| DERIVATIVE INSTRUMENTS |
Derivative instruments JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage its own risk exposures. For a further discussion of the Firm’s use of and accounting policies regarding derivative instruments, see Note 6 on pages 218–227 of JPMorgan Chase’s 2012 Annual Report. The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes.
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category. | | | | | | Type of Derivative | Use of Derivative | Designation and disclosure | Affected segment or unit | 10-Q page reference | Manage specifically identified risk exposures in qualifying hedge accounting relationships: | | | | ◦ Interest rate | Hedge fixed rate assets and liabilities | Fair value hedge | Corporate/PE | 139–140 | ◦ Interest rate | Hedge floating rate assets and liabilities | Cash flow hedge | Corporate/PE | 141 | ◦ Foreign exchange | Hedge foreign currency-denominated assets and liabilities | Fair value hedge | Corporate/PE | 139–140 | ◦ Foreign exchange | Hedge forecasted revenue and expense | Cash flow hedge | Corporate/PE | 141 | ◦ Foreign exchange | Hedge the value of the Firm’s investments in non-U.S. subsidiaries | Net investment hedge | Corporate/PE | 142 | ◦ Commodity | Hedge commodity inventory | Fair value hedge | CIB | 139–140 | Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: | | | | ◦ Interest rate | Manage the risk of the mortgage pipeline, warehouse loans and MSRs | Specified risk management | CCB | 142 | ◦ Credit | Manage the credit risk of wholesale lending exposures | Specified risk management | CIB | 142 | ◦ Credit(a) | Manage the credit risk of certain AFS securities | Specified risk management | Corporate/PE | 142 | ◦ Commodity | Manage the risk of certain commodities-related contracts and investments | Specified risk management | CIB | 142 | ◦ Interest rate and foreign exchange | Manage the risk of certain other specified assets and liabilities | Specified risk management | Corporate/PE | 142 | Market-making derivatives and other activities: | | | | ◦ Various | Market-making and related risk management | Market-making and other | CIB | 142 | ◦ Various(b) | Other derivatives, including the synthetic credit portfolio | Market-making and other | CIB, Corporate/PE | 142 |
| | (a) | Includes a limited number of single-name credit derivatives used to mitigate the credit risk arising from specified AFS securities. |
| | (b) | The synthetic credit portfolio is a portfolio of index credit derivatives, including short and long positions, that was held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notional amount of approximately $12 billion, to CIB. The positions making up the portion of the synthetic credit portfolio retained by CIO on July 2, 2012, were effectively closed out during the third quarter of 2012. The results of the synthetic credit portfolio, including the portion transferred to CIB, have been included in the gains and losses on derivatives related to market-making activities and other derivatives category on page 142 of this Note. |
Notional amount of derivative contracts The following table summarizes the notional amount of derivative contracts outstanding as of September 30, 2013, and December 31, 2012. | | | | | | | | | Notional amounts(c) | (in billions) | September 30, 2013 | December 31, 2012 | Interest rate contracts | | | Swaps(a) | $ | 36,411 |
| $ | 33,129 |
| Futures and forwards | 12,124 |
| 11,824 |
| Written options | 4,164 |
| 3,866 |
| Purchased options | 4,281 |
| 3,911 |
| Total interest rate contracts | 56,980 |
| 52,730 |
| Credit derivatives(b) | 5,944 |
| 5,981 |
| Foreign exchange contracts | | |
| Cross-currency swaps(a) | 3,544 |
| 3,409 |
| Spot, futures and forwards | 3,956 |
| 4,033 |
| Written options | 733 |
| 651 |
| Purchased options | 726 |
| 661 |
| Total foreign exchange contracts | 8,959 |
| 8,754 |
| Equity contracts | | | Swaps | 204 |
| 163 |
| Futures and forwards | 45 |
| 49 |
| Written options | 414 |
| 442 |
| Purchased options | 462 |
| 403 |
| Total equity contracts | 1,125 |
| 1,057 |
| Commodity contracts | | |
| Swaps(a) | 256 |
| 312 |
| Spot, futures and forwards | 133 |
| 190 |
| Written options(a) | 239 |
| 262 |
| Purchased options | 226 |
| 260 |
| Total commodity contracts | 854 |
| 1,024 |
| Total derivative notional amounts | $ | 73,862 |
| $ | 69,546 |
|
| | (a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| | (b) | Primarily consists of credit default swaps. For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 143–144 of this Note. |
| | (c) | Represents the sum of gross long and gross short third-party notional derivative contracts. |
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments. Impact of derivatives on the Consolidated Balance Sheets The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated Balance Sheets as of September 30, 2013, and December 31, 2012, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type. | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative receivables and payables(a) | | | | | | | | Gross derivative receivables | | | Gross derivative payables | | September 30, 2013 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | Net derivative receivables(c) | | Not designated as hedges | Designated as hedges | Total derivative payables | Net derivative payables(c) | Trading assets and liabilities | | | | | | | | | | Interest rate | $ | 928,832 |
| $ | 3,590 |
| $ | 932,422 |
| $ | 29,346 |
| | $ | 895,512 |
| $ | 4,168 |
| $ | 899,680 |
| $ | 16,393 |
| Credit | 85,875 |
| — |
| 85,875 |
| 2,102 |
| | 84,512 |
| — |
| 84,512 |
| 2,533 |
| Foreign exchange | 167,365 |
| 1,020 |
| 168,385 |
| 13,505 |
| | 181,906 |
| 2,052 |
| 183,958 |
| 16,869 |
| Equity | 54,992 |
| — |
| 54,992 |
| 12,951 |
| | 58,899 |
| — |
| 58,899 |
| 15,811 |
| Commodity | 38,018 |
| 1,410 |
| 39,428 |
| 8,884 |
| | 40,780 |
| 34 |
| 40,814 |
| 9,179 |
| Total fair value of trading assets and liabilities | $ | 1,275,082 |
| $ | 6,020 |
| $ | 1,281,102 |
| $ | 66,788 |
| | $ | 1,261,609 |
| $ | 6,254 |
| $ | 1,267,863 |
| $ | 60,785 |
| | | | | | | | | | | | Gross derivative receivables | | | Gross derivative payables | | December 31, 2012 (in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | Net derivative receivables(c) | | Not designated as hedges | Designated
as hedges | Total derivative payables | Net derivative payables(c) | Trading assets and liabilities | | | | | | | | | | Interest rate(b) | $ | 1,296,503 |
| $ | 6,064 |
| $ | 1,302,567 |
| $ | 39,205 |
| | $ | 1,257,599 |
| $ | 3,120 |
| $ | 1,260,719 |
| $ | 24,906 |
| Credit | 100,310 |
| — |
| 100,310 |
| 1,735 |
| | 100,027 |
| — |
| 100,027 |
| 2,504 |
| Foreign exchange(b) | 173,363 |
| 1,577 |
| 174,940 |
| 14,142 |
| | 186,404 |
| 2,133 |
| 188,537 |
| 18,601 |
| Equity(b) | 42,662 |
| — |
| 42,662 |
| 9,266 |
| | 44,534 |
| — |
| 44,534 |
| 11,819 |
| Commodity(b) | 43,216 |
| 586 |
| 43,802 |
| 10,635 |
| | 46,998 |
| 644 |
| 47,642 |
| 12,826 |
| Total fair value of trading assets and liabilities | $ | 1,656,054 |
| $ | 8,227 |
| $ | 1,664,281 |
| $ | 74,983 |
| | $ | 1,635,562 |
| $ | 5,897 |
| $ | 1,641,459 |
| $ | 70,656 |
|
| | (a) | Balances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 130–132 of this Form 10-Q for further information. |
| | (b) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| | (c) | As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists. |
The following table presents, as of September 30, 2013, and December 31, 2012, the gross and net derivative receivables by contract and settlement type. Derivative receivables have been netted on the Consolidated Balance Sheets against derivative payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the receivables are not eligible under U.S. GAAP for netting against related derivative payables on the Consolidated Balance Sheets, and are shown separately in the table below. | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2013 | | December 31, 2012 | (in millions) | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | | Gross derivative receivables | Amounts netted on the Consolidated balance sheets | Net derivative receivables | U.S. GAAP nettable derivative receivables | | | | | | | | | | Interest rate contracts: | | | | | | | | | | | Over–the–counter (“OTC”)(a) | $ | 548,471 |
| $ | (525,669 | ) | | $ | 22,802 |
| | $ | 794,517 |
| $ | (771,684 | ) | | $ | 22,833 |
| | OTC–cleared | 377,429 |
| (377,407 | ) | | 22 |
| | 491,947 |
| (491,678 | ) | | 269 |
| | Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
| Total interest rate contracts | 925,900 |
| (903,076 | ) | | 22,824 |
| | 1,286,464 |
| (1,263,362 | ) | | 23,102 |
| Credit contracts: | | | | | | |
|
| | | | OTC | 72,837 |
| (71,697 | ) | | 1,140 |
| | 90,744 |
| (90,104 | ) | | 640 |
| | OTC–cleared | 12,310 |
| (12,076 | ) | | 234 |
| | 8,471 |
| (8,471 | ) | | — |
| Total credit contracts | 85,147 |
| (83,773 | ) | | 1,374 |
| | 99,215 |
| (98,575 | ) | | 640 |
| Foreign exchange contracts: | | | | | | | | | | | OTC(a) | 163,943 |
| (154,792 | ) | | 9,151 |
| | 168,740 |
| (160,775 | ) | | 7,965 |
| | OTC–cleared | 88 |
| (88 | ) | | — |
| | 23 |
| (23 | ) | | — |
| | Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
| Total foreign exchange contracts | 164,031 |
| (154,880 | ) | | 9,151 |
| | 168,763 |
| (160,798 | ) | | 7,965 |
| Equity contracts: | | | | | | | | | | | OTC | 33,122 |
| (29,552 | ) | | 3,570 |
| | 26,008 |
| (24,628 | ) | | 1,380 |
| | OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
| | Exchange traded(b) | 20,602 |
| (12,489 | ) | | 8,113 |
| | 12,841 |
| (8,768 | ) | | 4,073 |
| Total equity contracts | 53,724 |
| (42,041 | ) | | 11,683 |
| | 38,849 |
| (33,396 | ) | | 5,453 |
| Commodity contracts: | | | | | | | | | | | OTC(a) | 21,532 |
| (15,505 | ) | | 6,027 |
| | 26,881 |
| (20,760 | ) | | 6,121 |
| | OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
| | Exchange traded(b) | 16,670 |
| (15,039 | ) | | 1,631 |
| | 15,108 |
| (12,407 | ) | | 2,701 |
| Total commodity contracts | 38,202 |
| (30,544 | ) | | 7,658 |
| | 41,989 |
| (33,167 | ) | | 8,822 |
| Derivative receivables with appropriate legal opinion | $ | 1,267,004 |
| $ | (1,214,314 | ) | (c) | $ | 52,690 |
| | $ | 1,635,280 |
| $ | (1,589,298 | ) | (c) | $ | 45,982 |
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 14,098 |
| | | 14,098 |
| | 29,001 |
| | | 29,001 |
| Total derivative receivables recognized on the Consolidated Balance Sheets | $ | 1,281,102 |
| | | $ | 66,788 |
| | $ | 1,664,281 |
| | | $ | 74,983 |
|
| | (a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| | (b) | Exchange traded derivative amounts that relate to futures contracts are settled daily. |
| | (c) | Included cash collateral netted of $63.1 billion and $79.2 billion at September 30, 2013, and December 31, 2012, respectively. |
The following table presents, as of September 30, 2013, and December 31, 2012, the gross and net derivative payables by contract and settlement type. Derivative payables have been netted on the Consolidated Balance Sheets against derivative receivables to the same counterparty with respect to derivative contracts for which the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, the payables are not eligible under U.S. GAAP for netting against related derivative receivables on the Consolidated Balance Sheets, and are shown separately in the table below. | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2013 | | December 31, 2012 | (in millions) | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | | Gross derivative payables | Amounts netted on the Consolidated balance sheets | Net derivative payables | U.S. GAAP nettable derivative payables | | | | | | | | | | Interest rate contracts: | | | | | | | | | | | OTC(a) | $ | 529,210 |
| $ | (514,932 | ) | | $ | 14,278 |
| | $ | 774,769 |
| $ | (754,050 | ) | | $ | 20,719 |
| | OTC–cleared | 368,886 |
| (368,355 | ) | | 531 |
| | 482,018 |
| (481,763 | ) | | 255 |
| | Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
| Total interest rate contracts | 898,096 |
| (883,287 | ) | | 14,809 |
| | 1,256,787 |
| (1,235,813 | ) |
| 20,974 |
| Credit contracts: | | | | | | | | | | | OTC | 71,339 |
| (69,751 | ) | | 1,588 |
| | 89,170 |
| (88,151 | ) | | 1,019 |
| | OTC–cleared | 12,432 |
| (12,228 | ) | | 204 |
| | 9,372 |
| (9,372 | ) | | — |
| Total credit contracts | 83,771 |
| (81,979 | ) | | 1,792 |
| | 98,542 |
| (97,523 | ) |
| 1,019 |
| Foreign exchange contracts: | | | | | | | | | | | OTC(a) | 178,304 |
| (166,977 | ) | | 11,327 |
| | 181,166 |
| (169,913 | ) | | 11,253 |
| | OTC–cleared | 113 |
| (112 | ) | | 1 |
| | 29 |
| (23 | ) | | 6 |
| | Exchange traded(b) | — |
| — |
| | — |
| | — |
| — |
| | — |
| Total foreign exchange contracts | 178,417 |
| (167,089 | ) | | 11,328 |
| | 181,195 |
| (169,936 | ) |
| 11,259 |
| Equity contracts: | | | | | | | | | | | OTC | 34,416 |
| (30,599 | ) | | 3,817 |
| | 28,320 |
| (23,948 | ) | | 4,372 |
| | OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
| | Exchange traded(b) | 19,623 |
| (12,489 | ) | | 7,134 |
| | 12,000 |
| (8,767 | ) | | 3,233 |
| Total equity contracts | 54,039 |
| (43,088 | ) | | 10,951 |
| | 40,320 |
| (32,715 | ) |
| 7,605 |
| Commodity contracts: | | | | | | | | | | | OTC(a) | 20,642 |
| (16,596 | ) | | 4,046 |
| | 28,761 |
| (22,409 | ) | | 6,352 |
| | OTC–cleared | — |
| — |
| | — |
| | — |
| — |
| | — |
| | Exchange traded(b) | 16,397 |
| (15,039 | ) | | 1,358 |
| | 14,488 |
| (12,407 | ) | | 2,081 |
| Total commodity contracts | 37,039 |
| (31,635 | ) | | 5,404 |
| | 43,249 |
| (34,816 | ) |
| 8,433 |
| Derivative payables with appropriate legal opinions | $ | 1,251,362 |
| $ | (1,207,078 | ) | (c) | $ | 44,284 |
| | $ | 1,620,093 |
| $ | (1,570,803 | ) | (c) | $ | 49,290 |
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | 16,501 |
| | | 16,501 |
| | 21,366 |
| | | 21,366 |
| Total derivative payables recognized on the Consolidated Balance Sheets | $ | 1,267,863 |
| | | $ | 60,785 |
| | $ | 1,641,459 |
| | | $ | 70,656 |
|
| | (a) | The prior period amounts have been revised. This revision had no impact on the Firm’s Consolidated Balance Sheets or its results of operations. |
| | (b) | Exchange traded derivative balances that relate to futures contracts are settled daily. |
| | (c) | Included cash collateral netted of $55.8 billion and $60.7 billion related to OTC and OTC-cleared derivatives at September 30, 2013, and December 31, 2012, respectively. |
In addition to the cash collateral received and transferred that is presented on a net basis with net derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments but are not eligible for net presentation, because (a) the collateral is non-cash financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) the amount of collateral held or transferred exceeds the fair value exposure, at the individual counterparty level, as of the date presented, or (c) the collateral relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained.
The following tables present information regarding certain non-cash financial instrument collateral received and transferred as of September 30, 2013, and December 31, 2012, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables relates only to the derivative instruments with appropriate legal opinions and excludes additional collateral that exceeds the fair value exposure and excludes all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained. | | | | | | | | | | | | | | | | | | | | | | | Derivative receivable collateral | | | | | | | September 30, 2013 | | December 31, 2012 | (in millions) | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure | | Net derivative receivables | Collateral not nettable on the Consolidated balance sheets | | Net exposure | Derivative receivables with appropriate legal opinions | $ | 52,690 |
| $ | (10,131 | ) | (a) | $ | 42,559 |
| | $ | 45,982 |
| $ | (11,350 | ) | (a) | $ | 34,632 |
|
| | | | | | | | | | | | | | | | | | | | | | | Derivative payable collateral(b) | | | | | | | September 30, 2013 | | December 31, 2012 | (in millions) | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | | Net derivative payables | Collateral not nettable on the Consolidated balance sheets | | Net amount(c) | Derivative payables with appropriate legal opinions | $ | 44,284 |
| $ | (8,538 | ) | (a) | $ | 35,746 |
| | $ | 49,290 |
| $ | (20,109 | ) | (a) | $ | 29,181 |
|
| | (a) | Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty. |
| | (b) | Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative instruments. |
| | (c) | Net amount represents exposure of counterparties to the Firm. |
Liquidity risk and credit-related contingent features For a more detailed discussion of liquidity risk and credit-related contingent features related to the Firm’s derivative contracts, see Note 6 on pages 218–227 of JPMorgan Chase’s 2012 Annual Report. 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 September 30, 2013, and December 31, 2012. | | | | | | | | OTC and OTC-cleared derivative payables containing downgrade triggers | (in millions) | September 30, 2013 | December 31, 2012 | Aggregate fair value of net derivative payables | $ | 26,608 |
| $ | 40,844 |
| Collateral posted | 21,954 |
| 34,414 |
|
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at September 30, 2013, and December 31, 2012, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, except in certain instances in which additional initial margin may be required upon a ratings downgrade, or termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract. | | | | | | | | | | | | | | | Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives | | | | | | | September 30, 2013 | | December 31, 2012 | (in millions) | Single-notch downgrade | Two-notch downgrade | | Single-notch downgrade | Two-notch downgrade | Amount of additional collateral to be posted upon downgrade(a) | $ | 947 |
| $ | 3,334 |
| | $ | 1,234 |
| $ | 4,090 |
| Amount required to settle contracts with termination triggers upon downgrade(b) | 673 |
| 1,014 |
| | 857 |
| 1,270 |
|
| | (a) | Includes the additional collateral to be posted for initial margin. Prior period amounts have been revised to conform with the current presentation. |
| | (b) | Amounts represent fair value of derivative payables, and do not reflect collateral posted. |
Impact of derivatives on the Consolidated Statements of Income The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose. Fair value hedge gains and losses The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretax gains/(losses) recorded on such derivatives and the related hedged items for the three and nine months ended September 30, 2013 and 2012, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated Statements of Income, primarily principal transactions revenue and net interest income. For additional information regarding amounts recorded in principal transactions revenue, see Note 6 on pages 145–146 of this Form 10-Q. | | | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income | | Income statement impact due to: | Three months ended September 30, 2013 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) | Contract type | | | | | | | Interest rate(a) | $ | (151 | ) | $ | 484 |
| $ | 333 |
| | $ | (18 | ) | $ | 351 |
| Foreign exchange(b) | (3,766 | ) | 3,701 |
| (65 | ) | | — |
| (65 | ) | Commodity(c) | (842 | ) | 547 |
| (295 | ) | | 18 |
| (313 | ) | Total | $ | (4,759 | ) | $ | 4,732 |
| $ | (27 | ) | | $ | — |
| $ | (27 | ) | | | | | | | | | Gains/(losses) recorded in income | | Income statement impact due to: | Three months ended September 30, 2012 (in millions) | Derivatives |
| Hedged items |
| Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) | Contract type | | | | | | | Interest rate(a) | $ | (187 | ) | $ | 281 |
| $ | 94 |
| | $ | (35 | ) | $ | 129 |
| Foreign exchange(b) | (2,580 | ) | 2,521 |
| (59 | ) | | — |
| (59 | ) | Commodity(c) | (2,485 | ) | 1,685 |
| (800 | ) | | (9 | ) | (791 | ) | Total | $ | (5,252 | ) | $ | 4,487 |
| $ | (765 | ) | | $ | (44 | ) | $ | (721 | ) |
| | | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income | | Income statement impact due to: | Nine months ended September 30, 2013 (in millions) | Derivatives | Hedged items | Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) | Contract type | | | | | | | Interest rate(a) | $ | (2,757 | ) | $ | 3,793 |
| $ | 1,036 |
| | $ | (118 | ) | $ | 1,154 |
| Foreign exchange(b) | 267 |
| (419 | ) | (152 | ) | | — |
| (152 | ) | Commodity(c) | 366 |
| (1,265 | ) | (899 | ) | | 6 |
| (905 | ) | Total | $ | (2,124 | ) | $ | 2,109 |
| $ | (15 | ) | | $ | (112 | ) | $ | 97 |
| | | | | | | | | Gains/(losses) recorded in income | | Income statement impact due to: | Nine months ended September 30, 2012 (in millions) | Derivatives |
| Hedged items |
| Total income statement impact | | Hedge ineffectiveness(d) | Excluded components(e) | Contract type | | | | | | | Interest rate(a) | $ | (800 | ) | $ | 1,171 |
| $ | 371 |
| | $ | — |
| $ | 371 |
| Foreign exchange(b) | (1,104 | ) | 950 |
| (154 | ) | | — |
| (154 | ) | Commodity(c) | (3,265 | ) | 2,186 |
| (1,079 | ) | | 44 |
| (1,123 | ) | Total | $ | (5,169 | ) | $ | 4,307 |
| $ | (862 | ) | | $ | 44 |
| $ | (906 | ) |
| | (a) | Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest. Prior period amounts have been revised to conform with the current presentation. |
| | (b) | Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest income. |
| | (c) | Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue. |
| | (d) | Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk. |
| | (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 and time values. |
Cash flow hedge gains and losses The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the three and nine months ended September 30, 2013 and 2012. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line item in the Consolidated Statements of Income. | | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | Three months ended September 30, 2013 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change in OCI for period | Contract type | | | | | | Interest rate(a) | $ | (15 | ) | $ | — |
| $ | (15 | ) | $ | (3 | ) | $ | 12 |
| Foreign exchange(b) | 8 |
| — |
| 8 |
| 109 |
| 101 |
| Total | $ | (7 | ) | $ | — |
| $ | (7 | ) | $ | 106 |
| $ | 113 |
|
| | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | Three months ended September 30, 2012 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period | Contract type | | | | | | Interest rate(a) | $ | 5 |
| $ | — |
| $ | 5 |
| $ | (11 | ) | $ | (16 | ) | Foreign exchange(b) | 14 |
| — |
| 14 |
| 67 |
| 53 |
| Total | $ | 19 |
| $ | — |
| $ | 19 |
| $ | 56 |
| $ | 37 |
|
| | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | Nine months ended September 30, 2013 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change in OCI for period | Contract type | | | | | | Interest rate(a) | $ | (56 | ) | $ | — |
| $ | (56 | ) | $ | (529 | ) | $ | (473 | ) | Foreign exchange(b) | (14 | ) | — |
| (14 | ) | (7 | ) | 7 |
| Total | $ | (70 | ) | $ | — |
| $ | (70 | ) | $ | (536 | ) | $ | (466 | ) |
| | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss)(c) | Nine months ended September 30, 2012 (in millions) | Derivatives – effective portion reclassified from AOCI to income | Hedge ineffectiveness recorded directly in income(d) | Total income statement impact | Derivatives – effective portion recorded in OCI | Total change
in OCI
for period | Contract type | | | | | | Interest rate(a) | $ | 33 |
| $ | 5 |
| $ | 38 |
| $ | 9 |
| $ | (24 | ) | Foreign exchange(b) | 11 |
| — |
| 11 |
| 134 |
| 123 |
| Total | $ | 44 |
| $ | 5 |
| $ | 49 |
| $ | 143 |
| $ | 99 |
|
| | (a) | Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income. |
| | (b) | Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily net interest income, noninterest revenue and compensation expense. |
| | (c) | The Firm did not experience any forecasted transactions that failed to occur for the three and nine months ended September 30, 2013 and 2012. |
| | (d) | Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. |
Over the next 12 months, the Firm expects that $14 million (after-tax) of net losses recorded in accumulated other comprehensive income (“AOCI”) at September 30, 2013, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such transactions primarily relate to core lending and borrowing activities. Net investment hedge gains and losses The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretax gains/(losses) recorded on such instruments for the three and nine months ended September 30, 2013 and 2012. | | | | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss) | | 2013 | | 2012 | Three months ended September 30, (in millions) | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | Foreign exchange derivatives | | $ | (112 | ) | | $ | (343 | ) | | | $ | (101 | ) | | $ | (404 | ) |
| | | | | | | | | | | | | | | | | | | | Gains/(losses) recorded in income and other comprehensive income/(loss) | | 2013 | | 2012 | Nine months ended September 30, (in millions) | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | | Excluded components recorded directly in income(a) | Effective portion recorded in OCI | Foreign exchange derivatives | | $ | (274 | ) | | $ | 648 |
| | | $ | (236 | ) | | $ | (191 | ) |
| | (a) | Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in current-period income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no ineffectiveness for net investment hedge accounting relationships during the three and nine months ended September 30, 2013 and 2012. |
Gains and losses on derivatives used for specified risk management purposes The following table presents pretax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, AFS securities, foreign currency-denominated liabilities, and commodities-related contracts and investments. | | | | | | | | | | | | | | | | Derivatives gains/(losses) recorded in income | | Three months ended September 30, | | Nine months ended September 30, | (in millions) | 2013 | 2012 | | 2013 | 2012 | Contract type | | | | | | Interest rate(a) | $ | (40 | ) | $ | 1,458 |
| | $ | 687 |
| $ | 4,301 |
| Credit(b) | (32 | ) | (48 | ) | | (71 | ) | (135 | ) | Foreign exchange(c) | — |
| — |
| | 1 |
| 47 |
| Commodity(d) | 34 |
| 87 |
| | 108 |
| 90 |
| Total | $ | (38 | ) | $ | 1,497 |
| | $ | 725 |
| $ | 4,303 |
|
| | (a) | Primarily relates to interest rate derivatives used to hedge the interest rate risks associated with the mortgage pipeline, warehouse loans and MSRs. Gains and losses were recorded predominantly in mortgage fees and related income. |
| | (b) | Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses, and single-name credit derivatives used to mitigate credit risk arising from certain AFS securities. These derivatives do not include the synthetic credit portfolio or credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, both of which are included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue. |
| | (c) | Primarily relates to hedges of the foreign exchange risk of specified foreign currency-denominated liabilities. Gains and losses were recorded in principal transactions revenue and net interest income. |
| | (d) | Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. Gains and losses were recorded in principal transactions revenue. |
Gains and losses on derivatives related to market-making activities and other derivatives The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from the Firm’s market-making activities, including the counterparty credit risk arising from derivative receivables. These derivatives, as well as all other derivatives (including the synthetic credit portfolio) that are not included in the hedge accounting or specified risk management categories above, are included in this category. Gains and losses on these derivatives are recorded in principal transactions revenue. See Note 6 on pages 145–146 of this Form 10-Q for information on principal transactions revenue. Credit derivatives For a more detailed discussion of credit derivatives, see Note 6 on pages 218–227 of JPMorgan Chase’s 2012 Annual Report. The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain AFS securities and from certain financial instruments in the Firm’s market-making businesses. For more information on the synthetic credit portfolio, see footnote (b) to the table on page 133 of this Note. The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of September 30, 2013, and December 31, 2012. Upon a credit event, the Firm as a seller of protection would typically pay out only a percentage of the full notional amount as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities. Other purchased protection referenced in the following tables includes credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) as well as protection purchased through credit-related notes. The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives. Total credit derivatives and credit-related notes | | | | | | | | | | | | | | | | Maximum payout/Notional amount | September 30, 2013 (in millions) | Protection sold | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) | Credit derivatives | | | | | | Credit default swaps | $ | (2,920,641 | ) | | $ | 2,911,245 |
| $ | (9,396 | ) | $ | 10,331 |
| Other credit derivatives(a) | (65,049 | ) | | 7,635 |
| (57,414 | ) | 28,881 |
| Total credit derivatives | (2,985,690 | ) | | 2,918,880 |
| (66,810 | ) | 39,212 |
| Credit-related notes | (108 | ) | | — |
| (108 | ) | 2,762 |
| Total | $ | (2,985,798 | ) | | $ | 2,918,880 |
| $ | (66,918 | ) | $ | 41,974 |
| | | | | | | | Maximum payout/Notional amount | December 31, 2012 (in millions) | Protection sold | Protection purchased with identical underlyings(b) | Net protection (sold)/purchased(c) | Other protection purchased(d) | Credit derivatives | | | | | | Credit default swaps | $ | (2,954,705 | ) | | $ | 2,879,105 |
| $ | (75,600 | ) | $ | 42,460 |
| Other credit derivatives(a) | (66,244 | ) | | 5,649 |
| (60,595 | ) | 33,174 |
| Total credit derivatives | (3,020,949 | ) | | 2,884,754 |
| (136,195 | ) | 75,634 |
| Credit-related notes | (233 | ) | | — |
| (233 | ) | 3,255 |
| Total | $ | (3,021,182 | ) | | $ | 2,884,754 |
| $ | (136,428 | ) | $ | 78,889 |
|
| | (a) | Other credit derivatives predominantly consists of put options on fixed income portfolios. |
| | (b) | Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold. |
| | (c) | Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. |
| | (d) | Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument. |
The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of September 30, 2013, and December 31, 2012, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below. | | | | | | | | | | | | | | | | | | | | | | | Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile | | | | September 30, 2013 (in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value | Risk rating of reference entity | | | | | | | | Investment-grade | $ | (381,410 | ) | $ | (1,613,389 | ) | $ | (162,893 | ) | $ | (2,157,692 | ) | $ | 23,902 |
| $ | (11,784 | ) | $ | 12,118 |
| Noninvestment-grade | (176,492 | ) | (616,557 | ) | (35,057 | ) | (828,106 | ) | 23,122 |
| (23,549 | ) | (427 | ) | Total | $ | (557,902 | ) | $ | (2,229,946 | ) | $ | (197,950 | ) | $ | (2,985,798 | ) | $ | 47,024 |
| $ | (35,333 | ) | $ | 11,691 |
|
| | | | | | | | | | | | | | | | | | | | | | | December 31, 2012 (in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value | Risk rating of reference entity | | | | | | | | Investment-grade | $ | (409,748 | ) | $ | (1,383,644 | ) | $ | (224,001 | ) | $ | (2,017,393 | ) | $ | 16,690 |
| $ | (22,393 | ) | $ | (5,703 | ) | Noninvestment-grade | (214,949 | ) | (722,115 | ) | (66,725 | ) | (1,003,789 | ) | 22,355 |
| (36,815 | ) | (14,460 | ) | Total | $ | (624,697 | ) | $ | (2,105,759 | ) | $ | (290,726 | ) | $ | (3,021,182 | ) | $ | 39,045 |
| $ | (59,208 | ) | $ | (20,163 | ) |
| | (a) | The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s. |
| | (b) | Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm. |
|