Credit risk concentrations

12 Months Ended

Dec. 31, 2011

Risks and Uncertainties [Abstract]

Credit risk concentrations

Credit risk concentrations

Concentrations of credit risk arise when a number of 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 portfolio to assess potential concentration risks and to obtain collateral when deemed necessary. 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 wholesale portfolio, risk concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual customer basis. Management of the Firm’s wholesale exposure is accomplished through loan syndication and participation, loan sales, securitizations, credit derivatives, use of master netting agreements, and collateral and other risk-reduction techniques. In the consumer portfolio, concentrations are evaluated primarily by product and by U.S. geographic region, with a key focus on trends and concentrations at the portfolio level, where potential risk concentrations can be remedied through changes in underwriting policies and portfolio guidelines.

The Firm does not believe that its exposure to any particular loan product (e.g., option adjustable rate mortgages (“ARMs”)), industry segment (e.g., commercial real estate) or its exposure to residential real estate loans with high loan-to-value 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.

For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Notes 6, 14 and 15 on pages 202–210, 231–252 and 252–255, respectively, of this Annual Report. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29 on pages 283–289 of this Annual Report.

Customer receivables representing primarily margin loans to prime and retail brokerage clients of $17.6 billion and $32.5 billion at December 31, 2011 and 2010, respectively, are included in the table below. These margin loans are generally over-collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s positions may be liquidated by the Firm to meet the minimum collateral requirements. As a result of the Firm’s credit risk mitigation practices, the Firm does not hold any reserves for credit impairment on these agreements as of December 31, 2011 and 2010.

The table below presents both on—balance sheet and off—balance sheet wholesale- and consumer-related credit exposure by the Firm’s three credit portfolio segments as of December 31, 2011 and 2010.

	2011								2010
	Credit		On-balance sheet				Off-balance		Credit		On-balance sheet				Off-balance
December 31, (in millions)	exposure		Loans		Derivatives		sheet(c)		exposure		Loans		Derivatives		sheet(c)
Wholesale
Banks and finance companies	$	71,440	$	29,392	$	20,372	$	21,676	$	65,867	$	21,562	$	20,935	$	23,370
Real estate	67,594		54,684		1,155		11,755		64,351		53,635		868		9,848
Healthcare	42,247		8,908		3,021		30,318		41,093		6,047		2,121		32,925
State and municipal governments	41,930		7,144		6,575		28,211		35,808		6,095		5,148		24,565
Oil and gas	35,437		10,780		3,521		21,136		26,459		5,701		3,866		16,892
Asset managers	33,465		6,182		9,458		17,825		29,364		7,070		7,124		15,170
Consumer products	29,637		9,187		1,079		19,371		27,508		7,921		1,039		18,548
Utilities	28,650		5,191		3,602		19,857		25,911		4,220		3,104		18,587
Retail and consumer services	22,891		6,353		565		15,973		20,882		5,876		796		14,210
Technology	17,898		4,394		1,310		12,194		14,348		2,752		1,554		10,042
Central government	17,138		623		10,813		5,702		11,173		1,146		6,052		3,975
Machinery and equipment manufacturing	16,498		5,111		417		10,970		13,311		3,601		445		9,265
Transportation	16,305		10,000		947		5,358		9,652		3,754		822		5,076
Metals/mining	15,254		6,073		690		8,491		11,426		3,301		1,018		7,107
Insurance	13,092		1,109		2,061		9,922		10,918		1,103		1,660		8,155
All other(a)	284,135		113,264		26,891		143,980		240,999		88,726		23,929		128,344
Subtotal	753,611		278,395		92,477		382,739		649,070		222,510		80,481		346,079
Loans held-for-sale and loans at fair value	4,621		4,621		—		—		5,123		5,123		—		—
Receivables from customers and interests in purchased receivables	17,461		—		—		—		32,932		—		—		—
Total wholesale	775,693		283,016		92,477		382,739		687,125		227,633		80,481		346,079
Total consumer, excluding credit card(b)	370,834		308,427		—		62,307		393,021		327,618		—		65,403
Total credit card	662,893		132,277		—		530,616		684,903		137,676		—		547,227
Total exposure	$	1,809,420	$	723,720	$	92,477	$	975,662	$	1,765,049	$	692,927	$	80,481	$	958,709

(a) For more information on exposures to SPEs included within All other see Note 16 on pages 256–267 of this Annual Report.

(b) As of December 31, 2011, credit exposure for total consumer, excluding credit card, includes receivables from customers of $100 million.

(c) Represents lending-related financial instruments.