Fair Value Option

9 Months Ended

Sep. 30, 2013

Fair value option

For a discussion of the primary financial instruments for which the fair value option was previously elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 4 on pages 214–216 of JPMorgan Chase’s 2012 Annual Report.

Changes in fair value under the fair value option election

The following table presents the changes in fair value included in the Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.



	Three months ended September 30,
	2013										2012
(in millions)	Principal transactions			Other income				Total changes in fair value recorded			Principal transactions			Other income				Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements	$	11		$	—			$	11		$	72		$	—			$	72
Securities borrowed	(7		)	—				(7		)	10			—				10
Trading assets:
Debt and equity instruments, excluding loans	138			—				138			157			2			^(c)	159
Loans reported as trading assets:
Changes in instrument-specific credit risk	316			(15		)	^(c)	301			416			22			^(c)	438
Other changes in fair value	(19		)	282			^(c)	263			46			2,284			^(c)	2,330
Loans:
Changes in instrument-specific credit risk	22			—				22			4			—				4
Other changes in fair value	(10		)	—				(10		)	99			—				99
Other assets	6			(42		)	^(d)	(36		)	2			(28		)	^(d)	(26		)
Deposits^(a)	(150		)	—				(150		)	(95		)	—				(95		)
Federal funds purchased and securities loaned or sold under repurchase agreements	8			—				8			(16		)	—				(16		)
Other borrowed funds^(a)	(112		)	—				(112		)	(454		)	—				(454		)
Trading liabilities	(9		)	—				(9		)	(35		)	—				(35		)
Beneficial interests issued by consolidated VIEs	(85		)	—				(85		)	(9		)	—				(9		)
Other liabilities	—			—				—			—			—				—
Long-term debt:
Changes in instrument-specific credit risk^(a)	(163		)	—				(163		)	(166		)	—				(166		)
Other changes in fair value^(b)	502			—				502			(565		)	—				(565		)



	Nine months ended September 30,
	2013										2012
(in millions)	Principal transactions			Other income				Total changes in fair value recorded			Principal transactions			Other income				Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements	$	(347	)	$	—			$	(347	)	$	245		$	—			$	245
Securities borrowed	11			—				11			24			—				24
Trading assets:
Debt and equity instruments, excluding loans	380			7			^(c)	387			495			5			^(c)	500
Loans reported as trading assets:
Changes in instrument-specific credit risk	855			23			^(c)	878			1,225			51			^(c)	1,276
Other changes in fair value	(97		)	1,487			^(c)	1,390			(128		)	5,643			^(c)	5,515
Loans:
Changes in instrument-specific credit risk	16			—				16			(10		)	—				(10		)
Other changes in fair value	11			—				11			674			—				674
Other assets	27			(131		)	^(d)	(104		)	2			(291		)	^(d)	(289		)
Deposits^(a)	147			—				147			(256		)	—				(256		)
Federal funds purchased and securities loaned or sold under repurchase agreements	53			—				53			(43		)	—				(43		)
Other borrowed funds^(a)	268			—				268			393			—				393
Trading liabilities	(41		)	—				(41		)	(23		)	—				(23		)
Beneficial interests issued by consolidated VIEs	(182		)	—				(182		)	(39		)	—				(39		)
Other liabilities	—			(1		)	^(d)	(1		)	—			—				—
Long-term debt:
Changes in instrument-specific credit risk^(a)	29			—				29			(670		)	—				(670		)
Other changes in fair value^(b)	1,471			—				1,471			(957		)	—				(957		)

(a)

Total changes in instrument-specific credit risk related to structured notes were $(331) million and $8 million for the three months ended September 30, 2013 and 2012, and $51 million and $(45) million for the nine months ended September 30, 2013 and 2012, respectively. These totals include adjustments for structured notes classified within deposits and other borrowed funds, as well as long-term debt.


(b)	Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.


(c)	Reported in mortgage fees and related income.


(d)	Reported in other income.

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2013, and December 31, 2012, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.



	September 30, 2013								December 31, 2012
(in millions)	Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding			Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding
Loans^(a)
Nonaccrual loans
Loans reported as trading assets	$	5,007		$	1,267	$	(3,740	)	$	4,217		$	960	$	(3,257	)
Loans	90			46		(44		)	116			64		(52		)
Subtotal	5,097			1,313		(3,784		)	4,333			1,024		(3,309		)
All other performing loans
Loans reported as trading assets	37,088			33,697		(3,391		)	44,084			40,581		(3,503		)
Loans	1,802			1,715		(87		)	2,211			2,099		(112		)
Total loans	$	43,987		$	36,725	$	(7,262	)	$	50,628		$	43,704	$	(6,924	)
Long-term debt
Principal-protected debt	$	16,076	^(c)	$	16,499	$	423		$	16,541	^(c)	$	16,391	$	(150	)
Nonprincipal-protected debt^(b)	NA			13,264		NA			NA			14,397		NA
Total long-term debt	NA			$	29,763	NA			NA			$	30,788	NA
Long-term beneficial interests
Nonprincipal-protected debt^(b)	NA			$	1,822	NA			NA			$	1,170	NA
Total long-term beneficial interests	NA			$	1,822	NA			NA			$	1,170	NA


(a)	There were no performing loans which were ninety days or more past due as of September 30, 2013, and December 31, 2012.

(b)

Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note.


(c)	Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity.

At September 30, 2013, and December 31, 2012, the contractual amount of letters of credit for which the fair value option was elected was $4.6 billion and $4.5 billion, respectively, with a corresponding fair value of $(103) million and $(75) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 on pages 308–315 of JPMorgan Chase’s 2012 Annual Report, and Note 21 on pages 195–199 of this Form 10-Q.

Structured note products by balance sheet classification and risk component

The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.



	September 30, 2013								December 31, 2012
(in millions)	Long-term debt		Other borrowed funds		Deposits		Total		Long-term debt		Other borrowed funds		Deposits		Total
Risk exposure
Interest rate	$	9,735	$	160	$	1,407	$	11,302	$	8,669	$	1,143	$	559	$	10,371
Credit	4,479		18		—		4,497		6,166		—		—		6,166
Foreign exchange	2,467		140		22		2,629		2,819		—		29		2,848
Equity	11,744		11,524		3,756		27,024		11,580		9,809		2,972		24,361
Commodity	1,203		355		1,597		3,155		1,379		332		1,555		3,266
Total structured notes	$	29,628	$	12,197	$	6,782	$	48,607	$	30,613	$	11,284	$	5,115	$	47,012

- Definition

The entire disclosure for a company's election to apply the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items; (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (i) information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures and (ii) the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (d) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (e) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (f) for investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required for such investments, if material either individually or in the aggregate; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) a description of how interest and dividends are measured and where they are reported in the income statement; (c) for loans and other receivables held as assets: (i) the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk and (ii) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (d) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, (ii) qualitative information about the reasons for those changes, and (iii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

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