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Goodwill and other intangible assets
 9 Months Ended
Sep. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and other intangible assets
Goodwill and other intangible assets
For a discussion of the accounting policies related to goodwill and other intangible assets, see Note 17 of JPMorgan Chase’s 2014 Annual Report.
The following table presents goodwill attributed to the business segments.
(in millions)
September 30,
2015
December 31,
2014
Consumer & Community Banking
$
30,851

$
30,941

Corporate & Investment Bank
6,771

6,780

Commercial Banking
2,861

2,861

Asset Management
6,922

6,964

Corporate
—

101

Total goodwill
$
47,405

$
47,647


The following table presents changes in the carrying amount of goodwill.
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
2015
2014
 
 
2015
 
2014
 
Balance at beginning of period
$
47,476

$
48,110

 
 
$
47,647

 
$
48,081

 
Changes during the period from:
 
 
 
 
 
 
 
 
Business combinations
8

6

 
 
25

 
24

 
Dispositions
—

(1
)
 
 
(101
)
(b) 
(1
)
 
Other(a)
(79
)
(145
)
 
 
(166
)
 
(134
)
 
Balance at September 30,
$
47,405

$
47,970

 
 
$
47,405

 
$
47,970

 
(a)
Includes foreign currency translation adjustments and other tax-related adjustments, and, during the three and nine months ended September 30, 2014, goodwill impairment associated with the Firm’s Private Equity business of $68 million.
(b)
Represents Private Equity goodwill which was disposed of as part of the Private Equity sale completed in January 2015.
Impairment testing
For further description of the Firm’s goodwill impairment testing process, including the primary method used to estimate the fair value of the reporting units, and the assumptions used in the goodwill impairment test, see Impairment testing on pages 271–272 of JPMorgan Chase’s 2014 Annual Report.
Goodwill was not impaired at September 30, 2015, or December 31, 2014, nor was goodwill written off due to impairment during the nine months ended September 30, 2015.
However, the Firm’s Mortgage Banking business in CCB remains at an elevated risk of goodwill impairment due to its exposure to U.S. economic conditions, such as increases in primary mortgage interest rates, lower mortgage origination volume, 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
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. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Note 17 of JPMorgan Chase’s 2014 Annual Report and Note 3 of this Form 10-Q.
The following table summarizes MSR activity for the three and nine months ended September 30, 2015 and 2014.
 
As of or for the three months
ended September 30,
 
As of or for the nine months
ended September 30,
 
(in millions, except where otherwise noted)
2015
 
2014
 
2015
 
2014
 
Fair value at beginning of period
$
7,571

 
$
8,347

 
$
7,436

 
$
9,614

 
MSR activity:
 
 
 
 
 
 
 
 
Originations of MSRs
147

 
148

 
447

 
518

 
Purchase of MSRs
(4
)
 
3

 
435

 
9

 
Disposition of MSRs(a)
—

 
11

 
(375
)
 
(175
)
 
Net additions
143

 
162

 
507

 
352

 
 
 
 
 
 
 
 
 
 
Changes due to collection/realization of expected cash flows(b)
(233
)
 
(216
)
 
(677
)
 
(702
)
 
 
 
 
 
 
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
 
 
 
 
 
Changes due to market interest rates and other(c)
(677
)
 
(101
)
 
(338
)
 
(832
)
 
Changes in valuation due to other inputs and assumptions:
 
 
 
 
 
 
 
 
Projected cash flows (e.g., cost to service)
(76
)
 
44

 
(103
)
 
33

 
Discount rates
—

 
—

 
(10
)
 
(459
)
(g) 
Prepayment model changes and other(d)
(12
)
 
—

 
(99
)
 
230

 
Total changes in valuation due to other inputs and assumptions
(88
)
 
44

 
(212
)
 
(196
)
 
Total changes in valuation due to inputs and assumptions(b)
(765
)
 
(57
)
 
(550
)
 
(1,028
)
 
Fair value at September 30,(e)
$
6,716

 
$
8,236

 
$
6,716

 
$
8,236

 
 
 
 
 
 
 
 
 
 
Change in unrealized gains/(losses) included in income related to MSRs held at
September 30,
$
(765
)
 
$
(57
)
 
$
(550
)
 
$
(1,028
)
 
Contractual service fees, late fees and other ancillary fees included in income
$
634

 
$
701

 
$
1,945

 
$
2,189

 
Third-party mortgage loans serviced at September 30, (in billions)
$
706

 
$
771

 
$
706

 
$
771

 
Net servicer advances at September 30, (in billions)(f)
$
6.6

 
$
8.6

 
$
6.6

 
$
8.6

 
(a)
For the nine months ended September 30, 2014, 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 for the three months ended September 30, 2014 and nine months ended September 30, 2015 and 2014.
(b)
Included changes related to commercial real estate of $(1) million and $(1) million for the three months ended September 30, 2015 and 2014, respectively, and $(3) million and $(5) million for the nine months ended September 30, 2015 and 2014, 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)
Represents changes in prepayments other than those attributable to changes in market interest rates.
(e)
Included $7 million and $13 million related to commercial real estate at September 30, 2015 and 2014, respectively.
(f)
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.
(g)
For the nine months ended September 30, 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 three and nine months ended September 30, 2015 and 2014.
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
CCB mortgage fees and related income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net production revenue
 
$
176

 
$
253

 
$
646

 
$
865

 
 
 
 
 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
 
 
 
 
Operating revenue:
 
 
 
 
 
 
 
 
Loan servicing revenue
 
648

 
787

 
2,104

 
2,524

Changes in MSR asset fair value due to collection/realization of expected cash flows
 
(232
)
 
(214
)
 
(674
)
 
(696
)
Total operating revenue
 
416

 
573

 
1,430

 
1,828

Risk management:
 
 
 
 
 
 
 
 
Changes in MSR asset fair value due to market interest rates and other(a)
 
(677
)
 
(101
)
 
(338
)
 
(831
)
Other changes in MSR asset fair value due to other inputs and assumptions in model(b)
 
(88
)
 
44

 
(212
)
 
(196
)
Change in derivative fair value and other
 
642

 
133

 
429

 
1,040

Total risk management
 
(123
)
 
76

 
(121
)
 
13

Total net mortgage servicing revenue
 
293

 
649

 
1,309

 
1,841

 
 
 
 
 
 
 
 
 
Total CCB mortgage fees and related income
 
469

 
902

 
1,955

 
2,706

 
 
 
 
 
 
 
 
 
All other
 
—

 
1

 
2

 
2

Mortgage fees and related income
 
$
469

 
$
903

 
$
1,957

 
$
2,708

(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 September 30, 2015, and December 31, 2014, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)
Sep 30,
2015
 
Dec 31,
2014
Weighted-average prepayment speed assumption (“CPR”)
10.19
%
 
9.80
%
Impact on fair value of 10% adverse change
$
(297
)
 
$
(337
)
Impact on fair value of 20% adverse change
(571
)
 
(652
)
Weighted-average option adjusted spread
9.09
%
 
9.43
%
Impact on fair value of 100 basis points adverse change
$
(265
)
 
$
(300
)
Impact on fair value of 200 basis points adverse change
(510
)
 
(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.
Other intangible assets
For information regarding other intangible assets, see Note 17 of JPMorgan Chase’s 2014 Annual Report.