than half of all IPOs in 2020. We
have led our share of SPACs, but as
with any growing trend, we want to
remain diligent and seek to do the
right deals with credible sponsors.
1 As reported for 2020 Investor Day.
In our M&A business, announced
volumes returned to pre-pandemic
levels later in the year as government
stimulus packages took effect and
companies shifted their stance from
defensive to more opportunistic.
Our M&A ranking in EMEA rose to
the #1 position, and we retained the
#2 spot in North America.
The pandemic, the U.S. presidential
election and Brexit all spurred trading
activity. With so much to navigate,
investors turned to J.P. Morgan as a
reliable provider of liquidity, which
resulted in record volumes across
many of our trading areas. At peak
moments, our foreign exchange (FX)
desk was executing 730 trades per sec-
ond, underlining years of investment
in technology and highlighting just
how critical we are to well-functioning
markets during times of volatility.
Overall, Markets revenue climbed
41% to a record $29.5 billion, with our
Fixed Income Markets business gen-
erating $20.9 billion and Equity Mar-
kets producing $8.6 billion.
Our Securities Services business,
which provides pre- and post-trade
services to asset manager clients,
had a strong year of growth in 2020.
Clients outsourced more of their
middle and back office functions to
J.P. Morgan as scalable infrastructure
and timely insights became critical to
handling massive spikes in volume
and volatility. The team onboarded
$4 trillion in assets under adminis-
tration², further strengthening our
position as a leader in fund account-
ing and administration, and ended
the year with record assets under
custody³ of $31 trillion. We launched
our next-generation Middle Office
offering, leveraging the capabilities
2 Assets under administration: Represents the market value
of client assets for which administrative and other related
services are performed.
3 Assets under custody: Represents assets held directly or
indirectly on behalf of clients under safekeeping, custody and
servicing arrangements.
CONSISTENT INVESTMENT HAS LED TO SHARE GAINS IN MARKETS
Markets
Fixed Income
Equities
J.P. Morgan share of wallet
12.9%
9.4%
13.1%
9.8%
12.3%
8.6%
2015
2020
2015
2020
2015
2020
J.P. Morgan rank
#1
#1
#1
#1
#3
co–#1
Source: Coalition Competitor Analytics. Rankings and share based on J.P. Morgan’s internal business structure
of the CIB to offer market-leading
solutions to our clients at a time of
industry consolidation and growth
in complex assets.
Our Wholesale Payments unit, which
includes Treasury Services, Trade
Finance and Merchant Services, also
experienced strong growth in 2020.
A decline in revenue, mostly attrib-
utable to low rates, was offset by
notable deposit growth. Throughout
the pandemic, Treasury Services has
processed payments and facilitated
the flow of essential funds to compa-
nies and governments. As the world’s
largest transaction bank, the business
moves trillions of dollars every day
and remains #1 in U.S. dollar clearing
by volume. Innovation in payments
is exploding, driven by the growth in
e-commerce and digital wallets. In
2020, we went live with ConcourseTM,
a highly configurable global platform
that allows clients to send and receive
payments in a more seamless way;
J.P. Morgan also announced fintech
partnerships in areas such as sup-
ply chain finance and corporate
credit cards.
Legacy of a pandemic
The pandemic has accelerated the
shift to digital platforms and has
transformed the way we and our
clients work. Last year showed us
how quickly we can adapt; for the
first time, many of the year’s biggest
banking deals were conducted
virtually or by phone – unthinkable
before 2020.
As the crisis recedes, it is likely that
we will adopt the best of these new
virtual environments to complement
what we miss most about working
together in person. We are, at heart,
a collaborative business – and work-
ing together is critical to innovation,
creativity and a stronger culture.
After the pandemic, we will likely
see some shift in working patterns.
While some job functions will need
to remain on-site full time, a differ-
ent working model is starting to
emerge in which employees rotate
between working at home and in the
office. This creates more flexibility
for employees and also enables us to
73
ASSETS UNDER CUSTODY HAVE CONTINUED TO GROW IN SECURITIES SERVICES
($ in trillions)
+55%
$19.9
2015
$31.0
2020
INNOVATION AND SCALE HAVE CONTRIBUTED TO GROWING SHARE IN PAYMENTS
19.5%
20.8%
22.0%
22.5%
23.8%
2016
2017
2018
2019
2020
Source: J.P. Morgan’s SWIFT market share for U.S. dollar wire payments
shrink our real estate footprint, oper-
ate buildings more efficiently with
fewer empty seats and eliminate the
need for costly recovery sites.
Clients want to access the full
breadth of our franchise from any-
where and at any time, and we are
transforming to meet that future.
Meeting the needs of the future
From established rivals to tech
giants and fast-moving fintechs
adept at delivering a great client
experience, competitors are crowd-
ing up across all fronts. The CIB is
not immune to these competitive
threats, which is why our focus on
innovation and technology is at the
heart of our investments.
This transformation presents differ-
ent opportunities across our busi-
nesses. For example, in Securities
Services, we are evolving from a pro-
vider of back office services to a fully
integrated platform that delivers
scale and efficiency for clients across
the entire investment life cycle.
In the U.S., the number of publicly
listed companies has fallen by 24%
since the mid-1990s as start-ups delay
74
IPOs. To help those private compa-
nies through their extended life
cycles, we are working to provide a
platform that offers everything from
primary issuance to secondary trad-
ing, as well as data and equity
administration capabilities. In part-
nering with Commercial Banking,
which serves thousands of smaller,
privately held companies, we see a
wealth of untapped opportunities.
The trend in electronification contin-
ues in market trading, and we are
expanding connectivity options for
our clients, improving efficiency
through automation and digitization,
and more effectively participating in
multi-dealer platforms. There is also
an opportunity to act as the trading
interface for smaller banks and to
partner with Commercial Banking
and Treasury Services to manage the
FX needs of smaller companies oper-
ating in international markets. Our
ambition is to create a single pay-
ment and hedging platform for cor-
porations that enables them to more
efficiently reduce currency exposure
and manage cross-border payments.
And in Wholesale Payments, where
we now have the world’s most com-
plete payments network, our focus is
on global e-commerce and online
marketplaces. We want to help clients
plug into a comprehensive payments
and account administration service
in one place and support more small
businesses looking for FX expertise
and working capital.
Central to all this change is a multi-
year program to modernize our
technology infrastructure. We are
becoming a digital-first organiza-
tion, able to harness – safely and
smartly – the power of data and
artificial intelligence across our firm
in order to provide a more seamless
client experience.
A sustainable future ...
Climate change is a defining issue of
our age. Given our firm’s scale and
financing capabilities, we can play a
leading role in helping companies
and economies transition to a low-
carbon world. As part of our efforts to
limit global temperature rise by 2050,
we are aligning our financing portfo-
lio with the Paris Agreement. We will
also establish intermediate emission
targets for 2030, with a focus on the
oil and gas, electric power and auto-
motive manufacturing sectors.
In 2020, we achieved our goal of
becoming carbon neutral in our
operations, which includes sourcing
renewable energy for 100% of our
global power needs. The firm also
launched the Center for Carbon Tran-
sition to provide clients with central-
ized access to sustainability-focused
financing, research and advice.
Business and government must join
forces to address the challenge of
climate change. Meeting the target of
the Paris Agreement requires massive
restructuring in how the world pro-
duces and consumes energy. We are
helping clients make the transition by
financing technology to reduce emis-
sions and by supporting investment
in green energy. In industrialized
sectors, we will continue to advocate
for market-based policy solutions,
including a price on carbon.
… and a diverse future
Stubborn structural challenges per-
sist across our society, and in every
industry human potential continues
to go untapped as racial prejudice
goes unchallenged.
The killing of George Floyd in May
2020 and the subsequent protests
across the U.S. and around the world
impelled us to seek new solutions to
address the challenges Black and
minority individuals face in the
workplace – and in society.
Our efforts to close the racial wealth
divide include a $30 billion injection
of additional capital and other
resources for Black and Latinx cli-
ents, employees and communities in
the U.S. and globally over the next
five years. As part of our invest-
ments, we will work to boost the
flow of capital to minority-owned
banks and businesses, expand sup-
port for minority-owned enterprises,
improve financial health and
broaden the diversity of our suppli-
ers. Programs such as the Entrepre-
neurs of Color Fund and Advancing
Black Pathways, for example, provide
Black and other minority groups
with access to capital, education and
our technical expertise.
Our own success depends on hiring
the best people, no matter where they
grew up, how they were educated or
what they look like. Internally, we
have focused on inclusive recruiting,
invested in new programs to advance
Black talent and created a team dedi-
cated to discovering recruits from
more diverse communities.
Conclusion
In a year like no other, we did what
we have always done: We supported
our clients and employees through
tough times.
The strategy we set years ago
remains as relevant as ever. We are
focused on running our business effi-
ciently, managing risk prudently and
delivering for clients. We are opti-
mizing our business and closing any
addressable gaps in our offering, and
we are continuing to transform our
business for the future.
From the pandemic crisis, we take
forward some vivid lessons; namely,
to preserve our ability to innovate
and execute at speed, even as a large
and complex organization. And we
must do that in a way that enables
our people, communities and planet
to thrive over the long term.
The global vaccine rollout provides
hope for our collective long-term
health and economic well-being. As
we emerge from this tumultuous
time, one of the lingering concerns is
whether the extreme infusion of
liquidity and fiscal stimulus might
ultimately create inflationary condi-
tions in the medium term.
The performance of the CIB in 2020
is testament to the extraordinary com-
mitment of our employees who sup-
ported clients while facing their own
personal challenges. I am very proud
of what they have accomplished.
Daniel E. Pinto
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
75
Commercial Banking
I want to begin this letter with a
heartfelt thank you to all of my col-
leagues in Commercial Banking (CB).
Without a doubt, 2020 presented
tremendous challenges, which our
team met directly with unwavering
commitment and dedication. Amid
enormous uncertainty and adapting
to a new work environment, we
remained relentlessly focused on
supporting our clients, our commu-
nities and each other.
Looking back, we faced this past
year from a position of strength,
having maintained our credit disci-
pline, prepared extensively for a
potential downturn, and made sig-
nificant investments in our plat-
forms and technology. It was this
consistent execution of our long-
term strategy that led to CB’s strong
performance last year.
There’s so much to highlight about
our business and our team – this letter
will give you but a small glimpse.
Standing with our clients
We take great pride in standing with
our clients during challenging times.
The breadth and magnitude of finan-
cial stresses across the globe in 2020
were astounding – operations were
halted, supply chains were disrupted
and revenue across many industries
fell dramatically. Through all of this,
our CB team supported our clients
and helped them access vital liquid-
ity as they adapted to the pandemic
and faced tremendous uncertainty.
For example, we extended $13 billion
in new credit1 to many healthcare cli-
ents, including New York-Presbyterian
Health System – which experienced
a significant increase in overnight
patients as a result of COVID-19.
We moved quickly to provide neces-
sary liquidity, enabling them to
acquire additional medical supplies
and equipment, expand their staff,
and serve the community in a time
of crisis.
Moreover, our team worked tirelessly
to facilitate the distribution of fed-
eral government emergency funding
through various stimulus programs.
In March of 2020, we rapidly built
the processes, platforms and technol-
ogy needed to deliver critical financ-
ing to our clients, partnering across
the firm to help protect millions of
jobs. This important work has con-
tinued into 2021.
Supporting our communities
The pandemic has had a profound
impact on our communities and has
magnified the challenges they face,
especially in underserved segments
of society. In 2020, we extended
$21 billion in financing to states and
municipalities, educational institu-
tions and healthcare providers. Given
the importance of these vital institu-
tions, particularly during times of
crisis, we are proud to support them
in their delivery of essential services
to our communities.
In addition, our Commercial Real
Estate businesses continued to pro-
vide much-needed resources to help
expand and preserve access to
affordable housing. As part of the
firm’s Path Forward commitment
to advance racial equity, we have
committed to finance an additional
100,000 affordable rental units over
the next five years to further address
this systemic challenge. Through
this commitment, we will provide
$14 billion in new loans, equity
investments and other support to
increase and sustain affordable hous-
ing in underserved communities.
GROWING OUR CLIENT FRANCHISE
EXTENDING CREDIT TO SUPPORT OUR COMMUNITIES 1
$13B
TO HOSPITALS AND
HEALTHCARE SERVICES
$4B
TO EDUCATIONAL
INSTITUTIONS
$4B
TO STATE AND
LOCAL GOVERNMENTS
$3B
TO AFFORDABLE
HOUSING
1
Includes new credit commitment originations and existing credit commitments that experienced a major modification during 2020.
76
GROWING OUR CLIENT FRANCHISE
#2
$27T
$4B
290+K
CLIENT
CALLS MADE
290+K
CLIENT
CALLS MADE
290+K
CLIENT
CALLS MADE
FINANCING AFFORDABLE HOUSING
Mercy Housing is a nonprofit that helps people
access safe, stable and quality affordable
housing. In 2020, we provided the construction
financing and equity for two major Mercy
projects in California: 1064 Mission Street,
co-developed with Episcopal Community
Services, in San Francisco and Capitol Park
Hotel in Sacramento. These projects will create
nearly 400 affordable housing units and
house vital services for people experiencing
homelessness.
Investing in our long-term strategy
In CB, we are executing a long-term,
disciplined strategy, focused on add-
ing great clients and delivering valu-
able solutions to help them succeed.
Throughout 2020, we remained
focused on our strategic priorities
and continued to invest and innovate
across our business.
Investing to serve more clients
Being able to deliver our broad-based
capabilities at a very local level dis-
tinguishes us from our competitors.
As such, we now have teams in 137
U.S. locations. Through data-driven
analysis, we’ve identified over 50,000
prospective clients across our Com-
mercial & Industrial businesses2 and
have expanded local coverage accord-
ingly. Since 2008, we’ve essentially
doubled our footprint across the U.S.,
as we moved into 47 new, high-
potential markets, and we’re excited
to deepen our presence in these mar-
kets in the years to come.
We also have an incredible opportu-
nity to serve non-U.S.-headquartered,
multinational companies overseas.
Since launching our international
expansion initiative in 2018, we’ve
2 Commercial & Industrial businesses are generally based on
client segments and do not align with regulatory definitions.
1064 Mission Street
Capitol Park Hotel
added bankers to cover high-quality
companies across 17 countries. While
we’re just getting started, we’re very
excited about the client response and
activity we have seen so far. Similar
to our domestic strategy, we are tak-
ing a long-term view and focused on
covering only the best clients.
Market expansion is only one part
of CB’s growth strategy – deepening
relationships with clients is equally
important. We know our clients
have unique needs and value indus-
try-specific insights and solutions.
To better serve them, we’ve added
a number of new industries to our
coverage model over the last several
years and now have specialized
teams aligned to 17 industry sectors.
We expect these dedicated efforts to
drive meaningful future growth in
our business.
Investing in innovation
We are innovating and building for
the future while at the same time
managing a franchise at scale. As we
look forward, we continue to take a
design-driven approach to assess our
clients’ evolving needs and expecta-
tions, directing our investments in
data capabilities, technology, plat-
forms and solutions to help further
differentiate our value proposition
and how we do business.
With many working remotely, our
clients faced complex challenges in
2020. Through our digital banking
platforms and payment solutions,
we provided ready access to the
tools clients needed to continue to
run their businesses. Digital adop-
tion accelerated last year, and we
added more than 1,800 new relation-
ships – many onboarded completely
virtually. We are continuing to
invest substantially across all of our
platforms to more seamlessly inte-
grate them with those of our clients
and deliver a superior experience.
Investing in our team
Our outstanding team and culture of
excellence are the foundation of our
success in CB – this was especially
true last year. By the end of March,
98% of our team was working
remotely – and a small group of truly
heroic colleagues continued to carry
out essential operations on-site. The
leadership, creativity and partner-
ship demonstrated across our busi-
ness were inspiring and reinforced
the importance of our people.
77
DELIVERING THE BEST INVESTMENT BANK TO CB CLIENTS
Commercial Banking Gross Investment Banking Revenue3
($ in billions)
$4.0
$3.3
$2.3
$2.4
$2.7
$2.5
$2.2
$2.0
$1.6
$1.7
$1.3
$1.4
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Long-term
target
3 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients.
As always, we remain focused on hir-
ing, training and enabling the best
team to execute our strategy. Our
technology investments are connect-
ing us in meaningful new ways, rein-
forcing our values of teamwork and
collaboration. As we seek to foster
even more innovation across our
business, we’re adding expertise and
training in design, data and technol-
ogy. We’re empowering our people
with tools and analytics that allow
them to more effectively and effi-
ciently serve our clients.
Fostering an inclusive workplace took
on new meaning last year, and we
are committed to building an
organization representative of the
communities we serve. Despite
the recruiting challenges posed by
COVID-19, we increased diverse rep-
resentation across all demographics
and welcomed our most diverse full-
time analyst class in recent years.
Solid financial performance
We don’t measure our success on an
annual basis; rather, we take a long-
term view and invest through the
cycle. The investments we’ve made
in our people and capabilities, com-
bined with our patience and disci-
pline, continue to drive strong
results across our business. In 2020,
78
CB delivered net income of $2.6 bil-
lion on $9.3 billion in revenue, gen-
erating a return-on-equity of 11%.
We are proud of our performance
despite market volatility, lower inter-
est rates and a significant build in
our credit reserves.
Our underwriting discipline and
client selection helped drive our
solid credit performance last year,
with net charge-offs of 18 basis
points, primarily concentrated in
certain industries. While our actual
credit losses were modest, CB added
$1.7 billion in credit reserves for the
year as we prepared for a variety of
economic outcomes.
Being able to deliver the full power
of JPMorgan Chase to our clients
remains a key value driver. Perhaps
the best example is our close partner-
ship with the Corporate & Investment
Bank, which resulted in record gross
Investment Banking (IB) revenue of
$3.3 billion, up 22% year-over-year
and surpassing our $3 billion long-
term target. We see tremendous
opportunity in the years to come
and have increased our long-term
IB revenue target to $4 billion.
While no one could have predicted
the events of 2020, our results con-
firm our strategy and highlight the
resilience of our business.
Looking forward
I am more optimistic than ever about
the future for CB. We have excep-
tional talent, outstanding capabilities
and enormous potential. We have an
incredible opportunity to continue to
grow our franchise, and we are not
standing still – we are innovating
and investing across our business for
the long term.
Looking forward, we do not intend to
simply go back to normal. Last year’s
challenges made us stronger, giving
us an opportunity to learn and grow
as a business – finding new ways to
serve our clients and strengthen the
places we call home. We will capture
the many lessons learned in 2020 to
help accelerate the execution of our
strategy and position CB for even
greater success in the future.
I’ll close this letter the same way I
began, by acknowledging our excep-
tional team and thanking them for
their unbelievable support of our
clients and each other.
Douglas B. Petno
CEO, Commercial Banking
Asset & Wealth Management
When last year’s shareholder letter
was published, the world and finan-
cial markets were just coming to
grips with COVID-19. Since then, the
global pandemic has affected all of
us in unforgiving ways – with loss of
life, strained healthcare systems and
economic setbacks that will be felt
for years to come.
Fortunately, governments and central
banks acted swiftly and decisively to
infuse capital and provide support for
what could have been very fragile
markets. If there is a silver lining to
this horrible pandemic, it is how
much the world acted in unison to try
to do the right thing. We are hopeful
that 2021 will be a better year for all.
GROWING OUR CLIENT FRANCHISE
Rising to meet an unprecedented
challenge
In March 2020, over the course of
two weeks, we transitioned more
than 90% of our global Asset &
Wealth Management (AWM) team
from on-site to remote work settings.
In doing so, we proved that we can
serve our clients under any and all
circumstances, even without ever
leaving our homes. We also showed
that we can make sound and fast
decisions under intense pressure
and uncertainty.
As always, clients were our focus.
Helping them as we all went through
AWM COVID-19 RESILIENCY HIGHLIGHTS
AWM COVID-19 RESILIENCY HIGHLIGHTS
these challenges, together, was a
source of great pride and drove us
to be at our best.
Across AWM, our years of resil-
iency testing and preparation
enabled us to pivot swiftly and
seamlessly. As CEO, I have written
annually about how proud I am of
my colleagues and our firm. This
was especially true in 2020, when
we intensified our work on:
• Digital acceleration. Operating
almost exclusively in a digital
world, we were able to quickly
identify manual or inefficient pr0c-
esses. As volumes surged and we
overcame various work environ-
ment and personal challenges, we
worked tirelessly to accelerate our
digital engagement with clients,
counterparties and one another.
In 2021, we are focused on closing
remaining process gaps and pull-
ing forward multi-year plans.
• Connectivity with our clients. As the
world locked down, we were
given the gift of redirecting time
previously devoted to travel and
other in-person activities to con-
nect with tens of thousands of cli-
ents eager for our insights and
thought leadership. The success
of this shift is demonstrated by
our results: record attraction and
retention of assets and clients.
• Operational excellence. With an agile
mindset, we accelerated the move-
ment of reports to dashboards, sim-
plified processes and strengthened
the governance of our technology
investments.
Strong investment performance for
clients
Year in and year out, we are focused
on delivering outstanding investment
performance. This is why maintain-
ing a 95+% retention rate of our top-
performing investment team heads,
portfolio managers and research ana-
lysts is such a high priority. With the
volatility that occurred in 2020, active
management was never more impor-
tant and its value never more appar-
ent, and, accordingly, our long-term
investment performance was strong
across asset classes.
Clients vote with their feet, and they
continue to entrust us with more of
their assets every year. In 2020, our
client assets grew to a record $3.7
trillion, and we received a record
$276 billion in net client asset flows.
Our record flows were the result of a
diversified business that meets all of
our clients’ needs – we had positive
flows across all regions, segments
and products. Having our breadth
and depth of solutions was especially
important during a very volatile
market environment.
360M
MINUTES
670,000
>3x
135,000
TIME SPENT ON
ZOOM BY
AWM EMPLOYEES
EXTERNAL
ATTENDEES JOINING
DIGITAL EVENTS
YoY INCREASE IN EQUITY
TRADING VOLUMES
FOR WM CLIENTS
DIGITAL PORTFOLIO
INSIGHTS
ANALYSES COMPLETED
YoY = Year-over-year
WM = Wealth Management
>$60M
FRAUDULENT
TRANSACTIONS
PREVENTED
79
80%
91%
80%
2020 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median1 over 10 Years
(net of fees)
80%
91%
57%
Total J.P. Morgan
Asset Management
Equity
Fixed Income
Multi-Asset Solutions
& Alternatives
80%
91%
57%
83%
AUM = Assets under management
2020 — A Record Year for J.P. Morgan Asset & Wealth Management²
91%
57%
83%
Revenue
Pretax
Income
Net
Income
Loans
(EOP)
Deposits
(EOP)
Assets
Flows
2020
performance
57%
$14.2B
$4.0B
83%
$3.0B
$187B
$199B
$3.7T
$276B
Record
P
P
P
P
P
P
P
EOP = End of period
83%
• Liquidity: $104 billion in flows, as
more risk-averse clients looked to
reduce their market exposure, par-
ticularly during the first half of the
year when flows reached $170 bil-
lion. Two of our money market
funds, U.S. Government and U.S.
Treasury, each attracted over $25
billion in flows last year3.
• Fixed Income: $48 billion in flows, as
market volatility and the low inter-
est rate environment caused clients
to seek high-quality income
sources. We had strong flows into
our Income funds ($8 billion)4,
High Yield Bond funds ($6 billion)5
and Ultra-Short Income ETF (JPST)
($5 billion)6.
• Equity: $33 billion in flows, as mar-
kets rebounded and clients
increased their exposure, particu-
larly during the second half of the
year. There was strong activity
across our offering, including signif-
icant flows into our Emerging
Markets Equity funds ($6 billion)7,
U.S. Large Cap Growth funds
($4 billion)8 and China A-Share
funds ($3 billion)9.
• Multi-Asset: $5 billion in flows, as
clients continued to seek actively
managed, outcome-oriented strate-
gies. Our SmartRetirement Blend
Target Date funds were an example
of this, with $4 billion in flows3.
• Alternatives: $6 billion in flows
across a range of income-oriented
and higher-returning strategies,
including Infrastructure, Private
Credit and our Highbridge offering.
• Custody/Brokerage/Administration/
Deposits: $80 billion in flows, as cli-
ents trusted us to support their
trading and banking needs.
80
Having dedicated market experts to
support our clients is almost as impor-
tant as the breadth and depth of our
offering. In addition to the nearly
2,500 Global Private Bank10 client advi-
sors and more than 1,000 Asset Man-
agement investment professionals, we
have over 120 market strategists, port-
folio analysts and goals-based advisors
whose sole job is to provide timely
advice and insights to our clients.
1 For footnote, refer to page 67 footnote 32 in this Annual Report.
2 For footnote, refer to page 67 footnote 29 in this Annual Report.
3 Source: ISS Market Intelligence Simfund
4 Source: ISS Market Intelligence Simfund. Total flows into U.S.-
and Luxembourg-domiciled funds
5 Source: ISS Market Intelligence Simfund. Total flows into High
Yield Fund (U.S.-domiciled) and Global High Yield Bond Funds
(Luxembourg- and U.K.-domiciled)
6 Source: ISS Market Intelligence Simfund. U.S.-domiciled ETF
7 Source: ISS Market Intelligence Simfund. Total flows into
Emerging Markets Equity Funds (U.S.- and Luxembourg-
domiciled) and Emerging Markets Fund (U.K.-domiciled)
8 Source: ISS Market Intelligence Simfund. Total flows into
Large Cap Growth Fund (U.S.-domiciled) and U.S. Growth Fund
(Luxembourg-domiciled)
9 Source: ISS Market Intelligence Simfund. Total flows into
China A-Share Opportunities Funds (Luxembourg- and Hong
Kong-domiciled), China Pioneer A-Share Fund (Hong Kong-
domiciled) and China A Share Equity Fund (Taiwan-domiciled)
10 For footnote, refer to page 67 footnotes 29 and 30 in this
Annual Report.
In 2021, J.P. Morgan will celebrate its 100th year in China. Today, the country represents
one of the largest opportunities for our clients and the firm. For AWM, 2021 is especially
important because we have agreed on terms with our joint venture partner to purchase
China International Fund Management (CIFM), the culmination of a successful 17-year
partnership. Given our firm’s heritage in China, established brand, and current on-the-
ground investment teams and distribution channels, we are very excited about the
possibilities that full ownership of CIFM will bring to our business and clients — and we
look forward to our next 100 years in China.
When you bring these strengths
together – the focus on investment
performance, the breadth and depth
of our offering, and the expertise and
advice we offer our clients – it’s clear
how, since 2010, we have averaged
more than $100 billion per year in cli-
ent flows2 – quite rare in our industry.
Equally important, the acknowledg-
ment from our clients has validated
our strategy to be the leader in active
management. Looking specifically at
flows through this lens, I am very
proud of the fact that Asset Manage-
ment ranked #1 in global long-term
active fund flows in 202011. And
across all of AWM, we maintained
our #2 ranking against publicly
traded peers in five-year cumulative
total client asset flows12.
Record year for shareholders
As a result of our clients’ trust in us
and the incredibly hard work of our
employees, we delivered extraordi-
nary results for our shareholders. This
included record performance across
nearly all financial metrics, including
revenue, pretax income, net income,
loans, deposits and assets.
Both of AWM’s lines of business also
performed well. Asset Management
reached record revenue of $7.7 billion
and record pretax income of $2.2
billion. The Global Private Bank was
an equally powerful story, with record
revenue of $6.6 billion and pretax
income of $1.8 billion, despite the
headwind of $263 million in credit
costs as we grew our franchise10.
11 Source: ISS Market Intelligence Simfund retrieved March 17,
2021. Excludes index, fund of funds and money market funds
12 For footnote, refer to page 67 footnote 26 in this Annual Report.
Investing in our business
Our success would not be possible
without constant reinvestment in our
business – to accelerate our growth,
expand our offering, and maintain a
strong risk and control framework.
As a result of our long-term focus,
increased scale and business momen-
tum, our investment budget for 2021
is the largest in AWM’s history. Our
most significant investments are
aligned with the following areas:
• Hiring: Grow market share
domestically and internationally
by hiring advisors and investment
professionals.
• Digital and Data: Digitize everything,
and leverage data to deliver insights
to our clients, investors and advisors.
• Environmental, Social and Governance:
Rank among the top three in active
sustainable funds.
• China: Become the #1 foreign asset
manager onshore in China.
Optimism for our future
Over a century ago, we launched one
of our first investment funds, Mercan-
tile Investment Trust. That fund, with
a 136-year track record, thrives today
as a great example of our consistent
and steadfast management of assets.
Clients choose J.P. Morgan as a long-
term partner because we have with-
stood the test of time and are well-
positioned for centuries to come.
As our business helps governments,
central banks, individuals, corpora-
tions and pensions all around the
world, we have a global perspective
that few others enjoy. This, coupled
with top-ranked performance in
successfully managing client assets
directly and in choosing third-party
managers who we believe can do the
same, gives us a unique understand-
ing of the ever-changing investment
landscape. That is why clients turn to
us in uncertain times just as much as
they do in more optimistic times. In
2020, we experienced both extremes.
Simply put, delivering performance
and doing first-class business in a
first-class way, decade after decade, is
the core of what we do in AWM.
While new challenges undoubtedly
lie ahead, I have never been more
proud of the resiliency of our people,
more grateful for our clients’ trust
and confidence or more optimistic
about our business’s future.
Mary Callahan Erdoes
CEO, Asset & Wealth Management
81
Corporate Responsibility
2020 will be remembered as a defin-
ing moment for humanity. It was a
year that both reinforced and exacer-
bated profound inequities – from the
pandemic’s disproportionate impact
on Black and Latinx communities, to
the killing of Black citizens by police
officers, to violence against members
of the Asian and Pacific Islander
community amid cries for racial
justice. These events have brought
a long overdue focus on removing
barriers to racial equity, and they
demand fundamental change around
the globe.
Last April, I wrote that business
needed to step up and collaborate
with local, government and commu-
nity leaders by providing resources
and expertise to find solutions for
those most in need. That same
month, first-ever National Youth Poet
Laureate Amanda Gorman shared a
poem that read in part, “Do not
ignore the pain. Give it purpose. Use
it.” Her sentiments have reverberated
over this past painful year. It is time
to change how we operate both pub-
lic and private systems, dismantling
what has been holding too many
people back for far too long.
Today, 10 million Americans are out
of work. The most financially vulner-
able have been hit hardest, with
Black and Latinx workers facing the
highest unemployment rates, espe-
cially women1. Lower-income fami-
lies are dealing with the largest drop
in savings since April 2020. Even
pre-pandemic, Black and Latinx fami-
lies held less than 50 cents for every
dollar in liquid assets compared with
families who are white2 – underlin-
ing the dire need for a truly inclusive
economic recovery.
1 https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/
ui-claims/20210420.pdf
2 https://www.jpmorganchase.com/content/dam/jpmc/
jpmorgan-chase-and-co/institute/pdf/institute-race-report.pdf
8282
Getting back to better business –
not business as usual – starts with
acknowledging that we all have
fallen short.
Throughout 2020, several thousand
colleagues looked across our entire
firm to examine where JPMorgan
Chase could do more and do better.
In October, we announced a massive
$30 billion commitment over the
next five years to advance racial
equity, drive an inclusive recovery,
support employees and break down
barriers of systemic racism, includ-
ing changes across our firm to help
us better serve our customers, our
communities and our own employ-
ees by leading with diversity, equity
and inclusion. We were deeply hon-
ored that JPMorgan Chase was
named the Corporate Funder of the
Year by Inside Philanthropy, which
noted the size, substance and strate-
gic focus of our commitments.
Our company alone cannot end sys-
temic racism, but we can do our part
to drive clear policy, as well as busi-
ness and community solutions, that
create an inclusive recovery and pro-
mote shared prosperity. In February
2021, the JPMorgan Chase Institute
and PolicyCenter shared new research
and data-driven policy recommenda-
tions to inform immediate support
to those most impacted by COVID-19,
as well as longer-term policies to
increase the financial health and
stability of households and small
businesses. These include support
for extending and expanding unem-
ployment benefits, providing addi-
tional rental assistance funding to
stabilize families, and reforming
Small Business Administration
programs to better support Black,
Latinx, women and other under-
served entrepreneurs. This year, the
J.P. Morgan International Council
also put forth a series of recommen-
dations, focused on the future of the
international system and the future of
work, advocating for business leaders
to engage with policymakers to
advance the public’s interest – not
just business – and drive solutions in
the post-pandemic world.
Bringing bold ideas about an inclu-
sive recovery and removing structural
barriers are not just matters of better
government policy and programs.
Businesses must be at the table with
ideas – and have a willingness to
change their own practices – to effec-
tively advance solutions that have the
impact we so desperately need. That
is why JPMorgan Chase is investing
in economic opportunity. We will con-
tinue to develop better programs and
products and advance policies that
can lead to an inclusive economic
recovery and opportunity for all.
Peter L. Scher
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
“
For the sheer speed and size of its response to COVID and demands for
racial equity, JPMorgan Chase earns the nod this year. It pledged – and
is moving – a $250 million response to the pandemic, and a $30 billion
(with a “b”) commitment in loans, equity and direct funding toward
”
racial equity. The company’s giving is always strategic and substantial.
Inside Philanthropy
Driving an inclusive recovery
In a year where our customers, employees and
communities faced devastating social, eco-
nomic and commercial consequences from the
COVID-19 pandemic, JPMorgan Chase focused
on applying the full force of its resources to
serve all of its stakeholders. To address the
immediate and long-term impact of COVID-19,
our efforts included quickly deploying an initial
$250 million in global business and philan-
thropic support to vulnerable and underserved
communities, existing nonprofit partners and
underserved small businesses.
Advancing racial equity
In October, JPMorgan Chase announced a
$30 billion initiative to advance racial equity
and address key drivers of the racial wealth
divide, combat systemic racism and support
our own employees.
Over the next five years, the firm will put this
commitment into practice and help close the
racial wealth divide by combining our business,
policy, data and philanthropic expertise to
increase affordable lending and housing, expand
minority-owned small business credit and capi-
tal, help more people gain the skills they need
to be successful and build a diverse workforce.
Advancing policy solutions through data
Our JPMorgan Chase Institute and PolicyCenter
use firmwide data to analyze, develop and pro-
mote policy insights and solutions, educating
and informing policymakers and business and
nonprofit leaders. Through this work, we are
able to advocate for sustainable solutions to
economic inequality and help address other
critical issues our communities are facing today.
million, five-year investment to equip young
people and adults with the skills they need to
be successful in a rapidly changing economy,
JPMorgan Chase is developing pathways and
policy recommendations to help underserved
students gain better access to higher education
and real-world work experiences. We have
made this support also available to those
workers, regardless of age, most affected by
the COVID-19 pandemic. In addition, we are
testing new strategies to upskill and reskill our
own employees to address changes in technol-
ogy and business needs.
Supporting small business growth and
entrepreneurship
Small businesses are the backbone of our
communities, and the COVID-19 pandemic has
profoundly affected the entire sector. Accord-
ing to the JPMorgan Chase Institute, Black-,
Latinx- and women-owned small businesses
are underrepresented among firms with sub-
stantial external financing, limiting opportuni-
ties to scale their business.
To help eliminate these barriers, JPMorgan
Chase announced a new $350 million, five-year
global commitment to foster Black-, Latinx-,
women-owned and other underserved small
businesses. This includes philanthropic invest-
ments to support diverse-led nonprofit organi-
zations; low-cost loans to invest in community
development financial institutions (CDFIs);
and direct equity investments in early-stage
companies. As part of our commitment,
JPMorgan Chase is also expanding its signature
Entrepreneurs of Color Fund, which provides
low-cost loans to minority-owned small busi-
nesses, to more U.S. cities in 2021.
Preparing workers for the future of work
Promoting neighborhood development
Even before the pandemic, rapid changes in
technology, automation and artificial intelli-
gence continued to exacerbate the disconnect
between skills and jobs. As part of our $350
Affordable housing and homeownership are
among the greatest factors that fuel the racial
wealth divide. As a result, we are changing our
business practices, advancing product innova-
tion and advocating for more effective housing
policies through our $30 billion commitment
to advance racial equity.
In Chicago, seven organizations received a
$7.2 million philanthropic investment to boost
long-term homeownership. This includes pro-
moting innovative modular home construction,
as well as providing financial products and
coaching in South and West side neighbor-
hoods, including Back of the Yards, North
Lawndale and Chicago Lawn.
Expanding financial health and wealth
creation
As part of our five-year, $125 million commit-
ment to improve financial health, JPMorgan
Chase is leveraging its philanthropic capital
and expertise to seed and scale technology-
based innovations specifically for low- and
moderate-income households around the
world. Through the Financial Solutions Lab,
part of our 10-year partnership with the
Financial Health Network program, we have
supported 40 fintech companies, whose
innovative products collectively reach more
than 4.5 million people and have helped U.S.
residents save over $1 billion.
Globally, we support similar efforts to address
the financial health needs of communities out-
side the U.S., including the Financial Inclusion
Lab in India and the Catalyst Fund to stimulate
financial inclusion in emerging markets.
Tackling climate change
JPMorgan Chase is committed to advancing
sustainable solutions for our clients and within
our own operations. We are adopting a financ-
ing commitment aligned with the goals of the
Paris Agreement to help clients navigate the
challenges and capitalize on the long-term
economic and environmental benefits of transi-
tioning to a low-carbon world. We’ll establish
intermediate emission targets for 2030 for our
financing portfolio, focusing first on the oil and
gas, electric power and automotive manufac-
turing sectors. We also committed to source
renewable energy for 100% of the firm’s power
needs — such as installing on-site solar panels
at our retail branches and commercial offices.
83
83
2020 HIGHLIGHTS AND ACCOMPLISHMENTS
Awards and recognition
• Ranked in Top 10 on Fortune magazine’s
World’s Most Admired Companies list
• Ranked in Top 10 in Top Corporate Respond-
ers, a list assessing pandemic mobilization
compiled by Forbes and JUST Capital
— Advancing policy solutions: We released
new policy papers to provide data-driven
analyses and policy recommendations that
address the pandemic’s immediate and
long-term financial impacts on households,
small businesses and communities, as well
as the need to ensure an equitable recovery.
• Recognized by Inside Philanthropy as
• Careers and skills:
Corporate Funder of the Year for the firm’s
response to the COVID-19 crisis and demand
for racial equity
• Earned 100% rating on the Human Rights
Campaign’s Corporate Equality Index 2020 —
18th consecutive year
Accomplishments
•
Inclusive recovery: In 2020, the firm commit-
ted more than $500 million in low-cost loans,
equity and philanthropic grants to address
the immediate COVID-19 crisis, drive an inclu-
sive recovery and advance racial equity.
These efforts are targeted to help 1.3 million
individuals gain access to financial coaching,
help another 172,000 individuals enroll in
jobs and skills programs, assist 64,000
underserved small businesses and create or
preserve 43,000 affordable housing units.
• Community development and AdvancingCities:
We helped bolster the long-term vitality of
global cities through low-cost, long-term
loans and philanthropic investments:
— Building on JPMorgan Chase’s $500 million
commitment to drive inclusive growth and
create greater economic opportunity in
cities around the world, the firm awarded
a total of $35 million to organizations in
seven U.S. cities that won the firm’s 2020
AdvancingCities Challenge: Baton Rouge,
Boston, Chicago, Minneapolis, New Orleans,
Philadelphia and Portland.
8484
— We invested $75 million to better prepare
young people for the jobs of today and
tomorrow, beginning in six U.S. cities:
Boston, Columbus, Dallas, Denver,
Indianapolis and Nashville.
— We celebrated 10 years of The Fellowship
Initiative (TFI) and renewed our commit-
ment to improving economic and social
outcomes for young Black and Latinx men.
TFI will triple the number of young people it
serves to more than 1,000 over the next 10
years and broaden its reach across several
U.S. cities. The program has driven 100%
admission to college among graduating
Fellows; among these, more than half were
the first in their family to attend college.
• Financial health:
— In India, the Financial Inclusion Lab sup-
ported 30 fintechs, which have expanded
their services to reach over 20 million
people in underserved communities.
— To date, the Financial Solutions Lab Accel-
erator has supported 43 fintech start-ups
across six cohorts.
— We provided immediate support to orga-
nizations, such as Mission Asset Fund and
the International Rescue Committee (and
its CDFI affiliate, the Center for Economic
Opportunity), to provide financial coaching
and affordable loans to households and
small business owners with a focus on
underserved communities.
— We have been long-standing supporters
of the Cities for Financial Empowerment
Fund, including its Bank On initiative to
equip accounts with common standards that
make banking accessible to more people.
We worked closely with them to ensure our
clients could receive stimulus and other
emergency payments safely through Chase,
following social distancing protocols.
• Sustainability: Since 2003, our firm has com-
mitted over $23.9 billion in tax equity financ-
ing for wind, solar and geothermal energy
projects in the U.S., including $5.7
billion for wind and solar projects in 2020.
Through the Climate Leadership Council and
membership in Business Roundtable, we've
also supported market-based policy solutions
to address carbon emissions. In 2020, we
completed our inaugural green bond issuance
of $1 billion.
• Small business expansion: JPMorgan Chase
launched its Small Business Forward initia-
tive in 2015. Over the last five years, the firm
has provided more than $200 million in phi-
lanthropy, including $20 million in COVID-19
relief, to support underserved small busi-
nesses in cities around the world. These
funds provided access to capital and techni-
cal support to over 1 million diverse small
businesses, which have raised nearly $10
billion in capital and increased revenue by
an average of 22%.
• Employees serving our communities:
— More than 18,000 employees volunteered
over 116,000 hours in 2020. This includes
nearly 220 JPMorgan Service Corp volun-
teers from 13 countries who contributed
nearly 9,500 hours working with nearly
50 nonprofits.
— More than 500 employees participated in
the Board Match Program, which deepens
the impact of employees’ donations to
nonprofits when they also serve on the
organization’s board. In 2020, the firm
matched more than $1.9 million in
contributions to those nonprofits.
— In 2020, our firm and its employees donated
over $1 million to COVID-19 relief efforts and
$7.2 million to disaster relief efforts around
the globe.
Table of contents
Financial:
44 Five-Year Summary of Consolidated Financial
Highlights
Audited financial statements:
45 Five-Year Stock Performance
158 Management’s Report on Internal Control Over
Financial Reporting
159 Report of Independent Registered Public Accounting
Management’s discussion and analysis:
Firm
46 Introduction
47 Executive Overview
162 Consolidated Financial Statements
167 Notes to Consolidated Financial Statements
54 Consolidated Results of Operations
57 Consolidated Balance Sheets and Cash Flows Analysis
60 Off–Balance Sheet Arrangements and Contractual
Cash Obligations
62 Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures
65 Business Segment Results
85 Firmwide Risk Management
Supplementary information:
299 Selected quarterly financial data (unaudited)
300 Distribution of assets, liabilities and stockholders’
equity; interest rates and interest differentials
90 Strategic Risk Management
305 Glossary of Terms and Acronyms
91 Capital Risk Management
102 Liquidity Risk Management
110 Credit and Investment Risk Management
135 Market Risk Management
143 Country Risk Management
145 Operational Risk Management
152 Critical Accounting Estimates Used by the Firm
156 Accounting and Reporting Developments
157 Forward-Looking Statements
JPMorgan Chase & Co./2020 Form 10-K
43
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(a)
Total noninterest expense(a)
Pre-provision profit(b)
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”)(b)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)(c)
Return on tangible common equity (“ROTCE”)(b)(c)
Return on assets (“ROA”)(b)
Overhead ratio
Loans-to-deposits ratio(d)
Firm Liquidity coverage ratio (“LCR”) (average)(e)
JPMorgan Chase Bank, N.A. LCR (average)(e)
Common equity tier 1 (“CET1”) capital ratio(f)(g)
Tier 1 capital ratio(f)(g)
Total capital ratio(f)(g)
Tier 1 leverage ratio(f)(g)
Supplementary leverage ratio (“SLR”)(f)(g)
Selected balance sheet data (period-end)
Trading assets(d)
Investment securities, net of allowance for credit losses
Loans(d)
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowances for loan losses and lending-related commitments
Allowance for loan losses to total retained loans
Nonperforming assets(d)
Net charge-offs
Net charge-off rate
2020
2019
2018
2017
2016
$ 119,543
66,656
52,887
17,480
35,407
6,276
$ 29,131
$ 115,399
65,269
50,130
5,585
44,545
8,114
$ 36,431
$ 108,783
63,148
45,635
4,871
40,764
8,290
$ 32,474
$ 100,460
59,270
41,190
5,290
35,900
11,459
$ 24,441
$ 96,275
56,378
39,897
5,361
34,536
9,803
(h) $ 24,733
$
8.89
8.88
3,082.4
3,087.4
$
10.75
10.72
3,221.5
3,230.4
$
9.04
9.00
3,396.4
3,414.0
$
6.35
6.31
3,551.6
3,576.8
$ 387,492
3,049.4
81.75
66.11
3.60
$ 429,913
3,084.0
75.98
60.98
3.40
$ 319,780
3,275.8
70.35
56.33
2.72
$ 366,301
3,425.3
67.04
53.56
2.12
$
6.24
6.19
3,658.8
3,690.0
$ 307,295
3,561.2
64.06
51.44
1.88
12 %
14
0.91
56
47
110
160
13.1
15.0
17.3
7.0
6.9 %
15 %
19
1.33
57
64
116
116
12.4
14.1
16.0
7.9
6.3 %
13 %
17
1.24
58
69
113
111
12.0
13.7
15.5
8.1
6.4 %
10 %
12
0.96
59
66
119
108
12.2
13.9
15.9
8.3
6.5 %
10 %
13
1.00
59
67
NA
NA
12.3
14.0
15.5
8.4
6.5 %
$ 503,126
589,999
1,012,853
3,386,071
2,144,257
281,685
249,291
279,354
255,351
$ 369,687
398,239
997,620
2,687,379
1,562,431
291,498
234,337
261,330
256,981
$ 378,551
261,828
1,015,760
2,622,532
1,470,666
282,031
230,447
256,515
256,105
$ 349,053
249,958
959,429
2,533,600
1,443,982
284,080
229,625
255,693
252,539
$ 342,436
289,059
922,831
2,490,972
1,375,179
295,245
228,122
254,190
243,355
$ 30,737
$ 14,314
$ 14,500
$ 14,672
$ 14,854
2.95 %
1.39 %
1.39 %
1.47 %
1.55 %
$ 10,906
5,259
$
5,054
5,629
$
5,901
4,856
$
0.55 %
0.60 %
0.52 %
7,119
5,387
0.60 % (i)
$
7,754
4,692
0.54 %
Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses (“CECL”) accounting guidance. Refer to Note 1 for further information.
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with
no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity (“TCE”) is also a non-GAAP financial measure. Refer to
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64 for a further discussion of these measures.
(c) Quarterly ratios are based upon annualized amounts.
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-
period amounts have been revised to conform with the current presentation.
(e) For the years ended December 31, 2020, 2019, 2018 and 2017, the percentage represents average LCR for the three months ended December 31, 2020, 2019,
2018 and 2017. The U.S. LCR public disclosure requirements for the Firm became effective in 2017. Refer to Liquidity Risk Management on pages 102–108 for
additional information on the LCR results.
(f) As of December 31, 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL
capital transition provisions that became effective in the first quarter of 2020. As of December 31, 2020, the SLR reflects the temporary exclusions of U.S.
Treasury securities and deposits at Federal Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the
COVID-19 Pandemic on pages 52-53 and Capital Risk Management on pages 91-101 for additional information.
(g) The Basel III capital rules became fully phased-in effective January 1, 2019, and for the SLR became fully phased-in effective January 1, 2018. Prior to these dates,
the required capital metrics were subject to the transitional rules. As of December 31, 2018, the risk-based capital metrics were the same on a fully phased-in and
transitional basis. Refer to Capital Risk Management on pages 91-101 for additional information on these capital metrics.
(h) In December 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.
(i) 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%.
44
JPMorgan Chase & Co./2020 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 Financials 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
Financials 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, 2015, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financials Index
S&P 500 Index
December 31,
(in dollars)
2015
$ 100.00
100.00
100.00
100.00
2016
$ 134.57
128.51
122.75
111.95
2017
$ 170.54
152.41
149.92
136.38
2018
$ 159.20
125.42
130.37
130.39
2019
$ 234.46
170.72
172.21
171.44
2020
$ 221.52
153.12
169.19
202.96
JPMorgan Chase & Co./2020 Form 10-K
45
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, 2020. The MD&A is included in both JPMorgan Chase’s Annual Report for the year ended
December 31, 2020 (“Annual Report”) and its Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form
10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 305-311
for definitions of terms and acronyms used throughout the Annual Report and the 2020 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. Refer to Forward-looking Statements on page 157) and Part 1, Item 1A: Risk factors in the
2020 Form 10-K on pages 8-32 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.
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 the Corporate & Investment Bank (“CIB”), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM”).
Refer to Business Segment Results on pages 65–84, and
Note 32 for a description of the Firm’s business segments,
and the products and services they provide to their
respective client bases.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading financial services firm based in the United States of
America (“U.S.”), and has operations worldwide; JPMorgan
Chase had $3.4 trillion in assets and $279.4 billion in
stockholders’ equity as of December 31, 2020. 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 subsidiary is JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A.”), a national banking association with U.S. branches in
38 states and Washington, D.C. as of December 31, 2020.
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 outside the U.S. is J.P. Morgan Securities plc, a
U.K.-based subsidiary of JPMorgan Chase Bank, N.A.
46
JPMorgan Chase & Co./2020 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 2020 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 LOBs, this 2020 Form 10-K should be read in its
entirety.
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. Refer to Note 1 for further
information.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share data
and ratios)
Selected income statement data
Total net revenue(a)
Total noninterest expense(a)
Pre-provision profit
2020
2019
Change
$ 119,543
$ 115,399
4 %
66,656
65,269
52,887
50,130
Provision for credit losses
17,480
5,585
Net income
29,131
36,431
Diluted earnings per share
8.88
10.72
Selected ratios and metrics
Return on common equity
Return on tangible common equity
12 %
14
15 %
19
Book value per share
$ 81.75
$ 75.98
Tangible book value per share
Capital ratios(b)
CET1
Tier 1 capital
Total capital
66.11
60.98
13.1 %
12.4 %
15.0
17.3
14.1
16.0
2
5
213
(20)
(17)
8
8
(a) In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) As of December 31, 2020, the capital metrics reflect the relief
provided by the Federal Reserve Board in response to the COVID-19
pandemic, including the CECL capital transition provisions that became
effective in the first quarter of 2020. Refer to Regulatory
Developments relating to the COVID-19 Pandemic on pages 52-53 and
Capital Risk Management on pages 91-101 for additional information.
Comparisons noted in the sections below are for the full year
of 2020 versus the full year of 2019, unless otherwise
specified.
Firmwide overview
JPMorgan Chase reported net income of $29.1 billion for
2020, or $8.88 per share, on net revenue of $119.5 billion.
The Firm reported ROE of 12% and ROTCE of 14%. The
Firm's results for 2020 included net additions to the
allowance for credit losses of $12.2 billion and Firmwide
legal expense of $1.1 billion.
• The Firm had net income of $29.1 billion, down 20%.
• Total net revenue was up 4%. Noninterest revenue was
$65.0 billion, up 12%, driven by higher CIB Markets
revenue, Investment Banking fees and net production
revenue in Home Lending. Net interest income was $54.6
billion, down 5%, driven by the impact of lower rates,
predominantly offset by higher net interest income in CIB
Markets as well as balance sheet growth.
• Noninterest expense was $66.7 billion, up 2%, driven by
higher volume- and revenue-related expense, legal
expense and continued investments in the businesses,
partially offset by lower structural expense.
• The provision for credit losses was $17.5 billion, up
$11.9 billion from the prior year, driven by net additions
to the allowance for credit losses of $12.2 billion due to
the deterioration and increased uncertainty in the
macroeconomic environment as a result of the impact of
the COVID-19 pandemic.
• The total allowance for credit losses was $30.8 billion at
December 31, 2020. The Firm had an allowance for loan
losses to retained loans coverage ratio of 2.95%,
compared with 1.39% in the prior year; the increase
from the prior year was driven by the additions to the
allowance for credit losses and the adoption of CECL.
• The Firm’s nonperforming assets totaled $10.9 billion at
December 31, 2020, an increase of $5.9 billion from the
prior year, primarily reflecting client credit deterioration
across multiple industries in the wholesale portfolio; and
in the consumer portfolio, loans placed on nonaccrual
status related to the impact of the COVID-19 pandemic,
as well as the adoption of CECL, as the purchased credit
deteriorated loans in the mortgage portfolio became
subject to nonaccrual loan treatment. In the fourth
quarter of 2020, nonperforming assets decreased $556
million from the prior quarter, reflecting some credit
improvement in the wholesale portfolio. The consumer
portfolio remained relatively flat, as the increase in loans
placed on nonaccrual status in Home Lending related to
the impact of the COVID-19 pandemic was predominantly
offset by lower loans at fair value in CIB, largely due to
sales.
• Firmwide average loans of $1.0 trillion were up 1%,
driven by higher loan balances in AWM and CIB, as well as
loans originated under the Small Business
Administration’s (“SBA”) Paycheck Protection Program
(“PPP”), predominantly offset by lower loan balances in
Home Lending and Card.
• Firmwide average deposits of $1.9 trillion were up 25%,
reflecting significant inflows across the Firm, primarily
driven by the impact of the COVID-19 pandemic and the
related effect of certain government actions.
• As of December 31, 2020, the Firm had average eligible
High Quality Liquid Assets (“HQLA”) of approximately
$697 billion and unencumbered marketable securities
with a fair value of approximately $740 billion, resulting
in approximately $1.4 trillion of liquidity sources. Refer
to Liquidity Risk Management on pages 102–108 for
additional information.
JPMorgan Chase & Co./2020 Form 10-K
47
Management’s discussion and analysis
Selected capital-related metrics
• The Firm’s CET1 capital was $205 billion, and the
Standardized and Advanced CET1 ratios were 13.1% and
13.8%, respectively.
• The Firm’s SLR was 6.9%. The SLR reflects the temporary
exclusions of U.S. Treasury securities and deposits at
Federal Reserve Banks, as required by the Federal
Reserve’s interim final rule issued on April 1, 2020. The
Firm’s SLR excluding the temporary relief was 5.8%.
• The Firm grew TBVPS, ending 2020 at $66.11, up 8%
versus the prior year.
Pre-provision profit, ROTCE and TBVPS are non-GAAP
financial measures. Refer to Explanation and Reconciliation
of the Firm’s Use of Non-GAAP Financial Measures on pages
62–64, and Capital Risk Management on pages 91-101 for
a further discussion of each of these measures.
Business segment highlights
Selected business metrics for each of the Firm’s four LOBs
are presented below for the full year of 2020.
Credit provided and capital raised
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2020, consisting of:
$2.3 trillion
Total credit provided and capital raised
(including loans and commitments)(a)
$226
billion
$18
billion
$865
billion
Credit for consumers
Credit for U.S. small businesses
Credit for corporations
CCB
ROE
15%
CIB
ROE
20%
CB
ROE
11%
AWM
ROE
28%
• Average deposits up 22%; client investment
assets up 17%
• Average loans down 6%; debit and credit
card sales volume down 3%
• Active mobile customers up 10%
$1.1
trillion
Capital raised for corporate clients and
non-U.S. government entities
$103
billion
Credit and capital raised for nonprofit
and U.S. government entities(b)
$28 billion
Loans under the Small Business
Administration’s Paycheck Protection
Program
(a) Excludes loans under the SBA’s PPP.
(b) Includes states, municipalities, hospitals and universities.
• $9.5 billion of Global Investment Banking
fees, up 25%
• #1 ranking for Global Investment Banking
fees with 9.2% wallet share for the year
• Total Markets revenue of $29.5 billion, up
41%, with Fixed Income Markets up 45% and
Equity Markets up 33%
• Gross Investment Banking revenue of $3.3
billion, up 22%
• Average deposits up 38%; average loans up
5%
• Assets under management (AUM) of $2.7
trillion, up 17%
• Average deposits up 20%; average loans up
13%
Refer to the Business Segment Results on pages 65–66 for
a detailed discussion of results by business segment.
48
JPMorgan Chase & Co./2020 Form 10-K
Recent events
• On January 27, 2021, JPMorgan Chase announced that it
will launch a digital retail bank in the U.K. this year, and
on February 23, 2021, JPMorgan Chase announced that it
will appoint Sanoke Viswanathan, head of International
Consumer, to the Operating Committee.
• On December 31, 2020, JPMorgan Chase acquired the
Global Loyalty business (“cxLoyalty”) of cxLoyalty Group
Holdings, Inc. This includes cxLoyalty’s technology
platforms, full-service travel agency, and gift card and
merchandise services.
• On December 31, 2020, JPMorgan Chase acquired 55ip,
a financial technology company and leading provider of
automated tax-smart investment strategies.
• On December 18, 2020, JPMorgan Chase received the
results of the 2020 Comprehensive Capital Analysis and
Review (“CCAR”) Round 2 stress test from the Federal
Reserve. The Firm’s Stress Capital Buffer (“SCB”)
requirement remained at 3.3%. The Federal Reserve also
announced that all large banks, including the Firm, could
resume share repurchases commencing in the first
quarter of 2021, subject to certain restrictions. The
Firm's Board of Directors has authorized a new common
share repurchase program for up to $30 billion. The Firm
expects to repurchase up to $4.5 billion of common stock
in the first quarter of 2021 and, subject to approval by
the Board of Directors, maintain the quarterly common
stock dividend of $0.90 per share.
• On December 18, 2020, JPMorgan Chase announced the
retirement of Lee Raymond, the Firm’s Lead Independent
Director. Stephen B. Burke has succeeded Mr. Raymond
as Lead Independent Director effective January 1, 2021.
• On December 7, 2020, Phebe N. Novakovic became a
member of the Firm's Board of Directors. Ms. Novakovic is
Chairman and Chief Executive Officer of General
Dynamics Corporation.
2021 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. Refer to Forward-Looking Statements on page
157, and the Risk Factors section on pages 8-32 of the Firm’s
2020 Form 10-K, 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. There is no assurance that
actual results in 2021 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 current outlook for 2021 should be
viewed against the backdrop of the global and U.S.
economies, the COVID-19 pandemic, 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 LOBs.
The Firm will continue to make appropriate adjustments to
its businesses and operations in response to ongoing
developments in the business, economic, regulatory and
legal environments in which it operates. The outlook
information contained in this Form 10-K supersedes all
outlook information included in the Firm’s periodic reports
furnished or filed with the SEC prior to the date of this Form
10-K.
Full-year 2021
• Management expects net interest income, on a managed
basis, to be approximately $55 billion, market
dependent.
• Management expects adjusted expense to be
approximately $69 billion, which includes accelerated
contributions to the Firm’s Foundation in the form of
equity investments, as well as higher revenue-related
expense.
First-quarter 2021
• Management expects net interest income, on a managed
basis, to be approximately $13 billion, market
dependent.
• Investment banking fees are expected to be flat when
compared with the fourth quarter of 2020, depending on
market conditions.
Fourth-quarter 2021
• Management expects net interest income, on a managed
basis, to be in excess of $14 billion, market dependent.
Net interest income, on a managed basis, and adjusted
expense are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm’s Use of Non-
GAAP Financial Measures on pages 62-64.
JPMorgan Chase & Co./2020 Form 10-K
49
Management’s discussion and analysis
Business Developments
COVID-19 Pandemic
In response to the COVID-19 pandemic the Firm invoked
resiliency plans to allow its businesses to remain
operational, utilizing disaster recovery sites and
implementing alternative work arrangements globally.
Additionally, the Firm implemented strategies and
procedures designed to help it respond to increased market
volatility, client demand for credit and liquidity, distress in
certain industries and the ongoing impacts to consumers
and businesses.
Throughout 2020, the Firm remained focused on serving its
clients, customers and communities, as well as the well-
being of its employees, during the pandemic. The Firm
continues to actively monitor the health and safety
situations at local and regional levels, and will continue to
adapt as these situations evolve.
Supporting clients and customers
The Firm has supported its clients and customers during the
challenging conditions caused by the COVID-19 pandemic
by providing assistance, primarily in the form of payment
deferrals on loans and extending credit, including through
its participation in the Small Business Association’s (“SBA”)
PPP.
Refer to Credit Portfolio on page 112 for information on
assistance granted to customers and clients. Refer to
Consumer Credit portfolio on page 116 and Wholesale
Credit Portfolio on page 122 for information on retained
loans under payment deferral.
The Firm has gradually re-opened its branches since April
2020, with nearly 90% of its branches returning to full
service as of December 31, 2020. Additionally, the Firm
continues to provide a wide range of banking services that
are accessible to clients and customers through mobile and
other digital channels.
Protecting and supporting employees
In response to the COVID-19 pandemic, the Firm
implemented alternative work arrangements, with the vast
majority of its global workforce working from home since
the onset of the pandemic and continuing into the first
quarter of 2021. The Firm also provided additional benefits
to employees during the COVID-19 pandemic.
Supporting communities
Since March, the Firm has committed $250 million to help
address humanitarian needs and long-term economic
challenges posed by the COVID-19 pandemic on the
communities in which the Firm operates. As of December
31, 2020, over 75% of this commitment has been funded.
Departure of the U.K. from the EU
The U.K.’s departure from the EU, which is commonly
referred to as “Brexit,” was completed on December 31,
2020. The U.K. and the EU have entered into a Trade and
Cooperation Agreement which delineates many significant
aspects of the future relationship between the U.K. and the
EU. However, the agreement contained very limited
provisions relating to cross-border financial services, and
the U.K. and the EU are expected to engage in further
negotiations concerning financial services.
The Firm has executed and continues to execute on its
Firmwide Brexit Implementation program, which
encompasses a strategic implementation plan across all
impacted businesses and functions, including an ongoing
assessment of political, legal and regulatory and other
implementation risks. A key focus of the program has been
to ensure continuity of service to the Firm’s EU clients in the
following areas: regulatory and legal entities; clients; and
business and operations.
Regulatory and legal entities
The Firm’s legal entities in Germany, Luxembourg and
Ireland are now licensed to provide and are providing
services to the Firm’s EU clients, including through a branch
network covering locations such as Paris, Madrid and Milan.
Subject to limited exceptions, the Firm’s U.K.-based legal
entities are no longer permitted to transact business from
the U.K. with EU clients.
Clients
Agreements covering substantially all of the Firm’s EU client
activity have been re-documented to EU legal entities to
facilitate continuation of service. The Firm continues to
actively engage with those clients that have not completed
re-documentation or required operational changes.
Business and operations
The COVID-19 pandemic introduced additional risk to the
Firm’s Brexit Implementation program, particularly in
relation to staff relocations. As a result, the Firm has
worked closely with regulators and employees to ensure
that critical staff are relocated in a safe and timely manner
so that the Firm can meet its regulatory commitments and
continue serving its clients. Further relocations are planned
for 2021, and the Firm’s longer-term EU staffing strategy
will be developed over time in cooperation with its
regulators and as the post-Brexit market landscape evolves
in order to ensure that the Firm maintains operational
resilience and effective client coverage.
50
JPMorgan Chase & Co./2020 Form 10-K
Interbank Offered Rate (“IBOR”) transition
JPMorgan Chase and other market participants continue to
make progress in preparing for the discontinuation of the
London Interbank Offered Rate (“LIBOR”) and other IBORs
to comply with the International Organization of Securities
Commission’s standards for transaction-based benchmark
rates.
On November 30, 2020, ICE Benchmark Administration, the
administrator of LIBOR, announced a public consultation on
its proposal to cease the publication of the principal tenors
of U.S. dollar LIBOR (i.e., overnight, one-month, three-
month, six-month and 12-month LIBOR) immediately
following a final publication on June 30, 2023. The Federal
Reserve, the OCC and the FDIC also released guidance
encouraging market participants to cease dealing in new
U.S. dollar LIBOR contracts from the end of 2021. There has
been no change in the scheduled cessation of U.K. sterling,
Japanese yen, Swiss franc and Euro LIBOR, or the remaining
tenors of U.S. dollar LIBOR, from December 31, 2021.
The Firm continues to work towards reducing its exposure
to IBOR-referencing contracts, including derivatives,
bilateral and syndicated loans, securities, and debt and
preferred stock issuances, to meet the industry milestones
and recommendations published by National Working
Groups (“NWG”), including the Alternative Reference Rates
Committee (the “ARRC”) in the U.S.
On October 23, 2020, the International Swaps and
Derivatives Association, Inc. (“ISDA”) published a new
supplement to the ISDA 2006 definitions and the related
2020 IBOR Fallbacks Protocol (the “Protocol”). These
publications are intended to facilitate the incorporation of
robust rate fallback provisions into both legacy and new
derivative contracts with effect from January 25, 2021. The
Firm’s client-facing legal entities have agreed to adhere to
the Protocol, in accordance with recommendations from
multiple industry working groups, including the ARRC. ISDA
further announced that bilateral templates have been made
available for use with counterparties who choose not to
adhere to the Protocol.
As a key objective of the ARRC’s transition plan to
encourage adoption of the Secured Overnight Financing
Rate (“SOFR”), counterparty clearing houses, clearing
house members and other impacted market participants
successfully executed the discounting and price alignment
interest (“PAI”) switch from federal funds to SOFR on
October 16, 2020. The industry completed a similar switch
from EONIA to €STR on July 27, 2020.
On March 12, 2020 and January 7, 2021, the Financial
Accounting Standards Board (“FASB”) issued accounting
standards updates providing optional expedients and
exceptions for applying generally accepted accounting
principles to contracts and hedge accounting relationships
affected by reference rate reform. These optional
expedients are intended to simplify the operational impact
of applying U.S. GAAP to transactions impacted by
reference rate reform. The Firm elected to apply certain of
these expedients beginning in the third quarter of 2020. On
August 27, 2020, the International Accounting Standards
Board (“IASB”) issued guidance that provides similar relief
for entities reporting under International Financial
Reporting Standards ("IFRS"). Refer to Accounting and
Reporting Developments on page 156 for additional
information. The Firm continues to monitor the transition
relief being considered by the U.S. Treasury Department
regarding the tax implications of reference rate reform.
The Firm’s initiatives in connection with LIBOR transition
include:
• continuing to reduce its overall exposure to LIBOR
• implementing rate fallback provisions developed by NWGs
in new LIBOR contracts, where appropriate
• continuing to educate and inform clients on LIBOR
transition and the necessity to prepare for the cessation
of LIBOR
• assisting clients with discontinuing their issuance or use
of LIBOR-linked products within the timelines specified by
NWGs
• supporting clients in their efforts to remediate contracts
linked to LIBOR, including contracts to which the Firm is a
party, which it manages or for which it acts as agent
• offering products linked to alternative reference rates
(“ARRs”) across its businesses, and
• planning for the implementation of rate fallback
mechanisms across products based on the conventions
recommended by NWGs to prepare for transition to ARRs
upon the cessation of various IBORs.
The Firm is on schedule to implement necessary changes to
operational and risk management systems in order to
transition away from IBORs, including by aiming to meet
proposed deadlines set by NWGs for the cessation of new
contracts referencing these benchmarks. The Firm
continues to engage with and remains committed to NWGs
in devising solutions to unresolved issues relating to IBOR
transition.
The Firm continues to engage with market participants,
NWGs and regulators to address market-wide challenges
associated with LIBOR transition, including efforts to:
• improve liquidity in ARRs
• develop and introduce forward-looking term rates linked
to ARRs, and
• support legislative proposals in the U.S., the U.K. and the
EU that aim to resolve concerns involving “tough legacy”
contracts (i.e. contracts that do not provide for automatic
conversion to another rate or that are difficult to amend
in order to add rate fallback provisions).
Resolution of these challenges should provide more
certainty and help to provide a framework for market
participants in transitioning away from IBORs.
JPMorgan Chase & Co./2020 Form 10-K
51
Management’s discussion and analysis
Regulatory Developments Relating to the
COVID-19 Pandemic
Since March 2020, the U.S. government as well as central
banks and banking authorities around the world have taken
and continue to take actions to help individuals, households
and businesses that have been adversely affected by the
economic disruption caused by the COVID-19 pandemic.
The CARES Act and the Consolidated Appropriations Act,
which were signed into law on March 27, 2020 and
December 27, 2020, respectively, provide, among other
things, funding to support loan facilities to assist consumers
and businesses. Set forth below is a summary as of the date
of this Form 10-K of U.S. government actions currently
impacting the Firm and U.S. government programs in which
the Firm is participating. The Firm will continue to assess
ongoing developments in government actions in response
to the COVID-19 pandemic.
U.S. government actions
Eligible retained income definition. On March 17, 2020, the
Office of the Comptroller of the Currency (“OCC”), the Board
of Governors of the Federal Reserve System (“Federal
Reserve”), and the Federal Deposit Insurance Corporation
(“FDIC”), collectively the “federal banking agencies,” issued
an interim final rule (issued as final on August 26, 2020)
that revised the definition of “eligible retained income” in
the regulatory capital rules that apply to all U.S. banking
organizations. On March 23, 2020, the Federal Reserve
issued an interim final rule (issued as final on August 26,
2020) that revised the definition of “eligible retained
income” for purposes of the total loss-absorbing capacity
(“TLAC”) buffer requirements that apply to global
systemically important banking organizations. The revised
definition of eligible retained income makes any automatic
limitations on payout distributions that could apply under
the agencies’ capital rules or TLAC rule take effect on a
more graduated basis in the event that a banking
organization’s capital, leverage and TLAC ratios were to
decline below regulatory requirements (including buffers).
The March 17, 2020 interim final rule was issued, in
conjunction with an interagency statement encouraging
banking organizations to use their capital and liquidity
buffers, to further support banking organizations’ abilities
to lend to households and businesses affected by the
COVID-19 pandemic.
Reserve requirements. On March 24, 2020, the Federal
Reserve issued an interim final rule (issued as final on
December 22, 2020) reducing reserve requirement ratios
for all depository institutions to zero percent, effective
March 26, 2020, an action intended to free up liquidity in
the banking system to support lending to households and
businesses.
Refer to Note 26 for additional information on the
reduction to the reserve requirement.
Regulatory Capital - Current Expected Credit Losses (“CECL”)
transition delay. On March 31, 2020, the federal banking
agencies issued an interim final rule (issued as final on
August 26, 2020) that provided banking organizations with
the option to delay the effects of CECL on regulatory capital
for two years, followed by a three-year transition period
(“CECL capital transition provisions”). The Firm elected to
apply the CECL capital transition provisions.
Supplementary leverage ratio (“SLR”) temporary revision. On
April 1, 2020, the Federal Reserve issued an interim final
rule that requires, on a temporary basis, the calculation of
total leverage exposure for purposes of calculating the SLR
for bank holding companies (“BHC”), to exclude the on-
balance sheet amounts of U.S. Treasury securities and
deposits at Federal Reserve Banks. These exclusions
became effective April 1, 2020, and will remain in effect
through March 31, 2021.
Refer to Capital Risk Management on pages 91-101 and
Note 27 for additional information on the CECL capital
transition provisions, the impact to the Firm’s capital
metrics and the Firm’s SLR.
Loan modifications. On April 7, 2020, the federal banking
agencies along with the National Credit Union
Administration, and the Consumer Financial Protection
Bureau, in consultation with the state financial regulators,
issued an interagency statement revising a March 22, 2020
interagency statement on loan modifications and the
reporting for financial institutions working with customers
affected by the COVID-19 pandemic (the “IA Statement”).
The IA Statement reconfirmed that efforts to work with
borrowers where the loans are prudently underwritten, and
not considered past due or carried on nonaccrual status,
should not result in the loans automatically being
considered modified in a troubled debt restructuring
(“TDR”) for accounting and financial reporting purposes, or
for purposes of their respective risk-based capital rules,
which would otherwise require financial institutions subject
to the capital rules to hold more capital. The IA Statement
also clarified the interaction between its previous guidance
and Section 4013 of the CARES Act, as extended by Section
541 of the Consolidated Appropriations Act, which provides
certain financial institutions with the option to suspend the
application of accounting guidance for TDRs for a limited
period of time for loan modifications made to address the
effects of the COVID-19 pandemic.
The Firm has granted various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm’s COVID-19 related loan
modifications have not been considered TDRs because:
• they represent short-term or other insignificant
modifications, whether under the Firm’s regular loan
modification assessments or the IA Statement guidance, or
• the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRs as provided by
52
JPMorgan Chase & Co./2020 Form 10-K
the CARES Act and extended by the Consolidated
Appropriations Act.
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs.
Refer to Credit Portfolio on pages 112-113 and Note 12 for
additional information on the Firm’s loan modification
activities.
PPP. Beginning April 3, 2020, the PPP, established by the
CARES Act and administered by the SBA, authorized eligible
lenders to provide nonrecourse loans to eligible borrowers
until August 8, 2020 to provide an incentive for these
businesses to keep their workers on their payroll. As part of
the Consolidated Appropriations Act, additional funding was
provided for new PPP loans beginning in early January
2021. This program was designed to target smaller
businesses as well as to simplify the loan forgiveness
process for loans under $150,000. As of February 19,
2021, the Firm has funded approximately $5 billion under
this extension of the program.
U.S. government facilities. Beginning in March 2020, the
Federal Reserve announced a suite of facilities using its
emergency lending powers under section 13(3) of the
Federal Reserve Act to support the flow of credit to
individuals, households and businesses adversely affected
by the COVID-19 pandemic and to support the broader
economy.
The Firm has participated and is participating in the PPP
and certain of the other government facilities and
programs, as needed, to assist its clients and customers or
to support the broader economy. Refer to Capital Risk
Management on pages 91-101, Liquidity Risk Management
on pages 102–108, Credit Portfolio on pages 112-113,
Note 12 and Note 27 for additional information on the
Firm’s participation in the PPP and other government
facilities and programs.
JPMorgan Chase & Co./2020 Form 10-K
53
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 two-year period ended December 31, 2020,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 48-51 of the Firm’s Annual Report on
Form 10-K for the year ended December 31, 2019 (the
“2019 Form 10-K”) for a discussion of the 2019 versus 2018
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment’s results. Refer to pages 152-155 for a discussion of
the Critical Accounting Estimates Used by the Firm that affect
the Consolidated Results of Operations.
Revenue
Year ended December 31,
(in millions)
2020
2019
2018
Investment banking fees
$
9,486 $
7,501 $
7,550
Principal transactions
Lending- and deposit-related fees(a)
Asset management, administration
and commissions(a)
Investment securities gains/(losses)
Mortgage fees and related income
Card income(b)
Other income(c)
Noninterest revenue
Net interest income
Total net revenue
18,021
14,018
12,059
6,511
6,626
6,377
18,177
16,908
16,793
802
3,091
4,435
4,457
64,980
54,563
258
2,036
5,076
5,731
58,154
57,245
(395)
1,254
4,743
5,343
53,724
55,059
$ 119,543 $ 115,399 $ 108,783
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset
management, administration and commissions to lending- and deposit-
related fees. Prior-period amounts have been revised to conform with the
current presentation.
(b) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
(c) Included operating lease income of $5.5 billion for each of the years ended
December 31, 2020 and 2019, and $4.5 billion for the year ended
December 31, 2018.
2020 compared with 2019
Investment banking fees increased, driven by CIB,
reflecting:
• higher equity underwriting fees predominantly in follow-
on offerings and convertible securities markets due to
increased industry-wide fees
• higher debt underwriting fees in investment-grade and
high-yield bonds driven by increased industry-wide fees
and wallet share gains. The increased activity resulted in
part from clients seeking liquidity in the first half of the
year as a result of the COVID-19 pandemic.
Refer to CIB segment results on pages 71–76 and Note 6 for
additional information.
Principal transactions revenue increased, predominantly
in CIB, reflecting higher revenue in Fixed Income Markets,
driven by strong performance in Currencies & Emerging
Markets, Rates, and Credit.
The increase in principal transactions revenue also reflected
higher net valuations on several legacy equity investments
in Corporate, compared with net losses in the prior year.
Principal transactions revenue in CIB may in certain cases
have offsets across other revenue lines, including net
interest income. The Firm assesses the performance of its
CIB Markets business on a total revenue basis.
Refer to CIB and Corporate segment results on pages 71–76
and pages 83–84, respectively, and Note 6 for additional
information.
Lending- and deposit-related fees decreased as a result of
lower deposit-related fees in CCB, reflecting lower
transaction activity and the impact of fee refunds related to the
COVID-19 pandemic, predominantly offset by higher cash
management fees in CIB and CB, as well as higher lending-
related fees, particularly loan commitment fees in CIB.
Refer to CCB, CIB and CB segment results on pages 67–70,
pages 71–76 and pages 77–79, respectively, and Note 6 for
additional information.
Asset management, administration and commissions
revenue increased driven by:
• higher asset management fees in AWM as a result of net
inflows into liquidity and long term products, and higher
performance fees; and in CCB related to a higher level of
investment assets
• higher brokerage commissions in CIB and AWM on higher
client-driven volume,
partially offset by
• lower volume of annuity sales in CCB.
Refer to CCB, CIB and AWM segment results on pages 67–
70, pages 71–76 and pages 80–82, respectively, and Note
6 for additional information.
Investment securities gains/(losses) increased due to the
repositioning of the investment securities portfolio,
including sales of U.S. GSE and government agency
mortgage-backed securities, particularly in the first and
third quarters of 2020. Refer to Corporate segment results
on pages 83–84 and Note 10 for additional information.
Mortgage fees and related income increased due to higher
net mortgage production revenue reflecting higher
mortgage production volumes and margins; the prior year
included gains on sales of certain loans.
Refer to CCB segment results on pages 67–70, Note 6 and
15 for further information.
54
JPMorgan Chase & Co./2020 Form 10-K
Card income decreased due to:
• lower net interchange income reflecting lower credit card
sales volumes and debit card transactions as a result of
the impact of the COVID-19 pandemic, largely offset by
lower acquisition costs and higher annual fees in CCB, and
• lower merchant processing fees in CIB predominantly
driven by a reporting reclassification of certain expenses
to be a reduction of revenue in Merchant Services. Refer
to CCB and CIB segment results on pages 67–70 and
pages 71–76, respectively, and Note 6 for further
information.
Other income decreased reflecting:
• Increased amortization on higher levels of alternative
energy investments in CIB. The increased amortization
was more than offset by lower income tax expense from
the associated tax credits
• lower net valuation gains on certain investments in AWM
• net losses on certain equity investments in CIB, compared
with net gains in the prior year
• higher costs associated with using forward contracts to
hedge certain non-U.S. dollar-denominated net
investment exposures, and
• higher losses related to the early termination of certain of
the Firm's long-term debt in Treasury and CIO,
partially offset by
• a net increase from a gain on an equity investment.
Net interest income decreased due to the impact of lower
rates, predominantly offset by higher net interest income in
CIB Markets, as well as balance sheet growth.
The Firm’s average interest-earning assets were $2.8
trillion, up $434 billion, and the yield was 2.34%, down
127 basis points (“bps”), primarily due to lower rates. The
net yield on these assets, on an FTE basis, was 1.98%, a
decrease of 48 bps. The net yield excluding CIB Markets was
2.30%, down 97 bps.
Net yield excluding CIB Markets is a non-GAAP financial
measure. Refer to the Consolidated average balance sheets,
interest and rates schedule on pages 300–304 for further
details; and the Explanation and Reconciliation of the Firm’s
Use of Non-GAAP Financial Measures on pages 62–64 for a
further discussion of Net interest yield excluding CIB
Markets.
Provision for credit losses
Year ended December 31,
(in millions)
2020
2019
2018
Consumer, excluding credit card
$ 1,016 $
(378) $
(119)
Credit card
Total consumer
Wholesale
Investment securities
10,886
11,902
5,510
68
5,348
4,970
615
NA
4,818
4,699
172
NA
Total provision for credit losses
$ 17,480 $ 5,585 $ 4,871
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. In conjunction with the adoption of CECL, the Firm reclassified
risk-rated loans and lending-related commitments from the consumer,
excluding credit card portfolio segment to the wholesale portfolio segment,
to align with the methodology applied when determining the allowance.
Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 1 for further information.
2020 compared with 2019
The provision for credit losses increased in consumer and
wholesale primarily driven by the deterioration and
uncertainty in the macroeconomic environment, in
particular in the first half of 2020, as a result of the impact
of the COVID-19 pandemic.
The increase in consumer reflected:
• net additions of $7.4 billion to the allowance for credit
losses, consisting of $6.6 billion for Card, $520 million
for Auto, $252 million for Business Banking,
partially offset by
• lower net charge-offs largely in Card, reflecting lower
charge-offs and higher recoveries, primarily benefiting
from payment assistance and government stimulus.
The prior year included a $244 million net reduction in the
allowance for credit losses.
The increase in wholesale reflected a net addition of $4.7
billion to the allowance for credit losses across the LOBs,
impacting multiple industries.
The investment securities provision for credit losses
relates to the HTM portfolio, which became subject to
the CECL accounting guidance beginning on January 1,
2020.
Refer to the segment discussions of CCB on pages 67–70,
CIB on pages 71–76, CB on pages 77–79, AWM on pages
80–82, the Allowance for Credit Losses on pages 132-133,
and Notes 1, 10 and 13 for further discussion of the credit
portfolio and the allowance for credit losses.
JPMorgan Chase & Co./2020 Form 10-K
55
4,449
4,322
3,952
Income tax expense
6,276
8,114
8,290
Income tax expense
Year ended December 31,
(in millions, except rate)
Income before income tax
expense
2020
2019
2018
$ 35,407
$ 44,545
$ 40,764
Effective tax rate
17.7 %
18.2 %
20.3 %
2020 compared with 2019
The effective tax rate decreased, with the current year rate
reflecting the impact of a lower level of pre-tax income and
changes in the mix of income and expenses subject to U.S.
federal, and state and local taxes, as well as other tax
adjustments. The prior year included the effect of $1.1
billion of tax benefits related to the resolution of certain tax
audits. Refer to Note 25 for further information.
Management’s discussion and analysis
Noninterest expense
Year ended December 31,
(in millions)
2020
2019
2018
Compensation expense
$ 34,988 $ 34,155 $ 33,117
Noncompensation expense:
Occupancy
Technology, communications and
equipment
Professional and outside services
Marketing(a)
Other(b)(c)
10,338
8,464
2,476
5,941
9,821
8,533
3,351
5,087
8,802
8,502
3,044
5,731
Total noncompensation expense
31,668
31,114
30,031
Total noninterest expense
$ 66,656 $ 65,269 $ 63,148
(a) In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) Included Firmwide legal expense of $1.1 billion, $239 million and $72
million for the years ended December 31, 2020, 2019 and 2018,
respectively.
(c) Included FDIC-related expense of $717 million, $457 million and $1.2
billion for the years ended December 31, 2020, 2019 and 2018,
respectively.
2020 compared with 2019
Compensation expense increased driven by higher volume-
and revenue-related expense, predominantly in CIB and
CCB, as well as the impact of investments in the businesses.
Noncompensation expense increased as a result of:
• higher legal expense predominantly in CIB and AWM
• higher volume-related expense, in particular brokerage
expense in CIB and depreciation from growth in auto
lease assets in CCB
• higher investments in the businesses, including
technology and real estate,
• an impairment on a legacy investment in Corporate, and
• higher FDIC-related expense,
partially offset by
• lower marketing expense as a result of lower investments
in marketing campaigns and lower travel-related benefits
in CCB, and
• lower structural expense, including lower travel and
entertainment across the businesses, and payment
processing costs, partially offset by higher contributions
to the Firm’s Foundation.
56
JPMorgan Chase & Co./2020 Form 10-K
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2020 and 2019.
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(a)
Available-for-sale securities
Held-to-maturity securities, net of allowance for credit losses
Investment securities, net of allowance for credit losses
Loans(a)
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(a)
Total assets
2020
2019
Change
$
24,874
$
21,704
502,735
296,284
160,635
503,126
388,178
201,821
589,999
1,012,853
(28,328)
984,525
90,503
27,109
53,428
241,927
249,157
139,758
369,687
350,699
47,540
398,239
997,620
(13,123)
984,497
72,861
25,813
53,341
152,853
130,395
15 %
108
19
15
36
11
325
48
2
116
—
24
5
—
17
$ 3,386,071
$ 2,687,379
26 %
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
Cash and due from banks and deposits with banks
increased primarily as a result of significant deposit inflows,
which also funded asset growth across the Firm, including
investment securities and securities purchased under resale
agreements. 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 as a result of higher deployment of
cash in Treasury and CIO, as well as the impact of client
activity and higher demand for securities to cover short
positions in CIB. Refer to Liquidity Risk Management on
pages 102–108 and Note 11 for additional information.
Securities borrowed increased driven by client-driven
activities in CIB. Refer to Liquidity Risk Management on
pages 102–108 and Note 11 for additional information.
Trading assets remained elevated at the end of 2020, due to
stronger client-driven market-making activities in debt and
equity instruments and higher derivative receivables as a
result of market movements in CIB Markets. Refer to Notes 2
and 5 for additional information.
Investment securities increased, reflecting net purchases of
U.S. Treasuries and U.S. GSE and government agency MBS in
the available-for-sale (“AFS”) portfolio, driven by interest
rate risk management activities and cash deployment. AFS
securities of $164 billion were transferred to the held-to-
maturity (“HTM”) portfolio, resulting in a decrease in AFS
and a comparable increase in HTM securities. The transfers
were executed for capital management purposes. Refer to
Corporate segment results on pages 83–84, Investment
Portfolio Risk Management on page 134 and Notes 2 and 10
for additional information on investment securities.
Loans increased, reflecting:
• growth in wholesale loans and mortgages in AWM and the
impact of PPP loans in CBB and CB, as well as higher
wholesale loans related to client-driven activities in CIB
Markets
largely offset by
• lower loans in Home Lending primarily due to net
paydowns; and lower loans in Card due to the decline in
sales volumes that began in March as a result of the impact
of the COVID-19 pandemic.
The allowance for loan losses increased primarily reflecting
the deterioration and uncertainty in the macroeconomic
environment, in particular in the first half of 2020, as a
result of the impact of the COVID-19 pandemic, consisting of:
• a net $7.4 billion addition in consumer, predominantly in
the credit card portfolio, and
• a net $3.6 billion addition in wholesale, across the LOBs,
impacting multiple industries.
The adoption of CECL on January 1, 2020, resulted in a
$4.2 billion addition to the allowance for loan losses.
There were also additions to the allowance for lending-
related commitments, which is included in other liabilities on
the consolidated balance sheets, of $1.1 billion related to the
impact of the COVID-19 pandemic, and $98 million related to
the adoption of CECL. Total additions to the allowance for
JPMorgan Chase & Co./2020 Form 10-K
57
Management’s discussion and analysis
credit losses were $12.1 billion related to COVID-19, and
$4.3 billion related to CECL, as of December 31, 2020.
Refer to Credit and Investment Risk Management on pages
110–134, and Notes 1, 2, 3, 12 and 13 for further discussion
of loans and the allowance for loan losses.
Accrued interest and accounts receivable increased driven
by higher client receivables related to client-driven
activities in CIB prime brokerage.
Refer to Note 16 and 18 for additional information on
Premises and equipment.
Goodwill, MSRs and other intangibles was flat as the
increase in goodwill related to the acquisitions of cxLoyalty
and 55ip was offset by lower MSRs as a result of faster
prepayment speeds on lower rates, and the realization of
expected cash flows, partially offset by net additions to the
MSRs. Refer to Note 15 for additional information.
Other assets increased reflecting higher cash collateral
placed with central counterparties in CIB.
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
2020
2019
Change
$ 2,144,257
$ 1,562,431
215,209
45,208
170,181
232,599
17,578
281,685
183,675
40,920
119,277
210,407
17,841
291,498
3,106,717
2,426,049
279,354
261,330
37
17
10
43
11
(1)
(3)
28
7
Total liabilities and stockholders’ equity
$ 3,386,071
$ 2,687,379
26 %
Deposits increased reflecting significant inflows across the
LOBs primarily driven by the impact of the COVID-19
pandemic and the related effect of certain government
actions;
• in the wholesale businesses, while the inflows principally
occurred in March as clients sought to remain liquid as a
result of market conditions, balances continued to increase
through the end of 2020, and
• in CCB, the increase was driven by lower spending and
higher cash balances across both consumer and small
business customers, as well as growth from existing and
new accounts.
Refer to the Liquidity Risk Management discussion on pages
102–108; and Notes 2 and 17 for more information.
Federal funds purchased and securities loaned or sold
under repurchase agreements increased reflecting:
• higher secured financing of AFS investment securities in
Treasury and CIO, as well as trading assets in CIB,
partially offset by
• a decline in client-driven market-making activities in CIB,
including the Firm's non-participation in the Federal
Reserve's open market operations. Refer to the Liquidity
Risk Management discussion on pages 102–108 and Note
11 for additional information.
Short-term borrowings increased reflecting higher financing
of CIB prime brokerage activities. Refer to pages 102–108
for information on changes in Liquidity Risk Management.
Trading liabilities increased reflecting client-driven market-
making activities, which resulted in higher levels of short
positions in debt and equity instruments and higher
derivative payables as a result of market movements in CIB
Markets. Refer to Notes 2 and 5 for additional information.
Accounts payable and other liabilities increased reflecting
higher client payables related to client-driven activities in CIB
Markets. Refer to Note 19 for additional information.
Refer to Off-Balance Sheet Arrangements on pages 60-61
and Note 14 and 28 for information on Beneficial interests
issued by consolidated VIEs.
Long-term debt decreased as a result of maturities of FHLB
advances; net maturities of senior debt, which included the
early termination of certain of the Firm's debt; partially
offset by an issuance of subordinated debt, and higher fair
value hedge accounting adjustments related to lower interest
rates. Refer to Liquidity Risk Management on pages 102–108
and Note 20 for additional information.
Stockholders’ equity increased reflecting the combined
impact of net income, capital actions, the adoption of CECL
and an increase in accumulated other comprehensive income
(“AOCI”). The increase in AOCI was driven by net unrealized
gains on AFS securities, and higher valuation of interest rate
cash flow hedges. Refer to page 165 for information on
changes in stockholders’ equity, and Capital actions on page
99, Note 24 for additional information on AOCI.
58
JPMorgan Chase & Co./2020 Form 10-K
Consolidated cash flows analysis
The following is a discussion of cash flow activities during
the years ended December 31, 2020 and 2019. Refer to
Consolidated cash flows analysis on page 54 of the Firm’s
2019 Form 10-K for a discussion of the 2018 activities.
(in millions)
2020
2019
2018
Year ended December 31,
Net cash provided by/(used in)
Operating activities(a)
Investing activities(a)
Financing activities
Effect of exchange rate
changes on cash
Net increase/(decrease) in
cash and due from banks and
deposits with banks
$ (79,910) $
4,092 $ 15,614
(261,912)
(52,059)
(199,420)
596,645
32,987
34,158
9,155
(182)
(2,863)
$ 263,978 $ (15,162) $ (152,511)
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
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 that 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 2020, cash used primarily reflected higher trading
assets, other assets, and securities borrowed, partially
offset by higher trading liabilities and net income
excluding noncash adjustments.
• In 2019, cash provided primarily reflected net income
excluding noncash adjustments, lower trading assets,
and net proceeds of sales, securitizations, and paydowns
of loans held-for-sale, partially offset by higher securities
borrowed, an increase in other assets and a decrease in
trading liabilities.
Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
investment securities portfolio, and other short-term
instruments.
• In 2020, cash used primarily reflected net purchases of
investment securities, higher net originations of loans,
and higher securities purchased under resale
agreements.
• In 2019, cash used reflected net purchases of investment
securities, partially offset by lower securities purchased
under resale agreements, and net proceeds from sales
and securitizations of loans held-for-investment.
Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
stock.
• In 2020, cash provided reflected higher deposits and an
increase in securities loaned or sold under repurchase
agreements, partially offset by net payments of long-term
borrowings.
• In 2019, cash provided reflected higher deposits,
partially offset by a decrease in short-term borrowings
and net payments of long-term borrowings.
• For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock. On March 15, 2020, in response to the
economic disruptions caused by the COVID-19 pandemic,
the Firm temporarily suspended repurchases of its
common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to
discontinue net share repurchases through the end of
2020.
* * *
Refer to Consolidated Balance Sheets Analysis on pages
57-58, Capital Risk Management on pages 91-101, and
Liquidity Risk Management on pages 102–108 for a further
discussion of the activities affecting the Firm’s cash flows.
JPMorgan Chase & Co./2020 Form 10-K
59
Management’s discussion and analysis
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 disclosed as off-balance sheet under accounting
principles generally accepted in the U.S. (“U.S. GAAP”).
Special-purpose entities
The Firm has 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 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 2020 Form 10-K discussions of the Firm’s various off-balance sheet
arrangements can be found. Refer to Note 1 for additional 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
253-260
Refer to Note 28
283-288
60
JPMorgan Chase & Co./2020 Form 10-K
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2020. 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 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. Refer
to Note 28 for a discussion of mortgage repurchase
liabilities and other obligations.
Contractual cash obligations
By remaining maturity at December 31,
(in millions)
On-balance sheet obligations
Deposits(a)
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)
Operating leases(b)
Other(c)
Total on-balance sheet obligations
Off-balance sheet obligations
Unsettled resale and securities borrowed
agreements(d)
Contractual interest payments(e)
Equity investment commitments
Contractual purchases and capital expenditures
Obligations under co-brand programs
2021
2022-2023
2024-2025
After 2025
Total
2020
2019
Total
$
2,134,256 $
4,321 $
2,931 $
1,637 $
2,143,145 $
1,558,040
214,881
28,514
14,976
22,461
1,606
8,694
2,425,388
95,084
6,071
286
1,968
333
118
—
2,400
42,084
2,705
2,237
53,865
1,764
10,450
—
942
530
9
—
—
189
—
223
215,197
183,675
28,514
17,599
35,107
17,874
42,180
123,477
230,202
250,415
2,070
2,008
3,602
2,592
9,983
15,531
10,090
15,568
49,198
131,720
2,660,171
2,070,769
—
8,128
—
225
240
—
29,719
—
198
79
96,848
54,368
286
3,333
1,182
117,951
54,681
539
2,929
1,548
Total off-balance sheet obligations
103,742
13,686
8,593
29,996
156,017
177,648
Total contractual cash obligations
$
2,529,130 $
67,551 $
57,791 $
161,716 $
2,816,188 $
2,248,417
(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) Includes noncancelable operating leases for premises and equipment used primarily for business purposes. Excludes the benefit of noncancelable sublease
rentals of $593 million and $846 million at December 31, 2020 and 2019, respectively. Refer to Note 18 for further information on operating leases.
(c) 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.
(d) Refer to unsettled resale and securities borrowed agreements in Note 28 for further information.
(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.
JPMorgan Chase & Co./2020 Form 10-K
61
Management’s discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 162-166. 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 the U.S. GAAP financial
statements of other companies.
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 LOBs 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 LOBs.
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. Refer to
Business Segment Results on pages 65–84 for additional
information on these non-GAAP measures. 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)
Other income
Total noninterest revenue(a)
Net interest income
Total net revenue
Total noninterest expense(a)
Pre-provision profit
Provision for credit losses
Income tax expense
Net income
Overhead ratio
2020
2019
2018
Fully taxable-
equivalent
adjustments(b)
Managed
basis
Reported
Fully taxable-
equivalent
adjustments(b)
Managed
basis
Fully taxable-
equivalent
adjustments(b)
Managed
basis
Reported
Reported
$ 4,457
$
2,968
$ 7,425
$ 5,731
$
2,534
$ 8,265
$ 5,343
$
1,877 $ 7,220
64,980
54,563
119,543
66,656
52,887
17,480
2,968
67,948
58,154
2,534
60,688
53,724
418
54,981
57,245
531
57,776
55,059
3,386
122,929
115,399
3,065
118,464
108,783
NA 66,656
65,269
NA 65,269
63,148
1,877
55,601
628
55,687
2,505
111,288
NA 63,148
3,386
56,273
50,130
3,065
53,195
45,635
2,505
48,140
NA 17,480
5,585
NA 5,585
4,871
Income before income tax expense
35,407
3,386
38,793
44,545
3,065
47,610
40,764
6,276
$ 29,131
3,386
9,662
8,114
3,065
11,179
8,290
NA $ 29,131
$ 36,431
NA $ 36,431
$ 32,474
NA 4,871
2,505
43,269
2,505
10,795
NA $ 32,474
56 %
NM
54 %
57 %
NM
55 %
58 %
NM
57 %
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
(b) Predominantly recognized in CIB, CB and Corporate.
62
JPMorgan Chase & Co./2020 Form 10-K
Net interest income and net yield excluding CIB Markets
In addition to reviewing net interest income and the net
yield on a managed basis, management also reviews these
metrics excluding CIB Markets, as shown below; these
metrics, which exclude CIB Markets, 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 Markets are referred
to as non-markets-related net interest income and net yield.
CIB Markets consists of 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.
2020
2019
2018
$ 54,563
$ 57,245
$ 55,059
418
531
628
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
Pre-provision profit
Total net revenue – Total noninterest expense
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
In addition, the Firm reviews other non-GAAP financial
measures which include:
• Adjusted expense, which is noninterest expense
excluding Firmwide legal expense
• Allowance for loan losses to period-end loans retained
excluding trade finance and conduits
$ 54,981
$ 57,776
$ 55,687
• Pre-provision profit, which represents total net revenue
less total noninterest expense.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm’s
performance.
8,374
3,120
3,087
$ 46,607
$ 54,656
$ 52,600
$ 2,779,710 $ 2,345,279 $ 2,212,657
751,131
672,417
593,104
$ 2,028,579 $ 1,672,862 $ 1,619,553
1.98 %
2.46 %
2.52 %
1.11
0.46
0.52
2.30 %
3.27 %
3.25 %
Year ended December 31,
(in millions, except rates)
Net interest income –
reported
Fully taxable-equivalent
adjustments
Net interest income –
managed basis(a)
Less: CIB Markets net
interest income(b)
Net interest income
excluding CIB Markets(a)
Average interest-earning
assets(c)
Less: Average CIB Markets
interest-earning assets(b)(c)
Average interest-earning
assets excluding CIB
Markets
Net yield on average
interest-earning assets –
managed basis
Net yield on average CIB
Markets interest-earning
assets(b)
Net yield on average
interest-earning assets
excluding CIB Markets
(a) Interest includes the effect of related hedges. Taxable-equivalent
amounts are used where applicable.
(b) Refer to pages 74-75 for further information on CIB Markets.
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
JPMorgan Chase & Co./2020 Form 10-K
63
Management’s discussion and analysis
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)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Average
Dec 31,
2020
Dec 31,
2019
Year ended December 31,
2020
2019
2018
$ 249,291 $ 234,337
$ 236,865
$ 232,907
$ 229,222
49,248
47,823
47,820
47,620
47,491
904
2,453
819
2,381
781
2,399
789
2,328
807
2,231
$ 201,592 $ 188,076
$ 190,663
$ 186,826
$ 183,155
NA
NA
$
66.11 $
60.98
14 %
NA
19 %
NA
17 %
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.
64
JPMorgan Chase & Co./2020 Form 10-K
BUSINESS SEGMENT RESULTS
The Firm is managed on an LOB 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. Refer to Explanation and Reconciliation of the Firm’s
use of Non-GAAP Financial Measures, on pages 62–64 for a
definition of managed basis.
Consumer Businesses
Wholesale Businesses
JPMorgan Chase
Consumer & Community Banking
Corporate & Investment Bank
Commercial
Banking
Asset & Wealth
Management
Consumer &
Business Banking
• Consumer
Banking
• J.P. Morgan
Wealth
Management
• Business
Banking
Home Lending
Card & Auto
Banking
• Home
Lending
Production
• Home
Lending
Servicing
• Real Estate
Portfolios
• Credit Card
• Auto
• Investment
Banking
• Wholesale
Payments
• Lending
• Asset
Management
• Wealth
Management
• Middle
Market
Banking
• Corporate
Client
Banking
• Commercial
Real Estate
Banking
Markets &
Securities Services
• Fixed
Income
Markets
• Equity
Markets
• Securities
Services
• Credit
Adjustments
& Other
Business segment changes
In the fourth quarter of 2020, the Firm transferred certain
assets, liabilities, revenue, expense and headcount associated
with certain wealth management clients from AWM to the J.P.
Morgan Wealth Management business unit within CCB. Prior-
period amounts have been revised to conform with the
current presentation, including the transfer of approximately
1,650 technology and support staff during the second and
third quarters of 2020. Ultra-high-net-worth and certain
high-net-worth client relationships remained in AWM.
In the first quarter of 2020, the Firm began reporting a
Wholesale Payments business unit within CIB following a
realignment of the Firm’s wholesale payments businesses.
The Wholesale Payments business comprises:
• Merchant Services, which was realigned from CCB to CIB
• Treasury Services and Trade Finance in CIB. Trade Finance
was previously reported in Lending in CIB.
In connection with the alignment of Wholesale Payments, the
assets, liabilities and headcount associated with the Merchant
Services business were realigned to CIB from CCB, and the
revenue and expenses of the Merchant Services business are
reported across CCB, CIB and CB based primarily on client
relationships. In the fourth quarter of 2020, payment
processing-only clients along with the associated revenue and
expenses were realigned to CIB’s Wholesale Payments
business from CCB and CB. Payment processing-only clients
are those that only use payment services offered by Merchant
Services, and in general do not currently utilize other services
offered by the Firm. Prior-period amounts have been revised
to reflect this realignment and revised allocation
methodology.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business segment
results includes the allocation of certain income and expense
items. The Firm also assesses the level of capital required for
each LOB 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 generally recognized in the segment
responsible for the related product or service, with allocations
to the other segment(s) involved in the transaction. The
segment results reflect these revenue-sharing agreements.
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 costs and
investments related to corporate support units, technology
and operations not currently utilized by any LOB, are not
JPMorgan Chase & Co./2020 Form 10-K
65
Management’s discussion and analysis
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; and other items not
aligned with a particular business segment.
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 on a product-
by-product basis within each business segment.
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. As of January 1, 2021, the Firm has changed its
line of business capital allocations primarily as a result of
changes in exposures for each LOB and an increase in the
relative risk weighting toward Standardized RWA. The
assumptions and methodologies used to allocate capital are
periodically assessed and as a result, the capital allocated
to the LOBs may change from time to time.
Refer to Line of business equity on page 98 for additional
information on business segment capital allocation.
Segment Results – Managed Basis
The following tables summarize the Firm’s results by segment for the periods indicated.
Year ended December 31,
Consumer & Community Banking(a)
Corporate & Investment Bank
Commercial Banking
(in millions, except ratios)
2020
2019
2018
2020
2019
2018
2020
2019
2018
Total net revenue
$ 51,268 $ 55,133 $ 51,271
$ 49,284
$ 39,265 $ 37,382
$ 9,313
$ 9,264 $ 9,336
Total noninterest expense
27,990
28,276
27,168
23,538
22,444
21,876
Pre-provision profit/(loss)
23,278
26,857
24,103
25,746
16,821
15,506
Provision for credit losses
12,312
4,954
4,754
2,726
277
(60)
Net income/(loss)
8,217
16,541
14,707
17,094
11,954
11,799
3,798
5,515
2,113
2,578
Return on equity (“ROE”)
15 %
31 %
28 %
20 %
14 %
16 %
11 %
Year ended December 31,
Asset & Wealth Management
Corporate
3,627
5,709
129
4,264
20 %
3,735
5,529
296
3,958
17 %
Total(a)
(in millions, except ratios)
2020
2019
2018
2020
2019
2018
2020
2019
2018
Total net revenue
$ 14,240
$ 13,591 $ 13,427
$ (1,176) $ 1,211 $
(128)
$ 122,929 $ 118,464 $ 111,288
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
9,957
4,283
263
9,747
3,844
59
9,575
1,373
1,067
902
66,656
65,269
63,148
3,852
(2,549)
144
(1,030)
56,273
53,195
48,140
52
66
(1)
(4)
17,480
5,585
4,871
Net income/(loss)
2,992
2,867
2,945
(1,750)
1,111
(1,241)
29,131
36,431
32,474
Return on equity (“ROE”)
28 %
26 %
32 %
NM
NM
NM
12 %
15 %
13 %
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
The following sections provide a comparative discussion of the Firm’s results by segment as of or for the years ended
December 31, 2020 and 2019.
66
JPMorgan Chase & Co./2020 Form 10-K
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking, J.P.
Morgan Wealth Management and Business Banking),
Home Lending (including Home Lending Production,
Home Lending Servicing and Real Estate Portfolios) and
Card & Auto. Consumer & Business Banking offers
deposit and investment products, payments 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 & Auto issues credit cards to consumers and
small businesses and originates and services auto loans
and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and
deposit-related fees(a)
Asset management,
administration and
commissions(a)
Mortgage fees and related
income
Card income(b)
All other income
Noninterest revenue
Net interest income
Total net revenue
2020
2019
2018
$ 3,166
$ 3,938
$ 3,787
2,780
2,808
2,592
3,079
3,068
5,647
17,740
33,528
51,268
2,035
3,412
5,603
17,796
37,337
55,133
1,252
3,108
4,599
15,338
35,933
51,271
Provision for credit losses
12,312
4,954
4,754
Noninterest expense
Compensation expense
Noncompensation expense(b)(c)
Total noninterest expense
Income before income tax
expense
Income tax expense
Net income
Revenue by line of business
Consumer & Business Banking
Home Lending
Card & Auto(b)
Mortgage fees and related
income details:
Net production revenue
Net mortgage servicing
revenue(d)
Mortgage fees and related
income
Financial ratios
Return on equity
Overhead ratio
11,014
16,976
27,990
10,966
2,749
$ 8,217
10,815
17,461
28,276
21,903
5,362
$ 16,541
10,580
16,588
27,168
19,349
4,642
$ 14,707
$ 22,955
6,018
22,295
$ 27,376
5,179
22,578
$ 25,607
5,484
20,180
2,629
1,618
450
417
268
984
$ 3,079
$ 2,035
$ 1,252
15 %
55
31 %
51
28 %
53
In the first quarter of 2020, the Merchant Services business was realigned from
CCB to CIB as part of the Firm’s Wholesale Payments business. In the fourth
quarter of 2020, payment processing-only clients along with the associated
revenue and expenses were realigned to CIB’s Wholesale Payments business
from CCB and CB. Prior-period amounts have been revised to conform with the
current presentation.
In the fourth quarter of 2020, the Firm realigned certain wealth management
clients from AWM to CCB. Prior-period amounts have been revised to conform
with the current presentation, including an increase to net revenue of $725
million and $649 million for the years ended December 31, 2019 and 2018,
respectively. Ultra-high-net-worth and certain high-net-worth client
relationships remained in AWM.
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset
management, administration and commissions to lending- and deposit-
related fees. Prior-period amounts have been revised to conform with the
current presentation.
(b) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
(c) Included depreciation expense on leased assets of $4.2 billion, $4.0 billion
and $3.4 billion for the years ended December 31, 2020, 2019 and 2018,
respectively.
(d) Included MSR risk management results of $(18) million, $(165) million and
$(111) million for the years ended December 31, 2020, 2019 and 2018,
respectively.
JPMorgan Chase & Co./2020 Form 10-K
67
Management’s discussion and analysis
2020 compared with 2019
Net income was $8.2 billion, a decrease of 50%, largely
driven by an increase in the provision for credit losses.
Net revenue was $51.3 billion, a decrease of 7%.
Net interest income was $33.5 billion, down 10%, driven
by:
• the impact of deposit margin compression in CBB, spread
compression and lower loans in Home Lending,
predominantly due to paydowns and prior year loan
sales, and lower loans in Card due to the decline in sales
volume as a result of the COVID-19 pandemic,
partially offset by
• growth in deposits in CBB, and loan margin expansion in
Card, the prior year included charges for the unwind of
the internal funding from Treasury and CIO associated
with the sales of certain mortgage loans.
Noninterest revenue was $17.7 billion, flat, reflecting:
• lower deposit-related fees due to lower transaction
activity and the impact of fee refunds related to the
COVID-19 pandemic,
• lower card income due to lower net interchange income
reflecting lower credit card sales volumes and debit card
transactions as a result of the impact of the COVID-19
pandemic, largely offset by lower acquisition costs and
higher annual fees, and
• lower asset management, administration and
commissions due to a lower volume of annuity sales
offset by a higher level of investment assets,
offset by
• higher net mortgage production revenue reflecting higher
mortgage production volumes and margins; the prior
year included gains on the sales of certain mortgage
loans.
Refer to Note 15 for further information regarding changes
in the value of the MSR asset and related hedges, and
mortgage fees and related income.
Noninterest expense was $28.0 billion, relatively flat,
reflecting:
• lower marketing expense as a result of lower investments
in marketing campaigns and lower travel-related
benefits, and
• lower structural expenses,
offset by
• investments in the business, higher volume-related
compensation, and higher depreciation on auto lease
assets.
The provision for credit losses was $12.3 billion, an
increase of $7.4 billion from the prior year, driven by:
• additions to the allowance for credit losses as a result of
the impact of the COVID-19 pandemic, consisting of: $6.6
billion for Card, $649 million for CBB, and $560 million
for Auto,
partially offset by
• lower net charge-offs largely in Card, reflecting lower
charge-offs and higher recoveries primarily benefiting
from payment assistance and government stimulus.
The prior year included a $300 million net reduction in the
allowance for credit losses.
Refer to Credit and Investment Risk Management on pages
110–134 and Allowance for Credit Losses on pages
132-133 for further discussions of the credit portfolios and
the allowance for credit losses.
68
JPMorgan Chase & Co./2020 Form 10-K
Selected metrics
As of or for the year ended
December 31,
(in millions, except
headcount)
Selected balance sheet data
(period-end)
Total assets
Loans:
Consumer & Business
Banking
Home Lending(a)(b)
Card
Auto
Total loans
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans:
Consumer & Business
Banking
Home Lending(a)(c)
Card
Auto
Total loans
Deposits
Equity
Headcount
2020
2019
2018
$ 496,705
$ 541,367 $ 560,177
(d)
48,810
182,121
144,216
66,432
441,579
958,706
52,000
29,585
213,445
168,924
61,522
473,476
723,418
52,000
28,450
247,721
156,632
63,573
496,376
684,124
51,000
$ 501,584
$ 543,127 $ 548,637
43,064
197,148
146,633
61,476
448,321
851,390
52,000
28,859
230,662
156,325
61,862
477,708
698,378
52,000
27,890
250,373
145,652
64,675
488,590
675,537
51,000
122,894
125,756
127,826
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB’s Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022
and 4,092, as of December 31, 2019 and 2018, respectively.
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including an increase to
headcount of 2,641 and 2,400 as of December 31, 2019 and 2018,
respectively.
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(b) At December 31, 2020, 2019 and 2018, Home Lending loans held-
for-sale and loans at fair value were $9.7 billion, $16.6 billion and
$7.9 billion, respectively.
(c) Average Home Lending loans held-for sale and loans at fair value were
$11.1 billion, $14.1 billion and $9.0 billion, respectively, for the years
ended December 31, 2020, 2019 and 2018.
(d) At December 31, 2020 included $19.2 billion of loans in Business
Banking under the PPP. Refer to Credit Portfolio on pages 112-113 for
a further discussion of the PPP.
Selected metrics
As of or for the year ended
December 31,
(in millions, except ratio data)
Credit data and quality statistics
Nonaccrual loans(a)(b)(c)
Net charge-offs/(recoveries)
Consumer & Business Banking
Home Lending
Card
Auto
Total net charge-offs/
(recoveries)
Net charge-off/(recovery) rate
Consumer & Business Banking
Home Lending
Card
Auto
Total net charge-off/
(recovery) rate
30+ day delinquency rate
Home Lending(d)(e)
Card
Auto
90+ day delinquency rate - Card
Allowance for loan losses
Consumer & Business Banking
Home Lending
Card
Auto
Total allowance for loan
losses
2020
2019
2018
$ 5,675
(f) $ 3,027
$ 3,349
263
(169)
4,286
123
298
(98)
4,848
206
246
(294)
4,518
243
$ 4,503
$ 5,254
$ 4,713
0.61 % (g)
(0.09)
2.93
0.20
1.03 % 0.88 %
(0.05)
3.10
0.33
(0.12)
3.10
0.38
1.03 %
1.13 % 0.98 %
1.15 % (h)
(h)
1.68
0.69
(h)
0.92 % (h)
1.58 % 1.63 %
1.87
0.94
1.83
0.93
0.95 % 0.92 %
$ 1,372
1,813
17,800
1,042
$ 750
1,890
5,683
465
$ 796
2,791
5,184
464
$ 22,027
$ 8,788
$ 9,235
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. The adoption resulted in a change in the accounting for PCI
loans, which are considered purchased credit deteriorated (“PCD”) loans
under CECL. Refer to Note 1 for further information.
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation.
(a) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
(b) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $558 million, $963 million and $2.6 billion,
respectively. These amounts have been excluded based upon the
government guarantee. Prior-period amounts of mortgage loans 90 or
more days past due and insured by U.S. government agencies excluded
from nonaccrual loans have been revised to conform with the current
presentation; refer to footnote (c) for additional information.
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(d) At December 31, 2020, the 30+ day delinquency rates included PCD
loans. The rates prior to January 1, 2020 were revised to include the
impact of PCI loans.
(e) At December 31, 2020, 2019 and 2018, excluded mortgage loans
insured by U.S. government agencies of $744 million, $1.7 billion and
$4.1 billion, respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
Prior-period amounts of mortgage loans 30 or more days past due and
insured by U.S. government agencies excluded from 30+ day
delinquency rate have been revised to conform with the current
presentation; refer to footnote (c) for additional information.
JPMorgan Chase & Co./2020 Form 10-K
69
Management’s discussion and analysis
(f) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic. Refer to Consumer Credit
Portfolio on pages 114-116 for further information on consumer
payment assistance activity. Includes loans to customers that have
exited COVID-19 payment deferral programs and are 90 or more days
past due, predominantly all of which were also at least 150 days past
due and therefore considered collateral-dependent. Collateral-
dependent loans are charged down to the lower of amortized cost or
fair value of the underlying collateral less costs to sell.
(g) At December 31, 2020, included $19.2 billion of loans in Business
Banking under the PPP. Given that PPP loans are guaranteed by the
SBA, the Firm does not expect to realize material credit losses on these
loans. Refer to Credit Portfolio on pages 112-113 for a further
discussion of the PPP.
(h) At December 31, 2020, the principal balance of loans in Home
Lending, Card and Auto under payment deferral programs offered in
response to the COVID-19 pandemic were $9.1 billion, $264 million
and $376 million, respectively. Loans that are performing according to
their modified terms are generally not considered delinquent. Refer to
Consumer Credit Portfolio on pages 114-116 for further information
on consumer payment assistance activity.
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios and
where otherwise noted)
Business Metrics
CCB households (in millions)
Number of branches
Active digital customers
(in thousands)(a)
Active mobile customers
(in thousands)(b)
Debit and credit card
2020
2019
2018
63.4
4,908
62.6
4,976
61.7
5,036
55,274
52,453
49,254
40,899
37,315
33,260
sales volume
$ 1,081.2
$ 1,114.4
$ 1,016.9
Consumer & Business Banking
Average deposits
Deposit margin
Business banking
origination volume
$
Client investment assets
Number of client advisors
Home Lending
Mortgage origination volume
$ 832.5
$ 683.7
$ 661.7
1.58 %
2.48 %
2.38 %
26.6
590.2
4,417
(f) $
6.6
501.4
4,196
$
6.7
399.7
3,929
by channel
Retail
Correspondent
Total mortgage origination
volume(c)
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)
MSR revenue multiple(d)
Credit Card
Credit card sales volume,
$
72.9
40.9
$ 51.0
54.2
$
38.3
41.1
$ 113.8
$ 105.2
$
79.4
$ 626.3
$ 761.4
$ 789.8
447.3
520.8
519.6
3.3
4.7
6.1
0.74 %
2.55x
0.90 %
2.65x
1.17 %
3.34x
excluding commercial card $ 702.7
$ 762.8
$ 692.4
New accounts opened
(in millions)
Net revenue rate(e)
Auto
Loan and lease
5.4
10.92 %
7.8
$
10.48 %
7.8
10.17 %
origination volume
$
38.4
$ 34.0
$
31.8
Average auto
operating lease assets
22.0
21.6
18.8
In the fourth quarter of 2020, the Firm realigned certain wealth management
clients from AWM to CCB. Prior-period amounts have been revised to conform
with the current presentation, including an increase to client investment assets
of $143.3 billion and $117.3 billion as of December 31, 2019 and 2018,
respectively.
(a) Users of all web and/or mobile platforms who have logged in within the
past 90 days.
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $133.4 billion, $115.9 billion
and $86.9 billion for the years ended December 31, 2020, 2019 and
2018, respectively.
(d) 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).
(e) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
Included $21.9 billion of origination volume under the PPP for the year
ended December 31, 2020. Refer to Credit Portfolio on pages 112-113 for
a further discussion of the PPP.
(f)
70
JPMorgan Chase & Co./2020 Form 10-K
(b) Includes 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 $2.8 billion,
$2.3 billion and $1.7 billion for the years ended December 31, 2020,
2019 and 2018, respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
2020
2019
2018
Financial ratios
Return on equity
Overhead ratio
Compensation expense as
percentage of total net
revenue
Revenue by business
Investment Banking
Wholesale Payments
Lending
Total Banking
20 %
48
14 %
57
16 %
59
24
28
29
$ 8,871
$ 7,215
$ 6,987
5,560
5,842
5,930
1,146
1,021
999
15,577
14,078
13,916
Fixed Income Markets
20,878
14,418
12,706
Equity Markets
Securities Services
Credit Adjustments & Other(a)
Total Markets & Securities
Services
8,605
6,494
6,888
4,253
4,154
4,245
(29)
121
(373)
33,707
25,187
23,466
Total net revenue
$ 49,284
$ 39,265
$ 37,382
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB’s Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation.
(a) Includes credit valuation adjustments (“CVA”) managed centrally
within CIB and funding valuation adjustments (“FVA”) on derivatives
and certain components of fair value option elected liabilities, which
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. Refer
to Notes 2, 3 and 24 for additional information.
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities 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, merchants,
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 Wholesale
Payments, which provides payments services enabling
clients to manage payments and receipts globally, and
cross-border financing. Markets & Securities Services
includes Markets, a global market-maker across
products, including cash and derivative instruments,
which also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &
Securities 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.
Selected income statement data
Year ended December 31,
(in millions)
Revenue
2020
2019
2018
Investment banking fees
$ 9,477 $ 7,575 $ 7,473
Principal transactions
Lending- and deposit-related fees(a)
Asset management, administration
and commissions(a)
All other income
Noninterest revenue
Net interest income
Total net revenue(b)
17,560
14,399
12,262
2,070
1,668
1,633
4,721
1,292
4,400
2,018
4,361
2,125
35,120
30,060
27,854
14,164
9,205
9,528
49,284
39,265
37,382
Provision for credit losses
2,726
277
(60)
Noninterest expense
Compensation expense
11,612
11,180
10,776
Noncompensation expense
11,926
11,264
11,100
Total noninterest expense
23,538
22,444
21,876
Income before income tax
expense
Income tax expense
Net income
23,020
16,544
15,566
5,926
4,590
3,767
$ 17,094 $ 11,954 $ 11,799
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB’s Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation.
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
71
Markets & Securities Services revenue was $33.7 billion, up
34%. Markets revenue was $29.5 billion, up 41%.
• Fixed Income Markets revenue was $20.9 billion, up
45%, driven by strong client activity across products
primarily in Rates, Credit, Currencies & Emerging
Markets, and Securitized Products.
• Equity Markets revenue was $8.6 billion, up 33%, driven
by strong client activity across products.
• Securities Services revenue was $4.3 billion, up 2%,
driven by deposit balance and fee growth largely offset by
deposit margin compression.
The provision for credit losses was $2.7 billion, compared
with $277 million in the prior year. The increase was driven
by net additions to the allowance for credit losses as a
result of the impact of the COVID-19 pandemic across
multiple industries.
Noninterest expense was $23.5 billion, up 5%, driven by
higher volume- and revenue-related expense and legal
expense.
Management’s discussion and analysis
2020 compared with 2019
Net income was $17.1 billion, up 43%.
Net revenue was $49.3 billion, up 26%.
Banking revenue was $15.6 billion, up 11%.
• Investment Banking revenue was $8.9 billion, up 23%,
driven by higher Investment Banking fees, up 25%,
reflecting higher equity and debt underwriting fees. The
Firm maintained its #1 ranking for Global Investment
Banking fees with overall share gains, according to
Dealogic.
– Equity underwriting fees were $2.8 billion, up 66%,
predominantly in follow-on offerings and convertible
securities markets due to increased industry-wide fees.
– Debt underwriting fees were $4.4 billion, up 23%,
driven by increased industry-wide fees and wallet share
gains in investment grade and high yield bonds. The
increased activity resulted in part from clients seeking
liquidity in the first half of the year as a result of the
COVID-19 pandemic.
– Advisory fees of $2.4 billion were flat, reflecting an
increase in wallet share, despite a decrease in industry-
wide fees.
• Wholesale Payments revenue was $5.6 billion, down 5%,
driven by deposit margin compression and a reporting
reclassification for certain expenses which are now
reported as a reduction of revenue in Merchant Services,
largely offset by higher deposit balances.
• Lending revenue was $1.1 billion, up 12%,
predominantly driven by higher net interest income
reflecting higher yields on new loans and higher loan
balances, as well as higher loan commitment fees, largely
offset by fair value losses on hedges of accrual loans.
72
JPMorgan Chase & Co./2020 Form 10-K
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
Selected balance sheet data
(period-end)
Assets
Loans:
Loans retained(a)
Loans held-for-sale and
loans at fair value(b)(c)
Total loans
Equity
Selected balance sheet data
(average)
Assets
Trading assets-debt and equity
instruments(c)
Trading assets-derivative
receivables
Loans:
Loans retained(a)
Loans held-for-sale and
loans at fair value(b)(c)
Total loans
Equity
Headcount
2020
2019
2018
$ 1,097,219 $ 914,705 $ 909,292
133,296
121,733
129,389
39,588
34,317
36,407
172,884
156,050
165,796
80,000
80,000
70,000
$ 1,122,939 $ 993,508 $ 930,126
422,237
376,182
321,280
72,065
48,196
60,552
135,676
122,371
114,417
33,792
32,884
30,317
169,468
155,255
144,734
80,000
80,000
70,000
61,733
60,013
58,572
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB’s Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation, including an increase to
period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022
and 4,092, as of December 31, 2019 and 2018, respectively.
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, mortgage-related secured lending, other held-for-investment
loans and overdrafts
(b) Loans held-for-sale and loans at fair value primarily reflect lending-
related positions originated and purchased in CIB Markets, including
loans held for securitization.
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
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(b)(c)
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(d)
Allowance for loan losses to
period-end loans
retained
Allowance for loan losses to
period-end loans retained,
excluding trade finance
and conduits(e)
Allowance for loan losses to
nonaccrual loans
retained(a)
Nonaccrual loans to total
period-end loans(b)
2020
2019
2018
$
370
$
183
$
93
1,008
308
443
1,662
2,670
56
85
644
952
30
70
921
1,364
60
57
2,811
1,052
1,481
2,366
1,202
1,199
1,534
848
754
3,900
2,050
1,953
0.27 %
0.15 %
0.08 %
1.77
0.99
0.93
2.54
1.31
1.24
235
1.54
390
0.61
271
0.82
(a) Allowance for loan losses of $278 million, $110 million and $174
million were held against these nonaccrual loans at December 31,
2020, 2019 and 2018, respectively.
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(c) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $316 million, $127 million and $155 million,
respectively. These amounts have been excluded based upon the
government guarantee.
(d) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(e) 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.
JPMorgan Chase & Co./2020 Form 10-K
73
Management’s discussion and analysis
Investment banking fees
(in millions)
Advisory
Equity underwriting
Debt underwriting(a)
Total investment banking fees
(a) Represents long-term debt and loan syndications.
League table results – wallet share
Year ended December 31,
Based on fees(a)
M&A(b)
Global
U.S.
Equity and equity-related(c)
Global
U.S.
Long-term debt(d)
Global
U.S.
Loan syndications
Global
U.S.
Global investment banking fees(e)
Year ended December 31,
2020
2019
2018
2,368 $
2,377 $
2,758
4,351
1,666
3,532
9,477 $
7,575 $
2,509
1,684
3,280
7,473
2020
2019
2018
Rank
Share
Rank
Share
Rank
Share
2
2
2
2
1
1
1
1
1
9.3 % #
9.7
8.6
11.1
8.9
12.8
11.1
11.5
9.2 % #
2
2
1
2
1
1
1
1
1
8.9 % #
9.2
9.3
13.2
7.8
12.0
10.1
12.5
8.9 % #
2
2
1
1
1
1
1
1
1
8.6 %
8.8
9.0
12.3
7.2
11.4
10.1
12.3
8.6 %
$
$
#
#
(a) Source: Dealogic as of January 4, 2021. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) 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.
(e) Global investment banking fees exclude money market, short-term debt and shelf securities.
between the price at which a market participant is willing
and able to sell an instrument to the Firm and the price at
which another market participant is willing and able 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.
Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets consists of 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. Refer to Notes 6
and 7 for a description of the composition of these income
statement line items.
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
74
JPMorgan Chase & Co./2020 Form 10-K
For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon
executing new transactions.
Year ended December 31,
(in millions, except where
otherwise noted)
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue
Loss days(a)
2020
2019
2018
Fixed
Income
Markets
Equity
Markets
Total
Markets
Fixed
Income
Markets
Equity
Markets
Total
Markets
Fixed
Income
Markets
Equity
Markets
Total
Markets
$ 11,857 $
6,087 $ 17,944 $
226
10
236
8,786 $
198
5,739 $ 14,525 $
7
205
7,560 $
197
5,566 $ 13,126
203
6
411
493
12,987
7,891
$ 20,878 $
2,087
(62)
8,122
483
2,498
431
21,109
8,374
407
872
10,263
4,155
8,605 $ 29,483 $ 14,418 $
1,775
8
7,529
(1,035)
6,494 $ 20,912 $ 12,706 $
2,182
880
17,792
3,120
410
952
9,119
3,587
4
1
2,204
1,794
974
22
16,507
7,388
(500)
3,087
6,888 $ 19,594
5
(a) Loss days represent the number of days for which CIB Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net
revenue. The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains
and losses include positions in the Firm’s Risk Management value-at-risk (“VaR”) measure and exclude select components of total net revenue, which may
more than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR discussion on
pages 137–139.
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
Merchant processing volume (in billions)(b)
Client deposits and other third party liabilities (average)(c)
2020
2019
2018
$
$
$
$
15,840 $
13,498 $
11,489
3,651
30,980 $
1,597.3 $
610,555 $
10,100
3,233
26,831 $
1,511.5 $
464,795 $
12,440
8,078
2,699
23,217
1,366.1
434,422
In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm’s Wholesale Payments business. Prior-period
amounts have been revised to conform with the current presentation.
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Represents total merchant processing volume across CIB, CCB and CB.
(c) Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities Services businesses.
JPMorgan Chase & Co./2020 Form 10-K
75
Management’s discussion and analysis
International metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Total net revenue(a)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international net revenue
North America
Total net revenue
Loans retained (period-end)(a)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international loans
North America
Total loans retained
Client deposits and other third-party liabilities (average)(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America
Total client deposits and other third-party liabilities
AUC (period-end)(b)
(in billions)
North America
All other regions
Total AUC
2020
2019(c)
2018(c)
$
13,872 $
11,905 $
7,524
1,931
23,327
25,957
5,319
1,543
18,767
20,498
49,284 $
39,265 $
27,659 $
26,067 $
12,802
5,425
45,886
87,410
14,759
6,173
46,999
74,734
12,422
5,077
1,473
18,972
18,410
37,382
23,648
17,101
6,515
47,264
82,125
133,296 $
121,733 $
129,389
211,592 $
174,477 $
124,145
37,664
90,364
29,024
373,401 $
293,865 $
237,154
170,930
610,555 $
464,795 $
20,028 $
10,952
30,980 $
16,855 $
9,976
26,831 $
162,846
82,867
26,668
272,381
162,041
434,422
14,359
8,858
23,217
$
$
$
$
$
$
$
$
In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm’s Wholesale Payments business. In the fourth
quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB’s Wholesale Payments business
from CCB and CB. Prior-period amounts have been revised to conform with the current presentation.
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking location,
or domicile of the client, as applicable.
(b) Client deposits and other third-party liabilities pertaining to the Wholesale Payments and Securities Services businesses, and AUC, are based on the
domicile of the client.
(c) Prior-period amounts have been revised to conform with the current presentation.
76
JPMorgan Chase & Co./2020 Form 10-K
2020 compared with 2019
Net income was $2.6 billion, a decrease of 35%, driven by
an increase in the provision for credit losses.
Net revenue was $9.3 billion, flat compared to the prior
year. Net interest income was $6.2 billion, a decrease of
5%, driven by deposit margin compression, predominantly
offset by higher deposit balances and lending revenue.
Noninterest revenue was $3.1 billion, an increase of 13%,
driven by higher deposit-related fees, particularly cash
management fees, higher investment banking revenue, and
a gain on a strategic investment. The increase was partially
offset by a $56 million markdown of a held-for-sale position
and lower card income, primarily due to lower volumes as a
result of the COVID-19 pandemic.
Noninterest expense was $3.8 billion, an increase of 2%,
driven by higher compensation expense.
The provision for credit losses was $2.1 billion, compared
to $296 million in the prior year. The increase was driven
by net additions to the allowance for credit losses as a
result of the impact of the COVID-19 pandemic across
multiple industries.
COMMERCIAL BANKING
Commercial Banking provides comprehensive financial
solutions, including lending, wholesale payments,
investment banking and asset management products
across three primary client segments: Middle Market
Banking, Corporate Client Banking and Commercial
Real Estate Banking. Other includes amounts not
aligned with a primary client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Selected income statement data
Year ended December 31,
(in millions)
2020
2019
2018
Revenue
Lending- and deposit-related fees(a)
All other income(a)
Noninterest revenue
Net interest income
Total net revenue(b)
$ 1,187 $
941 $
896
1,880
1,769
1,724
3,067
2,710
2,620
6,246
6,554
6,716
9,313
9,264
9,336
Provision for credit losses
2,113
296
129
Noninterest expense
Compensation expense
1,854
1,785
1,694
Noncompensation expense
1,944
1,950
1,933
Total noninterest expense
3,798
3,735
3,627
Income before income tax expense
3,402
5,233
5,580
Income tax expense
Net income
824
1,275
1,316
$ 2,578 $ 3,958 $ 4,264
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In
conjunction with this realignment, treasury services product revenue has
been renamed wholesale payments. In the fourth quarter of 2020,
payment processing-only clients along with the associated revenue and
expenses were realigned to CIB’s Wholesale Payments business from CCB
and CB. Prior-period revenue and expense amounts have been revised to
conform with the current presentation.
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions (which are
included in all other income) to lending and deposit-related fees. Prior
period amounts have been revised to conform with the current period
presentation.
(b) Total net revenue included tax-equivalent adjustments from income
tax credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $351 million, $460 million and $444 million for
the years ended December 31, 2020, 2019 and 2018, respectively.
JPMorgan Chase & Co./2020 Form 10-K
77
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.
Wholesale payments 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.
Selected metrics
As of or for the year ended
December 31, (in millions,
except headcount)
Selected balance sheet data
(period-end)
Total assets
Loans:
2020
2019
2018
$ 228,932
$ 220,514 $ 220,229
Loans retained
207,880
207,287
204,219
Loans held-for-sale and
loans at fair value
2,245
1,009
1,978
Total loans
$ 210,125
$ 208,296 $ 206,197
Equity
22,000
22,000
20,000
Period-end loans by client
segment
Middle Market Banking
$ 61,115
Corporate Client Banking
47,420
(a) $ 54,188 $ 56,656
48,343
51,165
Commercial Real Estate
Banking
Other
101,146
101,951
100,088
444
992
1,110
Selected income statement data (continued)
Year ended December 31,
(in millions, except ratios)
2020
2019
2018
Total Commercial Banking
loans
$ 210,125
(a) $ 208,296 $ 206,197
Revenue by product
Lending
Wholesale payments
Investment banking(a)
Other
$ 4,396
$ 4,057
$ 4,049
3,715
1,069
133
4,200
919
88
4,351
852
84
Total Commercial Banking net
revenue
$ 9,313
$ 9,264
$ 9,336
Selected balance sheet data
(average)
Total assets
Loans:
$ 233,158
$ 218,896 $ 218,259
Loans retained
217,767
206,837
204,243
Loans held-for-sale and
loans at fair value
1,129
1,082
1,258
Investment banking revenue, gross(b) $ 3,348
$ 2,744
$ 2,491
Total loans
$ 218,896
$ 207,919 $ 205,501
$ 3,640
$ 3,805
$ 3,797
Equity
Client deposits and other
third-party liabilities
237,825
172,734
170,901
22,000
22,000
20,000
Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Real Estate Banking
Other
Total Commercial Banking net
revenue
Financial ratios
Return on equity
Overhead ratio
3,203
2,313
157
3,119
2,169
171
3,119
2,251
169
$ 9,313
$ 9,264
$ 9,336
11 %
41
17 %
40
20 %
39
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm’s Wholesale Payments business. In
conjunction with this realignment, treasury services product revenue has
been renamed wholesale payments. In the fourth quarter of 2020,
payment processing-only clients along with the associated revenue and
expenses were realigned to CIB’s Wholesale Payments business from CCB
and CB. Prior-period revenue and expense amounts have been revised to
conform with the current presentation.
(a) Includes CB’s share of revenue from investment banking products sold
to CB clients through the CIB.
(b) Refer to Business Segment Results page 65 for a discussion of revenue
sharing.
Average loans by client
segment
Middle Market Banking
$ 61,558
$ 55,690 $ 57,092
Corporate Client Banking
54,172
50,360
47,780
Commercial Real Estate
Banking
Other
Total Commercial Banking
loans
Headcount
102,479
100,884
99,243
687
985
1,386
$ 218,896
$ 207,919 $ 205,501
11,675
11,629
11,042
(a) At December 31, 2020, total loans included $6.6 billion of loans under
the PPP, of which $6.4 billion were in Middle Market Banking. Refer to
Credit Portfolio on pages 112-113 for a further discussion of the PPP.
78
JPMorgan Chase & Co./2020 Form 10-K
Selected metrics
As of or for the year ended
December 31, (in millions, except
ratios)
Credit data and quality statistics
2020
2019
2018
Net charge-offs/(recoveries)
$ 401
$ 160
$
53
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)
1,286
Nonaccrual loans held-for-sale
and loans at fair value
Total nonaccrual loans
Assets acquired in loan
satisfactions
120
1,406
24
Total nonperforming assets
1,430
Allowance for credit losses:
498
—
498
25
523
511
—
511
2
513
Allowance for loan losses
3,335
2,780
2,682
Allowance for lending-related
commitments
651
293
254
Total allowance for credit losses
3,986
3,073
2,936
Net charge-off/(recovery) rate(b)
0.18 % 0.08 %
0.03 %
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
1.60
1.34
1.31
259
558
525
0.67
0.24
0.25
(a) Allowance for loan losses of $273 million, $114 million and $92
million was held against nonaccrual loans retained at December 31,
2020, 2019 and 2018, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
JPMorgan Chase & Co./2020 Form 10-K
79
2020 compared with 2019
Net income was $3.0 billion, an increase of 4%.
Net revenue was $14.2 billion, an increase of 5%. Net
interest income was $3.4 billion, up 2%, driven by higher
deposit and loan balances as well as loan margin expansion,
offset by deposit margin compression. Noninterest revenue
was $10.8 billion, up 6%, predominantly driven by higher
asset management fees as a result of net inflows into
liquidity and long term products, higher performance fees
and increased brokerage commissions on higher client-
driven volume, partially offset by lower net investment
valuation gains.
Revenue from Asset Management was $7.7 billion, up 6%,
predominantly driven by higher asset management fees as
a result of net inflows into liquidity products as well as
higher performance fees, partially offset by lower net
investment valuation gains.
Revenue from Wealth Management was $6.6 billion, up 4%,
predominantly driven by higher deposit and loan balances,
increased brokerage commissions and asset management
fees, largely offset by deposit margin compression.
The provision for credit losses was $263 million, driven by
additions to the allowance for credit losses, predominantly
as a result of the impact of the COVID-19 pandemic.
Noninterest expense was $10.0 billion, an increase of 2%,
driven by legal expense, volume- and revenue-related
expense as well as investments in the business, partially
offset by lower structural expense.
Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $3.7
trillion, is a global leader in investment and wealth
management.
Asset Management
Offers multi-asset investment management solutions
across equities, fixed income, alternatives and money
market funds to institutional and retail investors
providing for a broad range of clients’ investment needs.
Wealth Management
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits
and investment management to high net worth clients.
The majority of AWM’s client assets are in actively
managed portfolios.
Selected income statement data
Year ended December 31,
(in millions, except ratios
and headcount)
2020
Revenue
Asset management, administration
2019
2018
and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue
$ 10,610 $ 9,818
$ 9,808
212
418
244
10,822
10,236
10,052
3,418
3,355
3,375
14,240
13,591
13,427
Provision for credit losses
263
59
52
Noninterest expense
Compensation expense
4,959
5,028
4,888
Noncompensation expense
4,998
4,719
4,687
Total noninterest expense
9,957
9,747
9,575
Income before income tax expense 4,020
3,785
3,800
Income tax expense
Net income
1,028
918
855
$ 2,992
$ 2,867
$ 2,945
Revenue by line of business
Asset Management
Wealth Management
Total net revenue
Financial ratios
$ 7,654
$ 7,254
$ 7,163
6,586
6,337
6,264
$ 14,240 $ 13,591
$ 13,427
Return on common equity
28 %
26 %
Overhead ratio
Pre-tax margin ratio:
Asset Management
Wealth Management
Asset & Wealth Management
70
29
27
28
72
26
30
28
32 %
71
26
30
28
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
net revenue of $725 million and $649 million for the years ended
December 31, 2019 and 2018, respectively. Effective in the first quarter
of 2021, the Wealth Management business was renamed Global Private
Bank.
80
JPMorgan Chase & Co./2020 Form 10-K
AWM’s client segments consist of the following:
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers and business owners.
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 and at the “primary share class” level or
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.
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)(c)
Total assets
Loans
Deposits
Equity
Selected balance sheet data
(average)(c)
Total assets
Loans
Deposits
Equity
2020
2019
2018
55 %
61 %
58 %
55
69
68
59
77
75
68
73
85
$ 203,384
$ 173,175
$ 161,047
186,608
158,149
145,794
198,755
142,740
133,276
10,500
10,500
9,000
$ 181,432
$ 161,863
$ 151,632
166,311
147,404
136,929
161,955
135,265
132,123
10,500
10,500
9,000
Headcount
20,683
21,550
21,520
2,462
2,419
2,385
Number of Wealth
Management client advisors
Credit data and quality
statistics(c)
Net charge-offs/(recoveries)
$
(14) $
29
$
Nonaccrual loans
785
115
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
Total allowance for credit
losses
598
38
636
350
19
369
—
263
326
16
342
Net charge-off/(recovery) rate
(0.01) %
0.02 %
— %
Allowance for loan losses to
period-end loans
Allowance for loan losses to
nonaccrual loans
Nonaccrual loans to period-
end loans
0.32
0.22
76
304
0.42
0.07
0.22
124
0.18
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
headcount of 2,641 and 2,400 as of December 31, 2019 and 2018,
respectively.
(a) Represents the Nomura “star rating” for Japan domiciled funds and
Morningstar for all other 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, Morningstar and Nomura based
on country of domicile. 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.
(c) Loans, deposits and related credit data and quality statistics relate to
the Wealth Management business.
JPMorgan Chase & Co./2020 Form 10-K
81
Management’s discussion and analysis
Client assets
2020 compared with 2019
Client assets were $3.7 trillion, an increase of 18%. Assets
under management were $2.7 trillion, an increase of 17%
driven by the impact of higher market levels and net inflows
into both long-term and liquidity products.
Client assets
December 31,
(in billions)
Assets by asset class
Liquidity
Fixed income
Equity
Multi-asset
Alternatives
2020
2019
2018
$
641 $
539 $
671
595
656
153
591
463
596
139
477
455
376
515
135
Total assets under management
2,716
2,328
1,958
Custody/brokerage/
administration/deposits
936
761
661
Total client assets
$ 3,652 $ 3,089 $ 2,619
Assets by client segment
Private Banking
Institutional
Retail
$
689 $
628 $
1,273
1,081
754
619
518
930
510
Total assets under management $ 2,716 $ 2,328 $ 1,958
Private Banking
Institutional
Retail
$ 1,581 $ 1,359 $ 1,155
1,311
1,106
760
624
950
514
Total client assets
$ 3,652 $ 3,089 $ 2,619
International metrics
Year ended December 31,
(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)
Europe/Middle East/Africa(b)
Asia-Pacific(b)
Latin America/Caribbean(b)
Total international net revenue
2020
2019
2018
$ 2,956 $ 2,869 $ 2,850
1,665
1,509
1,538
782
724
755
5,403
5,102
5,143
North America
Total net revenue
8,837
8,489
8,284
$ 14,240 $ 13,591 $ 13,427
Assets under management
Europe/Middle East/Africa(b)
Asia-Pacific(b)
Latin America/Caribbean(b)
$
517 $
428 $
224
70
192
62
366
163
51
Total international assets under
management
811
682
580
North America
1,905
1,646
1,378
Total assets under management
$ 2,716 $ 2,328 $ 1,958
Client assets
Europe/Middle East/Africa(b)
Asia-Pacific(b)
Latin America/Caribbean(b)
Total international client assets
$
622 $
520 $
330
166
1,118
272
147
939
440
226
125
791
North America
Total client assets
2,534
2,150
1,828
$ 3,652 $ 3,089 $ 2,619
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
net revenue of $725 million and $649 million for the years ended
December 31, 2019 and 2018, respectively, and client assets of $137
billion and $114 billion as of December 31, 2019 and 2018, respectively.
(a) Regional revenue is based on the domicile of the client.
(b) The prior period amounts have been revised to conform with the
Client assets (continued)
Year ended December 31,
(in billions)
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity
Fixed income
Equity
Multi-asset
Alternatives
Market/performance/other
impacts
2020
2019
2018
$ 2,328 $ 1,958 $ 2,010
current period presentation.
104
48
33
5
6
61
104
(11)
2
2
30
(4)
—
17
5
192
212
(100)
Ending balance, December 31
$ 2,716 $ 2,328 $ 1,958
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other
impacts
$ 3,089 $ 2,619 $ 2,685
276
287
176
74
294
(140)
Ending balance, December 31
$ 3,652 $ 3,089 $ 2,619
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
client assets of $137 billion and $114 billion as of December 31, 2019
and 2018, respectively.
82
JPMorgan Chase & Co./2020 Form 10-K
2020 compared with 2019
Net income was a loss of $1.8 billion compared with income
of $1.1 billion in the prior year.
Net revenue was a loss of $1.2 billion, compared with
revenue of $1.2 billion in the prior year, driven by lower net
interest income partially offset by higher noninterest
revenue. The decrease in net interest income was
predominantly driven by lower rates, including the impact
of faster prepayments on mortgage-backed securities, as
well as limited opportunities to deploy funds in response to
significant deposit growth across the LOBs.
Noninterest revenue increased reflecting higher net
valuations on certain legacy equity investments and higher
net investment securities gains due to the repositioning of
the investment securities portfolio.
Noninterest expense of $1.4 billion was up $305 million
driven by an impairment on a legacy investment.
The provision for credit losses relates to the HTM portfolio,
which became subject to the CECL accounting guidance
beginning on January 1, 2020.
Refer to Note 10 and Note 13 for additional information on
the investment securities portfolio and the allowance for
credit losses.
The current period income tax benefit was predominantly
driven by a lower level of pre-tax income and changes in the
level and mix of income and expenses subject to U.S.
federal, and state and local taxes. The prior period included
$1.1 billion of tax benefits related to the resolution of
certain tax audits.
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)
Revenue
Principal transactions
(461) $
245 $
2019
2020
$
2018
Investment securities gains/
(losses)
All other income
Noninterest revenue
Net interest income
Total net revenue(a)
Provision for credit losses
795
159
1,199
(2,375)
(1,176)
66
258
89
(114)
1,325
1,211
(1)
Noninterest expense
1,373
1,067
Income/(loss) before income
tax expense/(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)
Total assets (period-end)
Loans (period-end)
Headcount
(2,615)
(865)
145
(966)
$
(1,750) $ 1,111 $
(1,368)
192
2,032
(821)
$
(1,176) $ 1,211 $
(1,403)
(347)
1,394
(283)
$
(1,750) $ 1,111 $
$ 1,359,831 $ 837,618 $ 771,787
1,597
37,145
1,649
38,033
1,657
38,366
(426)
(395)
558
(263)
135
(128)
(4)
902
(1,026)
215
(1,241)
510
(638)
(128)
(69)
(1,172)
(1,241)
(a) Included tax-equivalent adjustments, driven by tax-exempt income
from municipal bonds, of $241 million, $314 million and $382 million
for the years ended December 31, 2020, 2019 and 2018,
respectively.
JPMorgan Chase & Co./2020 Form 10-K
83
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
2020
2019
2018
Investment securities gains/
(losses)
Available-for-sale securities
(average)
Held-to-maturity securities
(average)
Investment securities portfolio
(average)
Available-for-sale securities
(period-end)
Held-to-maturity securities, net
of allowance for credit losses
(period–end)(a)(b)
Investment securities portfolio,
net of allowance for credit
losses (period–end)(a)
$
795 $
258 $
(395)
$ 413,367 $ 283,205 $ 203,449
94,569
34,939
31,747
$ 507,936 $ 318,144 $ 235,196
$ 386,065 $ 348,876 $ 228,681
201,821
47,540
31,434
$ 587,886 $ 396,416 $ 260,115
(a) At December 31, 2020, the allowance for credit losses on HTM
securities was $78 million.
(b) During 2020, the Firm transferred $164.2 billion of investment
securities from AFS to HTM for capital management purposes.
Refer to Note 10 for further information.
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. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manage the Firm’s cash position primarily through deposits
at central banks and investments in short-term instruments.
Refer to Liquidity Risk Management on pages 102–108 for
further information on liquidity and funding risk. Refer to
Market Risk Management on pages 135–142 for
information on interest rate, foreign exchange and other
risks.
The investment securities portfolio primarily consists of U.S.
GSE and government 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, 2020, the
investment securities portfolio was $587.9 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 risk ratings). Refer to Note 10 for further
information on the Firm’s investment securities portfolio
and internal risk ratings.
84
JPMorgan Chase & Co./2020 Form 10-K
FIRMWIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business
activities. When the Firm extends a consumer or wholesale
loan, advises customers and clients 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,
among other things:
• Acceptance of responsibility, including identification and
escalation of risks by all individuals within the Firm;
• Ownership of risk identification, assessment, data and
management within each of the LOBs and Corporate;
and
•
Firmwide structures for risk governance.
The Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
“Board”). The impact of risk and control issues is carefully
considered in the Firm’s performance evaluation and
incentive compensation processes.
Risk governance and oversight framework
The Firm’s risk management governance and oversight
framework involves understanding drivers of risks, types of
risks, and impacts of risks.
Drivers of Risks are factors that cause a risk to exist. Drivers
of risks include the economic environment, regulatory and
government policy, competitor and market evolution,
business decisions, process and judgment error, deliberate
wrongdoing, dysfunctional markets, and natural disasters.
Types of Risks are categories by which risks manifest
themselves. Risks are generally categorized in the following
four risk types:
•
•
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
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 an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm’s processes or systems. It includes
compliance, conduct, legal, and estimations and model
risk.
Impacts of Risks are consequences of risks, both
quantitative and qualitative. There may be many
consequences of risks manifesting, including quantitative
impacts such as a reduction in earnings and capital,
liquidity outflows, and fines or penalties, or qualitative
impacts such as reputation damage, loss of clients and
customers, and regulatory and enforcement actions.
The Firm’s risk governance and oversight framework is
managed on a Firmwide basis. The Firm has an Independent
Risk Management (“IRM”) function, which consists of the
Risk Management and Compliance organizations. The Chief
Executive Officer (“CEO”) appoints, subject to approval by
the Risk Committee of the Board (“Board Risk Committee”),
the Firm’s Chief Risk Officer (“CRO”) to lead the IRM
organization and manage the risk governance structure of
the Firm. The framework is subject to approval by the Board
Risk Committee in the form of the Risk Governance and
Oversight Policy. The Firm’s CRO oversees and delegates
authorities to LOB CROs, Firmwide Risk Executives (“FREs”),
and the Firm’s Chief Compliance Officer (“CCO”), who each
establish Risk Management and Compliance organizations,
set the Firm’s risk governance policies and standards, and
define and oversee the implementation of the Firm’s risk
governance. The LOB CROs are responsible for risks that
arise in their LOBs, while FREs oversee risk areas that span
across the individual LOBs, functions and regions.
Three lines of defense
The Firm relies upon each of its LOBs and Corporate 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 & CIO, including their aligned Operations,
Technology and Control Management, are the Firm’s “first
line of defense” and own the identification of risks, as well
as the design and execution of 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.
JPMorgan Chase & Co./2020 Form 10-K
85
Management’s discussion and analysis
The IRM function is independent of the businesses and is
the Firm’s “second line of defense.” The IRM function
independently assesses and challenges the first line of
defense risk management practices. IRM is also responsible
for its own adherence to applicable laws, rules and
regulations and for the implementation of policies and
standards established by IRM with respect to its own
processes.
Internal Audit is an independent function that provides
objective assessment on the adequacy and effectiveness of
Firmwide processes, controls, governance and risk
management as the “third line of defense.” The Internal
Audit Function is headed by the General Auditor, who
reports to the Audit Committee and administratively to the
CEO.
In addition, there are other functions that contribute to the
Firmwide control environment but are not considered part
of a particular line of defense, including Finance, Human
Resources and Legal.
Risk identification and ownership
Each LOB and Corporate area owns the ongoing
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. To support this activity, the Firm has a formal
Risk Identification framework designed to facilitate their
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 IRM function reviews
and challenges the LOB and Corporate’s identified risks,
maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee (“FRC”) and Board Risk Committee.
Risk appetite
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 CEO, Chief
Financial Officer (“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. Qualitative factors have been established to
assess select operational risks, and impact to the Firm’s
reputation. Risk Appetite results are reported to the Board
Risk Committee.
86
JPMorgan Chase & Co./2020 Form 10-K
Risk governance and oversight structure
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the FRC, and the Board of Directors, as appropriate.
The chart below illustrates the committees of 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 or described in this Form 10-K.
The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO, General Counsel, CEOs of the LOBs
and other senior executives, is accountable to and may
refer matters to the Firm’s Board of Directors. The
Operating Committee is responsible for escalating to the
Board the information necessary to facilitate the Board’s
exercise of its duties.
Board oversight
The Firm’s Board of Directors provides oversight of risk. The
Board Risk Committee 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 reputational risks and conduct risks within its
scope of responsibility.
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 Risk Committee and the
Audit Committee, respectively, and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
The Board Risk Committee assists the Board in its oversight
of management’s responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm’s risks. The Board Risk
Committee’s responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
The Audit Committee assists the Board in its oversight of
management’s responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm’s assets and income, ensure 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. It also
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.
JPMorgan Chase & Co./2020 Form 10-K
87
Management’s discussion and analysis
The Compensation & Management Development Committee
(“CMDC”) assists the Board in its oversight of the Firm’s
compensation principles and practices. The CMDC reviews
and approves the Firm’s compensation and qualified
benefits programs. The Committee reviews the performance
of Operating Committee members against their goals, and
approves their compensation awards. In addition, the CEO’s
award is subject to ratification by the independent directors
of the Board. The CMDC also reviews the development of
and succession for key executives, and provides oversight of
the Firm’s culture, including reviewing updates from
management regarding significant conduct issues and any
related employee actions, including compensation actions.
The Public Responsibility Committee 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 could impact the Firm's reputation among its
stakeholders. The Committee also provides guidance on
these matters to management and the Board, as
appropriate.
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board of Directors. It reviews the qualifications of
and recommends to the Board of Directors proposed
nominees for election to the Board. The Committee
evaluates and recommends to the Board corporate
governance practices applicable to the Firm. It also
appraises the framework for assessing the Board’s
performance and self-evaluation.
Management oversight
The Firm’s senior management-level committees that are
primarily responsible for key risk-related functions include:
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 and serves as an
escalation point for risk topics and issues raised by
underlying committees and/or FRC members.
The Firmwide Control Committee (“FCC”) is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
Line of Business and Regional Risk Committees are
responsible for providing oversight of the governance,
limits, and controls that are in place through the scope of
their activities. These committees review the ways in which
the particular LOB 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.
Line of Business and Corporate Function Control Committees
oversee the operational risk and control environment of
their respective business or function, inclusive of
Operational Risk, Compliance and Conduct Risks. As part of
that mandate, they are responsible for reviewing indicators
of elevated or emerging risks and other data that may
impact the level of operating risk in a business or function,
addressing key operational risk issues, focusing on
processes with control concerns and overseeing control
remediation.
The Asset and Liability Committee (“ALCO”) 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 Firmwide Valuation Governance Forum (“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.
88
JPMorgan Chase & Co./2020 Form 10-K
Risk 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 discuss 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
90
91-101
102-108
109
114-120
121-131
134
135-142
143-144
145-151
148
149
150
151
JPMorgan Chase & Co./2020 Form 10-K
89
Management’s discussion and analysis
STRATEGIC RISK MANAGEMENT
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
Management and oversight
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 relevant business reviews,
LOB and Corporate senior management meetings, risk and
control committees and other relevant governance forums
and ongoing discussions. The Board of Directors oversees
management’s strategic decisions, and the Board Risk
Committee oversees IRM and the Firm’s risk management
framework.
In the process of developing business plans and strategic
initiatives, LOB and Corporate senior management identify
the associated risks that are incorporated into the Firmwide
Risk Identification process and monitored and assessed as
part of the Firmwide Risk Appetite framework.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
The Firm’s strategic planning process, which includes the
development and execution of strategic initiatives, is one
component of managing the Firm’s strategic risk. Guided by
the Firm’s How We Do Business Principles (the “Principles”),
the Operating Committee and senior management teams in
each LOB and Corporate review and update the strategic
plan periodically. The process includes evaluating the high-
level strategic framework and performance against prior-
year initiatives, assessing the operating environment,
refining existing strategies and developing new strategies.
These strategic initiatives, along with IRM’s assessment, are
incorporated in the Firm’s budget and provided to the
Board for review.
The Firm’s balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 91-101 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 102–108 for further information on
liquidity risk. Refer to Reputation Risk Management on page
109 for further information on reputation risk.
90
JPMorgan Chase & Co./2020 Form 10-K
CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level or
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 the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. 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 oversight
The Firm has a Capital Management Oversight function
whose primary objective is to provide independent
oversight of capital risk across the Firm.
Capital Management Oversight’s responsibilities include:
• Defining, monitoring and reporting capital risk metrics;
•
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
• Developing a process to classify, monitor and report
capital limit breaches; and
• Performing an independent assessment of the Firm’s
capital management activities, including changes made
to the Contingency Capital Plan described below.
In addition, the Basel Independent Review function (“BIR”),
which is 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 Board Risk Committee’s oversight of management in
executing that responsibility.
Capital management
Treasury & CIO is responsible for capital management.
The primary objectives of the Firm’s 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 addresses these objectives through establishing
internal minimum capital requirements and a strong capital
governance framework. The internal minimum capital levels
consider the Firm’s regulatory capital requirements as well
as an internal assessment of capital adequacy, in normal
economic cycles and in stress events, when setting its
minimum capital levels.
Capital management is intended to be flexible in order to
react to a range of potential events.
The current capital governance framework requires regular
monitoring of the Firm’s capital position and follows
prescribed escalation protocols, both at the Firm and
material legal entity levels.
Governance
Committees responsible for overseeing the Firm’s capital
management include the Capital Governance Committee,
the Treasurer Committee and the Firmwide ALCO. Oversight
of capital management is governed through the CIO,
Treasury and Corporate (“CTC”) Risk Committee. In
addition, the Board Risk Committee periodically reviews the
Firm’s capital risk tolerance. Refer to Firmwide Risk
Management on pages 85-89 for additional discussion on
the Board Risk Committee and the ALCO.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large BHCs, including the
Firm, to submit at least annually a capital plan that has
been reviewed and approved by the Board of Directors. The
Federal Reserve uses 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. The Federal Reserve uses results under the
severely adverse scenario from its supervisory stress test to
determine each firm’s SCB requirement for the coming
JPMorgan Chase & Co./2020 Form 10-K
91
Management’s discussion and analysis
year. Refer to Key Regulatory Developments on pages 93–
94 for additional information.
On June 29, 2020, the Firm announced that it had
completed the 2020 CCAR stress test process. On August
10, 2020, the Federal Reserve affirmed the Firm's SCB
requirement of 3.3% and the Firm's minimum Standardized
CET1 capital ratio of 11.3% (up from 10.5%). The SCB
requirement became effective on October 1, 2020.
In June 2020, the Federal Reserve determined that changes
in financial markets or the macroeconomic outlook due to
the COVID-19 pandemic could have a material effect on a
firm’s risk profile and financial condition and therefore
required all large bank holding companies, including the
Firm, to update and resubmit their capital plans by
November 2, 2020. On December 18, 2020, the Federal
Reserve released its results from the 2020 CCAR Round 2
stress test, which showed that large banks had strong levels
of capital and announced that it would allow all large banks,
including the Firm, to resume share repurchases
commencing in the first quarter of 2021, subject to certain
restrictions for at least the first quarter of 2021 given
considerable economic uncertainty remained. The Federal
Reserve has stated that due to uncertainty about future
economic conditions and the ultimate path of the current
recovery, the SCB will not be reset at this time. The Federal
Reserve will notify firms by March 31, 2021 whether a
revised SCB requirement based on the 2020 CCAR Round 2
stress test will be recalculated ahead of the 2021 annual
CCAR assessment.
Refer to Capital actions on page 99 for information on
actions taken by the Firm’s Board of Directors following the
2020 CCAR results.
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 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
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 be worse. Accordingly, management considers
additional stresses outside these scenarios, as necessary.
These results are reviewed by management and the Board
of Directors.
Contingency capital plan
The Firm’s contingency capital plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm’s approach towards capital
management in normal economic conditions 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 capital distributions, and sets
out the capital contingency actions that are expected to be
taken or considered at various levels of capital depletion
during a period of stress.
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 subsidiaries, including JPMorgan Chase Bank, 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
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating risk-weighted assets (“RWA”), which are on-
balance sheet assets and off-balance sheet exposures,
weighted according to risk. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach (“Basel III Standardized”), and an advanced
approach (“Basel III Advanced”). For each of the risk-based
capital ratios, the capital adequacy of the Firm is evaluated
against the lower of the Standardized or Advanced
approaches compared to their respective minimum capital
ratios.
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 approaches,
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
92
JPMorgan Chase & Co./2020 Form 10-K
calculate the SLR. Refer to SLR on page 98 for additional
information.
COVID-19 Pandemic
The Firm has been impacted by market events as a result of
the COVID-19 pandemic, but remains well-capitalized.
However, the continuation or further deterioration of the
current macroeconomic environment could result in
impacts to the Firm’s capital and leverage.
Key Regulatory Developments
Current Expected Credit Losses. Effective January 1, 2020,
the Firm adopted the Financial Instruments – Credit Losses
guidance under U.S. GAAP. As permitted under the U.S.
capital rules issued by the federal banking agencies in
2019, the Firm initially elected to phase-in the January 1,
2020 (“day 1”) CECL adoption impact to retained earnings
of $2.7 billion to CET1 capital, at 25% per year in each of
2020 to 2023. As part of their response to the impact of
the COVID-19 pandemic, on March 31, 2020, the federal
banking agencies issued an interim final rule (issued as final
on August 26, 2020) that provided the option to delay the
effects of CECL on regulatory capital for two years, followed
by a three-year transition period (“CECL capital transition
provisions”).
The final rule provides a uniform approach for estimating
the effects of CECL compared to the legacy incurred loss
model during the first two years of the transition period
(the “day 2” transition amount), whereby the Firm may
exclude from CET1 capital 25% of the change in the
allowance for credit losses (excluding allowances on PCD
loans). The cumulative day 2 transition amount as at
December 31, 2021 that is not recognized in CET1 capital,
as well as the $2.7 billion day 1 impact, will be phased into
CET1 capital at 25% per year beginning January 1, 2022.
The Firm has elected to apply the CECL capital transition
provisions, and accordingly, for the year ended December
31, 2020, the capital metrics of the Firm exclude
$5.7 billion, which is the $2.7 billion day 1 impact to
retained earnings and 25% of the $12.2 billion increase in
the allowance for credit losses (excluding allowances on
PCD loans).
The impacts of the CECL capital transition provisions have
also been incorporated into Tier 2 capital, adjusted average
assets, and total leverage exposure. Refer to Note 1 for
further information on the CECL accounting guidance.
Money Market Mutual Fund Liquidity Facility ("MMLF"). The
Federal Reserve established the MMLF facility on March 18,
2020, authorized through at least March 31, 2021, to
enhance the liquidity and functioning of money markets.
Under the MMLF, the Federal Reserve Bank of Boston
(“FRBB”) makes nonrecourse advances to participating
financial institutions to purchase certain types of assets
from eligible money market mutual fund clients. These
assets, which are reflected in other assets on the Firm’s
Consolidated balance sheets, are pledged to the FRBB as
collateral. On March 23, 2020, the federal banking
agencies issued an interim final rule (issued as final on
September 29, 2020) to neutralize the effects of
purchasing assets through the program on risk-based and
leverage-based capital ratios. As of December 31, 2020,
the Firm excluded assets purchased from money market
mutual fund clients pursuant to nonrecourse advances
provided under the MMLF in the amount of $187 million
from its RWA and $358 million from adjusted three month
average assets and total leverage exposure.
Supplementary leverage ratio temporary revision. On April 1,
2020, the Federal Reserve issued an interim final rule that
requires, on a temporary basis, the calculation of total
leverage exposure for purposes of calculating the SLR for
bank holding companies, to exclude the on-balance sheet
amounts of U.S. Treasury securities and deposits at Federal
Reserve Banks. These exclusions became effective April 1,
2020, and will remain in effect through March 31, 2021.
On June 1, 2020, the Federal Reserve, OCC and FDIC issued
an interim final rule that provides IDI subsidiaries with an
option to apply this temporary exclusion subject to certain
restrictions. As of December 31, 2020, JPMorgan Chase
Bank, N.A. has not elected to apply this exclusion.
Paycheck Protection Program. On April 13, 2020, the
federal banking agencies issued an interim final rule (issued
as final on September 29, 2020) to neutralize the
regulatory capital effects of participating in the PPP on risk-
based capital ratios by applying a zero percent risk weight
to loans originated under the program. Given that PPP loans
are guaranteed by the SBA, the Firm does not expect to
realize material credit losses on these loans. As of
December 31, 2020, the Firm had approximately $27
billion of loans under the program.
The rule also provides that if a PPP loan is pledged as
collateral for a non-recourse loan under the Federal
Reserve’s Paycheck Protection Program Lending (“PPPL”)
Facility, the PPP loan can be excluded from leverage-based
capital ratios. As of December 31, 2020, the Firm had not
participated in the PPPL Facility.
Refer to Regulatory Developments Relating to the COVID-19
Pandemic on pages 52-53 for additional information on
regulatory actions and significant financing programs that
the U.S. government and regulators have introduced to
address the effects of the COVID-19 pandemic.
Stress Capital Buffer. On March 4, 2020, the Federal
Reserve issued the final rule introducing the SCB framework
for the Basel III Standardized approach that is designed to
more closely integrate the results of the quantitative
assessment in the annual CCAR with the ongoing minimum
capital requirements for BHCs under the U.S. Basel III rules.
The final rule replaces the fixed 2.5% CET1 capital
conservation buffer in the Standardized approach with a
dynamic institution-specific SCB. The final rule does not
apply to the U.S. Basel III Advanced approach capital
requirements. The SCB requirement for BHCs will be
effective on October 1 of each year and is expected to
remain in effect until September 30 of the following year.
JPMorgan Chase & Co./2020 Form 10-K
93
Management’s discussion and analysis
TLAC Holdings rule. On October 20, 2020, the federal
banking agencies issued a final rule prescribing the
regulatory capital treatment for holdings of TLAC debt
instruments by certain large banking organizations, such as
the Firm and JPMorgan Chase Bank, N.A. This rule expands
the scope of the existing capital deductions rule around the
Risk-based Capital Regulatory Minimums
holdings of capital instruments of financial institutions to
also include TLAC debt instruments issued by systemically
important banking organizations. The final rule will become
effective on April 1, 2021 and is not expected to have a
material impact on the Firm’s risk-based capital metrics.
The following chart presents the Firm’s Basel III minimum CET1 capital ratio under the Basel III rules currently in effect.
The Firm’s Basel III Standardized risk-based ratios are
currently more binding than the Basel III Advanced risk-
based ratios.
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 levels of capital to serve as a
“capital conservation buffer”. The capital conservation
buffer incorporates a global systemically important bank
(“GSIB”) surcharge, a discretionary countercyclical capital
buffer and a fixed capital conservation buffer of 2.5% for
Advanced regulatory capital requirements and a variable
SCB requirement, floored at 2.5%, for Standardized
regulatory capital requirements.
Under the Federal Reserve’s GSIB rule, the Firm is required
to assess its GSIB surcharge on an annual basis under two
separately prescribed methods based on data for the
previous fiscal year-end, 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”.
94
JPMorgan Chase & Co./2020 Form 10-K
3.0%. Certain banking organizations, including the Firm,
are also required to hold an additional 2.0% leverage
buffer.
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 equal to or greater than the
regulatory minimum will result in limitations on the amount
of capital that the Firm may distribute such as through
dividends and common share repurchases.
Other regulatory capital
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. Refer to Note 27 for additional information.
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 27. Refer to
the Firm’s Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm’s website, for further
information on the Firm’s Basel III measures.
The following table presents the Firm’s effective GSIB
surcharge for the years ended December 31, 2020 and
2019.
Fully Phased-In:
Method 1
Method 2
2020
2019
2.50 %
3.50 %
2.50 %
3.50 %
The Firm’s effective regulatory minimum GSIB surcharge
calculated under Method 2 remains unchanged at 3.5% for
2021. On November 11, 2020, the Financial Stability Board
(“FSB”) released its annual GSIB list, which published the
Firm’s Method 1 GSIB surcharge of 2.0% (down from
2.5%) effective January 1, 2021, based upon data as of
December 31, 2019.
The Firm’s estimated Method 2 surcharge calculated using
data as of December 31, 2020 is 4.0%. Accordingly, based
on the GSIB rule currently in effect, the Firm’s effective
regulatory minimum GSIB surcharge is expected to increase
to 4.0% on January 1, 2023 unless the Firm’s Method 2
GSIB surcharge calculation based upon data as of December
31, 2021 is lower.
The U.S. federal regulatory capital standards include a
framework for setting a discretionary countercyclical capital
buffer taking into account the macro financial environment
in which large, internationally active banks function. As of
December 31, 2020, 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 systemic risks are meaningfully above normal 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 will result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common share repurchases, as well
as certain executive discretionary bonus payments.
The Firm has a target Basel III CET1 capital ratio of 12%.
However, the Firm may remain above that level in order to
satisfy leverage-based capital requirements if deposits
continue to grow due to actions taken by the Federal
Reserve and the U.S. government in response to the
COVID-19 pandemic.
Total Loss-Absorbing Capacity
The Federal Reserve’s TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt (“eligible LTD”). Refer to TLAC on page 100 for
additional information.
Leverage-based Capital Regulatory Minimums
Supplementary leverage ratio
Banking organizations subject to the Basel III Advanced
approach are currently required to have a minimum SLR of
JPMorgan Chase & Co./2020 Form 10-K
95
Management’s discussion and analysis
The following table presents the Firm’s risk-based and leverage-based capital metrics under both the Basel III Standardized
and Advanced approaches.
(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:
Adjusted average assets(a)
Tier 1 leverage ratio
Total leverage exposure(b)
SLR(b)
Standardized
Advanced
December 31,
2020(c)(d)
December 31,
2019
Minimum
capital ratios(e)
December 31,
2020(c)(d)
December 31,
2019
Minimum
capital ratios(e)
$ 205,078
$ 187,753
$ 205,078
$ 187,753
234,844
269,923
214,432
242,589
234,844
257,228
214,432
232,112
1,560,609
1,515,869
1,484,431
1,397,878
13.1 %
15.0
17.3
12.4 %
11.3 %
14.1
16.0
12.8
14.8
13.8 %
15.8
17.3
13.4 %
10.5 %
15.3
16.6
12.0
14.0
$ 3,353,319
$ 2,730,239
$ 3,353,319
$ 2,730,239
7.0 %
7.9 %
4.0 %
7.0 %
7.9 %
4.0 %
NA
NA
NA
NA
$ 3,401,542
$ 3,423,431
NA
6.9 %
6.3 %
5.0 %
(a) Adjusted average assets, for purposes of calculating the leverage ratios, 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) As of December 31, 2020, total leverage exposure for purposes of calculating the SLR excludes U.S. Treasury securities and deposits at Federal Reserve
Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020.
(c) As of December 31, 2020, the capital metrics reflect the CECL capital transition provisions.
(d) As of December 31, 2020, the capital metrics reflect the exclusion of assets purchased from money market mutual fund clients pursuant to nonrecourse
advances provided under the MMLF. Additionally, loans originated under the PPP receive a zero percent risk weight.
(e) Represents minimum requirements and regulatory buffers applicable to the Firm. For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier 1
leverage and SLR minimum capital ratios applicable to the Firm were 10.5%, 12.0%, 14.0%, 4.0% and 5.0%, respectively. Refer to Note 27 for
additional information.
96
JPMorgan Chase & Co./2020 Form 10-K
Capital components
The following table presents reconciliations of total
stockholders’ equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2020 and 2019.
Capital rollforward
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2020.
(in millions)
Total stockholders’ equity
Less: Preferred stock
Common stockholders’ equity
Add:
December 31,
2020
279,354 $
December 31,
2019
261,330
$
30,063
249,291
26,993
234,337
Certain deferred tax liabilities(a)
2,453
2,381
Less:
Goodwill
Other intangible assets
Other CET1 capital adjustments(b)
Standardized/Advanced CET1 capital
Preferred stock
Less: Other Tier 1 adjustments
Standardized/Advanced Tier 1 capital
Long-term debt and other instruments
qualifying as Tier 2 capital
Qualifying allowance for credit losses(c)
Other
Standardized Tier 2 capital
Standardized Total capital
Adjustment in qualifying allowance for
credit losses for Advanced Tier 2
capital(d)
Advanced Tier 2 capital
Advanced Total capital
49,248
904
(3,486)
205,078
30,063
297
47,823
819
323
187,753
26,993
314
234,844 $
214,432
16,645 $
18,372
62
13,733
14,314
110
35,079 $
28,157
269,923 $
242,589
(12,695)
(10,477)
22,384 $
17,680
257,228 $
232,112
$
$
$
$
$
$
(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 CET1 capital.
(b) As of December 31, 2020, the impact of the CECL capital transition
provision was an increase in CET1 capital of $5.7 billion.
(c) Represents the allowance for credit losses eligible for inclusion in Tier
2 capital up to 1.25% of credit risk RWA, including the impact of the
CECL capital transition provision with any excess deducted from RWA.
(d) Represents an adjustment to qualifying allowance for credit losses for
the excess of eligible credit reserves over expected credit losses up to
0.6% of credit risk RWA, including the impact of the CECL capital
transition provision with any excess deducted from RWA.
Year Ended December 31, (in millions)
2020
Standardized/Advanced CET1 capital at December 31, 2019 $ 187,753
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 AOCI(a)
Changes related to other CET1 capital adjustments(b)
Change in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at
December 31, 2020
Standardized/Advanced Tier 1 capital at
December 31, 2019
Change in CET1 capital(b)
Net issuance of noncumulative perpetual preferred stock
Other
Change in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at
December 31, 2020
27,548
(11,119)
(5,135)
(128)
6,417
(1,829)
1,571
17,325
$ 205,078
$ 214,432
17,325
3,070
17
20,412
$ 234,844
Standardized Tier 2 capital at December 31, 2019
$ 28,157
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses(b)
Other
Change in Standardized Tier 2 capital
Standardized Tier 2 capital at December 31, 2020
Standardized Total capital at December 31, 2020
Advanced Tier 2 capital at December 31, 2019
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses(b)
Other
Change in Advanced Tier 2 capital
2,912
4,058
(48)
6,922
$ 35,079
$ 269,923
$ 17,680
2,912
1,840
(48)
4,704
Advanced Tier 2 capital at December 31, 2020
Advanced Total capital at December 31, 2020
$ 22,384
$ 257,228
(a) Includes cash flow hedges and DVA related to structured notes
recorded in AOCI.
(b) Includes the impact of the CECL capital transition provisions.
JPMorgan Chase & Co./2020 Form 10-K
97
Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2020. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
Year ended December 31, 2020
(in millions)
Credit risk
RWA
Standardized
Market risk
RWA
Total RWA
Credit risk
RWA
Market risk
RWA
Operational risk
RWA
Total RWA
Advanced
December 31, 2019
Model & data changes(a)
Portfolio runoff(b)
Movement in portfolio levels(c)
Changes in RWA
$ 1,440,220 $
75,649 $ 1,515,869
$
932,948 $
75,652 $
389,278 $ 1,397,878
(800)
(16,320)
(4,450)
29,249
23,999
—
37,061
20,741
(17,120)
(4,450)
66,310
44,740
(6,100)
(4,000)
79,482
69,382
(16,320)
—
37,578
21,258
—
—
(4,087)
(4,087)
(22,420)
(4,000)
112,973
86,553
December 31, 2020
$ 1,464,219 $
96,390 $ 1,560,609
$ 1,002,330 $
96,910 $
385,191 $ 1,484,431
(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; updates to cumulative losses for operational risk RWA; and deductions to credit risk
RWA for excess eligible credit reserves not eligible for inclusion in Tier 2 capital.
Supplementary leverage ratio
The following table presents the components of the Firm’s
SLR.
Three months ended
(in millions, except ratio)
Tier 1 capital
Total average assets
December 31,
2020
December 31,
2019
$
234,844
214,432
3,399,818
2,777,270
Less: Regulatory capital
adjustments(a)
Total adjusted average assets(b)
Add: Off-balance sheet exposures(c)
Less: Exclusion for U.S. Treasuries
and Federal Reserve Bank
deposits
Total leverage exposure
SLR
46,499
47,031
3,353,319
2,730,239
729,978
693,192
681,755
—
$ 3,401,542
$ 3,423,431
6.9 %
6.3 %
(a) 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. As of December 31, 2020, includes adjustments for
the CECL capital transition provisions and the exclusion of average
assets purchased from money market mutual fund clients pursuant to
nonrecourse advances provided under the MMLF.
(b) Adjusted average assets used for the calculation of Tier 1 leverage
ratio.
(c) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
Refer to Note 27 for JPMorgan Chase Bank, N.A.’s SLR.
Line of business equity
Each business segment is allocated capital by taking into
consideration a variety of factors including 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, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. As of January 1, 2021, the Firm has changed
its line of business capital allocations primarily as a result of
changes in exposures for each LOB and an increase in the
relative risk weighting toward Standardized RWA. The
assumptions and methodologies used to allocate capital are
periodically assessed and as a result, the capital allocated
to the LOBs may change from time to time.
The following table presents the capital allocated to each
business segment.
Line of business equity (Allocated capital)
(in billions)
December 31,
January 1,
2021
2020
2019
Consumer & Community Banking
$
50.0 $ 52.0 $ 52.0
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
83.0
24.0
14.0
78.3
80.0
22.0
10.5
84.8
80.0
22.0
10.5
69.8
Total common stockholders’ equity $
249.3 $ 249.3 $ 234.3
98
JPMorgan Chase & Co./2020 Form 10-K
Capital actions
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.
The Firm’s quarterly common stock dividend is currently
$0.90 per share. The Firm’s dividends are subject to the
Board of Directors’ approval on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
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
2020
40 %
2019
31 %
2018
30 %
Common stock
On March 15, 2020, in response to the economic
disruptions caused by the COVID-19 pandemic, the Firm
temporarily suspended repurchases of its common stock.
Subsequently, the Federal Reserve directed all large banks,
including the Firm, to discontinue net share repurchases
through the end of 2020. On December 18, 2020, the
Federal Reserve announced that all large banks, including
the Firm, could resume share repurchases commencing in
the first quarter of 2021. As directed by the Federal
Reserve, total net repurchases and common stock dividends
in the first quarter of 2021 are restricted and cannot
exceed the average of the Firm’s net income for the four
preceding calendar quarters. The Firm's Board of Directors
has authorized a new common share repurchase program
for up to $30 billion.
The following table sets forth the Firm’s repurchases of
common stock for the years ended December 31, 2020,
2019 and 2018.
Year ended December 31, (in millions)
2020
2019
2018
Total number of shares of common
stock repurchased
Aggregate purchase price of common
50.0
213.0
181.5
stock repurchases
$ 6,397 $ 24,121 $ 19,983
The authorization to repurchase common shares is utilized
at management’s discretion, and the timing of purchases
and the exact amount of common shares 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 suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares — for example, during
internal trading blackout periods.
Refer to Part II, Item 5: Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 34 of the 2020 Form 10-K for
additional information regarding repurchases of the Firm’s
equity securities.
Preferred stock
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2020.
The Firm has not issued or redeemed any preferred stock
since the first quarter of 2020. Refer to Note 21 for
additional information on the Firm’s preferred stock,
including the issuance and redemption of preferred stock.
Subordinated Debt
On May 13, 2020, the Firm issued $3.0 billion of fixed-to-
floating rate subordinated notes due 2031. Refer to Long-
term funding and issuance on page 107 and Note 20 for
additional information.
JPMorgan Chase & Co./2020 Form 10-K
99
Management’s discussion and analysis
Other capital requirements
Total Loss-Absorbing Capacity
The Federal Reserve’s TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt.
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
eligible LTD amounts, as well as a representation of the
amounts as a percentage of the Firm’s total RWA and total
leverage exposure applying the impact of the CECL capital
transition provisions as of December 31, 2020 and 2019.
December 31, 2019
December 31, 2020
(in billions,
except ratio)
Total eligible
amount
% of RWA
Surplus/
(shortfall)
% of total
leverage
exposure
External
TLAC
LTD
External
TLAC
LTD
$ 421.0
$ 181.4
$ 386.4
$ 161.8
27.0 %
11.6 %
25.5 %
10.7 %
$
62.1
$
33.1
$
37.7
$
17.8
12.4 %
5.3 %
11.3 %
4.7 %
$
97.9
Surplus/
(shortfall)
$
7.8
Refer to Part I, Item 1A: Risk Factors on pages 8-32 of the
2020 Form 10-K for information on the financial
consequences to holders of the Firm’s debt and equity
securities in a resolution scenario.
61.2
28.3
$
$
(a) RWA is the greater of Standardized and Advanced compared to their respective
minimum capital ratios.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers will result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common share
repurchases.
The following table presents the TLAC and external long-
term debt minimum requirements including applicable
regulatory buffers, as of December 31, 2020 and 2019.
TLAC to RWA
TLAC to leverage exposure
External long-term debt to RWA
External long-term debt to leverage
Minimum
Requirements
23.0 %
9.5
9.5
4.5
Effective January 1, 2021, Method 1 GSIB surcharge is
2.0% (down from 2.5%). As a result, the Firm’s TLAC to
RWA requirement will become 22.5%. Refer to Risk-based
Capital Regulatory Minimums on pages 94-95 for further
information on the GSIB surcharge.
100
JPMorgan Chase & Co./2020 Form 10-K
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 is subject
to regulatory capital requirements, including those imposed
by the SEC, Commodity Futures Trading Commission
(“CFTC”), Financial Industry Regulatory Authority (“FINRA”)
and the National Futures Association (“NFA”).
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.
The following table presents J.P. Morgan Securities’ net
capital:
December 31, 2020
(in millions)
Net Capital
Actual(a)
27,651 $
Minimum
5,024
$
(a) Net capital reflects the exclusion of assets purchased from money
market mutual fund clients pursuant to nonrecourse advances
provided under the MMLF.
In addition to its alternative minimum net capital
requirements, J.P. Morgan Securities is required to hold
“tentative net capital” in excess of $1.0 billion and is also
required to notify the SEC in the event that its tentative net
capital is less than $5.0 billion. Tentative net capital is net
capital before deducting market and credit risk charges as
defined by the Net Capital Rule. As of December 31, 2020,
J.P. Morgan Securities maintained tentative net capital in
excess of the minimum and notification requirements.
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority (“PRA”) and the Financial
Conduct Authority (“FCA”). J.P. Morgan Securities plc is
subject to the European Union Capital Requirements
Regulation and the PRA capital rules, each of which
implement Basel III and thereby subject J.P. Morgan
Securities plc to its requirements. Effective January 1,
2021, J.P. Morgan Securities plc is subject to the amended
EU Capital Requirement Regulation, as adopted in the U.K.
The Bank of England requires, on a transitional basis, that
U.K. banks, including U.K. regulated subsidiaries of overseas
groups, maintain a minimum requirement for own funds
and eligible liabilities (“MREL”). As of December 31, 2020,
J.P. Morgan Securities plc was compliant with the
requirements of the MREL rule.
The following table presents J.P. Morgan Securities plc’s
capital metrics:
December 31, 2020
(in millions, except ratios)
Estimated
Minimum ratios
Total capital
CET1 ratio
Total capital ratio
$
55,156
17.9 %
22.8 %
4.5 %
8.0 %
JPMorgan Chase & Co./2020 Form 10-K
101
Management’s discussion and analysis
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 oversight of liquidity risk
across the Firm. Liquidity Risk Oversight’s responsibilities
include:
• Defining, monitoring and reporting liquidity risk metrics;
•
Establishing and monitoring limits and indicators,
including liquidity risk appetite;
• Developing a process to classify, monitor and report
limit breaches;
• Performing an independent review of liquidity risk
management processes;
• 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; and
• Monitoring liquidity positions, balance sheet variances
and funding activities;
Liquidity management
The primary objectives of the Firm’s 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, LOBs 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.
Governance
Committees responsible for liquidity governance include the
Firmwide ALCO as well as LOB and regional ALCOs, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm’s liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 85-89 for further discussion of ALCO and other risk-
related committees.
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 other stress
tests are performed 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 its intermediate holding company, JPMorgan Chase
Holdings LLC (the “IHC”) provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, IHC, and operating subsidiaries at levels sufficient
to comply with liquidity risk tolerances and minimum
liquidity requirements, and to manage through periods of
102
JPMorgan Chase & Co./2020 Form 10-K
stress when access to normal funding sources may be
disrupted.
Contingency funding plan
The Firm’s Contingency Funding Plan (“CFP”) sets out the
strategies for addressing and managing liquidity resource
needs during a liquidity stress event and incorporates
liquidity risk limits, indicators and risk appetite tolerances
that make up Liquidity Escalation Points. The CFP also
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 that the Firm and JPMorgan Chase
Bank, N.A. maintain an amount of eligible HQLA that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
Eligible HQLA, for purposes of calculating the LCR, is the
amount of unencumbered HQLA that satisfy certain
operational considerations as defined in the LCR rule. HQLA
primarily consist of cash and certain high-quality liquid
securities as defined in the LCR rule.
Under the LCR rule, the amount of eligible HQLA held by
JPMorgan Chase Bank, N.A. that is in excess of its stand-
alone 100% minimum LCR requirement, and that is not
transferable to non-bank affiliates, must be excluded from
the Firm’s reported eligible HQLA.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm’s assets,
sources of funds, and obligations. The LCR for both the Firm
and JPMorgan Chase Bank, N.A. is required to be a
minimum of 100%.
The following table summarizes the Firm and JPMorgan
Chase Bank, N.A.’s average LCR for the three months ended
December 31, 2020, September 30, 2020 and
December 31, 2019 based on the Firm’s interpretation of
the LCR framework.
Average amount
(in millions)
December 31,
2020
September 30,
2020
December 31,
2019
Three months ended
JPMorgan Chase & Co.:
Eligible HQLA
Eligible cash(a)
Eligible securities(b)(c)
Total eligible HQLA(d)
Net cash outflows
LCR
Net excess eligible
HQLA(d)
$ 455,612
$ 458,336
$ 203,296
241,447
211,841
341,990
$ 697,059
$ 670,177
$ 545,286
$ 634,037
$ 587,811
$ 469,402
110 %
114 %
116 %
$
63,022
$
82,366
$
75,884
JPMorgan Chase Bank, N.A.:
LCR
Net excess eligible
HQLA
160 %
157 %
116 %
$ 401,903
$ 366,096
$
79,483
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) Eligible HQLA 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 eligible HQLA at JPMorgan Chase Bank, N.A.
that are not transferable to non-bank affiliates.
The Firm’s average LCR decreased during the three months
ended December 31, 2020, compared with the three-month
period ended September 30, 2020, predominantly driven
by a decrease in cash from long-term debt maturities,
including the early termination of certain of the Firm's debt
at the end of the third quarter 2020.
The Firm's average LCR decreased during the three months
ended December 31, 2020, compared with the prior year
period primarily due to the relative impact on net cash
outflows from the significant increase in deposits as well as
elevated market activities in the CIB.
JPMorgan Chase Bank, N.A.’s average LCR increased during
the three months ended December 31, 2020, compared
with both the three month periods ended September 30,
2020 and December 31, 2019 primarily due to growth in
deposits. Deposits continued to increase in the fourth
quarter primarily driven by the COVID-19 pandemic and the
related effect of certain government actions. The increase
in excess liquidity in JPMorgan Chase Bank, N.A. is excluded
from the Firm’s reported LCR under the LCR rule.
The Firm’s average LCR fluctuates from period to period,
due to changes in its eligible HQLA and estimated net cash
outflows as a result of ongoing business activity. Refer to
the Firm’s U.S. LCR Disclosure reports, which are available
on the Firm’s website for a further discussion of the Firm’s
LCR.
JPMorgan Chase & Co./2020 Form 10-K
103
Management’s discussion and analysis
Other liquidity sources
In addition to the assets reported in the Firm’s eligible
HQLA above, the Firm had unencumbered marketable
securities, such as equity and debt securities, that the Firm
believes would be available to raise liquidity. This includes
securities included as part of the excess eligible HQLA at
JPMorgan Chase Bank, N.A. that are not transferable to
non-bank affiliates. The fair value of these securities was
approximately $740 billion and $315 billion as of
December 31, 2020 and 2019, respectively, although the
amount of liquidity that could be raised would be
dependent on prevailing market conditions. The fair value
increased compared to December 31, 2019, due to an
increase in excess eligible HQLA at JPMorgan Chase Bank,
N.A. which was primarily a result of increased deposits.
The Firm also had available borrowing capacity at FHLBs
and the discount window at the Federal Reserve Bank as a
result of collateral pledged by the Firm to such banks of
approximately $307 billion and $322 billion as of
December 31, 2020 and 2019, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm’s eligible HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Bank discount window and other central banks. Available
borrowing capacity decreased from December 31, 2019
primarily due to lower pledged credit card receivable
balances driven by the COVID-19 pandemic and a decrease
in pledged mortgage collateral as a result of paydown and
maturity activity. Although available, the Firm does not view
this borrowing capacity at the Federal Reserve Bank
discount window and the other central banks as a primary
source of liquidity.
NSFR
The net stable funding ratio (“NSFR”) is a liquidity
requirement for large banking organizations that is
intended to measure the adequacy of “available” and
“required” amounts of stable funding over a one-year
horizon. On October 20, 2020, the federal banking agencies
issued a final NSFR rule under which large banking
organizations such as the Firm will be required to maintain
an NSFR of at least 100% on an ongoing basis. The final
NSFR rule will become effective on July 1, 2021, and the
Firm will be required to publicly disclose its quarterly
average NSFR semi-annually beginning in 2023.
As of December 31, 2020 the Firm estimates that it was
compliant with the 100% minimum NSFR based on its
current understanding of the final rule.
104
JPMorgan Chase & Co./2020 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 stable deposits, secured and
unsecured funding in the capital markets and stockholders’
equity. Deposits are the primary funding source for
JPMorgan Chase Bank, N.A. Additionally, JPMorgan Chase
Bank, N.A. may also access funding through short- or long-
term secured borrowings, through the issuance of
unsecured long-term debt, or from borrowings from the
Parent Company or the IHC. The Firm’s non-bank
subsidiaries are primarily funded from long-term unsecured
borrowings and short-term secured borrowings, primarily
securities loaned or sold under repurchase agreements.
Excess funding is 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.
Deposits
The table below summarizes, by LOB and Corporate, the period-end and average deposit balances as of and for the years
ended December 31, 2020 and 2019.
As of or for the year ended December 31,
Average
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
Total Firm
2020
2019
2020
2019
$
958,706 $ 723,418
851,390 $
698,378
(a) $
(a)
702,215
284,263
198,755
318
511,905
184,115
142,740
(a)
253
655,095
237,645
161,955
666
(a)
(a)
515,938
172,666
135,265
(a)
820
$ 2,144,257 $ 1,562,431
$ 1,906,751 $ 1,523,067
(a) In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to the J.P. Morgan Wealth Management business unit
within CCB. In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm’s Wholesale Payments business.
Prior-period amounts have been revised to conform with the current presentation.
Deposits provide a stable source of funding and reduce the
Firm’s reliance on the wholesale funding markets. A
significant portion of the Firm’s deposits are consumer
deposits 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, 2020 and 2019.
As of December 31,
(in billions except ratios)
Deposits
2020
2019
$
2,144.3
$ 1,562.4
Deposits as a % of total liabilities
69 %
64 %
Loans
Loans-to-deposits ratio
1,012.9
997.6
47 %
64 %
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances, over time. However, during
periods of market disruption those trends could be affected.
Average deposits increased for the year ended
December 31, 2020, reflecting significant inflows across
the LOBs primarily driven by the impact of the COVID-19
pandemic and the related effect of certain government
actions. In the wholesale businesses, while the inflows
principally occurred in March as clients sought to remain
liquid as a result of market conditions, balances continued
to increase through the end of 2020. In CCB, the increase
was driven by lower spending and higher cash balances
across both consumer and small business customers, as
well as growth from existing and new accounts.
Refer to the discussion of the Firm’s Business Segment
Results and the Consolidated Balance Sheets Analysis on
pages 65–84 and pages 57-58, respectively, for further
information on deposit and liability balance trends.
JPMorgan Chase & Co./2020 Form 10-K
105
Management’s discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2020 and 2019,
and average balances for the years ended December 31, 2020 and 2019. Refer to the Consolidated Balance Sheets Analysis
on pages 57-58 and Note 20 for additional information.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds
Total short-term unsecured funding
Securities sold under agreements to repurchase(a)
Securities loaned(a)
Other borrowed funds(b)
Obligations of Firm-administered multi-seller conduits(c)
Total short-term secured funding
Senior notes
Subordinated debt
Structured notes(d)
Total long-term unsecured funding
Credit card securitization(c)
FHLB advances
Other long-term secured funding(e)
Total long-term secured funding
Preferred stock(f)
Common stockholders’ equity(f)
Average
2020
2019
2020
2019
$
$
12,031 $
8,510
20,541 $
14,754 $
7,544
22,298 $
12,129 $
9,198
21,327 $
22,977
10,369
33,346
$ 207,877 $ 175,709 $ 246,354 $ 217,807
8,816
26,050
10,929
5,983
18,622
9,223
6,536
23,812
11,430
4,886
24,667
10,523
$ 247,953 $ 209,537 $ 288,132 $ 263,602
$ 166,089 $ 166,185 $ 171,509 $ 168,546
21,608
75,325
17,591
74,724
20,789
73,056
17,387
65,487
$ 263,022 $ 258,500 $ 265,354 $ 251,420
$
4,943 $
6,461 $
5,520 $
9,707
14,123
4,540
28,635
4,363
27,076
4,460
34,143
4,643
23,606 $
39,459 $
37,056 $
48,493
30,063 $
26,993 $
29,899 $
27,511
$
$
$ 249,291 $ 234,337 $ 236,865 $ 232,907
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) Effective March 2020, includes nonrecourse advances provided under the MMLF.
(c) Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(d) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(e) Includes long-term structured notes which are secured.
(f) Refer to Capital Risk Management on pages 91-101, Consolidated statements of changes in stockholders’ equity on page 165, Note 21 and Note 22 for
additional information on preferred stock and common stockholders’ equity.
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 U.S. GSE and government agency MBS.
Securities sold under agreements to repurchase increased
at December 31, 2020, compared with December 31,
2019, reflecting higher secured financing of AFS investment
securities in Treasury and CIO, as well as trading assets in
CIB, partially offset by a decline in client-driven market-
making activities in CIB, including the Firm's non-
participation in the Federal Reserve's open market
operations.
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
investment and financing activities of clients, 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.
As of December 31, 2020, the Firm participated in the
MMLF government facility. The secured nonrecourse
advances under the MMLF are included in other borrowed
funds. Refer to Capital Risk Management on pages 91-101
for additional information on the MMLF.
The Primary Dealer Credit Facility ("PDCF") was established
by the Federal Reserve on March 20, 2020. Under the
PDCF, the Federal Reserve Bank of New York (“FRBNY”)
provides collateralized financing on a term basis to primary
dealers. These financing transactions were reported as
securities sold under agreements to repurchase. The Firm
participated in the PDCF in the first quarter of 2020, and
ceased its participation in May 2020 as the secured
financing market normalized.
The Firm’s sources of short-term unsecured funding consist
of other borrowed funds and issuance of wholesale
commercial paper. The decrease in short-term unsecured
funding at December 31, 2020, from December 31, 2019
and for the average year ended December 31, 2020
compared to the prior year period, was due to lower net
commercial paper issuance primarily for short-term
liquidity management.
106
JPMorgan Chase & Co./2020 Form 10-K
Long-term funding and issuance
Long-term funding provides an additional source 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.
The significant majority of the Firm’s long-term unsecured funding is issued by the Parent Company to provide 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, 2020 and 2019. Refer to
Note 20 for additional information on long-term debt.
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
Subordinated debt
Structured notes(a)
Total long-term unsecured funding – issuance
Maturities/redemptions
Senior notes
Subordinated debt
Structured notes
2020
2019
2020
2019
Parent Company
Subsidiaries
$
25,500 $
14,000 $
60 $
1,750
1,355
26,855
3,000
7,596
5,867
19,867
—
—
60
—
—
1,750
—
5,844
24,185
33,563
$
37,451 $
25,711 $
24,245 $
35,313
$
28,719 $
18,098 $
7,701 $
5,367
135
5,340
183
2,944
—
—
30,002
19,271
Total long-term unsecured funding – maturities/redemptions
$
34,194 $
21,225 $
37,703 $
24,638
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and through FHLB
advances. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or
redemptions for the years ended December 31, 2020 and 2019.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
FHLB advances
Other long-term secured funding(a)
Total long-term secured funding
Issuance
Maturities/Redemptions
2020
2019
2020
2019
$
1,000 $
— $
2,525 $
6,975
15,000
1,130
—
204
29,509
1,048
15,817
927
$
17,130 $
204 $
33,082 $
23,719
(a) 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. Refer to Note 14 for a further
description of client-driven loan securitizations.
JPMorgan Chase & Co./2020 Form 10-K
107
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. 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.
Additionally, the Firm’s funding requirements for VIEs and
other third-party commitments may be adversely affected
by a decline in credit ratings.
The credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries as of December 31, 2020
were as follows:
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
December 31, 2020
Moody’s Investors Service
Standard & Poor’s
Fitch Ratings(a)
Long-term
issuer
Short-term
issuer
A2
A-
AA-
P-1
A-2
F1+
Outlook
Stable
Stable
Negative
Long-term
issuer
Short-term
issuer
Aa2
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Negative
Long-term
issuer
Short-term
issuer
Aa3
A+
AA
P-1
A-1
F1+
Outlook
Stable
Stable
Negative
(a) On April 18, 2020, Fitch affirmed the credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries but revised the
outlook on the credit ratings from stable to negative given expectations that credit fundamentals will deteriorate as a result of the COVID-19 pandemic.
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.
108
JPMorgan Chase & Co./2020 Form 10-K
Governance and oversight
The Reputation Risk Governance policy establishes the
principles for managing reputation risk for the Firm. 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. Sustainability, social
responsibility and environmental impacts are important
considerations in assessing the Firm’s reputation risk, and
are a component of the Firm’s reputation risk governance.
Reputation risk issues deemed material are escalated as
appropriate.
REPUTATION RISK MANAGEMENT
Reputation risk is the risk that an action or inaction may
negatively impact perception of the Firm’s integrity and
reduce confidence in the Firm’s competence by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
Organization and management
Reputation Risk Management establishes the governance
framework for managing reputation risk across the Firm. As
reputation risk is inherently challenging to identify,
manage, and quantify, a reputation risk management
function is critical.
The Firm’s reputation risk management function includes
the following activities:
•
Maintaining a Firmwide Reputation Risk Governance
policy and standards consistent with the reputation risk
framework
•
•
Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
Firmwide
Providing guidance to LOB Reputation Risk Offices
(“RRO”), as appropriate
The types of events that give rise to reputation risk are
wide-ranging and could be introduced in various ways,
including by the Firm’s employees and the clients,
customers and counterparties the Firm does business with.
These events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm.
JPMorgan Chase & Co./2020 Form 10-K
109
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), and securities financing activities. The Firm is
also exposed to credit risk through its investment securities
portfolio and cash placed with banks.
Credit Risk Management monitors, measures and manages
credit risk throughout the Firm and defines credit risk
policies and procedures. The Firm’s credit risk management
governance includes the following activities:
• Maintaining a 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 credit exposure
• Managing criticized exposures and delinquent loans and
• 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 the methodology and estimates
described in Note 13 and Note 10, the Firm estimates credit
losses for its exposures. The allowance for loan losses
reflects credit losses related to the consumer and wholesale
held-for-investment loan portfolios, the allowance for
lending-related commitments reflects credit losses related
to the Firm’s lending-related commitments and the
allowance for investment securities reflects the credit
losses related to the Firm’s HTM and AFS securities. Refer
to Note 13, Note 10 and Critical Accounting Estimates used
by the Firm on pages 152-155 for further information.
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.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm’s credit portfolio. The stress testing
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.
110
JPMorgan Chase & Co./2020 Form 10-K
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 credit
portfolio, 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.
Refer to Note 12 for further discussion of consumer and
wholesale loans.
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 geography are
prepared, 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.
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 LOBs.
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 periodically as deemed appropriate
by management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints. Wrong-way risk
is 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.
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, and
• Collateral and other risk-reduction techniques
JPMorgan Chase & Co./2020 Form 10-K
111
Management’s discussion and analysis
CREDIT PORTFOLIO
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption resulted in a change in
the accounting for PCI loans, which are considered PCD
loans under CECL. In conjunction with the adoption of CECL,
the Firm reclassified risk-rated loans and lending-related
commitments from the consumer, excluding credit card
portfolio segment to the wholesale portfolio segment, to
align with the methodology applied when determining the
allowance. Prior-period amounts have been revised to
conform with the current presentation. Refer to Note 1 for
further information.
The Firm has provided various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm’s COVID-19 related loan
modifications have not been considered troubled debt
restructurings (“TDRs”) because:
•
•
they represent short-term or other insignificant
modifications, whether under the Firm’s regular loan
modification assessments or the IA Statement guidance,
or
the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRs provided by
the CARES Act and extended by the Consolidated
Appropriations Act.
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs. The
Firm considers expected losses of principal and accrued
interest associated with all COVID-19 related loan
modifications in its allowance for credit losses. Refer to
Business Developments on pages 50-51 for more
information on customer and client assistance granted.
Refer to Notes 12 and 13 for further information on the
Firm’s accounting policies on loan modifications and the
allowance for credit losses.
The effectiveness of the Firm’s actions in helping borrowers
recover and in mitigating the Firm’s credit losses remains
uncertain in light of the unpredictable nature and duration
of the COVID-19 pandemic. Assistance provided in response
to the COVID-19 pandemic could delay the recognition of
delinquencies, nonaccrual status, and net charge-offs for
those customers and clients who would have otherwise
moved into past due or nonaccrual status. Refer to
Consumer Credit Portfolio on pages 114-120 and Wholesale
Credit Portfolio on pages 121-131 for information on loan
modifications as of December 31, 2020.
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; refer to Notes 2
and 3 for further information regarding these loans. Refer
to Notes 12, 28, and 5 for additional information on the
Firm’s loans, lending-related commitments and derivative
receivables, including the Firm’s accounting policies.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm’s investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 114-120 and Note 12
for further discussions of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 121-131 and Note 12 for further discussions of the
wholesale credit environment and wholesale loans.
112
JPMorgan Chase & Co./2020 Form 10-K
Paycheck Protection Program
The PPP, established by the CARES Act and implemented by
the SBA, provided the Firm with delegated authority to
process and originate PPP loans. When certain criteria are
met, PPP loans are subject to forgiveness and the Firm will
receive payment of the forgiveness amount from the SBA.
PPP loans have a contractual term of two or five years and
provide borrowers with an automatic payment deferral of
principal and interest. Given that PPP loans are guaranteed
by the SBA, the Firm does not expect to realize material
credit losses on these loans. PPP processing fees are
deferred and accreted into interest income over the
contractual life of the loans, but may be accelerated upon
forgiveness or prepayment. The impact on interest income
related to PPP loans was not material for the year ended
December 31, 2020.
The Firm was in the early stages of the PPP loan forgiveness
process at December 31, 2020.
At December 31, 2020, the Firm had approximately $27
billion of loans under the PPP, of which $19 billion are in
the consumer portfolio and $8 billion are in the wholesale
portfolio.
Total credit portfolio
December 31,
(in millions)
Loans retained
Credit exposure
Nonperforming(f)(g)
2020
2019
2020
2019
$ 960,506 $ 945,601
$
8,782 $
3,983
Loans held-for-sale
Loans at fair value (a)
7,873
44,474
7,064
44,955
284
1,507
7
647
Total loans – reported
1,012,853
997,620
10,573
4,637
Derivative receivables
79,630
49,766
47,710
33,706
56
—
30
—
Receivables from
customers(b)
Total credit-related
assets
Assets acquired in loan
satisfactions
Real estate owned
Other
Total assets acquired in
loan satisfactions
Lending-related
commitments(a)
1,140,193
1,081,092
10,629
4,667
NA
NA
NA
NA
NA
256
21
NA
277
1,165,688
1,108,399
577
344
43
387
474
Total credit portfolio
$ 2,305,881 $ 2,189,491
$ 11,483 $
5,528
Credit derivatives used
in credit portfolio
management
activities(c)(d)
Liquid securities and
other cash collateral
held against
derivatives(e)
Year ended December 31,
(in millions, except ratios)
Net charge-offs
Average retained loans
Net charge-off rates
$
(22,239) $
(18,530) $
— $
—
(14,806)
(13,052)
NA
NA
2020
2019
$
5,259
$
5,629
958,303
941,919
0.55 %
0.60 %
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans,
which resulted in a corresponding reclassification of certain off-
balance sheet commitments. Prior-period amounts have been revised
to conform with the current presentation.
(b) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
(c) 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. Refer to Credit
derivatives on page 131 and Note 5 for additional information.
(d) Prior-period amount has been revised to conform with the current
presentation.
(e) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client’s exposure is in the Firm’s
favor. Prior-period amounts have been revised to conform with the
current presentation.
(f) At December 31, 2020 and 2019, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $874 million and $1.1 billion, respectively,
and real estate owned (“REO”) insured by U.S. government agencies of
$9 million and $41 million, respectively. Prior-period amount of
mortgage loans 90 or more days past due and insured by U.S.
government agencies excluded from nonperforming assets has been
revised to conform with the current presentation; refer to footnote (a)
for additional information. 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.
(g) At December 31, 2020, nonperforming loans included $1.6 billion of
PCD loans on nonaccrual status. Prior to the adoption of CECL,
nonaccrual loans excluded PCI loans as the Firm recognized interest
income on each pool of PCI loans as each of the pools was performing.
JPMorgan Chase & Co./2020 Form 10-K
113
Management’s discussion and analysis
CONSUMER CREDIT PORTFOLIO
The Firm’s retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, scored auto
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 residential
real estate 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. Refer to Note 12 for further information on
the consumer loan portfolio. Refer to Note 28 for further
information on lending-related commitments.
In 2020, the allowance for credit losses increased, reflecting
the deterioration in and uncertainty around the future
macroeconomic environment as a result of the impact of the
COVID-19 pandemic. Net charge-offs for the year ended
December 31, 2020 decreased when compared to December
31, 2019, benefiting from payment assistance and
government stimulus. The potential for increased infection
rates and related lock downs, as well as the duration and
effectiveness of government and other consumer relief
measures remains uncertain which could have a longer term
impact on delinquency rates and net charge-offs.
114
JPMorgan Chase & Co./2020 Form 10-K
The following table presents consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM,
CIB and Corporate.
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Residential real estate(a)
Auto and other(b)(c)(d)
Total loans - retained
Loans held-for-sale
Loans at fair value(e)(f)
Total consumer, excluding credit card loans
Lending-related commitments(g)
Total consumer exposure, excluding credit card
Credit Card
Loans retained(h)
Loans held-for-sale
Total credit card loans
Lending-related commitments(g)(i)
Total credit card exposure(i)
Total consumer credit portfolio(i)
Credit exposure
Nonaccrual loans(j)(k)(l)
Net charge-offs/
(recoveries)
Net charge-off/
(recovery) rate(m)
2020
2019
2020
2019
2020
2019
2020
2019
$
225,302
$
243,317
$ 5,313 $ 2,780
$
(164) $
(92)
(0.07) %
(0.04) %
76,825
302,127
1,305
15,147
318,579
57,319
375,898
51,682
151 $
146
338 $
294,999
5,464
2,926
174
(d)
456
364
NA
NA
0.51
0.06
NA
NA
0.88
0.12
NA
NA
2
438
NA
NA
3,366
174
364
0.06
0.12
—
1,003
6,467
3,002
19,816
317,817
40,169
357,986
143,432
168,924
784
144,216
658,506
802,722
—
168,924
650,720
819,644
NA
NA
NA
NA
NA
NA
4,286
4,848
2.93
NA
NA
NA
4,286
4,848
2.93
3.10
NA
3.10
$
1,178,620
$
1,177,630
$ 6,467 $ 3,366
$ 4,460 $ 5,212
0.99 %
1.11 %
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in Corporate.
(b) At December 31, 2020 and 2019, excluded operating lease assets of $20.6 billion and $22.8 billion, respectively. These operating lease assets are included
in other assets on the Firm’s Consolidated balance sheets. Refer to Note 18 for further information.
(c) Includes scored auto and business banking loans and overdrafts.
(d) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. Given that PPP loans are guaranteed by the SBA, the Firm does
not expect to realize material credit losses on these loans. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP.
(e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period
amounts have been revised to conform with the current presentation.
(f) Includes scored mortgage loans held in CCB and CIB.
(g) Credit card, home equity and certain business banking 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 and certain business banking 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. Refer to Note 28 for further information.
(h) Includes billed interest and fees.
(i) Also includes commercial card lending-related commitments primarily in CB and CIB.
(j) At December 31, 2020 and 2019, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $874
million and $1.1 billion, respectively. Prior-period amount of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded
from nonaccrual loans has been revised to conform with the current presentation; refer to footnote (e) for additional information. 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.
(k) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm
recognized interest income on each pool of PCI loans as each of the pools was performing.
(l) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited
COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore
considered collateral-dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less
costs to sell.
(m) Average consumer loans held-for-sale and loans at fair value were $18.3 billion and $20.4 billion for the years ended December 31, 2020 and 2019,
respectively. Prior-period amounts have been revised to conform with the current presentation; refer to footnote (e) for additional information. These
amounts were excluded when calculating net charge-off/(recovery) rates.
JPMorgan Chase & Co./2020 Form 10-K
115
Management’s discussion and analysis
Consumer assistance
In March 2020, the Firm began providing assistance to
customers in response to the COVID-19 pandemic,
predominantly in the form of payment deferrals.
As of December 31, 2020, the Firm had $10.7 billion of
retained loans under payment deferral programs, which
represented a decrease of approximately $1.5 billion from
September 30, 2020 and $17.5 billion from June 30, 2020.
During the fourth quarter of 2020, there were approximately
$1.4 billion of new enrollments in payment deferral
programs predominantly in residential real estate and credit
card. Predominantly all borrowers that exited payment
deferral programs are current. The Firm continues to
monitor the credit risk associated with loans subject to
payment deferrals throughout the deferral period and on an
ongoing basis after the borrowers are required to resume
making regularly scheduled payments and considers
expected losses of principal and accrued interest on these
loans in its allowance for credit losses.
December 31, 2020
September
30, 2020
June 30,
2020
(in millions, except
ratios)
Loan
balance
Percent of
loan class
balance(e)
Percent of
accounts who
exited payment
deferral and are
current
Loan
balance
Loan
balance
Type of assistance
Residential real
estate(a)(b)
$ 10,106
4.5 %
95 %
$ 11,458 $ 20,548
Rolling three month payment deferral up to one year; in most
cases, deferred payments will be due at the end of the loan term
Auto and other(c)
377
0.5
94
457
3,357
Credit card
264
0.2
90
(f)
368
4,384
Total consumer(d)
$ 10,747
2.4 %
91 %
$ 12,283 $ 28,289
• Auto: Currently offering one month payment deferral (initially
offered three month payment deferral). Maturity date is
extended by number of months deferred
• Business Banking: Three month deferral with automatic
deferment to either maturity (loan) or one year forward (line)
Currently offering deferral of one month minimum payment
(initially offered three month minimum payment deferral).
Interest continues to accrue during the deferral period and is
added to the principal balance
(a) Excludes $13.4 billion, $17.1 billion and $34.0 billion of third-party mortgage loans serviced at December 31, 2020, September 30, 2020 and June 30,
2020, respectively.
(b) The weighted average LTV ratio of residential real estate loans under payment deferral at December 31, 2020 was 57%.
(c) Excludes risk-rated business banking and auto dealer loans held in CCB and auto operating lease assets that were still under payment deferral programs as of
December 31, 2020, September 30, 2020 and June 30, 2020. Auto operating lease asset payment assistance is currently offering one month payment
deferral (initially offered three month payment deferral). Deferrals do not extend the term of the lease and all deferred payments are due at the end of the
lease term.
(d) Includes $3.8 billion, $3.8 billion and $5.7 billion of loans that were accounted for as TDRs prior to payment deferral as of December 31, 2020, September
30, 2020 and June 30, 2020, respectively.
(e) Represents the unpaid principal balance of retained loans which were still under payment deferral programs, divided by the total unpaid principal balance of
the respective loan classes retained loans.
(f) 85% of the balance that exited deferral were current at December 31, 2020.
Of the $10.7 billion of loans still under payment deferral
programs as of December 31, 2020, approximately $4.0
billion were accounted for as TDRs, either because they were
accounted for as TDRs prior to payment deferral, or because
they did not qualify for or the Firm did not elect the option to
suspend TDR accounting guidance provided by the CARES Act
and extended by the Consolidated Appropriations Act. A
portion of the remaining $6.7 billion of loans could become
TDRs in future periods, depending on the nature and timing
of further modifications or payment arrangements offered to
these borrowers. If the remaining $6.7 billion of loans were
considered TDRs, the Firm estimates that it would result in
an increase in standardized RWA of as much as $2.5 billion.
Predominantly all borrowers, including those accounted for
as TDRs, were current upon enrollment in payment deferral
programs and are expected to exit payment deferral
programs in a current status, either because no payments
are contractually due during the deferral period or because
payments originally contractually due during the deferral
period will be due at maturity upon exit. For those borrowers
that are unable to resume making payments in accordance
with the original or modified contractual terms of their
agreements upon exit from deferral programs, they will be
placed on nonaccrual status in line with the Firm’s
nonaccrual policy, except for credit cards as permitted by
regulatory guidance, and charged off or down in accordance
with the Firm’s charge-off policies. Refer to Note 12 for
additional information on the Firm’s nonaccrual and charge-
off policies.
116
JPMorgan Chase & Co./2020 Form 10-K
The following table provides a summary of the Firm’s
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, predominantly loans held-for-
sale and loans at fair value. 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
Total government guaranteed loans(a) $
December 31,
2020
December 31,
2019
$
669 $
235
874
1,778 $
1,432
704
1,090
3,226
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
Geographic composition and current estimated loan-to-
value ratio of residential real estate loans
At December 31, 2020, $146.6 billion, or 65% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies, were
concentrated in California, New York, Florida, Texas and
Illinois, compared with $157.9 billion, or 65%, at
December 31, 2019.
Average current estimated loan-to-value (“LTV”) ratios
have declined consistent with recent improvements in home
prices, customer pay-downs, and charge-offs or liquidations
of higher LTV loans.
Refer to Note 12 for information on the geographic
composition and current estimated LTVs of the Firm’s
residential real estate loans.
Consumer, excluding credit card
Portfolio analysis
Loan balances were flat from December 31, 2019 as PPP
loan originations in Business Banking were offset by lower
residential real estate loans, reflecting paydowns.
The following discussions provide information concerning
individual loan products. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Residential real estate: The residential real estate
portfolio, including loans held-for-sale and loans at fair
value, predominantly consists of prime mortgage loans and
home equity lines of credit. The portfolio decreased from
December 31, 2019 driven by paydowns largely offset by
originations of prime mortgage loans that have been
retained on the balance sheet. The 30+ delinquency rate
decreased to 0.98% at December 31, 2020, from 1.35% at
December 31, 2019, primarily due to payment assistance
and government stimulus. Nonaccrual loans increased from
December 31, 2019 due primarily to loans placed on
nonaccrual status related to the impact of the COVID-19
pandemic as well as the adoption of CECL, as PCD loans
became subject to nonaccrual treatment. Net recoveries for
the year ended December 31, 2020 were higher when
compared with the prior year as the current year benefited
from a recovery on a loan sale.
The carrying value of home equity lines of credit
outstanding was $23.7 billion at December 31, 2020. This
amount included $8.6 billion of HELOCs that have recast
from interest-only to fully amortizing payments or have
been modified and $7.7 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.
At December 31, 2020 and 2019, the carrying value of
interest-only residential mortgage loans were $25.6 billion
and $22.5 billion, respectively. 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, predominantly
in AWM. The net charge-off rate for the year ended
December 31, 2020 was consistent with the rate of the
broader residential mortgage portfolio as the performance
of this portfolio is generally in line with the performance of
the broader residential mortgage portfolio.
JPMorgan Chase & Co./2020 Form 10-K
117
benefited from payment assistance programs and high
vehicle collateral values.
Nonperforming assets
The following table presents information as of
December 31, 2020 and 2019, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)
December 31, (in millions)
2019
2020
Nonaccrual loans
Residential real estate(b)(c)(d)
Auto and other
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned(e)
Other
$ 6,316 $
3,220
151
6,467
131
21
146
3,366
229
24
Total assets acquired in loan satisfactions
Total nonperforming assets
152
$ 6,619 $
253
3,619
(a) At December 31, 2020 and 2019, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $874 million and $1.1 billion, respectively,
and REO insured by U.S. government agencies of $9 million and $41
million, respectively. Prior-period amount of mortgage loans 90 or
more days past due and insured by U.S. government agencies excluded
from nonperforming assets has been revised to conform with the
current presentation; refer to footnote (b) for additional information.
These amounts have been excluded based upon the government
guarantee.
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(c) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic. Includes loans to customers that
have exited COVID-19 payment deferral programs and are 90 or more
days past due, predominantly all of which were also at least 150 days
past due and therefore considered collateral-dependent. Collateral-
dependent loans are charged down to the lower of amortized cost or
fair value of the underlying collateral less costs to sell.
(d) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
(e) Prior-period amount has been revised to conform with the current
presentation.
Management’s discussion and analysis
Modified residential real estate loans
The following table presents information relating to
modified retained residential real estate loans for which
concessions have been granted to borrowers experiencing
financial difficulty, which include both TDRs and modified
loans accounted for as PCI loans prior to the adoption of
CECL. The following table does not include loans with short-
term or other insignificant modifications that are not
considered concessions and, therefore, are not TDRs, or
loans for which the Firm has elected to apply the option to
suspend the application of accounting guidance for TDRs as
provided by the CARES Act and extended by the
Consolidated Appropriations Act. Refer to Note 12 for
further information on modifications for the years ended
December 31, 2020 and 2019.
(in millions)
Retained loans(a)
PCI loans
Nonaccrual retained loans(b)(c)
December 31,
2020
December 31,
2019
$
$
15,406
5,926
NA
12,372
(d)
3,899
2,332
(a) At December 31, 2020 and 2019, $7 million and $14 million,
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. Refer to Note 14 for additional
information about sales of loans in securitization transactions with
Ginnie Mae.
(b) At December 31, 2020 and 2019, nonaccrual loans included $3.0
billion and $1.9 billion, respectively, of TDRs for which the borrowers
were less than 90 days past due. Refer to Note 12 for additional
information about loans modified in a TDR that are on nonaccrual
status.
(c) At December 31, 2020, nonaccrual loans included $1.3 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
(d) Amount represents the unpaid principal balance of modified PCI loans
at December 31, 2019, which were moved to retained loans upon the
adoption of CECL.
Auto and other: The auto and other loan portfolio
predominantly consists of prime-quality scored auto and
business banking loans, as well as overdrafts. The portfolio
increased when compared with December 31, 2019,
predominantly due to PPP loan originations of $21.9 billion
in Business Banking of which $19.2 billion remained
outstanding at December 31, 2020 as well as from growth
in the auto portfolio from loan originations, partially offset
by paydowns and charge-offs or liquidation of delinquent
loans. The 30+ delinquency rate decreased to 0.60% at
December 31, 2020, from 1.31% at December 31, 2019,
primarily due to payment assistance and government
stimulus, as well as PPP loan originations as these loans are
all considered current. The scored auto portfolio net
charge-off rates were 0.25% and 0.44% for the years
ended December 31, 2020 and 2019, respectively. Auto
charge-offs for the year ended December 31, 2020
118
JPMorgan Chase & Co./2020 Form 10-K
Nonaccrual loans
The following table presents changes in consumer,
excluding credit card, nonaccrual loans for the years ended
December 31, 2020 and 2019.
Nonaccrual loan activity(a)
Year ended December 31,
(in millions)
Beginning balance
Additions:
PCD loans, upon adoption of CECL
Other additions
Total additions
Reductions:
Principal payments and other(b)
Charge-offs
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net changes
Ending balance
2020
3,366
$
$
708
5,184
5,892
(c)
983
390
1,024
394
2,791
3,101
6,467
$
2019
3,853
NA
2,174
2,174
1,167
371
751
372
2,661
(487)
$
3,366
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(b) Other reductions includes loan sales.
(c) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 90 or more days past due, predominantly
all of which were also at least 150 days past due and therefore
considered collateral-dependent. Collateral-dependent loans are
charged down to the lower of amortized cost or fair value of the
underlying collateral less costs to sell.
Active and suspended foreclosure: Refer to Note 12 for
information on loans that were in the process of active or
suspended foreclosure.
Refer to Note 12 for further information about the
consumer credit portfolio, including information about
delinquencies, loan modifications and other credit quality
indicators.
Purchased credit deteriorated (“PCD”) loans
The following tables provide credit-related information for
PCD loans, which were accounted for as PCI loans prior to
the adoption of CECL. PCI loans are considered PCD loans
under CECL and are subject to the Firm’s nonaccrual and
charge-off policies. PCD loans are now reported in the
consumer, excluding credit card portfolio’s residential real
estate class. Refer to Note 1 for further information.
(in millions, except ratios)
Loan delinquency(a)
December 31,
2020
December 31,
2019
Current
$
16,036
$
18,571
30-149 days past due
150 or more days past due(b)
432
573
970
822
Total PCD loans
$
17,041
$
20,363
% of 30+ days past due to total
retained PCD loans
Nonaccrual loans(c)
(in millions, except ratios)
Net charge-offs
Net charge-off rate
5.90 %
8.80 %
$
1,609
NA
$
Twelve months ended
December 31, 2020
74
0.39 %
(a) At December 31, 2020, loans under payment deferral programs
offered in response to the COVID-19 pandemic which are still within
their deferral period and performing according to their modified terms
are generally not considered delinquent.
(b) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 150 or more days past due and therefore
considered collateral-dependent. Collateral dependent loans are
charged down to the lower of amortized cost or fair value of the
underlying collateral less costs to sell.
(c) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 90 or more days past due, predominantly
all of which were also at least 150 days past due and therefore
considered collateral-dependent.
JPMorgan Chase & Co./2020 Form 10-K
119
Management’s discussion and analysis
Credit card
Total credit card loans decreased from December 31, 2019
reflecting a decline in sales volume that began in March as a
result of the impact of the COVID-19 pandemic. The
December 31, 2020 30+ and 90+ day delinquency rates of
1.68% and 0.92%, respectively, decreased compared to
the December 31, 2019 30+ and 90+ day delinquency
rates of 1.87% and 0.95%, respectively. The delinquency
rates were positively impacted by borrowers who received
payment assistance and government stimulus. Net charge-
offs decreased for the year ended December 31, 2020
compared with the prior year reflecting lower charge-offs
and higher recoveries primarily benefiting from payment
assistance and government stimulus.
Consistent with the Firm’s policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm’s allowance for loan losses includes the
estimated uncollectible portion of accrued and billed
interest and fee income. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies.
Geographic and FICO composition of credit card loans
At December 31, 2020, $65.0 billion, or 45% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $77.5 billion, or 46%, at December 31, 2019. Refer to
Note 12 for additional information on the geographic and
FICO composition of the Firm’s credit card loans.
Modifications of credit card loans
At December 31, 2020, the Firm had $1.4 billion of credit
card loans outstanding that have been modified in TDRs,
which does not include loans with short-term or other
insignificant modifications that are not considered TDRs,
compared to $1.5 billion at December 31, 2019. Refer to
Note 12 for additional information about loan modification
programs for borrowers.
120
JPMorgan Chase & Co./2020 Form 10-K
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 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. Refer to the industry
discussion on pages 123-127 for further information.
The Firm’s wholesale credit portfolio includes exposure held
in CIB, CB, AWM and Corporate, as well as risk-rated
business banking and auto dealer exposures held in CCB for
which the wholesale methodology is applied when
determining the allowance for credit losses.
In 2020, the impacts of the COVID-19 pandemic resulted in
broad-based credit deterioration and an increase in the
allowance for credit losses. As of December 31, 2020, the
investment-grade percentage of the portfolio decreased
from 74% to 71%, and criticized exposure increased $26.5
billion from $15.1 billion to $41.6 billion. The increase in
criticized exposure was largely driven by downgrades in
Consumer & Retail, Oil & Gas and Real Estate, and to a
lesser extent, net portfolio activity in Technology, Media &
Telecommunications. The continuation or worsening of the
effects of the COVID-19 pandemic on the macroeconomic
environment could result in further impacts to credit quality
metrics, including investment-grade percentages, as well as
to criticized and nonperforming exposures and charge-offs.
As of December 31, 2020 retained loans were up $33.3
billion predominantly driven by AWM and CIB, and lending-
related commitments were up $32.4 billion, predominantly
driven by CIB and CB.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value (a)
Loans – reported
Credit exposure
2020
2019
Nonperforming(f)
2019
2020
$ 514,947 $ 481,678 $ 3,318 $ 1,057
5,784
4,062
29,327
25,139
284
504
5
209
550,058
510,879
4,106
1,271
Derivative receivables
79,630
49,766
47,710
33,706
56
—
30
—
Receivables from
customers(b)
Total wholesale credit-
related assets
Assets acquired in loan
satisfactions
Real estate owned (c)
Other
Total assets acquired in
loan satisfactions
Lending-related
commitments (a)
Total wholesale credit
portfolio
Credit derivatives used
in credit portfolio
management
activities(c)(d)
Liquid securities and
other cash collateral
held against
derivatives(e)
677,398
594,351
4,162
1,301
NA
NA
NA
NA
NA
125
—
115
19
NA
125
134
449,863
417,510
577
474
$ 1,127,261 $ 1,011,861 $ 4,864 $ 1,909
$ (22,239) $ (18,530) $
— $
—
(14,806)
(13,052)
NA
NA
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans,
which resulted in a corresponding reclassification of certain off-
balance sheet commitments. Prior-period amounts have been revised
to conform with the current presentation.
(b) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
(c) Prior-period amounts have been revised to conform with the current
presentation.
(d) 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. Refer to Credit
derivatives on page 131 and Note 5 for additional information.
(e) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client’s exposure is in the Firm’s
favor. Prior-period amounts have been revised to conform with the
current presentation.
(f) Loans that were modified in response to the COVID-19 pandemic
continue to be risk-rated in accordance with the Firm’s overall credit
risk management framework. As of December 31, 2020,
predominantly all of these loans were considered performing.
JPMorgan Chase & Co./2020 Form 10-K
121
Management’s discussion and analysis
Wholesale assistance
In March 2020, the Firm began providing assistance to
clients in response to the COVID-19 pandemic,
predominantly in the form of payment deferrals and
covenant modifications.
As of December 31, 2020, the Firm had approximately $1.6
billion of retained loans still under payment deferral, which
has decreased approximately $4.6 billion from the third
quarter, and $15.1 billion from the second quarter.
Predominantly all clients that exited deferral are current or
have paid down their loans, and the Firm has not
experienced significant new payment deferral requests. The
Firm continues to monitor the credit risk associated with
loans subject to deferrals throughout the deferral period
and on an ongoing basis after the borrowers are required to
resume making regularly scheduled payments and
considers expected losses of principal and accrued interest
on these loans in its allowance for credit losses.
(in millions, except ratios)
December 31, 2020
September 30, 2020
June 30, 2020
Industry
Real Estate
Individuals and Individual
Entities
Transportation
Consumer & Retail
Automotive
Industrials
Healthcare
All Other industries
Total wholesale
$
$
Loan balance
550
402
394
82
22
19
7
147
1,623
Percent of total
industry loan balance(a)
0.46 %
0.37
5.99
0.21
0.13
0.09
0.04
0.08
0.32 %
IG percentage of loan
balance in payment
deferral
Loan balance
Loan balance
36 % $
4
92
2
—
—
—
99
45 % $
4,385 $
691
346
413
15
91
100
233
6,274 $
5,211
809
294
690
8,827
335
300
309
16,775
(a) Represents the balance of the retained loans which were still under payment deferral, divided by the respective industry total retained loans balance.
In addition, the Firm granted assistance in the form of
covenant modifications. These types of assistance, both
payment deferrals and covenant modifications, are
generally not reported as TDRs, either because the
modifications were insignificant or they qualified for the
option to suspend the application of accounting guidance
for TDRs as provided by the CARES Act and extended by the
Consolidated Appropriations Act. A portion of the $1.6
billion of loans under payment deferral as December 31,
2020 could become TDRs in future periods, depending on
the nature and timing of further modifications or payment
arrangements offered to these borrowers. If the $1.6 billion
of loans under payment deferral were considered TDRs, the
Firm estimates that it would result in an increase in
standardized RWA of as much as $500 million. Loans under
assistance continue to be risk-rated in accordance with the
Firm’s overall credit risk management framework. As of
December 31, 2020, predominantly all of these loans were
considered performing.
Wholesale credit exposure – maturity and ratings profile
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2020 and 2019. The Firm generally considers internal ratings with qualitative characteristics equivalent to
BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining
the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings.
Maturity profile(g)
Ratings profile
December 31, 2020
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives(b)
Total derivative receivables, net of collateral
Lending-related commitments(c)
Subtotal
Loans held-for-sale and loans at fair value(c)(d)
Receivables from customers
Total exposure – net of liquid securities and other
cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(e)(f)
1 year or
less
1 year
through
5 years
After 5
years
Total
Investment-
grade
Noninvestment-
grade
Total
Total %
of IG
$ 183,969 $ 197,905 $ 133,073 $ 514,947
$ 379,273
$
135,674
$ 514,947
74 %
79,630
(14,806)
18,456
17,599
28,769
64,824
38,941
116,950
315,179
17,734
449,863
312,694
25,883
137,169
79,630
(14,806)
64,824
449,863
319,375
530,683
179,576
1,029,634
730,908
298,726
1,029,634
35,111
47,710
$ 1,112,455
35,111
47,710
$ 1,112,455
60
70
71
$
(6,190) $
(13,223) $
(2,826) $
(22,239) $
(17,860)
$
(4,379)
$
(22,239)
80 %
122
JPMorgan Chase & Co./2020 Form 10-K
December 31, 2019
(in millions, except ratios)
Loans retained(a)
Derivative receivables
Less: Liquid securities and other cash collateral held
against derivatives(b)
Total derivative receivables, net of collateral
Lending-related commitments(a)(c)
Subtotal
Loans held-for-sale and loans at fair value(c)(d)
Receivables from customers
Total exposure – net of liquid securities and other
cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(a)(e)(f)
Maturity profile(g)
Ratings profile
1 year or
less
1 year
through
5 years
After 5
years
Total
Investment-
grade
Noninvestment-
grade
Total
Total %
of IG
$ 159,006 $ 186,256 $ 136,416 $ 481,678
$ 363,444
$
118,234
$ 481,678
75 %
49,766
(13,052)
7,136
7,569
22,009
36,714
87,577
312,939
16,994
417,510
253,719
506,764
175,419
935,902
29,416
296,702
689,562
7,298
120,808
246,340
29,201
33,706
$ 998,809
49,766
(13,052)
36,714
417,510
935,902
29,201
33,706
$ 998,809
80
71
74
$
(5,412) $
(10,031) $
(3,087) $
(18,530) $
(16,724)
$
(1,806)
$
(18,530)
90 %
(a) Prior-period amounts have been revised to conform with the current presentation.
(b) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation.
(c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
(d) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(e) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(f) 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.
(g) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual
maturity. Derivative contracts that are in a receivable position at December 31, 2020, 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. Total criticized exposure excluding loans held-
for-sale and loans at fair value, was $41.6 billion at
December 31, 2020, compared with $15.1 billion at
December 31, 2019, representing approximately 4.0% and
1.5% of total wholesale credit exposure, respectively. The
increase in total criticized exposure was largely driven by
downgrades in Consumer & Retail, Oil & Gas and Real Estate
due to impacts from the COVID-19 pandemic, and to a
lesser extent, net portfolio activity in Technology, Media &
Telecommunications. Predominantly all of the $41.6 billion
was performing and largely undrawn.
JPMorgan Chase & Co./2020 Form 10-K
123
Management’s discussion and analysis
The table below summarizes by industry the Firm’s exposures as of December 31, 2020 and 2019. The industry of risk
category is generally based on the client or counterparty’s primary business activity. Refer to Note 4 for additional information
on industry concentrations.
Wholesale credit exposure – industries(a)
Noninvestment-grade
Credit
exposure(f)(g)
Investment-
grade(g)
Noncriticized(g)
Criticized
performing
Criticized
nonperforming
Selected metrics
30 days or
more past
due and
accruing
loans(h)
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(i)
Liquid securities
and other cash
collateral held
against
derivative
receivables(k)
$ 148,498 $ 116,124 $
27,576 $
4,294 $
504 $
374 $
94 $
(110) $
As of or for the year ended
December 31, 2020
(in millions)
Real Estate
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Asset Managers
Industrials
Healthcare
Banks & Finance Cos
Automotive
Oil & Gas
State & Municipal Govt(c)
Utilities
Chemicals & Plastics
Central Govt
Transportation
Metals & Mining
Insurance
Securities Firms
Financial Markets Infrastructure
All other(d)
122,870
107,266
108,437
57,580
14,688
41,624
227
8,852
72,150
36,435
27,770
7,738
66,573
66,470
60,118
54,032
43,331
39,159
38,286
30,124
17,176
17,025
16,232
15,542
13,141
8,048
6,515
57,582
37,512
44,901
35,115
25,548
18,456
37,705
22,451
10,622
16,652
7,549
5,958
10,177
6,116
6,449
8,885
26,881
13,356
17,820
15,575
14,969
574
7,048
5,703
373
6,340
8,699
2,960
1,927
66
85
1,852
1,684
1,045
2,149
4,952
2
571
822
—
2,137
704
3
1
—
689
381
207
21
225
177
52
59
782
5
54
29
—
206
181
1
4
—
100,713
84,650
15,185
504
374
1,570
203
10
19
278
96
20
152
11
41
14
6
—
30
8
7
—
—
83
(17)
—
(381)
(934)
(56)
55
73
1
70
104
13
22
249
—
—
(658)
(378)
(555)
(434)
(238)
—
(7)
(402)
—
—
117
16
—
18
—
(83)
(8,364)
(83)
(141)
—
(49)
—
—
—
(5)
(4,685)
(61)
(191)
(1,648)
—
(4)
(41)
(1)
—
(982)
(26)
(13)
(1,771)
(3,423)
(10)
(9)
(9,429)
(1,889)
Subtotal
$ 1,044,440 $ 744,848 $
258,019 $
37,622 $
3,951 $
2,922 $
799 $ (22,239) $
(14,806)
Loans held-for-sale and loans at fair
value
Receivables from customers
Total(e)
35,111
47,710
$ 1,127,261
124
JPMorgan Chase & Co./2020 Form 10-K
Noninvestment-grade
Credit
exposure(f)(g)
Investment-
grade(g)
Noncriticized(g)
Criticized
performing
Criticized
nonperforming
Selected metrics
30 days or
more past
due and
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(i)
Liquid securities
and other cash
collateral held
against
derivative
receivables(k)
$ 150,919 $ 121,625 $
27,779 $
1,457 $
58 $
104 $
13 $
(100)
$
105,027
106,986
93,181
58,704
11,617
45,806
192
2,261
60,033
35,878
21,066
2,953
54,304
62,483
50,824
50,786
35,118
41,641
30,095
34,843
17,499
14,865
14,497
15,586
12,348
7,381
4,121
47,569
39,434
36,988
34,941
24,255
22,244
29,586
22,213
12,033
14,524
8,734
7,095
9,458
6,010
3,969
79,598
73,453
6,716
21,673
12,544
15,031
10,246
17,823
509
12,316
5,243
341
5,336
7,789
2,867
1,344
152
5,722
6
1,157
1,141
808
615
995
—
301
221
—
353
661
19
27
—
412
37
215
136
13
219
151
6
2
579
—
13
2
—
74
41
4
—
—
11
388
118
27
18
172
108
—
8
—
33
2
5
—
30
2
3
—
—
4
33
124
27
—
48
14
—
1
98
7
39
—
—
8
(1)
—
—
—
4
—
(235)
(658)
—
(746)
(405)
(834)
(194)
(429)
—
(414)
(10)
(9,018)
(37)
(33)
(36)
(48)
—
(5,333)
(j)
—
(287)
(5)
(13)
(4,410)
(1)
(144)
(1,419)
—
(6)
(16)
(34)
(13)
(850)
(37)
(2)
(1,790)
(3,088)
(4)
(933)
As of or for the year ended
December 31, 2019
(in millions)
Real Estate
Individuals and Individual Entities(b)
Consumer & Retail
Technology, Media &
Telecommunications
Asset Managers
Industrials
Healthcare
Banks & Finance Cos
Automotive
Oil & Gas
State & Municipal Govt(c)
Utilities
Chemicals & Plastics
Central Govt
Transportation
Metals & Mining
Insurance
Securities Firms
Financial Markets Infrastructure
All other(d)
Subtotal
$ 948,954 $ 701,894 $
231,920 $
13,579 $
1,561 $
1,022 $
415 $ (18,530)
$
(13,052)
Loans held-for-sale and loans at
fair value
Receivables from customers
Total(e)
29,201
33,706
$ 1,011,861
(a) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at
December 31, 2020, not actual rankings of such exposures at December 31, 2019.
(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, 2020 and 2019, noted above, the
Firm held: $7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion
and $4.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2020 and
90% and 10%, respectively, at December 31, 2019 .
(e) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, 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) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
(h) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(i) 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.
(j) Prior-period amount has been revised to conform with the current presentation.
(k) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
125
Management’s discussion and analysis
Presented below is additional detail on certain of the Firm’s largest industry exposures and/or certain industries which present
potential heightened credit concerns.
Real Estate
Real Estate exposure was $148.5 billion as of December 31, 2020, of which $85.6 billion was multifamily lending as shown in
the table below. During the year ended December 31, 2020, the following changes were primarily driven by impacts from the
COVID-19 pandemic:
•
•
•
the investment-grade portion of the Real Estate portfolio decreased from 81% to 78%.
the drawn percentage of this portfolio increased from 78% to 80%
criticized exposure increased by $3.3 billion from $1.5 billion to $4.8 billion
(in millions, except ratios)
Multifamily(a)
Office
Other Income Producing Properties(b)
Retail
Services and Non Income Producing
Industrial
Lodging
Total Real Estate Exposure(c)
(in millions, except ratios)
Multifamily(a)
Office
Other Income Producing Properties(b)
Retail
Services and Non Income Producing
Industrial
Lodging
Total Real Estate Exposure
Loans and
Lending-related
Commitments(d)
85,368
$
16,372
13,435
10,573
9,242
9,039
3,084
December 31, 2020
Derivative
Receivables
Credit
exposure
$
183
475
421
199
22
69
16
$
85,551
16,847
13,856
10,772
9,264
9,108
3,100
147,113
1,385
148,498
Loans and
Lending-related
Commitments(d)
86,381
$
15,734
14,372
11,347
9,922
8,842
3,702
150,300
December 31, 2019
Derivative
Receivables
Credit
exposure
$
58
231
181
87
19
24
19
619
$
86,439
15,965
14,553
11,434
9,941
8,866
3,721
150,919
%
Investment-
grade
85 %
% Drawn(e)
92 %
76
76
60
62
76
24
78
70
55
69
47
73
57
80
% Investment-
grade
91 %
% Drawn(e)
92 %
80
48
83
57
74
51
81
70
45
68
47
75
38
78
(a) Multifamily exposure is largely in California.
(b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of multifamily, office, retail,
industrial and lodging with less material exposures.
(c) Real Estate exposure is approximately 80% secured; unsecured exposure is approximately 78% investment-grade.
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
(e) Represents drawn exposure as a percentage of credit exposure.
126
JPMorgan Chase & Co./2020 Form 10-K
Consumer & Retail
Consumer & Retail exposure was $108.4 billion as of December 31, 2020, and predominantly included Retail, Food and
Beverage, and Business and Consumer Services as shown in the table below. During the year ended December 31, 2020, the
following changes were primarily driven by impacts from the COVID-19 pandemic:
•
•
•
the investment-grade portion of the Consumer & Retail portfolio decreased from 55% to 53%
the drawn percentage of this portfolio increased from 35% to 36%
criticized exposure increased by $6.7 billion from $2.5 billion to $9.2 billion
(in millions, except ratios)
Retail(a)
Food and Beverage
Business and Consumer Services
Consumer Hard Goods
Leisure(b)
Total Consumer & Retail(c)
(in millions, except ratios)
Retail(a)
Food and Beverage
Business and Consumer Services
Consumer Hard Goods
Leisure(b)
Total Consumer & Retail
December 31, 2020
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
$
$
32,486
28,012
24,760
12,937
7,440
887
897
599
178
241
$
33,373
28,909
25,359
13,115
7,681
105,635
2,802
108,437
December 31, 2019
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
$
$
29,290
27,956
24,242
13,144
10,930
294
625
249
109
147
$
29,584
28,581
24,491
13,253
11,077
105,562
1,424
106,986
%
Investment-
grade
52 %
% Drawn(d)
33 %
62
52
59
18
53
33
41
36
43
36
% Investment-
grade
54 %
% Drawn(d)
37 %
67
51
65
21
55
36
37
35
19
35
(a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores.
(b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2020 approximately 75% of the noninvestment-
grade Leisure portfolio is secured.
(c) Approximately 80% of the noninvestment-grade portfolio is secured.
(d) Represents drawn exposure as a percent of credit exposure.
Oil & Gas
Oil & Gas exposure was $39.2 billion as of December 31, 2020, including $19.3 billion of Exploration & Production and Oil
field Services as shown in the table below. During the year ended December 31, 2020, the following changes were driven by
lower oil prices and impacts from the COVID-19 pandemic:
•
•
the investment-grade portion of the Oil & Gas portfolio decreased from 53% to 47%
criticized exposure increased by $4.1 billion from $1.6 billion to $5.7 billion
(in millions, except ratios)
December 31, 2020
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
Other Oil & Gas(a)
Total Oil & Gas(b)
$
18,228
19,288
37,516
$
1,048
$
595
1,643
19,276
19,883
39,159
%
Investment-
grade
32 %
62
47
% Drawn(c)
37 %
21
29
(in millions, except ratios)
December 31, 2019
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
% Investment-
grade
Exploration & Production ("E&P") and Oil field Services
Other Oil & Gas(a)
Total Oil & Gas(b)
$
$
22,543
18,246
40,789
646
206
852
$
23,189
18,452
41,641
38 %
73
53
% Drawn(c)
38 %
23
31
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Secured lending was $13.2 billion and $15.7 billion at December 31, 2020 and 2019, respectively, approximately half of which is reserve-based lending
to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percent of credit exposure.
JPMorgan Chase & Co./2020 Form 10-K
127
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2020 and 2019. 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)
2020
2019
Loans – reported
Average loans retained
$ 509,907
$ 472,628
Gross charge-offs
Gross recoveries collected
Net charge-offs/(recoveries)
954
(155)
799
472
(57)
415
Net charge-off/(recovery) rate
0.16 %
0.09 %
Management’s discussion and analysis
Loans
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2020 and
2019. The increase was driven by downgrades across
multiple industries on client credit deterioration, with the
largest concentration in Real Estate, predominantly within
retail and lodging.
Wholesale nonaccrual loan activity
Year ended December 31, (in millions)
Beginning balance
Additions(a)
Reductions:
Paydowns and other
Gross charge-offs
Returned to performing status
Sales
Total reductions
Net changes
Ending balance
2020
2019
$ 1,271 $ 1,587
6,753
2,552
2,290
1,585
922
569
137
3,918
2,835
425
652
206
2,868
(316)
$ 4,106 $ 1,271
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
128
JPMorgan Chase & Co./2020 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 when the Firm fulfills 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 have
historically been refinanced, extended, cancelled, or expired
without being drawn upon or a default occurring. As a result,
the Firm does not believe that the total contractual amount of
these wholesale lending-related commitments is
representative of the Firm’s expected future credit exposure
or funding requirements. Refer to Note 28 for further
information on wholesale lending-related commitments.
Receivables from Customers
Receivables from customers reflect held-for-investment
margin loans to brokerage clients in CIB, CCB and AWM that
are collateralized by assets maintained in the clients’
brokerage accounts (e.g., cash on deposit, liquid and readily
marketable debt or equity securities). Because of this
collateralization, no allowance for credit losses is generally
held against these receivables. To manage its credit risk the
Firm establishes margin requirements and monitors the
required margin levels on an ongoing basis, and requires
clients to deposit additional cash or other collateral, or to
reduce positions, when appropriate. These receivables are
reported within accrued interest and accounts receivable on
the Firm’s Consolidated balance sheets.
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 the provision of clearing
services if clients do not adhere to their obligations under the
clearing agreement. Refer to Note 28 for a further discussion
of clearing services.
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 risk 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 can also be 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. 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 88% and 90% at
December 31, 2020 and 2019, respectively. Refer to Note 5
for additional information on the Firm’s use of collateral
agreements. Refer to Note 5 for a further discussion of
derivative contracts, counterparties and settlement types.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $79.6 billion and $49.8
billion at December 31, 2020 and 2019, respectively, with
increases in CIB resulting from market movements. Derivative
receivables represent the fair value of the derivative
contracts after giving effect to legally enforceable master
netting agreements and the related cash collateral held by
the Firm. In addition, the Firm held liquid securities and other
cash collateral that the Firm believes is legally enforceable
and may be used as security when the fair value of the client’s
exposure is in the Firm’s favor. Liquid securities represents
high quality liquid assets as defined in the LCR rule. In
management’s view, the appropriate measure of current
credit risk should also take into consideration other collateral,
which generally represents securities that do not qualify as
high quality liquid assets under the LCR rule, but that the Firm
believes is legally enforceable. The collateral amounts for
each counterparty are limited to the net derivative
receivables for the counterparty. The following tables
summarize the net derivative receivables and the internal
ratings profile for the periods presented.
Derivative receivables
December 31, (in millions)
2020
2019
Total, net of cash collateral
$
79,630 $
49,766
Liquid securities and other cash collateral
held against derivative receivables(a)
Total, net of liquid securities and other
cash collateral
Other collateral
held against derivative receivables(a)
(14,806)
(13,052)
$
64,824 $
36,714
(6,022)
(1,837)
Total, net of collateral
$
58,802 $
34,877
(a) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client’s exposure is in the Firm’s
favor. Prior-period amounts have been revised to conform with the
current presentation.
JPMorgan Chase & Co./2020 Form 10-K
129
Management’s discussion and analysis
Ratings profile of derivative receivables
December 31,
(in millions, except ratios)
Investment-grade
Noninvestment-grade
Total
2020(a)
2019(a)
Exposure net of
collateral
% of exposure net
of collateral
Exposure net of
collateral
% of exposure net
of collateral
$
$
37,013
21,789
58,802
63 % $
37
100 % $
27,851
7,026
34,877
80 %
20
100 %
(a) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation.
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
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. 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 a particular counterparty’s AVG.
The Firm risk manages exposure to changes in CVA by
entering into credit derivative contracts, as well as interest
rate, foreign exchange, equity and commodity derivative
contracts.
The below 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, 2020
(in billions)
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. Refer to Note 5 for
additional information on the Firm’s use of collateral
agreements.
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
derivative exposure, including the benefit of collateral, 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 credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
DRE exposure is a measure that expresses the risk of
derivative exposure, including the benefit of collateral, on a
basis intended to be 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 exposure, including the benefit of
collateral, at future time periods. 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 CVA, as further described below.
130
JPMorgan Chase & Co./2020 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.
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 lending-related
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.
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.
Credit derivatives used in credit portfolio management
activities
December 31, (in millions)
Credit derivatives used to manage:
Notional amount of
protection
purchased and sold(b)
2019
2020
Loans and lending-related commitments
Derivative receivables (a)
$
3,877 $
2,047
18,362
16,483
Credit derivatives used in credit portfolio
management activities
$ 22,239 $ 18,530
(a) Prior-period amount has been revised to conform with the current
presentation.
(b) 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. Refer to Credit derivatives in
Note 5 for a detailed description of credit derivatives.
JPMorgan Chase & Co./2020 Form 10-K
131
prospect that government and other consumer relief
measures set to expire may not be extended, the Firm has
placed significant weighting on its adverse scenarios. These
scenarios incorporate more punitive macroeconomic factors
than the central case assumptions, resulting in weighted
average U.S. unemployment rates remaining elevated
throughout 2021 and 2022, ending the fourth quarter of
2022 at approximately 6%, and in U.S. GDP ending 2022
approximately 0.9% higher than fourth quarter 2019
actual pre-pandemic levels.
The Firm’s central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
U.S. unemployment rate(a)
Cumulative change in U.S.
real GDP from
12/31/2019
Assumptions at January 1, 2020
4Q20(b)
2Q21
2Q20
3.7 %
3.8 %
4.0 %
0.9 %
1.7 %
2.4 %
Assumptions at December 31, 2020
4Q21
2Q22
2Q21
U.S. unemployment rate(a)
Cumulative change in U.S.
real GDP from
12/31/2019
6.8 %
5.7 %
5.1 %
(1.9) %
0.6 %
2.0 %
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%.
4Q20 actual cumulative change in U.S. real GDP from 4Q19 was
(2.5%).
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods. Refer to Note 13 and Note 10 for a description of
the policies, methodologies and judgments used to
determine the Firm’s allowances for credit losses on loans,
lending-related commitments, and investment securities.
Refer to Critical Accounting Estimates Used by the Firm on
pages 152-155 for further information on the allowance for
credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 114-120,
Wholesale Credit Portfolio on pages 121-131 and Note 12
for additional information on the consumer and wholesale
credit portfolios.
Management’s discussion and analysis
ALLOWANCE FOR CREDIT LOSSES
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption of this guidance
established a single allowance framework for all financial
assets measured at amortized cost and certain off-balance
sheet credit exposures. This framework requires that
management’s estimate reflects credit losses over the
instrument’s remaining expected life and considers
expected future changes in macroeconomic conditions.
Refer to Note 1 for further information.
The Firm’s allowance for credit losses comprises:
• the allowance for loan losses, which covers the Firm’s
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
• the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
• the allowance for credit losses on investment securities,
which covers the Firm’s HTM and AFS securities and is
recognized within Investment Securities on the
Consolidated balance sheets.
The allowance for credit losses increased compared with
December 31, 2019, primarily reflecting the deterioration
and uncertainty in the macroeconomic environment, in
particular in the first half of 2020, as a result of the impact
of the COVID-19 pandemic, consisting of:
• a net $7.4 billion addition in consumer, predominantly in
the credit card portfolio, and
• a net $4.7 billion addition in wholesale, across the LOBs,
impacting multiple industries.
The adoption of CECL on January 1, 2020, resulted in a
$4.3 billion addition to the allowance for credit losses.
Discussion of changes in the allowance during 2020
The increase in the allowance for loan losses and lending-
related commitments was primarily driven by an increase in
the provision for credit losses, reflecting the deterioration
in and uncertainty around the future macroeconomic
environment as a result of the impact of the COVID-19
pandemic.
As of December 31, 2020, the Firm’s central case reflected
U.S. unemployment rates of approximately 7% through the
second quarter of 2021 and remaining above 5% until the
second half of 2022. This compared with relatively low
levels of unemployment of approximately 4% throughout
2020 and 2021 in the Firm’s January 1, 2020 central case.
Further, while the Firm’s January 1, 2020 central case U.S.
GDP forecast reflected a 1.7% expansion in 2020, actual
U.S. GDP contracted approximately 2.5% in 2020. As of
December 31, 2020, the Firm’s central case assumptions
reflect a return to pre-pandemic GDP levels in the fourth
quarter of 2021.
Due to elevated uncertainty in the near term outlook, driven
by the potential for increased infection rates and related
lock downs resulting from the pandemic, as well as the
132
JPMorgan Chase & Co./2020 Form 10-K
The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD
loans under CECL. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related
commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the
methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 1 for further information.
Allowance for credit losses and related information
Year ended December 31,
(in millions, except ratios)
Allowance for loan losses
2020(d)
2019
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Beginning balance at January 1,
$ 2,538
$ 5,683
$ 4,902
$ 13,123
$ 3,434
$ 5,184
$ 4,827
$ 13,445
Cumulative effect of a change in accounting
principle
Gross charge-offs
Gross recoveries collected
Net charge-offs
Write-offs of PCI loans(a)
Provision for loan losses
Other
297
805
(631)
174
5,517
5,077
(791)
4,286
(1,642)
954
(155)
799
4,172
6,836
(1,577)
5,259
NA
NA
NA
NA
974
10,886
4,431
16,291
1
—
—
1
NA
NA
NA
NA
902
(536)
366
151
(378)
(1)
5,436
(588)
4,848
—
5,348
(1)
472
(57)
415
—
479
11
6,810
(1,181)
5,629
151
5,449
9
Ending balance at December 31,
$ 3,636
$ 17,800
$ 6,892
$ 28,328
$ 2,538
$ 5,683
$ 4,902
$ 13,123
Allowance for lending-related commitments
Beginning balance at January 1,
$
12
$
Cumulative effect of a change in accounting
principle
Provision for lending-related commitments
Other
133
42
—
Ending balance at December 31,
$
187
$
—
—
—
—
—
$ 1,179
$ 1,191
$
12
$
—
$ 1,043
$ 1,055
(35)
1,079
(1)
98
1,121
(1)
NA
—
—
$ 2,222
$ 2,409
$
12
$
NA
NA
NA
—
—
—
136
—
136
—
$ 1,179
$ 1,191
Impairment methodology
Asset-specific(b)
Portfolio-based
PCI
$
(7)
$
633
$
682
$ 1,308
$
75
$
477
$
295
$
847
3,643
17,167
6,210
27,020
1,476
5,206
4,607
11,289
NA
NA
NA
NA
987
—
—
987
Total allowance for loan losses
$ 3,636
$ 17,800
$ 6,892
$ 28,328
$ 2,538
$ 5,683
$ 4,902
$ 13,123
Impairment methodology
Asset-specific
Portfolio-based
Total allowance for lending-related
commitments
$
—
$
187
$
187
$
—
—
—
$
114
$
114
$
2,108
2,295
$
—
12
$ 2,222
$ 2,409
$
12
$
—
—
—
$
102
$
102
1,077
1,089
$ 1,179
$ 1,191
Total allowance for credit losses
$ 3,823
$ 17,800
$ 9,114
$ 30,737
$ 2,550
$ 5,683
$ 6,081
$ 14,314
Memo:
Retained loans, end of period
$ 302,127
$ 143,432
$ 514,947
$ 960,506
$ 294,999
$ 168,924
$ 481,678
$ 945,601
Retained loans, average
Credit ratios
302,005
146,391
509,907
958,303
312,972
156,319
472,628
941,919
Allowance for loan losses to retained loans
1.20 %
12.41 %
1.34 %
2.95 %
0.86 %
3.36 %
1.02 %
1.39 %
Allowance for loan losses to retained nonaccrual
loans(c)
Allowance for loan losses to retained nonaccrual
loans excluding credit card
Net charge-off rates
67
67
0.06
NM
NM
2.93
208
208
0.16
323
120
0.55
87
87
0.12
NM
NM
3.10
464
464
0.09
329
187
0.60
(a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated
losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying
loan was removed from a pool.
(b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that
have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loan losses modified or reasonably
expected to be modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(c) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(d) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year
ended December 31, 2020.
JPMorgan Chase & Co./2020 Form 10-K
133
Management’s discussion and analysis
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
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet or asset-liability
management objectives. Principal investments are
predominantly privately-held non-traded financial
instruments and are managed in the LOBs and Corporate.
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 mitigated given that the investment securities
portfolio held by Treasury and CIO is predominantly
invested in high-quality securities. At December 31, 2020,
the Treasury and CIO investment securities portfolio, net of
allowance for credit losses, was $587.9 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 risk ratings). Refer to Corporate segment results on
pages 83–84 and Note 10 for further information on the
investment securities portfolio and internal risk ratings.
Refer to Market Risk Management on pages 135–142 for
further information on the market risk inherent in the
portfolio. Refer to Liquidity Risk Management on pages
102–108 for further information on related liquidity risk.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates to the Board Risk
Committee.
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 privately held non-
traded financial instruments representing ownership or
other forms of junior capital and span multiple asset
classes. These investments are made by dedicated investing
businesses or as part of a broader business strategy. In
general, principal investments include tax-oriented
investments and investments made to enhance or
accelerate the Firm’s business strategies. The Firm’s
investments will continue to evolve in line with its
strategies, including the Firm’s commitment to support
underserved communities and minority-owned businesses.
The Firm’s principal investments are managed by the LOBs
and Corporate and are reflected within their respective
financial results. The aggregate carrying values of the
principal investment portfolios have not been significantly
affected by recent market events as a result of the
COVID-19 pandemic. However, the duration and severity of
adverse macroeconomic conditions could subject certain
principal investments to impairments, write-downs, or other
negative impacts.
As of December 31, 2020 and 2019, the aggregate
carrying values of the principal investment portfolios were
$27.5 billion and $24.2 billion, respectively, which included
tax-oriented investments (e.g., alternative energy and
affordable housing investments) of $21.3 billion and $18.2
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $6.2 billion and $6.0
billion, respectively.
Governance and oversight
The Firm’s approach to managing principal risk is consistent
with the Firm’s risk governance structure. A Firmwide risk
policy framework exists for all principal investing activities
and includes approval by executives who are independent
from the investing businesses, as appropriate.
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.
134
JPMorgan Chase & Co./2020 Form 10-K
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.
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:
• Maintaining a market risk policy framework
• Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
• Defining, approving and monitoring of limits
• Performing 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 Market Risk Management 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, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management experience. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB 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 LOBs and Corporate, as well as at the legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
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 reported to senior management. The LOBs
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 appropriate
members of the Firm to determine the suitable 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
LOB-level limit breaches are escalated as appropriate.
COVID-19 Pandemic
Market Risk Management continues to actively monitor the
impact of the COVID-19 pandemic on market risk exposures
by leveraging existing risk measures and controls.
Models used to measure market risk are inherently
imprecise and are limited in their ability to measure certain
risks or to predict losses. This imprecision may be
heightened when sudden or severe shifts in market
conditions occur, such as those observed at the onset of the
COVID-19 pandemic. For additional discussion on model
uncertainty refer to Estimations and Model Risk
Management on page 151.
Market Risk Management periodically reviews the Firm’s
existing market risk measures to identify opportunities for
enhancement, and to the extent appropriate, will calibrate
those measures accordingly over time. This is increasingly
important in periods of sustained, heightened market
volatility.
JPMorgan Chase & Co./2020 Form 10-K
135
Management’s discussion and analysis
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
In addition to the predominant business activities, each LOB 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 and captured in the
table below. Refer to Investment Portfolio Risk Management on page 134 for additional discussion on principal investments.
LOBs and
Corporate
Predominant business
activities
CCB
• Services mortgage
loans
• Originates loans and
takes deposits
Related market risks
Positions included in Risk
Management VaR
Positions included in
earnings-at-risk
Positions included in other
sensitivity-based measures
• Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
•
• Mortgage commitments,
classified as derivatives
• Warehouse loans that are
fair value option elected,
classified as loans – debt
instruments
• Retained loan portfolio
• Deposits
• Fair value option elected
liabilities DVA(a)
• MSRs
• Hedges of mortgage
•
commitments, warehouse
loans and MSRs, classified
as derivatives
Interest-only and mortgage-
backed securities, classified
as trading assets debt
instruments, and related
hedges, classified as
derivatives
• Fair value option elected
liabilities(a)
• Trading assets/liabilities –
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
• Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
• Fair value option elected
liabilities(a)
• Derivative CVA and
associated hedges
• Marketable equity
investments
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 and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
• Basis and correlation risk
from changes in the way
asset values move
relative to one another
Interest rate risk and
prepayment risk
•
• Retained loan portfolio
• Deposits
• Privately held equity and
other investments
measured at fair value; and
certain asset-backed fair
value option elected loans
• Derivatives FVA and fair
value option elected
liabilities DVA(a)
CB
• Originates loans and
takes deposits
•
Interest rate risk and
prepayment risk
• Marketable equity
investments(b)
• Retained loan portfolio
• Deposits
AWM
• Provides initial capital
• Risk from adverse
• Debt securities held in
investments in
products such as
mutual funds and
capital invested
alongside third-party
investors
• Originates loans and
takes deposits
movements in market
factors (e.g., market
prices, rates and credit
spreads)
Interest rate risk and
prepayment risk
•
advance of distribution to
clients, classified as trading
assets - debt instruments(b)
• 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
(a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures.
(b) The AWM and CB contributions to Firmwide average VaR were not material for the year ended December 31, 2020 and 2019.
136
JPMorgan Chase & Co./2020 Form 10-K
• Certain deferred
compensation and related
hedges, classified as
derivatives
• 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
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 LOBs and Corporate and, along with
other market risk measures, 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 “backtesting exceptions,” defined
as losses greater than that predicted by VaR estimates, an
average of five times every 100 trading days. The number
of VaR backtesting exceptions observed can differ from the
statistically expected number of backtesting 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 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. Refer to Valuation process in Note 2 for
further information on the Firm’s valuation process. As 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.
Refer to Estimations and Model Risk Management on page
151 for information regarding model reviews and
approvals.
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.
JPMorgan Chase & Co./2020 Form 10-K
137
Management’s discussion and analysis
Refer to JPMorgan Chase’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website,
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).
The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
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 and other LOB VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
Avg.
2020
Min
Max
Avg.
2019
Min
Max
$ 98
$ 35
$ 156
$ 40
$ 31
$ 50
10
24
28
(67) (a)
93
16
(17) (a)
92
5
19
(4) (a)
20
(17) (a)
4
13
7
NM (b)
(b)
32
3
NM (b)
(b)
31
1
9
NM (b)
(b)
10
NM (b)
18
41
47
NM (b)
(b)
160
28
NM (b)
(b)
162
12
(c)
82
NM (b)
(b)
82
NM (b)
(b)
7
20
8
(33) (a)
42
5
(5) (a)
42
5
10
(4) (a)
11
(10) (a)
4
13
6
NM (b)
(b)
29
3
NM (b)
(b)
29
1
9
NM (b)
(b)
8
NM (b)
15
31
12
NM (b)
(b)
61
7
NM (b)
(b)
63
11
13
NM (b)
(b)
17
NM (b)
(b)
$ 95
$ 32
(b) $ 164
$ 43
$ 30
(b) $ 65
(a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature
of VaR due to imperfect correlation across LOBs, Corporate, and risk types.
(b) 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.
(c) Maximum Corporate and other LOB VaR was higher than the prior year, due to increases in the fourth quarter of 2020 driven by a private equity position
that became publicly traded at the end of the third quarter of 2020.
Generally, average VaR and maximum VaR across risk types
and LOBs were higher due to increased volatility that
occurred at the onset of the COVID-19 pandemic, which
remains in the one-year historical look-back period. As a
result average total VaR increased by $52 million for the
year-ended December 31, 2020 when compared with the
prior year driven by the fixed income and commodities risk
types.
Effective January 1, 2020, the Firm refined the scope of
VaR to exclude positions related to the risk management of
interest rate exposure from changes in the Firm’s own
credit spread on fair value option elected liabilities, and
included these positions in other sensitivity-based
measures. Additionally, effective July 1, 2020, the Firm
refined the scope of VaR to exclude certain asset-backed
fair value option elected loans, and included them in other
sensitivity-based measures to more effectively measure the
risk from these loans. In the absence of these refinements,
the average Total VaR and each of the components would
have been higher by the amounts reported in the following
table:
(in millions)
CIB fixed income VaR
CIB trading VaR
CIB VaR
Total VaR
Amount by which reported average VaR
would have been higher for the year ended
December 31, 2020
$
9
7
9
8
138
JPMorgan Chase & Co./2020 Form 10-K
VaR backtesting
The Firm performs daily VaR model backtesting, which compares the daily Risk Management VaR results with the daily gains
and losses that are utilized for VaR backtesting purposes. The gains and losses in the chart below do not reflect the Firm’s
revenue results as they exclude select components of total net revenue, such as those associated with the execution of new
transactions (i.e., intraday client-driven trading and intraday risk management activities), fees, commissions, certain valuation
adjustments and net interest income. These excluded components of total net revenue may more than offset backtesting gains
and losses on a particular day. The definition of backtesting gains and losses above is consistent with the requirements for
backtesting under Basel III capital rules.
The following chart compares Firmwide daily backtesting gains and losses with the Firm’s Risk Management VaR for the year
ended December 31, 2020. The results in the chart below differ from the results of backtesting 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 the
Firm’s covered positions.
For the year ended December 31, 2020, the Firm posted backtesting gains on 162 of the 260 days, and observed 10 VaR
backtesting exceptions, which were predominantly driven by volatility at the onset of the COVID-19 pandemic that was
materially higher than the levels realized in the historical data used for the VaR calculation. Firmwide backtesting loss days can
differ from the loss days for which Fixed Income Markets and Equity Markets posted losses, as disclosed in CIB Markets
revenue, as the population of positions which compose each metric are different and due to the exclusion of select components
of total net revenue in backtesting gains and losses as described above. For more information on CIB Markets revenue, refer to
pages 74-75.
Daily Risk Management VaR Backtesting Results
Year ended December 31, 2020
Backtesting Gains and Losses
Risk Management VaR (1-day, 95% Confidence level)
First Quarter
2020
Second Quarter
2020
Third Quarter
2020
Fourth Quarter
2020
JPMorgan Chase & Co./2020 Form 10-K
139
$ millions-550-500-450-400-350-300-250-200-150-100-50050100150200250300350 Management’s discussion and analysis
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 market risk sensitive
positions in the LOBs and Corporate. 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 senior management of
the Firm, as appropriate.
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 as
appropriate.
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 periodically to the
Board Risk Committee.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Earnings-at-risk
The effect of interest rate exposure on the Firm’s reported
net income is 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 as well as from the investment securities
portfolio. Refer to the table on page 136 for a summary by
LOB and Corporate, identifying positions included in
earnings-at-risk.
The CTC Risk Committee establishes the Firm’s structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBs, 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.
Structural interest rate risk can occur due to a variety of
factors, including:
• Differences in 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 maturing or 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.
One way the Firm evaluates its structural interest rate risk
is through earnings-at-risk. Earnings-at-risk estimates the
Firm’s interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies (“non-U.S. dollar” currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and funds
transfer pricing of positions in risk management VaR and
other sensitivity-based measures as described on page 136.
140
JPMorgan Chase & Co./2020 Form 10-K
Earnings-at-risk scenarios estimate the potential change to
a net interest income 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; and a flatter yield curve
involving increasing short-term rates and holding long-term
rates constant. These scenarios consider many different
factors, including:
• The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
• Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but do not
include assumptions about actions that could be taken by
the Firm or its clients and customers 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, known as deposit
betas, represent the amount by which deposit rates paid
could change upon a given change in market interest
rates over the cycle. The deposit rates paid in these
scenarios may differ from actual deposit rates paid, due
to repricing 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. While a relevant measure of the Firm’s
interest rate exposure, the earnings at risk analysis does
not represent a forecast of the Firm’s net interest income
(Refer to Outlook on page 49 for additional information).
The Firm’s U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
Parallel shift:
2020
2019
+100 bps shift in rates
$
6.9 $
Steeper yield curve:
+100 bps shift in long-term rates
Flatter yield curve:
+100 bps shift in short-term rates
2.4
4.5
0.3
1.2
(0.9)
The change in the Firm’s U.S. dollar sensitivities as of
December 31, 2020 compared to December 31, 2019
reflected updates to the Firm’s baseline for lower short-
term and long-term rates as well as the impact of changes
in the Firm’s balance sheet. In addition, during the fourth
quarter of 2020 as part of the Firm’s continuous evaluation
and periodic enhancement to its earnings-at-risk
calculations, the Firm updated the deposit rates paid betas
for consumer deposit products based upon observed pricing
during the most recent economic cycle. In the absence of
this update, the Firm’s U.S. dollar sensitivities as of
December 31, 2020 would have been lower by $2.0 billion
to the +100bps shift in short-term and parallel rate
scenarios.
The Firm’s sensitivity to rates is primarily a result of assets
repricing at a faster pace than deposits.
Based upon current and implied market rates as of
December 31, 2020, scenarios reflecting lower rates could
result in negative interest rates. The U.S. has never
experienced an interest rate environment where the
Federal Reserve has a negative interest rate policy. While
the impact of negative interest rates on the Firm's earnings-
at-risk would vary by scenario, a parallel shift downward of
up to 100bps would negatively impact net interest income.
In a negative interest rate environment, the modeling
assumptions used for certain assets and liabilities require
additional management judgment and therefore, the actual
outcomes may differ from these assumptions.
The Firm’s non-U.S. dollar sensitivities are presented in the
table below.
December 31,
(in billions)
Parallel shift:
2020
2019
+100 bps shift in rates
$
0.9 $
Flatter yield curve:
+100 bps shift in short-term rates
0.8
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, 2020 and 2019.
JPMorgan Chase & Co./2020 Form 10-K
141
Management’s discussion and analysis
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 LOBs, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these
risks using derivatives.
Other sensitivity-based measures
The Firm quantifies the market risk of certain debt and equity and funding activities by assessing the potential impact on net
revenue, other comprehensive income (“OCI”) and noninterest expense due to changes in relevant market variables. Refer to
the table Predominant business activities that give rise to market risk on page 136 for additional information on the positions
captured in other sensitivity-based measures.
The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive
instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are
reported net of 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, 2020 and 2019, as the movement in market parameters
across maturities may vary and are not intended to imply management’s expectation of future changes in these sensitivities.
Year ended December 31,
Gain/(loss) (in millions)
Activity
Description
Sensitivity measure
2020
2019
Debt and equity(a)
Asset Management activities
Other debt and equity
Funding activities
Non-USD LTD cross-currency basis
Consists of seed capital and related hedges;
fund co-investments(b); and certain
deferred compensation and related
hedges(c)
Consists of certain asset-backed fair value
option elected loans, privately held equity
and other investments held at fair value(b)
10% decline in market
value
$
(48) $
(68)
10% decline in market
value
(919)
(867) (e)
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(d)
1 basis point parallel
tightening of cross currency
basis
(16)
(17)
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(d)
10% depreciation of
currency
Impact of changes in the spread related to
derivatives FVA(b)
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(d)
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(d)
1 basis point parallel
increase in spread
Interest rate sensitivity related to risk
management of changes in the Firm’s own
credit spread on fair value option
liabilities(b)
1 basis point parallel
increase in spread
13
(4)
33
(3)
3
15
(5)
29
(2)
2
(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 net revenue.
(c) In the second quarter of 2020, the Firm refined the approach for risk management of certain deferred compensation, which is recognized through
noninterest expense. As a result, certain deferred compensation and related hedges are now included in other sensitivity-based measures.
(d) Impact recognized through OCI.
(e) Prior-period amount has been revised to conform with the current presentation. In the absence of the scope refinement, Other debt and equity would have
been $(203) million and $(192) million for the periods ending December 31, 2020 and 2019, respectively. Refer to Total VaR on page 138 for additional
information.
142
JPMorgan Chase & Co./2020 Form 10-K
obligor or guarantor is not suitable for attribution to an
individual country. The use of different measurement
approaches or assumptions could affect the amount of
reported country exposure.
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
The Firm’s internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. Refer to Cross-border outstandings on page
318 of the 2020 Form 10-K for further information on the
FFIEC’s reporting methodology.
COUNTRY RISK MANAGEMENT
The Firm, through its LOBs 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 Firm’s country risk management function includes the
following activities:
• Maintaining 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 an individual 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.
Individual country exposures reflect an aggregation of the
Firm’s risk to an immediate default, with zero recovery, of
the counterparties, issuers, obligors or guarantors
attributed to that country. Activities which result in
contingent or indirect exposure to a country are not
included in the country exposure measure (for example,
providing clearing services or secondary exposure to
collateral on securities financing receivables).
Assumptions are sometimes required in determining the
measurement and allocation of country exposure,
particularly in the case of certain non-linear or index
products, or where the nature of the counterparty, issuer,
JPMorgan Chase & Co./2020 Form 10-K
143
Management’s discussion and analysis
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.
COVID-19 Pandemic
Country Risk Management continues to monitor the impact
of the COVID-19 pandemic, leveraging existing stress
testing, exposure reporting and controls, as well as tailored
analysis, to assess the extent to which individual countries
may be adversely impacted.
Risk reporting
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends, and monitor high usages and breaches against
limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
(“SAR”) and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm’s top 20 exposures by
country (excluding the U.S.) as of December 31, 2020, and
their comparative exposures as of December 31, 2019. The
selection of countries represents the Firm’s largest total
exposures by individual 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.
The overall increase in top 20 exposures was largely driven
by client activity and growth in client deposits, relative to
the period ending December 31, 2019. This resulted in an
increase in cash placements with the central banks of
Germany and the United Kingdom.
Top 20 country exposures (excluding the U.S.)(a)
December 31,
(in billions)
2020
2019(f)
Lending
and
deposits(c)
Trading and
investing(d)
Other(e)
Total
exposure
Total
exposure
Germany
$ 120.8 $
5.8 $
0.6 $ 127.2 $ 51.6
United Kingdom
Japan
China
France
Switzerland
Australia
Canada
Luxembourg
Brazil
India
South Korea
Italy
Singapore
Netherlands(b)
Hong Kong SAR
Spain
Saudi Arabia
Mexico
Sweden
57.2
36.7
9.7
13.4
14.7
9.9
13.4
11.1
4.2
3.9
5.4
4.7
4.0
5.4
3.7
4.1
4.9
3.9
5.4
9.4
8.6
9.9
4.6
0.5
5.7
0.9
1.3
6.6
5.1
4.3
4.7
2.7
0.1
1.9
1.6
0.9
1.0
(1.1)
1.8
0.3
1.6
0.8
3.5
0.3
0.2
—
—
1.5
0.4
0.3
2.0
2.2
0.6
0.1
—
—
—
68.4
45.6
21.2
18.8
18.7
15.9
14.5
12.4
10.8
10.5
10.1
9.7
8.7
7.7
6.2
5.8
5.8
4.9
4.3
42.4
43.8
19.2
18.1
18.3
11.7
13.2
12.9
7.2
11.3
6.4
6.8
6.8
5.8
5.1
5.8
5.2
4.7
1.1
(a) Country exposures presented in the table reflect 90% and 87% of
total Firmwide non-U.S. exposure, where exposure is attributed to an
individual country, at December 31, 2020 and 2019, respectively.
(b) In the fourth quarter of 2020, Country Risk Management determined
that the exposure for certain commodities contracts corresponds to an
EU-wide risk and should not be attributed to the individual country of
registration, previously the Netherlands. As such, the exposure is no
longer included and the prior-period amount has been revised to
conform with the current presentation.
(c) Lending and deposits includes loans and accrued interest receivable,
lending-related commitments (net of eligible collateral and the
allowance for credit losses), deposits with banks (including central
banks), acceptances, other monetary assets, and issued letters of
credit net of participations. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(d) Includes market-making inventory, Investment securities, and
counterparty exposure on derivative and securities financings net of
eligible collateral and hedging. Includes exposure from 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, 2019,
are based on the country rankings of the corresponding exposures at
December 31, 2020, not actual rankings of such exposures at
December 31, 2019.
144
JPMorgan Chase & Co./2020 Form 10-K
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes or systems;
human factors; or external events impacting the Firm’s
processes or systems; Operational Risk includes
compliance, conduct, legal, 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, cyber attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. Operational Risk
Management attempts to manage 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
The Firm’s Compliance, Conduct, and Operational Risk
(“CCOR”) Management Framework is designed to enable
the Firm to govern, identify, measure, monitor and test,
manage and report on the Firm’s operational risk.
Operational Risk Governance
The LOBs and Corporate are responsible for the
management of operational risk. The Control Management
Organization, which consists of control managers within
each LOB and Corporate, is responsible for the day-to-day
execution of the CCOR Framework and the evaluation of the
effectiveness of their control environments to determine
where targeted remediation efforts may be required.
The Firm’s Global Chief Compliance Officer (“CCO”) and FRE
for Operational Risk is responsible for defining the CCOR
Management Framework and establishing minimum
standards for its execution. Operational Risk Officers
(“OROs”) report to both the LOB CROs and to the FRE for
Operational Risk, and are independent of the respective
businesses or functions they oversee.
The Firm’s CCOR Management policy establishes the CCOR
Management Framework for the Firm. The CCOR
Management Framework is articulated in the Risk
Governance and Oversight Policy which is reviewed and
approved by the Board Risk Committee periodically.
Operational Risk identification
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBs and
Corporate. As part of this process, the LOBs and Corporate
evaluate the effectiveness of their control environment to
assess where controls have failed, and to determine where
remediation efforts may be required. The Firm’s
Operational Risk and Compliance organization
(“Operational Risk and Compliance”) 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
Operational Risk and Compliance performs independent risk
assessments of the Firm’s operational risks, which includes
assessing the effectiveness of the control environment and
reporting the results to senior management.
In addition, 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.
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.
Refer to Capital Risk Management section, on pages 91-101
for information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The results of risk assessments performed by Operational
Risk and Compliance are leveraged as one of the key
criteria in the independent monitoring and testing of the
LOBs and Corporate’s compliance with laws and regulation.
Through monitoring and testing, Operational Risk and
Compliance independently identify areas of operational risk
and tests the effectiveness of controls within the LOBs and
Corporate.
Management of Operational Risk
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBs and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. Operational Risk and
JPMorgan Chase & Co./2020 Form 10-K
145
Management’s discussion and analysis
Compliance may advise the LOBs and Corporate in the
development and implementation of action plans.
Operational Risk Reporting
Escalation of risks is a fundamental expectation for
employees at the Firm. Risks identified by Operational Risk
and Compliance are escalated to the appropriate LOB and
Corporate Control Committees, as needed. Operational Risk
and Compliance has established standards to ensure that
consistent operational risk reporting and operational risk
reports are produced on a Firmwide basis as well as by the
LOBs and Corporate. Reporting includes the evaluation of
key risk indicators and key performance 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.
COVID-19 Pandemic
Under the CCOR Management Framework, Operational Risk
and Compliance monitors and assesses COVID-19 related
legal and regulatory developments associated with the
Firm’s financial products and services offered to clients and
customers as part of the existing change management
process. The Firm will continue to review and assess the
impact of the pandemic on operational risk and implement
adequate measures as needed.
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. Refer to pages 148, 149, 150 and 151,
respectively for more information on Compliance, Conduct,
Legal, and Estimations and Model risk. Details on other
select examples of operational risks are provided below.
Cybersecurity risk
Cybersecurity risk is the risk of the Firm’s exposure to harm
or loss resulting from misuse or abuse of technology by
malicious actors. Cybersecurity risk is an important and
continuously evolving focus for the Firm. Significant
resources are devoted to protecting and enhancing the
security of 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.
Ongoing business expansions may expose the Firm to
potential new threats as well as expanded regulatory
scrutiny including the introduction of new cybersecurity
requirements. The Firm continues to make significant
investments in enhancing its cyber defense 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 of cybersecurity risks.
Third parties with which the Firm does business or that
facilitate the Firm’s business activities (e.g., vendors, supply
chain, exchanges, clearing houses, central depositories, and
financial intermediaries) are also 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 are also 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 occur as a result of client
failures to maintain the security of their own systems and
processes, clients are 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 designed to
prevent, detect, and respond to cyberattacks. The Audit
Committee is updated periodically 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
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, as applicable. 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. Due to the impact of COVID-19, the Firm
increased the use of remote access and also video
conferencing solutions provided by third parties to facilitate
remote work. As a result the Firm took additional
precautionary measures to mitigate cybersecurity risks.
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 LOBs and Corporate, the Cybersecurity and
Technology Control organization identifies information
security risk issues and oversees 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 organization consists of
business aligned information security managers that are
supported within the organization by the following products
that execute the Information Security Program for the Firm:
•
Cyber Defense & Fraud
146
JPMorgan Chase & Co./2020 Form 10-K
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. The
risk of payment fraud remains at a heightened level across
the industry, particularly during the current COVID-19
pandemic due to the use of contingent forms of payment
authentication methods, scams involving the pandemic
being perpetrated including an increase in the level of fraud
attempts against consumers. The complexities of these
incidents and the strategies used by perpetrators continue
to evolve. The Firm employs various controls for managing
payment fraud risk as well as providing employee and client
education and awareness trainings. The Firm’s monitoring
of customer behavior to detect new fraud strategies is
periodically evaluated and enhanced in an effort to
mitigate these fraud risks.
Third-party outsourcing risk
The Firm‘s Third-Party Oversight (“TPO”) and Inter-affiliates
Oversight (“IAO”) framework assist the LOBs and Corporate
in selecting, documenting, onboarding, monitoring and
managing their supplier relationships including services
provided by affiliates. The objectives of the TPO framework
are to hold suppliers to a high level of operational
performance and to mitigate key risks including data loss
and business disruption. The Corporate Third-Party
Oversight group is responsible for Firmwide 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
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
• Data Management, Protection & Privacy
•
Identity & Access Management
• Governance & Controls
• Production Management & Resiliency
Software & Platform Enablement
•
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 LOB and Corporate. 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. The forums are
used to escalate information security risks or other matters
as appropriate.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
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 a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. Finally, the Firm’s Global Privacy Program requires all
employees to take periodic 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 the spread of infectious diseases or
pandemics, severe weather, power or telecommunications
loss, accidents, failure of a third party to provide expected
services, cyberattack, flooding, transit strikes, terrorism,
health emergencies. The safety of the Firm’s employees and
customers is of the highest priority. The Firmwide 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 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 Firmwide resiliency program
has played an integral role in maintaining the Firm’s
business operations during and after various events.
JPMorgan Chase & Co./2020 Form 10-K
147
Management’s discussion and analysis
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
Overview
Each LOB and Corporate hold primary ownership of and
accountability for managing compliance risk. The Firm’s
Operational Risk and Compliance Organization
(“Operational Risk and Compliance”), which is independent
of the LOBs and Corporate, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the laws, rules, and regulations
applicable to the delivery of the Firm’s products and
services to clients and customers.
These compliance risks relate to a wide variety of laws,
rules and regulations depending on the LOB and the
jurisdiction, and include risks 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 laws, rules, and regulations related
to the offering of products and services across jurisdictional
borders. 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.
Operational Risk and Compliance implements policies and
standards designed to govern, identify, measure, monitor
and test, manage, and report on compliance risk.
Governance and oversight
Operational Risk and Compliance is led by the Firm’s Global
CCO and FRE for Operational Risk.
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Risk Management Framework. The Firm’s CCO also provides
regular updates to the Audit Committee and the Board Risk
Committee. In certain Special Purpose Committees of the
Board have previously been established to oversee the
Firm’s compliance with regulatory Consent Orders.
Code of Conduct
The Firm has a Code of Conduct (the “Code”) that 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 potential or actual 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,
clients, customers, suppliers, contract workers, business
partners, or agents. All newly hired employees are assigned
Code training and current employees are periodically
assigned Code training on an ongoing basis. Employees are
required to affirm their compliance with the Code
periodically.
Employees can report any potential or actual violations of
the Code through the JPMC Conduct 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 at all times globally, with translation
services. It is administered by an outside service provider.
The Code prohibits retaliation against anyone who raises an
issue or concern in good faith. Periodically, the Audit
Committee receives reports on the Code of Conduct
program.
148
JPMorgan Chase & Co./2020 Form 10-K
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 LOB 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 laws
everywhere the Firm operates. Refer to Compliance Risk
Management on page 148 for further discussion of the
Code.
Governance and oversight
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
The Firm has a senior committee that 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. This committee is responsible for setting
overall program direction for strategic enhancements to the
Firm's employee conduct framework and review the
consolidated Firmwide Conduct Risk Appetite Assessment.
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 functions completes an assessment of
conduct risk periodically, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
JPMorgan Chase & Co./2020 Form 10-K
149
Management’s discussion and analysis
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 to them
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
• providing legal advice to the LOBs, Corporate, functions
and the Board.
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 Firm’s
General Counsel and other members of Legal report on
significant legal matters to the Firm’s Board of Directors
and to the Audit Committee.
Legal serves on and advises various committees and advises
the Firm’s LOBs and Corporate on potential reputation risk
issues.
150
JPMorgan Chase & Co./2020 Form 10-K
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 policies relating to the
management of model risk and risks associated with certain
analytical and judgment-based estimations, such as those
used in risk management, budget forecasting and capital
planning and analysis.
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 MRGR 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 MRGR. In its review of a model, the
MRGR considers whether the model is suitable for the
specific purposes for which it will be used. When reviewing
a model, the MRGR 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 MRGR based on the relevant model
tier.
Under the Firm’s Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm’s
policy to allow a model to be used prior to review or
approval. The MRGR 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.
While models are inherently imprecise, the degree of
imprecision or uncertainty can be heightened by the market
or economic environment. This is particularly true when the
current and forecasted environment is significantly
different from the historical macroeconomic environments
upon which the models were trained, as the Firm has
experienced during the COVID-19 pandemic. This
uncertainty may necessitate a greater degree of judgment
and analytics to inform adjustments to model outputs than
in typical periods.
Refer to Critical Accounting Estimates Used by the Firm on
pages 152-155 and Note 2 for a summary of model-based
valuations and other valuation techniques.
JPMorgan Chase & Co./2020 Form 10-K
151
Management’s discussion and analysis
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
The Firm’s allowance for credit losses represents
management’s estimate of expected credit losses over the
remaining expected life of the Firm’s financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
• The allowance for loan losses, which covers the Firm’s
retained loan portfolios (scored and risk-rated),
• The allowance for lending-related commitments, and
• The allowance for credit losses on investment securities,
which covers the Firm’s HTM and AFS securities.
The allowance for credit losses involves significant
judgment on a number of matters including development
and weighting of macroeconomic forecasts, incorporation of
historical loss experience, assessment of risk
characteristics, assignment of risk ratings, valuation of
collateral, and the determination of remaining expected
life. Refer to Note 10 and Note 13 for further information
on these judgments as well as the Firm’s policies and
methodologies used to determine the Firm’s allowance for
credit losses.
One of the most significant judgments involved in
estimating the Firm’s allowance for credit losses relates to
the macroeconomic forecasts used to estimate credit losses
over the eight-quarter forecast period within the Firm’s
methodology. The eight-quarter forecast incorporates
hundreds of macroeconomic variables (“MEVs”) that are
relevant for exposures across the Firm, with modeled credit
losses being driven primarily by a subset of less than twenty
variables. The specific variables that have the greatest
effect on the modeled losses of each portfolio vary by
portfolio and geography.
• Key MEVs for the consumer portfolio include U.S.
unemployment, house price index (“HPI”) and U.S. real
gross domestic product (“GDP”).
• Key MEVs for the wholesale portfolio include U.S. real
GDP, U.S. unemployment, U.S. equity prices, corporate
credit spreads, oil prices, commercial real estate prices
and HPI.
Changes in the Firm’s assumptions and forecasts of
economic conditions could significantly affect its estimate of
expected credit losses in the portfolio at the balance sheet
date or lead to significant changes in the estimate from one
reporting period to the next.
The COVID-19 pandemic has resulted in a weak labor
market and weak overall economic conditions that will
continue to affect borrowers across the Firm’s consumer
and wholesale lending portfolios. Significant judgment is
required to estimate the severity and duration of the
current economic downturn, as well as its potential impact
on borrower defaults and loss severities. In particular,
macroeconomic conditions and forecasts regarding the
duration and severity of the economic downturn caused by
the COVID-19 pandemic have been rapidly changing and
remain highly uncertain. It is difficult to predict exactly how
borrower behavior will be impacted by these changes in
economic conditions. The effectiveness of government
support, customer assistance and enhanced unemployment
benefits should act as mitigants to credit losses, but the
extent of the mitigation impact remains uncertain.
It is difficult to estimate how potential changes in any one
factor or input might affect the overall allowance for credit
losses because management considers a wide variety of
factors and inputs in estimating the allowance for credit
losses. Changes in the factors and inputs considered may
not occur at the same rate and may not be consistent across
all geographies or product types, and changes in factors
and inputs may be directionally inconsistent, such that
improvement in one factor or input may offset deterioration
in others.
To consider the impact of a hypothetical alternate
macroeconomic forecast, the Firm compared the modeled
credit losses determined using its central and relative
adverse macroeconomic scenarios, which are two of the five
scenarios considered in estimating the allowances for loan
losses and lending-related commitments. The central and
relative adverse scenarios each included a full suite of
MEVs, but differed in the levels, paths and peaks/troughs of
those variables over the eight-quarter forecast period.
For example, compared to the Firm’s central scenario
described on page 132 and in Note 13, the Firm’s relative
adverse scenario assumes a significantly elevated U.S.
unemployment rate throughout 2021, averaging 3.0%
higher over the eight-quarter forecast, with a peak
difference of approximately 4.0% in the second quarter of
2021; lower U.S. real GDP with a slower recovery,
152
JPMorgan Chase & Co./2020 Form 10-K
remaining nearly 2.6% lower at the end of the eight-
quarter forecast, with a peak difference of nearly 4.1% in
the third quarter of 2021; and a 10.1% further
deterioration in the national HPI with a trough in the first
quarter of 2022.
This analysis is not intended to estimate expected future
changes in the allowance for credit losses, for a number of
reasons, including:
• the Firm has placed significant weight on its adverse
scenarios in estimating its allowance for credit losses as
of December 31, 2020, and accordingly, the existing
allowance already reflects credit losses beyond those
estimated under the central scenario
• the impacts of changes in many MEVs are both
interrelated and nonlinear, so the results of this analysis
cannot be simply extrapolated for more severe changes
in macroeconomic variables
• the COVID-19 pandemic has stressed many MEVs at a
speed and to degrees not seen in recent history, adding
significantly higher degrees of uncertainty around
modeled credit loss estimations
• significant changes in the expected severity and duration
of the economic downturn caused by the COVID-19
pandemic, the effects of government support and
customer assistance, and the speed of the subsequent
recovery could significantly affect the Firm’s estimate of
expected credit losses irrespective of the estimated
sensitivities described below.
Without considering the additional weight the Firm has
placed on its adverse scenarios or any other offsetting or
correlated effects in other qualitative components of the
Firm’s allowance for credit losses for the lending exposures
noted below, the difference between the modeled estimates
under the Firm’s relative adverse and central scenarios at
December 31, 2020 would result in the following:
• An increase of approximately $700 million for residential
real estate loans and lending-related commitments
• An increase of approximately $5.1 billion for credit card
loans
• An increase of approximately $2.8 billion for wholesale
loans and lending-related commitments
This analysis relates only to the modeled credit loss
estimates and is not intended to estimate changes in the
overall allowance for credit losses as it does not reflect any
potential changes in other adjustments to the quantitative
calculation, which would also be influenced by the judgment
management applies to the modeled lifetime loss estimates
to reflect the uncertainty and imprecision of these modeled
lifetime loss estimates based on then-current circumstances
and conditions.
Recognizing that forecasts of macroeconomic conditions are
inherently uncertain, particularly in light of the recent
economic conditions, the Firm believes that its process to
consider the available information and associated risks and
uncertainties is appropriately governed and that its
estimates of expected credit losses were reasonable and
appropriate for the period ended December 31, 2020.
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
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. Refer to Note 2 for
further information.
December 31, 2020
(in billions, except ratios)
Total assets
at fair value
Total level 3
assets
Federal Funds sold and securities
purchased under resale agreements
Securities borrowed
Trading assets:
Trading debt and equity instruments
Derivative receivables(a)
Total 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
$
238.0
$
53.0
$
423.5
$
79.6
503.1
388.2
44.5
3.3
304.1
1,243.2
3.6
—
—
2.6
7.7
10.3
—
2.3
3.3
0.5
16.4
2.0
Total assets measured at fair value
$ 1,246.8
$
18.4
Total Firm assets
$ 3,386.1
Level 3 assets at fair value as a
percentage of total Firm assets(a)
Level 3 assets at fair value as a
percentage of total Firm assets at fair
value(a)
0.5%
1.5%
(a) For purposes of the table above, the derivative receivables total
reflects the impact of netting adjustments; however, the $7.7 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.
JPMorgan Chase & Co./2020 Form 10-K
153
Management’s discussion and analysis
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, 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
speed, default rates, volatilities, correlations, prices (such
as commodity, equity or debt prices), valuations of
comparable instruments, foreign exchange rates and credit
curves. Refer to Note 2 for a further discussion of the
valuation of level 3 instruments, including unobservable
inputs used.
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. In periods of heightened market volatility and
uncertainty judgments are further affected by the wider
variation of reasonable valuation estimates, particularly for
positions that are less liquid. Refer to Note 2 for a further
discussion of valuation adjustments applied by the Firm.
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. Refer to Note 2 for a detailed discussion of the Firm’s
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
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, 2020, the Firm reviewed
current economic conditions, including the potential
impacts of the COVID-19 pandemic on business
performance, estimated market cost of equity, as well as
actual business results and projections of business
performance for all its reporting units. The Firm has
concluded that the goodwill allocated to its reporting units
was not impaired as of December 31, 2020. The fair values
of these reporting units exceeded their carrying values by at
least 15% 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 business outlook
assumptions in the short term, and the Firm’s best
estimates of long-term growth and return on equity in the
longer term. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2020.
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 the points expire, and the 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 liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $7.7 billion
and $6.4 billion at December 31, 2020 and 2019,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
The rewards liability is sensitive to redemption rate (“RR”)
and cost per point (“CPP”) assumptions. The RR assumption
is used to estimate the number of points earned by
customers that will be redeemed over the life of the
account. The CPP assumption is used to estimate the cost of
future point redemptions. These assumptions are evaluated
periodically considering historical actuals and cardholder
redemption behavior and updates to them will impact the
rewards liability. As of December 31, 2020, a combined
increase of 25 basis points in RR and 1 basis point in CPP
would increase the rewards liability by approximately $215
million.
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
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Litigation reserves
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
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 net
operating loss (“NOL”) carryforwards and foreign tax credit
(“FTC”) carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include 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, 2020,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
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.
Refer to Note 25 for additional information on income
taxes.
JPMorgan Chase & Co./2020 Form 10-K
155
Management’s discussion and analysis
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted since January 1, 2020
Standard
Summary of guidance
Effects on financial statements
Financial
Instruments -
Credit Losses
(“CECL”)
Issued June 2016
Goodwill
Issued January
2017
Reference Rate
Reform
Issued March
2020 and
updated January
2021
• Establishes a single allowance framework for all
• Adopted January 1, 2020.
• Refer to Note 1 for further information.
• Adopted January 1, 2020.
• No impact upon adoption as the guidance was applied
prospectively.
• Refer to Note 15 for further information.
•
Issued and effective March 12, 2020. The January 7,
2021 update was effective when issued.
• The Firm elected to apply certain of the practical
expedients related to contract modifications and hedge
accounting relationships, and discounting transition
beginning in the third quarter of 2020. The discounting
transition election was applied retrospectively. The
main purpose of the practical expedients is to ease the
administrative burden of accounting for contracts
impacted by reference rate reform, and these elections
did not have a material impact on the Consolidated
Financial Statements.
financial assets measured at amortized cost and certain
off-balance sheet credit exposures. This framework
requires that management’s estimate reflects credit
losses over the instrument’s remaining expected life
and considers 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, with a
corresponding increase in the amortized cost of the
related loans.
• Requires inclusion of expected recoveries, limited to
the cumulative amount of prior writeoffs, when
estimating the allowance for credit losses for in scope
financial assets (including collateral-dependent assets).
• 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 recognition of an impairment loss when the
estimated fair value of a reporting unit falls below its
carrying value.
• Eliminates the requirement that an impairment loss be
recognized only if the estimated implied fair value of
the goodwill is below its carrying value.
• Provides optional expedients and exceptions to current
accounting guidance when financial instruments, hedge
accounting relationships, and other transactions are
amended due to reference rate reform.
• Provides an election to account for certain contract
amendments related to reference rate reform as
modifications rather than extinguishments without the
requirement to assess the significance of the
amendments.
• Allows for changes in critical terms of a hedge
accounting relationship without automatic termination
of that relationship. Provides various practical
expedients and elections designed to allow hedge
accounting to continue uninterrupted during the
transition period.
• Provides a one-time election to transfer securities out
of the held-to-maturity classification if certain criteria
are met.
• The January 2021 update provides an election to
account for derivatives modified to change the rate
used for discounting, margining, or contract price
alignment (collectively “discounting transition”) as
modifications.
156
JPMorgan Chase & Co./2020 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
2020 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:
•
•
•
Economic, financial, reputational and other impacts of the
COVID-19 pandemic;
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;
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,
environmental and sustainability concerns that may arise,
including from its business activities;
• Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption,
including, but not limited to, in the interest rate
environment;
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 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 and
diverse employees;
• Ability of the Firm to control expenses;
•
Competitive pressures;
•
Changes in the credit quality of the Firm’s clients,
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, including health emergencies, the spread of
infectious diseases, pandemics or outbreaks of hostilities,
or the effects of climate change, 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 cyber
attacks 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 JPMorgan Chase’s 2020 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 any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make in
any subsequent Form 10-Ks, Quarterly Reports on Form 10-
Qs, or Current Reports on Form 8-K.
JPMorgan Chase & Co./2020 Form 10-K
157
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 (“U.S. GAAP”).
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 U.S. GAAP, 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,
2020. 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, 2020, 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, 2020.
The effectiveness of the Firm’s internal control over
financial reporting as of December 31, 2020, 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
Jennifer Piepszak
Executive Vice President and Chief Financial Officer
February 23, 2021
158
JPMorgan Chase & Co./2020 Form 10-K
Report of Independent Registered Public Accounting Firm
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.
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, 2020 and 2019, 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, 2020,
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, 2020, 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, 2020 and
2019, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2020 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, 2020, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the
COSO.
Change in Accounting Principle
As discussed in Note 1 and Note 13 to the consolidated
financial statements, the Firm changed the manner in which
it accounts for credit losses on certain financial instruments
in 2020.
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
PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017
JPMorgan Chase & Co./2020 Form 10-K
159
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required
to be communicated to the audit committee and that: (i)
relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses – Portfolio-based component of
Wholesale Loan and Credit Card Loan Portfolios
As described in Note 13 to the consolidated financial
statements, the allowance for loan losses for the portfolio-
based component of the wholesale and credit card loan
portfolios was $23.4 billion on total portfolio-based
retained loans of $653.4 billion at December 31, 2020. The
Firm’s allowance for loan losses represents management’s
estimate of expected credit losses over the remaining
expected life of the Firm's loan portfolios and considers
expected future changes in macroeconomic conditions. The
portfolio-based component of the Firm’s allowance for loan
losses for the wholesale and credit card retained loan
portfolios begins with a quantitative calculation of expected
credit losses over the expected life of the loan by applying
credit loss factors to the estimated exposure at default. The
credit loss factors applied are determined based on the
weighted average of five internally developed
macroeconomic scenarios that take into consideration the
Firm's economic outlook as derived through forecast
macroeconomic variables, the most significant of which are
U.S. unemployment and U.S. real gross domestic product.
This quantitative calculation is further adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the portfolio-based component of the wholesale
and credit card loan portfolios is a critical audit matter are
(i) the significant judgment and estimation by management
in the forecast of macroeconomic variables, specifically U.S.
unemployment and U.S. real gross domestic product, as the
Firm’s forecasts of economic conditions significantly affect
its estimate of expected credit losses at the balance sheet
date, (ii) the significant judgment and estimation by
management in determining the quantitative calculation
utilized in their credit loss estimates and the adjustments to
take into consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate,
which both in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and in
evaluating audit evidence obtained relating to the credit
loss estimates and the appropriateness of the adjustments
to the credit loss estimates, and (iii) the audit effort
involved professionals with specialized skill and knowledge
to assist in evaluating the audit evidence.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm’s allowance for loan losses,
including controls over model validation and generation of
macroeconomic scenarios. These procedures also included,
among others, testing management’s process for estimating
the allowance for loan losses, which involved (i) evaluating
the appropriateness of the models and methodologies used
in quantitative calculations; (ii) evaluating the
reasonableness of forecasts of U.S. unemployment and U.S.
real gross domestic product; (iii) testing the completeness
and accuracy of data used in the estimate; and (iv)
evaluating the reasonableness of management’s
adjustments to the quantitative output for the impacts of
model imprecision, emerging risk assessments, trends and
other subjective factors that are not yet otherwise reflected
in the credit loss estimate. These procedures also included
the use of professionals with specialized skill and
knowledge to assist in evaluating the appropriateness of
certain models, methodologies and macroeconomic
variables.
Fair Value of Certain Level 3 Financial Instruments
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $1.2 trillion of its assets and
$437.6 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $10.3 billion of
trading assets and $41.5 billion of liabilities measured at
fair value on a recurring basis, collectively financial
instruments, which are classified as level 3 as they contain
one or more inputs to valuation which are unobservable
and significant to their fair value measurement. The Firm
utilized internally developed valuation models and
unobservable inputs to estimate fair value of the level 3
financial instruments. The unobservable inputs used by
management to estimate the fair value of certain of these
financial instruments include forward equity prices,
volatility relating to interest rates and equity prices and
correlation relating to interest rates, equity prices, credit
and foreign exchange rates.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
the significant judgment and estimation by management in
determining the inputs to estimate fair value, which in turn
led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures related to the fair value of
these financial instruments, and (ii) the audit effort
involved professionals with specialized skill and knowledge
to assist in evaluating the audit evidence obtained from
these procedures.
160
JPMorgan Chase & Co./2020 Form 10-K
Report of Independent Registered Public Accounting Firm
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm’s processes for determining
fair value which include controls over models, inputs, and
data. These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate
of fair value for a sample of these financial instruments.
Developing the independent estimate involved testing the
completeness and accuracy of data provided by
management, developing independent inputs and, as
appropriate, evaluating and utilizing management’s
aforementioned unobservable inputs; and comparing
management’s estimate to the independently developed
estimate of fair value.
February 23, 2021
We have served as the Firm’s auditor since 1965.
JPMorgan Chase & Co./2020 Form 10-K
161
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
2020
2019
2018
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees(a)
Asset management, administration and commissions(a)
Investment securities gains/(losses)
Mortgage fees and related income
Card income(b)
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(b)
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
$
9,486 $
7,501 $
18,021
6,511
18,177
802
3,091
4,435
4,457
64,980
64,523
9,960
54,563
14,018
6,626
16,908
258
2,036
5,076
5,731
58,154
84,040
26,795
57,245
7,550
12,059
6,377
16,793
(395)
1,254
4,743
5,343
53,724
76,100
21,041
55,059
119,543
115,399
108,783
17,480
5,585
4,871
34,155
33,117
34,988
4,449
10,338
8,464
2,476
5,941
66,656
35,407
6,276
4,322
9,821
8,533
3,351
5,087
65,269
44,545
8,114
$
$
$
29,131 $
36,431 $
27,410 $
34,642 $
8.89 $
10.75 $
8.88
3,082.4
3,087.4
10.72
3,221.5
3,230.4
3,952
8,802
8,502
3,044
5,731
63,148
40,764
8,290
32,474
30,709
9.04
9.00
3,396.4
3,414.0
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related
fees. Prior-period amounts have been revised to conform with the current presentation.
(b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
The Notes to Consolidated Financial Statements are an integral part of these statements.
162
JPMorgan Chase & Co./2020 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
2020
2019
2018
$
29,131 $
36,431 $
32,474
4,123
234
19
2,320
212
(491)
6,417
2,855
(1,858)
20
30
172
964
(965)
3,076
20
(107)
(201)
(373)
1,043
(1,476)
30,998
$
35,548 $
39,507 $
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2020 Form 10-K
163
Consolidated balance sheets
December 31, (in millions, except share data)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements (included $238,015 and $14,561 at fair value)
Securities borrowed (included $52,983 and $6,237 at fair value)
Trading assets (included assets pledged of $130,645 and $111,522)(a)
Available-for-sale securities (amortized cost of $381,729 and $345,306; included assets pledged of $32,227 and
$10,325)
Held-to-maturity securities (net of allowance for credit losses of $78)
Investment securities, net of allowance for credit losses
Loans (included $44,474 and $44,955 at fair value)(a)
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 $13,827 and $12,676 at fair value and assets pledged of $3,739 and $3,349)(a)
Total assets(b)
Liabilities
Deposits (included $14,484 and $28,589 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $155,735 and $549 at
fair value)
Short-term borrowings (included $16,893 and $5,920 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $3,476 and $3,728 at fair value)
Beneficial interests issued by consolidated VIEs (included $41 and $36 at fair value)
Long-term debt (included $76,817 and $75,745 at fair value)
Total liabilities(b)
Commitments and contingencies (refer to Notes 28, 29 and 30)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 3,006,250 and 2,699,250 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 income
Shares held in restricted stock units (“RSU”) trust, at cost (zero and 472,953 shares)
Treasury stock, at cost (1,055,499,435 and 1,020,912,567 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity
2020
2019
$
24,874 $
21,704
502,735
296,284
160,635
503,126
388,178
201,821
589,999
1,012,853
(28,328)
984,525
90,503
27,109
53,428
241,927
249,157
139,758
369,687
350,699
47,540
398,239
997,620
(13,123)
984,497
72,861
25,813
53,341
152,853
130,395
$ 3,386,071 $ 2,687,379
$ 2,144,257 $ 1,562,431
215,209
45,208
170,181
232,599
17,578
281,685
183,675
40,920
119,277
210,407
17,841
291,498
3,106,717
2,426,049
30,063
4,105
88,394
236,990
7,986
—
(88,184)
279,354
26,993
4,105
88,522
223,211
1,569
(21)
(83,049)
261,330
$ 3,386,071 $ 2,687,379
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(b) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2020 and 2019. 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. Refer to Note 14 for a further discussion.
December 31, (in millions)
Assets
Trading assets
Loans
All other assets
Total assets
Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities
Total liabilities
2020
2019
$
$
$
$
1,934 $
37,619
681
2,633
42,931
881
40,234 $
46,445
17,578 $
17,841
233
447
17,811 $
18,288
The Notes to Consolidated Financial Statements are an integral part of these statements.
164
JPMorgan Chase & Co./2020 Form 10-K
Consolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)
2020
2019
2018
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 ($3.60, $3.40 and $2.72 per share for 2020, 2019 and 2018, 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 the beginning of the period
Liquidation of RSU Trust
Balance at December 31
Treasury stock, at cost
Balance at January 1
Repurchase
Reissuance
Balance at December 31
Total stockholders’ equity
$ 26,993 $ 26,068 $ 26,068
4,500
5,000
1,696
(1,430)
(4,075)
(1,696)
30,063
26,993
26,068
4,105
4,105
4,105
88,522
89,162
90,579
(72)
(56)
(591)
(49)
(738)
(679)
88,394
88,522
89,162
223,211
199,202
177,676
(2,650)
29,131
62
(183)
36,431
32,474
(1,583)
(1,587)
(11,119)
(10,897)
(1,551)
(9,214)
236,990
223,211
199,202
1,569
(1,507)
—
6,417
7,986
(21)
21
—
—
3,076
1,569
(21)
—
(21)
(119)
88
(1,476)
(1,507)
(21)
—
(21)
(83,049)
(60,494)
(42,595)
(6,397)
(24,121)
(19,983)
1,262
1,566
2,084
(88,184)
(83,049)
(60,494)
$ 279,354 $ 261,330 $ 256,515
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2020 Form 10-K
165
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(a)
Proceeds from sales, securitizations and paydowns of loans held-for-sale(a)
Net change in:
Trading assets(a)
Securities borrowed
Accrued interest and accounts receivable
Other assets(a)
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments(a)
Net cash provided by/(used in) operating activities
Investing activities
Net change in:
2020
2019
2018
$ 29,131
$ 36,431
$ 32,474
17,480
8,614
(3,981)
1,649
5,585
8,368
949
1,996
4,871
7,791
1,721
2,717
(166,504)
(169,289)
(172,728)
175,490
171,415
163,747
(148,749)
6,551
(35,067)
(20,734)
(27,631)
(18,012)
(78)
(42,434)
(17,570)
77,198
(14,516)
7,827
3,115
(79,910)
(352)
2,233
4,092
(6,861)
(5,849)
(8,779)
18,290
14,630
(1,343)
15,614
Federal funds sold and securities purchased under resale agreements
(47,115)
72,396
(123,201)
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(a)
All other investing activities, net
Net cash (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
21,360
3,423
2,945
(12,400)
(13,427)
(9,368)
57,675
149,758
52,200
70,181
37,401
46,067
(397,145)
(242,149)
(95,091)
23,559
62,095
29,826
(50,263)
(51,743)
(83,013)
(7,341)
(5,035)
(4,986)
(261,912)
(52,059)
(199,420)
602,765
101,002
31,528
1,347
4,438
1,347
78,686
(28,561)
4,289
61,085
26,728
23,415
18,476
1,712
71,662
(105,055)
(69,610)
(76,313)
4,500
5,000
1,696
(1,430)
(4,075)
(1,696)
(6,517)
(24,001)
(19,983)
(12,690)
(12,343)
(10,109)
(927)
(1,146)
(1,430)
596,645
32,987
34,158
9,155
(182)
(2,863)
263,978
(15,162)
(152,511)
263,631
278,793
431,304
$ 527,609
$ 263,631
$ 278,793
$ 13,077
$ 29,918
$ 21,152
7,661
5,624
3,542
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
The Notes to Consolidated Financial Statements are an integral part of these statements.
166
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
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 in the
U.S., with 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. Refer to Note 32 for a
further discussion of the Firm’s business segments.
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 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 the accounting under 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
JPMorgan Chase & Co./2020 Form 10-K
167
Notes to consolidated financial statements
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
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.
Refer to Note 14 for further discussion of the Firm’s VIEs.
Revenue recognition
Interest income
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further discussion of interest income.
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm’s related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm’s revenue from contracts with customers.
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. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
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 the
Consolidated statements of comprehensive income. 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.
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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.
Refer to Note 5 for further discussion of the Firm’s
derivative instruments. Refer to Note 11 for further
discussion of the Firm’s securities financing agreements.
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 standard adopted January 1, 2020
Financial Instruments – Credit Losses (“CECL”)
The adoption of this guidance established a single
allowance framework for all financial assets measured at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management’s
estimate reflects credit losses over the instrument’s
remaining expected life and considers expected future
changes in macroeconomic conditions. Refer to Note 13 for
further information. Prior to the adoption of the CECL
accounting guidance, the Firm’s allowance for credit losses
represented management’s estimate of probable credit
losses inherent in the Firm’s retained loan portfolios and
certain lending-related commitments.
The following table presents the impacts to the allowance
for credit losses and retained earnings upon adoption of
this guidance on January 1, 2020:
(in billions)
Allowance for credit losses
Consumer, excluding credit card(a)
Credit card
Wholesale(a)
Firmwide
Retained earnings
Firmwide allowance increase
Balance sheet reclassification(b)
Total pre-tax impact
Tax effect
Decrease to retained earnings
December
31, 2019
CECL
adoption
impact
January 1,
2020
$
2.6 $
0.4 $
5.7
6.0
5.5
(1.6)
3.0
11.2
4.4
$
14.3 $
4.3 $
18.6
$
$
4.3
(0.8)
3.5
(0.8)
2.7
(a) In conjunction with the adoption of CECL, the Firm reclassified risk-
rated business banking and auto dealer loans and lending-related
commitments held in CCB from the consumer, excluding credit card
portfolio segment to the wholesale portfolio segment, to align with the
methodology applied when determining the allowance. Prior-period
amounts have been revised to conform with the current presentation.
Accordingly, $0.6 billion of the allowance for credit losses at
December 31, 2019 and $(0.2) billion of the CECL adoption impact
were reclassified.
(b) Represents the recognition of the nonaccretable difference on
purchased credit deteriorated loans and the Firm's election to
recognize the reserve for uncollectible accrued interest on credit card
loans in the allowance, both of which resulted in a corresponding
increase to loans.
Securities Financing Agreements
As permitted by the guidance, the Firm elected the fair
value option for certain securities financing agreements.
The difference between their carrying amount and fair
value was immaterial and was recorded as part of the
Firm’s cumulative-effect adjustment. Refer to Note 11 for
further information.
Investment securities
Upon adoption, HTM securities are presented net of an
allowance for credit losses. The guidance also amended the
previous other-than-temporary impairment (“OTTI”) model
for AFS securities to incorporate an allowance. Refer to
Note 10 for further information.
Credit quality disclosures
As a result of the adoption of this guidance, the Firm
expanded credit quality disclosures for financial assets
measured at amortized cost particularly within the retained
loan portfolios. Refer to Note 12 for further information.
PCD loans
The adoption resulted in a change in the accounting for PCI
loans, which are considered purchased credit deteriorated
(“PCD”) loans under CECL. Upon adoption, the Firm
recognized the nonaccretable difference on PCD loans in
the allowance, which resulted in a corresponding increase
to loans. PCD loans are subject to the Firm’s nonaccrual and
charge-off policies and are now reported in the consumer,
excluding credit card portfolio’s residential real estate loan
JPMorgan Chase & Co./2020 Form 10-K
169
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 and noninterest
expense
Note 2
page 171
Note 3
page 192
Note 5
page 198
Note 6
page 212
Interest income and Interest expense
Note 7
page 215
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 216
Note 9
page 221
Note 10
page 223
Note 11
page 229
Note 12
page 232
Note 13
page 248
Note 14
page 253
Goodwill and Mortgage servicing rights
Note 15
page 261
Premises and equipment
Leases
Long-term debt
Earnings per share
Income taxes
Off–balance sheet lending-related financial
instruments, guarantees and other
commitments
Litigation
Note 16
page 265
Note 18
page 266
Note 20
page 269
Note 23
page 274
Note 25
page 277
Note 28
page 283
Note 30
page 290
Notes to consolidated financial statements
class. Refer to Note 12 for further information.
Changes in credit portfolio segments and classes
In conjunction with the adoption of CECL, the Firm
reclassified risk-rated loans and lending-related
commitments from the consumer excluding credit card
portfolio segment to the wholesale portfolio segment, to
align with the methodology applied when determining the
allowance. The Firm also revised its loan classes. Prior-
period amounts have been revised to conform with the
current presentation. Refer to Note 12 for further
information.
Accrued interest receivables
As permitted by the guidance, the Firm elected to continue
classifying accrued interest on loans, including accrued but
unbilled interest on credit card loans, and investment
securities in accrued interest and accounts receivables on
the Consolidated balance sheets. For credit card loans,
accrued interest once billed is then recognized in the loan
balances, with the related allowance recorded in the
allowance for credit losses. Changes in the allowance for
credit losses on accrued interest on credit card loans are
recognized in the provision for credit losses and charge-offs
are recognized by reversing interest income. For other
loans and securities, the Firm generally does not recognize
an allowance for credit losses on accrued interest
receivables, consistent with its policy to write them off no
later than 90 days past due by reversing interest income.
Capital transition provisions
As permitted under the U.S. capital rules issued by the
federal banking agencies in 2019, the Firm initially elected
to phase-in the January 1, 2020 (“day 1”) CECL adoption
impact to retained earnings of $2.7 billion to CET1 capital,
at 25% per year in each of 2020 to 2023. As part of their
response to the impact of the COVID-19 pandemic, on
March 31, 2020, the federal banking agencies issued an
interim final rule (issued as final on August 26, 2020) that
provided the option to delay the effects of CECL on
regulatory capital for two years, followed by a three-year
transition period (“CECL capital transition provisions”).
Refer to Note 27 for further information.
Accounting standards adopted January 1, 2018
Effective January 1, 2018, the Firm adopted several
accounting standards resulting in a net decrease of
$183 million to retained earnings and a net increase of
$88 million to AOCI. 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.
170
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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,
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, prices (such as
commodity, equity or debt prices), correlations, 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.
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 the discussion 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
made 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.
• Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
using prices or input parameters to valuation models
JPMorgan Chase & Co./2020 Form 10-K
171
Notes to consolidated financial statements
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.
Adjustments are made 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. Refer to
Credit and funding adjustments on page 188 of this Note
for more information on such adjustments.
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 terms
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 in those models.
Under the Firm’s Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm’s
policy to allow a model to be used prior to review or
approval. The MRGR 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 observability 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.
172
JPMorgan Chase & Co./2020 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
Securities financing agreements
Valuation methodology
Valuations are based on discounted cash flows, which consider:
• Derivative features: refer to the discussion of derivatives below
Classifications in the valuation
hierarchy
Predominantly level 2
for further information.
• Market rates for the respective maturity
• Collateral characteristics
Loans and lending-related commitments — wholesale
Loans carried at fair value
(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
Loans carried at fair value —
conforming residential
mortgage loans expected to be
sold
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
Investment and trading
securities
Quoted market prices
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 or 2
JPMorgan Chase & Co./2020 Form 10-K
173
Notes to consolidated financial statements
Product/instrument
Derivatives
Valuation methodology
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Classifications in the valuation
hierarchy
Level 1
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.
Level 2 or 3
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:
•
•
•
•
•
Forward equity price
Equity volatility
Equity correlation
Equity-FX correlation
Equity-IR correlation
Interest rate and FX exotic options specific inputs include:
•
•
•
•
•
Interest rate volatility
Interest rate spread volatility
Interest rate correlation
Foreign exchange correlation
Interest rate-FX correlation
Commodity derivatives specific inputs include:
•
•
•
Commodity volatility
Forward commodity price
Commodity correlation
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 188 of this Note.
Mortgage servicing rights
Refer to Mortgage servicing rights in Note 15.
Level 3
Level 2 or 3
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 1
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 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.
174
JPMorgan Chase & Co./2020 Form 10-K
Product/instrument
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
Valuation methodology
• Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
• 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
188 of this Note.
Classification in the valuation
hierarchy
Level 2 or 3
JPMorgan Chase & Co./2020 Form 10-K
175
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2020 and 2019, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
December 31, 2020 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury, GSEs 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
Total trading assets(e)
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and 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(b)(f)
Mortgage servicing rights
Other assets(b)(e)
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
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Fair value hierarchy
Level 1
Level 2
Level 3
Derivative
netting
adjustments(g)
Total fair value
$
— $
—
238,015
52,983
$
$
—
—
— $
—
238,015
52,983
—
—
—
—
104,263
—
—
26,772
—
—
—
131,035
97,035
6,382
—
234,452
2,318
—
146
—
—
2,464
236,916
21,018
—
—
21,018
201,951
—
—
13,135
—
—
—
236,104
—
—
8,110
68,395
2,138
1,327
71,860
10,996
7,184
1,230
40,671
21,017
6,101
2,304
161,363
2,652
5,189
17,165
186,369
386,865
12,879
205,127
71,279
21,272
697,422
883,791
92,283
10,233
2,856
105,372
—
20,396
—
9,793
216
10,048
6,249
152,074
42,169
—
4,561
$
$
481,130 $
1,373,593
— $
—
—
11,571
155,735
14,473
82,669
16,838
2,496
—
132
—
—
2,628
85,297
2,895
—
—
349,082
14,344
214,373
74,032
21,767
673,598
690,436
513
41
53,420
926,189
449
28
3
480
—
8
—
182
507
893
28
2,098
179
—
346
2,623
2,307
624
987
3,519
231
7,668
10,291
—
—
—
—
—
—
—
—
—
—
—
—
2,305
3,276
538
16,410
2,913
—
2,420
51
2,049
848
1,421
7,381
962
12,661
12,712
68
—
23,397
41,510
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(355,765)
(12,823)
(190,479)
(54,125)
(14,732)
(627,924)
(627,924)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
68,844
2,166
1,330
72,340
115,259
7,192
1,230
67,625
21,524
6,994
2,332
294,496
99,866
11,571
17,511
423,444
35,725
680
15,781
20,673
6,771
79,630
503,074
113,301
10,233
2,856
126,390
201,951
20,396
—
22,928
216
10,048
6,249
388,178
44,474
3,276
13,209
(627,924) $
1,243,209
$
$
— $
—
—
—
(340,615)
(13,197)
(194,493)
(55,515)
(14,444)
(618,264)
(618,264)
—
—
—
14,484
155,735
16,893
99,558
13,012
1,995
21,433
25,898
8,285
70,623
170,181
3,476
41
76,817
437,627
Total liabilities measured at fair value on a recurring basis
$
88,192 $
$
(618,264) $
176
JPMorgan Chase & Co./2020 Form 10-K
December 31, 2019 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury, GSEs 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
Total trading assets(e)
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and 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(b)(f)
Mortgage servicing rights
Other assets(b)(e)
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
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt
Fair value hierarchy
Level 1
Level 2
Level 3
Total fair value
$
14,561
6,237
$
— $
—
14,561
6,237
$
—
—
—
—
78,289
—
—
26,600
—
—
—
104,889
71,890
3,638
—
180,417
721
—
117
—
—
838
181,255
—
—
—
—
139,436
—
—
12,966
—
—
—
152,402
—
—
7,305
340,962 $
— $
—
—
$
$
44,510
1,977
1,486
47,973
10,295
6,468
252
27,169
17,956
6,340
2,593
119,046
244
3,579
13,896
136,765
311,173
14,252
137,938
43,642
17,058
524,063
660,828
110,117
12,989
5,188
128,294
—
29,810
77
8,821
845
24,991
5,458
198,296
44,439
—
3,824
928,185
25,229
549
4,246
$
$
59,047
16,481
795
—
109
—
—
904
59,951
3,231
—
—
276,746
14,358
143,960
47,261
19,685
502,010
518,491
452
36
52,406
601,409
—
—
—
—
—
797
23
4
824
—
10
—
155
558
673
37
2,257
196
—
232
2,685
1,400
624
432
2,085
184
4,725
7,410
—
1
—
1
—
—
—
—
—
—
—
—
1
516
4,699
917
13,543
3,360
—
1,674
41
1,732
763
1,039
5,480
200
9,214
9,255
45
—
Derivative
netting
adjustments(g)
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(285,873)
(14,175)
(129,482)
(39,250)
(11,080)
(479,860)
(479,860)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
(479,860)
—
—
—
—
(270,670)
(13,469)
(131,950)
(40,204)
(12,127)
(468,420)
(468,420)
—
—
—
$
(468,420)
$
45,307
2,000
1,490
48,797
88,584
6,478
252
53,924
18,514
7,013
2,630
226,192
72,330
7,217
14,128
319,867
27,421
701
9,005
6,477
6,162
49,766
369,633
110,117
12,990
5,188
128,295
139,436
29,810
77
21,787
845
—
24,991
5,458
350,699
44,955
4,699
12,046
802,830
28,589
549
5,920
75,569
8,603
1,652
13,158
12,537
7,758
43,708
119,277
3,728
36
75,745
233,844
Total liabilities measured at fair value on a recurring basis
$
63,182 $
23,339
37,673
$
(a) At December 31, 2020 and 2019, included total U.S. GSE obligations of $117.6 billion and $104.5 billion, respectively, which were mortgage-related.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(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. Refer to Note 5 for a further
JPMorgan Chase & Co./2020 Form 10-K
177
Notes to consolidated financial statements
discussion of the Firm’s hedge accounting relationships. 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) 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, 2020 and 2019, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $670 million and $684 million, respectively. Included in these balances at December 31, 2020 and 2019,
were trading assets of $52 million and $54 million, respectively, and other assets of $618 million and $630 million, respectively.
(f) At December 31, 2020 and 2019, included within loans were $15.1 billion and $19.8 billion, respectively, of residential first-lien mortgages, and $6.3
billion and $8.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with
the intent to sell to U.S. GSEs and government agencies of $8.4 billion and $13.6 billion, respectively.
(g) 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. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
178
JPMorgan Chase & Co./2020 Form 10-K
In the Firm’s view, the input range, weighted and arithmetic
average values 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.
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). Refer to pages 171-175 of this Note for further
information on the Firm’s valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
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 relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, 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 the weighted or arithmetic 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./2020 Form 10-K
179
Notes to consolidated financial statements
Level 3 inputs(a)
December 31, 2020
Product/Instrument
Fair value
(in millions)
Principal valuation
technique
Unobservable inputs(g)
Range of input values
Average(i)
Residential mortgage-backed securities and
loans(b)
$
1,282 Discounted cash flows
Yield
Prepayment speed
Conditional default rate
Loss severity
Commercial mortgage-backed securities and
loans(c)
Corporate debt securities
Loans(d)
Asset-backed securities
Net interest rate derivatives
466 Market comparables
507 Market comparables
1,930 Market comparables
28 Market comparables
Price
Price
Price
Price
238 Option pricing
Interest rate volatility
0%
0%
0%
0%
$0
$2
$10
$1
7bps
Interest rate spread volatility
11bps
–
–
–
–
–
–
–
–
–
–
Net credit derivatives
20 Discounted cash flows
(260) Discounted cash flows
Interest rate correlation
IR-FX correlation
Prepayment speed
Credit correlation
Credit spread
Recovery rate
Conditional default rate
Loss severity
36 Market comparables
Price
Net foreign exchange derivatives
(298) Option pricing
Net equity derivatives
(136) Discounted cash flows
(3,862) Option pricing
Net commodity derivatives
(731) Option pricing
IR-FX correlation
Prepayment speed
Forward equity price(h)
Equity volatility
Equity correlation
Equity-FX correlation
Equity-IR correlation
Oil Commodity Forward
Forward power price
Commodity volatility
Commodity correlation
18%
46%
30%
107%
$101
$116
$104
$97
513bps
23bps
99%
50%
30%
65%
6%
10%
14%
7%
$84
$85
$72
$57
101bps
15bps
35%
0%
8%
48%
1,302bps
441bps
(65)% –
(35)% –
0%
34%
3bps
0%
2%
–
–
–
–
–
9%
–
–
–
61%
5%
18%
(79)%
–
–
$600 / MT –
20%
67%
100%
106%
138%
99%
55%
50%
100%
$1
–
(40)% –
$115
65%
$609 / MT
$605 / MT
$12 / MWH – $55 / MWH
$34 / MWH
1%
–
(49)% –
58%
95%
46%
58%
100%
$71
18%
9%
99%
35%
60%
(27)%
28%
29%
23%
45bps
7%
$29
MSRs
Other assets
3,276 Discounted cash flows
Refer to Note 15
299 Discounted cash flows
Credit spread
45bps
Long-term debt, short-term borrowings, and
deposits(e)
585 Market comparables
27,912 Option pricing
Yield
Price
Interest rate volatility
Interest rate correlation
IR-FX correlation
Equity correlation
Equity-FX correlation
Equity-IR correlation
Other level 3 assets and liabilities, net(f)
250
818 Discounted cash flows
Credit correlation
4%
$29
7bps
–
–
(65)% –
(35)% –
18%
–
(79)% –
–
–
20%
34%
30%
$29
513bps
101bps
99%
50%
99%
55%
50%
65%
35%
0%
60%
(27)%
28%
48%
(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) Comprises U.S. GSE and government agency securities of $449 million, nonagency securities of $28 million and non-trading loans of $805 million.
(c) Comprises nonagency securities of $3 million, trading loans of $43 million and non-trading loans of $420 million.
(d) Comprises trading loans of $850 million and non-trading loans of $1.1 billion.
(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.
(h) Forward equity price is expressed as a percentage of the current equity price.
(i) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
180
JPMorgan Chase & Co./2020 Form 10-K
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
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.
JPMorgan Chase & Co./2020 Form 10-K
181
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease 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,
2020, 2019 and 2018. 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. 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.
182
JPMorgan Chase & Co./2020 Form 10-K
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2020
Total
realized/
unrealized
gains/(losses)
Purchases(g)
Sales
Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2020
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2020
$
797 $ (172)
$
134 $
(149)
$
(161) $
— $
— $
449
$ (150)
23
4
2
—
15
1
(5)
—
824
(170)
150
(154)
—
10
155
558
673
37
—
—
21
(23)
(73)
(3)
—
—
281
582
1,112
44
—
(1)
(245)
(205)
(484)
(40)
(4)
(1)
(166)
—
(1)
(7)
(236)
(182)
(9)
—
2
2
—
—
—
411
791
9
(3)
(3)
28
3
(1)
—
(6)
480
(151)
—
—
(23)
(580)
(944)
(10)
—
8
182
507
893
28
—
—
11
(25)
(40)
(4)
Year ended
December 31, 2020
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs and
government agencies
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans(b)
Asset-backed securities
Total debt instruments
2,257
(248)
2,169
(1,129)
(601)
1,213
(1,563) 2,098
(209)
Equity securities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(c)
Interest rate
Credit
Foreign exchange
Equity
Commodity
196
(75)
232
271
53
245
(376)
(9)
(1)
535
(154)
6
(153)
(245)
179
346
(20)
206
2,685
(52) (d)
2,467
(1,514)
(756)
1,754
(1,961) 2,623
(23) (d)
(332) 2,682
(139)
(212)
(607)
49
308
73
49
(148)
(154)
(24)
(3,395)
(65)
1,664
(2,317)
(16)
(546)
27
(241)
(2,228)
(332)
308
258
325
181
83
1,162
356
59
13
(935)
(310)
(32)
(224)
(110)
3
(434)
116
24
(3,862)
(556)
(1)
(731)
267
Total net derivative receivables
(4,489) 1,908
(d)
2,121
(2,884)
(446)
(1,505)
302
(4,993)
(d)
42
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans(b)
Mortgage servicing rights
Other assets(b)
1
—
1
516
4,699
917
—
—
—
(243) (d)
(1,540) (e)
(63) (d)
—
—
—
962
1,192
75
—
—
—
(84)
(176)
(104)
(1)
—
(1)
—
—
—
—
—
—
—
—
—
(733)
2,571
(684) 2,305
(899)
(320)
—
40
—
3,276
(7)
538
—
—
—
(18) (d)
(1,540) (e)
(3) (d)
Fair value measurements using significant unobservable inputs
Fair value
at January
1, 2020
Total realized/
unrealized
(gains)/losses
Purchases
Sales
Issuances Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2020
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2020
$ 3,360 $ 165
(d)(f) $
1,674
(338) (d)(f)
— $
— $
671 $
(605) $
265 $
(943) $ 2,913
$ 455
—
—
5,140
(4,115)
105
(46) 2,420
143
(d)(f)
(d)(f)
Year ended
December 31, 2020
(in millions)
Liabilities:(a)
Deposits
Short-term borrowings
Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities
Beneficial interests issued by
consolidated VIEs
41
45
—
Long-term debt
23,339
(2) (d)
(d)
33
—
40
(d)(f)
(126)
(87)
—
—
14
37
—
—
—
—
—
(4)
—
—
136
47
—
(8)
(7)
—
51
68
—
(1) (d)
(d)
28
—
9,883
(9,833)
1,250
(1,282) 23,397
1,920
(d)(f)
JPMorgan Chase & Co./2020 Form 10-K
183
Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2019
Total
realized/
unrealized
gains/
(losses)
Purchases(g)
Sales
Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2019
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2019
$
549 $
(62)
$
773 $ (310)
$
(134) $
1 $
(20) $ 797
$
(58)
64
11
25
2
83
20
(86)
(26)
624
(35)
876
(422)
—
689
155
334
738
127
2,667
232
301
—
13
1
47
29
—
55
(41)
(36)
—
—
85
(159)
290
437
456
37
(287)
(247)
(519)
(93)
2,181
(1,727)
58
50
(103)
(26)
(20)
(14)
(168)
—
(8)
—
(52)
(82)
(40)
(350)
(22)
(54)
15
15
31
—
—
14
112
437
28
622
181
2
(58)
(4)
23
4
2
1
(82)
824
(55)
—
—
(610)
10
(18)
(73)
(386)
(22)
155
558
673
37
(1,191) 2,257
(109)
(5)
196
232
—
13
4
40
13
(3)
12
(18)
91
3,200
(22) (d)
2,289
(1,856)
(426)
805
(1,305) 2,685
(d)
85
(38)
(394)
(107)
(36)
(297)
(551)
(2,225)
(310)
(1,129) 497
109
(125)
20
17
397
36
(9)
(67)
(573)
(348)
5
8
312
(7)
29
(22)
118
(332)
(44)
(139)
1
(607)
(599)
(127)
(380)
(503)
(405)
224
(3,395)
(1,608)
89
(6)
845
(16)
130
Year ended
December 31, 2019
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs and
government agencies
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans(b)
Asset-backed securities
Total debt instruments
Equity securities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(c)
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total net derivative receivables
(3,796)
(794) (d)
579
(1,122)
(89)
(411)
1,144
(4,489)
(2,584) (d)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans(b)
Mortgage servicing rights
Other assets(b)
1
—
1
—
—
—
856
6,130
1,161
(d)
59
(1,180) (e)
(150) (d)
—
—
—
—
—
—
236
1,489
229
(188)
(789)
(166)
—
—
—
(482)
(951)
(156)
—
—
—
—
—
—
1
—
1
—
—
—
188
(153)
516
—
6
—
4,699
(7)
917
(d)
38
(1,180) (e)
(180) (d)
Year ended
December 31, 2019
(in millions)
Liabilities:(a)
Deposits
Short-term borrowings
Fair value measurements using significant unobservable inputs
Total
realized/
unrealized
(gains)/
losses
Fair value
at January
1, 2019
Purchases
Sales
Issuances Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2019
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2019
$ 4,169 $ 278
1,523
229
(d)(f) $
(d)(f)
—
—
3,441
(3,356)
— $
— $
916 $
(806) $
12 $
(1,209) $ 3,360
$ 307
Trading liabilities – debt and equity
instruments
Accounts payable and other liabilities
Beneficial interests issued by
consolidated VIEs
50
10
1
(d)
2
(2) (d)
(1) (d)
Long-term debt
19,418
2,815
(d)(f)
(22)
41
(84)
115
—
—
—
—
—
—
1
—
—
—
10,441
(8,538)
651
(1,448) 23,339
2,822
(d)(f)
85
16
6
—
(248) 1,674
155
(47)
—
—
41
45
—
3
29
—
(d)(f)
(d)(f)
(d)
(d)
184
JPMorgan Chase & Co./2020 Form 10-K
Fair value measurements using significant unobservable inputs
Fair
value at
January
1, 2018
Total
realized/
unrealized
gains/
(losses)
Purchases(g)
Sales
Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2018
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2018
$ 307 $ (23)
$
478
$ (164)
$
(73)
$
94 $
(70) $
549
$
(21)
60
11
(2)
2
78
18
(50)
(18)
378
(23)
574
(232)
1
—
744
(17)
78
312
612
153
2,278
295
(22)
(18)
1
28
(51)
(40)
690
(285)
—
112
459
364
941
98
—
(70)
(277)
(309)
(536)
(41)
2,548
(1,465)
118
55
(120)
(40)
(7)
(17)
(97)
—
(80)
(12)
(48)
(219)
(55)
(511)
(1)
(118)
59
36
(74)
(21)
64
11
1
(2)
189
(165)
624
(22)
(1)
—
—
—
689
(17)
—
—
23
262
619
45
(94)
(229)
(680)
(101)
155
334
738
127
1,138
(1,270) 2,667
107
3
(127)
(4)
232
301
3,263
(376) (d)
2,721
(1,625)
(630)
1,248
(1,401) 3,200
Year ended
December 31, 2018
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government
agencies
Residential – nonagency
Commercial – nonagency
Total mortgage-backed
securities
U.S. Treasury, GSEs and
government agencies
Obligations of U.S. states and
municipalities
Non-U.S. government debt
securities
Corporate debt securities
Loans(b)
Asset-backed securities
Total debt instruments
Equity securities
Other
Total trading assets – debt and
equity instruments
Net derivative receivables:(c)
Interest rate
Credit
Foreign exchange
Equity
Commodity
264
150
(35)
(40)
(396) 103
107
5
52
(133)
(7)
(20)
(3,409) 198
1,676
(2,208)
(674)
(73)
1
(72)
Total net derivative receivables
(4,250) 338
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans(b)
1
276
277
2,152
—
1
1
9
(d)
(j)
(d)
Mortgage servicing rights
Other assets(b)
6,030
1,496
(e)
230
(319) (d)
1,841
(2,440)
—
—
—
—
—
—
412
(1,256)
1,246
195
(636)
(38)
(430)
(57)
30
1,805
(301)
1,047
—
(277)
(277)
(496)
(740)
(176)
(15)
4
(108)
(617)
19
23
42
(38)
(107)
(297)
330
(2,225)
7
(17) (1,129)
(729)
397
(3,796)
—
—
—
—
—
—
—
1
—
1
194
(159)
856
—
4
—
6,130
(1) 1,161
Fair value measurements using significant unobservable inputs
Year ended
December 31, 2018
(in millions)
Liabilities:(a)
Deposits
Short-term borrowings
Fair
value at
January
1, 2018
Total
realized/
unrealized
(gains)/
losses
Purchases
Sales
Issuances
Settlements(h)
Transfers
into
level 3(i)
Transfers
(out of)
level 3(i)
Fair
value at
Dec. 31,
2018
$ 4,142 $ (136) (d)(f) $
1,665
(329) (d)(f)
—
—
$
— $ 1,437
$
(736)
$
2 $
(540) $ 4,169
—
3,455
(3,388)
272
(152) 1,523
Trading liabilities – debt and equity
instruments
39
(d)
19
(99)
114
—
—
—
(1)
—
(39)
14
4
—
(36)
—
—
50
10
1
5
1
—
11,919
(7,769)
1,143
(831) 19,418
Accounts payable and other liabilities
13
—
(12)
Beneficial interests issued by
consolidated VIEs
Long-term debt
39
16,125
—
(1,169) (d)(f)
—
—
JPMorgan Chase & Co./2020 Form 10-K
(9)
(1)
(13)
22
(40)
9
(301)
(332) (d)
187
(28)
(63)
561
146
803
—
—
(d)
—
(4) (d)
(e)
230
(331) (d)
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2018
$ (204) (d)(f)
(131) (d)(f)
(d)
16
—
—
(1,385) (d)(f)
185
Notes to consolidated financial statements
(a) Level 3 assets at fair value as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis)
were 1%, 2% and 3% at December 31, 2020, 2019 and 2018, respectively. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value
(including liabilities measured at fair value on a nonrecurring basis) were 9%, 16% and 15% at December 31, 2020, 2019 and 2018, respectively.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(c) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(d) 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.
(e) Changes in fair value for MSRs are reported in mortgage fees and related income.
(f) 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, 2020, 2019 and 2018, respectively. Unrealized (gains)/losses are reported in OCI, and they were $221 million, $319 million and
$(277) million for the years ended December 31, 2020, 2019 and 2018, respectively.
(g) Loan originations are included in purchases.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidation associated with beneficial
interests in VIEs and other items.
(i) 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.
(j) 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. There were no realized gains/(losses) and foreign exchange hedge
accounting adjustments recorded in income on AFS securities for the years ended December 31, 2020 and 2019, respectively and $1 million recorded for the
year ended December 31, 2018. There were no material unrealized gains/(losses) recorded on AFS securities in OCI for the years ended December 31, 2020,
2019 and 2018 respectively.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets at fair value including assets measured at fair
value on a nonrecurring basis were 0.5% of total Firm assets
at December 31, 2020. The following describes significant
changes to level 3 assets since December 31, 2019, for those
items measured at fair value on a recurring basis. Refer to
Assets and liabilities measured at fair value on a
nonrecurring basis on page 189 for further information on
changes impacting items measured at fair value on a
nonrecurring basis.
For the year ended December 31, 2020
Level 3 assets were $16.4 billion at December 31, 2020,
reflecting an increase of $2.9 billion from December 31,
2019.
The increase for the year ended December 31, 2020 was
driven by:
• $907 million increase in gross interest rate derivative
receivables and $1.4 billion increase in gross equity
derivative receivables largely due to gains net of
settlements.
• $1.8 billion increase in non-trading loans due to net
transfers.
partially offset by
• $1.4 billion decrease in MSRs due to losses and
settlements partially offset by purchases.
Refer to the sections below for additional information.
Transfers between levels for instruments carried at
fair value on a recurring basis
During the year ended December 31, 2020, significant
transfers from level 2 into level 3 included the following:
• $1.8 billion of total debt and equity instruments,
predominantly equity securities and trading loans, driven
by a decrease in observability.
• $2.6 billion of gross equity derivative receivables and
$3.5 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
• $880 million of gross interest rate derivative payables as
a result of a decrease in observability and an increase in
the significance of unobservable inputs.
• $2.6 billion of non-trading loans driven by a decrease in
observability.
• $1.2 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
During the year ended December 31, 2020, significant
transfers from level 3 into level 2 included the following:
• $2.0 billion of total debt and equity instruments,
predominantly due to corporate debt and trading loans,
driven by an increase in observability.
• $2.4 billion of gross equity derivative receivables and
$2.4 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
• $943 million of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
• $1.3 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
During the year ended December 31, 2019, significant
transfers from level 2 into level 3 included the following:
• $993 million of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
• $904 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
186
JPMorgan Chase & Co./2020 Form 10-K
During the year ended December 31, 2019, significant
transfers from level 3 into level 2 included the following:
• $1.5 billion of total debt and equity instruments, the
majority of which were obligations of U.S. states and
municipalities and trading loans, driven by an increase in
observability.
• $1.1 billion of gross equity derivative receivables and
$1.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
• $962 million of gross commodities derivative payables as
a result of an increase in observability.
• $1.2 billion of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
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, 2020, 2019 and 2018. These amounts
exclude any effects of the Firm’s risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 182-186 for further information on these instruments.
2020
• $10 million of net gains on assets driven by gains in net
interest rate derivative receivables due to market
movements largely offset by losses in MSRs reflecting
faster prepayment speeds on lower rates. Refer to Note
15 for additional information on MSRs.
• $1.4 billion of long-term debt as a result of an increase in
• $102 million of net gains on liabilities driven by market
movements in short-term borrowings.
2019
• $2.1 billion of net losses on assets largely due to MSRs
reflecting faster prepayment speeds on lower rates. Refer
to Note 15 for additional information on MSRs.
• $3.3 billion of net losses on liabilities predominantly
driven by market movements in long-term debt.
2018
• $1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
observability and a decrease in the significance of
unobservable inputs.
During the year ended December 31, 2018, significant
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.
During the year ended December 31, 2018, significant
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.
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.
JPMorgan Chase & Co./2020 Form 10-K
187
Notes to consolidated financial statements
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:
2020
2019
2018
Derivatives CVA
Derivatives FVA
$
(337) $
241 $
193
(64)
199
(74)
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 186 in this Note and Note
24 for further information.
188
JPMorgan Chase & Co./2020 Form 10-K
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets and liabilities held as of December 31, 2020 and 2019, respectively, for which
nonrecurring fair value adjustments were recorded during the years ended December 31, 2020 and 2019, respectively, by
major product category and fair value hierarchy.
December 31, 2020 (in millions)
Loans
Other assets(a)
Total assets measured at fair value on a nonrecurring basis
Accounts payable and other liabilities(b)
Total liabilities measured at fair value on a nonrecurring basis
December 31, 2019 (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
1,611
(c) $
972
(d) $
— $
—
5
— $
1,616
—
— $
—
—
$
$
979
1,951
12
12
Fair value hierarchy
Level 1
Level 2
— $
—
3,462
(c) $
14
— $
3,476
$
Level 3
269
1,043
1,312
(e)
2,583
984
3,567
12
12
Total fair
value
3,731
1,057
4,788
$
$
$
$
(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). Of the $979 million in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2020, $535 million related to equity securities adjusted based on the measurement alternative. These equity
securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
(b) There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019.
(c) Primarily includes certain mortgage loans that were reclassified to held-for-sale.
(d) Of the $972 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $602 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). 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 46% with a weighted average of 27%.
(e) Prior-period amounts have been revised to conform with the current presentation.
Nonrecurring fair value changes
The following table presents the total change in value of
assets and liabilities for which fair value adjustments have
been recognized for the years ended December 31, 2020,
2019 and 2018, related to assets and liabilities held at
those dates.
December 31, (in millions)
Loans(a)
Other assets(b)
Accounts payable and other
liabilities
Total nonrecurring fair value
gains/(losses)
2020
2019
2018
$ (393) $ (274)
$ (68)
(529)
182
(c)
132
(11)
—
—
$ (933)
$ (92)
$ 64
(a) Includes the impact of certain mortgage loans that were reclassified to
held-for-sale.
(b) Included $(134) million, $201 million and $149 million for the years
ended December 31, 2020, 2019 and 2018, respectively,of net
(losses)/gains as a result of the measurement alternative.
(c) Prior-period amounts have been revised to conform with the current
presentation.
Refer to Note 12 for further information about the
measurement of collateral-dependent loans.
JPMorgan Chase & Co./2020 Form 10-K
189
Notes to consolidated financial statements
Equity securities without readily determinable fair values
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, 2020 and 2019, 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.
As of or for the year ended December 31,
(in millions)
Other assets
Carrying value(a)
Upward carrying value changes(b)
Downward carrying value changes/impairment(c)
2020
2019
$
2,368
$
2,441
167
(301)
243
(d)
(42)
(a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2020 were $708 million.
(c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2020 were $(430) million.
(d) Prior-period amounts have been revised to conform with the current presentation.
Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B common shares, recorded at a
nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa
Class A common shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B
common shares into Visa Class A common shares is 1.6228 at December 31, 2020, 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, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer 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 table.
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.
190
JPMorgan Chase & Co./2020 Form 10-K
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2020 and 2019, 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, 2020
Estimated fair value hierarchy
December 31, 2019
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
$
24.9 $
24.9 $
— $
—
— $
24.9 $
21.7 $
21.7 $
—
502.7
241.9
241.9
— $
—
— $
21.7
—
241.9
89.3
0.1
89.4
71.3
71.2
0.1
71.3
Deposits with banks
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
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
502.7
502.7
89.4
58.3
107.7
—
—
—
—
—
—
58.3
107.7
58.3
107.7
234.6
133.5
234.6
133.5
—
—
—
201.8
53.2
152.3
205.5
47.5
0.1
48.8
940.1
81.8
—
—
210.9
80.0
755.6
1.9
966.5
81.9
939.5
61.3
—
—
214.1
60.6
734.9
0.8
—
—
—
234.6
133.5
48.9
949.0
61.4
$ 2,129.8 $
— $ 2,128.9 $
— $ 2,128.9 $ 1,533.8 $
— $ 1,534.1 $
— $ 1,534.1
59.5
28.3
186.6
17.5
204.8
—
—
—
—
—
59.5
28.3
181.9
17.6
209.2
—
—
4.3
—
3.2
59.5
28.3
183.1
35.0
—
—
183.1
35.0
186.2
164.0
0.1
160.0
17.6
212.4
17.8
215.5
—
—
17.9
218.3
—
—
3.5
—
3.5
183.1
35.0
163.6
17.9
221.8
(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. Carrying
value of the loan takes into account the loan’s allowance for loan losses, which represents the loan’s expected credit losses over its remaining expected
life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including
credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
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 and the estimated fair value of these wholesale lending-related commitments were as
follows for the periods indicated.
December 31, 2020
Estimated fair value hierarchy
December 31, 2019
Estimated fair value hierarchy
Carrying
value(a)(b)
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value(a)(b)
Level 1
Level 2
Level 3
Total
estimated
fair value
(in billions)
Wholesale lending-
related commitments $
2.2 $
— $
— $
2.1 $
2.1 $
1.2 $
— $
— $
1.9 $
1.9
(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.
(b) Includes the wholesale allowance for lending-related commitments.
The Firm does not estimate the fair value of consumer off-balance sheet 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. Refer to page 173 of this Note for a further discussion of the valuation of lending-related commitments.
JPMorgan Chase & Co./2020 Form 10-K
191
Notes to consolidated financial statements
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 that otherwise would be 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
•
• 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 client-driven activities
Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value
192
JPMorgan Chase & Co./2020 Form 10-K
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, 2020, 2019 and 2018, 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.
2020
2019
2018
Principal
transactions
All other
income
Total
changes in
fair value
recorded(f)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(f)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(f)
$
12 $
143
—
—
$
12 $
(36) $ —
$
(36) $
(35) $ —
$
143
133
—
133
22
—
(35)
22
1,546
(1) (d)
1,545
2,482
(1) (d)
2,481
(1,680)
(d)
1
(1,679)
135
(19)
190
—
—
7
470
3,239
(d)
(d)
103
(726)
(65) (e)
—
(6)
294
2
—
—
—
(94)
(2,120)
—
(1) (d)
135
(19)
248
(1)
—
—
248
(1)
15
28
—
—
197
3,709
38
(726)
(6)
294
2
(94)
475
2
267
1,224
8
(1,730)
(8)
(693)
6
(16)
(d)
(d)
(e)
477
1,491
14
(1,730)
(8)
(693)
6
(16)
6
—
—
—
—
—
1
385
1
138
185
(d)
(d)
11
181
(45) (e)
—
11
862
1
—
—
—
—
—
—
(2,121)
(6,173)
(d)
(6,172)
2,695
15
28
386
323
(34)
181
11
862
1
—
2,695
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(a)
Other changes in fair value(a)
Loans:
Changes in instrument-specific
credit risk(a)
Other changes in fair value(a)
Other assets(a)
Deposits(b)
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings(b)
Trading liabilities
Other liabilities
Long-term debt(b)(c)
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(b) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI and
subsequently recorded in principal transactions revenue when realized. Realized gains/(losses) due to instrument-specific credit risk recorded in principal
transactions revenue were $20 million for the year ended December 31,2020 and were not material for the years ended December 31, 2019 and 2018.
(c) 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.
(d) Reported in mortgage fees and related income.
(e) Reported in other income.
(f) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. Refer to Note 7 for further information regarding interest income and interest expense.
Determination of instrument-specific credit risk for items
for which the fair value option was elected
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.
JPMorgan Chase & Co./2020 Form 10-K
193
Notes to consolidated financial statements
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, 2020 and 2019, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
2020
2019
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
Nonaccrual loans
Loans reported as trading assets(a)
Loans(a)
Subtotal
90 or more days past due and government guaranteed(b)
$
3,386
1,867
5,253
—
328
328
7,917
42,022
49,939
$
555 $
(2,831) $
2,563
$
234 $
(2,329)
1,507
2,062
(360)
(3,191)
964
3,527
—
317
317
—
(11)
(11)
—
138
138
696
930
—
129
129
(268)
(2,597)
—
(9)
(9)
6,439
42,650
49,089
(1,478)
628
(850)
8,288
43,955
52,243
6,779
44,130
50,909
(1,509)
175
(1,334)
$
55,520
$ 51,468 $
(4,052) $
55,908
$ 51,968 $
(3,940)
$
40,560
(e) $ 40,526 $
(34) $
40,124
(e) $ 39,246 $
(878)
NA
NA
NA
NA
36,291
$ 76,817
$
$
41
41
NA
NA
NA
NA
NA
NA
NA
NA
36,499
$ 75,745
$
$
36
36
NA
NA
NA
NA
Loans reported as trading assets
Loans
Subtotal
All other performing loans(c)
Loans reported as trading assets(a)
Loans(a)
Subtotal
Total loans
Long-term debt
Principal-protected debt
Nonprincipal-protected debt(d)
Total long-term debt
Long-term beneficial interests
Nonprincipal-protected debt(d)
Total long-term beneficial interests
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(b) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
(c) There were no performing loans that were ninety days or more past due as of December 31, 2020 and 2019.
(d) 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.
(e) 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, 2020 and 2019, the contractual amount of lending-related commitments for which the fair value option was
elected was $18.1 billion and $8.6 billion, respectively, with a corresponding fair value of $(39) million and $(120) million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments. Prior-
period amounts have been revised to conform with the current presentation.
194
JPMorgan Chase & Co./2020 Form 10-K
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, 2020
December 31, 2019
Long-term
debt
Short-term
borrowings Deposits
Total
Long-term
debt
Short-term
borrowings Deposits
Total
$ 38,129 $
65 $ 5,057 $ 43,251 $ 35,470 $
34 $ 16,692 $ 52,196
6,409
3,613
1,022
92
—
—
7,431
3,705
5,715
3,862
875
48
—
5
6,590
3,915
26,943
5,021
6,893
38,857
29,294
4,852
8,177
42,323
250
13
232
495
472
32
1,454
1,958
Total structured notes
$ 75,344 $
6,213 $ 12,182 $ 93,739 $ 74,813 $
5,841 $ 26,328 $ 106,982
JPMorgan Chase & Co./2020 Form 10-K
195
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. Refer to Note 12 for additional
information on the geographic composition of the Firm’s
consumer loan portfolios. 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. Refer to Note 12 for
additional information on loans.
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.
196
JPMorgan Chase & Co./2020 Form 10-K
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale credit exposure by the Firm’s
three credit portfolio segments as of December 31, 2020 and 2019. The wholesale industry of risk category is generally based
on the client or counterparty’s primary business activity.
In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the
consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied
when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to
Note 1 for further information.
2020
2019
December 31, (in millions)
Consumer, excluding credit card
Credit card(a)
Total consumer-related(a)
Wholesale-related(b)
Real Estate
Individuals and Individual Entities(c)
Consumer & Retail
Technology, Media &
Telecommunications
Asset Managers
Industrials
Healthcare
Banks & Finance Cos
Automotive
Oil & Gas
State & Municipal Govt(d)
Utilities
Chemicals & Plastics
Central Govt
Transportation
Metals & Mining
Insurance
Securities Firms
Financial Markets Infrastructure
All other(e)
Subtotal
On-balance sheet
Credit
exposure(h)(i)
$ 375,898 $ 318,579
Loans(i)
(j) $
Derivatives
Off-balance
sheet(i)(k)
Credit
exposure(h)(i)
— $ 57,319 $ 357,986 $ 317,817 $
Loans(i)
On-balance sheet
Derivatives
Off-balance
sheet(i)(k)
802,722
144,216
1,178,620
462,795
—
—
658,506
819,644
168,924
715,825
1,177,630
486,741
— $ 40,169
—
—
650,720
690,889
148,498
118,299
122,870
109,746
108,437
39,013
1,385
1,750
2,802
28,814
11,374
66,622
150,919
117,709
105,027
106,986
94,616
36,985
619
694
32,591
9,717
1,424
68,577
72,150
14,687
4,252
53,211
60,033
15,322
2,766
41,945
66,573
66,470
60,118
54,032
43,331
39,159
38,286
30,124
17,176
17,025
16,232
15,542
13,141
8,048
6,515
31,059
21,143
19,405
31,004
17,128
11,267
18,054
4,874
4,884
3,396
6,566
4,854
1,042
469
19
100,713
58,038
9,277
1,851
3,252
8,044
5,995
1,643
2,347
3,340
856
12,313
1,495
882
2,527
4,838
3,757
7,024
26,237
43,476
37,461
14,984
20,208
26,249
17,885
21,910
11,436
1,316
8,171
9,806
9,572
2,741
2,739
54,304
62,483
50,824
50,786
35,118
41,641
30,095
34,843
17,499
14,865
14,497
15,586
12,348
7,381
4,121
24,008
22,063
17,607
31,191
18,844
13,101
13,271
5,157
4,864
2,840
5,253
5,364
1,356
757
13
35,651
79,598
51,357
7,160
878
2,078
5,165
368
852
2,000
2,573
459
10,477
715
402
2,282
4,507
2,482
1,865
23,136
39,542
31,139
14,430
15,906
27,688
14,824
27,113
12,176
1,548
8,529
9,820
8,710
2,117
1,626
26,376
1,044,440
514,947
79,630
449,863
948,954
481,678
49,766
417,510
35,111
Loans held-for-sale and loans at fair value
Receivables from customers(f)
Total wholesale-related
Total exposure(g)(h)
(a) Also includes commercial card lending-related commitments primarily in CB and CIB.
(b) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at December 31, 2020,
$ 79,630 $ 1,165,688 $ 2,189,491 $ 997,620 $ 49,766 $ 1,108,399
$ 2,305,881 $ 1,012,853
1,127,261
1,011,861
510,879
417,510
550,058
449,863
29,201
49,766
33,706
29,201
35,111
79,630
47,710
—
—
—
—
—
—
—
—
—
—
not actual rankings of such exposures at December 31, 2019.
(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, 2020 and 2019, noted above, the Firm held:
$7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion and $4.8 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(e) All other includes: SPEs and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2020 and 90% and
10%, respectively, at December 31, 2019 . Refer to Note 14 for more information on exposures to SPEs.
(f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets maintained in the
clients’ brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities). Because of this collateralization, no allowance for credit
losses is generally held against these receivables. To manage its credit risk the Firm establishes margin requirements and monitors the required margin levels on an
ongoing basis, and requires clients to deposit additional cash or other collateral, or to reduce positions, when appropriate. These receivables are reported within
accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(g) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
(i)
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a
corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation.
(j) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain limited
circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans.
(k) Represents lending-related financial instruments.
JPMorgan Chase & Co./2020 Form 10-K
197
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 derivatives 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 increase or decrease 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 derivatives 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 derivatives 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. Refer to the Credit derivatives section on pages
209-211 of this Note for a further discussion of credit
derivatives.
Refer to the risk management derivatives gains and losses
table on page 209 of this Note, and the hedge accounting
gains and losses tables on pages 206-208 of this Note for
more information about risk management derivatives.
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 exchanges and
clearing houses. The Firm does not reflect the clients’
derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm’s clearing services.
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. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. 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
202-209 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for a further
discussion of derivatives embedded in structured notes.
198
JPMorgan Chase & Co./2020 Form 10-K
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes – generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm’s
risk management activities. For example, the Firm does not
apply hedge accounting to purchased 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 noninterest revenue, net
interest income 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 expected to not occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses 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./2020 Form 10-K
199
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
Fair value hedge
Cash flow hedge
Fair value hedge
Cash flow hedge
Corporate
Corporate
Corporate
Corporate
Net investment hedge
Corporate
206-207
208
206-207
208
208
Fair value hedge
CIB
206-207
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
• Interest rate
Manage the risk associated with mortgage commitments, warehouse
Specified risk management
CCB
loans and MSRs
• Credit
Manage the credit risk associated with wholesale lending exposures
Specified risk management
CIB
• Interest rate and
foreign exchange
Manage the risk associated with 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, AWM,
Corporate
209
209
209
209
209
200
JPMorgan Chase & Co./2020 Form 10-K
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2020
and 2019.
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)
2020
2019
$
20,986
$
21,228
3,057
3,375
3,675
31,093
1,201
3,924
6,871
830
825
3,152
3,938
4,361
32,679
1,242
3,604
5,577
700
718
Total foreign exchange contracts
12,450
10,599
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
448
140
676
621
406
142
646
611
1,885
1,805
138
198
124
105
565
147
211
135
124
617
Total derivative notional amounts
$
47,194
$
46,942
(a) Refer to the Credit derivatives discussion on pages 209-211 for more
information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
While the notional amounts disclosed above give an
indication of the volume of the Firm’s derivatives activity,
the notional amounts significantly exceed, in the Firm’s
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
JPMorgan Chase & Co./2020 Form 10-K
201
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, 2020 and 2019, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
Gross derivative receivables
Gross derivative payables
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)
December 31, 2020
(in millions)
Trading assets and
liabilities
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total fair value of trading
assets and liabilities
December 31, 2019
(in millions)
Trading assets and
liabilities
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total fair value of trading
assets and liabilities
$ 390,659
$
831
$ 391,490 $
35,725
$ 353,627
$
$ 353,627 $ 13,012
13,503
205,359
74,798
20,579
—
13,503
680
15,192
15,192
901
206,260
15,781
214,229
1,697
215,926
—
924
74,798
21,503
20,673
6,771
81,413
20,834
—
1,895
81,413
22,729
1,995
21,433
25,898
8,285
$ 704,898
$
2,656
$ 707,554 $
79,630
$ 685,295
$
3,592
$ 688,887 $ 70,623
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)
$ 312,451
$
843
$ 313,294 $
27,421
$ 279,272
$
$ 279,273 $
8,603
14,876
138,179
45,727
16,914
—
14,876
701
15,121
15,121
308
138,487
9,005
144,125
983
145,108
—
328
45,727
17,242
6,477
6,162
52,741
19,736
—
149
52,741
19,885
1,652
13,158
12,537
7,758
—
—
1
—
$ 528,147
$
1,479
$ 529,626 $
49,766
$ 510,995
$
1,133
$ 512,128 $ 43,708
(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.
202
JPMorgan Chase & Co./2020 Form 10-K
Derivatives netting
The following tables present, as of December 31, 2020 and 2019, 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 liquid securities and other 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. Liquid securities represent high quality liquid assets as defined in the LCR rule;
• 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)
Total interest rate contracts
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total foreign exchange contracts
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total commodity contracts
2020
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
Gross
derivative
receivables
2019
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
receivables
$ 367,056 $ (337,451)
$ 29,605
$ 299,205
$ (276,255)
$ 22,950
18,340
(17,919)
554
(395)
421
159
9,442
347
(9,360)
(258)
82
89
385,950
(355,765)
30,185
308,994
(285,873)
23,121
9,052
4,326
(8,514)
(4,309)
13,378
(12,823)
538
17
555
10,743
3,864
14,607
(10,317)
(3,858)
(14,175)
426
6
432
201,349
(189,655)
11,694
136,252
(129,324)
6,928
834
35
(819)
(5)
15
30
185
10
(152)
(6)
33
4
202,218
(190,479)
11,739
136,447
(129,482)
6,965
34,030
28,294
62,324
(27,374)
(26,751)
(54,125)
6,656
1,543
8,199
10,924
(7,901)
3,023
20
(20)
6,833
(6,811)
—
22
17,777
(14,732)
3,045
23,106
19,654
42,760
7,093
28
6,154
13,275
(20,820)
(18,430)
(39,250)
2,286
1,224
3,510
(5,149)
1,944
(28)
(5,903)
—
251
(11,080)
2,195
Derivative receivables with appropriate legal opinion
681,647
(627,924)
53,723
(d)
516,083
(479,860)
36,223
(d)
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
25,907
25,907
13,543
$ 707,554
$ 79,630
$ 529,626
(14,806)
$ 64,824
13,543
$ 49,766
(13,052)
$ 36,714
JPMorgan Chase & Co./2020 Form 10-K
203
Notes to consolidated financial statements
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total interest rate contracts
Credit contracts:
OTC
OTC–cleared
Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total foreign exchange contracts
Equity contracts:
OTC
Exchange-traded(a)
Total equity contracts
Commodity contracts:
OTC
OTC–cleared
Exchange-traded(a)
Total commodity contracts
2020
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
Gross
derivative
payables
2019
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
$ 331,854 $ (320,780)
$ 11,074
$ 267,311
$ (260,229)
$ 7,082
19,710
(19,494)
358
(341)
216
17
10,217
365
(10,138)
(303)
79
62
351,922
(340,615)
11,307
277,893
(270,670)
7,223
10,671
4,075
(9,141)
(4,056)
14,746
(13,197)
1,530
19
1,549
11,570
3,390
14,960
(10,080)
1,490
(3,389)
1
(13,469)
1,491
210,803
(193,672)
17,131
142,360
(131,792)
10,568
836
34
(819)
(2)
17
32
186
12
(152)
(6)
34
6
211,673
(194,493)
17,180
142,558
(131,950)
10,608
35,330
34,491
69,821
(28,763)
(26,752)
(55,515)
6,567
7,739
14,306
10,365
(7,544)
2,821
32
(32)
7,391
(6,868)
—
523
17,788
(14,444)
3,344
27,594
20,216
47,810
8,714
30
6,012
14,756
(21,778)
(18,426)
(40,204)
5,816
1,790
7,606
(6,235)
2,479
(30)
(5,862)
—
150
(12,127)
2,629
Derivative payables with appropriate legal opinion
665,950
(618,264)
47,686
(d)
497,977
(468,420)
29,557
(d)
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
22,937
22,937
14,151
$ 688,887
$ 70,623
$ 512,128
(11,964)
$ 58,659
14,151
$ 43,708
(6,960)
$ 36,748
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Includes liquid securities and other 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. In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security
when the fair value of the client’s exposure is in the Firm’s favor. Prior-period amounts have been revised to conform with the current presentation.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $88.0 billion and $65.9 billion at December 31, 2020 and 2019, respectively. Net derivatives
payable included cash collateral netted of $78.4 billion and $54.4 billion at December 31, 2020 and 2019, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
204
JPMorgan Chase & Co./2020 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 inherent in derivative receivables.
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, 2020 and 2019.
OTC and OTC-cleared derivative payables containing downgrade triggers
December 31, (in millions)
Aggregate fair value of net derivative payables
Collateral posted
$
2020
27,712
26,289
$
2019
14,819
13,329
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, N.A., at December 31, 2020 and 2019, 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)
2020
2019
Single-notch
downgrade
Two-notch
downgrade
Single-notch
downgrade
Two-notch
downgrade
$
119 $
1,243 $
153
2,449
189 $
104
1,467
1,398
(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 was not material at both December 31, 2020 and
2019.
JPMorgan Chase & Co./2020 Form 10-K
205
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, 2020,
2019 and 2018, 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, 2020
(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(e)
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(f)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
$
2,962 $
(1,889) $
1,073 $
— $
1,093 $
793
(619)
(2,507)
2,650
174
143
(457)
—
174
137
$
1,248 $
142 $
1,390 $
(457) $
1,404 $
—
25
—
25
Year ended December 31, 2019
(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(e)
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(f)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
$
3,204 $
(2,373) $
831 $
— $
828 $
154
(77)
328
148
482
71
(866)
—
482
63
$
3,281 $
(1,897) $
1,384 $
(866) $
1,373 $
—
39
—
39
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(e)
OCI impact
Derivatives -
Gains/(losses)
recorded in OCI(f)
Contract type
Interest rate(a)(b)
Foreign exchange(c)
Commodity(d)
Total
$
(1,145) $
1,782 $
637 $
— $
623 $
1,092
789
(616)
(754)
476
35
(566)
—
476
26
$
736 $
412 $
1,148 $
(566) $
1,125 $
—
(140)
—
(140)
(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) 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. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(f) 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.
206
JPMorgan Chase & Co./2020 Form 10-K
As of December 31, 2020 and 2019, 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, 2020
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Carrying amount
of the hedged
items(a)(b)
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Discontinued
hedging
relationships(d)(e)
Active hedging
relationships
Total
$
$
139,684
(c) $
3,572 $
847 $
4,419
177,611
$
3,194 $
11,473 $
14,667
Beneficial interests issued by consolidated VIEs
746
—
(3)
(3)
December 31, 2019
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Beneficial interests issued by consolidated VIEs
Carrying amount
of the hedged
items(a)(b)
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Discontinued
hedging
relationships(d)(e)
Active hedging
relationships
Total
$
$
125,860
(c) $
2,110 $
278 $
2,388
157,545
$
6,719 $
2,365
—
161 $
(8)
6,880
(8)
(a) Excludes physical commodities with a carrying value of $11.5 billion and $6.5 billion at December 31, 2020 and 2019, respectively, 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. Since 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. At December 31, 2020 and 2019, the carrying amount excluded for AFS securities is
$14.5 billion and $14.9 billion, respectively, and for long-term debt is $6.6 billion and $2.8 billion, respectively.
(c) Carrying amount represents the amortized cost, net of allowance if applicable. Refer to Note 10 for additional information.
(d) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value
hedging relationships.
(e) Positive amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce net interest income in future periods. Positive
(negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net interest income in future
periods.
JPMorgan Chase & Co./2020 Form 10-K
207
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, 2020, 2019 and 2018,
respectively. The Firm includes the gains/(losses) 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, 2020
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2019
(in millions)
Contract type
Interest rate(a)
Foreign exchange(b)
Total
Year ended December 31, 2018
(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
$
$
570 $
—
570 $
3,582 $
41
3,623 $
3,012
41
3,053
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
$
$
(28) $
(75)
(103) $
(3) $
125
122 $
25
200
225
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)
(a) Primarily consists of 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.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2020, 2019 and 2018.
Over the next 12 months, the Firm expects that approximately $818 million (after-tax) of net gains recorded in AOCI at
December 31, 2020, 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 nine 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 seven years. The Firm’s
longer-dated forecasted transactions relate to core lending and borrowing activities.
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, 2020, 2019 and
2018.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2020
2019
2018
Amounts
recorded in
income(a)(b)
$(122)
Amounts
recorded in
OCI
$(1,408)
Amounts
recorded in
income(a)(b)
$72
Amounts
recorded in
OCI
$64
Amounts
recorded in
income(a)(b)
$11
Amounts
recorded in
OCI
$1,219
(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. The Firm reclassified net pre-tax gains/(losses) of
$3 million and $18 million to other income, and $(17) million to other expense related to the liquidation of certain legal entities during the years ended
December 31, 2020, 2019 and 2018, respectively. Refer to Note 24 for further information.
208
JPMorgan Chase & Co./2020 Form 10-K
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.
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 mortgage commitments,
warehouse loans, MSRs, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Year ended December 31,
(in millions)
Contract type
Interest rate(a)
Credit(b)
Foreign exchange(c)
Total
Derivatives gains/(losses)
recorded in income
2020
2019
2018
$ 2,994 $ 1,491 $
(176)
43
(30)
(5)
$ 2,861 $ 1,456 $
79
(21)
117
175
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, 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.
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.
JPMorgan Chase & Co./2020 Form 10-K
209
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, 2020 and
2019. 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.
210
JPMorgan Chase & Co./2020 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, 2020 (in millions)
Protection sold
Maximum payout/Notional amount
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/
purchased(c)
Other
protection
purchased(d)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
December 31, 2019 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
$
(535,094)
$
554,565
$
19,471 $
(40,084)
(575,178)
—
57,344
611,909
—
17,260
36,731
—
4,001
9,415
13,416
10,248
$
(575,178)
$
611,909
$
36,731 $
23,664
Maximum payout/Notional amount
Protection purchased
with identical
underlyings(b)
Net protection
(sold)/
purchased(c)
Other
protection
purchased(d)
$
571,892
$
9,554 $
46,541
(e)
618,433
—
(3,854)
5,700
—
3,936
7,364
11,300
9,606
Protection sold
$
(562,338)
(50,395) (e)
(612,733)
—
$
(612,733)
$
618,433
$
5,700 $
20,906
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(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.
(e) Prior-period amounts have been revised to conform with the current presentation.
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, 2020 and 2019, 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, 2020
(in millions)
Total notional
amount
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
1–5 years
>5 years
<1 year
Risk rating of reference entity
Investment-grade
$ (93,905)
$
(307,648)
$ (35,326)
$
(436,879)
$
Noninvestment-grade
(31,809)
(97,337)
(9,153)
(138,299)
Total
$ (125,714)
$
(404,985)
$ (44,479)
$
(575,178)
$
5,521
3,953
9,474
$
(835)
$ 4,686
(2,542)
1,411
$
(3,377)
$ 6,097
December 31, 2019
(in millions)
Risk rating of reference entity
<1 year(c)
1–5 years
>5 years
Total notional
amount
Fair value of
receivables(b)(c)
Fair value of
payables(b)(c)
Net fair
value
Investment-grade
$ (119,788)
$
(311,407)
$ (42,129)
$
(473,324)
$
Noninvestment-grade
(41,799)
(87,769)
(9,841)
(139,409)
6,168
4,287
$
(901)
$ 5,267
(2,817)
1,470
Total
$ (161,587)
$
(399,176)
$ (51,970)
$
(612,733)
$
10,455
$
(3,718)
$ 6,737
(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 including cash collateral netting.
(c) Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
211
Notes to consolidated financial statements
Note 6 – Noninterest revenue and noninterest expense
Noninterest revenue
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts 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.
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.
The following table presents the components of investment
banking fees.
Year ended December 31,
(in millions)
2020
2019
2018
Underwriting
Equity
Debt
Total underwriting
Advisory
$ 2,759 $ 1,648 $ 1,684
4,362
7,121
2,365
3,513
5,161
2,340
3,347
5,031
2,519
Total investment banking fees
$ 9,486 $ 7,501 $ 7,550
Investment banking fees are earned primarily by CIB. Refer
to Note 32 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 a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
• realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
– Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
– Unrealized gains and losses result from changes in
valuation.
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 realized and
unrealized gains and losses related to:
• derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
• derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
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 in CIB and cash deployment activities in
Treasury and CIO. 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 LOB.
212
JPMorgan Chase & Co./2020 Form 10-K
Year ended December 31,
(in millions)
2020
2019
2018
Trading revenue by
instrument type
Interest rate(a)
Credit(b)
Foreign exchange
Equity
Commodity
$ 2,575
$ 2,739
2,753
4,253
6,171
2,088
1,628
3,179
5,589
1,133
(c) $ 1,844
(c)
1,625
(c)
(c)
(c)
3,222
4,822
895
(c)
(c)
(c)
(c)
(c)
Total trading revenue
17,840
14,268
12,408
Private equity gains/
(losses)
181
(250)
(349)
Principal transactions
$ 18,021
$ 14,018
$ 12,059
(a) Includes the impact of changes in funding valuation adjustments on
derivatives.
(b) Includes the impact of changes in credit valuation adjustments on
derivatives, net of the associated hedging activities.
(c) The prior-period amounts have been revised to conform with the
current presentation.
Principal transactions revenue is earned primarily by CIB.
Refer to Note 32 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 from providing overdraft
and other deposit account services, and from performing
cash management activities. Lending- and deposit-related
fees in this revenue category are recognized over the period
in which the related service is provided.
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31, (in millions)
2020
2019
2018
Lending-related fees
Deposit-related fees(a)
Total lending- and deposit-related fees $ 6,511 $ 6,626 $ 6,377
$ 1,271 $ 1,184 $ 1,117
5,260
5,442
5,240
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 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 these third-party service
providers are generally recorded in professional and
outside services expense.
The following table presents the components of Firmwide
asset management, administration and commissions.
Year ended December 31,
(in millions)
Asset management fees
Investment management fees(a)
All other asset management fees(b)
Total asset management fees
2020
2019
2018
$ 11,694 $ 10,865 $ 10,768
338
315
270
12,032
11,180
11,038
Total administration fees(c)
2,249
2,197
2,179
Commissions and other fees
Brokerage commissions(d)
All other commissions and fees(e)
Total commissions and fees
2,959
937
3,896
2,439
1,092
3,531
2,505
1,071
3,576
Total asset management,
administration and commissions $ 18,177 $ 16,908 $ 16,793
(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) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the 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) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
(d) Represents commissions earned when 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.
(e) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
Asset management, administration and commissions are
earned primarily by AWM, CIB and CCB. Refer to Note 32 for
segment results.
Mortgage fees and related income
This revenue category 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, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option. Net mortgage
JPMorgan Chase & Co./2020 Form 10-K
213
Notes to consolidated financial statements
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; the impact of risk management
activities associated with MSRs; and gains and losses on
securitization of excess mortgage servicing. Net mortgage
servicing revenue also includes gains and losses on sales
and lower of cost or fair value adjustments of certain
repurchased loans insured by U.S. government agencies.
Refer to Note 15 for further information on risk
management activities and MSRs.
Net interest income from mortgage loans is recorded in
interest income.
Card income
This revenue category includes interchange and other
income from credit and debit card transactions; and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. 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 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.
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(a)
Other card income(b)
Total card income
2020
2019
2018
$ 18,563 $ 20,370 $ 18,808
(13,637)
(14,540)
(491)
(754)
(13,320) (c)
(745)
$ 4,435 $ 5,076 $ 4,743
(a)
In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) Predominantly represents the amortization of account origination
costs and annual fees, which are deferred and recognized on a
straight-line basis over a 12-month period.
Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
(c)
Card income is earned primarily by CCB, CIB and CB. Refer
to Note 32 for segment results.
Refer to Note 18 for information on operating lease income
included within other income.
Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
2020
2019
Legal expense/(benefit)
$
1,115 $
239 $
FDIC-related expense
717
457
2018
72
1,239
214
JPMorgan Chase & Co./2020 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. Refer to Notes 12, 10, 11 and 20,
for further information on accounting for interest income
and interest expense related to loans, investment securities,
securities financing activities (i.e., securities purchased or
sold under resale or repurchase agreements; securities
borrowed; and securities loaned) and long-term debt,
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)(b)
Taxable securities
Non-taxable securities(c)
Total investment securities(a)
Trading assets - debt instruments(b)
Federal funds sold and securities
purchased under resale
agreements
Securities borrowed(d)
Deposits with banks
2020
2019
2018
$ 43,758 $ 51,855 $ 49,032
7,843
1,184
9,027
7,832
7,962
1,329
9,291
9,141
2,436
6,146
(302)
1,574
749
3,887
5,653
1,595
7,248
7,146
3,819
913
5,907
All other interest-earning assets(b)(e)
Total interest income
1,023
2,146
2,035
$ 64,523 $ 84,040 $ 76,100
Interest expense
Interest bearing deposits
$ 2,357 $ 8,957 $ 5,973
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings(f)
Trading liabilities - debt and all
other interest-bearing
liabilities(d)(g)
Long-term debt
Beneficial interest issued by
consolidated VIEs
1,058
372
4,630
1,248
195
5,764
2,585
8,807
3,066
1,144
2,387
7,978
214
568
493
Total interest expense
$ 9,960 $ 26,795 $ 21,041
Net interest income
$ 54,563 $ 57,245 $ 55,059
Provision for credit losses
17,480
5,585
4,871
Net interest income after provision
for credit losses
$ 37,083 $ 51,660 $ 50,188
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts, net deferred fees/costs, and others).
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
(c) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(d) Negative interest income is related to the impact of current interest
rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage
customer payables is recognized in interest expense and reported
within trading liabilities - debt and all other interest-bearing liabilities.
Includes interest earned on brokerage-related held-for-investment
customer receivables, 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)
(f) Includes commercial paper.
(g) All other interest-bearing liabilities includes interest expense on
brokerage-related customer payables.
JPMorgan Chase & Co./2020 Form 10-K
215
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 who were hired prior to
December 2, 2017. The Firm has frozen the U.S. defined
benefit pension plan (the “Plan Freeze”). Effective as of
January 1, 2020 (and January 1, 2019 for new hires), new
pay credits have been directed to the U.S. defined
contribution plan. Interest credits will continue to accrue on
the U.S. defined benefit pension plan. As a result of the Plan
Freeze, 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 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 making any
contribution to the U.S. defined benefit pension plan in
2021. The 2021 contributions to the non-U.S. defined
benefit pension plans are expected to be $50 million, of
which $35 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 certain qualifying U.S. and U.K. employees.
The Firm partially 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, certain 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 prefunded its U.S.
postretirement benefit obligations. The U.K. OPEB plan is
unfunded.
Pension and OPEB accounting guidance 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 in other liabilities. Gains or
losses resulting from changes in the benefit obligation and
the fair value of plan assets are recorded in 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, benefits earned during the
year are reported in compensation expense; all other
components of net periodic defined benefit costs are
reported in other expense in the Consolidated statements of
income.
216
JPMorgan Chase & Co./2020 Form 10-K
The following table presents the pretax changes in benefit obligations, plan assets, the net funded status, and the amounts
recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans.
As of or for the year ended December 31,
(in millions)
Change in projected and accumulated benefit obligations, U.S. defined benefit pension plans
Benefit obligation, beginning of year
Benefits earned during the year
Interest cost on benefit obligations
Plan amendments
Net gain/(loss)
Benefits paid
Benefit obligations, end of year, U.S. defined benefit pension plans
Benefit obligations, other defined benefit pension and OPEB plans
Benefit obligations, end of year
Change in plan assets, U.S. defined benefit pension plans
Fair value of plan assets, beginning of year
Actual return on plan assets
Firm contributions
Benefits paid
Defined benefit
pension and OPEB plans
2020
2019
$
(13,277) $
(12,173)
(2)
(422)
—
(1,086)
640
(327)
(518)
(5)
(944)
690
$
(14,147) $
(13,277)
(4,990)
(4,428)
$
(19,137) $
(17,705)
$
16,329 $
14,521
1,901
29
(640)
2,465
33
(690)
Fair value of plan assets, end of year, U.S. defined benefit pension plans
$
17,619 $
16,329
Fair value of plan assets, other defined benefit pension and OPEB plans
Fair value of plan assets, end of year
Net funded status, U.S. defined benefit pension plans
Net funded status, other defined benefit pension and OPEB plans
Net funded status
Amounts recorded in accumulated other comprehensive income/(loss), U.S. defined benefit pension plans
Net gain/(loss), U.S. defined benefit pension plans
Prior service credit/(cost), U.S. defined benefit pension plans
Accumulated other comprehensive income/(loss), end of year, U.S. defined benefit pension plans
Accumulated other comprehensive income/(loss), other defined benefit pension and OPEB plans
Accumulated other comprehensive income/(loss)
7,798
7,037
25,417 $
23,366
3,472 $
2,808
6,280 $
3,052
2,609
5,661
(1,558) $
(1,745)
(4)
(5)
(1,562) $
(1,750)
(24)
(66)
(1,586) $
(1,816)
$
$
$
$
$
$
The following table presents the weighted-average actuarial assumptions used to value the benefit obligations for the U.S.
defined benefit pension plans.
As of December 31,
Discount rate
Rate of compensation increase
Interest crediting rate
U.S. defined benefit
pension plans
2020
2019
2.50%
3.30%
NA
4.65
NA
4.65
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 projected benefit obligation or the fair value of the plan assets. Any excess is amortized
over the average expected remaining lifetime of plan participants, which for the U.S. defined benefit pension plans is currently
37 years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. For the years
ended December 31, 2020 and 2019, the net gain was primarily attributable to a market-driven increase in the fair value of
plan assets, predominantly offset by a decrease in the discount rate.
JPMorgan Chase & Co./2020 Form 10-K
217
Notes to consolidated financial statements
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm’s defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the
defined benefit pension and OPEB plans.
Year ended December 31, (in millions)
Components of net periodic benefit cost, U.S. defined benefit pension plans
Benefits earned during the year
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service (credit)/cost
Curtailment (gain)/loss
Net periodic defined benefit plan cost/(credit), U.S. defined benefit pension plans
Other defined benefit pension and OPEB plans
Total net periodic defined benefit plan cost/(credit)
Total defined contribution plans
Total pension and OPEB cost included in noninterest expense
Changes recognized in other comprehensive income, U.S. defined benefit pension plans
Prior service (credit)/cost arising during the year
Net (gain)/loss arising during the year
Amortization of net (loss)/gain
Amortization of prior service (cost)/credit
Curtailment (loss)/gain
Total recognized in other comprehensive income, U.S. defined benefit pension plans
Other defined benefit pension and OPEB plans
Total recognized in other comprehensive income
Total recognized in net periodic defined benefit plan cost/(credit) and other comprehensive income
Pension and OPEB plans
2020
2019
2018
$
2 $
327 $
422
(634)
518
(776)
6
—
—
(204) $
(81)
(285) $
1,332
147
—
—
216 $
(72)
144 $
952
1,047 $
1,096 $
—
(181)
(6)
—
—
(187) $
(27)
(214) $
(499) $
5
(745)
(147)
—
—
(887) $
(270)
(1,157) $
(1,013) $
$
$
$
$
$
$
323
478
(836)
80
(21)
21
45
(72)
(27)
872
845
—
453
(80)
21
(21)
373
77
450
423
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for
the U.S. defined benefit pension plans.
Year ended December 31, (in millions)
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
Interest crediting rate
U.S. defined benefit pension plans
2020
3.30%
4.00
NA
4.65
2019
2018
4.30% 3.70 / 4.50%
5.50
2.30
4.90
5.50
2.30
4.90
Plan assumptions
The Firm’s expected long-term rate of return for defined
benefit pension 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 portfolio mix of each plan.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension plan 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.
At December 31, 2020, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension plans in light of current market
interest rates, which is expected to decrease expense by
approximately $64 million in 2021. The 2021 expected
long-term rate of return on U.S. defined benefit pension
plan assets is 3.00%.
The following table represents the effect of a 25-basis point
decline in the expected long-term rate of return of 3.00%
and discount rate of 2.50%.
Effect on U.S. defined benefit pension plans
(in millions)
Pension expense
Benefit
obligation
Expected long-term rate of return
$
Discount rate
43
(20)
NA
404
218
JPMorgan Chase & Co./2020 Form 10-K
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
partially 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. 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 could impact the portfolios, which are
rebalanced when deemed necessary.
Investments held by the Firm’s defined benefit pension and
OPEB 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.
investments. 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, 2020, assets held by the
Firm’s defined benefit pension and OPEB plans do not
include securities issued by JPMorgan Chase or its affiliates,
except through indirect exposures through investments in
ETFs, mutual funds and collective investment funds
managed by third-parties. The defined benefit pension and
OPEB plans hold investments that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$2.7 billion and $3.1 billion, as of December 31, 2020 and
2019, respectively.
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(a)
Equity securities
Real estate
Alternatives(b)
Total
U.S. defined benefit pension plan(c)
Asset
% of plan assets
Allocation
2020
2019
42-100%
77 %
74 %
0-40
0-4
0-15
15
1
7
16
1
9
100 %
100 %
100 %
(a) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, asset-backed and
mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. defined benefit pension plan only as it is the most significant plan. The other U.S. defined benefit pension plans are unfunded. The
weighted-average asset allocation for the U.S. OPEB plan was 59% debt securities and 41% equity securities and 60% debt securities and 40% equity
securities at December 31, 2020 and 2019, respectively.
JPMorgan Chase & Co./2020 Form 10-K
219
Notes to consolidated financial statements
Fair value measurement of the plans’ assets and liabilities
Refer to Note 2 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.
Pension plan assets and liabilities measured at fair value
Defined benefit pension and OPEB plans
2020
2019
December 31,
(in millions)
Equity securities
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
$ 2,353 $
— $
2 $ 2,355 $ 2,259 $
3 $
2 $ 2,264
Corporate debt securities
—
7,414
U.S. federal, state, local and non-U.S.
government debt securities
Mortgage-backed securities
Other(a)
U.S. defined benefit pension plans(b)
Other defined benefit pension and OPEB
plans(c)
1,395
461
788
360
1,184
861
11
—
31
201
7,425
1,755
1,676
1,850
—
6,474
1,616
312
718
401
681
49
2
—
4
250
6,476
2,017
997
1,017
$ 4,997 $ 9,819 $
245 $ 15,061 $ 4,905 $ 7,608 $
258 $ 12,771
2,034
2,565
2,707
7,306
1,834
2,307
2,431
6,572
Total assets measured at fair value
$ 7,031 $ 12,384 $ 2,952 $ 22,367 $ 6,739 $ 9,915 $ 2,689 $ 19,343
(a) Other consists primarily of mutual funds, money market funds and participating annuity contracts.
(b) At December 31, 2020 and 2019, excludes $3.2 billion and $3.9 billion, respectively, of certain investments that are measured at fair value using the net
asset value per share (or its equivalent) as a practical expedient, and $606 million and $343 million, respectively, of net defined benefit pension plan
payables, primarily for investments sold and purchased, which are not required to be classified in the fair value hierarchy. Investments in level 3 of the
valuation hierarchy include $199 million and $250 million of participating annuity contracts at December 31, 2020 and 2019, respectively.
(c) At December 31, 2020 and 2019, excludes $487 million and $465 million, respectively, of certain investments that are measured at fair value using the
net asset value per share (or its equivalent) as a practical expedient. Investments in level 3 of the valuation hierarchy include $2.7 billion and $2.4 billion
of COLI policies at December 31, 2020 and 2019, respectively.
Changes in level 3 fair value measurements using significant unobservable inputs
Investments classified in level 3 of the valuation hierarchy increased $263 million in 2020 from $2.7 billion to $3.0 billion,
consisting of $343 million in unrealized gains, partially offset by $113 million in settlements. In addition, there were transfers
into level 3 of $33 million. In 2019, there was an increase of $307 million from $2.4 billion to $2.7 billion, consisting of $401
million in unrealized gains, partially offset by $85 million in settlements.
Estimated future benefit payments
The following table presents benefit payments expected to
be paid for the U.S. defined benefit pension plans for the
years indicated.
Year ended December 31,
(in millions)
U.S. defined
benefit pension
plans
2021
2022
2023
2024
2025
Years 2026–2030
$
912
918
897
847
829
3,843
220
JPMorgan Chase & Co./2020 Form 10-K
Note 9 – Employee share-based incentives
Employee share-based awards
In 2020, 2019 and 2018, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2020, 67
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.
Predominantly all 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.
Performance share units (“PSUs”) are granted annually,
and approved by the Firm’s Board of Directors, to members
of the Firm’s Operating Committee under the variable
compensation program. 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. In addition,
dividends that accrue during the vesting period are
reinvested in dividend equivalent share units. PSUs and the
related dividend equivalent share units are converted into
shares of common stock after vesting.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be held for an additional
two-year period, for a total combined vesting and holding
period of approximately five to eight years from the grant
date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights (“SARs”) and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase’s common
stock on the grant date. SARs and stock options generally
expire ten years after the grant date. There were no
material grants of SARs or stock options in 2020, 2019 and
2018.
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
2020, 2019 and 2018, the Firm settled all of its employee
share-based awards by issuing treasury shares.
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
JPMorgan Chase & Co./2020 Form 10-K
221
Notes to consolidated financial statements
RSUs, PSUs, SARs and stock options 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 SARs and stock options, 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, SARs and stock options activity for 2020.
Year ended December 31, 2020
(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
SARs/Options
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
5,527
$
41.36
52,239 $
17,891
(21,502)
(1,118)
99.62
132.17
96.64
111.59
NA
NA
1
(2,389)
(4)
(11)
47,510 $
112.85
3,124
$
NA
NA
3,124
137.80
41.40
122.59
39.33
41.25
41.25
1.4 $ 265,059
1.4
265,059
The total fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018, was $2.8 billion, $2.9
billion and $3.6 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020,
2019 and 2018, was $182 million, $503 million and $370 million, respectively.
Tax benefits
Income tax benefits (including tax benefits from dividends
or dividend equivalents) related to share-based incentive
arrangements recognized in the Firm’s Consolidated
statements of income for the years ended December 31,
2020, 2019 and 2018, were $837 million, $895 million
and $1.1 billion, 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)
2020
2019
2018
Cost of prior grants of RSUs, PSUs, SARs
and stock options 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
$ 1,101 $ 1,141 $ 1,241
1,350
1,115
1,081
$ 2,451 $ 2,256 $ 2,322
At December 31, 2020, approximately $664 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.
222
JPMorgan Chase & Co./2020 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.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments or allowance for
credit losses, are reported in AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
investment securities gains/(losses) on the Consolidated
statements of income. HTM securities, which the Firm has
the intent and ability to hold until maturity, are carried at
amortized cost, net of allowance for credit losses, on the
Consolidated balance sheets.
For both AFS and HTM securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance, which also amended the AFS securities
impairment guidance. Refer to Note 1 for further
information.
During 2020, the Firm transferred $164.2 billion of
investment securities from AFS to HTM for capital
management purposes. AOCI included pretax unrealized
gains of $5.0 billion on the securities at the dates of
transfer.
Unrealized gains or losses at the date of transfer of these
securities continue to be reported in AOCI and are amortized
into interest income on a level-yield basis over the
remaining life of the securities. This amortization will offset
the effect on interest income of the amortization of the
premium or discount resulting from the transfer recorded at
fair value.
Transfers of securities from AFS to HTM are non-cash
transactions and are recorded at fair value.
JPMorgan Chase & Co./2020 Form 10-K
223
Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2020
2019
Amortized
cost(e)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost(e)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
$ 110,979 $
2,372 $
50
$ 113,301 $ 107,811 $
2,395 $
89
$ 110,117
6,246
3,751
2,819
—
22,587
215
10,055
6,174
224
20
71
2,687
2,141
1,404
—
354
4
24
91
3
5
34
92
6,467
3,766
2,856
10,223
2,477
5,137
126,390
125,648
100
201,951
139,162
1
—
13
3
31
16
20,396
27,693
—
77
22,928
21,427
216
823
10,048
6,249
25,038
5,438
233
64
64
2,756
449
2,118
—
377
22
9
40
6
1
13
109
175
1
—
17
—
56
20
10,450
2,540
5,188
128,295
139,436
29,810
77
21,787
845
24,991
5,458
381,729
6,705
256
388,178
345,306
5,771
378
350,699
December 31, (in millions)
Available-for-sale securities
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
Residential:
U.S.
Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies
123,795
199,910
Obligations of U.S. states and municipalities
18,993
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities(b)
Held-to-maturity securities(c)
Mortgage-backed securities:
U.S. GSEs and government agencies(a)
U.S. Residential
Commercial
107,889
2,968
4,345
2,602
8
77
Total mortgage-backed securities
114,836
3,053
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
53,184
12,751
50
519
Asset-backed securities:
Collateralized loan obligations
21,050
90
29
30
—
59
—
—
2
110,828
36,523
1,165
4,323
2,679
—
—
—
—
117,830
36,523
1,165
53,234
13,270
51
4,797
—
299
21,138
6,169
—
62
—
—
62
1
—
—
37,626
—
—
37,626
50
5,096
6,169
Total held-to-maturity securities, net of
allowance for credit losses(d)
Total investment securities, net of
allowance for credit losses(d)
201,821
3,712
61
205,472
47,540
1,464
63
48,941
$ 583,550 $ 10,417 $
317
$ 593,650 $ 392,846 $
7,235 $
441
$ 399,640
(a) Includes AFS U.S. GSE obligations with fair values of $65.8 billion and $78.5 billion, and HTM U.S. GSE obligations with amortized cost of $86.3 billion and
$31.6 billion, at December 31, 2020 and 2019, respectively. As of December 31, 2020, mortgage-backed securities issued by Fannie Mae and Freddie
Mac each exceeded 10% of JPMorgan Chase’s total stockholders’ equity; the amortized cost and fair value of such securities were $95.7 billion and $98.8
billion, and $54.7 billion and $55.8 billion, respectively.
(b) There was no allowance for credit losses on AFS securities at December 31, 2020.
(c) The Firm purchased $12.4 billion, $13.4 billion and $9.4 billion of HTM securities for the years ended December 31, 2020, 2019 and 2018, respectively.
(d) HTM securities measured at amortized cost are reported net of allowance for credit losses of $78 million at December 31, 2020.
(e) Excludes $2.1 billion and $1.9 billion of accrued interest receivables at December 31, 2020 and 2019, respectively. The Firm did not reverse through
interest income any accrued interest receivables for the years ended December 31, 2020 and 2019.
At December 31, 2020, 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 risk
ratings). Risk ratings are used to identify the credit quality
of securities and differentiate risk within the portfolio. The
Firm’s internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody’s,
however the quantitative characteristics (e.g., probability of
default (“PD”) and loss given default (“LGD”)) may differ as
they reflect internal historical experiences and
assumptions. Risk ratings are assigned at acquisition, are
reviewed on a regular and ongoing basis by Credit Risk
Management and are adjusted as necessary over the life of
the investment for updated information affecting the
issuer’s ability to fulfill its obligations.
224
JPMorgan Chase & Co./2020 Form 10-K
AFS securities impairment
The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31,
2020 and 2019. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency
MBS with unrealized losses of $150 million and $264 million, at December 31, 2020 and 2019, respectively; changes in the
value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the
explicit or implicit guarantees provided by the U.S. government.
December 31, 2020 (in millions)
Fair value
Gross
unrealized losses
Fair value
Gross
unrealized losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities with gross unrealized losses
Less than 12 months
12 months or more
$
562 $
3 $
32 $
— $
594 $
2,507
699
3,768
49
—
2,709
91
5,248
268
4
18
25
1
—
9
3
18
1
235
124
391
—
—
968
5
2,645
685
1
16
17
—
—
4
—
13
15
2,742
823
4,159
49
—
3,677
96
7,893
953
12,133 $
57 $
4,694 $
49 $
16,827 $
106
Available-for-sale securities with gross unrealized losses
Less than 12 months
12 months or more
December 31, 2019 (in millions)
Fair value
Gross
unrealized losses
Fair value
Gross
unrealized losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities
Mortgage-backed securities:
Residential:
U.S.
Non-U.S.
Commercial
Total mortgage-backed securities
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 with gross
unrealized losses
$
Available-for-sale securities
Mortgage-backed securities:
Residential:
U.S.
Non-U.S.
Commercial
Total mortgage-backed securities
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 with gross
unrealized losses
$
$
1,072 $
3 $
423 $
3 $
1,495 $
13
1,287
2,372
186
77
3,970
—
10,364
1,639
—
12
15
1
—
13
—
11
9
420
199
1,042
—
—
1,406
—
7,756
753
1
1
5
—
—
4
—
433
1,486
3,414
186
77
5,376
—
45
11
18,120
2,392
18,608 $
49 $
10,957 $
65 $
29,565 $
114
3
5
34
42
1
—
13
3
31
16
6
1
13
20
1
—
17
—
56
20
JPMorgan Chase & Co./2020 Form 10-K
225
Notes to consolidated financial statements
As a result of the adoption of the amended AFS securities
impairment guidance, an allowance for credit losses on AFS
securities is required for impaired securities if a credit loss
exists.
AFS securities are considered impaired if the fair value is
less than the amortized cost.
The Firm recognizes impairment 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. In these
circumstances the impairment loss recognized in
investment securities gains/(losses) is equal to the full
difference between the amortized cost (net of allowance if
applicable) and the fair value of the securities.
For impaired debt securities that the Firm has the intent
and ability to hold, the securities are evaluated to
determine if a credit loss exists. If it is determined that a
credit loss exists, that loss is recognized as an allowance for
credit losses through the provision for credit losses in the
Consolidated Statements of Income, limited by the amount
of impairment. Any impairment not due to credit losses is
recorded in OCI.
Factors considered in evaluating credit losses include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; and payment structure of
the security.
When assessing securities issued in a securitization for
credit losses, the Firm estimates cash flows considering
relevant market and economic data, 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.
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 evaluates impairment for credit losses
when there is an adverse change in expected cash flows.
Allowance for credit losses
Based on its assessment, the Firm did not recognize an
allowance for credit losses on impaired AFS securities as of
January 1, 2020 or December 31, 2020.
226
JPMorgan Chase & Co./2020 Form 10-K
Selected impacts of investment securities on the
Consolidated statements of income
Year ended December 31,
(in millions)
Realized gains
Realized losses
2020
2019
2018
$ 3,080
$ 650
$ 211
(2,278)
(392)
(606)
Net investment securities gains/
(losses)
$ 802
$ 258
$ (395)
Provision for credit losses
$
68
NA
NA
HTM securities – credit risk
The adoption of the CECL accounting guidance requires
management to estimate expected credit losses on HTM
securities over the remaining expected life and recognize
this estimate as an allowance for credit losses. As a result of
the adoption of this guidance, the Firm recognized an
allowance for credit losses on HTM obligations of U.S. states
and municipalities of $10 million as a cumulative-effect
adjustment to retained earnings as of January 1, 2020.
Credit quality indicator
The primary credit quality indicator for HTM securities is the
risk rating assigned to each security. At December 31,
2020, all HTM securities were rated investment grade and
were current and accruing, with approximately 98% rated
at least AA+.
Allowance for credit losses
The allowance for credit losses on HTM obligations of U.S.
states and municipalities and commercial mortgage-backed
securities is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the amortized cost. The
credit loss factors are derived using a weighted average of
five internally developed eight-quarter macroeconomic
scenarios, followed by a single year straight-line
interpolation to revert to long run historical information for
periods beyond the forecast period. Refer to Note 13 for
further information on the eight-quarter macroeconomic
forecast.
The allowance for credit losses on HTM collateralized loan
obligations and U.S. residential mortgage-backed securities
is calculated as the difference between the amortized cost
and the present value of the cash flows expected to be
collected, discounted at the security’s effective interest
rate. These cash flow estimates are developed based on
expectations of underlying collateral performance derived
using the eight-quarter macroeconomic forecast and the
single year straight-line interpolation, as well as considering
the structural features of the security.
The application of different inputs and assumptions into the
calculation of the allowance for credit losses is subject to
significant 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 on HTM securities.
The allowance for credit losses on HTM securities was $78
million as of December 31, 2020, reflecting $68 million
recognized in the provision for credit losses for the year
ended December 31, 2020.
JPMorgan Chase & Co./2020 Form 10-K
227
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2020, of JPMorgan Chase’s investment
securities portfolio by contractual maturity.
By remaining maturity
December 31, 2020 (in millions)
Available-for-sale securities
Mortgage-backed securities
Amortized cost
Fair value
Average yield(a)
U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(a)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(a)
Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(a)
Corporate debt securities
Amortized cost
Fair value
Average yield(a)
Asset-backed securities
Amortized cost
Fair value
Average yield(a)
Total available-for-sale securities
Amortized cost
Fair value
Average yield(a)
Held-to-maturity securities
Mortgage-backed securities
Amortized cost
Fair value
Average yield(a)
U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(a)
Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(a)
Asset-backed securities
Amortized cost
Fair value
Average yield(a)
Total held-to-maturity securities
Amortized cost
Fair value
Average yield(a)
Due in one
year or less
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(b)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
— %
33,633
33,678
0.42 %
33
33
4.11 %
8,282
8,297
1.25 %
—
—
— %
554
554
1.31 %
42,502
42,562
0.59 %
—
—
— %
501
501
1.86 %
—
—
— %
—
—
— %
501
501
1.86 %
$
$
$
$
$
$
$
$
$
$
$
$
741
756
1.66 %
110,033
111,014
0.53 %
203
211
4.59 %
8,011
8,225
1.70 %
141
139
1.21 %
2,569
2,591
2.00 %
121,698
122,936
0.65 %
158
160
1.56 %
42,477
42,511
0.60 %
65
67
3.09 %
—
—
— %
42,700
42,738
0.60 %
7,797
8,139
1.67 %
46,827
47,675
0.79 %
1,047
1,111
4.84 %
5,615
5,726
0.68 %
74
77
1.92 %
5,987
5,990
1.33 %
67,347
68,718
1.00 %
11,908
12,707
2.42 %
10,206
10,222
0.94 %
532
565
3.57 %
11,617
11,658
1.40 %
34,263
35,152
$
$
$
$
$
$
$
$
$
$
$
$
115,257
117,495
2.57 %
9,417
9,584
0.48 %
17,710
19,041
4.80 %
679
680
0.17 %
—
—
— %
7,119
7,162
1.48 %
150,182
153,962
2.64 %
102,791
104,963
2.94 %
—
—
— %
12,211
12,638
3.62 %
9,433
9,480
1.33 %
124,435
127,081
$
$
$
$
$
$
$
$
$
$
$
$
123,795
126,390
2.51 %
199,910
201,951
0.57 %
18,993
20,396
4.80 %
22,587
22,928
1.24 %
215
216
1.45 %
16,229
16,297
1.50 %
381,729
388,178
1.49 %
114,857
117,830
2.88 %
53,184
53,234
0.67 %
12,808
13,270
3.62 %
21,050
21,138
1.37 %
201,899
205,472
1.65 %
2.88 %
2.19 %
(a) 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. However, for certain callable
debt securities, the average yield is calculated to the earliest call date.
(b) 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 5 years for agency residential MBS, 4 years for agency
residential collateralized mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.
228
JPMorgan Chase & Co./2020 Form 10-K
Credit risk mitigation practices
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 U.S. GSEs and government
agencies 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.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
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. Where appropriate under applicable accounting
guidance, securities financing agreements with the same
counterparty are reported on a net basis. Refer to Note 1
for further discussion of the offsetting of assets and
liabilities. 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. Refer to Note 3 for further
information regarding the fair value option. 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 not elected under the fair
value option are measured at amortized cost. As a result of
the Firm’s credit risk mitigation practices described below,
the Firm did not hold any allowance for credit losses with
respect to resale and securities borrowed arrangements as
of December 31, 2020 and 2019.
JPMorgan Chase & Co./2020 Form 10-K
229
presentation. Where the Firm has obtained an appropriate
legal opinion with respect to the counterparty master
netting agreement, such collateral, along with securities
financing balances that do not meet all these relevant
netting criteria under U.S. GAAP, is presented in the table
below as “Amounts not nettable on the Consolidated
balance sheets,” and reduces the “Net amounts” presented.
Where a legal opinion has not been either sought or
obtained, the securities financing balances are presented
gross in the “Net amounts” below.
Notes to consolidated financial statements
The table below summarizes the gross and net amounts of
the Firm’s securities financing agreements, as of December
31, 2020 and 2019. When the Firm has obtained an
appropriate legal opinion with respect to a 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 counterparty to reduce the
economic exposure with the counterparty, but such
collateral is not eligible for net Consolidated balance sheet
December 31, (in millions)
Gross amounts
Assets
2020
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
23,078
45,416
Securities purchased under resale agreements
$
666,467 $
(370,183) $
296,284 $
(273,206)
$
Securities borrowed
Liabilities
193,700
(33,065)
160,635
(115,219)
Securities sold under repurchase agreements
Securities loaned and other(a)
$
578,060 $
(370,183) $
207,877 $
(191,980)
$
15,897
41,366
(33,065)
8,301
(8,257)
44
December 31, (in millions)
Gross amounts
Assets
2019
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
Securities purchased under resale agreements
$
628,609 $
(379,463) $
249,146 $
Securities borrowed
Liabilities
166,718
(26,960)
139,758
(231,147) (d) $
(104,990)
17,999
(d)
34,768
Securities sold under repurchase agreements
Securities loaned and other(a)
$
555,172 $
(379,463) $
175,709 $
(151,566)
$
24,143
36,649
(26,960)
9,689
(9,654)
35
(a) Includes securities-for-securities lending agreements of $3.4 billion and $3.7 billion at December 31, 2020 and 2019, respectively, accounted for at fair
value, where the Firm is acting as lender. In the Consolidated balance sheets, the Firm recognizes the securities received at fair value within other assets
and the obligation to return those securities within accounts payable and other liabilities.
(b) 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.
(c) 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, 2020 and 2019, included $17.0 billion and $11.0 billion, respectively, of securities
purchased under resale agreements; $42.1 billion and $31.9 billion, respectively, of securities borrowed; $14.5 billion and $22.7 billion, respectively, of
securities sold under repurchase agreements; and $8 million and $7 million, respectively, of securities loaned and other.
(d) The prior period amounts have been revised to conform with the current period presentation.
230
JPMorgan Chase & Co./2020 Form 10-K
The tables below present as of December 31, 2020 and 2019 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:
Gross liability balance
2020
2019
Securities sold
under repurchase
agreements
Securities loaned
and other
Securities sold
under repurchase
agreements
Securities loaned
and other
U.S. GSEs and government agencies
$
56,744
$
Residential - nonagency
Commercial - nonagency
U.S. Treasury, GSEs and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
1,016
855
315,834
1,525
157,563
22,849
694
20,980
$
578,060
$
—
—
—
143
2
1,730
1,864
—
37,627
41,366
$
34,119
$
1,239
1,612
334,398
1,181
145,548
13,826
1,794
21,455
$
555,172
$
—
—
—
29
—
1,528
1,580
—
33,512
36,649
2020 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
$
238,667
$
230,980
$
70,777
$
37,636
$
578,060
Total securities loaned and other
37,887
1,647
500
1,332
41,366
Remaining contractual maturity of the agreements
Remaining contractual maturity of the agreements
2019 (in millions)
Overnight and
continuous
Up to 30 days
30 – 90 days
Greater than
90 days
Total securities sold under repurchase agreements
$
225,134
$
195,816
(a) $
56,020
(a) $
78,202
(a) $
Total securities loaned and other
32,028
1,706
937
1,978
Total
555,172
36,649
(a) The prior period amounts have been revised to conform with the current period presentation.
Transfers not qualifying for sale accounting
At December 31, 2020 and 2019, the Firm held $598 million and $743 million, 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.
JPMorgan Chase & Co./2020 Form 10-K
231
Notes to consolidated financial statements
Note 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan. The Firm accounts for loans based on
the following categories:
• Originated or purchased loans held-for-investment (i.e.,
“retained”)
•
•
Loans held-for-sale
Loans at fair value
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. Refer to Note 1 for further
information.
The following provides a detailed accounting discussion of
the Firm’s loans by category:
Loans held-for-investment
Originated or purchased loans held-for-investment 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.
Interest income
Interest income on performing loans held-for-investment 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.
The Firm classifies accrued interest on loans, including
accrued but unbilled interest on credit card loans, in
accrued interest and accounts receivables on the
Consolidated balance sheets. For credit card loans, accrued
interest once billed is then recognized in the loan balances,
with the related allowance recorded in the allowance for
credit losses. Changes in the allowance for credit losses on
accrued interest on credit card loans are recognized in the
provision for credit losses and charge-offs are recognized
by reversing interest income. Expected losses related to
accrued interest on certain performing, modified loans to
borrowers impacted by COVID-19 are considered in the
Firm’s allowance for loan losses. For other loans, the Firm
generally does not recognize an allowance for credit losses
on accrued interest receivables, consistent with its policy to
write them off no later than 90 days past due by reversing
interest income.
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.
Allowance for loan losses
The allowance for loan losses represents the estimated
expected credit losses 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 amortized
cost 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 are generally charged off or charged down
to the lower of the amortized cost or the net realizable
value of the underlying collateral (i.e., fair value less
estimated 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, unmodified credit card loans
and scored business banking 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.
232
JPMorgan Chase & Co./2020 Form 10-K
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
Loans held-for-sale 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.
Because these 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. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
Loans at fair value
Loans for which the fair value option has been elected 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.
Certain consumer loans are 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 or
charged down 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 the government-
guaranteed portion of loans.
Wholesale loans are charged off when it is highly certain
that a loss has been realized. 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 lower of its amortized
cost or the estimated net realizable value of the underlying
collateral, 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 generally
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
JPMorgan Chase & Co./2020 Form 10-K
233
Notes to consolidated financial statements
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 amortized cost on the date
of transfer. These loans are subsequently assessed for
impairment based on the Firm’s allowance methodology.
Refer to Note 13 for a further discussion of the
methodologies used in establishing the Firm’s allowance for
loan losses.
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 delays, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments. Such modifications are accounted for and
reported as TDRs. Loans with short-term and other
insignificant modifications that are not considered
concessions are not TDRs.
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.
Loans modified in TDRs are generally 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
component of the allowance throughout its remaining life,
regardless of whether the loan is performing and has been
returned to accrual status. Refer to Note 13 for further
discussion of the methodology used to estimate the Firm’s
asset-specific allowance.
The Firm has granted various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm’s COVID-19 related loan
modifications have not been considered TDRs because:
•
•
they represent short-term or other insignificant
modifications, whether under the Firm’s regular loan
modification assessments or as permitted by regulatory
guidance, or
the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRs as provided
by the CARES Act and extended by the Consolidated
Appropriations Act.
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs.
As permitted by regulatory guidance, the Firm does not
place loans with deferrals granted due to COVID-19 on
nonaccrual status where such loans are not otherwise
reportable as nonaccrual. The Firm considers expected
losses of principal and accrued interest associated with all
COVID-19 related loan modifications in its allowance for
credit losses.
Assistance provided in response to the COVID-19 pandemic
could delay the recognition of delinquencies, nonaccrual
status, and net charge-offs for those customers who would
have otherwise moved into past due or nonaccrual status.
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
estimated 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.
In response to the COVID-19 pandemic, the Firm has
temporarily suspended certain foreclosure activities. This
could delay recognition of foreclosed properties until the
foreclosure moratoriums are lifted.
234
JPMorgan Chase & Co./2020 Form 10-K
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.
In conjunction with the adoption of CECL, the Firm revised its loan classes. Prior-period amounts have been revised to conform
with the current presentation:
•
The consumer, excluding credit card portfolio segment’s residential mortgage and home equity loans and lending-related
commitments have been combined into a residential real estate class.
• Upon adoption of CECL, the Firm elected to discontinue the pool-level accounting for PCI loans and to account for these
loans on an individual loan basis. PCI loans are considered PCD loans under CECL and are subject to the Firm’s nonaccrual
and charge-off policies. PCD loans are now reported in the consumer, excluding credit card portfolio segment’s residential
real estate class.
• Risk-rated business banking and auto dealer loans and lending-related commitments held in CCB were reclassified from the
consumer, excluding credit card portfolio segment, to the wholesale portfolio segment, to align with the methodology
applied when determining the allowance. The remaining scored auto and business banking loans and lending-related
commitments have been combined into an auto and other class.
The wholesale portfolio segment’s classes, previously based on the borrower’s primary business activity, have been revised
to align with the loan classifications as defined by the bank regulatory agencies, based on the loan’s collateral, purpose,
and type of borrower.
•
Consumer, excluding
credit card
• Residential real estate(a)
• Auto and other(b)
Credit card
Wholesale(c)
• Credit card loans
• Secured by real estate
• Commercial and industrial
• Other(d)
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB and Corporate.
(b) Includes scored auto and business banking loans and overdrafts.
(c) Includes loans held in CIB, CB, AWM, Corporate as well as risk-rated business banking and auto dealer loans held in CCB for which the wholesale
methodology is applied when determining the allowance for loan losses.
(d) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPEs.
JPMorgan Chase & Co./2020 Form 10-K
235
Notes to consolidated financial statements
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2020
(in millions)
Retained
Held-for-sale
At fair value(a)
Total
December 31, 2019
(in millions)
Retained
Held-for-sale
At fair value(a)
Total
Consumer, excluding
credit card
Credit card
Wholesale
$ 302,127
$ 143,432
$ 514,947
1,305
15,147
784
—
5,784
29,327
Total(b)(c)
$ 960,506
7,873
44,474
$ 318,579
$ 144,216
$ 550,058
$ 1,012,853
Consumer, excluding
credit card
Credit card
Wholesale
$ 294,999
$ 168,924
$ 481,678
3,002
19,816
—
—
4,062
25,139
Total(b)(c)
$ 945,601
7,064
44,955
$ 317,817
$ 168,924
$ 510,879
$ 997,620
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period
amounts have been revised to conform with the current presentation.
(b) Excludes $2.9 billion of accrued interest receivables at both December 31, 2020 and 2019. The Firm wrote off accrued interest receivables of
$121 million and $50 million for the years ended December 31, 2020 and 2019, respectively.
(c) Loans (other than 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, 2020 and 2019.
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. 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
Consumer, excluding
credit card
Credit card
Wholesale
Total
2020
$
3,474
(b)(c)
$
Sales
Retained loans reclassified to held-for-sale(a)
352
2,084
$
1,159
$
17,916
1,580
4,633
18,268
4,451
—
—
787
2019
Year ended December 31,
(in millions)
Purchases
Consumer, excluding
credit card
Credit card
Wholesale
Total
$
1,282
(b)(c)
$
Sales
Retained loans reclassified to held-for-sale(a)
30,474
9,188
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale(a)
Consumer, excluding
credit card
Credit card
(b)(c)
$
$
2,543
9,984
36
$
$
2018
—
—
—
—
—
—
1,291
23,445
2,371
$
2,573
53,919
11,559
Wholesale
Total
2,354
16,741
2,276
$
4,897
26,725
2,312
(a) Reclassifications of loans to held-for-sale are non-cash transactions.
(b) Predominantly includes purchases of residential real estate loans, including the Firm’s voluntary repurchases of certain delinquent loans from loan pools
as permitted by Government National Mortgage Association (“Ginnie Mae”) guidelines for the years ended December 31, 2020, 2019 and 2018. 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.
(c) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards.
Such purchases were $15.3 billion, $16.6 billion and $18.6 billion for the years ended December 31, 2020, 2019 and 2018, respectively.
Gains and losses on sales of loans
Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending-
related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $(43) million for
the year ended December 31, 2020 of which $(36) million was related to loans. Net gains on sales of loans was $394 million
for the year ended December 31, 2019. Gains and losses on sales of loans was not material for the year ended December 31,
2018. 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.
236
JPMorgan Chase & Co./2020 Form 10-K
Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of scored residential mortgages, home equity
loans and lines of credit, auto 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.
December 31, (in millions)
Residential real estate
Auto and other(a)
Total retained loans
2020
2019
$ 225,302 $ 243,317
76,825
51,682
•
$ 302,127 $ 294,999
(a) At December 31, 2020, included $19.2 billion of loans in Business
Banking under the PPP.
Delinquency rates are the 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
to be 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, 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 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.
JPMorgan Chase & Co./2020 Form 10-K
237
Notes to consolidated financial statements
Residential real estate
The following table provides information on delinquency, which is the primary credit quality indicator for retained residential
real estate loans.
Term loans by origination year
Revolving loans
December 31, 2020
December
31, 2019
(in millions, except ratios)
Loan delinquency(a)(b)
2020
2019
2018
2017
2016
Prior to
2016
Within the
revolving
period
Converted
to term
loans
Total
Total
Current
$ 55,562
$ 31,820
$ 13,900
$ 20,410
$ 27,978
$ 50,232
$ 7,370
$ 15,792
$ 223,064
$ 239,979
30–149 days past due
150 or more days past due
9
3
25
14
20
10
22
18
29
18
674
844
21
22
245
264
1,045
1,910
1,193
1,428
Total retained loans
$ 55,574
$ 31,859
$ 13,930
$ 20,450
$ 28,025
$ 51,750
$ 7,413
$ 16,301
$ 225,302
$ 243,317
% of 30+ days past due to
total retained loans(c)
0.02 %
0.12 %
0.22 %
0.20 %
0.17 %
2.86 %
0.58 %
3.12 %
0.98 %
1.35 %
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $36 million and $17
million; 30–149 days past due included $16 million and $20 million; and 150 or more days past due included $24 million and $26 million at
December 31, 2020 and 2019, respectively.
(b) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
(c) At December 31, 2020 and 2019, residential real estate loans excluded mortgage loans insured by U.S. government agencies of $40 million and $46
million, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
Approximately 35% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien
position the Firm holds is considered in the Firm’s allowance for credit losses. Revolving loans that have been converted to
term loans have higher delinquency rates than those that are still 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 revolving loans within the revolving period.
238
JPMorgan Chase & Co./2020 Form 10-K
Nonaccrual loans and other credit quality indicators
The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate
loans.
(in millions, except weighted-average data)
Nonaccrual loans(a)(b)(c)(d)(e)
90 or more days past due and government guaranteed(f)
Current estimated LTV ratios(g)(h)
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
Weighted average LTV ratio(g)(i)
Weighted average FICO(h)(i)
Geographic region(j)
California
New York
Florida
Texas
Illinois
Colorado
Washington
New Jersey
Massachusetts
Connecticut
All other(k)
Total retained loans
December 31, 2020
December 31, 2019
$
$
$
$
5,313
$
$
33
10
18
72
65
2,365
435
208,457
12,072
1,732
76
225,302
$
54 %
763
73,444
$
32,287
13,981
13,773
13,130
8,235
7,917
7,227
5,784
5,024
44,500
$
225,302
$
2,780
38
31
38
134
132
5,953
764
219,469
14,681
2,052
63
243,317
55 %
758
82,147
31,996
13,668
14,474
15,587
8,447
8,990
7,752
6,210
4,954
49,092
243,317
(a) Includes collateral-dependent residential real estate loans that are charged down to the lower of amortized cost or 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, 2020,
approximately 7% of Chapter 7 residential real estate loans were 30 days or more past due, respectively.
(b) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized
interest income on each pool of PCI loans as each of the pools was performing.
(c) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered collateral-
dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying
collateral improves subsequent to the charge down, the related allowance may be negative.
(d) Interest income on nonaccrual loans recognized on a cash basis was $161 million and $166 million for the years ended December 31, 2020 and 2019, respectively.
(e) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19
payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-
dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell.
(f) These balances are 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, 2020 and 2019, these balances
included $33 million and $34 million, 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, 2020 and 2019.
(g) 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. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as
unused lines, related to the property.
(h) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(i) Excludes loans with no FICO and/or LTV data available.
(j) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
(k) At December 31, 2020 and 2019, included mortgage loans insured by U.S. government agencies of $76 million and $63 million, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
JPMorgan Chase & Co./2020 Form 10-K
239
Notes to consolidated financial statements
Loan modifications
Modifications of residential real estate loans, where the
Firm grants concessions to borrowers who are experiencing
financial difficulty are generally accounted for and reported
as TDRs. Loans with short-term or other insignificant
modifications that are not considered concessions are not
TDRs nor are loans for which the Firm has elected to apply
the option to suspend the application of accounting
guidance for TDRs as provided by the CARES Act and
extended by the Consolidated Appropriations Act. The
carrying value of new TDRs was $819 million, $490 million
and $736 million for the years ended December 31, 2020,
2019 and 2018, respectively. There were no additional
commitments to lend to borrowers whose residential real
estate loans have been modified in TDRs.
Nature and extent of modifications
The Firm’s proprietary modification programs as well as
government programs, including U.S. GSE programs,
generally provide various concessions to financially
troubled borrowers including, but not limited to, interest
rate reductions, term or payment extensions and delays 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 were modified in TDRs 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, loans with short-term or other insignificant modifications that are not considered
concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting guidance
for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act.
Year ended December 31,
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)
2020
5,522
6,850
50 %
49
14
2
66
2019
5,872
4,918
77 %
71
13
5
63
2018
7,175
7,853
54 %
62
29
7
51
(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 and payment delays that meet the definition of a TDR for the years ended December 31,
2020, 2019 and 2018.
240
JPMorgan Chase & Co./2020 Form 10-K
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 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 do 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, loans with short-term or other insignificant modifications that are not
considered concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting
guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act.
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
Balance of loans that redefaulted within one year of permanent modification(a)
2020
5.09 %
3.28
22
39
5
16
5
$
2019
5.68 %
3.81
20
39
1
19
7
$
2018
5.50 %
3.60
21
38
2
30
17
199
$
166
$
161
$
$
(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 will generally be liquidated through foreclosure or another similar type of liquidation transaction.
Redefaults of loans modified within the last twelve months may not be representative of ultimate redefault levels.
At December 31, 2020, the weighted-average estimated remaining lives of residential real estate loans permanently modified
in TDRs were 6 years. 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, 2020 and 2019, the Firm had residential real estate loans, excluding those insured by U.S. government
agencies, with a carrying value of $846 million and $1.2 billion, respectively, that were not included in REO, but were in the
process of active or suspended foreclosure.
JPMorgan Chase & Co./2020 Form 10-K
241
Notes to consolidated financial statements
Auto and other
The following table provides information on delinquency, which is the primary credit quality indicator for retained auto and
other consumer loans.
Term Loans by origination year
Revolving loans
December 31, 2020
December
31, 2019
(in millions, except ratios)
Loan delinquency(a)
2020
2019
2018
2017
2016
Prior to
2016
Within the
revolving
period
Converted
to term
loans
Total
Total
Current
$ 46,169
(b) $ 12,829
$ 7,367
$ 4,521
$ 2,058
$
742
$ 2,517
$
158
$ 76,361
$ 51,005
30–119 days past due
120 or more days past due
97
—
107
—
77
—
53
1
42
—
23
1
30
8
17
8
446
18
667
10
Total retained loans
$ 46,266
$ 12,936
$ 7,444
$ 4,575
$ 2,100
$
766
$ 2,555
$
183
$ 76,825
$ 51,682
% of 30+ days past due to
total retained loans
0.21 %
0.83 %
1.03 %
1.18 %
2.00 %
3.13 %
1.49 % 13.66 %
0.60 %
1.31 %
(a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
(b) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain
limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans.
Nonaccrual and other credit quality indicators
The following table provides information on nonaccrual and other credit quality indicators for retained auto and other
consumer loans.
(in millions, except ratios)
Nonaccrual loans(a)(b)(c)
Geographic region(d)
California
New York
Texas
Florida
Illinois
New Jersey
Arizona
Ohio
Pennsylvania
Colorado
All other
Total Auto and other
December 31, 2020
December 31, 2019
151
$
12,302 $
146
7,795
3,706
5,457
3,025
2,443
1,798
1,347
1,490
1,721
1,247
21,653
51,682
8,824
8,235
4,668
3,768
2,646
2,465
2,163
1,924
1,910
27,920
76,825 $
Total retained loans
$
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2020 and 2019.
(b) All nonaccrual auto and other consumer loans generally have an allowance. Certain nonaccrual loans that are considered collateral-dependent have been
charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying collateral
improves subsequent to the charge down, the related allowance may be negative.
(c) Interest income on nonaccrual loans recognized on a cash basis was not material for the years ended December 31, 2020 and 2019.
(d) The geographic regions presented in this table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
Loan modifications
Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who
are experiencing financial difficulty. Loans with short-term or other insignificant modifications that are not considered
concessions are not TDRs.
The impact of these modifications, as well as new TDRs, were not material to the Firm for the years ended December 31,
2020, 2019 and 2018. Additional commitments to lend to borrowers whose loans have been modified in TDRs as of
December 31, 2020 and 2019 were not material.
242
JPMorgan Chase & Co./2020 Form 10-K
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 the credit
score calculation.
The following table provides information on delinquency, which is the primary credit quality indicator for retained credit card
loans.
(in millions, except ratios)
Loan delinquency(a)
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
Total retained loans
Loan delinquency ratios
Within the revolving period
December 31, 2020
Converted to term loans(b)
December 31, 2019
Total
Total
$
$
139,783
$
1,239
$
141,022
$
165,767
997
1,277
94
42
1,091
1,319
1,550
1,607
142,057
$
1,375
$
143,432
$
168,924
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
1.60 %
0.90
9.89 %
3.05
1.68 %
0.92
1.87 %
0.95
(a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
(b) Represents TDRs.
Other credit quality indicators
The following table provides information on other credit quality indicators for retained credit card loans.
December 31, 2020
December 31, 2019
(in millions, except ratios)
Geographic region(a)
California
Texas
New York
Florida
Illinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other
$
20,921
$
14,544
11,919
9,562
8,006
5,927
4,673
4,476
4,092
3,553
55,759
25,783
16,728
14,544
10,830
9,579
7,165
5,406
5,245
4,763
4,164
64,717
168,924
84.0 %
15.4
0.6
243
Total retained loans
$
143,432
$
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660
Less than 660
No FICO available
85.9 %
13.9
0.2
(a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
Loan modifications
The Firm may offer one of a number of loan modification
programs granting concessions to credit card borrowers
who are experiencing financial difficulty. The Firm grants
concessions for most of the credit card loans under long-
term programs. 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 under the Firm’s long-
term programs are considered to be TDRs. Loans with
short-term or other insignificant modifications that are not
considered concessions are not 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.
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.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Year ended December 31,
(in millions, except
weighted-average data)
Balance of new TDRs(a)
Weighted-average interest rate
of loans – before TDR
Weighted-average interest rate
of loans – after TDR
Balance of loans that
redefaulted within one year of
modification(b)
2020
2019
2018
$ 818
$ 961
$ 866
18.04 % 19.07 % 17.98 %
4.64
4.70
5.16
$ 110
$ 148
$ 116
(a) Represents the outstanding balance prior to modification.
(b) 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.
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. Defaulted modified
credit card loans remain in the modification program and
continue to be charged off in accordance with the Firm’s
standard charge-off policy.
244
JPMorgan Chase & Co./2020 Form 10-K
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 internal 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 internal 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 internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody’s,
however the quantitative characteristics (e.g., PD and LGD)
may differ as they reflect internal historical experiences and
assumptions. The Firm generally considers internal ratings
with qualitative characteristics equivalent to BBB-/Baa3 or
higher as investment grade, and these ratings have a lower
PD and/or lower LGD than non-investment grade ratings.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, 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 PD
than noncriticized loans. The Firm’s definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
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.
JPMorgan Chase & Co./2020 Form 10-K
245
Notes to consolidated financial statements
The following tables provide information on internal risk rating, which is the primary credit quality indicator for retained
wholesale loans.
December 31,
(in millions, except ratios)
Loans by risk ratings
Secured by real estate
Commercial and industrial
Other(b)
Total retained loans
2020
2019
2020
2019
2020
2019
2020
2019
Investment-grade
$
90,147
$
96,611
$
71,917
(a) $
80,489
$ 217,209
$ 186,344
$ 379,273
(a) $ 363,444
Noninvestment- grade:
Noncriticized
26,129
22,493
Criticized performing
Criticized nonaccrual
3,234
483
1,131
183
Total noninvestment- grade
29,846
23,807
57,870
10,991
1,931
70,792
60,437
4,399
844
65,680
33,053
1,079
904
27,591
1,126
30
117,052
15,304
3,318
110,521
6,656
1,057
35,036
28,747
135,674
118,234
Total retained loans
$ 119,993
$ 120,418
$ 142,709
$ 146,169
$ 252,245
$ 215,091
$ 514,947
$ 481,678
% of investment-grade to
total retained loans
% of total criticized to total
retained loans
% of criticized nonaccrual to
total retained loans
75.13 %
80.23 %
50.39 %
55.07 %
86.11 %
86.63 %
73.65 %
75.45 %
3.10
0.40
1.09
0.15
9.05
1.35
3.59
0.58
0.79
0.36
0.54
0.01
3.62
0.64
1.60
0.22
Secured by real estate
December 31, 2020
December
31, 2019
Term loans by origination year
Revolving loans
(in millions)
2020
2019
2018
2017
2016
Loans by risk ratings
Prior to
2016
Within the
revolving
period
Converted to
term loans
Total
Total
Investment-grade
$
16,560 $
19,575 $
12,192 $
11,017 $
13,439 $
16,266
$
1,098 $
Noninvestment-grade
3,327
4,339
4,205
2,916
2,575
11,994
489
Total retained loans
$
19,887 $
23,914 $
16,397 $
13,933 $
16,014 $
28,260
$
1,587 $
—
1
1
$
90,147
$
96,611
29,846
23,807
$ 119,993
$ 120,418
Commercial and industrial
December 31, 2020
December
31, 2019
Term loans by origination year
Revolving loans
(in millions)
2020
2019
2018
2017
2016
Loans by risk ratings
Prior to
2016
Within the
revolving
period
Converted
to term
loans
Total
Total
Investment-grade
$
21,211
(a) $
7,304 $
2,934 $
1,748 $
1,032 $
1,263
$
36,424 $
Noninvestment-grade
15,060
8,636
5,131
2,104
497
2,439
36,852
Total retained loans
$
36,271
$
15,940 $
8,065 $
3,852 $
1,529 $
3,702
$
73,276 $
1
73
74
$
71,917
$
80,489
70,792
65,680
$ 142,709
$ 146,169
Other(b)
December 31, 2020
December
31, 2019
Term loans by origination year
Revolving loans
(in millions)
2020
2019
2018
2017
2016
Loans by risk ratings
Prior to
2016
Within the
revolving
period
Converted to
term loans
Total
Total
Investment-grade
$
31,389 $
10,169 $
6,994 $
6,206 $
3,553 $
12,595
$ 145,524 $
779
$ 217,209
$ 186,344
Noninvestment-grade
5,009
2,220
1,641
550
146
636
24,710
124
35,036
28,747
Total retained loans
$
36,398 $
12,389 $
8,635 $
6,756 $
3,699 $
13,231
$ 170,234 $
903
$ 252,245
$ 215,091
(a) At December 31, 2020, included $8.0 billion of loans under the PPP, of which $7.4 billion is included in commercial and industrial. PPP loans are
guaranteed by the SBA and considered investment-grade. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs,
classify as nonaccrual nor record an allowance for loan losses on these loans.
(b) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPEs.
246
JPMorgan Chase & Co./2020 Form 10-K
The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio,
which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending
includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes
financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by real
estate loans is $6.4 billion and $6.3 billion as of December 31, 2020 and 2019, respectively, of construction and development
loans made to finance land development and on-site construction of commercial, industrial, residential, or farm buildings.
December 31,
(in millions, except ratios)
Multifamily
Other Commercial
Total retained loans secured
by real estate
2020
2019
2020
2019
2020
2019
Retained loans secured by real estate
$ 73,078
$ 73,840
$ 46,915
$ 46,578
$ 119,993
$ 120,418
Criticized
1,144
340
2,573
974
3,717
1,314
% of total criticized to total retained loans secured by real estate
1.57 %
0.46 %
5.48 %
2.09 %
3.10 %
1.09 %
Criticized nonaccrual
$
56
$
28
$
427
$
155
$
483
$
183
% of criticized nonaccrual loans to total retained loans secured by real estate
0.08 %
0.04 %
0.91 %
0.33 %
0.40 %
0.15 %
The following table provides additional information about retained wholesale loans, including geographic distribution,
delinquency and net charge-offs.
December 31,
(in millions)
Loans by geographic distribution(a)
Total U.S.
Total non-U.S.
Total retained loans
Loan delinquency(b)
Secured by real estate
Commercial
and industrial
Other
Total
retained loans
2020
2019
2020
2019
2020
2019
2020
2019
$ 116,990
$ 117,836
$ 109,273
$ 111,954
$ 180,583
$ 150,512
$ 406,846
$ 380,302
3,003
2,582
33,436
34,215
71,662
64,579
108,101
101,376
$ 119,993
$ 120,418
$ 142,709
$ 146,169
$ 252,245
$ 215,091
$ 514,947
$ 481,678
Current and less than 30 days past due and still accruing $ 118,894
$ 120,119
$ 140,100
$ 144,839
$ 249,713
$ 214,641
$ 508,707
$ 479,599
30–89 days past due and still accruing
90 or more days past due and still accruing(c)
Criticized nonaccrual
Total retained loans
Net charge-offs/(recoveries)
% of net charge-offs/(recoveries) to end-of-period
retained loans
601
15
483
115
1
183
658
20
1,931
449
37
844
1,606
22
904
415
5
30
2,865
57
979
43
3,318
1,057
$ 119,993
$ 120,418
$ 142,709
$ 146,169
$ 252,245
$ 215,091
$ 514,947
$ 481,678
$
10
$
44
$
737
$
335
$
52
$
36
$
799
$
415
0.01 %
0.04 %
0.52 %
0.23 %
0.02 %
0.02 %
0.16 %
0.09 %
(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. Generally excludes loans under payment deferral programs offered in response
to the COVID-19 pandemic.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
Nonaccrual loans
The following table provides information on retained wholesale nonaccrual loans.
December 31,
(in millions)
Nonaccrual loans(a)
Secured by real estate
Commercial
and industrial
Other
Total
retained loans
2020
2019
2020
2019
2020
2019
2020
2019
With an allowance
Without an allowance(b)
Total nonaccrual loans(c)
$
$
351 $
132
483 $
169
$
1,667 $
688
$
14
264
156
183
$
1,931 $
844
$
800 $
104
904 $
28
$
2,818
$
2
500
885
172
30
$
3,318
$
1,057
(a) Loans that were modified in response to the COVID-19 pandemic continue to be risk-rated in accordance with the Firm’s overall credit risk management framework.
As of December 31, 2020, predominantly all of these loans were considered performing.
(b) When the discounted cash flows, collateral value or market price equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This
typically occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(c) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2020 and 2019.
Loan modifications
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRs
nor are loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as
provided by the CARES Act and extended by the Consolidated Appropriations Act. The carrying value of TDRs was $954 million
and $501 million as of December 31, 2020 and 2019, respectively. The carrying value of new TDRs was $734 million,
$407 million and $718 million for the years ended December 31, 2020, 2019 and 2018, respectively. The impact of these
modifications, as well as new TDRs, were not material to the Firm for the years ended December 31, 2020, 2019 and 2018.
JPMorgan Chase & Co./2020 Form 10-K
247
Notes to consolidated financial statements
Note 13 – Allowance for credit losses
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption of this guidance
established a single allowance framework for all financial
assets measured at amortized cost and certain off-balance
sheet credit exposures. This framework requires that
management’s estimate reflects credit losses over the
instrument’s remaining expected life and considers expected
future changes in macroeconomic conditions. Refer to Note
1 for further information.
JPMorgan Chase’s allowance for credit losses comprises:
• the allowance for loan losses, which covers the Firm’s
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
• the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
• the allowance for credit losses on investment securities,
which covers the Firm’s HTM and AFS securities and is
recognized within Investment Securities on the
Consolidated balance sheets.
The income statement effect of all changes in the allowance
for credit losses is recognized in the provision for credit
losses.
Determining the appropriateness of the allowance for credit
losses is complex and requires significant judgment by
management about the effect of matters that are inherently
uncertain. At least quarterly, the allowance for credit losses
is reviewed by the CRO, the CFO and the Controller of the
Firm. Subsequent evaluations of credit exposures,
considering the macroeconomic conditions, forecasts and
other factors then prevailing, may result in significant
changes in the allowance for credit losses in future periods.
The Firm’s policies used to determine its allowance for loan
losses and its allowance for lending-related commitments
are described in the following paragraphs. Refer to Note 10
for a description of the policies used to determine the
allowance for credit losses on investment securities.
Methodology for allowances for loan losses and lending-
related commitments
The allowance for loan losses and allowance for lending-
related commitments represents expected credit losses over
the remaining expected life of retained loans and lending-
related commitments that are not unconditionally
cancellable. The Firm does not record an allowance for
future draws on unconditionally cancellable lending-related
commitments (e.g., credit cards). Expected losses related to
accrued interest on credit card loans and certain
performing, modified loans to borrowers impacted by
COVID-19 are considered in the Firm’s allowance for loan
losses. However, the Firm does not record an allowance on
other accrued interest receivables, due to its policy to write
these receivables off no later than 90 days past due by
reversing interest income.
The expected life of each instrument is determined by
considering its contractual term, expected prepayments,
cancellation features, and certain extension and call options.
The expected life of funded credit card loans is generally
estimated by considering expected future payments on the
credit card account, and determining how much of those
amounts should be allocated to repayments of the funded
loan balance (as of the balance sheet date) versus other
account activity. This allocation is made using an approach
that incorporates the payment application requirements of
the Credit Card Accountability Responsibility and Disclosure
Act of 2009, generally paying down the highest interest rate
balances first.
The estimate of expected credit losses includes expected
recoveries of amounts previously charged off or expected to
be charged off, even if such recoveries result in a negative
allowance.
Collective and Individual Assessments
When calculating the allowance for loan losses and the
allowance for lending-related commitments, the Firm
assesses whether exposures share similar risk
characteristics. If similar risk characteristics exist, the Firm
estimates expected credit losses collectively, considering the
risk associated with a particular pool and the probability
that the exposures within the pool will deteriorate or
default. The assessment of risk characteristics is subject to
significant management judgment. Emphasizing one
characteristic over another or considering additional
characteristics could affect the allowance.
• Relevant risk characteristics for the consumer portfolio
include product type, delinquency status, current FICO
scores, geographic distribution, and, for collateralized
loans, current LTV ratios.
• Relevant risk characteristics for the wholesale portfolio
include LOB, geography, risk rating, delinquency status,
level and type of collateral, industry, credit enhancement,
product type, facility purpose, tenor, and payment terms.
The majority of the Firm’s credit exposures share risk
characteristics with other similar exposures, and as a result
are collectively assessed for impairment (“portfolio-based
component”). The portfolio-based component covers
consumer loans, performing risk-rated loans and certain
lending-related commitments.
If an exposure does not share risk characteristics with other
exposures, the Firm generally estimates expected credit
losses on an individual basis, considering expected
repayment and conditions impacting that individual
exposure (“asset-specific component”). The asset-specific
component covers modified PCD loans, loans modified or
reasonably expected to be modified in a TDR, collateral-
dependent loans, as well as, risk-rated loans that have been
placed on nonaccrual status.
Portfolio-based component
The portfolio-based component begins with a quantitative
calculation that considers the likelihood of the borrower
changing delinquency status or moving from one risk rating
to another. The quantitative calculation covers expected
credit losses over an instrument’s expected life and is
estimated by applying credit loss factors to the Firm’s
248
JPMorgan Chase & Co./2020 Form 10-K
estimated exposure at default. The credit loss factors
incorporate the probability of borrower default as well as
loss severity in the event of default. They are derived using a
weighted average of five internally developed
macroeconomic scenarios over an eight-quarter forecast
period, followed by a single year straight-line interpolation
to revert to long run historical information for periods
beyond the eight-quarter forecast period. The five
macroeconomic scenarios consist of a central, relative
adverse, extreme adverse, relative upside and extreme
upside scenario, and are updated by the Firm’s central
forecasting team. The scenarios take into consideration the
Firm’s overarching economic outlook, internal perspectives
from subject matter experts across the Firm, and market
consensus and involve a governed process that incorporates
feedback from senior management across LOBs, Corporate
Finance and Risk Management.
The COVID-19 pandemic has stressed many MEVs to degrees
not experienced in recent history, which has created
additional challenges in the use of modeled credit loss
estimates and increased the reliance on management
judgment. In periods where certain MEVs are outside the
range of historical experience on which the Firm’s models
have been trained, the Firm makes adjustments to
appropriately address these economic circumstances. The
Firm also considers the impact of other events, such as
government unemployment benefits or other stimulus
programs, when determining whether adjustments are
necessary.
The quantitative calculation is adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet reflected in the calculation. These adjustments are
accomplished in part by analyzing the historical loss
experience, including during stressed periods, for each
major product or model. Management applies judgment in
making this adjustment, including taking into account
uncertainties associated with the economic and political
conditions, quality of underwriting standards, borrower
behavior, credit concentrations or deterioration within an
industry, product or portfolio, as well as other relevant
internal and external factors affecting the credit quality of
the portfolio. In certain instances, the interrelationships
between these factors create further uncertainties.
Throughout 2020, the Firm made adjustments to its
quantitative calculation which placed significant weighting
on its adverse scenarios, as a result of continued uncertainty
related to the COVID-19 pandemic.
The application of different inputs into the quantitative
calculation, and the assumptions used by management to
adjust the quantitative calculation, are subject to significant
management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
loan losses and the allowance for lending-related
commitments.
Asset-specific component
To determine the asset-specific component of the allowance,
collateral-dependent loans (including those loans for which
foreclosure is probable) and larger, nonaccrual risk-rated
loans in the wholesale portfolio segment are generally
evaluated individually, while smaller loans (both scored and
risk-rated) are aggregated for evaluation using factors
relevant for the respective class of assets.
The Firm generally measures the asset-specific allowance as
the difference between the amortized cost of 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 generally recognized
as an adjustment to the allowance for loan losses. For
collateral-dependent loans, the fair value of collateral less
estimated costs to sell is used to determine the charge-off
amount for declines in value (to reduce the amortized cost
of the loan to the fair value of collateral) or the amount of
negative allowance that should be recognized (for
recoveries of prior charge-offs associated with
improvements in the fair value of collateral).
The asset-specific component of the allowance for loan
losses for loans that have been or are expected to be
modified in TDRs incorporates the effect of the modification
on the loan’s expected cash flows (including forgone
interest, principal forgiveness, as well as other concessions),
and also the potential for redefault. For residential real
estate loans modified in or expected to be 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 housing 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
or expected to be modified in TDRs, expected losses
incorporate projected delinquencies and charge-offs based
on the Firm’s historical experience by type of modification
program. For wholesale loans modified or expected to be
modified in TDRs, expected losses incorporate
management’s expectation of the borrower’s ability to repay
under the modified terms.
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. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
JPMorgan Chase & Co./2020 Form 10-K
249
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-related commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology. Refer to Note 10 for further information
on the allowance for credit losses on investment securities.
The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD
loans. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from
the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology
applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation.
Refer to Note 1 for further information.
(Table continued on next page)
Year ended December 31,
(in millions)
Allowance for loan losses
Beginning balance at January 1,
Cumulative effect of a change in accounting principle
Gross charge-offs
Gross recoveries collected
Net charge-offs
Write-offs of PCI loans(a)
Provision for loan losses
Other
Ending balance at December 31,
Allowance for lending-related commitments
Beginning balance at January 1,
Cumulative effect of a change in accounting principle
Provision for lending-related commitments
Other
Ending balance at December 31,
Total allowance for credit losses
Allowance for loan losses by impairment methodology
Asset-specific(b)
Portfolio-based
PCI
Total allowance for loan losses
Loans by impairment methodology
Asset-specific(b)
Portfolio-based
PCI
Total retained loans
Collateral-dependent loans
Net charge-offs
Loans measured at fair value of collateral less cost to sell
Allowance for lending-related commitments by impairment methodology
Asset-specific
Portfolio-based
Total allowance for lending-related commitments(c)
Lending-related commitments by impairment methodology
Asset-specific
Portfolio-based(d)
Total lending-related commitments
$
$
$
$
$
Consumer,
excluding
credit card
$
2,538
$
297
805
(631)
174
NA
974
1
2020(e)
Credit card
Wholesale
Total
5,683
5,517
5,077
(791)
4,286
NA
10,886
—
$
4,902
$
13,123
(1,642)
954
(155)
799
NA
4,431
—
4,172
6,836
(1,577)
5,259
NA
16,291
1
3,636
$
17,800
$
6,892
$
28,328
$
1,179
$
1,191
12
133
42
—
187
3,823
$
$
$
—
—
—
—
—
17,800
(35)
1,079
(1)
2,222
9,114
$
$
$
$
(7)
$
633
$
682
$
3,643
NA
17,167
NA
6,210
NA
$
3,636
$
17,800
$
6,892
$
28,328
$
16,648
$
1,375
$
3,606
$
21,629
285,479
142,057
511,341
938,877
NA
NA
NA
NA
$
302,127
$
143,432
$
514,947
$
960,506
$
133
$
4,956
—
187
187
—
37,783
37,783
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
$
$
$
$
76
188
114
2,108
2,222
$
$
$
209
5,144
114
2,295
2,409
577
$
577
426,871
464,654
$
427,448
$
465,231
98
1,121
(1)
2,409
30,737
1,308
27,020
NA
250
JPMorgan Chase & Co./2020 Form 10-K
(a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated
losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying
loan was removed from a pool.
(b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that
have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably
expected to be modified, in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(d) At December 31, 2020, 2019 and 2018, lending-related commitments excluded $19.5 billion, $9.8 billion and $8.7 billion, respectively, for the
consumer, excluding credit card portfolio segment; $658.5 billion, $650.7 billion and $605.4 billion, respectively, for the credit card portfolio segment;
and $22.4 billion, $24.1 billion and $24.8 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-
related commitments.
(e) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year
ended December 31, 2020.
(table continued from previous page)
2019
2018
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
Total
$
3,434
$
5,184
$
4,827
$
13,445
$
3,892
$
4,884
$
4,828
$
13,604
NA
902
(536)
366
151
(378)
(1)
NA
5,436
(588)
4,848
—
5,348
(1)
NA
472
(57)
415
—
479
11
NA
6,810
(1,181)
5,629
151
5,449
9
NA
977
(827)
150
187
(121)
—
NA
5,011
(493)
4,518
—
4,818
—
NA
361
(173)
188
—
188
(1)
NA
6,349
(1,493)
4,856
187
4,885
(1)
2,538
$
5,683
$
4,902
$
13,123
$
3,434
$
5,184
$
4,827
$
13,445
12
NA
—
—
12
2,550
$
$
$
—
NA
—
—
—
5,683
$
1,043
$
1,055
$
NA
136
—
1,179
6,081
$
$
NA
136
—
$
$
1,191
14,314
$
$
12
NA
—
—
12
3,446
$
$
$
—
NA
—
—
—
5,184
$
1,056
$
1,068
NA
(14)
1
NA
(14)
1
$
$
1,043
5,870
$
$
1,055
14,500
75
$
477
$
295
$
847
$
143
$
440
$
350
$
1,476
987
5,206
—
4,607
—
11,289
987
2,538
$
5,683
$
4,902
$
13,123
$
1,503
1,788
3,434
4,744
—
4,477
—
933
10,724
1,788
$
5,184
$
4,827
$
13,445
5,961
$
1,452
$
1,123
$
8,536
$
6,665
$
1,319
$
1,459
$
9,443
268,675
20,363
167,472
480,555
—
—
916,702
20,363
305,077
24,034
155,297
475,561
—
3
935,935
24,037
$
294,999
$
168,924
$
481,678
$
945,601
$
335,776
$
156,616
$
477,023
$
969,415
$
$
$
$
$
46
$
2,053
—
12
12
—
30,417
30,417
$
$
$
$
—
—
—
—
—
—
—
—
$
$
$
$
36
87
102
1,077
1,179
$
$
$
82
$
16
$
2,140
2,076
102
$
1,089
1,191
$
—
12
12
474
$
474
$
392,967
423,384
$
393,441
$
423,858
$
—
26,502
26,502
—
—
—
—
—
—
—
—
$
$
$
$
29
206
99
944
1,043
$
$
$
45
2,282
99
956
1,055
469
$
469
374,996
401,498
$
375,465
$
401,967
$
$
$
$
JPMorgan Chase & Co./2020 Form 10-K
251
$
$
$
$
$
$
$
The Firm’s central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
U.S. unemployment rate(a)
Cumulative change in U.S.
real GDP from
12/31/2019
Assumptions at January 1, 2020
4Q20(b)
2Q21
2Q20
3.8%
4.0%
3.7%
0.9%
1.7%
2.4%
Assumptions at December 31, 2020
4Q21
2Q21
2Q22
U.S. unemployment rate(a)
Cumulative change in U.S.
real GDP from
12/31/2019
6.8%
5.7%
5.1%
(1.9)%
0.6%
2.0%
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%.
4Q20 actual cumulative change in U.S. real GDP from 4Q19 was
(2.5%).
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Notes to consolidated financial statements
Discussion of changes in the allowance during 2020
The increase in the allowance for loan losses and lending-
related commitments was primarily driven by an increase in
the provision for credit losses, reflecting the deterioration
in and uncertainty around the future macroeconomic
environment as a result of the impact of the COVID-19
pandemic.
As of December 31, 2020, the Firm’s central case reflected
U.S. unemployment rates of approximately 7% through the
second quarter of 2021 and remaining above 5% until the
second half of 2022. This compared with relatively low
levels of unemployment of approximately 4% throughout
2020 and 2021 in the Firm’s January 1, 2020 central case.
Further, while the Firm’s January 1, 2020 central case U.S.
GDP forecast reflected a 1.7% expansion in 2020, actual
U.S. GDP contracted approximately 2.5% in 2020. As of
December 31, 2020, the Firm’s central case assumptions
reflect a return to pre-pandemic GDP levels in the fourth
quarter of 2021.
Due to elevated uncertainty in the near term outlook, driven
by the potential for increased infection rates and related
lock downs resulting from the pandemic, as well as the
prospect that government and other consumer relief
measures set to expire may not be extended, the Firm has
placed significant weighting on its adverse scenarios. These
scenarios incorporate more punitive macroeconomic factors
than the central case assumptions, resulting in weighted
average U.S. unemployment rates remaining elevated
throughout 2021 and 2022, ending the fourth quarter of
2022 at approximately 6%, and in U.S. GDP ending 2022
approximately 0.9% higher than fourth quarter 2019
actual pre-pandemic levels.
252
JPMorgan Chase & Co./2020 Form 10-K
Note 14 – Variable interest entities
Refer to Note 1 on page 167 for a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs.
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
2020 Form 10-K
page references
253-254
254-256
254-256
256
256-257
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 258
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 may securitize 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 consolidates the assets and liabilities of its
sponsored credit card trusts as it is considered to be the
primary beneficiary of these 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, 2020 and 2019, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $5.4 billion and $5.3 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 39%
and 50% for the years ended December 31, 2020 and
JPMorgan Chase & Co./2020 Form 10-K
253
Notes to consolidated financial statements
2019. The Firm did not retain any senior securities and
retained $1.5 billion and $3.0 billion of subordinated
securities in certain of its credit card securitization trusts as
of December 31, 2020 and 2019, 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. The Firm’s maximum loss exposure from retained and
purchased interests is the carrying value of these interests. Refer to Securitization activity on page 259 of this Note for further
information regarding the Firm’s cash flows associated with and interests retained in nonconsolidated VIEs, and pages
259-260 of this Note for information on the Firm’s loan sales and securitization activity related to U.S. GSEs and 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, 2020
(in millions)
Securitization-related(a)
Residential mortgage:
Prime/Alt-A and option ARMs
$
49,644 $
1,693 $
12,896
119,732
46
—
41,265
12,154
92,351
$
574 $
724 $
— $
1,298
9
955
—
1,549
—
262
9
2,766
$
182,272 $
1,739 $
145,770
$
1,538 $
2,273 $
262 $
4,073
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
$
60,348 $
2,796 $
$
535 $
625 $
— $
1,160
14,661
111,903
—
—
7
785
—
773
—
241
$
186,912 $
2,796 $
143,102
$
1,327 $
1,398 $
241 $
7
1,799
2,966
48,734
13,490
80,878
(a) Excludes U.S. GSEs and government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 259-260 of this Note for information
on the Firm’s loan sales and securitization activity related to U.S. GSEs and government agencies.
(b) Consists of securities backed by commercial real estate loans 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 and securitization activity related to U.S. GSEs
and 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 $105 million and $40 million, respectively, at December 31, 2020, and
$106 million and $94 million, respectively, at December 31, 2019, 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, 2020 and 2019, 73% and 63%, 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 and $1.1 billion of investment-grade retained interests, and $41 million and $72 million of noninvestment-grade
retained interests at December 31, 2020 and 2019, respectively. The retained interests in commercial and other securitization trusts consisted of $2.0 billion and
$1.2 billion of investment-grade retained interests, and $753 million and $575 million of noninvestment-grade retained interests at December 31, 2020 and 2019,
respectively.
254
JPMorgan Chase & Co./2020 Form 10-K
Subprime
Commercial and other(b)
Total
December 31, 2019
(in millions)
Securitization-related(a)
Residential mortgage:
Subprime
Commercial and other(b)
Total
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 U.S. GSEs and government agency
sponsored VIEs, which are backed by residential 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
U.S. GSEs and government
agencies
2020
2019
2018
$ 46,123 $ 25,852 $ 15,532
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.
The Firm did not transfer any private label securities to re-
securitization VIEs during 2020, 2019 and 2018,
respectively, and retained interests in any such Firm-
sponsored VIEs as of December 31, 2020 and 2019 were
immaterial.
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.
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 Treasury and CIO or 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 257 of this Note for more information on
consolidated residential mortgage securitizations.
The Firm does not consolidate residential mortgage
securitizations (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 257 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. Treasury and CIO
may choose to invest in these securitizations as well. 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 257 of this Note for more information on the
consolidated commercial mortgage securitizations, and the
table on the previous page of this Note for further
JPMorgan Chase & Co./2020 Form 10-K
255
Notes to consolidated financial statements
The following table presents information on the Firm's
interests in nonconsolidated re-securitization VIEs.
December 31,
(in millions)
U.S. GSEs and government agencies
Nonconsolidated
re-securitization VIEs
2020
2019
Interest in VIEs
$
2,631 $
2,928
As of December 31, 2020 and 2019, the Firm did not
consolidate any U.S. GSE and government 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 257 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
$13.5 billion and $16.3 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2020 and 2019, 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
$12.2 billion and $8.9 billion at December 31, 2020 and
2019, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
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 258 of 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,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2020 and 2019.
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
256
JPMorgan Chase & Co./2020 Form 10-K
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,
2020 and 2019.
December 31, 2020
(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
$
— $
11,962 $
148 $
12,110 $
4,943 $
3 $
Firm-administered multi-seller conduits
2
23,787
Municipal bond vehicles
Mortgage securitization entities(a)
Other
1,930
—
2
—
1,694
176
188
2
94
249
23,977
1,932
1,788
427
10,523
1,902
210
—
33
—
108
89
4,946
10,556
1,902
318
89
Total
$
1,934 $
37,619 $
681 $
40,234 $
17,578 $
233 $
17,811
December 31, 2019
(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
$
— $
14,986 $
266 $
15,252 $
6,461 $
6 $
Firm-administered multi-seller conduits
1
25,183
Municipal bond vehicles
Mortgage securitization entities(a)
Other
1,903
66
663
—
2,762
—
355
4
64
192
25,539
1,907
2,892
855
9,223
1,881
276
—
36
3
130
272
6,467
9,259
1,884
406
272
Total
$
2,633 $
42,931 $
881 $
46,445 $
17,841 $
447 $
18,288
(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 $5.2 billion and $6.7 billion at
December 31, 2020 and 2019, respectively. Refer to Note 20 for additional information on interest-bearing long-term beneficial interests.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
JPMorgan Chase & Co./2020 Form 10-K
257
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.
Notes to consolidated financial statements
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 own and operate affordable housing, 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 $24.9
billion and $19.1 billion, of which $8.7 billion and $5.5
billion was unfunded at December 31, 2020 and 2019,
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 25 for further information on affordable
housing tax credits. Refer to Note 28 for more information
on off-balance sheet lending-related commitments.
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, 2020 and 2019, was
$6.7 billion and $5.5 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2020 and 2019
was $10.5 billion and $8.6 billion, respectively. Refer to
Note 28 for more information on off-balance sheet lending-
related commitments.
258
JPMorgan Chase & Co./2020 Form 10-K
Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2020,
2019 and 2018, 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.
2020
2019
2018
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
Cash flows received on interests
Residential
mortgage(d)
$
Commercial
and other(e)
7,103 $
6,624
Residential
mortgage(d)
$
9,957 $
Commercial
and other(e)
9,390
Residential
mortgage(d)
$
Commercial
and other(e)
6,431 $
10,159
$
7,321 $
6,865
$
10,238 $
9,544
$
6,449 $
10,218
211
801
1
239
287
507
2
237
319
411
2
301
(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) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSEs and government agencies.
(e) 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,
2020
2019
2018
Residential mortgage retained interest:
Weighted-average life (in years)
4.7
4.8
7.6
Weighted-average discount rate
8.2 % 7.4 % 3.6 %
Commercial mortgage retained interest:
Weighted-average life (in years)
6.9
6.4
5.3
Weighted-average discount rate
3.0 % 4.1 % 4.0 %
Loans and excess MSRs sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
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. 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 28 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.
JPMorgan Chase & Co./2020 Form 10-K
259
Notes to consolidated financial statements
The following table summarizes the activities related to
loans sold to the U.S. GSEs, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
Year ended December 31,
(in millions)
2020
2019
2018
Carrying value of loans sold
$ 81,153 $ 92,349 $ 44,609
Proceeds received from loan
sales as cash
Proceeds from loan sales as
securities(a)(b)
$
45 $
73 $
9
80,186
91,422
43,671
6 $
$ 80,231 $ 91,495 $ 43,680
Total proceeds received from
loan sales(c)
Gains/(losses) on loan sales(d)(e) $
(a) Includes securities from U.S. GSEs and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm’s investment
securities portfolio.
(b) Included in level 2 assets.
(c) Excludes the value of MSRs retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
499 $
(93)
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 28, 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. Refer to Note 12 for additional information.
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, 2020 and 2019. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,
(in millions)
Loans repurchased or option to repurchase(a)
Real estate owned
2020
2019
$ 1,413 $ 2,941
9
41
Foreclosed government-guaranteed residential
mortgage loans(b)
64
198
(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 and delinquencies related to nonconsolidated securitized financial
assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of
December 31, 2020 and 2019.
As of or for the year ended December 31, (in millions)
2020
2019
2020
2019
2020
2019
Securitized assets
90 days past due
Net liquidation losses
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMs
$
41,265 $
48,734 $
4,988 $
2,449 $
212 $
12,154
92,351
13,490
80,878
2,406
5,958
1,813
187
179
30
$ 145,770 $ 143,102 $
13,352 $
4,449 $
421 $
1,556
579
532
445
Subprime
Commercial and other
Total loans securitized
260
JPMorgan Chase & Co./2020 Form 10-K
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, and can be
adjusted up to one year from the acquisition date as more
information is obtained about the fair value of assets
acquired and liabilities assumed. 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 that there may be
an 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. The following table
presents goodwill attributed to the business segments.
2018
2019
2020
7,913
7,901
$ 31,311 $ 30,133 $ 30,084
December 31, (in millions)
Consumer & Community Banking(a)
Corporate & Investment Bank(a)
Commercial Banking
Asset & Wealth Management(a)
Total goodwill
$ 49,248 $ 47,823 $ 47,471
(a) In 2020, goodwill of $959 million was transferred from CCB to CIB and
$51 million from AWM to CCB related to business realignments. Prior-
period amounts have been revised to conform with the current
presentation. Refer to Note 32 for additional information on these
realignments.
2,982
6,807
7,721
2,860
6,806
2,985
7,039
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
2020
2019
2018
Balance at beginning of period
$ 47,823 $ 47,471 $ 47,507
Changes during the period from:
Business combinations(a)
Other(b)
1,412
13
349
3
—
(36)
Balance at December 31,
$ 49,248 $ 47,823 $ 47,471
(a) For 2020, represents estimated goodwill associated with the
acquisitions of cxLoyalty in CCB and 55ip in AWM. For 2019,
represents goodwill associated with the acquisition of InstaMed. This
goodwill was allocated to CIB, CB and CCB.
(b) Primarily relates to foreign currency adjustments.
Goodwill impairment testing
The Firm’s goodwill was not impaired at December 31,
2020, 2019 and 2018.
Effective January 1, 2020, the Firm adopted new
accounting guidance related to goodwill impairment testing.
The adoption of the guidance requires recognition of an
impairment loss when the estimated fair value of a
reporting unit falls below its carrying value. It eliminated
the requirement that an impairment loss be recognized only
if the estimated implied fair value of the goodwill is below
its carrying value.
The goodwill impairment test is performed by comparing
the current fair value of each reporting unit 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 an impairment charge is recognized for the
amount by which the reporting unit’s carrying value
exceeds its fair value, up to the amount of goodwill
allocated to that reporting unit.
The Firm uses the reporting units’ allocated capital plus
goodwill and other intangible assets 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 LOBs which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
capital 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 periodically
and updated as needed.
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 Firm’s 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 overall 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
JPMorgan Chase & Co./2020 Form 10-K
261
Notes to consolidated financial statements
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.
Unanticipated 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 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.
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.
262
JPMorgan Chase & Co./2020 Form 10-K
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),
and certain derivatives (e.g., 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, 2020, 2019 and 2018.
As of or for the year ended December 31, (in millions, except where otherwise noted)
2020
2019
2018
Fair value at beginning of period
MSR activity:
Originations of MSRs
Purchase of MSRs
Disposition of MSRs(a)
Net additions/(Dispositions)
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)
$
4,699
$
6,130
$
6,030
944
248
(176)
1,016
(899)
1,384
105
(789)
700
(951)
931
315
(636)
610
(740)
(1,568)
(893)
300
(54)
199
(117)
28
(1,540)
3,276
(1,540)
1,325
448.0
1.8
(333) (e)
153
(107)
(287)
(1,180)
4,699
(1,180)
1,639
522.0
2.0
$
$
15
24
(109)
(70)
230
6,130
230
1,778
521.0
3.0
$
$
$
$
(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.
(e) The decrease in projected cash flows was largely related to default servicing assumption updates.
JPMorgan Chase & Co./2020 Form 10-K
263
Notes to consolidated financial statements
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,
2020, 2019 and 2018.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
2020
2019
2018
Net production revenue
$ 2,629 $ 1,618 $ 268
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue
1,367
1,533
1,835
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, 2020 and 2019, 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 (constant prepayment rate)
2020
2019
14.90 % 11.67 %
Impact on fair value of 10% adverse change $ (206)
$ (200)
Impact on fair value of 20% adverse change
(392)
(384)
Weighted-average option adjusted spread(a)
7.19 %
7.93 %
Impact on fair value of 100 basis points
adverse change
$ (134)
$ (169)
(899)
(951)
(740)
Impact on fair value of 200 basis points
adverse change
(258)
(326)
(a) Includes the impact of operational risk and regulatory capital.
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.
Total operating revenue
468
582
1,095
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
Total CCB mortgage fees and related
income
All other
(1,568)
(893)
300
28
(287)
(70)
1,522
1,015
(18)
(165)
(341)
(111)
450
417
984
3,079
2,035
1,252
12
1
2
Mortgage fees and related income
$ 3,091 $ 2,036 $ 1,254
(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).
264
JPMorgan Chase & Co./2020 Form 10-K
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 remainder of the lease
term, or estimated useful life of the improvements.
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, 2020 and 2019, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
2020
2019
U.S. offices
Noninterest-bearing (included $9,873 and
$22,637 at fair value)(a)
$ 572,711 $ 395,667
Interest-bearing (included $2,567 and
$2,534 at fair value)(a)
Total deposits in U.S. offices
1,197,032
876,156
1,769,743
1,271,823
Non-U.S. offices
Noninterest-bearing (included $1,486 and
$1,980 at fair value)(a)
23,435
20,087
Interest-bearing (included $558 and
$1,438 at fair value)(a)
Total deposits in non-U.S. offices
Total deposits
351,079
270,521
374,514
290,608
$ 2,144,257 $ 1,562,431
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
At December 31, 2020 and 2019, time deposits in
denominations of $250,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total
2020
2019
$ 33,812 $ 44,127
50,523
50,840
$ 84,335 $ 94,967
At December 31, 2020, the maturities of interest-bearing
time deposits were as follows.
December 31, 2020
(in millions)
2021
2022
2023
2024
2025
After 5 years
Total
U.S.
Non-U.S.
Total
$ 44,785 $ 48,142 $ 92,927
1,451
259
210
197
451
175
7
36
633
298
1,626
266
246
830
749
$ 47,353 $ 49,291 $ 96,644
JPMorgan Chase & Co./2020 Form 10-K
265
Notes to consolidated financial statements
Note 18 - Leases
Firm as lessee
At December 31, 2020, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. All leases with lease
terms greater than twelve months are reported as a lease
liability with a corresponding right-of-use (“ROU”) asset.
None of these lease agreements impose restrictions on the
Firm’s ability to pay dividends, engage in debt or equity
financing transactions or enter into further lease
agreements. Certain of these leases contain escalation
clauses that will increase rental payments based on
maintenance, utility and tax increases, which are non-lease
components. The Firm elected not to separate lease and
non-lease components of a contract for its real estate
leases. As such, real estate lease payments represent
payments on both lease and non-lease components.
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
represents the Firm’s collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income.
The following tables provide information related to the
Firm’s operating leases:
December 31,
(in millions, except where otherwise noted)
Right-of-use assets
Lease liabilities
2020
2019
$ 8,006
$ 8,190
8,508
8,505
Weighted average remaining lease term (in
years)
Weighted average discount rate
8.7
8.8
3.48 %
3.68 %
Supplemental cash flow information
Cash paid for amounts included in the
measurement of lease liabilities - operating
cash flows
Supplemental non-cash information
$ 1,626
$ 1,572
Right-of-use assets obtained in exchange
for operating lease obligations
$ 1,350
$ 1,413
Year ended December 31,
(in millions)
Rental expense
Gross rental expense
Sublease rental income
Net rental expense
2020
2019
$
$
2,094 $
2,057
(166)
(184)
1,928 $
1,873
The following table presents future payments under
operating leases as of December 31, 2020:
Year ended December 31, (in millions)
2021
2022
2023
2024
2025
After 2025
Total future minimum lease payments
Less: Imputed interest
Total
$ 1,606
1,435
1,270
1,123
947
3,602
9,983
(1,475)
$ 8,508
In addition to the table above, as of December 31, 2020,
the Firm had additional future operating lease
commitments of $1.2 billion that were signed but had not
yet commenced. These operating leases will commence
between 2021 and 2023 with lease terms up to 25 years.
266
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
Firm as lessor
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. Generally, the Firm’s lease financings are operating
leases. These assets subject to operating leases are
recognized in other assets on the Firm’s Consolidated
balance sheets and are depreciated on a straight-line basis
over the lease term to reduce the asset to its estimated
residual value. Depreciation expense is included in
technology, communications and equipment expense in the
Consolidated statements of income. The Firm’s lease
income is generally recognized on a straight-line basis over
the lease term and is included in other income in the
Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
Carrying value of assets subject to
operating leases, net of accumulated
depreciation
Accumulated depreciation
2020
2019
$
21,155 $
23,587
6,388
6,121
The following table presents the Firm’s operating lease
income and the related depreciation expense on the
Consolidated statements of income:
Year ended December 31,
(in millions)
2020
2019
Operating lease income
$
5,539 $
5,455 $
Depreciation expense
4,257
4,157
2018
4,540
3,522
The following table presents future receipts under
operating leases as of December 31, 2020:
Year ended December 31, (in millions)
2021
2022
2023
2024
2025
After 2025
$ 3,686
2,084
613
52
24
34
Total future minimum lease receipts
$ 6,493
JPMorgan Chase & Co./2020 Form 10-K
267
Notes to consolidated financial statements
Note 19 – Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which include payables to customers and
payables related to security purchases that did not settle, as
well as other accrued expenses, such as income tax
payables, operating lease liabilities, credit card rewards
liability, 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
2020
2019
$ 140,291 $ 118,375
92,308
92,032
$ 232,599 $ 210,407
(a) Includes credit card rewards liability of $7.7 billion and $6.4 billion at
December 31, 2020 and 2019, respectively.
268
JPMorgan Chase & Co./2020 Form 10-K
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Subordinated debt:
Subsidiaries
Federal Home Loan Banks
advances:
Senior debt:
Subordinated debt:
Note 20 – 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,
2020.
2020
Under 1 year
1-5 years
After 5 years
Total
2019
Total
$
$
Fixed rate
Variable rate
Interest rates(a)
Fixed rate
Variable rate
Interest rates(a)
9,225
1,580
$
49,987
$ 114,296
$ 173,508
$
161,198
1.33-4.63%
0.50-4.50%
0.17-6.40%
0.17-6.40%
8,644
8,353
18,577
18,615
0.15-6.40%
—
—
$
5,678
$
13,577
$
19,255
$
15,155
—
9
9
9
—%
3.38-7.75%
2.96-8.00%
2.96-8.00%
3.38-8.00%
Subtotal $
10,805
$
64,309
$ 136,235
$ 211,349
$
194,977
Fixed rate
$
7
$
45
$
3,000
11,000
71
—
$
123
14,000
0.57-0.60%
0.19-0.24%
4.66-7.73%
0.19-7.73%
$
1,067
$
3,157
$
11,534
$
15,758
12,055
18,448
7,608
38,111
7.28%
1.00-1.30%
1.00-7.28%
Variable rate
Interest rates(a)
Fixed rate
Variable rate
Interest rates(a)
Fixed rate
Variable rate
Interest rates(a)
$
—%
—
—
— %
$
$
$
—
—
— %
19,213
738
1,297
$
$
$
309
—
8.25 %
68,301
738
1,297
$
$
$
$
$
135
28,500
1.67-8.31% (h)
19,597
45,861
1.00-9.43%
305
—
8.25 %
94,398
693
1,430
Subtotal $
16,129
Junior subordinated debt:
Fixed rate
$
Variable rate
Interest rates(a)
Subtotal $
—
—
—%
—
Total long-term debt(b)(c)(d)
Long-term beneficial
interests:
$
$
26,934
625
1,924
Fixed rate
Variable rate
309
—
8.25 %
32,959
—
—
—%
—
$
$
$
$
$
$
0.71-8.75%
0.71-8.75%
2.41-8.75%
$
2,035
97,268
$ 157,483
$
2,035
$ 281,685
$
(f)(g) $
2,123
291,498
1,744
650
$
—
210
$
2,369
2,784
$
2,990
3,748
Interest rates
0.36-2.77%
0.00-2.39%
0.00-3.75%
0.00-3.75%
0.00-4.06%
Total long-term beneficial
interests(e)
$
2,549
$
2,394
$
210
$
5,153
$
6,738
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2020 and 2019, 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, 2020, for total long-term debt was (0.40)% to 7.28%, 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 $17.2 billion and $32.0 billion secured by assets totaling $166.4 billion and $186.1 billion at December 31, 2020 and 2019,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $76.8 billion and $75.7 billion of long-term debt accounted for at fair value at December 31, 2020 and 2019, respectively.
(d) Included $16.1 billion and $14.0 billion of outstanding zero-coupon notes at December 31, 2020 and 2019, respectively. The aggregate principal amount
of these notes at their respective maturities is $45.3 billion and $39.7 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 $41 million and $36 million accounted for at
fair value at December 31, 2020 and 2019, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $12.4 billion
and $11.1 billion at December 31, 2020 and 2019, respectively.
(f) At December 31, 2020, long-term debt in the aggregate of $151.3 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 2020 is $26.9 billion in 2021, $18.4 billion in 2022, $32.2
billion in 2023, $29.6 billion in 2024 and $17.1 billion in 2025.
(h) Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
269
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 2.89% and 3.13% as of December 31,
2020 and 2019, 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 1.58% and 3.19%
as of December 31, 2020 and 2019, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including 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 $13.8
billion and $14.4 billion at December 31, 2020 and 2019,
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.
270
JPMorgan Chase & Co./2020 Form 10-K
Note 21 – Preferred stock
At December 31, 2020 and 2019, 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, 2020 and
2019.
Shares(a)
Carrying value
(in millions)
December 31,
December 31,
2020
2019
2020
2019
Issue date
Contractual rate
in effect at
December 31,
2020
Earliest
redemption
date(b)
Floating
annualized
rate of
three-month
LIBOR/Term
SOFR plus:
Dividend declared per share(c)
Year ended December 31,
2020
2019
2018
Fixed-rate:
Series P
Series T
Series W
Series Y
—
—
—
—
—
—
—
143,000
Series AA 142,500
142,500
Series BB 115,000
115,000
Series DD 169,625
169,625
Series EE 185,000
185,000
Series GG
90,000
90,000
Fixed-to-floating-rate:
$
— $
—
—
—
1,425
1,150
1,696
1,850
900
—
—
—
2/5/2013
1/30/2014
6/23/2014
1,430
2/12/2015
— % 3/1/2018
—
—
—
3/1/2019
9/1/2019
3/1/2020
1,425
6/4/2015
6.100
9/1/2020
1,150
7/29/2015
6.150
9/1/2020
1,696
9/21/2018
5.750
12/1/2023
1,850
1/24/2019
6.000
3/1/2024
900
11/7/2019
4.750
12/1/2024
NA
NA
NA
NA
NA
NA
NA
NA
NA
$—
—
—
153.13
610.00
615.00
575.00
600.00
506.67
$545.00
$545.00
167.50
472.50
612.52
610.00
615.00
575.00
511.67
NA
670.00
630.00
612.52
610.00
615.00
111.81
NA
NA
293,375
293,375
$ 2,934 $ 2,934
4/23/2008
LIBOR + 3.47% 4/30/2018 LIBOR + 3.47% $428.03
$593.23
$646.38
1,500
1,500
2,000
1,000
2,500
1,600
2,000
1,258
1,500
4/23/2013
5.150
5/1/2023
LIBOR + 3.25
1,500
7/29/2013
6.000
8/1/2023
LIBOR + 3.30
2,000
1/22/2014
6.750
2/1/2024
LIBOR + 3.78
1,000
3/10/2014
6.125
4/30/2024
LIBOR + 3.33
2,500
6/9/2014
LIBOR + 3.32% 7/1/2019
LIBOR + 3.32
1,600
9/23/2014
6.100
10/1/2024
LIBOR + 3.33
2,000
4/21/2015
LIBOR + 3.80% 5/1/2020
LIBOR + 3.80
1,258
10/20/2017
4.625
11/1/2022
LIBOR + 2.58
Series I
Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
150,000
150,000
150,000
150,000
200,000
200,000
100,000
100,000
250,000
250,000
160,000
160,000
200,000
200,000
Series CC 125,750
125,750
Series HH 300,000
150,000
Series II
Total
preferred
stock
Series FF
225,000
225,000
2,250
2,250
7/31/2019
5.000
8/1/2024
SOFR + 3.38
—
—
3,000
1,500
—
—
1/23/2020
2/24/2020
4.600
2/1/2025
SOFR + 3.125
470.22
4.000
4/1/2025
SOFR + 2.745
341.11
3,006,250
2,699,250
$ 30,063 $ 26,993
(a) Represented by depositary shares.
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
(c) Dividends are declared quarterly. Dividends are payable quarterly on fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-
rate preferred stock while at a fixed rate, and payable quarterly after converting to a floating rate.
(d) Dividends in the amount of $111.81 per share were declared on December 1, 2018 and include dividends from the original issue date of September 21,
2018 through November 30, 2018.
(e) Dividends in the amount of $211.67 per share were declared on April 12,2019 and include dividends from the original issue date of January 24, 2019
through May 31, 2019. Dividends in the amount of $150.00 per share were declared thereafter on July 10, 2019 and October 9, 2019.
(f) No dividends were declared for Series GG from the original issue date of November 7, 2019 through December 31, 2019.
(g) 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.
(h) The dividend rate for Series V preferred stock became floating and payable quarterly starting on July 1, 2019; prior to which the dividend rate was fixed at
5% or $250.00 per share payable semi annually. The Firm declared a dividend of $144.11 and $139.98 per share on outstanding Series V preferred
stock on August 15, 2019 and November 15, 2019, respectively.
(i) Prior to May 1, 2020, the dividend rate was fixed at 5.3%.
(j) Dividends in the amount of $126.39 per share were declared on September 9, 2019 and include dividends from the original issue date of July 31, 2019
through October 31, 2019. Dividends in the amount of $125.00 per share were declared thereafter on December 10, 2019.
(k) Dividends in the amount of $125.22 per share were declared on March 13, 2020 and include dividends from the original issue date of January 23, 2020
through April 30, 2020. Dividends in the amount of $115.00 per share were declared quarterly thereafter.
(l) Dividends in the amount of $141.11 per share were declared on May 15, 2020 and include dividends from the original issue date of February 24, 2020
through June 30, 2020. Dividends in the amount of $100.00 per share were declared quarterly thereafter.
JPMorgan Chase & Co./2020 Form 10-K
271
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
515.00
600.00
675.00
612.50
436.85
610.00
453.52
462.50
500.00
515.00
600.00
675.00
612.50
534.09
610.00
530.00
462.50
251.39
NA
NA
515.00
600.00
675.00
612.50
500.00
610.00
530.00
462.50
NA
NA
NA
Notes to consolidated financial statements
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus accrued but unpaid
dividends. The aggregate liquidation value was $30.5 billion at December 31, 2020.
On March 1, 2020, the Firm redeemed all $1.43 billion of its 6.125% non-cumulative preferred stock, Series Y.
On December 1, 2019, the Firm redeemed all $900 million of its 5.45% non-cumulative preferred stock, Series P.
On October 30, 2019, the Firm redeemed $1.37 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock,
Series I.
On September 1, 2019, the Firm redeemed all $880 million of its 6.30% non-cumulative preferred stock, Series W.
On March 1, 2019, the Firm redeemed all $925 million of its 6.70% non-cumulative preferred stock, Series T.
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”).
272
JPMorgan Chase & Co./2020 Form 10-K
Note 22 – Common stock
At December 31, 2020 and 2019, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Common shares issued (reissuances from treasury) by
JPMorgan Chase during the years ended December 31,
2020, 2019 and 2018 were as follows.
Year ended December 31,
(in millions)
Total issued – balance at
January 1
2020
2019
2018
4,104.9
4,104.9
4,104.9
Treasury – balance at January 1
(1,020.9)
(829.1)
(679.6)
Repurchase
Reissuance:
Employee benefits and
compensation plans
Warrant exercise
Employee stock purchase
plans
Total reissuance
Total treasury – balance at
December 31
(50.0)
(213.0)
(181.5)
14.2
—
1.2
15.4
20.4
—
0.8
21.2
21.7
9.4
0.9
32.0
(1,055.5) (1,020.9)
(829.1)
Outstanding at December 31
3,049.4
3,084.0
3,275.8
There were no warrants to purchase shares of common
stock (“Warrants”) outstanding at December 31, 2020 and
December 31, 2019 as any Warrants that were not
exercised on or before October 29, 2018 have expired.
On March 15, 2020, in response to the economic
disruptions caused by the COVID-19 pandemic, the Firm
temporarily suspended repurchases of its common stock.
Subsequently, the Federal Reserve directed all large banks,
including the Firm, to discontinue net share repurchases
through the end of 2020. On December 18, 2020, the
Federal Reserve announced that all large banks, including
the Firm, could resume share repurchases commencing in
the first quarter of 2021, subject to certain restrictions. The
Firm's Board of Directors has authorized a new common
share repurchase program for up to $30 billion.
The following table sets forth the Firm’s repurchases of
common stock for the years ended December 31, 2020,
2019 and 2018. There were no Warrants repurchased
during 2018.
Year ended December 31, (in millions)
2020
2019
2018
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
50.0
213.0
181.5
$ 6,397 $ 24,121 $ 19,983
The authorization to repurchase common shares is utilized
at management’s discretion, and the timing of purchases
and the exact amount of common shares 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 suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares —for example, during
internal trading blackout periods.
As of December 31, 2020, approximately 62.1 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and
stock purchase plans, and directors’ compensation plans.
JPMorgan Chase & Co./2020 Form 10-K
273
Notes to consolidated financial statements
Note 23 – Earnings per share
Basic earnings per share (“EPS”) is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUs under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm’s
common stock. These unvested RSUs meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2020, 2019 and
2018.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
2020
2019
2018
Net income
$ 29,131 $ 36,431 $ 32,474
Less: Preferred stock dividends
1,583
1,587
1,551
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
27,548
34,844
30,923
138
202
214
$ 27,410 $ 34,642 $ 30,709
Total weighted-average basic shares
outstanding
3,082.4
3,221.5
3,396.4
Net income per share
$
8.89 $ 10.75 $
9.04
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Add: Dilutive impact of SARs and
employee stock options, unvested
PSUs and nondividend-earning
RSUs, and warrants
Total weighted-average diluted
shares outstanding
$ 27,410 $ 34,642 $ 30,709
3,082.4
3,221.5
3,396.4
5.0
8.9
17.6
3,087.4
3,230.4
3,414.0
Net income per share
$
8.88 $ 10.72 $
9.00
274
JPMorgan Chase & Co./2020 Form 10-K
Year ended December 31,
(in millions)
Balance at December 31,
2017
Cumulative effect of
changes in accounting
principles(a)
Net change
Balance at December 31,
2018
Note 24 – 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, net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB
plans, and fair value option-elected liabilities arising from changes in the Firm’s own credit risk (DVA).
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
Accumulated
other
comprehensive
income/(loss)
$ 2,164
$
(470)
$
—
$
76
$
(1,521)
$
(368)
$
(119)
896
(1,858)
(277)
20
(54)
(107)
16
(201)
(414)
(373)
$ 1,202
$
(727)
$
(161) $
(109)
$
(2,308)
Net change
2,855
20
30
172
964
Balance at December 31,
2019
$ 4,057
$
(707)
$
(131) $
63
$
(1,344)
Net change
4,123
234
19
2,320
212
(79)
1,043
596
(965)
(369)
(491)
88
(1,476)
$
(1,507)
$
3,076
1,569
6,417
$
$
Balance at December 31,
2020
$ 8,180
(b)
$
(473)
$
(112) $ 2,383
$
(1,132)
$
(860)
$
7,986
(a) Represents the adjustment to AOCI as a result of the accounting standards adopted in the first quarter of 2018. Refer to Note 1 for additional information.
(b) Includes after-tax net unamortized unrealized gains of $3.3 billion related to AFS securities that have been transferred to HTM. Refer to Note 10 for
further information.
JPMorgan Chase & Co./2020 Form 10-K
275
(922)
942
20
(107)
(187)
(14)
(201)
(373)
Notes to consolidated financial statements
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:
2020
Tax
effect
After-tax
Pre-tax
2019
Tax
effect
After-tax
Pre-tax
2018
Tax
effect
After-tax
Net unrealized gains/(losses) arising during the period
$ 6,228 $ (1,495) $ 4,733 $ 4,025 $
(974) $ 3,051 $ (2,825) $
665 $ (2,160)
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:
(802)
192
(610)
(258)
62
(196)
395
(93)
302
5,426
(1,303)
4,123
3,767
(912)
2,855
(2,430)
572
(1,858)
1,407
(103)
1,304
(1,411)
341
(1,070)
(4)
25
238
(6)
234
19
(49)
46
(3)
39
33
(10)
23
(9)
(16)
(1,078)
36
20
30
1,236
158
(140)
156
(294)
(138)
33
Net unrealized gains/(losses) arising during the period
3,623
(870)
2,753
122
(28)
94
(245)
Reclassification adjustment for realized (gains)/losses
included in net income(d)
Net change
(570)
137
(433)
3,053
(733)
2,320
103
225
(25)
(53)
Defined benefit pension and OPEB plans, net change:
214
(2)
212
1,157
(193)
78
172
964
(18)
(263)
(450)
58
4
62
77
DVA on fair value option elected liabilities, net change: $
(648) $
157 $
(491) $ (1,264) $ 299 $
(965) $ 1,364 $
(321) $ 1,043
Total other comprehensive income/(loss)
$ 8,066 $ (1,649) $ 6,417 $ 3,921 $
(845) $ 3,076 $ (1,761) $
285 $ (1,476)
(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, 2020, the Firm reclassified a net pre-tax gain of $6 million to other income related to the liquidation of
legal entities, $3 million related to net investment hedge gains and $3 million related to cumulative translation adjustments. During the year ended December 31,
2019, the Firm reclassified net pre-tax gains of $7 million to other income and $1 million to other expense, respectively. These amounts, which related to the
liquidation of certain legal entities, are comprised of $18 million related to net investment hedge gains and $10 million related to cumulative translation
adjustments. 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.
(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 primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
276
JPMorgan Chase & Co./2020 Form 10-K
Note 25 – 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
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate
Year ended December 31,
2020
2019
2018
Statutory U.S. federal tax rate
21.0 %
21.0 %
21.0 %
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. earnings
Business tax credits
Tax audit resolutions
Impact of the TCJA(a)
Other, net
2.5
(1.6)
1.4
(6.3)
—
—
0.7
3.5
(1.4)
1.8
(4.4)
(2.3)
—
—
4.0
(1.5)
0.6
(3.5)
(0.1)
(0.7)
0.5
Effective tax rate
17.7 %
18.2 %
20.3 %
(a) Represents changes in the estimates related to the remeasurement of
certain deferred taxes and the deemed repatriation tax on non-U.S.
earnings under SEC Staff Accounting Bulletin No. 118 which was
completed in 2018.
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
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)
2020
2019
2018
$ 5,759 $ 3,284 $ 2,854
2,705
2,103
2,077
1,793
1,778
1,638
10,257
7,165
6,569
(3,184)
709
1,359
(126)
(671)
20
220
(93)
455
(3,981)
949
1,721
Total income tax expense
$ 6,276 $ 8,114 $ 8,290
Total income tax expense includes $72 million, $1.1 billion
and $54 million of tax benefits recorded in 2020, 2019,
and 2018, respectively, resulting from the resolution of tax
audits.
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 a decrease of
$827 million and $862 million in 2020 and 2019,
respectively, and an increase of $172 million in 2018.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Year ended December 31,
(in millions)
2020
2019
2018
U.S.
Non-U.S.(a)
Income before income tax expense
$ 26,904 $ 36,670 $ 33,052
8,503
7,875
7,712
$ 35,407 $ 44,545 $ 40,764
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
The Firm will recognize any U.S. income tax expense it may
incur on global intangible low tax income as income tax
expense in the period in which the tax is incurred.
JPMorgan Chase & Co./2020 Form 10-K
277
Notes to consolidated financial statements
Affordable housing tax credits
The Firm recognized $1.5 billion of tax credits and other tax
benefits associated with investments in affordable housing
projects within income tax expense for each of the three
years ended 2020, 2019 and 2018. The amount of
amortization of such investments reported in income tax
expense was $1.2 billion, $1.1 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 $9.7 billion and $8.6 billion at
December 31, 2020 and 2019, 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 $3.8 billion and
$2.8 billion at December 31, 2020 and 2019, respectively.
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.
December 31, (in millions)
Deferred tax assets
2020
2019
Allowance for loan losses
$
7,270 $
Employee benefits
Accrued expenses and other
Non-U.S. operations
Tax attribute carryforwards
Gross deferred tax assets
Valuation allowance
1,104
3,332
849
757
13,312
(560)
3,400
1,039
2,767
949
605
8,760
(557)
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net of
$
$
hedges
Leasing transactions
Other, net
12,752 $
8,203
3,329 $
2,852
2,184
5,124
6,025
2,354
5,598
4,683
Gross deferred tax liabilities
16,662
15,487
Net deferred tax (liabilities)/assets
$
(3,910) $
(7,284)
JPMorgan Chase has recorded deferred tax assets of $757
million at December 31, 2020, in connection with U.S.
federal and non-U.S. NOL carryforwards, FTC carryforwards,
and state and local capital loss carryforwards. At
December 31, 2020, total U.S. federal NOL carryforwards
were $799 million, non-U.S. NOL carryforwards were $139
million, FTC carryforwards were $444 million, state and
local capital loss carryforwards were $1.1 billion, and other
federal tax attributes were $393 million. If not utilized, a
portion of the U.S. federal NOL carryforwards and other U.S.
federal tax attributes will expire between 2022 and 2037
whereas others have an unlimited carryforward period.
Similarly, certain non-U.S. NOL carryforwards will expire
between 2026 and 2036 whereas others have an unlimited
carryforward period. The FTC carryforwards will expire
between 2029 and 2030, and the state and local capital loss
carryforwards will expire between 2021 and 2022.
The valuation allowance at December 31, 2020, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
Unrecognized tax benefits
At December 31, 2020, 2019 and 2018, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.3 billion, $4.0 billion and
$4.9 billion, respectively, of which $3.1 billion, $2.8 billion
and $3.8 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 approximately $300 million. 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.
Year ended December 31,
(in millions)
Balance at January 1,
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
2020
2019
2018
$ 4,024 $ 4,861 $ 4,747
685
871
980
362
10
649
(705)
(706)
(1,249)
Decreases related to cash settlements
with taxing authorities
(116)
(1,012)
(266)
Balance at December 31,
$ 4,250 $ 4,024 $ 4,861
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$147 million, $(52) million and $192 million in 2020, 2019
and 2018, respectively.
At December 31, 2020 and 2019, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $966
million and $817 million, respectively, for income tax-
related interest and penalties.
278
JPMorgan Chase & Co./2020 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,
2020.
Periods under
examination
JPMorgan Chase – U.S.
2009 – 2013
JPMorgan Chase – U.S.
JPMorgan Chase – New
York State
2014 - 2016
2012 - 2014
Status
Field examination of
amended returns
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 – 2018
Field examination of
certain select entities
JPMorgan Chase & Co./2020 Form 10-K
279
Notes to consolidated financial statements
Note 26 – 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 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.
The following table presents the components of the Firm’s
restricted cash:
December 31, (in billions)
2020
2019
Cash reserves – Federal Reserve
Banks(a)
$
Segregated for the benefit of
securities and cleared derivative
customers
Cash reserves at non-U.S. central
banks and held for other general
purposes
Total restricted cash(b)
$
— $
26.6
19.3
16.0
5.1
24.4 $
3.9
46.5
(a) Effective March 26, 2020, the Federal Reserve eliminated reserve
requirements for depository institutions
(b) Comprises $22.7 billion and $45.3 billion in deposits with banks, and
$1.7 billion and $1.2 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2020 and 2019,
respectively.
Also, as of December 31, 2020 and 2019, the Firm had the
following other restricted assets:
• Cash and securities pledged with clearing organizations
for the benefit of customers of $37.2 billion and $24.7
billion, respectively.
• Securities with a fair value of $1.3 billion and $8.8
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 owes
intercompany indebtedness 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, 2021, the Parent Company’s banking
subsidiaries could pay, in the aggregate, approximately $13
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2021
will be supplemented by the banking subsidiaries’ earnings
during the year.
280
JPMorgan Chase & Co./2020 Form 10-K
Note 27 – 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
principal IDI subsidiary, JPMorgan Chase Bank, N.A.
The 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, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach (“Basel III Standardized”), and an advanced
approach (“Basel III Advanced”). For each of the risk-based
capital ratios, the capital adequacy of the Firm and
JPMorgan Chase Bank, N.A. is evaluated against the lower of
the Standardized or Advanced approaches compared to
their respective minimum capital ratios.
The three components of regulatory capital under the Basel
III rules are as illustrated below:
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1 capital, Tier 1 capital,
Total capital, 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 established by their respective
primary regulators.
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2020 and 2019.
Standardized
Minimum capital
ratios
Advanced
Minimum capital
ratios
Well-capitalized
ratios
BHC(a)(b)(c)
IDI(c)(d)
BHC(a)(c)
IDI(c)(d)
BHC(e)
IDI(f)
Capital
ratios
CET1 capital
11.3 %
7.0 % 10.5 %
7.0 %
NA
6.5 %
Tier 1
capital
Total capital
Tier 1
leverage
SLR
12.8
14.8
8.5
10.5
4.0
4.0
NA
NA
12.0
14.0
4.0
5.0
8.5
10.5
4.0
6.0
6.0
8.0
10.0
10.0
NA
NA
5.0
6.0
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 minimum capital ratios applicable to the Firm. The
CET1, Tier 1 and Total capital minimum capital ratios each include a
respective minimum requirement plus a GSIB surcharge of 3.5% as
calculated under Method 2; plus a 3.3% SCB for Basel III Standardized
ratios and a fixed 2.5% capital conservation buffer for Basel III
Advanced ratios. The countercyclical buffer is currently set to 0% by
the federal banking agencies.
(b) For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier
1 leverage and SLR minimum capital ratios under Basel III
Standardized applicable to the Firm were 10.5%, 12.0%, 14.0%,
4.0%, and 5.0%, respectively.
(c) Represents minimum SLR requirement of 3.0%, as well as
supplementary leverage buffer requirements of 2.0% and 3.0% for
BHC and IDI, respectively.
(d) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The
CET1, Tier 1 and Total capital minimum capital ratios include a fixed
capital conservation buffer requirement of 2.5% that is applicable to
the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB
surcharge.
(e) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(f) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
Current Expected Credit Losses
Effective January 1, 2020, the Firm adopted the Financial
Instruments – Credit Losses guidance under U.S. GAAP. As
permitted under the U.S. capital rules issued by the federal
banking agencies in 2019, the Firm initially elected to
phase-in the January 1, 2020 (“day 1”) CECL adoption
impact to retained earnings of $2.7 billion to CET1 capital,
at 25% per year in each of 2020 to 2023. As part of their
response to the impact of the COVID-19 pandemic, on
March 31, 2020, the federal banking agencies issued an
interim final rule (issued as final on August 26, 2020) that
provided the option to delay the effects of CECL on
regulatory capital for two years, followed by a three-year
transition period.
The final rule provides a uniform approach for estimating
the effects of CECL compared to the legacy incurred loss
model during the first two years of the transition period
(the “day 2” transition amount), whereby the Firm may
exclude from CET1 capital 25% of the change in the
JPMorgan Chase & Co./2020 Form 10-K
281
Notes to consolidated financial statements
allowance for credit losses (excluding allowances on PCD
loans). The cumulative day 2 transition amount as at
December 31, 2021 that is not recognized in CET1 capital,
as well as the $2.7 billion day 1 impact, will be phased into
CET1 capital at 25% per year beginning January 1, 2022.
The Firm has elected to apply the CECL capital transition
provisions, and accordingly, for the year ended December
31, 2020, the capital metrics of the Firm exclude
$5.7 billion, which is the $2.7 billion day 1 impact to
retained earnings and 25% of the $12.2 billion increase in
the allowance for credit losses (excluding allowances on
PCD loans).
The impacts of the CECL capital transition provisions have
also been incorporated into Tier 2 capital, adjusted average
assets, and total leverage exposure. Refer to Note 1 for
further information on the CECL accounting guidance.
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank,
N.A. under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2020, the capital metrics
are presented applying the CECL capital transition provisions. As of December 31, 2020 and 2019, JPMorgan Chase and
JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which each was subject.
December 31, 2020
(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:
Adjusted average assets(a)
Tier 1 leverage ratio
Total leverage exposure(b)
SLR(b)
December 31, 2019
(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:
Adjusted average assets(a)
Tier 1 leverage ratio
Total leverage exposure
SLR
Basel III Standardized
Basel III Advanced
JPMorgan
Chase & Co.(c)
JPMorgan
Chase Bank, N.A.(c)
JPMorgan
Chase & Co.(c)
JPMorgan
Chase Bank, N.A.(c)
$
205,078
$
234,235
$
205,078
$
234,844
269,923
234,237
252,045
234,844
257,228
234,235
234,237
239,673
1,560,609
1,492,138
1,484,431
1,343,185
13.1 %
15.0
17.3
15.7 %
15.7
16.9
13.8 %
15.8
17.3
17.4 %
17.4
17.8
$
3,353,319
$
2,970,285
7.0 %
NA
NA
7.9 %
NA
NA
$
$
3,353,319
$
2,970,285
7.0 %
7.9 %
3,401,542
$
3,688,797
6.9 %
6.3 %
Basel III Standardized
Basel III Advanced
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
$
187,753
$
206,848
$
187,753
$
214,432
242,589
206,851
224,390
214,432
232,112
206,848
206,851
214,091
1,515,869
1,457,689
1,397,878
1,269,991
12.4 %
14.1
16.0
14.2 %
14.2
15.4
13.4 %
15.3
16.6
16.3 %
16.3
16.9
$
2,730,239
$
2,353,432
7.9 %
NA
NA
8.8 %
NA
NA
$
$
2,730,239
$
2,353,432
7.9 %
8.8 %
3,423,431
$
3,044,509
6.3 %
6.8 %
(a) Adjusted average assets, for purposes of calculating the 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) As of December 31, 2020, JPMorgan Chase’s total leverage exposure for purposes of calculating the SLR, excludes on-balance sheet amounts of U.S.
Treasury securities and deposits at Federal Reserve Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020. On June 1,
2020, the Federal Reserve, OCC and FDIC issued an interim final rule that provides IDI subsidiaries with an option to apply this temporary exclusion
subject to certain restrictions. As of December 31, 2020, JPMorgan Chase Bank, N.A. has not elected to apply this exclusion.
(c) As of December 31, 2020, the capital metrics for the Firm reflect the exclusion of assets purchased from money market mutual fund clients pursuant to
nonrecourse advances provided under the MMLF. Additionally, loans originated under the PPP for the Firm and JPMorgan Chase Bank, N.A. receive a zero
percent risk weight.
282
JPMorgan Chase & Co./2020 Form 10-K
Note 28 – 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 have historically
been refinanced, extended, cancelled, or expired 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 expected credit losses in wholesale and
certain consumer lending-related 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, including the impact of the Firm’s adoption
of CECL accounting guidance on January 1, 2020. 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, 2020 and 2019. 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./2020 Form 10-K
283
Notes to consolidated financial statements
In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the
consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied
in determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note
1 for further information.
Off–balance sheet lending-related financial instruments, guarantees and other commitments
Expires
after
1 year
through
3 years
Expires in
1 year or
less
Contractual amount
2020
Expires
after
3 years
through
5 years
Expires
after 5
years
2019
Carrying value(j)
2019
2020
Total
Total
$ 26,788 $
1,597 $
3,962 $ 13,700 $
46,047 $ 30,217
10,471
37,259
658,506
695,765
1
8
792
1,598
3,970
14,492
11,272
57,319
9,952
40,169
—
—
—
658,506
650,720
1,598
3,970
14,492
715,825
690,889
148
—
148
—
148
12
—
12
—
12
By remaining maturity at December 31,
(in millions)
Lending-related
Consumer, excluding credit card:
Residential Real Estate(a)
Auto and other
Total consumer, excluding credit card
Credit card(b)
Total consumer(b)(c)
Wholesale:
Other unfunded commitments to extend credit(d)(e)
96,490
174,335
128,736
16,267
415,828
380,307
2,148
952
Standby letters of credit and other financial
guarantees(d)
Other letters of credit(d)
Total wholesale(c)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements and
guarantees(f)
Derivatives qualifying as guarantees
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(g)
Other guarantees and commitments (e)(h)
17,478
7,986
4,051
1,467
2,982
45
26
—
30,982
3,053
34,242
2,961
443
14
618
4
116,950
182,366
132,813
17,734
449,863
417,510
2,605
1,574
$ 812,715 $ 183,964 $ 136,783 $ 32,226 $ 1,165,688 $ 1,108,399
$ 2,753 $ 1,586
$ 250,418 $
— $
— $
— $ 250,418 $ 204,827
$
— $
—
2,489
541
12,182
39,203
54,415
53,089
322
159
—
—
96,848
117,951
2
104,901
73,351
(1)
95,084
1,764
104,289
612
NA
NA
142,003
2,457
NA
NA
—
574
—
—
NA
NA
NA
NA
NA
889
NA
944
—
758
—
142,003
206,432
2,541
6,330
6,334
(i)
—
—
59
27
—
(66)
84
23
—
52
(a) Includes certain commitments to purchase loans from correspondents.
(b) Also includes commercial card lending-related commitments primarily in CB and CIB.
(c) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(d) At December 31, 2020 and 2019, reflected the contractual amount net of risk participations totaling $72 million and $76 million, respectively, for other
unfunded commitments to extend credit; $8.5 billion and $9.8 billion, respectively, for standby letters of credit and other financial guarantees; and $357
million and $546 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of commitments from Other guarantees and commitments to Wholesale other unfunded commitments to extend credit.
Prior-period amounts have been revised to conform with the current presentation.
(f) At December 31, 2020 and 2019, collateral held by the Firm in support of securities lending indemnification agreements was $264.3 billion and $216.2
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSEs and government
agencies.
(g) At December 31, 2020 and 2019, 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.
(h) At December 31, 2020 and 2019, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to certain tax-oriented equity investments.
(i) Prior-period amounts have been revised to conform with the current presentation.
(j) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value.
284
JPMorgan Chase & Co./2020 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.
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 non-
contingent obligation assumed (e.g., the amount of
consideration received or the net present value of the
premium receivable). For these obligations, 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. The lending-related contingent
obligation is recognized based on expected credit losses in
addition to, and separate from, any non-contingent
obligation.
Non-lending-related contingent obligations are recognized
when the liability becomes probable and reasonably
estimable. These obligations are not recognized if the
estimated amount is less than the carrying amount of any
non-contingent liability recognized at inception (adjusted
for any amortization). Examples of non-lending-related
contingent obligations include indemnifications provided in
sales agreements, where 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).
The contractual amount and carrying value of guarantees
and indemnifications are included in the table on page 284.
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, 2020 and 2019.
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
2020
2019
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
Other letters
of credit
$
$
$
$
$
22,850
8,132
30,982
80
363
443
17,238
$
$
$
$
$
2,263
790
3,053
14
—
14
498
$
$
$
$
$
26,880
7,362
34,242
216
402
618
17,853
$
$
$
$
$
2,137
824
2,961
4
—
4
728
(a) The ratings scale is based on the Firm’s internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
JPMorgan Chase & Co./2020 Form 10-K
285
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.
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Derivatives qualifying as guarantees
The Firm transacts in 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, 2020 and 2019.
(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
December 31,
2020
December 31,
2019
$
54,415 $
53,089
27,752
28,877
2,803
2,967
322
159
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. Refer to Note 5 for a further discussion of credit
derivatives.
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. Refer to Note 11 for a further discussion
of securities financing agreements.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and
securitization activities with U.S. 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.
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.
Refer to Note 30 for additional information regarding
litigation.
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
286
JPMorgan Chase & Co./2020 Form 10-K
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, 2020 and 2019, the
unpaid principal balance of loans sold with recourse totaled
$889 million and $944 million, 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 $23 million and $27 million at
December 31, 2020 and 2019, 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.
Merchant charge-backs
Under the rules of payment networks, the Firm, in its role as
a merchant acquirer, retains a contingent liability for
disputed processed credit and debit card transactions that
result in a charge-back to the merchant. If a dispute is
resolved in the cardholder’s favor, Merchant Services will
(through the cardholder’s issuing bank) credit or refund the
amount to the cardholder 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
cardholder. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, Merchant
Services recognizes a valuation allowance that covers the
payment or performance risk to the Firm related to charge-
backs. The carrying value of the valuation allowance was
$12 million and $11 million at December 31, 2020 and
2019, respectively.
For the years ended December 31, 2020, 2019 and 2018,
Merchant Services processed an aggregate volume of
$1,597.3 billion, $1,511.5 billion, and $1,366.1 billion,
respectively.
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
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.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
JPMorgan Chase & Co./2020 Form 10-K
287
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
and consolidated finance subsidiary. All securities issued by
JPMFC are fully and unconditionally guaranteed by the
Parent Company and no other subsidiary of the parent
company guarantees these securities. These guarantees,
which rank on a parity with the Firm’s unsecured and
unsubordinated indebtedness, are not included in the table
on page 284 of this Note. Refer to Note 20 for additional
information.
Notes to consolidated financial statements
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 284, in the Exchange &
clearing house guarantees and commitments line.
Sponsored member repo program
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 284. Refer to Note 11 for additional
information on credit risk mitigation practices on resale
agreements and the types of collateral pledged under
repurchase agreements.
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
288
JPMorgan Chase & Co./2020 Form 10-K
Note 29 – Pledged assets and collateral
Pledged assets
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBs. Additionally, the Firm pledges assets 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)
2020
2019
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, prime brokerage-related
held-for-investment customer receivables 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)
2020
2019
Collateral permitted to be sold or
repledged, delivered, or otherwise used
Collateral sold, repledged, delivered or
otherwise used
$ 1,451.7 $ 1,282.5
1,038.9
1,000.5
(a)
(a) Includes collateral repledged to the Federal Reserve under the Federal
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 pledged assets
$ 166.6 $ 125.2
113.9
80.2
Reserve’s open market operations.
455.3
478.9
$ 735.8 $ 684.3
Total pledged assets 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. Refer to Note 11
for additional information on the Firm’s securities financing
activities. Refer to Note 20 for additional information on the
Firm’s long-term debt. The significant components of the
Firm’s pledged assets were as follows.
December 31, (in billions)
Investment securities
Loans
Trading assets and other
Total pledged assets
2020
2019
$
80.2 $
35.9
420.5
235.1
460.4
188.0
$ 735.8 $ 684.3
JPMorgan Chase & Co./2020 Form 10-K
289
Notes to consolidated financial statements
Note 30 – Litigation
Contingencies
As of December 31, 2020, the Firm and its subsidiaries and
affiliates are defendants, putative defendants or
respondents 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 several 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, 2020. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date 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.
Advisory and Other Activities. In November 2020, JPMorgan
Chase Bank, N.A. entered into a resolution with the Office of
the Comptroller of the Currency (“OCC”) regarding
historical deficiencies in internal controls and internal audit
for certain fiduciary activities. In connection with the
resolution, JPMorgan Chase Bank, N.A. paid a $250 million
Civil Money Penalty. The OCC found that JPMorgan Chase
Bank, N.A. has remediated the deficiencies that led to the
penalty.
Amrapali. India’s Enforcement Directorate (“ED”) is
investigating JPMorgan India Private Limited in connection
with investments made in 2010 and 2012 by two offshore
funds formerly managed by JPMorgan Chase entities into
residential housing projects developed by the Amrapali
Group (“Amrapali”). In 2017, numerous creditors filed civil
claims against Amrapali including petitions brought by
home buyers relating to delays in delivering or failure to
deliver residential units. The home buyers’ petitions have
been overseen by the Supreme Court of India since 2017
pursuant to its jurisdiction over public interest litigation. In
July 2019, the Supreme Court of India issued an order
making preliminary findings that Amrapali and other
parties, including unspecified JPMorgan Chase entities and
the offshore funds that had invested in the projects,
violated certain currency control and money laundering
provisions, and ordering the ED to conduct a further inquiry
under India’s Prevention of Money Laundering Act (“PMLA”)
and Foreign Exchange Management Act (“FEMA”). In May
2020, the Enforcement Directorate issued a provisional
attachment order as part of the criminal PMLA proceedings
freezing approximately $25 million held by JPMorgan India
Private Limited. In June 2020, the funds were transferred
to an account held by the Supreme Court of India. A
separate civil proceeding relating to alleged FEMA
violations is ongoing. The Firm is responding to and
cooperating with the investigation.
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria (“FGN”) and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria (“FRN”)
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN, claiming to be the same entity as the
FGN, alleges that the payments were instructed as part of a
complex fraud not involving JPMorgan Chase Bank, N.A., but
that JPMorgan Chase Bank, N.A. was or should have been on
290
JPMorgan Chase & Co./2020 Form 10-K
notice that the payments may be fraudulent. JPMorgan
Chase Bank, N.A. applied for summary judgment and was
unsuccessful. The claim is ongoing and a trial has been
scheduled to commence in February 2022.
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.
Among those resolutions, 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 term of probation has concluded, with
the Firm remaining in good standing throughout the
probation period. The Department of Labor 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. A South Africa Competition
Commission matter is the remaining FX-related
governmental inquiry, and is currently pending before the
South Africa Competition Tribunal.
In August 2018, the United States District Court for the
Southern District of New York granted final approval to the
Firm’s settlement of a consolidated class action brought by
U.S.-based plaintiffs, which principally alleged violations of
federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates and also sought
damages on behalf of persons who transacted in FX futures
and options on futures. 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. A number of these actions remain
pending. Further, putative class actions have been filed
against the Firm and a number of other foreign exchange
dealers on behalf of certain consumers who purchased
foreign currencies at allegedly inflated rates and purported
indirect purchasers of FX instruments; these actions also
remain pending in the District Court. In 2020, the Court
approved a settlement by the Firm and 11 other defendants
of a class action filed by purported indirect purchasers for a
total of $10 million. In addition, some FX-related individual
and putative class actions based on similar alleged
underlying conduct have been filed outside the U.S.,
including in the U.K., Israel and Australia.
Interchange Litigation. Groups 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 related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, a temporary reduction of credit card
interchange, and modifications to certain credit card
network rules. In 2017, after the approval of that
settlement was reversed on appeal, the case was remanded
to the United States District Court for the Eastern District of
New York 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. Pursuant to this settlement, the
defendants collectively contributed an additional $900
million to the approximately $5.3 billion previously held in
escrow from the original settlement. In December 2019,
the amended agreement was approved by the District
Court. Certain merchants appealed the District Court’s
approval order, and those appeals are pending. Based on
the percentage of merchants that opted out of the amended
class settlement, $700 million has been returned to the
defendants from the settlement escrow in accordance with
the settlement agreement. 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 some of those
actions remain pending.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association’s
London Interbank Offered Rate (“LIBOR”) for various
currencies and the European Banking Federation’s Euro
Interbank Offered Rate (“EURIBOR”). The Swiss Competition
Commission’s investigation relating to EURIBOR, to which
the Firm and other banks are subject, continues. In
December 2016, the European Commission 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 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, including U.S. dollar LIBOR
during the period that it was administered by the BBA and,
in a separate consolidated putative class action, 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
JPMorgan Chase & Co./2020 Form 10-K
291
Notes to consolidated financial statements
changes in these rates and assert a variety of claims
including antitrust claims seeking treble damages.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the Firm has resolved
certain of these actions, and others are in various stages of
litigation. 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 certain claims to proceed, including
antitrust, Commodity Exchange Act, Section 10(b) of the
Securities Exchange Act and common law claims. The
plaintiffs whose antitrust claims were dismissed for lack of
standing have filed an appeal. The District Court granted
class certification of antitrust claims related to bonds and
interest rate swaps sold directly by the defendants and
denied class certification motions filed by other plaintiffs. In
the consolidated putative class action related to the time
period that U.S. dollar LIBOR was administered by ICE
Benchmark Administration, the District Court granted
defendants’ motion to dismiss plaintiffs’ complaint, and the
plaintiffs have appealed. The Firm’s settlements of putative
class actions related to Swiss franc LIBOR, the Singapore
Interbank Offered Rate and the Singapore Swap Offer Rate
(“SIBOR”), and the Australian Bank Bill Swap Reference
Rate, and one of the putative class actions related to U.S.
dollar LIBOR remain subject to court approval. In the class
actions related to SIBOR and Swiss franc LIBOR, the District
Court concluded that the Court lacked subject matter
jurisdiction, and plaintiffs’ appeals of those decisions are
pending.
In addition to the actions pending or consolidated in the
Southern District of New York, in August 2020, a group of
individual plaintiffs filed a lawsuit asserting antitrust claims
in the United States District Court for the Northern District
of California, alleging that the Firm and other defendants
were engaged in an unlawful agreement to set LIBOR and
conspired to monopolize the market for LIBOR-based
consumer loans and credit cards. The complaint seeks
injunctive relief and monetary damages.
Metals and U.S. Treasuries Investigations and Litigation and
Related Inquiries. The Firm previously reported that it and/
or certain of its subsidiaries had entered into resolutions
with the U.S. Department of Justice (“DOJ”), the U.S.
Commodity Futures Trading Commission (“CFTC”) and the
U.S. Securities and Exchange Commission (“SEC”), which,
collectively, resolved those agencies’ respective
investigations relating to historical trading practices by
former employees in the precious metals and U.S.
treasuries markets and related conduct from 2008 to
2016.
The Firm entered into a Deferred Prosecution Agreement
(“DPA”) with the DOJ in which it agreed to the filing of a
criminal information charging JPMorgan Chase & Co. with
two counts of wire fraud and agreed, along with JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC, to certain
terms and obligations as set forth therein. Under the terms
of the DPA, the criminal information will be dismissed after
three years, provided that JPMorgan Chase & Co., JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC fully
comply with all of their obligations.
Across the three resolutions with the DOJ, CFTC and SEC,
JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to pay a total monetary
amount of approximately $920 million. A portion of the
total monetary amount includes victim compensation
payments.
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 former employees,
alleging a precious metals futures and options price
manipulation scheme in violation of the Commodity
Exchange Act. Some of the complaints also allege unjust
enrichment and deceptive acts or practices under the
General Business Law of the State of New York. The Court
consolidated these putative class actions in February 2019,
and the consolidated action is stayed through May 2021. In
addition, several putative class actions have been filed in
the United States District Courts for the Northern District of
Illinois and Southern District of New York against the Firm,
alleging manipulation of U.S. Treasury futures and options,
and bringing claims under the Commodity Exchange Act.
Some of the complaints also allege unjust enrichment. The
actions in the Northern District of Illinois have been
transferred to the Southern District of New York. The Court
consolidated these putative class actions in October 2020
and set a deadline of February 2021 for the filing of a
consolidated complaint. Two putative class action
complaints have also been filed under the Securities
Exchange Act of 1934 in the United States District Court for
the Eastern District of New York against the Firm and
certain individual defendants on behalf of shareholders who
acquired shares during the putative class period alleging
that certain SEC filings of the Firm were materially false or
misleading in that they did not disclose certain information
relating to the above-referenced investigations. Plaintiffs
have filed a stipulation seeking consolidation of the actions
and the appointment of co-lead plaintiffs and counsel,
which is pending Court approval.
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. 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, France’s highest court, ruled in September
2018 that a mise en examen is a prerequisite for an
292
JPMorgan Chase & Co./2020 Form 10-K
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.
ordonnance de renvoi and in January 2020 ordered the
annulment of the ordonnance de renvoi referring JPMorgan
Chase Bank, N.A. to the French tribunal correctionnel. The
Court of Appeal found in January 2021 that it had no power
to take further action against JPMorgan Chase following the
Court of Cassation’s ruling. At the opening of a trial of the
managers of Wendel in January 2021, the tribunal
correctionnel directed the criminal authorities to clarify
whether a further investigation should be opened against
JPMorgan Chase, pending which the trial was postponed. 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.
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,
upward or downward, as appropriate, based on
management’s best judgment after consultation with
counsel. The Firm’s legal expense was $1.1 billion, $239
million and $72 million for the years ended December 31,
2020, 2019 and 2018, 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
JPMorgan Chase & Co./2020 Form 10-K
293
Notes to consolidated financial statements
Note 31 – 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,
booking location 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 32.
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(c)
Expense(d)
Income before
income tax
expense
Net income
Total assets
2020
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2019(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
2018(b)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
Total international
North America(a)
Total
$
16,566 $
10,987 $
5,579 $
3,868 $
530,687
9,289
2,740
28,595
90,948
5,558
1,590
18,135
66,001
3,731
1,150
10,460
24,947
2,630
837
7,335
252,553
61,980
845,220
21,796
2,540,851
$
119,543 $
84,136 $
35,407 $
29,131 $ 3,386,071
$
15,887 $
9,860 $
6,027 $
4,158 $
391,369
7,254
2,405
25,546
89,853
5,060
1,561
16,481
54,373
2,194
844
9,065
1,467
609
6,234
183,023
47,820
622,212
35,480
30,197
2,065,167
$
115,399 $
70,854 $
44,545 $
36,431 $ 2,687,379
$
16,459 $
10,032 $
6,427 $
4,569 $
424,935
6,991
2,365
25,815
82,968
4,884
1,301
16,217
51,802
2,107
1,064
9,598
1,481
744
6,794
171,547
43,871
640,353
31,166
25,680
1,982,179
$
108,783 $
68,019 $
40,764 $
32,474 $ 2,622,532
(e)
(e)
(e)
(a) Substantially reflects the U.S.
(b) Prior-period amounts have been revised to conform with the current presentation.
(c) Revenue is composed of net interest income and noninterest revenue.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $353 billion, $309 billion and $299 billion at December 31, 2020, 2019 and 2018, respectively.
294
JPMorgan Chase & Co./2020 Form 10-K
Note 32 – Business segments
The Firm is managed on an LOB 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. Refer to Segment results of this
footnote for a further discussion of JPMorgan Chase’s
business segments.
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
Consumer & Community Banking offers services to
consumers and businesses through bank branches, ATMs,
digital (including mobile and online) and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking, J.P. Morgan Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card & Auto.
Consumer & Business Banking offers deposit and
investment products, payments 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 & Auto issues credit cards to consumers
and small businesses and originates and services auto loans
and leases.
Corporate & Investment Bank
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities 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, merchants, 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 Wholesale Payments,
which provides payments services enabling clients to
manage payments and receipts globally, and cross-border
financing. Markets & Securities Services includes Markets, a
global market-maker across products, including cash and
derivative instruments, which also offers sophisticated risk
management solutions, prime brokerage, and
research. Markets & Securities 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
Commercial Banking provides comprehensive financial
solutions, including lending, wholesale payments,
investment banking and asset management products across
three primary client segments: Middle Market Banking,
Corporate Client Banking and Commercial Real Estate
Banking. Other includes amounts not aligned with a primary
client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Asset & Wealth Management
Asset & Wealth Management, with client assets of $3.7
trillion, is a global leader in investment and wealth
management.
Asset Management
Offers multi-asset investment management solutions across
equities, fixed income, alternatives and money market
funds to institutional and retail investors providing for a
broad range of clients’ investment needs.
Wealth Management
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits and
investment management to high net worth clients.
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./2020 Form 10-K
295
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,
2020, 2019 and 2018, 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 LOBs.
Business segment capital allocation
Each business segment is allocated capital by taking into
consideration a variety of factors including 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, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The assumptions and methodologies used to
allocate capital are periodically assessed and as a result,
the capital allocated to the LOBs may change from time to
time.
Segment results and reconciliation(a)
(Table continued on next page)
Business segment changes
In the fourth quarter of 2020, the Firm transferred certain
assets, liabilities, revenue, expense and headcount associated
with certain wealth management clients from AWM to the J.P.
Morgan Wealth Management business unit within CCB. Prior-
period amounts have been revised to conform with the
current presentation, including the transfer of approximately
1,650 technology and support staff during the second and
third quarters of 2020. Ultra-high-net-worth and certain
high-net-worth client relationships remained in AWM.
In the first quarter of 2020, the Firm began reporting a
Wholesale Payments business unit within CIB following a
realignment of the Firm’s wholesale payments businesses.
The Wholesale Payments business comprises:
• Merchant Services, which was realigned from CCB to CIB
• Treasury Services and Trade Finance in CIB. Trade Finance
was previously reported in Lending in CIB.
In connection with the alignment of Wholesale Payments, the
assets, liabilities and headcount associated with the Merchant
Services business were realigned to CIB from CCB, and the
revenue and expenses of the Merchant Services business are
reported across CCB, CIB and CB based primarily on client
relationships. In the fourth quarter of 2020, payment
processing-only clients along with the associated revenue and
expenses were realigned to CIB’s Wholesale Payments
business from CCB and CB. Payment processing-only clients
are those that only use payment services offered by Merchant
Services, and in general do not currently utilize other services
offered by the Firm. Prior-period amounts have been revised
to reflect this realignment and revised allocation
methodology.
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
Consumer & Community Banking(b)
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
$ 17,740
$ 17,796
$ 15,338
$ 35,120
$ 30,060
$ 27,854
$ 3,067
$ 2,710
$ 2,620
$ 10,822
$ 10,236
$ 10,052
33,528
37,337
35,933
14,164
9,205
9,528
6,246
6,554
6,716
3,418
3,355
3,375
51,268
55,133
51,271
49,284
39,265
37,382
9,313
9,264
9,336
14,240
13,591
13,427
12,312
4,954
4,754
2,726
277
(60)
2,113
296
129
263
59
52
27,990
28,276
27,168
23,538
22,444
21,876
3,798
3,735
3,627
9,957
9,747
9,575
10,966
21,903
19,349
23,020
16,544
15,566
3,402
5,233
5,580
4,020
3,785
3,800
2,749
5,362
4,642
5,926
4,590
3,767
824
1,275
1,316
1,028
918
855
$ 8,217
$ 16,541
$ 14,707
$ 17,094
$ 11,954
$ 11,799
$ 2,578
$ 3,958
$ 4,264
$ 2,992
$ 2,867
$ 2,945
$ 52,000
$ 52,000
$ 51,000
$ 80,000
$ 80,000
$ 70,000
$ 22,000
$ 22,000
$ 20,000
$ 10,500
$ 10,500
$ 9,000
496,705
541,367
560,177
1,097,219
914,705
909,292
228,932
220,514
220,229
203,384
173,175
161,047
15 %
31 %
28 %
20 %
14 %
16 %
11 %
17 %
20 %
28 %
26 %
32 %
55
51
53
48
57
59
41
40
39
70
72
71
296
JPMorgan Chase & Co./2020 Form 10-K
(Table continued from previous page)
Corporate
Reconciling Items(a)
Total(b)
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
2020
2019
2018
2020
2019
2018
2020
2019
2018
$
1,199 $
(114) $
(263) $
(2,968) $
(2,534) $
(1,877)
$ 64,980
$ 58,154
$
53,724
(2,375)
1,325
(1,176)
1,211
66
(1)
1,373
1,067
135
(128)
(4)
902
(418)
(531)
(628)
54,563
57,245
55,059
(3,386)
(3,065)
(2,505)
119,543
115,399
108,783
—
—
—
—
—
—
17,480
5,585
4,871
66,656
65,269
63,148
(2,615)
145
(1,026)
(3,386)
(3,065)
(2,505)
35,407
44,545
40,764
(865)
(966)
215
(3,386)
(3,065)
(2,505)
6,276
8,114
8,290
$
$
(1,750) $
1,111 $
(1,241) $
72,365 $
68,407 $
79,222
$
1,359,831
837,618
771,787
NM
NM
NM
NM
NM
NM
— $
— $
NA
NM
NM
$
$
—
—
NA
NM
NM
—
—
NA
NM
NM
$ 29,131
$ 36,431
$
32,474
$ 236,865
$ 232,907
$ 229,222
3,386,071
2,687,379
2,622,532
12 %
56
15 %
57
13 %
58
(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) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
297
Notes to consolidated financial statements
Note 33 – Parent Company
The following tables present Parent Company-only financial
statements.
Statements of income and comprehensive income
Year ended December 31,
(in millions)
2020
2019
2018
Income
Dividends from subsidiaries and
affiliates:
Bank and bank holding company
Non-bank(a)
Interest income from subsidiaries
Other income from subsidiaries:
Bank and bank holding company
Non-bank
Other income
Total income
Expense
Interest expense/(income) to
subsidiaries and affiliates(a)
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
Net income
Other comprehensive income, net
$
6,000 $ 26,000 $ 32,501
—
63
—
223
2
216
2,019
(569)
205
7,718
(8,830)
14,150
2,222
7,542
2,738
197
(1,731)
27,427
(5,303)
13,246
1,992
9,935
515
(444)
888
33,678
2,291
4,581
1,793
8,665
176
1,324
17,492
2,033
25,013
1,838
27,631
16,906
5,623
$ 29,131 $ 36,431 $ 32,474
(1,476)
3,076
6,417
Statements of cash flows
Year ended December 31,
(in millions)
Operating activities
Net income
Less: Net income of subsidiaries
and affiliates(a)
Parent company net loss
Cash dividends from subsidiaries
and affiliates(a)
Other operating adjustments
Net cash provided by/(used in)
operating activities
Investing activities
Net change in:
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(a)
Short-term borrowings
Proceeds from long-term
borrowings
Payments of long-term
borrowings
Proceeds from issuance of
preferred stock
2020
2019
2018
$ 29,131 $ 36,431
$ 32,474
33,631
42,906
38,125
(4,500)
(6,475)
(5,651)
6,000
26,000
32,501
15,357
9,862
(4,400)
16,857
29,387
22,450
(2,663)
24
(6) (e)
71
(2,639)
65
8,036
63
8,099
1,425
2,941
(20)
(56)
(2,273)
(678)
37,312
25,569
25,845
(34,194)
(21,226)
(21,956)
Redemption of preferred stock
(1,430)
(4,075)
4,500
5,000
1,696
(1,696)
Treasury stock repurchased
(6,517)
(24,001)
(19,983)
Comprehensive income
$ 35,548 $ 39,507 $ 30,998
Dividends paid
(12,690)
(12,343)
(10,109)
Balance sheets
December 31, (in millions)
Assets
2020
2019
Cash and due from banks
$
54 $
32
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:
6,811
1,775
27
86
5,309
3,011
2,358
84
Bank and bank holding company
508,602
471,207
Non-bank
Other assets
Total assets
Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(a)
Short-term borrowings
Other liabilities
Long-term debt(b)(c)
Total liabilities(c)
Total stockholders’ equity
1,011
10,058
1,044
10,699
$ 528,424 $ 493,744
$ 25,150 $ 23,410
924
9,612
2,616
9,288
213,384
197,100
249,070
232,414
279,354
261,330
Total liabilities and stockholders’ equity
$ 528,424 $ 493,744
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(d)
(1,080)
(1,290)
(1,526)
(12,694)
(29,481)
(30,680)
1,524
(29)
(131)
5,341
5,370
5,501
$ 6,865 $ 5,341
$ 5,370
$ 5,445 $ 7,957
$ 6,911
5,366
3,910
1,782
(a) Affiliates include trusts that issued guaranteed capital debt securities
(“issuer trusts”).
(b) At December 31, 2020, long-term debt that contractually matures in
2021 through 2025 totaled $10.8 billion, $10.0 billion, $19.1 billion,
$21.8 billion, and $13.5 billion, respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent
Company’s guarantees of its subsidiaries’ obligations.
(d) 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 $8.3 billion, $6.4 billion, and $1.2 billion for
the years ended December 31, 2020, 2019, and 2018, respectively.
(e) As a result of the merger of Chase Bank USA, N.A. with and into
JPMorgan Chase Bank, N.A., JPMorgan Chase Bank, N.A. distributed
$13.5 billion to the Parent company as a return of capital, which the
Parent company contributed to the IHC.
298
JPMorgan Chase & Co./2020 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(a)
Total noninterest expense(a)
Pre-provision profit(b)
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(b)
Cash dividends declared per share
Selected ratios and metrics
ROE(c)
ROTCE(b)(c)
ROA(b)
Overhead ratio
Loans-to-deposits ratio(d)
Firm LCR (average)
JPMorgan Chase Bank, N.A. LCR (average)
CET1 capital ratio(e)
Tier 1 capital ratio(e)
Total capital ratio(e)
Tier 1 leverage ratio(e)
SLR(e)
Selected balance sheet data (period-end)
Trading assets(d)
Investment Securities
Loans(d)
Total assets
Deposits
Long-term debt
Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for loan losses and lending- related
commitments
Allowance for loan losses to total retained loans
Nonperforming assets(d)
2020
2019
4th quarter
3rd quarter
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
$
$
$
29,224
16,048
13,176
(1,889)
15,065
2,929
12,136
3.80
3.79
3,079.7
3,085.1
$
$
$
29,147
16,875
12,272
611
11,661
2,218
9,443
2.93
2.92
3,077.8
3,082.8
$
$
$
32,980
16,942
16,038
10,473
5,565
878
4,687
1.39
1.38
3,076.3
3,081.0
$
$
$
28,192
16,791
11,401
8,285
3,116
251
2,865
0.79
0.78
3,095.8
3,100.7
$
$
$
28,285
16,293
11,992
1,427
10,565
2,045
8,520
2.58
2.57
3,140.7
3,148.5
$
$
$
29,291
16,372
12,919
1,514
11,405
2,325
9,080
2.69
2.68
3,198.5
3,207.2
$
$
$
28,747
16,256
12,491
1,149
11,342
1,690
9,652
2.83
2.82
3,250.6
3,259.7
$
$
$
29,076
16,348
12,728
1,495
11,233
2,054
9,179
2.65
2.65
3,298.0
3,308.2
$ 387,492
3,049.4
81.75
66.11
0.90
$ 293,451
3,048.2
79.08
63.93
0.90
$ 286,658
3,047.6
76.91
61.76
0.90
$ 274,323
3,047.0
75.88
60.71
0.90
$ 429,913
3,084.0
75.98
60.98
0.90
$ 369,133
3,136.5
75.24
60.48
0.90
$ 357,479
3,197.5
73.88
59.52
0.80
$ 328,387
3,244.0
71.78
57.62
0.80
19 %
24
1.42
55
47
110
160
13.1
15.0
17.3
7.0
6.9
15 %
19
1.14
58
49
114
157
13.1
15.0
17.3
7.0
7.0
7 %
9
0.58
51
52
117
140
12.4
14.3
16.7
6.9
6.8
4 %
5
0.40
60
57
114
117
11.5
13.3
15.5
7.5
6.0
14 %
17
1.22
58
64
116
116
12.4
14.1
16.0
7.9
6.3
15 %
18
1.30
56
64
115
112
12.3
14.1
15.9
7.9
6.3
16 %
20
1.41
57
65
113
112
12.2
14.0
15.8
8.0
6.4
16 %
19
1.39
56
66
111
109
12.1
13.8
15.7
8.1
6.4
$ 503,126
589,999
1,012,853
3,386,071
2,144,257
281,685
249,291
279,354
255,351
$ 505,822
531,136
989,740
3,246,076
2,001,416
279,175
241,050
271,113
256,358
$ 491,716
558,791
1,009,382
3,213,616
1,931,029
317,003
234,403
264,466
256,710
$ 510,923
471,144
1,049,610
3,139,431
1,836,009
299,344
231,199
261,262
256,720
$ 369,687
398,239
997,620
2,687,379
1,562,431
291,498
234,337
261,330
256,981
$ 457,274
394,251
980,019
2,764,661
1,525,261
296,472
235,985
264,348
257,444
$ 485,567
307,264
990,775
2,727,379
1,524,361
288,869
236,222
263,215
254,983
$ 495,021
267,365
990,515
2,737,188
1,493,441
290,893
232,844
259,837
255,998
$
30,737
$
33,637
$
34,301
$
25,391
$
14,314
$
14,400
$
14,295
$
14,591
2.95 %
3.26 %
3.27 %
2.32 %
1.39 %
1.42 %
1.39 %
1.43 %
$
10,906
$
11,462
$
9,715
$
7,062
$
5,054
$
5,993
$
5,260
$
5,616
Net charge-offs
Net charge-off rate
1,050
1,180
1,560
1,469
1,494
1,371
1,403
1,361
0.44 %
0.49 %
0.64 %
0.62 %
0.63 %
0.58 %
0.60 %
0.58 %
Effective January 1, 2020, the Firm adopted the Financial Instruments – Credit Losses (“CECL”) accounting guidance. Refer to Note 1 for further information.
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity (“TCE”) is also a non-GAAP financial measure.
Refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 62–64 for a further discussion of these measures.
(c) Quarterly ratios are based on annualized amounts.
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(e) The capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL capital transition
provisions that became effective in the first quarter of 2020. The SLR reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal
Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the COVID-19 Pandemic on pages
52-53 and Capital Risk Management on pages 91-101 for additional information.
JPMorgan Chase & Co./2020 Form 10-K
299
Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Average
balance
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2018 through 2020.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and rates earned on
(Table continued on next page)
(Unaudited)
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets – debt instruments(a)
Taxable securities
Non-taxable securities(b)
Total investment securities
Loans(a)
All other interest-earning assets(a)(c)
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity and other instruments(a)
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
All other noninterest-earning assets(a)
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(d)
Trading liabilities – debt and all other interest-bearing liabilities(e)(f)
Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity and other instruments(f)
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
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% in 2020,
2019 and 2018.
2020
Interest(h)
$
749
2,436
(302)
7,869
7,843
1,437
9,280
(i)
43,886
1,023
64,941
Rate
0.17 %
0.88
(0.21)
(j)
2.44
1.65
4.32
1.82
4.37
1.30
2.34
(k)
444,058
275,926
143,472
322,936
476,650
33,287
509,937
1,004,597
78,784
2,779,710
(25,775)
22,241
118,055
76,572
51,934
180,411
3,203,148
$
$
$
2,357
1,058
372
195
214
5,764
9,960
0.17 %
0.41
0.96
0.10
1.12
2.27
0.46
(j)
1,389,224
$
255,421
38,853
205,255
19,216
254,400
2,162,369
517,527
32,628
61,593
162,267
2,936,384
29,899
236,865
266,764
3,203,148
(g)
$
$
54,981
1.88 %
1.98
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(b) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(c) Includes brokerage-related held-for-investment customer receivables, 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.
(d) Includes commercial paper.
(e) All other interest-bearing liabilities include brokerage-related customer payables.
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. Refer to Note 12 for
additional information on nonaccrual loans, including interest accrued.
300
JPMorgan Chase & Co./2020 Form 10-K
Rate
1.39 %
2.23
1.20
3.12
2.80
4.63
3.01
5.25
3.99
3.61
(k)
(Table continued from previous page)
Average
balance
2019
Interest(h)
$
3,887
6,146
1,574
9,189
7,962
1,655
9,617
(i)
52,012
2,146
84,571
280,004
275,429
131,291
294,958
284,127
35,748
319,875
989,943
53,779
2,345,279
(13,331)
20,645
114,323
53,786
53,683
167,456
2,741,841
$
$
$
8,957
4,630
1,248
2,585
568
8,807
26,795
0.80 %
2.03
2.38
1.42
2.52
3.55
1.45
1,115,848
$
227,994
52,426
182,105
22,501
247,968
1,848,842
407,219
31,085
42,560
151,717
2,481,423
$
$
$
Rate
1.46 %
1.76
0.79
3.46
2.91
4.68
3.23
5.03
3.87
3.47
(k)
Average
balance
2018
Interest(h)
$
5,907
3,819
913
7,206
5,653
1,987
7,640
(i)
49,208
2,035
76,728
405,514
217,150
115,082
208,266
194,232
42,456
236,688
977,406
52,551
2,212,657
(13,269)
21,694
118,152
60,734
54,669
154,261
2,608,898
5,973
3,066
1,144
2,387
493
7,978
21,041
0.57 %
1.62
2.08
1.34
2.34
3.28
1.22
1,045,037
$
189,282
54,993
177,788
21,079
243,246
1,731,425
411,424
34,667
43,075
132,836
2,353,427
27,511
232,907
260,418
2,741,841
(g)
$
26,249
229,222
255,471
2,608,898
(g)
$
$
57,776
2.16 %
2.46
$
55,687
2.25 %
2.52
(f) The combined balance of trading liabilities – debt and equity instruments was $106.5 billion, $101.0 billion and $107.0 billion for the years ended
December 31, 2020, 2019 and 2018, respectively.
(g) The ratio of average stockholders’ equity to average assets was 8.3%, 9.5% and 9.8% for the years ended December 31, 2020, 2019 and 2018,
respectively. The return on average stockholders’ equity, based on net income, was 10.9%, 14.0% and 12.7% for the years ended December 31, 2020,
2019 and 2018, respectively.
(h) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(i) Fees and commissions on loans included in loan interest amounted to $1.0 billion for the year ended December 31, 2020, and $1.2 billion each for the
years ended December 31, 2019 and 2018.
(j) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading
liabilities - debt and all other interest-bearing liabilities.
(k) The annualized rate for securities based on amortized cost was 1.85%, 3.05% and 3.25% for the years ended December 31, 2020, 2019 and 2018,
respectively, and does not give effect to changes in fair value that are reflected in AOCI.
JPMorgan Chase & Co./2020 Form 10-K
301
Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest and rates segregated between U.S. and non-U.S. operations for the years 2018
through 2020. 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:(a)
U.S.
Non-U.S.
Trading assets – debt instruments: (b)
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:(b)
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.(b)
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)(c)
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(d)
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
2020
Average balance
Interest
Rate
$
294,669 $
149,389
141,409
134,517
100,026
43,446
216,025
106,911
475,832
34,105
909,850
94,747
78,784
2,779,710
768
(19)
1,341
1,095
(305)
3
5,056
2,813
8,703
577
41,708
2,178
1,023
64,941
1,068,857
320,367
2,288
69
204,958
50,463
151,120
92,988
19,216
247,623
6,777
(46,327)
46,327
2,162,369
617,341
2,779,710 $
$
$
863
195
(30)
597
214
5,704
60
(1,254)
1,254
9,960
9,960
54,981
49,242
5,739
0.26 %
(0.01)
0.95
0.81
(0.30)
0.01
2.34
2.63
1.83
1.69
4.58
2.30
1.30
2.34
0.21
0.02
0.42
0.39
(0.02)
0.64
1.12
2.30
0.89
—
—
0.46
0.36 %
1.98 %
2.25
0.97
23.5
20.9
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The
negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other
interest-bearing liabilities.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period
amounts have been revised to conform with the current presentation.
(c) Includes commercial paper.
(d) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
302
JPMorgan Chase & Co./2020 Form 10-K
Refer to the “Net interest income” discussion in Consolidated Results of Operations on pages 54-56 for further information.
(Table continued from previous page)
2019
2018
Average balance
Interest
Rate
Average balance
Interest
Rate
$
165,066 $
114,938
150,205
125,224
92,625
38,666
200,811
94,147
287,961
31,914
898,570
91,373
53,779
2,345,279
850,493
265,355
164,284
63,710
147,247
87,284
22,501
241,914
6,054
(42,947)
42,947
1,848,842
496,437
2,345,279 $
$
$
3,588
299
4,068
2,078
1,423
151
6,157
3,032
8,963
654
49,058
2,954
2,146
84,571
6,896
2,061
3,989
641
2,574
1,259
568
8,766
41
(1,414)
1,414
26,795
26,795
57,776
52,217
5,559
2.17 %
0.26
$
305,117 $
100,397
102,144
115,006
77,027
38,055
121,967
86,299
200,883
35,805
882,314
95,092
52,551
2,212,657
802,786
242,251
117,754
71,528
147,512
85,269
21,079
239,718
3,528
(51,933)
51,933
1,731,425
481,232
2,212,657 $
$
$
2.71
1.66
1.54
0.39
3.07
3.22
3.11
2.05
5.46
3.23
3.99
3.61
0.81
0.78
2.43
1.01
1.75
1.44
2.52
3.62
0.68
—
—
1.45
1.14 %
2.46 %
2.86
1.07
24.5
22.1
5,703
204
2,427
1,392
825
88
4,229
2,977
6,943
697
46,227
2,981
2,035
76,728
4,562
1,411
2,562
504
2,225
1,306
493
7,954
24
(746)
746
21,041
21,041
55,687
50,236
5,451
1.87 %
0.20
2.38
1.21
1.07
0.23
3.47
3.45
3.46
1.95
5.24
3.13
3.87
3.47
0.57
0.58
2.18
0.70
1.51
1.53
2.34
3.32
0.68
—
—
1.22
0.95 %
2.52 %
2.95
1.05
24.7
22.3
JPMorgan Chase & Co./2020 Form 10-K
303
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 rates (refer to pages 300–304 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 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)
2020 versus 2019
2019 versus 2018
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
agreements:
U.S.
Non-U.S.
Securities borrowed:(a)
U.S.
Non-U.S.
Trading assets – debt instruments:(b)
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:(b)
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.(b)
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)(c)
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
$
333 $
(8)
(3,153) $
(310)
(2,820)
(318)
$
(3,030) $
35
915 $
60
(2,115)
95
(83)
81
(24)
(1)
365
336
3,426
38
557
74
324
(2,644)
(1,064)
(2,727)
(983)
(1,704)
(147)
(1,728)
(148)
(1,466)
(555)
(1,101)
(219)
(3,686)
(115)
(7,907)
(850)
(1,447)
(260)
(77)
(7,350)
(776)
(1,123)
5,418
(25,048)
(19,630)
1,304
168
236
2
2,416
253
2,723
(79)
890
(122)
48
4,844
337
518
362
61
(488)
(198)
(703)
36
1,941
95
63
2,999
1,641
686
598
63
1,928
55
2,020
(43)
2,831
(27)
111
7,843
495
25
(5,103)
(2,017)
(4,608)
(1,992)
407
165
1,927
485
2,334
650
176
(51)
(3,302)
(395)
(3,126)
(446)
1,133
(85)
294
222
1,427
137
2
36
(2,606)
(698)
(2,604)
(662)
(37)
(317)
(354)
(3,193)
13
(3,062)
19
(5)
30
37
93
17
354
(77)
38
719
—
349
(47)
75
812
17
249
(249)
(17,618)
160
(160)
(16,835)
293
(293)
1,792
(961)
961
3,962
(668)
668
5,754
$
4,635 $
(7,430) $
(2,795)
$
3,052 $
(963) $
2,089
131
6
(89)
89
783
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense
related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities.
In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been
revised to conform with the current presentation.
Includes commercial paper.
(b)
(c)
304
JPMorgan Chase & Co./2020 Form 10-K
Glossary of Terms and Acronyms
2020 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2020, filed with the U.S. Securities
and Exchange Commission.
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
Amortized cost: Amount at which a financing receivable or
investment is originated or acquired, adjusted for accretion
or amortization of premium, discount, and net deferred fees
or costs, collection of cash, charge-offs, foreign exchange,
and fair value hedge accounting adjustments. For AFS
securities, amortized cost is also reduced by any
impairment losses recognized in earnings. Amortized cost is
not reduced by the allowance for credit losses, except
where explicitly presented net.
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.
AWM: Asset & Wealth Management
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
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 a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CECL: Current Expected Credit Losses
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 substantially through the operation or sale of the
collateral when the borrower is experiencing financial
difficulty, including when foreclosure is deemed probable
based on borrower delinquency.
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.
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.
JPMorgan Chase & Co./2020 Form 10-K
305
Glossary of Terms and Acronyms
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes.
CRO: Chief Risk Officer
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
DVA: Debit valuation adjustment
EC: European Commission
Eligible HQLA: Eligible high-quality liquid assets, for
purposes of calculating the LCR, is the amount of
unencumbered HQLA that satisfy certain operational
considerations as defined in the LCR rule.
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.
Expense categories:
• Volume- and revenue-related expenses generally
correlate with changes in the related business/
transaction volume or revenue. Examples of volume- and
revenue-related expenses include commissions and
incentive compensation, depreciation expense related to
operating lease assets, and brokerage expense related to
equities trading transaction volume.
• Investments include expenses associated with supporting
medium- to longer-term strategic plans of the Firm.
Examples of investments include initiatives in technology
(including related compensation), marketing, and
compensation for new bankers and client advisors.
• Structural expenses are those associated with the day-
today cost of running the bank and are expenses not
covered by the above two categories. Examples of
structural expenses include employee salaries and
benefits, as well as noncompensation costs such as real
estate and all other expenses.
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
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FFIEC: Federal Financial Institutions Examination Council
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.
FINRA: Financial Industry Regulatory Authority
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.
FRBB: Federal Reserve Bank of Boston
FRBNY: Federal Reserve Bank of New York
FRC: Firmwide Risk Committee
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
306
JPMorgan Chase & Co./2020 Form 10-K
Glossary of Terms and Acronyms
FTE: Fully taxable equivalent
LDA: Loss Distribution Approach
FVA: Funding valuation adjustment
LGD: Loss given default
FX: Foreign exchange
LIBOR: London Interbank Offered Rate
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
GSIB: Global systemically important banks
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
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.
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” consist of cash and
certain high-quality liquid securities as defined in the LCR
rule.
HTM: Held-to-maturity
IBOR: Interbank Offered Rate
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Investment-grade: An indication of credit quality based on
JPMorgan Chase’s internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
IPO: Initial public offering
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
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
JPMorgan Chase & Co./2020 Form 10-K
LLC: Limited Liability Company
LOB: Line of business
LOB CROs: Line of Business and CTC Chief Risk Officers
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
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).
307
Glossary of Terms and Acronyms
MBS: Mortgage-backed securities
triggers.
MD&A: Management’s discussion and analysis
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.
Merchant Services: offers merchants payment processing
capabilities, fraud and risk management, data and analytics,
and other payments services. Through Merchant Services,
merchants of all sizes can accept payments via credit and
debit cards and payments in multiple currencies.
MEV: Macroeconomic variable
MMLF: Money Market Mutual Fund Liquidity Facility
Moody’s: Moody’s Investor Services
Mortgage origination channels:
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
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 interchange income includes the following
components:
• Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
• Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs
generally tied to sales transactions.
• 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 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; the impact of
risk management activities associated with MSRs; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
308
JPMorgan Chase & Co./2020 Form 10-K
Glossary of Terms and Acronyms
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
Net revenue rate: Represents Credit Card net revenue
(annualized) expressed as a percentage of average loans
for the period.
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
NFA: National Futures Association
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not
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
NSFR: Net Stable Funding Ratio
OAS: Option-adjusted spread
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
PCD: “Purchased credit deteriorated” assets represent
acquired financial assets that as of the date of acquisition
have experienced a more-than-insignificant deterioration in
credit quality since origination, as determined by the Firm.
PCI: “Purchased credit-impaired” loans represented
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. The superseded FASB
guidance allowed purchasers to aggregate credit-impaired
loans acquired in the same fiscal quarter into one or more
pools, provided that the loans had common risk
characteristics (e.g., product type, LTV ratios, FICO scores,
past due status, geographic location). A pool was then
accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
PDCF: Primary Dealer Credit Facility
PPP: Paycheck Protection Program
PPPL Facility: Paycheck Protection Program Lending
Facility
OCC: Office of the Comptroller of the Currency
PRA: Prudential Regulation Authority
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
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.
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 a market participant is willing and able to
JPMorgan Chase & Co./2020 Form 10-K
309
Glossary of Terms and Acronyms
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
• realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
– Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
– Unrealized gains and losses result from changes in
valuation.
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 realized and
unrealized gains and losses related to:
• derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
• derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
PSUs: 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.
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
ROU assets: Right-of-use assets
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
SAR(s): Stock appreciation rights
SCB: Stress Capital Buffer
Scored portfolios: Consumer loan portfolios that
predominantly include residential real estate loans, credit
card loans, auto loans to individuals and certain small
business loans.
SEC: Securities and Exchange Commission
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
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.
Shelf securities: Securities registered with the SEC under a
shelf registration statement that have not been issued,
offered or sold. These securities are not included in league
tables until they have actually been issued.
Single-name: Single reference-entities
310
JPMorgan Chase & Co./2020 Form 10-K
U.S. GSE(s): “U.S. government-sponsored enterprises” are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. 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
or FHA. 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 loans.
Glossary of Terms and Acronyms
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOFR: Secured Overnight Financing Rate
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. Loans with short-term and
other insignificant modifications that are not considered
concessions are not TDRs.
TLAC: Total loss-absorbing capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
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. government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSEs”). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
JPMorgan Chase & Co./2020 Form 10-K
311
Board of Directors
Linda B. Bammann2, 4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
Stephen B. Burke2, 3
Retired Chairman and
Chief Executive Officer
NBCUniversal, LLC
(Television and entertainment)
Todd A. Combs2, 3
Investment Officer
Berkshire Hathaway Inc.;
President and
Chief Executive Officer
GEICO
(Conglomerate and insurance)
James S. Crown4, 5
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
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Mellody Hobson4, 5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
Operating Committee
Member of:
1 Audit Committee
2 Compensation & Management
Development Committee
3 Corporate Governance &
Nominating Committee
4 Risk Committee
5 Public Responsibility Committee
Michael A. Neal 1, 5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Industrial and financial services)
Phebe N. Novakovic 1
Chairman and
Chief Executive Officer
General Dynamics
(Aerospace and defense)
Virginia M. Rometty 1, 3
Retired Executive Chairman
and Chief Executive Officer
International Business Machines
Corporation
(Technology)
James Dimon
Chairman and Chief Executive Officer
Ashley Bacon
Chief Risk Officer
Takis T. Georgakopoulos
Global Head of Wholesale Payments
Douglas B. Petno
CEO, Commercial Banking
Daniel E. Pinto
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank
Gordon A. Smith
Co-President and
Chief Operating Officer;
CEO, Consumer & Community Banking
Marc K. Badrichani
Head of Global Sales & Research
Teresa A. Heitsenrether
Global Head of Securities Services
Jennifer A. Piepszak
Chief Financial Officer
Lori A. Beer
Chief Information Officer
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Stacey Friedman
General Counsel
Carlos M. Hernandez
Executive Chair of Investment &
Corporate Banking
Marianne Lake
CEO, Consumer Lending
Robin Leopold
Head of Human Resources
Troy L. Rohrbaugh
Head of Global Markets
Peter L. Scher
Vice Chairman
Sanoke Viswanathan
Head of International Consumer
Banking
Other Corporate Officers
Reggie A. Chambers
Investor Relations
Elena A. Korablina
Firmwide Controller
John H. Tribolati
Secretary
Joseph M. Evangelisti
Corporate Communications
Lou Rauchenberger
General Auditor
312
JPMorgan Chase & Co./2020 Annual Report
Regional Chief Executive Officers
Asia Pacific
Filippo Gori
Europe/Middle East/Africa
Latin America/Canada
Viswas Raghavan
Alfonso Eyzaguirre
Senior Country Officers and Location Heads
Asia Pacific
Europe/Middle East/Africa
Latin America/Caribbean
Saudi Arabia
Bader A. Alamoudi
Sub-Saharan Africa
Kevin G. Latter
Switzerland
Nick Bossart
Turkey
Mustafa Bagriacik
Andean, Caribbean and Central
America
Moises Mainster
Colombia
Angela M. Hurtado
Argentina
Facundo D. Gómez Minujin
Brazil
Daniel Darahem
Chile
Andres Errazuriz
Mexico
Felipe García-Moreno
North America
Canada
David E. Rawlings
Australia and New Zealand
Robert P. Bedwell
Austria
Anton J. Ulmer
China
Mark C.M. Leung
Hong Kong
Filippo Gori
Japan
Steve Teru Rinoie
Korea
Tae Jin Park
Bahrain, Egypt and Lebanon
Ali Moosa
Belgium
Tanguy A. Piret
France
Kyril Courboin
Germany
Stefan P. Povaly
South and South East Asia
Murlidhar Maiya
Iberia
Ignacio de la Colina
India
Madhav Kalyan
Indonesia
Gioshia Ralie
Malaysia
Steve R. Clayton
Ireland
Carin Bryans
Israel
Roy Navon
Italy
Francesco Cardinali
Philippines
Carlos Ma. G Mendoza
Luxembourg
Pablo Garnica
Singapore
Edmund Y. Lee
Thailand
Marco Sucharitku
Taiwan
Carl K. Chien
Vietnam
Van Bich Phan
Middle East and North Africa
Khaled Hobballah
Karim Tannir
The Netherlands
Cassander Verwey
Russia and Kazakhstan
Yan L. Tavrovsky
JPMorgan Chase Vice Chairs
Phyllis J. Campbell
Mark S. Garvin
Vittorio U. Grilli
Mel R. Martinez
David Mayhew
E. John Rosenwald
Peter L. Scher
313
JPMorgan Chase & Co./2020 Annual Report 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
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France
Paul Bulcke
Chairman 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 and Chief Executive Officer
EXOR N.V.
Turin, Italy
Ignacio S. Galán
Chairman and Chief Executive Officer
Iberdrola, S.A.
Madrid, Spain
The Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
New York, New York
Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom
Armando Garza Sada
Chairman of the Board
ALFA, S.A.B. of C.V.
San Pedro Garza García, Mexico
Jorge Paulo Lemann
Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania
Alex Gorsky
Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey
Herman Gref
Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia
Nancy McKinstry
Chief Executive Officer and
Chairman of the Executive Board
Wolters Kluwer
Alphen aan den Rijn, The Netherlands
Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia
The Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia
The Hon. Condoleezza Rice
Partner
Rice, Hadley, Gates & Manuel LLC
Stanford, California
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany
Paolo Rocca
Chairman and Chief Executive Officer
Tenaris
Buenos Aires, Argentina
Ratan Naval Tata
Chairman Emeritus
Tata Sons Ltd
Mumbai, India
Joseph C. Tsai
Executive Vice Chairman
Alibaba Group
Hong Kong, China
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 Co., Ltd.
Tokyo, Japan
Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines
*Ex-officio
314
JPMorgan Chase & Co./2020 Annual Report Corporate headquarters
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