JP Morgan said that adopting the new Financial Accounting Standards Board (FASB) accounting guidance for Variable Interest Entities or VIEs added approximately $88 billion and $92 billion of assets and liabilities, respectively. These were not previously consolidated on its balance sheets under the old accounting guidance.
On Jan. 1, according to the new regulations, JPMorgan consolidated its credit card securitization trusts, bank-administered ABCP conduits, and certain mortgage and other consumer securitization entities.
As a result, JPMorgan said stockholders’ experienced a reduction of equity of around $4 billion and in Tier 1 capital ratio by about 30 basis points, driven predominantly by the establishment of an allowance for loan losses of around $7 billion (pre-tax) related to the receivables held in the credit card securitization trusts that were consolidated at the adoption date.
The U.S. generally accepted accounting principles consolidation of these entities did not have a significant impact on risk-weighted assets on the adoption date. This was because of the consolidation, for regulatory capital purposes, of the Chase Issuance Trust (the firm’s primary credit card securitization trust) in the 2Q09, which added around $40 billion of risk-weighted assets.
JPMorgan said it opted for the regulatory implementation delay for its bank-administered ABCP conduits and certain mortgage and other securitization entities.
This allows the firm an optional two-quarter implementation delay and defers the effect of this accounting guidance on risk-weighted assets and risk-based capital requirements.