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Goodwill and Mortgage Servicing Rights
 6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Mortgage Servicing Rights Goodwill and Mortgage servicing rights
Refer to Note 15 of JPMorgan Chase’s 2019 Form 10-K for a discussion of the accounting policies related to goodwill and mortgage servicing rights.
Goodwill
The following table presents goodwill attributed to the business segments.
(in millions)
June 30,
2020

December 31,
2019

Consumer & Community Banking(a)
$
30,082

$
30,082

Corporate & Investment Bank(a)
7,889

7,901

Commercial Banking
2,985

2,982

Asset & Wealth Management
6,855

6,858

Total goodwill
$
47,811

$
47,823


(a)
In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB, including the associated Goodwill of $959 million. Prior-period amounts have been revised to conform with the current presentation.
The following table presents changes in the carrying amount of goodwill.
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2020

 
2019

 
2020

 
2019

Balance at beginning
of period
$
47,800

 
$
47,474

 
$
47,823

 
$
47,471

Changes during the period from:
 
 
 
 
 
 
 
Other(a)
11

 
3

 
(12
)
 
6

Balance at June 30,
$
47,811

 
$
47,477

 
$
47,811

 
$
47,477

(a)
Primarily relates to foreign currency adjustments.
Goodwill impairment testing
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. Refer to Note 15 of JPMorgan Chase’s 2019 Form 10-K for a further discussion of the primary method used to estimate the fair value of the reporting units and the assumptions used in the goodwill impairment test.
Goodwill 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.  
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.
As of June 30, 2020, the Firm reviewed current economic conditions, including the potential impacts of the COVID-19 pandemic on business performance, estimated market cost of equity, and also reviewed actuals 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 June 30, 2020, or December 31, 2019, nor was goodwill written off due to impairment during the six months ended June 30, 2020 or 2019.
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. Refer to Notes 2 and 15 of JPMorgan Chase’s 2019 Form 10-K for a further description of the MSR asset, interest rate risk management, and the valuation of MSRs.
The following table summarizes MSR activity for the three and six months ended June 30, 2020 and 2019.
 
As of or for the three months
ended June 30,
 
As of or for the six months
ended June 30,
(in millions, except where otherwise noted)
2020

2019

 
 
2020

2019

 
Fair value at beginning of period
$
3,267

$
5,957

 
 
$
4,699

$
6,130

 
MSR activity:
 
 
 
 
 
 
 
Originations of MSRs
164

424

 
 
435

756

 
Purchase of MSRs
5

2

 
 
7

106

 
Disposition of MSRs(a)
2

(217
)
 
 
(73
)
(328
)
 
Net additions/(dispositions)
171

209

 
 
369

534

 
 
 
 
 
 
 
 
 
Changes due to collection/realization of expected cash flows
(247
)
(247
)
 
 
(495
)
(446
)
 
 
 
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
 
 
Changes due to market interest rates and other(b)
(144
)
(540
)
 
 
(1,514
)
(841
)
 
Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
 
 
Projected cash flows (e.g., cost to service)
3

(350
)
(e) 
 
2

(350
)
(e) 
Discount rates
—

153

 
 
—

153

 
Prepayment model changes and other(c)
30

(89
)
 
 
19

(87
)
 
Total changes in valuation due to other inputs and assumptions
33

(286
)
 
 
21

(284
)
 
Total changes in valuation due to inputs and assumptions
(111
)
(826
)
 
 
(1,493
)
(1,125
)
 
Fair value at June 30
$
3,080

$
5,093

 
 
$
3,080

$
5,093

 
 
 
 
 
 
 
 
 
Changes in unrealized gains/(losses) included in income related to MSRs held at June 30
$
(111
)
$
(826
)
 
 
$
(1,493
)
$
(1,125
)
 
Contractual service fees, late fees and other ancillary fees included in income
329

437

 
 
693

857

 
Third-party mortgage loans serviced at June 30 (in billions)
483

527

 
 
483

527

 
Servicer advances, net of an allowance for uncollectible amounts, at June 30 (in billions)(d)
1.7

2.2

 
 
1.7

2.2

 
(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.
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three and six months ended June 30, 2020 and 2019.
 
Three months ended June 30,
 
Six months ended June 30,
(in millions)
2020

2019

 
2020

2019

Net production revenue
$
742

$
353

 
$
1,061

$
553

 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 
Operating revenue:
 
 
 
 
 
Loan servicing revenue
343

417

 
682

821

Changes in MSR asset fair value due to collection/realization of expected cash flows
(247
)
(247
)
 
(495
)
(446
)
Total operating revenue
96

170

 
187

375

Risk management:
 
 
 
 
 
Changes in MSR asset fair value due to market interest rates and other(a)
(144
)
(540
)
 
(1,514
)
(841
)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
33

(286
)
 
21

(284
)
Changes in derivative fair value and other
190

582

 
1,482

872

Total risk management
79

(244
)
 
(11
)
(253
)
Total net mortgage servicing revenue
175

(74
)
 
176

122

Mortgage fees and related income
$
917

$
279

 
$
1,237

$
675

(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 June 30, 2020, and December 31, 2019, and outlines hypothetical sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)
Jun 30,
2020

 
Dec 31,
2019

Weighted-average prepayment speed assumption (constant prepayment rate)
19.08
%
 
11.67
%
Impact on fair value of 10% adverse change
$
(207
)
 
$
(200
)
Impact on fair value of 20% adverse change
(391
)
 
(384
)
Weighted-average option adjusted spread(a)
9.10
%
 
7.93
%
Impact on fair value of a 100 basis point adverse change
$
(100
)
 
$
(169
)
Impact on fair value of a 200 basis point adverse change
(193
)
 
(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.