Credit Risk Management at JP Morgan Chase
| Case Code: FINA003 Case Length: 20 Pages Period: 2002 - 2003 Pub Date: 2005 Teaching Note: Not Available |
Price: Rs.500 Organization: JP Morgan Chase Industry: Banking Countries: USA Themes: Credit Risk Management |
Abstract Case Intro 1 Excerpts
Excerpts
Business Strategy & Risk Management
JP's business strategy for its large corporate commercial portfolio remained primarily one of origination for distribution. Bulk of the wholesale loan originations were distributed into the marketplace. Residual holds averaged less than 10%. The commercial loan portfolio declined by 9% in 2003, due to a combination of continued weak loan demand, ongoing goal of reducing commercial credit concentrations and refinancings into more liquid capital markets.
To measure commercial credit risk, JP estimated the likelihood of default; the amount of exposure in case of default and the loss severity given a default event. Based on these factors and related market-based inputs, JP estimated both expected and unexpected losses for each segment of the portfolio. Expected losses were statistically based estimates of credit losses over time.
They were used to set risk-adjusted credit loss provisions. Such losses could be factored into the pricing and covered as a normal and recurring cost of doing business. Unexpected losses represented the potential volatility of actual losses relative to the expected level of losses and formed the basis for the credit risk capital-allocation process...
Commercial and Consumer Credit Portfolio
JP's total credit exposure was $730.9 billion as on 31st December 2003 (Exhibit 9), a 2% increase when compared to 2002. The increase reflected a $41.5 billion in consumer exposure, partially offset by a $30.2 billion decrease in commercial exposure...
Commercial Credit Portfolio
As on 31st December 2003, 83% of the total commercial credit exposure of $383 billion (See Exhibit 9) was considered investment-grade, an improvement from 80% in 2002...
Consumer Credit Portfolio
Consumer portfolio's largest component consisted primarily of 1–4 family residential mortgages, credit cards and automobile financings. The consumer portfolio was predominantly US-based. 1–4 family residential mortgage loans were primarily secured by first mortgages...
Allowance for Credit Losses
JP's allowance for credit losses was intended to cover probable credit losses, including losses where the asset was not specifically identified or the size of the loss had not been determined. At least quarterly, the Risk Management Committee reviewed the Allowance for credit losses relative to the risk profile of JP's credit portfolio and current economic conditions...
Exhibits
Exhibit 1: Commercial Criticized Exposure Trends
Exhibit 2: Criticized Exposure – Industry Concentrations
Exhibit 3: Consumer Managed Loan Portfolio
Exhibit 4: U.S. Managed Consumer Loans by Region
Exhibit 5: Exposure Profile of Derivative Measures
Exhibit 6: Credit Risk Organization
Exhibit 7: Reconciliation of Derivative Receivables to Economic Credit Exposure
Exhibit 8: Reconciliation of Commercial Lending-Related Commitments to Economic Credit Exposure
Exhibit 9: Commercial & Consumer Credit portfolio
Exhibit 10: Commercial Exposure
Exhibit 11: Industry Distribution of JP's Commercial Credit Exposure Loans
Exhibit 12: Selected Country Exposure
Exhibit 13: Notional Amounts & Derivative Receivables MTM
Exhibit 14: Ratings Profile of Derivative Receivables MTM
Exhibit 15: Credit Derivative Positions
Exhibit 16: Use of Single-name and Portfolio Credit Derivatives
Exhibit 17: Consumer Portfolio
Exhibit 18: Consumer Loans by Geographic Region
Exhibit 19: Commercial & Consumer Nonperforming Exposure and Net Charge offs
Exhibit 20: Summary of Changes in the Allowance
Exhibit 21: Credit Costs
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