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Derivative Instruments (Tables)
 12 Months Ended
Dec. 31, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 2012 and 2011.
 
Notional amounts(b)
December 31, (in billions)
2012

2011

Interest rate contracts
 
 
Swaps
$
33,183

$
38,704

Futures and forwards
11,824

7,888

Written options
3,866

3,842

Purchased options
3,911

4,026

Total interest rate contracts
52,784

54,460

Credit derivatives(a)
5,981

5,774

Foreign exchange contracts
 
 

Cross-currency swaps
3,355

2,931

Spot, futures and forwards
4,033

4,512

Written options
651

674

Purchased options
661

670

Total foreign exchange contracts
8,700

8,787

Equity contracts
 
 
Swaps
163

119

Futures and forwards
49

38

Written options
442

460

Purchased options
403

405

Total equity contracts
1,057

1,022

Commodity contracts
 
 

Swaps
313

341

Spot, futures and forwards
190

188

Written options
265

310

Purchased options
260

274

Total commodity contracts
1,028

1,113

Total derivative notional amounts
$
69,550

$
71,156

(a)
Primarily consists of credit default swaps. For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 226–227 of this Note.
(b)
Represents the sum of gross long and gross short third-party notional derivative contracts.
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, 2012 and 2011, 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
 
 
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
$
1,323,184

$
6,064

 
$
1,329,248

 
$
39,205

 
$
1,284,494

$
3,120

$
1,287,614

 
$
24,906

Credit
100,310

—

 
100,310

 
1,735

 
100,027

—

100,027

 
2,504

Foreign exchange(b)
146,682

1,577

 
148,259

 
14,142

 
159,509

2,133

161,642

 
18,601

Equity
40,938

—

 
40,938

 
9,266

 
42,810

—

42,810

 
11,819

Commodity
43,039

586

 
43,625

 
10,635

 
46,821

644

47,465

 
12,826

Total fair value of trading assets and liabilities
$
1,654,153

$
8,227

 
$
1,662,380

 
$
74,983

 
$
1,633,661

$
5,897

$
1,639,558

 
$
70,656

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
December 31, 2011
(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
$
1,433,900

$
7,621

 
$
1,441,521

 
$
46,369

 
$
1,397,625

$
2,192

$
1,399,817

 
$
28,010

Credit
169,650

—

 
169,650

 
6,684

 
165,121

—

165,121

 
5,610

Foreign exchange(b)
163,497

4,666

 
168,163

 
17,890

 
165,353

655

166,008

 
17,435

Equity
47,736

—

 
47,736

 
6,793

 
46,366

—

46,366

 
9,655

Commodity
53,894

3,535

 
57,429

 
14,741

 
58,836

1,108

59,944

 
14,267

Total fair value of trading assets and liabilities
$
1,868,677

$
15,822

 
$
1,884,499

 
$
92,477

 
$
1,833,301

$
3,955

$
1,837,256

 
$
74,977

(a)
Balances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 214–216 of this Annual Report for further information.
(b)
Excludes $11 million of foreign currency-denominated debt designated as a net investment hedge at December 31, 2011. Foreign currency-denominated debt was not designated as a hedging instrument at December 31, 2012.
(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.
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 years ended December 31, 2012, 2011 and 2010, 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.
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Year ended December 31, 2012 (in millions)
Derivatives
Hedged items
Total income statement impact
 
Hedge ineffectiveness(e)
Excluded components(f)
Contract type
 
 
 
 
 
 
 
Interest rate(a)
$
(1,238
)
 
$
1,879

$
641

 
$
(28
)
$
669

Foreign exchange(b)
(3,027
)
(d) 
2,925

(102
)
 
—

(102
)
Commodity(c)
(2,530
)
 
1,131

(1,399
)
 
107

(1,506
)
Total
$
(6,795
)
 
$
5,935

$
(860
)
 
$
79

$
(939
)
 
 
 
 
 
 
 
 
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Year ended December 31, 2011 (in millions)
Derivatives
Hedged items

Total income statement impact
 
Hedge ineffectiveness(e)

Excluded components(f)

Contract type
 
 
 
 
 
 
 
Interest rate(a)
$
532

 
$
33

$
565

 
$
104

$
461

Foreign exchange(b)
5,684

(d) 
(3,761
)
1,923

 
—

1,923

Commodity(c)
1,784

 
(2,880
)
(1,096
)
 
(10
)
(1,086
)
Total
$
8,000

 
$
(6,608
)
$
1,392

 
$
94

$
1,298

 
 
 
 
 
 
 
 
 
Gains/(losses) recorded in income
 
Income statement impact due to:
Year ended December 31, 2010 (in millions)
Derivatives
Hedged items

Total income statement impact
 
Hedge ineffectiveness(e)

Excluded components(f)

Contract type
 
 
 
 
 
 
 
Interest rate(a)
$
1,102

 
$
(376
)
$
726

 
$
175

$
551

Foreign exchange(b)
1,357

(d) 
(1,812
)
(455
)
 
—

(455
)
Commodity(c)
(1,354
)
 
1,882

528

 
—

528

Total
$
1,105

 
$
(306
)
$
799

 
$
175

$
624

(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)
Included $(3.1) billion, $4.9 billion and $278 million for the years ended December 31, 2012, 2011 and 2010, respectively, of revenue related to certain foreign exchange trading derivatives designated as fair value hedging instruments.
(e)
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.
(f)
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 years ended December 31, 2012, 2011 and 2010, respectively. 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)
Year ended December 31, 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)
$
(3
)
$
5

$
2

$
13

$
16

Foreign exchange(b)
31

—

31

128

97

Total
$
28

$
5

$
33

$
141

$
113


 
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Year ended December 31, 2011
(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)
$
310

$
19

$
329

$
107

$
(203
)
Foreign exchange(b)
(9
)
—

(9
)
(57
)
(48
)
Total
$
301

$
19

$
320

$
50

$
(251
)
 
 
 
 
 
 
 
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Year ended December 31, 2010
(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)
$
288

$
20

$
308

$
388

$
100

Foreign exchange(b)
(82
)
(3
)
(85
)
(141
)
(59
)
Total
$
206

$
17

$
223

$
247

$
41

(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 years ended December 31, 2012 and 2011. In 2010, the Firm reclassified a $25 million loss from AOCI to earnings because the Firm determined that it was probable that forecasted interest payment cash flows related to certain wholesale deposits would not occur.
(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.
Net investment hedge gains and losses
The following tables present 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 years ended December 31, 2012, 2011 and 2010.
 
Gains/(losses) recorded in income and other comprehensive income/(loss)
 
2012
 
2011
 
2010
Year ended December 31,
(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
 
Excluded components recorded directly in income(a)
Effective portion recorded in OCI
Contract type
 
 
 
 
 
 
 
 
Foreign exchange derivatives
$
(306
)
$
(82
)
 
$
(251
)
$
225

 
$
(139
)
$
(30
)
Foreign currency denominated debt
—

—

 
—

1

 
—

41

Total
$
(306
)
$
(82
)
 
$
(251
)
$
226

 
$
(139
)
$
11

(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 2012, 2011 and 2010.
Risk management derivatives gains and losses (not designated as hedging instruments)
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
Year ended December 31,
(in millions)
2012

2011

2010

Contract type
 
 
 
Interest rate(a)
$
5,353

$
8,084

$
4,987

Credit(b)
(175
)
(52
)
(237
)
Foreign exchange(c)
47

(157
)
(64
)
Commodity(d)
94

41

(48
)
Total
$
5,319

$
7,916

$
4,638

(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.
Current credit risk of derivative receivables and liquidity risk of derivative payables
The following table shows the aggregate fair value of net derivative payables that contain contingent collateral or termination features that may be triggered upon a downgrade and the associated collateral the Firm has posted in the normal course of business at December 31, 2012 and 2011.
Derivative payables containing downgrade triggers
December 31, (in millions)
2012

2011

Aggregate fair value of net derivative payables(a)
$
40,844

$
39,316

Collateral posted(a)
34,414

31,473

(a)
The current period presentation excludes contracts with downgrade triggers that were in a net receivable position. Prior period amounts have been revised to conform with the current presentation.
The following table shows the impact of a single-notch and two-notch ratings downgrade to JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at December 31, 2012 and 2011, related to 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 or termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating provided by major rating agencies.
Liquidity impact of derivative downgrade triggers
 
 
 
 
 
 
2012
 
2011
December 31, (in millions)
Single-notch downgrade
Two-notch downgrade
 
Single-notch downgrade
Two-notch downgrade
Additional portion of net derivative payable to be posted as collateral upon downgrade
$
1,012

$
1,664

 
$
1,460

$
2,054

Amount required to settle contracts with termination triggers upon downgrade(a)
857

1,270

 
1,054

1,923

(a) Amounts represent fair value of derivative payables, and do not reflect collateral posted.
The following tables show the carrying value of derivative receivables and payables after netting adjustments, and adjustments
for collateral held (including cash, U.S. government and agency securities and other G7 government bonds) and transferred as
of December 31, 2012 and 2011.
Impact of netting adjustments on derivative receivables and payables
 
 
 
 
Derivative receivables
 
Derivative payables
December 31, (in millions)
2012

2011

 
2012

2011

Gross derivative fair value
$
1,662,380

$
1,884,499

 
$
1,639,558

$
1,837,256

Netting adjustment – offsetting receivables/payables(a)
(1,508,244
)
(1,710,523
)
 
(1,508,244
)
(1,710,523
)
Netting adjustment – cash collateral received/paid(a)
(79,153
)
(81,499
)
 
(60,658
)
(51,756
)
Carrying value on Consolidated Balance Sheets
$
74,983

$
92,477

 
$
70,656

$
74,977

Total derivative collateral
 
 
 
 
 
 
Collateral held
 
Collateral transferred
December 31, (in millions)
2012

2011

 
2012

2011

Netting adjustment for cash collateral(a)
$
79,153

$
81,499

 
$
60,658

$
51,756

Liquid securities and other cash collateral(b)
13,658

21,807

 
21,767

19,439

Additional liquid securities and cash collateral(c)
22,562

17,613

 
9,635

10,824

Total collateral for derivative transactions
$
115,373

$
120,919

 
$
92,060

$
82,019

(a)
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.
(b)
Represents cash collateral received and paid that is not subject to a legally enforceable master netting agreement, and liquid securities collateral held and transferred.
(c)
Represents liquid securities and cash collateral held and transferred at the initiation of derivative transactions, which is available as security against potential exposure that could arise should the fair value of the transactions move, as well as collateral held and transferred related to contracts that have non-daily call frequency for collateral to be posted, and collateral that the Firm or a counterparty has agreed to return but has not yet settled as of the reporting date. These amounts were not netted against the derivative receivables and payables in the tables above, because, at an individual counterparty level, the collateral exceeded the fair value exposure at both December 31, 2012 and 2011.
Credit Derivatives Table
 
Maximum payout/Notional amount
 
Protection sold
Protection purchased with identical underlyings(b)
Net protection (sold)/purchased(c)
Other protection purchased(d)
December 31, 2012 (in millions)
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

 
 
 
 
 
 
Maximum payout/Notional amount
 
Protection sold
Protection purchased with identical underlyings(b)
Net protection (sold)/purchased(c)
Other protection purchased(d)
December 31, 2011 (in millions)
Credit derivatives
 
 
 
 
Credit default swaps
$
(2,839,492
)
$
2,798,207

$
(41,285
)
$
29,139

Other credit derivatives(a)
(79,711
)
4,954

(74,757
)
22,292

Total credit derivatives
(2,919,203
)
2,803,161

(116,042
)
51,431

Credit-related notes
(742
)
—

(742
)
3,944

Total
$
(2,919,945
)
$
2,803,161

$
(116,784
)
$
55,375

(a)
Primarily consists of total return swaps and CDS options.
(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.
Protection sold - credit derivatives and credit-related notes ratings/maturity profile
The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of December 31, 2012 and 2011, 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, 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
)
December 31, 2011 (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
$
(352,215
)
$
(1,262,143
)
$
(345,996
)
$
(1,960,354
)
$
7,809

$
(57,697
)
$
(49,888
)
Noninvestment-grade
(241,823
)
(589,954
)
(127,814
)
(959,591
)
13,212

(85,304
)
(72,092
)
Total
$
(594,038
)
$
(1,852,097
)
$
(473,810
)
$
(2,919,945
)
$
21,021

$
(143,001
)
$
(121,980
)
(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.