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Goodwill and Other Intangible Assets
 12 Months Ended
Dec. 31, 2014
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)
2014
2013
2012
Consumer & Community Banking
$
30,941

$
30,985

$
31,048

Corporate & Investment Bank
6,780

6,888

6,895

Commercial Banking
2,861

2,862

2,863

Asset Management
6,964

6,969

6,992

Corporate(a)
101

377

377

Total goodwill
$
47,647

$
48,081

$
48,175


(a)
The remaining $101 million of Private Equity goodwill was disposed of as part of the Private Equity sale completed in January 2015. For further information on the Private Equity sale, see Note 2.
The following table presents changes in the carrying amount of goodwill.
Year ended December 31,
(in millions)
2014
 
2013
 
2012
Balance at beginning of period
$
48,081

 
$
48,175

 
$
48,188

Changes during the period from:
 
 
 
 
 

Business combinations
43

 
64

 
43

Dispositions
(80
)
 
(5
)
 
(4
)
Other(a)
(397
)
 
(153
)
 
(52
)
Balance at December 31,
$
47,647

 
$
48,081

 
$
48,175

(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.
Impairment testing
During 2014, the Firm recognized impairments of the Private Equity business’ goodwill totaling $276 million.
The Firm’s remaining goodwill was not impaired at December 31, 2014. Further, the Firm’s goodwill was not impaired at December 31, 2013 nor was any goodwill written off due to impairment during 2013 or 2012.
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.
Deterioration in economic market conditions, increased estimates of the effects of regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. For example, in the Firm’s Mortgage Banking business, such declines could result from increases in primary mortgage interest rates, lower mortgage origination volume, higher costs to resolve foreclosure-related matters or from deterioration in economic conditions, including decreases in home prices that result in increased credit losses. Declines in business performance, increases in equity capital requirements, 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 comprise 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, 2014, 2013 and 2012.
As of or for the year ended December 31, (in millions, except where otherwise noted)
2014

 
2013

 
2012

Fair value at beginning of period
$
9,614

 
$
7,614

 
$
7,223

MSR activity:
 
 
 
 
 
Originations of MSRs
757

 
2,214

 
2,376

Purchase of MSRs
11

 
1

 
457

Disposition of MSRs(a)
(209
)
 
(725
)
 
(579
)
Net additions
559

 
1,490

 
2,254

 
 
 
 
 
 
Changes due to collection/realization of expected cash flows(b)
(911
)
 
(1,102
)
 
(1,228
)
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
Changes due to market interest rates and other(c)
(1,608
)
 
2,122

 
(589
)
Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
Projected cash flows (e.g., cost to service)(d)
133

 
109

 
(452
)
Discount rates
(459
)
(h) 
(78
)
 
(98
)
Prepayment model changes and other(e)
108

 
(541
)
 
504

Total changes in valuation due to other inputs and assumptions
(218
)
 
(510
)
 
(46
)
Total changes in valuation due to inputs and assumptions(b)
$
(1,826
)
 
$
1,612

 
$
(635
)
Fair value at December 31,(f)
$
7,436

 
$
9,614

 
$
7,614

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

 
$
(635
)
Contractual service fees, late fees and other ancillary fees included in income
$
2,884

 
$
3,309

 
$
3,783

Third-party mortgage loans serviced at December 31, (in billions)
$
756

 
$
822

 
$
867

Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(g)
$
8.5

 
$
9.6

 
$
10.9

(a)
Predominantly represents excess mortgage servicing rights 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 in 2013 and 2012.
(b)
Included changes related to commercial real estate of $(7) million, $(5) million and $(8) million for the years ended December 31, 2014, 2013 and 2012, respectively.
(c)
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.
(d)
For the year ended December 31, 2013, the increase was driven by the inclusion in the MSR valuation model of servicing fees receivable on certain delinquent loans.
(e)
Represents changes in prepayments other than those attributable to changes in market interest rates. For the year ended December 31, 2013, the decrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices.
(f)
Included $11 million, $18 million and $23 million related to commercial real estate at December 31, 2014, 2013, and 2012, respectively.
(g)
Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, 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 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.
(h)
For the year ending December 31, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted in an increase in the option adjusted spread (“OAS”). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm believes a market participant would consider, taking into account factors such as the current 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, 2014, 2013 and 2012.
Year ended December 31,
(in millions)
2014
 
2013
 
2012
CCB mortgage fees and related income
 
 
 
 
 
Net production revenue:
 
 
 
 
 
Production revenue
$
732

 
$
2,673

 
$
5,783

Repurchase (losses)/benefits
458

 
331

 
(272
)
Net production revenue
1,190

 
3,004

 
5,511

Net mortgage servicing revenue
 
 
 
 
 

Operating revenue:
 
 
 
 
 

Loan servicing revenue
3,303

 
3,552

 
3,772

Changes in MSR asset fair value due to collection/realization of expected cash flows
(905
)
 
(1,094
)
 
(1,222
)
Total operating revenue
2,398

 
2,458

 
2,550

Risk management:
 
 
 
 
 

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

 
(587
)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
(218
)
 
(511
)
 
(46
)
Change in derivative fair value and other
1,796

 
(1,875
)
 
1,252

Total risk management
(28
)
 
(267
)
 
619

Total CCB net mortgage servicing revenue
2,370

 
2,191

 
3,169

All other
3

 
10

 
7

Mortgage fees and related income
$
3,563

 
$
5,205

 
$
8,687

(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). For the year ended December 31, 2013, the decrease was driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases 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, 2014 and 2013, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
2014
 
2013
Weighted-average prepayment speed assumption (“CPR”)
9.80
%
 
8.07
%
Impact on fair value of 10% adverse change
$
(337
)
 
$
(362
)
Impact on fair value of 20% adverse change
(652
)
 
(705
)
Weighted-average option adjusted spread
9.43
%
 
7.77
%
Impact on fair value of 100 basis points adverse change
$
(300
)
 
$
(389
)
Impact on fair value of 200 basis points adverse change
(578
)
 
(750
)
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.
Other intangible assets
Other intangible assets are recorded at their fair value upon completion of a business combination or certain other transactions, and generally represent the value of customer relationships or arrangements. Subsequently, the Firm’s intangible assets with finite lives, including core deposit intangibles, purchased credit card relationships, and other intangible assets, are amortized over their useful lives in a manner that best reflects the economic benefits of the intangible asset. The $426 million decrease in other intangible assets during 2014 was predominantly due to $380 million in amortization.
The components of credit card relationships, core deposits and other intangible assets were as follows.
 
2014
 
2013
 
Gross amount(a)
Accumulated amortization(a)
Net
carrying value
Gross amount
Accumulated amortization
Net
carrying value
December 31, (in millions)
Purchased credit card relationships
$
200

$
166

$
34

 
$
3,540

$
3,409

$
131

Other credit card-related intangibles
497

378

$
119

 
542

369

$
173

Core deposit intangibles
814

757

$
57

 
4,133

3,974

$
159

Other intangibles(b)
1,880

898

$
982

 
2,374

1,219

$
1,155

Total other intangible assets
$
3,391

$
2,199

$
1,192

 
$
10,589

$
8,971

$
1,618

(a)
The decrease in the gross amount and accumulated amortization from December 31, 2013, was due to the removal of fully amortized assets, predominantly related to intangible assets acquired in the 2004 merger with Bank One Corporation (“Bank One”).
(b)
Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an indefinite life and are not amortized.
Amortization expense
The following table presents amortization expense related to credit card relationships, core deposits and other intangible assets.
Year ended December 31, (in millions)
2014
 
2013
 
2012
Purchased credit card relationships
$
97

 
$
195

 
$
309

Other credit card-related intangibles
51

 
58

 
265

Core deposit intangibles
102

 
196

 
239

Other intangibles
130

 
188

 
144

Total amortization expense(a)
$
380

 
$
637

 
$
957


(a)
The decline in amortization expense during 2014 predominantly related to intangible assets acquired in the 2004 merger with Bank One, most of which became fully amortized during the second quarter of 2014.

Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets at December 31, 2014.
Year ended December 31, (in millions)
Purchased credit card relationships
Other credit
card-related intangibles
Core deposit intangibles
Other
intangibles
Total
2015
$
13

$
38

$
26

$
89

$
166

2016
6

33

14

73

126

2017
5

28

7

70

110

2018
3

20

5

50

78

2019
2

—

3

37

42



Impairment testing
The Firm’s intangible assets are tested for impairment annually or more often if events or changes in circumstances indicate that the asset might be impaired.
The impairment test for a finite-lived intangible asset compares the undiscounted cash flows associated with the use or disposition of the intangible asset to its carrying value. If the sum of the undiscounted cash flows exceeds its carrying value, then no impairment charge is recorded. If the sum of the undiscounted cash flows is less than its carrying value, then an impairment charge is recognized in amortization expense to the extent the carrying amount of the asset exceeds its fair value.
The impairment test for indefinite-lived intangible assets compares the fair value of the intangible asset to its carrying amount. If the carrying value exceeds the fair value, then an impairment charge is recognized in amortization expense for the difference.