JP Morgan, Goldman Sachs, Morgan Stanley: Rotten Apples in Their Balance Sheets

The following represents the composition of trading assets for three major banks that were allowed to pay off their TARP assistance. Judge for yourself, but these numbers are of concern considering that the U.S. economy will continue to deteriorate. Before proceeding further, let me define two of the three major categories in determining the value of assets held in trading accounts. Subsequently I will present the amounts and ratios for JP Morgan, Goldman Sachs, and Morgan Stanley. Please note that the source of the figures is the banks' respective annual report (in the case of Goldman Sachs) or 1Q09 10-K reports (in the case of JP Morgan & Morgan Stanley).

Level 2—Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

JP Morgan (as-of 3/31/09)
Total Assets = $2.079 trillion
Total Assets carried at fair value = $833 billion
Level 3 Assets = $145 billion
Level 3 Assets/Total Assets = 7%
Level 3 Assets/ Total assets carried at fair value = 17%

Level 2 Assets vulnerable to be Level 3
Corporate debt securities = $46 billion
Leverage Loans = $13 billionConsumer + Commercial RE + ABS = $3 billion
Derivatives (minus netting & collateral) = $2.4 trillion (- $2.3 trillion) = net $2 billion

Goldman Sachs (as of 11/2008)
Total Assets = 884 billion
Total Assets carried at fair value = $595 billion
Level 3 Assets = $66 billion
Level 3 Assets/Total Assets = 7.5%
Level 3 Assets/ Total assets carried at fair value = 11%

Level 2 Assets vulnerable to be Level 3
MBS & Other ABS = $6.8 billion
Bank loans/bridge loans = 9.8 billion
Corporate debt securities = $20 billion
Equity & Convertible debentures = 15.9 billion
Derivatives (minus netting & collateral) = $256 billion (- $141 billion) = net $115 billion

Morgan Stanley (as-of 3/31/09)
Total Assets = $676 billion
Total Assets carried at fair value = $258 billion
Level 3 assets = $67.2 billion
Level 3 Assets/Total Assets = 10%
Level 3 Assets/ Total assets carried at fair value = 25%

Level 2 Assets vulnerable to be Level 3
Corporate & other debt = $51 billion
Corporate equity = $3.3 billion
Derivatives (minus netting & collateral) = $147 billion (- $97 billion) = net $50 billion