Uniform Bank Performance Report - Anderson School of Management

($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Assets
Securitized or
sold with
recourse
266,759 284,236 142,520 141,089 112,031
Credit Derivatives
Credit derivatives make up a very large portion of JPMC’s off‐balance sheet items. These items are
derivative contracts such as credit default swaps (CDS) and collateralized debt obligations (CDO), whose
value depends on the credit risk of the underlying security. In this way, the credit risk is diverted to an
entity other than the counterparties to the transaction themselves. As the numbers below indicate,
credit derivatives have continued to increase through the second quarter of 2009.
($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Credit
Derivatives
(Bank as
Guarantor)
Credit
Derivatives
(Beneficiary)
3,329,164 4,107,265 3,821,391 3,866,701 2,303,579
3,488,624 4,284,364 4,028,873 4,033,869 2,350,703
Credit Losses and Reserves
Any time financial institutions take part in making loans, credit defaults and losses will inevitably occur.
Reserves are implemented for both on and off‐balance sheet items as a contingency to deal with these
losses. Management plays a vital role in regulating these reserves, as their size must be determined
through risk analysis and loss anticipation for each year. With JPMC’s credit costs reaching $9,809
million in 2008, reserves are a huge part of insuring the wellbeing its financial statements. The table
below shows the amount of losses incurred by JPMC as a result of losses from off‐balance sheet
derivative activities.