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 portfolios 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 the Firm’s risk appetite.
In the Firm’s 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. In the 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 syndications and participations, loan sales, securitizations, credit derivatives, use of master netting agreements, and collateral and other risk-reduction techniques. For
additional information on loans see Note 14 on pages 258–283 of this Annual Report.
The Firm does not believe that its exposure to any particular loan product (e.g., option adjustable rate mortgages (“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.
Customer receivables representing primarily margin loans to prime and retail brokerage clients of $26.9 billion and $23.8 billion at December 31, 2013 and 2012, 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 did not hold any reserves for credit impairment on these receivables as of December 31, 2013 and 2012.
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale-related credit exposure by the Firm’s three credit portfolio segments as of December 31, 2013 and 2012. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 |
| Credit exposure | On-balance sheet | Off-balance sheet(b) | | Credit exposure | On-balance sheet | Off-balance sheet(b) |
December 31, (in millions) | Loans | Derivatives | | Loans | Derivatives |
Total consumer, excluding credit card | $ | 345,259 |
| $ | 289,063 |
| $ | — |
| $ | 56,057 |
| | $ | 352,889 |
| $ | 292,620 |
| $ | — |
| $ | 60,156 |
|
Total credit card | 657,174 |
| 127,791 |
| — |
| 529,383 |
| | 661,011 |
| 127,993 |
| — |
| 533,018 |
|
Total consumer | 1,002,433 |
| 416,854 |
| — |
| 585,440 |
| | 1,013,900 |
| 420,613 |
| — |
| 593,174 |
|
Wholesale-related | | | | | | | | | |
Real Estate | 87,102 |
| 69,151 |
| 460 |
| 17,491 |
| | 76,198 |
| 60,740 |
| 1,084 |
| 14,374 |
|
Banks & Finance Cos | 66,881 |
| 25,482 |
| 18,888 |
| 22,511 |
| | 73,318 |
| 26,651 |
| 19,846 |
| 26,821 |
|
Oil & Gas | 46,934 |
| 14,383 |
| 2,203 |
| 30,348 |
| | 42,563 |
| 14,704 |
| 2,345 |
| 25,514 |
|
Healthcare | 45,910 |
| 13,319 |
| 3,202 |
| 29,389 |
| | 48,487 |
| 11,638 |
| 3,359 |
| 33,490 |
|
State & Municipal Govt | 35,666 |
| 8,708 |
| 3,319 |
| 23,639 |
| | 41,821 |
| 7,998 |
| 5,138 |
| 28,685 |
|
Consumer Products | 34,145 |
| 9,099 |
| 715 |
| 24,331 |
| | 32,778 |
| 9,151 |
| 826 |
| 22,801 |
|
Asset Managers | 33,506 |
| 5,656 |
| 7,175 |
| 20,675 |
| | 31,474 |
| 6,220 |
| 8,390 |
| 16,864 |
|
Utilities | 28,983 |
| 5,582 |
| 2,248 |
| 21,153 |
| | 29,533 |
| 6,814 |
| 2,649 |
| 20,070 |
|
Retail & Consumer Services | 25,068 |
| 7,504 |
| 273 |
| 17,291 |
| | 25,597 |
| 7,901 |
| 429 |
| 17,267 |
|
Technology | 21,403 |
| 4,426 |
| 1,392 |
| 15,585 |
| | 18,488 |
| 3,806 |
| 1,192 |
| 13,490 |
|
Central Govt | 21,049 |
| 1,754 |
| 9,998 |
| 9,297 |
| | 21,223 |
| 1,333 |
| 11,232 |
| 8,658 |
|
Machinery & Equipment Mfg | 19,078 |
| 5,969 |
| 476 |
| 12,633 |
| | 18,504 |
| 6,304 |
| 592 |
| 11,608 |
|
Metals/Mining | 17,434 |
| 5,825 |
| 560 |
| 11,049 |
| | 20,958 |
| 6,059 |
| 624 |
| 14,275 |
|
Business Services | 14,601 |
| 4,497 |
| 594 |
| 9,510 |
| | 13,577 |
| 4,550 |
| 190 |
| 8,837 |
|
Transportation | 13,975 |
| 6,845 |
| 621 |
| 6,509 |
| | 19,827 |
| 12,763 |
| 673 |
| 6,391 |
|
All other(a) | 308,519 |
| 120,063 |
| 13,635 |
| 174,821 |
| | 301,673 |
| 119,590 |
| 16,414 |
| 165,669 |
|
Subtotal | 820,254 |
| 308,263 |
| 65,759 |
| 446,232 |
| | 816,019 |
| 306,222 |
| 74,983 |
| 434,814 |
|
Loans held-for-sale and loans at fair value | 13,301 |
| 13,301 |
| — |
| — |
| | 6,961 |
| 6,961 |
| — |
| — |
|
Receivables from customers and other | 26,744 |
| — |
| — |
| — |
| | 23,648 |
| — |
| — |
| — |
|
Total wholesale-related | 860,299 |
| 321,564 |
| 65,759 |
| 446,232 |
| | $ | 846,628 |
| $ | 313,183 |
| 74,983 |
| 434,814 |
|
Total exposure(c) | $ | 1,862,732 |
| $ | 738,418 |
| $ | 65,759 |
| $ | 1,031,672 |
| | $ | 1,860,528 |
| $ | 733,796 |
| $ | 74,983 |
| $ | 1,027,988 |
|
| |
(a) | For more information on exposures to SPEs included within All other see Note 16 on pages 288–299 of this Annual Report. |
| |
(b) | Represents lending-related financial instruments. |
| |
(c) | For further information regarding on–balance sheet credit concentrations by major product and/or geography, see Notes 6, 14 and 15 on pages 220–233, 258–283 and 284–287, respectively, of this Annual Report. For information regarding concentrations of off–balance sheet lending-related financial instruments by major product, see Note 29 on pages 318–324 of this Annual Report. |
