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Goodwill and Other Intangible Assets
 12 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
Goodwill and other intangible assets
Goodwill
Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.
The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed by the Firm’s Operating Committee. The following table presents goodwill attributed to the business segments.
December 31, (in millions)
2015
2014
2013
Consumer & Community Banking
$
30,769

$
30,941

$
30,985

Corporate & Investment Bank
6,772

6,780

6,888

Commercial Banking
2,861

2,861

2,862

Asset Management
6,923

6,964

6,969

Corporate
—

101

377

Total goodwill
$
47,325

$
47,647

$
48,081


The following table presents changes in the carrying amount of goodwill.
Year ended December 31,
(in millions)
2015
 
2014
 
2013
Balance at beginning of period
$
47,647

 
$
48,081

 
$
48,175

Changes during the period from:
 
 
 
 
 
Business combinations
28

 
43

 
64

Dispositions
(160
)
(b)
(80
)
 
(5
)
Other(a)
(190
)
 
(397
)
 
(153
)
Balance at December 31,
$
47,325

 
$
47,647

 
$
48,081

(a)
Includes foreign currency translation adjustments, other tax-related adjustments, and, during 2014, goodwill impairment associated with the Firm’s Private Equity business of $276 million.
(b)
Includes $101 million of Private Equity goodwill, which was disposed of as part of the Private Equity sale completed in January 2015.
Impairment testing
The Firm’s goodwill was not impaired at December 31, 2015. Further, except for the goodwill related to its Private Equity business, the Firm’s goodwill was not impaired at December 31, 2014. $276 million of goodwill was written off during 2014 related to the goodwill impairment associated with the Firm’s Private Equity business. No goodwill was written off due to impairment during 2013.
The goodwill impairment test is performed in two steps. In the first step, the current fair value of each reporting unit is compared with its carrying value, including goodwill. If the fair value is in excess of the carrying value (including goodwill), then the reporting unit’s goodwill is considered not to be impaired. If the fair value is less than the carrying value (including goodwill), then a second step is performed. In the second step, the implied current fair value of the reporting unit’s goodwill is determined by comparing the fair value of the reporting unit (as determined in step one) to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. The resulting implied current fair value of goodwill is then compared with the carrying value of the reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied current fair value, then an impairment charge is recognized for the excess. If the carrying value of goodwill is less than its implied current fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated equity plus goodwill capital as a proxy for the carrying amounts of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of equity to the Firm’s lines of business, which takes into consideration the capital the business segment would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III), economic risk measures and capital levels for similarly rated peers. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated equity is further reviewed on a periodic basis and updated as needed.
The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. The models project cash flows for the forecast period and use 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 include the estimated effects of regulatory and legislative changes (including, but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)), and which are reviewed with the senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firms’ overall estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow models are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to assess the general reasonableness of the estimated fair values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions. Management also takes into consideration a comparison between the aggregate fair value of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (a) a control premium that would exist in a market transaction, (b) factors related to the level of execution risk that would exist at the firmwide level that do not exist at the reporting unit level and (c) short-term market volatility and other factors that do not directly affect the value of individual reporting units.
Declines in business performance, increases in credit losses, increases in equity capital requirements, as well as deterioration in economic or market conditions, adverse estimates of regulatory or legislative changes or increases in the estimated cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
Mortgage servicing rights
Mortgage servicing rights represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.
The 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 consist of the MSR asset. Conversely, securities (e.g., mortgage-backed securities), principal-only certificates and certain derivatives (i.e., those for which the Firm receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage 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, 2015, 2014 and 2013.
As of or for the year ended December 31, (in millions, except where otherwise noted)
2015

 
2014

 
2013

Fair value at beginning of period
$
7,436

 
$
9,614

 
$
7,614

MSR activity:
 
 
 
 
 
Originations of MSRs
550

 
757

 
2,214

Purchase of MSRs
435

 
11

 
1

Disposition of MSRs(a)
(486
)
 
(209
)
 
(725
)
Net additions
499

 
559

 
1,490

 
 
 
 
 
 
Changes due to collection/realization of expected cash flows
(922
)
 
(911
)
 
(1,102
)
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
Changes due to market interest rates and other(b)
(160
)
 
(1,608
)
 
2,122

Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
Projected cash flows (e.g., cost to service)
(112
)
 
133

 
109

Discount rates
(10
)
 
(459
)
(e) 
(78
)
Prepayment model changes and other(c)
(123
)
 
108

 
(541
)
Total changes in valuation due to other inputs and assumptions
(245
)
 
(218
)
 
(510
)
Total changes in valuation due to inputs and assumptions
$
(405
)
 
$
(1,826
)
 
$
1,612

Fair value at December 31,
$
6,608

 
$
7,436

 
$
9,614

Change in unrealized gains/(losses) included in income related to MSRs
held at December 31,
$
(405
)
 
$
(1,826
)
 
$
1,612

Contractual service fees, late fees and other ancillary fees included in income
$
2,533

 
$
2,884

 
$
3,309

Third-party mortgage loans serviced at December 31, (in billions)
$
677

 
$
756

 
$
822

Servicer advances, net of an allowance
  for uncollectible amounts, at December 31, (in billions)(d)
$
6.5

 
$
8.5

 
$
9.6

(a)
For 2014 and 2013, predominantly represents 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 and has retained the remaining balance of those SMBS as trading securities. Also includes sales of MSRs.
(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)
For the year ending December 31, 2014, the negative impact was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the OAS. The resulting OAS assumption was consistent with capital and return requirements the Firm believed a market participant would consider, taking into account factors such as the operating risk environment and regulatory and economic capital requirements.
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, 2015, 2014 and 2013.
Year ended December 31,
(in millions)
2015
 
2014
 
2013
CCB mortgage fees and related income
 
 
 
 
 
Net production revenue
$
769

 
$
1,190

 
$
3,004

 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 

Operating revenue:
 
 
 
 
 

Loan servicing revenue
2,776

 
3,303

 
3,552

Changes in MSR asset fair value due to collection/realization of expected cash flows
(917
)
 
(905
)
 
(1,094
)
Total operating revenue
1,859

 
2,398

 
2,458

Risk management:
 
 
 
 
 

Changes in MSR asset fair value
  due to market interest rates and other(a)
(160
)
 
(1,606
)
 
2,119

Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
(245
)
 
(218
)
 
(511
)
Change in derivative fair value and other
288

 
1,796

 
(1,875
)
Total risk management
(117
)
 
(28
)
 
(267
)
Total net mortgage servicing revenue
1,742

 
2,370

 
2,191

 
 
 
 
 
 
Total CCB mortgage fees and related income
2,511

 
3,560

 
5,195

 
 
 
 
 
 
All other
2

 
3

 
10

Mortgage fees and related income
$
2,513

 
$
3,563

 
$
5,205

(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).
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 2015 and 2014, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
2015
 
2014
Weighted-average prepayment speed assumption (“CPR”)
9.81
%
 
9.80
%
Impact on fair value of 10% adverse change
$
(275
)
 
$
(337
)
Impact on fair value of 20% adverse change
(529
)
 
(652
)
Weighted-average option adjusted spread
9.02
%
 
9.43
%
Impact on fair value of 100 basis points adverse change
$
(258
)
 
$
(300
)
Impact on fair value of 200 basis points adverse change
(498
)
 
(578
)
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation 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.