JPMorgan Chase & Co. · NYSE:JPM

JPMorgan Chase & — FAS 157 Webinar (February 2009)

39 slides from JPMorgan Chase &'s conference presentation, Feb 18, 2009

  1. Slide 1: FASB Statement No. 157, Fair Value Measurements (FAS 157)

    February 18, 2009 FASB Statement No. 157, Fair Value Measurements (FAS 157) C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A.

  2. Slide 2: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E Please note that this document has been prepared for J.P. Morgan's clients for informational purposes only and is subject to change. It is not intended to provide, and should not be relied on for accounting, investment, tax or legal advice. J.P. Morgan S T

  3. Slide 3: Meeting logistics

    Meeting logistics „ Please keep your phones on mute. „ Please submit questions via e-mail to: „ [email protected] „ We will respond to questions at the end of the presentation. „ Please use the ‘Chat’ feature to let us know if you cannot hear the presenter clearly. C O N F I D E N T I A L AN D

  4. Slide 4: Today's panelists

    Today’s panelists „ Michael Mykytiw – Accounting Product Executive „ Peter Serenita – Global Pricing Executive „ Leroy Wall – Private Equity Fund Services Product Executive C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank,

  5. Slide 5: Today's agenda and panelists

    Today’s agenda and panelists „ Introduction „ Michael Mykytiw „ Review of J.P. Morgan’s Key Pricing Policies and Procedures „ Peter Serenita „ Hard-to-Value Assets: Best Practices in Fair Valuation „ Leroy Wall „ J.P. Morgan’s FAS 157 Implementation: C O N F I D E N T I A L Review of FAS 157 Disclos

  6. Slide 6: FAS 157 Fair Value Measurements - overview

    FAS 157 Fair Value Measurements - overview „ Issued September 2006 „ FAS 157 is effective for fiscal years beginning after November 15, 2007. Early adoption was permitted. „ The Statement affects the measurement and disclosure of pension and other postretirement benefits (OPEB) plan assets in the em

  7. Slide 7: Glossary of terms

    Glossary of terms „ Fair value — Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Represents an exit price. „ Inputs „ “Observable inputs are inputs that reflect the assumpti

  8. Slide 8: FAS 157 Fair Value Hierarchy

    FAS 157 Fair Value Hierarchy „ The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad categories: „ Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. „ Level

  9. Slide 9: J.P. Morgan and FAS 157

    J.P. Morgan and FAS 157 „ There are two primary areas of focus for J.P. Morgan: „ Fair Valuation Measurement „ Fair Valuation Hierarchy and Disclosure Reporting C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 8

  10. Slide 10: How are your securities priced? Know your price source

    Fair valuation measurement How are your securities priced? Know your price source „ Vendor or nonvendor? „ Market close or evaluated? „ Understanding of evaluation methodology and inputs? „ Independent valuation? C O N F I D E N T I A L „ Broker quotes or investment manager prices? „ Single source o

  11. Slide 11: Review of J.P. Morgan's Key Pricing Policies and Procedures

    Review of J.P. Morgan’s Key Pricing Policies and Procedures C O N F I D E N T I A L Peter Serenita Global Pricing Executive AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A.

  12. Slide 12: Agenda

    Agenda „ Global pricing operations „ Pricing process — price sources „ Price scrubbing process „ Price verification process „ Price challenge process C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 11

  13. Slide 13: Global pricing operations

    Global pricing operations C O N F I D E N T I A L „ The Dallas Pricing Operations group, a centralized team that supports J.P Morgan’s Pension and Employee Benefit plans, is part of a Global Pricing Operations group with regional hubs in: „ North America – Dallas „ EMEA – Edinburgh AN D „ Asia - Mum

  14. Slide 14: Pricing process – price sources

    Pricing process – price sources It is J.P. Morgan’s policy to seek the use of independent third party pricing services to value and price client assets. Whenever possible, J.P. Morgan uses industry-recognized vendors as the primary price source. •Interactive Data Corp (FTID) • Bloomberg Primary Vend

  15. Slide 15: Pricing process – price sources

    Pricing process – price sources Prices are applied to securities based on a Pricing Hierarchy Matrix. This hierarchy contains the primary price source and price type. Price source and price type are determined based on asset type and region. Primary Sec ondary If no sourc e is Sec urity Ty pe Sourc

  16. Slide 16: Price scrubbing process

    Price scrubbing process Prices are validated via a series of established price ‘scrubbing’ procedures „ Price change tolerance thresholds are established to identify reasonability of price movements from previous to current valuation periods. „ These tolerance thresholds are determined and vary by:

  17. Slide 17: Price verification process

    Price verification process J.P. Morgan obtains its prices from reputable pricing vendors and sources and applies, what we believe to be, the most appropriate price available for each security held by our clients. Our ability to provide this level of service necessarily includes a continual review of

  18. Slide 18: Price challenge process

    Price challenge process Investment managers can challenge the prices received from a vendor „ J.P. Morgan will work with the investment manager to obtain their quantitative assumptions to support the challenge „ These assumptions include: „ PSA – speed at which underlying mortgages are being prepaid

  19. Slide 19: Questions

    Questions „ Please submit questions via e-mail to: [email protected] C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 18

  20. Slide 20: Hard-to-Value Assets: Best Practices in Fair Valuation

    Hard-to-Value Assets: Best Practices in Fair Valuation C O N F I D E N T I A L Leroy Wall Private Equity Fund Services Product Executive AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A.

  21. Slide 21: What limited partners can do

    What limited partners can do „ LPs should have a copy of all of their GPs’ valuation policies on file. They should plan alternate procedures for any that are not fair value. „ LPs should ensure they get fair value reporting from all their GPs. „ The LP should have a valuation policy. Auditors like d

  22. Slide 22: What limited partners can do

    What limited partners can do „ Speak to your GP CFOs before you close the books and find out if any surprises are coming [especially at times like this]. „ The only way to really deal with the lag is to cash adjust, by adding capital calls and subtracting distributions from their NAV. „ Investors ca

  23. Slide 23: What limited partners can do

    What limited partners can do You should expect to deviate from the reported NAV for some of your funds. Some alternate procedures you can do that would take you away from your GP's NAV would be: „ If you invest directly in any assets that are also held indirectly through a fund, you can use the valu

  24. Slide 24: Questions

    Questions „ Please submit questions via e-mail to: [email protected] C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 23

  25. Slide 25: J.P. Morgan's FAS 157 Implementation

    J.P. Morgan’s FAS 157 Implementation C O N F I D E N T I A L Michael Mykytiw Accounting Product Executive AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A.

  26. Slide 26: J.P. Morgan's FAS 157 implementation

    J.P. Morgan’s FAS 157 implementation Key components of the implementation „ ‘Default’ Fair Valuation Hierarchy – ‘Leveling’ „ Technology and controls „ Reporting „ Client toolkit and resources C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. J

  27. Slide 27: 'Default' Fair Valuation Hierarchy – 'Leveling'

    ‘Default Fair Valuation Hierarchy – ‘Leveling’ „ Levels are assigned at the asset group level (approx. 50) ¾ Exchange- ¾ Fixed Income ¾ Alternative Traded Assets Equities ¾ Commingled Funds ¾ Defaulted ¾ Exchange- Traded ¾ Money Market ¾ Delisted LEVEL 2 LEVEL 3 LEVEL 1 Derivatives Funds (STIF) C O

  28. Slide 28: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 27

  29. Slide 29: Will all GAAP-reporting entities 'Level' assets the same way?

    Will all GAAP-reporting entities ‘Level’ assets the same way? „ No, not likely „ ‘On-the-run’ Treasuries: Level 1 or Level 2? „ Broker quotes: Level 2 or Level 3? „ On Sept. 30, 2008, the SEC and the FASB Staff jointly issued a press release containing a Q&A aimed at clarifying the application of fa

  30. Slide 30: Some additional guidance

    Some additional guidance The FASB staff issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active „ Objective of fair value: Orderly transaction; not a forced liquidation or distressed sale „ Distressed transactions: Even during market disloca

  31. Slide 31: Technology and controls

    Technology and controls „ Enhancements to core accounting functionality „ Systematic assignment of ‘Default’ Levels „ Systems and Operational controls and procedures to maintain and reconcile data „ Capability to override ‘Default’ Levels C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©20

  32. Slide 32: FAS 157 disclosure reporting

    FAS 157 disclosure reporting „ For assets and liabilities that are measured at fair value on a recurring basis, the reporting entity shall disclose the following information separately for each major category of assets and liabilities: „ The fair value measurements at the reporting date „ The level

  33. Slide 33: J.P. Morgan reporting tools

    J.P. Morgan reporting tools „ Assets Measured at Fair Value on a Recurring Basis „ J.P. Morgan reports: FAS 157 Detail Holding and FAS 157 Summary „ Changes in Level 3 Recurring Fair Value Measurements „ J.P. Morgan report: FAS 157 Level 3 Reconciliation Input C O N F I D E N T I A L AN D P R I V A

  34. Slide 34: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 33

  35. Slide 35: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 34

  36. Slide 36: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 35

  37. Slide 37: AN D S T R I C TL Y

    C O N F I D E N T I A L AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. 36

  38. Slide 38: Client toolkit and resources

    Client toolkit and resources „ J.P.Morgan’s Response to FAS 157 (whitepaper) contains: „ Overview of the Statement „ Detailed rationale for the ‘Default’ Valuation Hierarchy „ FAS 157 Process Overview „ Client Override Procedures „ Sample Reports including Report Descriptions „ http://www.jpmorgan.c

  39. Slide 39: Questions

    QUESTIONS E-mail: [email protected] To access J.P. Morgan’s white paper: http://www.jpmorgan.com/visit/fas157fundaccounting C O N F I D E N T I A L password is ‘value’ To view this presentation: http://www.jpmorgan.com/visit/fas157webinar1 AN D P R I V A T E S T R I C TL Y ©2009 JPMorgan Chase

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