Note 5 – Credit risk concentrations

Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.

JPMorgan Chase regularly monitors various segments of its credit portfolio to assess potential concentration risks and to obtain collateral when deemed necessary. Senior management is significantly involved in the credit approval and review process, and risk levels are adjusted as needed to reflect management’s risk tolerance.

In the Firm’s wholesale portfolio, risk concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual customer basis. Management of the Firm’s wholesale exposure is accomplished through loan syndication and participation, loan sales, securitizations, credit derivatives, use of master netting agreements, and collateral and other risk-reduction techniques. In the consumer portfolio, concentrations are evaluated primarily by product and by U.S. geographic region, with a key focus on trends and concentrations at the portfolio level, where potential risk concentrations can be remedied through changes in underwriting policies and portfolio guidelines.

The Firm does not believe that its exposure to any particular loan product (e.g., option ARMs), industry segment (e.g., commercial real estate) or its exposure to residential real estate loans with high loan-to-value ratios results in a significant concentration of credit risk. Terms of loan products and collateral coverage are included in the Firm’s assessment when extending credit and establishing its allowance for loan losses.

For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Notes 14 and 15 on pages 220–238 and 239–243, respectively, of this Annual Report. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 30 on pages 275–280 of this Annual Report.

Customer receivables representing primarily margin loans to prime and retail brokerage clients of $32.5 billion and $15.7 billion at December 31, 2010 and 2009, respectively, are included in the table below. These margin loans are generally over-collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s positions may be liquidated by the Firm to meet the minimum collateral requirements. As a result of the Firm’s credit risk mitigation practices, the Firm does not hold any reserves for credit impairment on these agreements as of December 31, 2010 and 2009.

The table below presents both on—balance sheet and off—balance sheet wholesale- and consumer-related credit exposure by the Firm’s three portfolio segments as of December 31, 2010, and 2009.


	2010								2009
	Credit		On-balance sheet				Off-balance		Credit		On-balance sheet				Off-balance
December 31, (in millions)	exposure		Loans		Derivatives		sheet^(d)		exposure		Loans		Derivatives		sheet^(d)

Wholesale^(a)
Banks and finance companies	$	65,867	$	21,562	$	20,935	$	23,370	$	54,053	$	14,396	$	17,957	$	21,700
Real estate		64,351		53,635		868		9,848		68,509		57,195		1,112		10,202
Healthcare		41,093		6,047		2,121		32,925		35,605		4,992		1,917		28,696
State and municipal governments		35,808		6,095		5,148		24,565		34,726		5,687		4,979		24,060
Asset managers		29,364		7,070		7,124		15,170		24,920		5,930		6,640		12,350
Consumer products		27,508		7,921		1,039		18,548		27,004		7,880		1,094		18,030
Oil and gas		26,459		5,701		3,866		16,892		23,322		5,895		2,309		15,118
Utilities		25,911		4,220		3,104		18,587		27,178		5,451		3,073		18,654
Retail and consumer services		20,882		5,876		796		14,210		20,673		5,611		769		14,293
Technology		14,348		2,752		1,554		10,042		14,169		3,802		1,409		8,958
Machinery and equipment manufacturing		13,311		3,601		445		9,265		12,759		3,189		456		9,114
Building materials/construction		12,808		3,285		295		9,228		10,448		3,252		281		6,915
Chemicals/plastics		12,312		3,372		350		8,590		9,870		2,719		392		6,759
Metals/mining		11,426		3,301		1,018		7,107		12,547		3,410		1,158		7,979
Business services		11,247		3,850		370		7,027		10,667		3,627		397		6,643
Central government		11,173		1,146		6,052		3,975		9,557		1,703		5,501		2,353
Media		10,967		3,711		284		6,972		12,379		4,173		329		7,877
Insurance		10,918		1,103		1,660		8,155		13,421		1,292		2,511		9,618
Telecom services		10,709		1,524		1,362		7,823		11,265		2,042		1,273		7,950
Holding companies		10,504		3,885		894		5,725		16,018		4,360		1,042		10,616
Transportation		9,652		3,754		822		5,076		9,749		3,141		1,238		5,370
Securities firms and exchanges		9,415		1,722		5,038		2,655		10,832		3,457		4,796		2,579
Automotive		9,011		2,026		248		6,737		9,357		2,510		357		6,490
Agriculture/paper manufacturing		7,368		1,918		250		5,200		5,801		1,928		251		3,622
Aerospace		5,732		516		197		5,019		5,254		597		79		4,578
All other^(b)		140,926		62,917		14,641		63,368		137,359		41,838		18,890		76,631

Subtotal		649,070		222,510		80,481		346,079		627,442		200,077		80,210		347,155

Loans held-for-sale and loans at fair value		5,123		5,123		—		—		4,098		4,098		—		—
Receivables from customers		32,541		—		—		—		15,745		—		—		—
Interests in purchased receivables		391		—		—		—		2,927		—		—		—

Total wholesale		687,125		227,633		80,481		346,079		650,212		204,175		80,210		347,155

Consumer, excluding credit card
Home equity – senior lien		40,436		24,376		—		16,060		46,622		27,376		—		19,246
Home equity – junior lien		92,690		64,009		—		28,681		111,280		74,049		—		37,231
Prime mortgage, including option ARMs^(a)		75,805		74,539		—		1,266		77,082		75,428		—		1,654
Subprime mortgage^(a)		11,287		11,287		—		—		12,526		12,526		—		—
Auto^(a)		53,613		48,367		—		5,246		51,498		46,031		—		5,467
Business banking		26,514		16,812		—		9,702		26,014		16,974		—		9,040
Student and other^(a)		15,890		15,311		—		579		16,915		14,726		—		2,189
PCI-Home equity		24,459		24,459		—		—		26,520		26,520		—		—
PCI-Prime mortgage		17,322		17,322		—		—		19,693		19,693		—		—
PCI-Subprime mortgage		5,398		5,398		—		—		5,993		5,993		—		—
PCI-option ARMs		25,584		25,584		—		—		29,039		29,039		—		—
Loans held-for-sale		154		154		—		—		2,142		2,142		—		—

Total consumer, excluding credit card		389,152		327,618		—		61,534		425,324		350,497		—		74,827

Credit Card
Credit card – retained^(a)(c)		682,751		135,524		—		547,227		647,899		78,786		—		569,113
Credit card – held-for-sale		2,152		2,152		—		—		—		—		—		—

Total credit card		684,903		137,676		—		547,227		647,899		78,786		—		569,113

Total exposure	$	1,761,180	$	692,927	$	80,481	$	954,840	$	1,723,435	$	633,458	$	80,210	$	991,095

(a)		Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon the adoption of the guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts and certain other consumer loan securitization entities, primarily mortgage-related. As a result, related receivables are now recorded as loans on the Consolidated Balance Sheet. For further information, see Note 16 on pages 244–259 of this Annual Report.

(b)		For more information on exposures to SPEs included in all other, see Note 16 on pages 244–259 of this Annual Report.

(c)		Excludes $84.6 billion of securitized credit card receivables at December 31, 2009.

(d)		Represents lending-related financial instruments.