10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended March 31, 2009
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Commission file number 1-5805 |
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
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Delaware
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13-2624428 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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270 Park Avenue, New York, New York
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10017 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Number
of shares of common stock outstanding as of April 30, 2009:
3,759,160,375
FORM 10-Q
TABLE OF CONTENTS
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Page |
Part I Financial information |
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Item 1 Consolidated Financial Statements JPMorgan Chase & Co.: |
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82 |
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83 |
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84 |
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85 |
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86 |
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148 |
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149 |
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3 |
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5 |
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7 |
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11 |
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14 |
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16 |
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41 |
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43 |
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45 |
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49 |
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77 |
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77 |
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80 |
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156 |
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157 |
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157 |
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157 |
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160 |
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160 |
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160 |
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160 |
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160 |
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160 |
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EX-31.1 |
EX-31.2 |
EX-32 |
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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(in millions, except per share, headcount and ratios) |
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As of or for the period ended, |
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1Q09 |
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4Q08 |
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3Q08 |
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2Q08 |
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1Q08 |
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Selected income statement data |
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Noninterest revenue |
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$ |
11,658 |
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$ |
3,394 |
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$ |
5,743 |
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$ |
10,105 |
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$ |
9,231 |
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Net interest income |
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13,367 |
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13,832 |
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8,994 |
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8,294 |
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7,659 |
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Total net revenue |
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25,025 |
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17,226 |
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14,737 |
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18,399 |
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16,890 |
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Provision for credit losses |
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8,596 |
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7,755 |
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3,811 |
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3,455 |
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4,424 |
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Provision for credit losses accounting conformity(a) |
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(442 |
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1,976 |
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Noninterest expense |
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13,373 |
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11,255 |
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11,137 |
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12,177 |
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8,931 |
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Income (loss) before income tax expense and extraordinary gain |
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3,056 |
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(1,342 |
) |
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(2,187 |
) |
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2,767 |
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3,535 |
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Income tax expense (benefit)(b) |
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915 |
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(719 |
) |
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(2,133 |
) |
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764 |
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1,162 |
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Income (loss) before extraordinary gain |
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2,141 |
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(623 |
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(54 |
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2,003 |
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2,373 |
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Extraordinary gain(c) |
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1,325 |
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581 |
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Net income |
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$ |
2,141 |
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$ |
702 |
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$ |
527 |
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$ |
2,003 |
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$ |
2,373 |
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Per common share |
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Basic earnings(d) |
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Income (loss) before extraordinary gain |
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$ |
0.40 |
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$ |
(0.29 |
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$ |
(0.08 |
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$ |
0.54 |
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$ |
0.67 |
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Net income |
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0.40 |
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0.06 |
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0.09 |
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0.54 |
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0.67 |
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Diluted earnings(d) |
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Income (loss) before extraordinary gain |
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$ |
0.40 |
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$ |
(0.29 |
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$ |
(0.08 |
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$ |
0.53 |
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$ |
0.67 |
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Net income |
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0.40 |
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0.06 |
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0.09 |
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0.53 |
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0.67 |
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Cash dividends declared per share |
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0.05 |
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0.38 |
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0.38 |
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0.38 |
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0.38 |
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Book value per share |
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36.78 |
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36.15 |
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36.95 |
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37.02 |
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36.94 |
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Common shares outstanding |
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Weighted-average: Basic |
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3,755.7 |
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3,737.5 |
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3,444.6 |
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3,426.2 |
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3,396.0 |
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Diluted(d) |
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3,758.7 |
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3,737.5 |
(f) |
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3,444.6 |
(f) |
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3,453.1 |
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3,423.3 |
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Common shares at period end |
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3,757.7 |
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3,732.8 |
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3,726.9 |
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3,435.7 |
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3,400.8 |
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Share price(e) |
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High |
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$ |
31.64 |
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$ |
50.63 |
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$ |
49.00 |
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$ |
49.95 |
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$ |
49.29 |
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Low |
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14.96 |
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19.69 |
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29.24 |
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33.96 |
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36.01 |
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Close |
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26.58 |
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31.53 |
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46.70 |
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34.31 |
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42.95 |
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Market capitalization |
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99,881 |
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117,695 |
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174,048 |
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117,881 |
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146,066 |
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Financial ratios |
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Return on common equity (ROE) |
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Income (loss) before extraordinary gain |
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5 |
% |
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(3 |
)% |
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(1) |
% |
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6 |
% |
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8 |
% |
Net income |
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5 |
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1 |
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1 |
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6 |
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8 |
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Return on assets (ROA) |
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Income (loss) before extraordinary gain |
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0.42 |
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(0.11 |
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(0.01 |
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0.48 |
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0.61 |
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Net income |
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0.42 |
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0.13 |
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0.12 |
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0.48 |
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0.61 |
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Overhead ratio |
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53 |
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65 |
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76 |
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66 |
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53 |
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Tier 1 capital ratio |
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11.4 |
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10.9 |
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8.9 |
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9.2 |
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8.3 |
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Total capital ratio |
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15.2 |
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14.8 |
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12.6 |
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13.4 |
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12.5 |
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Tier 1 leverage ratio |
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7.1 |
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6.9 |
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7.2 |
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6.4 |
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5.9 |
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Selected balance sheet data (period-end) |
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Trading assets |
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$ |
429,700 |
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$ |
509,983 |
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$ |
520,257 |
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$ |
531,997 |
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$ |
485,280 |
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Securities |
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333,861 |
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205,943 |
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150,779 |
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119,173 |
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101,647 |
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Loans |
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708,243 |
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744,898 |
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761,381 |
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538,029 |
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537,056 |
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Total assets |
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2,079,188 |
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2,175,052 |
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2,251,469 |
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1,775,670 |
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1,642,862 |
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Deposits |
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906,969 |
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1,009,277 |
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969,783 |
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722,905 |
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761,626 |
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Long-term debt |
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243,569 |
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252,094 |
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238,034 |
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260,192 |
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189,995 |
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Common stockholders equity |
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138,201 |
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134,945 |
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137,691 |
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127,176 |
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125,627 |
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Total stockholders equity |
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170,194 |
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166,884 |
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145,843 |
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133,176 |
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125,627 |
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Headcount |
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219,569 |
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224,961 |
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228,452 |
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195,594 |
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182,166 |
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3
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(unaudited) |
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(in millions, except ratios) |
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As of or for the period ended, |
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1Q09 |
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4Q08 |
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3Q08 |
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2Q08 |
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1Q08 |
Credit quality metrics |
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Allowance for credit losses |
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$ |
28,019 |
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$ |
23,823 |
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$ |
19,765 |
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$ |
13,932 |
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$ |
12,601 |
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Nonperforming assets |
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14,654 |
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12,714 |
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9,520 |
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6,233 |
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5,143 |
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Net charge-offs |
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4,396 |
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3,315 |
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2,484 |
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2,130 |
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1,906 |
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Net charge-off rate |
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2.51 |
% |
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1.80 |
% |
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1.91 |
% |
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1.67 |
% |
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1.53 |
% |
Wholesale net charge-off rate |
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0.32 |
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0.33 |
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0.10 |
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0.08 |
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0.18 |
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Consumer net charge-off rate |
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3.61 |
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2.59 |
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3.13 |
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2.77 |
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2.43 |
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Managed Card net charge-off rate |
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7.72 |
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5.56 |
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5.00 |
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4.98 |
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4.37 |
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(a) |
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The third and fourth quarters of 2008 included an accounting conformity loan loss reserve
provision related to the acquisition of Washington Mutual Banks banking operations. |
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(b) |
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The income tax benefit in the third quarter of 2008 includes the realization of a benefit
from the release of deferred tax liabilities associated with the undistributed earnings of
certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely. |
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(c) |
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JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion.
The fair value of the net assets acquired exceeded the purchase price, which resulted in
negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale
were written down against that negative goodwill. The negative goodwill that remained after
writing down nonfinancial assets was recognized as an extraordinary gain. |
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(d) |
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Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period
amounts have been revised as required. For further discussion of FSP EITF 03-6-1, see Note 20
on page 140 of this Form 10-Q. |
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(e) |
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JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London
Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan
Chases common stock are from the New York Stock Exchange Composite Transaction Tape. |
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(f) |
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Common equivalent shares have been excluded from the computation of diluted earnings per
share for the third and fourth quarters of 2008, as the effect on income (loss) before
extraordinary gain would be antidilutive. |
4
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides managements discussion and analysis (MD&A) of the
financial condition and results of operations for JPMorgan Chase. See the Glossary of Terms on
pages 149-153 for definitions of terms used throughout this Form 10-Q. The MD&A included in this
Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases actual results to differ materially from those set forth
in such forward-looking statements. Certain of such risks and uncertainties are described herein
(see Forward-looking Statements on pages 156-157 and
Item 1A: Risk Factors on page 159 of this Form
10-Q), as well as in the JPMorgan Chase Annual Report on Form 10-K for the year ended December 31,
2008, as filed with the U.S. Securities and Exchange Commission (2008 Annual Report or 2008 Form
10-K), including Part I, Item 1A: Risk factors, to which reference is hereby made.
INTRODUCTION
JPMorgan Chase & Co. (JPMorgan Chase or the Firm), a financial holding company incorporated
under Delaware law in 1968, is a leading global financial services firm and one of the largest
banking institutions in the United States of America (U.S.), with $2.1 trillion in assets, $170.2
billion in stockholders equity and operations in more than 60 countries as of March 31, 2009. The
Firm is a leader in investment banking, financial services for consumers and businesses, financial
transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm
serves millions of customers in the U.S. and many of the worlds most prominent corporate,
institutional and government clients.
JPMorgan Chases principal bank subsidiaries are JPMorgan Chase Bank, National Association
(JPMorgan Chase Bank, N.A.), a national banking association with branches in 23 states in the
U.S.; and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national bank that is
the Firms credit card issuing bank. JPMorgan Chases principal nonbank subsidiary is J.P. Morgan
Securities Inc., the Firms U.S. investment banking firm.
JPMorgan Chases activities are organized, for management reporting purposes, into six business
segments, as well as Corporate/Private Equity. The Firms wholesale businesses comprise the
Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments.
The Firms consumer businesses comprise the Retail Financial Services and Card Services segments. A
description of the Firms business segments, and the products and services they provide to their
respective client bases, follows.
Investment Bank
J.P. Morgan is one of the worlds leading investment banks, with deep client relationships and
broad product capabilities. The Investment Banks clients are corporations, financial institutions,
governments and institutional investors. The Firm offers a full range of investment banking
products and services in all major capital markets, including advising on corporate strategy and
structure, capital-raising in equity and debt markets, sophisticated risk management, market-making
in cash securities and derivative instruments, prime brokerage and research. The Investment Bank
(IB) also selectively commits the Firms own capital to principal investing and trading
activities.
Retail Financial Services
Retail Financial Services (RFS), which includes the Retail Banking and Consumer Lending reporting
segments, serves consumers and businesses through personal service at bank branches and through
ATMs, online banking and telephone banking as well as through auto dealerships and school financial
aid offices. Customers can use more than 5,100 bank branches (third-largest nationally) and 14,100
ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than
20,900 branch salespeople assist customers with checking and savings accounts, mortgages, home
equity and business loans, and investments across the 23-state footprint from New York and Florida
to California. Consumers also can obtain loans through more than 15,700 auto dealerships and 4,800
schools and universities nationwide.
Card Services
Chase Card Services (CS) is one of the nations largest credit card issuers, with 159 million
cards in circulation and more than $176 billion in managed loans. Customers used Chase cards to
meet $76 billion worth of their spending needs in the three months ended March 31, 2009. Chase has
a market leadership position in building loyalty and rewards programs with many of the worlds most
respected brands and through its proprietary products, which include the Chase Freedom program.
Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one of the leading
processors of MasterCard and Visa payments.
5
Commercial Banking
Commercial Banking (CB) serves more than 26,000 clients nationally, including corporations,
municipalities, financial institutions and not-for-profit entities with annual revenue generally
ranging from $10 million to $2 billion, and nearly 30,000 real estate investors/owners. Delivering
extensive industry knowledge, local expertise and dedicated service, CB partners with the Firms
other businesses to provide comprehensive solutions, including lending, treasury services,
investment banking and asset management to meet its clients domestic and international financial
needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in transaction, investment and
information services. TSS is one of the worlds largest cash management providers and a leading
global custodian. Treasury Services (TS) provides cash management, trade, wholesale card and
liquidity products and services to small and mid-sized companies, multinational corporations,
financial institutions and government entities. TS partners with the Commercial Banking, Retail
Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain
TS revenue is included in other segments results. Worldwide Securities Services holds, values,
clears and services securities, cash and alternative investments for investors and broker-dealers,
and it manages depositary receipt programs globally.
Asset Management
Asset Management (AM), with assets under supervision of $1.5 trillion, is a global leader in
investment and wealth management. AM clients include institutions, retail investors and
high-net-worth individuals in every major market throughout the world. AM offers global investment
management in equities, fixed income, real estate, hedge funds, private equity and liquidity,
including money-market instruments and bank deposits. AM also provides trust and estate, banking
and brokerage services to high-net-worth clients, and retirement services for corporations and
individuals. The majority of AMs client assets are in actively managed portfolios.
6
EXECUTIVE OVERVIEW
This overview of managements discussion and analysis highlights selected information and may not
contain all of the information that is important to readers of this Form 10-Q. For a complete
description of events, trends and uncertainties, as well as the capital, liquidity, credit and
market risks, and the critical accounting estimates affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions, except per share data and ratios) |
|
2009 |
|
2008 |
|
Change |
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
25,025 |
|
|
$ |
16,890 |
|
|
|
48 |
% |
Total noninterest expense |
|
|
13,373 |
|
|
|
8,931 |
|
|
|
50 |
|
Provision for credit losses |
|
|
8,596 |
|
|
|
4,424 |
|
|
|
94 |
|
Net income |
|
|
2,141 |
|
|
|
2,373 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(a) |
|
$ |
0.40 |
|
|
$ |
0.67 |
|
|
|
(40 |
) |
Return on common equity |
|
|
5 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior period
amounts have been revised. For further discussion of FSP EITF 03-6-1,
see Note 20 on page 140
of this Form 10-Q. |
Business overview
JPMorgan Chase reported first-quarter 2009 net income of $2.1 billion, or $0.40 per share, compared
with net income of $2.4 billion, or $0.67 per share, in the first quarter of 2008. Return on common
equity for the quarter was 5%, compared with 8% in the prior year. The decline in earnings was
driven by a higher provision for credit losses and increased noninterest expense, predominantly
offset by record net revenue. Both revenue and expense were higher due to the impact of the
acquisition of the banking operations of Washington Mutual Bank (Washington Mutual) on September
25, 2008. In addition, record revenue in the Investment Bank and positive mortgage servicing rights
(MSR) risk management results in Retail Financial Services contributed to revenue growth, while
higher performance-based compensation expense in the Investment Bank and higher FDIC insurance
premiums contributed to expense growth. Continued deterioration in the credit environment resulted
in a higher provision for credit losses compared with the prior year, with the largest increases in
Card Services and Retail Financial Services.
The global economy continued to contract in the first quarter of 2009 at about the same rate as in
the fourth quarter of 2008. Labor markets deteriorated rapidly as U.S. firms reduced the number of
jobs by another two million in the first quarter alone, driving the U.S. unemployment rate to 8.5%
in March. The S&P 500 index was down 40% and 11% from the first and fourth quarters of last year,
respectively; bankruptcies increased 30% from March of last year; auto companies reported weak
results; and volatile currency swings in the current quarter ended with the U.S. dollar continuing to
weaken against the Japanese yen but appreciate against the Euro. The U.S. federal government (U.S.
government) and regulators continued their efforts to stabilize the U.S. economy during the
quarter, putting in place a financial rescue plan that supplements the interest rate and other
actions taken by the Board of Governors of the Federal Reserve System (Federal Reserve) and the
U.S. Department of the Treasury (the U.S. Treasury) last fall and winter. The rescue plan
includes, among other actions, the U.S. Treasury Capital Assistance
Program and the Supervisory Capital Assessment Program intended to
reinforce confidence in the capitalization of the U.S. banking system; the Federal Reserves Term Asset-Backed Securities Loan Facility (TALF) program, which is
intended to promote the flow of credit to consumers and mortgage markets; the U.S. Treasurys
Public-Private Investment Program, which is intended to repair balance sheets and ensure that
credit is available to households and businesses; and the Federal Reserves intent to purchase and
hold on its own books additional U.S. Treasury and agency debt and mortgage-backed securities.
Recent positive trends, such as the narrowing of certain credit spreads and the stabilization of
consumer spending, indicate that all these efforts may be starting to take effect.
In the midst of this challenging environment, in the first quarter of 2009, JPMorgan Chase
generated record firmwide revenue; generated record revenue and net income in the Investment Bank;
and benefited from underlying growth in Retail Financial Services, including increased deposits and
checking accounts, higher mortgage refinancing volumes and excellent progress on the Washington
Mutual integration. Specifically, the Firm rebranded 708 Washington Mutual branches and 1,900 ATMs,
and opened nine regional homeownership centers in California. Nationally, Retail Financial Services
consolidated nearly 300 Washington Mutual branches, and Card Services successfully completed the
conversion of the Washington Mutual portfolio to the Chase TSYS processing system. In addition,
Commercial Banking, Treasury & Securities Services and Asset Management continued to report solid
volumes and earnings.
7
The Firm continued to focus on its capital and balance sheet strength in the first quarter of 2009,
ending the quarter with a Tier 1 capital ratio of 11.4%, or 9.3% excluding the capital received
under the Capital Purchase Program component of the U.S. governments Troubled Asset Relief Program
(TARP). The Firm added $4.2
billion to the allowance for credit losses, which reached $28.0 billion, resulting in a firmwide
loan loss coverage ratio of 4.53%. In addition, the Firm lowered its quarterly dividend to $0.05
per common share, which will enable the Firm to retain approximately $5.0 billion in common equity
per year. Management believes these levels of capital and reserves, combined with significant earnings power, will
enable JPMorgan Chase to withstand an even worse economic scenario than it faces today.
During the quarter, JPMorgan Chase extended more than $150.0 billion in new credit to consumer and
corporate customers, purchased nearly $34.0 billion of mortgage-backed and asset-backed securities,
and made progress on its goal of preventing 650,000 foreclosures by the end of next year to help
keep people in their homes. JPMorgan Chase remains committed to helping bring stability to the
communities in which it operates and to the financial system overall.
The discussion that follows highlights the current-quarter performance of each business segment,
compared with the prior-year quarter, and discusses results on a managed basis unless otherwise
noted. For more information about managed basis, see Explanation and Reconciliation of the Firms
Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q .
Investment Bank net income reached a record level, reflecting record revenue, partially offset by
higher noninterest expense and a higher provision for credit losses. Both Fixed Income Markets and
Equity Markets reported record revenue driven by strong trading results and client revenue,
including the prime services business acquired in the Bear Stearns merger, and higher debt
underwriting fees drove an increase in investment banking fees. The provision for credit losses
increased due to a higher allowance reflecting a weakening credit environment. The increase in
noninterest expense primarily reflected higher performance-based compensation expense and the
impact of the Bear Stearns merger.
Retail Financial Services reported net income for the quarter compared with a net loss reported in
the prior year, as higher revenue was offset partially by a higher provision for credit losses and
noninterest expense. Revenue growth was driven by the impact of the Washington Mutual transaction,
positive MSR risk management results, wider deposit and loan spreads, higher mortgage production
revenue and higher deposit-related fees. The provision for credit losses included a significant
increase in the allowance for loan losses, primarily for the home lending portfolio. The increase
in noninterest expense reflected the impact of the Washington Mutual transaction, higher servicing
expense, higher mortgage reinsurance losses and higher FDIC insurance premiums.
Card Services reported a net loss for the quarter, compared with net income in the prior year. The
decrease was driven by a higher provision for credit losses, partially offset by higher net
revenue. The increase in managed net revenue was driven by the impact of the Washington Mutual
transaction, wider loan spreads and higher merchant servicing revenue related to the dissolution of
the Chase Paymentech Solutions joint venture. These benefits were offset partially by lower
securitization income, the effect of higher revenue reversals associated with higher charge-offs,
and a decreased level of fees. The provision for credit losses reflected a higher level of
charge-offs, and an increase in the allowance for loan losses, reflecting a weakening credit
environment. Noninterest expense increased due to the impact of the Washington Mutual transaction
and the dissolution of the Chase Paymentech Solutions joint venture, predominantly offset by lower
marketing expense.
Commercial Banking net income increased from the prior year, driven by higher net revenue
reflecting the impact of the Washington Mutual transaction, offset largely by a higher provision
for credit losses. Revenue growth resulted from double-digit growth in liability balances and
higher deposit- and lending-related fees offset partially by spread compression on liability
products. The increase in the provision for credit losses reflected a weakening credit environment.
Noninterest expense rose due to the impact of the Washington Mutual transaction and higher FDIC
insurance premiums.
Treasury & Securities Services net income decreased from the prior year, driven by lower net
revenue and higher noninterest expense. The decrease in net revenue was driven by lower revenue in
Worldwide Securities Services, reflecting a decline in securities
lending balances, primarily
as a result of declines in asset valuations and demand, and the effects of market depreciation on
assets under custody, which were partially offset by higher net interest income. Revenue in Treasury Services
increased, reflecting higher liability balances, higher trade revenue and growth across cash
management products offset largely by spread compression on liability products. The increase in
noninterest expense reflected higher FDIC insurance premiums and higher expense related to
investment in new product platforms.
8
Asset Management net income declined from the prior year, due to lower net revenue offset partially
by lower noninterest expense. The decline in net revenue was due to the effect of lower markets and
lower performance fees; these effects were offset partially by the benefit of the Bear Stearns
merger, higher deposit balances and wider deposit spreads. Noninterest expense decreased due to
lower performance-based compensation and lower headcount-related expense, offset by the impact of
the Bear Stearns merger and higher FDIC insurance premiums.
Corporate/Private Equity reported a net loss for the quarter, compared with net income in the prior
year (which included a benefit from the proceeds of the sale of Visa shares in its initial public
offering). Net revenue declined, reflecting Private Equity losses compared with gains in the prior
year.
Firmwide, the managed provision for credit losses was $10.1 billion, up $5.0 billion, or 97%, from
the prior year. The total consumer-managed provision for credit losses was $8.5 billion, compared
with $4.4 billion in the prior year, reflecting higher net charge-offs, as well as increases in the
allowance for credit losses primarily related to credit card loans and home lending.
Consumer-managed net charge-offs were $5.7 billion, compared with $2.5 billion in the prior year,
resulting in managed net charge-off rates of 4.12% and 2.68%, respectively. The wholesale provision
for credit losses was $1.5 billion, compared with $747 million in the prior year, and resulted from
an increase in the allowance for credit losses reflecting a weakening credit environment. Wholesale
net charge-offs were $191 million, compared with prior-year net charge-offs of $92 million,
resulting in net charge-off rates of 0.32% and 0.18%, respectively. The Firm had total
nonperforming assets of $14.7 billion at March 31, 2009, up from the prior-year level of $5.1
billion. The allowance for credit losses increased $4.2 billion from December 31, 2008, to $28.0
billion at March 31, 2009, and the loan loss coverage ratio increased to 4.53% of loans at March
31, 2009, compared with 3.62% at December 31, 2008, reflecting the continuing weakening credit
environment.
Business outlook
The following forward-looking statements are based on the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases actual results to differ materially from those set forth
in such forward-looking statements.
JPMorgan Chases outlook for the second quarter of 2009 should be viewed against the backdrop of
the global and U.S. economies, financial markets activity, the geopolitical environment, the
competitive environment and client activity levels. Each of these linked factors will affect the
performance of the Firm and its lines of business. In addition, as a result of recent market
conditions and events, Congress and regulators have increased their focus on the regulation of
financial institutions. The Firms current expectations are for the global and U.S. economic
environments to weaken further and potentially faster, capital markets to remain under stress, for
there to be a continued decline in U.S. housing prices, and for the unemployment rate to continue
to rise into 2010, likely reaching the 9-10% level before the U.S. economy recovers and strengthens
enough to increase labor demand. In addition, the Firm currently expects Congress and regulators to
continue to adopt legislation and regulations that could limit or restrict the Firms operations,
or impose additional costs upon the Firm in order to comply with such new laws or rules. Any of
these factors could adversely impact the Firms revenue, credit costs, overall business volumes or
earnings. For example, it is likely the Firm will be subject to a one-time special assessment by
the FDIC, subject to terms being finalized between the FDIC and the banking industry. The total
assessment, based on the size of the Firms deposit base, could reach between $750
million and $1.5 billion, which would be recorded as an expense in the quarter the terms become
final.
Given the potential stress on the consumer from rising unemployment, the continued downward
pressure on housing prices and the elevated national inventory of unsold homes, management remains
extremely cautious with respect to the credit outlook for the consumer loan portfolios. Management
expects possible continued deterioration in credit trends, which could require additions to the
consumer loan loss allowance. Based on managements current economic outlook, quarterly net
charge-offs could, over the next several quarters, reach $1.4 billion for the home equity
portfolio, $500 million for the prime mortgage portfolio, and $375 million to $475 million for the
subprime mortgage portfolio. Management expects the managed net charge-off rate for Card Services
(excluding the Washington Mutual credit card portfolio) to approach 9% in the second quarter of
2009 and possibly trend higher in the second half of the year, depending on unemployment levels.
The managed net charge-off rate for the Washington Mutual credit card portfolio is expected to
approach 18%-24% by the end of 2009; these charge-off rates could increase even further if the
economic environment continues to deteriorate further than
managements current expectations. Similarly, the wholesale provision for credit losses and nonperforming assets as well as charge-offs are likely to
increase over time as a result of the deterioration in underlying credit conditions.
9
The Investment Bank
is operating in an uncertain environment. Trading revenue is volatile and could be
affected by further disruption in the credit and mortgage markets, as well as lower levels of
liquidity. In addition, if the Firms own credit spreads tighten the change in the fair value of
certain trading liabilities would also negatively affect trading results. The Firm held $11.5
billion (gross notional) of legacy leveraged loans and unfunded commitments as held-for-sale as of
March 31, 2009. Markdowns averaging 52% of the gross notional value have been taken on these legacy
positions as of March 31, 2009, resulting in a net carrying value of $5.5 billion. Leveraged loans
and unfunded commitments are difficult to hedge effectively, and if market conditions further
deteriorate, additional markdowns may be necessary on this asset class. The Investment Bank also
held, at March 31, 2009, an aggregate $5.5 billion of prime and Alt-A mortgage exposure, which is
also difficult to hedge effectively, and $678 million of subprime mortgage exposure. In addition,
the Investment Bank had $6.5 billion of commercial mortgage exposure. In spite of active hedging,
mortgage exposures could be adversely affected by worsening market conditions and further
deterioration in the housing market.
Earnings in Commercial Banking and Treasury & Securities Services could decline due to the impact
of tighter spreads in the current low interest rate environment or due to a decline in the level of
liability balances. Earnings in Treasury & Securities Services and Asset Management will likely
deteriorate if market levels continue to decline, due to reduced levels of assets under management,
supervision and custody. Management believes that, at current market valuation and activity levels,
it is reasonable to expect quarterly net revenue over the near-term of approximately $1.4 billion
in Commercial Banking, $2.0 billion in Treasury & Securities Services and $1.8 billion in Asset
Management. Earnings in the Corporate/Private Equity segment could be more volatile this year due
to increases in the size of the Firms investment portfolio, which is comprised largely of
investment-grade securities. Private Equity results are dependent upon the capital markets, the
performance of the broader economy and investment-specific issues.
Assuming economic conditions do not worsen beyond managements current expectations, management
continues to believe that the net income impact of Washington Mutuals banking operations could be
approximately $0.50 per share in 2009; the Bear Stearns businesses could contribute $1 billion
(after-tax) annualized after 2009; and merger-related items, which include both the Washington
Mutual transaction and the Bear Stearns merger, could be approximately $600 million (after-tax) in
2009.
10
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chases Consolidated Results of
Operations on a reported basis. Factors that related primarily to a single business segment are
discussed in more detail within that business segment. For a discussion of the Critical Accounting
Estimates Used by the Firm that affect the Consolidated Results of
Operations, see pages 77-79 of
this Form 10-Q and pages 107-111 of JPMorgan Chases 2008 Annual Report.
Total net revenue
The following table presents the components of total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
Investment banking fees |
|
$ |
1,386 |
|
|
$ |
1,216 |
|
|
|
14 |
% |
Principal transactions |
|
|
2,001 |
|
|
|
(803 |
) |
|
NM |
Lending & deposit-related fees |
|
|
1,688 |
|
|
|
1,039 |
|
|
|
62 |
|
Asset management, administration and commissions |
|
|
2,897 |
|
|
|
3,596 |
|
|
|
(19 |
) |
Securities gains |
|
|
198 |
|
|
|
33 |
|
|
|
500 |
|
Mortgage fees and related income |
|
|
1,601 |
|
|
|
525 |
|
|
|
205 |
|
Credit card income |
|
|
1,837 |
|
|
|
1,796 |
|
|
|
2 |
|
Other income |
|
|
50 |
|
|
|
1,829 |
|
|
|
(97 |
) |
|
|
|
|
|
Noninterest revenue |
|
|
11,658 |
|
|
|
9,231 |
|
|
|
26 |
|
Net interest income |
|
|
13,367 |
|
|
|
7,659 |
|
|
|
75 |
|
|
|
|
|
|
Total net revenue |
|
$ |
25,025 |
|
|
$ |
16,890 |
|
|
|
48 |
|
|
Total net revenue for the first quarter of 2009 was $25.0 billion, up by $8.1 billion, or 48%, from
the first quarter of 2008 and reflected the impact of the Washington Mutual transaction. Revenue
growth was also driven by higher net interest income, significantly higher trading results and
positive MSR risk management results. These benefits were offset partially by the absence of
proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008,
and lower asset management, administration and commissions.
Investment banking fees increased from the first quarter of 2008 due to higher debt underwriting
fees, driven by improved bond market conditions, as well as higher loan syndication fees.
Predominantly offsetting the increase was a decrease in equity underwriting fees due to continued
challenging market conditions. For a further discussion of investment banking fees, which are
primarily recorded in IB, see IB segment results on pages 17-20 of this Form 10-Q.
Principal transactions revenue, which consists of revenue from the Firms trading and private
equity investing activities, rose from the first quarter of 2008. Trading revenue increased to $2.5
billion from negative $1.0 billion in the first quarter of 2008. The increase was driven by record
results in credit trading, emerging markets and rates, combined with strong results in currencies.
In addition, equity trading results and client revenue were strong, particularly in prime services.
Also contributing to the increase in trading revenue were gains of $1.1 billion from a widening of
the Firms credit spread on certain structured liabilities and derivatives. These results were
partially offset by $711 million of net markdowns on leveraged lending funded and unfunded
commitments, as well as $214 million of net markdowns on mortgage-related exposures. Private equity
revenue declined to a loss of $488 million, from gains of $200 million in the first quarter of
2008. For a further discussion of principal transactions revenue, see IB and Corporate/Private
Equity segment results on pages 17-20 and 39-40, respectively,
and Note 5 on pages 102-103 of this
Form 10-Q.
Lending & deposit-related fees rose from the first quarter of 2008, predominantly resulting from
the impact of the Washington Mutual transaction and higher deposit-related fees. For a further
discussion of lending & deposit-related fees, which are mostly recorded in RFS, CB and TSS, see the
RFS segment results on pages 21-27, the CB segment results on pages
32-33, and the TSS segment
results on pages 34-36 of this Form 10-Q.
The decline in asset management, administration and commissions revenue compared with the first
quarter of 2008 reflected lower asset management fees in AM due to the effect of lower markets and
lower performance fees; lower administration fees in TSS driven by lower securities lending
balances and the effects of market depreciation on assets under custody; and lower commissions
revenue in IB predominantly related to lower brokerage transaction volume. For additional
information on these fees and commissions, see the segment
discussions for IB on pages 17-20, RFS
on pages 21-27, TSS on pages 34-36, and AM on pages 36-38 of this Form 10-Q.
The increase in securities gains compared with the first quarter of 2008 was due to the
repositioning of the Corporate investment securities portfolio as a result of lower interest rates
in connection with managing the structural interest rate risk of the Firm. For a further discussion
of securities gains, which are mostly recorded in the Firms Corporate business, see the
Corporate/Private Equity segment discussion on pages 39-40 of this Form 10-Q.
Mortgage fees and related income increased from the first quarter of 2008, driven by the Washington
Mutual transaction, higher net mortgage servicing revenue and higher production revenue. Net
mortgage servicing revenue benefited from an
11
improvement in MSR risk management results. Higher mortgage production revenue reflected wider
margins on new originations offset partially by an increase in reserves for the repurchase of
previously-sold loans and lower mortgage origination volumes. For a discussion of mortgage fees and
related income, which is recorded primarily in RFS Consumer Lending business, see the Consumer
Lending discussion on pages 24-27 of this Form 10-Q.
Credit card income increased slightly compared with the first quarter of 2008, driven by higher
merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint
venture. These increases were offset by lower servicing fees earned in connection with CS
securitization activities, which were negatively affected by higher credit losses on securitized
credit card loans. For a further discussion of credit card income, see CS segment results on pages
28-31 of this Form 10-Q.
Other income decreased compared with the first quarter of 2008, due predominantly to the absence of
proceeds of $1.5 billion from the sale of Visa shares in its initial public offering in the first
quarter of 2008, lower securitization results at CS, and the dissolution of the Chase Paymentech
Solutions joint venture, offset partially by lower markdowns on certain investments.
Net interest income rose from the first quarter of 2008, due predominantly to the following: impact
of the Washington Mutual transaction, higher investment-related net interest income in Corporate,
higher trading-related net interest income in IB, wider spreads on consumer loans and deposits in
RFS, higher consumer loan balances and growth in liability and deposit balances in the wholesale
businesses. The Firms total average interest-earning assets for the first quarter of 2009 were
$1.7 trillion, up 37% from the first quarter of 2008, driven by higher loans, available-for-sale
(AFS) securities, deposits with banks and securities borrowed partly offset by lower trading
assets debt instruments. The Firms total average interest-bearing liabilities for the first
quarter of 2009 were $1.5 trillion, up 31% from the first quarter of 2008, driven by higher
deposits, higher brokerage payables and other borrowings from the impact of the Bear Stearns merger
and Washington Mutual transaction, respectively, higher long-term debt and federal funds purchased
and securities loaned or sold under repurchase agreements. The net interest yield on the Firms
interest-earning assets, on a fully taxable equivalent basis, was 3.29%, an increase of 70 basis
points from the first quarter of 2008, driven predominantly by an increase in higher yielding
assets associated with the Washington Mutual transaction and trading-related net interest income in
IB.
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
Wholesale |
|
$ |
1,530 |
|
|
$ |
747 |
|
|
|
105 |
% |
Consumer |
|
|
7,066 |
|
|
|
3,677 |
|
|
|
92 |
|
|
|
|
|
|
Total provision for credit losses |
|
$ |
8,596 |
|
|
$ |
4,424 |
|
|
|
94 |
|
|
Provision for credit losses
The provision for credit losses in the first quarter of 2009 rose by $4.2 billion compared with the
first quarter of 2008 due to increases in both the consumer and wholesale provisions. The consumer
provision reflected additions to the allowance for loan losses for the home equity, mortgage and
credit card portfolios, as rising unemployment, housing price declines and weak overall economic
conditions have contributed to a higher level of charge-offs for these portfolios. The increase in
the wholesale provision was driven by a higher allowance for loan losses, reflecting the effect of
the weakening credit environment. For a more detailed discussion of the loan portfolio and the
allowance for loan losses, see the segment discussions for RFS on
pages 21-27, CS on pages 28-31,
IB on pages 17-20 and CB on pages 32-33, and the Credit Risk
Management section on pages 53-70 of
this Form 10-Q.
Noninterest expense
The following table presents the components of noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
Compensation expense |
|
$ |
7,588 |
|
|
$ |
4,951 |
|
|
|
53 |
% |
Noncompensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy expense |
|
|
885 |
|
|
|
648 |
|
|
|
37 |
|
Technology, communications and equipment expense |
|
|
1,146 |
|
|
|
968 |
|
|
|
18 |
|
Professional & outside services |
|
|
1,515 |
|
|
|
1,333 |
|
|
|
14 |
|
Marketing |
|
|
384 |
|
|
|
546 |
|
|
|
(30 |
) |
Other expense |
|
|
1,375 |
|
|
|
169 |
|
|
NM |
Amortization of intangibles |
|
|
275 |
|
|
|
316 |
|
|
|
(13 |
) |
|
|
|
|
|
Total noncompensation expense |
|
|
5,580 |
|
|
|
3,980 |
|
|
|
40 |
|
Merger costs |
|
|
205 |
|
|
|
|
|
|
NM |
|
|
|
|
|
Total noninterest expense |
|
$ |
13,373 |
|
|
$ |
8,931 |
|
|
|
50 |
|
|
12
Total noninterest expense for the first quarter of 2009 was $13.4 billion, up $4.4 billion, or 50%,
from the first quarter of 2008. The increase was driven by higher performance-based compensation
expense and the additional operating costs related to the Washington Mutual transaction and Bear
Stearns merger.
The increase in compensation expense from the first quarter of 2008 was driven by higher
performance-based compensation expense, primarily in the Investment Bank due to record revenue, and
higher salary expense, predominantly from the Washington Mutual transaction and Bear Stearns
merger.
Noncompensation expense increased from the first quarter of 2008 due predominantly to the impact of
the Washington Mutual transaction and Bear Stearns merger. Excluding the effects of these
transactions, noncompensation expense also increased due to an increase in other expense related to
a lower level of benefits from litigation-related items in the current quarter compared with the
prior-year quarter, higher FDIC insurance premiums as a result of increased assessment rates,
higher mortgage and home equity default-related expense due to higher delinquencies and defaults
and higher mortgage reinsurance losses. Also contributing to the increases were higher occupancy
expense and technology, communications and equipment expense reflecting investments across the
businesses, and the impact of the dissolution of the Chase Paymentech Solutions joint venture.
These increases were offset partially by lower credit card marketing expense.
For
information on merger costs, refer to Note 11 on page 114 of this Form 10-Q.
Income tax expense
The Firms income before income tax expense, income tax expense and effective tax rate were as
follows for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions, except rate) |
|
2009 |
|
2008 |
|
Income before income tax expense |
|
$ |
3,056 |
|
|
$ |
3,535 |
|
Income tax expense |
|
|
915 |
|
|
|
1,162 |
|
Effective tax rate |
|
|
29.9 |
% |
|
|
32.9 |
% |
|
The decrease in the effective tax rate compared with the first quarter of 2008 was primarily the
result of lower reported pretax income, increased business tax credits and changes in the
proportion of income subject to federal, state and local taxes. For a further discussion of income
taxes, see Critical Accounting Estimates used by the Firm on pages
77-79 of this Form 10-Q.
13
EXPLANATION AND RECONCILIATION OF THE FIRMS USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using accounting principles generally
accepted in the United States of America (U.S. GAAP); these financial statements appear on pages
82-85 of this Form 10-Q. That presentation, which is referred to as reported basis, provides the
reader with an understanding of the Firms results that can be tracked consistently from year to
year and enables a comparison of the Firms performance with other companies U.S. GAAP financial
statements.
In addition to analyzing the Firms results on a reported basis, management reviews the Firms
results and the results of the lines of business on a managed basis, which is a non-GAAP
financial measure. The Firms definition of managed basis starts with the reported U.S. GAAP
results and includes certain reclassifications that assume credit card loans securitized by CS
remain on the balance sheet, and it presents revenue on a fully taxable-equivalent (FTE) basis.
These adjustments do not have any impact on net income as reported by the lines of business or by
the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with SFAS 140 remain on the Consolidated Balance Sheets, and
that the earnings on the securitized loans are classified in the same manner as the earnings on
retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of
managed basis to evaluate the credit performance and overall financial performance of the entire
managed credit card portfolio. Operations are funded and decisions are made about allocating
resources, such as employees and capital, based on managed financial information. In addition, the
same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated
Balance Sheets and securitized loans. Although securitizations result in the sale of credit card
receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers
may continue to use their credit cards; accordingly, the customers credit performance will affect
both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan
Chase believes managed basis information is useful to investors, enabling them to understand both
the credit risks associated with the loans reported on the Consolidated Balance Sheets and the
Firms retained interests in securitized loans. For a reconciliation of reported to managed basis
results for CS, see CS segment results on pages 28-31 of this Form 10-Q. For information regarding
the securitization process, and loans and residual interests sold and securitized, see Note 16 on
pages 124-130 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on a FTE basis.
Accordingly, revenue from tax-exempt securities and investments that receive tax credits is
presented in the managed results on a basis comparable to taxable securities and investments. This
non-GAAP financial measure allows management to assess the comparability of revenue arising from
both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within income tax expense.
Management also uses certain non-GAAP financial measures at the business-segment level, because it
believes these other non-GAAP financial measures provide information to investors about the
underlying operational performance and trends of the particular business segment and, therefore,
facilitate a comparison of the business segment with the performance of its competitors.
14
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,386 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,386 |
|
Principal transactions |
|
|
2,001 |
|
|
|
|
|
|
|
|
|
|
|
2,001 |
|
Lending & deposit-related fees |
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
|
1,688 |
|
Asset management, administration and commissions |
|
|
2,897 |
|
|
|
|
|
|
|
|
|
|
|
2,897 |
|
Securities gains |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
198 |
|
Mortgage fees and related income |
|
|
1,601 |
|
|
|
|
|
|
|
|
|
|
|
1,601 |
|
Credit card income |
|
|
1,837 |
|
|
|
(540 |
) |
|
|
|
|
|
|
1,297 |
|
Other income |
|
|
50 |
|
|
|
|
|
|
|
337 |
|
|
|
387 |
|
|
Noninterest revenue |
|
|
11,658 |
|
|
|
(540 |
) |
|
|
337 |
|
|
|
11,455 |
|
Net interest income |
|
|
13,367 |
|
|
|
2,004 |
|
|
|
96 |
|
|
|
15,467 |
|
|
Total net revenue |
|
|
25,025 |
|
|
|
1,464 |
|
|
|
433 |
|
|
|
26,922 |
|
Noninterest expense |
|
|
13,373 |
|
|
|
|
|
|
|
|
|
|
|
13,373 |
|
|
Pre-provision profit |
|
|
11,652 |
|
|
|
1,464 |
|
|
|
433 |
|
|
|
13,549 |
|
Provision for credit losses |
|
|
8,596 |
|
|
|
1,464 |
|
|
|
|
|
|
|
10,060 |
|
|
Income before income tax expense |
|
|
3,056 |
|
|
|
|
|
|
|
433 |
|
|
|
3,489 |
|
Income tax expense |
|
|
915 |
|
|
|
|
|
|
|
433 |
|
|
|
1,348 |
|
|
Net income |
|
$ |
2,141 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,141 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.40 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.40 |
|
|
Return on common equity(a) |
|
|
5 |
% |
|
|
|
% |
|
|
|
% |
|
|
5 |
% |
Return on equity less goodwill(a) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Return on assets(a) |
|
|
0.42 |
|
|
|
NM |
|
|
|
NM |
|
|
|
0.40 |
|
Overhead ratio |
|
|
53 |
|
|
|
NM |
|
|
|
NM |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,216 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,216 |
|
Principal transactions |
|
|
(803 |
) |
|
|
|
|
|
|
|
|
|
|
(803 |
) |
Lending & deposit-related fees |
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
1,039 |
|
Asset management, administration and commissions |
|
|
3,596 |
|
|
|
|
|
|
|
|
|
|
|
3,596 |
|
Securities gains |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Mortgage fees and related income |
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
525 |
|
Credit card income |
|
|
1,796 |
|
|
|
(937 |
) |
|
|
|
|
|
|
859 |
|
Other income |
|
|
1,829 |
|
|
|
|
|
|
|
203 |
|
|
|
2,032 |
|
|
Noninterest revenue |
|
|
9,231 |
|
|
|
(937 |
) |
|
|
203 |
|
|
|
8,497 |
|
Net interest income |
|
|
7,659 |
|
|
|
1,618 |
|
|
|
124 |
|
|
|
9,401 |
|
|
Total net revenue |
|
|
16,890 |
|
|
|
681 |
|
|
|
327 |
|
|
|
17,898 |
|
Noninterest expense |
|
|
8,931 |
|
|
|
|
|
|
|
|
|
|
|
8,931 |
|
|
Pre-provision profit |
|
|
7,959 |
|
|
|
681 |
|
|
|
327 |
|
|
|
8,967 |
|
Provision for credit losses |
|
|
4,424 |
|
|
|
681 |
|
|
|
|
|
|
|
5,105 |
|
|
Income before income tax expense |
|
|
3,535 |
|
|
|
|
|
|
|
327 |
|
|
|
3,862 |
|
Income tax expense |
|
|
1,162 |
|
|
|
|
|
|
|
327 |
|
|
|
1,489 |
|
|
Net income |
|
$ |
2,373 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,373 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.67 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.67 |
|
|
Return on common equity(a) |
|
|
8 |
% |
|
|
|
% |
|
|
|
% |
|
|
8 |
% |
Return on equity less goodwill(a) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Return on assets(a) |
|
|
0.61 |
|
|
|
NM |
|
|
|
NM |
|
|
|
0.58 |
|
Overhead ratio |
|
|
53 |
|
|
|
NM |
|
|
|
NM |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
2009 |
|
2008 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
708,243 |
|
|
$ |
85,220 |
|
|
$ |
793,463 |
|
|
$ |
537,056 |
|
|
$ |
75,062 |
|
|
$ |
612,118 |
|
Total assets average |
|
|
2,067,119 |
|
|
|
82,782 |
|
|
|
2,149,901 |
|
|
|
1,569,797 |
|
|
|
71,589 |
|
|
|
1,641,386 |
|
|
(a) |
|
Based on net income. |
|
(b) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period
amounts have been revised. For further discussion of FSP EITF 03-6-1,
see Note 20 on page 140 of this Form 10-Q. |
|
(c) |
|
Credit card securitizations affect CS. See pages 28-31 of this Form 10-Q for further
information. |
15
BUSINESS SEGMENT RESULTS
The Firm is managed on a line-of-business basis. The business segment financial results presented
reflect the current organization of JPMorgan Chase. There are six major reportable business
segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking,
Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment.
The business segments are determined based on the products and services provided, or the type of
customer served, and they reflect the manner in which financial information is currently evaluated
by management. Results of these lines of business are presented on a managed basis. For further
discussion of Business Segment Results, see pages 40-41 of JPMorgan Chases 2008 Annual Report.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a
stand-alone business. The management reporting process that derives business segment results
allocates income and expense using market-based methodologies. For a further discussion of those
methodologies, see Business Segment Results Description of business segment reporting methodology
on page 40 of JPMorgan Chases 2008 Annual Report. The Firm continues to assess the assumptions,
methodologies and reporting classifications used for segment reporting, and further refinements may
be implemented in future periods.
Segment Results Managed Basis(a)(b)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
|
March 31, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank |
|
$ |
8,341 |
|
|
$ |
3,011 |
|
|
|
177 |
% |
|
$ |
4,774 |
|
|
$ |
2,553 |
|
|
|
87 |
% |
|
$ |
1,606 |
|
|
$ |
(87 |
) |
|
|
NM |
|
|
|
20 |
% |
|
|
(2 |
)% |
Retail Financial Services |
|
|
8,835 |
|
|
|
4,763 |
|
|
|
85 |
|
|
|
4,171 |
|
|
|
2,572 |
|
|
|
62 |
|
|
|
474 |
|
|
|
(311 |
) |
|
|
NM |
|
|
|
8 |
|
|
|
(7 |
) |
Card Services |
|
|
5,129 |
|
|
|
3,904 |
|
|
|
31 |
|
|
|
1,346 |
|
|
|
1,272 |
|
|
|
6 |
|
|
|
(547 |
) |
|
|
609 |
|
|
|
NM |
|
|
|
(15 |
) |
|
|
17 |
|
Commercial Banking |
|
|
1,402 |
|
|
|
1,067 |
|
|
|
31 |
|
|
|
553 |
|
|
|
485 |
|
|
|
14 |
|
|
|
338 |
|
|
|
292 |
|
|
|
16 |
% |
|
|
17 |
|
|
|
17 |
|
Treasury & Securities Services |
|
|
1,821 |
|
|
|
1,913 |
|
|
|
(5 |
) |
|
|
1,319 |
|
|
|
1,228 |
|
|
|
7 |
|
|
|
308 |
|
|
|
403 |
|
|
|
(24 |
) |
|
|
25 |
|
|
|
46 |
|
Asset Management |
|
|
1,703 |
|
|
|
1,901 |
|
|
|
(10 |
) |
|
|
1,298 |
|
|
|
1,323 |
|
|
|
(2 |
) |
|
|
224 |
|
|
|
356 |
|
|
|
(37 |
) |
|
|
13 |
|
|
|
29 |
|
Corporate/Private Equity |
|
|
(309 |
) |
|
|
1,339 |
|
|
|
NM |
|
|
|
(88 |
) |
|
|
(502 |
) |
|
|
82 |
|
|
|
(262 |
) |
|
|
1,111 |
|
|
|
NM |
|
|
|
NM |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,922 |
|
|
$ |
17,898 |
|
|
|
50 |
% |
|
$ |
13,373 |
|
|
$ |
8,931 |
|
|
|
50 |
% |
|
$ |
2,141 |
|
|
$ |
2,373 |
|
|
|
(10 |
)% |
|
|
5 |
% |
|
|
8 |
% |
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit card
securitizations. |
|
(b) |
|
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual
Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was
accounted for as a purchase, and their respective results of operations are included in the
Firms results from each respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-127 of JPMorgan Chases 2008 Annual Report and Note 2 on
pages 86-88 of this Form 10-Q. |
16
INVESTMENT BANK
For a
discussion of the business profile of IB, see pages 42-44 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,380 |
|
|
$ |
1,206 |
|
|
|
14 |
% |
Principal transactions |
|
|
3,515 |
|
|
|
(798 |
) |
|
NM |
Lending & deposit-related fees |
|
|
138 |
|
|
|
102 |
|
|
|
35 |
|
Asset management, administration and commissions |
|
|
692 |
|
|
|
744 |
|
|
|
(7 |
) |
All other income |
|
|
(86 |
) |
|
|
(66 |
) |
|
|
(30 |
) |
|
|
|
|
|
Noninterest revenue |
|
|
5,639 |
|
|
|
1,188 |
|
|
|
375 |
|
Net interest income(a) |
|
|
2,702 |
|
|
|
1,823 |
|
|
|
48 |
|
|
|
|
|
|
Total net revenue(b) |
|
|
8,341 |
|
|
|
3,011 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,210 |
|
|
|
618 |
|
|
|
96 |
|
Credit reimbursement from TSS(c) |
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
3,330 |
|
|
|
1,241 |
|
|
|
168 |
|
Noncompensation expense |
|
|
1,444 |
|
|
|
1,312 |
|
|
|
10 |
|
|
|
|
|
|
Total noninterest expense |
|
|
4,774 |
|
|
|
2,553 |
|
|
|
87 |
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) |
|
|
2,387 |
|
|
|
(130 |
) |
|
NM |
Income tax expense (benefit) |
|
|
781 |
|
|
|
(43 |
) |
|
NM |
|
|
|
|
|
Net income (loss) |
|
$ |
1,606 |
|
|
$ |
(87 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
(2 |
)% |
|
|
|
|
ROA |
|
|
0.89 |
|
|
|
(0.05 |
) |
|
|
|
|
Overhead ratio |
|
|
57 |
|
|
|
85 |
|
|
|
|
|
Compensation expense as a % of total net revenue |
|
|
40 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
479 |
|
|
$ |
483 |
|
|
|
(1 |
) |
Equity underwriting |
|
|
308 |
|
|
|
359 |
|
|
|
(14 |
) |
Debt underwriting |
|
|
593 |
|
|
|
364 |
|
|
|
63 |
|
|
|
|
|
|
Total investment banking fees |
|
|
1,380 |
|
|
|
1,206 |
|
|
|
14 |
|
Fixed income markets |
|
|
4,889 |
|
|
|
466 |
|
|
NM |
Equity markets |
|
|
1,773 |
|
|
|
976 |
|
|
|
82 |
|
Credit portfolio |
|
|
299 |
|
|
|
363 |
|
|
|
(18 |
) |
|
|
|
|
|
Total net revenue |
|
$ |
8,341 |
|
|
$ |
3,011 |
|
|
|
177 |
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
4,780 |
|
|
$ |
536 |
|
|
NM |
Europe/Middle East/Africa |
|
|
2,588 |
|
|
|
1,641 |
|
|
|
58 |
|
Asia/Pacific |
|
|
973 |
|
|
|
834 |
|
|
|
17 |
|
|
|
|
|
|
Total net revenue |
|
$ |
8,341 |
|
|
$ |
3,011 |
|
|
|
177 |
|
|
(a) |
|
The increase in net interest income is due primarily to higher spreads across several fixed
income trading businesses as well as the addition of the Bear Stearns Prime Services business. |
|
(b) |
|
Total net revenue included tax-equivalent adjustments, predominantly due to income tax
credits related to affordable housing investments and tax-exempt income from municipal bond
investments, of $365 million and $289 million for the quarters ended March 31, 2009 and 2008,
respectively. |
|
(c) |
|
TSS is charged a credit reimbursement related to certain exposures managed within IB credit
portfolio on behalf of clients shared with TSS. |
17
Quarterly results
Net income was a record $1.6 billion, an increase of $1.7 billion from the prior year. The improved
results reflected an increase in net revenue, partially offset by higher noninterest expense and a
higher provision for credit losses.
Net revenue was a record $8.3 billion, an increase of $5.3 billion from the prior year. Investment
banking fees were $1.4 billion, up 14% from the prior year. Advisory fees were $479 million, flat
compared with the prior year. Debt underwriting fees were $593 million, up 63% from the prior year,
driven by improved bond market conditions, as well as higher loan syndication fees compared with a
weak prior year. Equity underwriting fees were $308 million, down 14% from the prior year, due to
continued challenging market conditions. Fixed Income Markets revenue was a record $4.9 billion,
compared with $466 million in the prior year. The increase was driven by record results in credit
trading, emerging markets and rates, combined with strong results in currencies and gains of $422
million from the widening of the Firms credit spread on certain structured liabilities. These
results were offset partially by $711 million of net markdowns on leveraged lending funded and
unfunded commitments, as well as $214 million of net markdowns on mortgage-related exposures.
Equity Markets revenue was a record $1.8 billion, up by $797 million from the prior year,
reflecting strong trading results and client revenue, particularly in prime services, as well as
gains of $216 million from the widening of the Firms credit spread on certain structured
liabilities. Credit Portfolio revenue was $299 million, down by $64 million from the prior year.
The provision for credit losses was $1.2 billion, compared with $618 million in the prior year, due
to a higher allowance reflecting a weakening credit environment. Net charge-offs were $36 million,
compared with net charge-offs of $13 million in the prior year. The allowance for loan losses to
average loans retained was 6.68% for the current quarter, compared with 2.55% in the prior year.
Nonperforming loans were $1.8 billion, up by $1.5 billion from the prior year also reflecting the
weakening credit environment.
Average loans retained were $70.0 billion, down 5% from the prior year. Average fair-value and
held-for-sale loans were $12.4 billion, down by $7.2 billion, or 37%, from the prior year, as
acquisition finance activity declined.
Noninterest expense was $4.8 billion, compared with $2.6 billion in the prior year, primarily
reflecting higher performance-based compensation expense on record revenue and the impact of the
Bear Stearns merger.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
33,000 |
|
|
$ |
22,000 |
|
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
733,166 |
|
|
|
755,828 |
|
|
|
(3 |
) |
Trading assets-debt and equity instruments |
|
|
272,998 |
|
|
|
369,456 |
|
|
|
(26 |
) |
Trading assets-derivative receivables |
|
|
125,021 |
|
|
|
90,234 |
|
|
|
39 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
70,041 |
|
|
|
74,106 |
|
|
|
(5 |
) |
Loans held-for-sale and loans at fair value |
|
|
12,402 |
|
|
|
19,612 |
|
|
|
(37 |
) |
|
|
|
|
|
Total loans |
|
|
82,443 |
|
|
|
93,718 |
|
|
|
(12 |
) |
Adjusted assets(b) |
|
|
589,163 |
|
|
|
662,419 |
|
|
|
(11 |
) |
Equity |
|
|
33,000 |
|
|
|
22,000 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
26,142 |
|
|
|
25,780 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
36 |
|
|
$ |
13 |
|
|
|
177 |
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans(c) |
|
|
1,795 |
|
|
|
321 |
|
|
|
459 |
|
Derivative receivables |
|
|
1,010 |
|
|
|
31 |
|
|
NM |
Assets acquired in loan satisfactions |
|
|
236 |
|
|
|
87 |
|
|
|
171 |
|
|
|
|
|
|
Total nonperforming assets |
|
|
3,041 |
|
|
|
439 |
|
|
NM |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
4,682 |
|
|
|
1,891 |
|
|
|
148 |
|
Allowance for lending-related commitments |
|
|
295 |
|
|
|
607 |
|
|
|
(51 |
) |
|
|
|
|
|
Total allowance for credit losses |
|
|
4,977 |
|
|
|
2,498 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(a)(d) |
|
|
0.21 |
% |
|
|
0.07 |
% |
|
|
|
|
Allowance for loan losses to average loans(a)(d) |
|
|
6.68 |
(i) |
|
|
2.55 |
(i) |
|
|
|
|
Allowance for loan losses to nonperforming loans(c) |
|
|
269 |
|
|
|
683 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
2.18 |
|
|
|
0.34 |
|
|
|
|
|
Market risk-average trading and credit portfolio VaR 99%
confidence level(e) |
|
|
|
|
|
|
|
|
|
|
|
|
Trading activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
218 |
|
|
$ |
120 |
|
|
|
82 |
|
Foreign exchange |
|
|
40 |
|
|
|
35 |
|
|
|
14 |
|
Equities |
|
|
162 |
|
|
|
31 |
|
|
|
423 |
|
Commodities and other |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
Diversification(f) |
|
|
(159 |
) |
|
|
(92 |
) |
|
|
(73 |
) |
|
|
|
|
|
Total trading VaR(g) |
|
|
289 |
|
|
|
122 |
|
|
|
137 |
|
Credit portfolio VaR(h) |
|
|
182 |
|
|
|
30 |
|
|
NM |
Diversification(f) |
|
|
(135 |
) |
|
|
(30 |
) |
|
|
(350 |
) |
|
|
|
|
|
Total trading and credit portfolio VaR |
|
$ |
336 |
|
|
$ |
122 |
|
|
|
175 |
|
|
(a) |
|
Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and
excluded loans held-for-sale and loans accounted for at fair value. |
|
(b) |
|
Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities
purchased under resale agreements and securities borrowed less securities sold, not yet
purchased; (2) assets of variable interest entities (VIEs) consolidated under FIN 46R; (3)
cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill
and intangibles; (5) securities received as collateral; and (6) investments purchased under
the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The amount of
adjusted assets is presented to assist the reader in comparing IBs asset and capital levels
to other investment banks in the securities industry. Asset-to-equity leverage ratios are
commonly used as one measure to assess a companys capital adequacy. IB believes an adjusted
asset amount that excludes the assets discussed above, which were considered to have a low
risk profile, provides a more meaningful measure of balance sheet leverage in the securities
industry. |
|
(c) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $57 million and
$44 million at March 31, 2009 and 2008, respectively, which were excluded from the allowance
coverage ratios. Nonperforming loans excluded distressed loans held-for-sale that were
purchased as part of IBs proprietary activities. Allowance for loan losses of $767 million
and $51 million was held against these nonperforming loans at March 31, 2009 and 2008,
respectively. |
|
(d) |
|
Loans held-for-sale and loans at fair value were excluded when calculating the allowance
coverage ratio and net charge-off (recovery) rate. |
|
(e) |
|
First quarter of 2008 reflects heritage JPMorgan Chase & Co. results. For a more complete
description of value-at-risk (VaR), see pages 71-76 of this Form 10-Q. |
19
(f) |
|
Average VaRs were less than the sum of the VaRs of their market risk components, which was
due to risk offsets resulting from portfolio diversification. The diversification effect
reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks of the positions themselves. |
|
(g) |
|
Trading VaR includes predominantly all trading activities in IB; however, particular risk
parameters of certain products are not fully captured for example, correlation risk. Trading
VaR does not include VaR related to held-for-sale funded loans and unfunded commitments, nor
the debit valuation adjustments (DVA) taken on derivative and structured liabilities to
reflect the credit quality of the Firm. See the DVA Sensitivity table
on page 75 of this Form
10-Q for further details. Trading VaR also does not include the MSR portfolio or VaR related
to other corporate functions, such as Corporate/Private Equity. Beginning in the fourth
quarter of 2008, trading VaR includes the estimated credit spread sensitivity of certain
mortgage products. |
|
(h) |
|
Included VaR on derivative credit valuation adjustments (CVA), hedges of the CVA and
mark-to-market hedges of the retained loan portfolio, which were all reported in principal
transactions revenue. This VaR does not include the retained loan portfolio. |
|
(i) |
|
Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio
would be 2.61% for the quarter ended March 31, 2008. The average balance of the loan extended
to Bear Stearns was $1.7 billion for the quarter ended March 31, 2008. The allowance for loan
losses to period-end loans was 7.04% and 2.46% at March 31, 2009 and 2008, respectively. |
According to Thomson Reuters, in the first quarter of 2009, the Firm was ranked #1 in Global Debt,
Equity and Equity-Related; #1 in Global Equity and Equity-Related; #6 in Global Syndicated Loans;
#2 in Global Long-Term Debt and #2 in Global Announced M&A based on volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
Full Year 2008 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related
|
|
|
11 |
% |
|
#1
|
|
|
10 |
% |
|
#1 |
Global syndicated loans
|
|
|
6 |
|
|
#6
|
|
|
11 |
|
|
#1 |
Global long-term debt(b)
|
|
|
9 |
|
|
#2
|
|
|
9 |
|
|
#3 |
Global equity and equity-related(c)
|
|
|
13 |
|
|
#1
|
|
|
10 |
|
|
#1 |
Global announced M&A(d)
|
|
|
43 |
|
|
#2
|
|
|
27 |
|
|
#2 |
U.S. debt, equity and equity-related
|
|
|
15 |
|
|
#1
|
|
|
15 |
|
|
#2 |
U.S. syndicated loans
|
|
|
17 |
|
|
#3
|
|
|
27 |
|
|
#1 |
U.S. long-term debt(b)
|
|
|
14 |
|
|
#1
|
|
|
15 |
|
|
#2 |
U.S. equity and equity-related(c)
|
|
|
21 |
|
|
#1
|
|
|
11 |
|
|
#1 |
U.S. announced M&A(d)
|
|
|
66 |
|
|
#3
|
|
|
34 |
|
|
#2 |
|
(a) |
|
Source: Thomson Reuters. Full-year 2008 results are pro forma for the Bear Stearns merger. |
|
(b) |
|
Includes asset-backed securities, mortgage-backed securities and municipal securities. |
|
(c) |
|
Includes rights offerings; U.S.-domiciled equity and equity-related transactions. |
|
(d) |
|
Global announced M&A is based on rank value; all other rankings are based on proceeds, with
full credit to each book manager/equal if joint. Because of joint assignments, market share of
all participants will add up to more than 100%. Global and U.S. announced M&A market share and
rankings for 2008 include transactions withdrawn since December 31, 2008. U.S. announced M&A
represents any U.S. involvement ranking. |
20
RETAIL FINANCIAL SERVICES
For a
discussion of the business profile of RFS, see pages 45-50 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
948 |
|
|
$ |
461 |
|
|
|
106 |
% |
Asset management, administration and commissions |
|
|
435 |
|
|
|
377 |
|
|
|
15 |
|
Mortgage fees and related income |
|
|
1,633 |
|
|
|
525 |
|
|
|
211 |
|
Credit card income |
|
|
367 |
|
|
|
174 |
|
|
|
111 |
|
Other income |
|
|
214 |
|
|
|
152 |
|
|
|
41 |
|
|
|
|
|
|
Noninterest revenue |
|
|
3,597 |
|
|
|
1,689 |
|
|
|
113 |
|
Net interest income |
|
|
5,238 |
|
|
|
3,074 |
|
|
|
70 |
|
|
|
|
|
|
Total net revenue |
|
|
8,835 |
|
|
|
4,763 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
3,877 |
|
|
|
2,688 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,631 |
|
|
|
1,160 |
|
|
|
41 |
|
Noncompensation expense |
|
|
2,457 |
|
|
|
1,312 |
|
|
|
87 |
|
Amortization of intangibles |
|
|
83 |
|
|
|
100 |
|
|
|
(17 |
) |
|
|
|
|
|
Total noninterest expense |
|
|
4,171 |
|
|
|
2,572 |
|
|
|
62 |
|
|
|
|
|
|
Income (loss) before income tax expense (loss) |
|
|
787 |
|
|
|
(497 |
) |
|
NM |
Income tax expense (benefit) |
|
|
313 |
|
|
|
(186 |
) |
|
NM |
|
|
|
|
|
Net income (loss) |
|
$ |
474 |
|
|
$ |
(311 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
8 |
% |
|
|
(7 |
)% |
|
|
|
|
Overhead ratio |
|
|
47 |
|
|
|
54 |
|
|
|
|
|
Overhead ratio excluding core deposit intangibles(a) |
|
|
46 |
|
|
|
52 |
|
|
|
|
|
|
(a) |
|
Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit
intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in the earlier years and a lower overhead ratio in later years;
this method would result in an improving overhead ratio over time, all things remaining equal.
This non-GAAP ratio excludes Retail Bankings core deposit intangible amortization expense,
related to the 2006 Bank of New York transaction and the 2004 Bank One merger, of $83 million
and $99 million for the quarters ended March 31, 2009 and 2008, respectively. |
Quarterly results
Net income was $474 million, compared with a net loss of $311 million in the prior year, as the
positive impact of the Washington Mutual transaction and positive MSR risk management results were
partially offset by an increase in the provision for credit losses.
Net revenue was $8.8 billion, an increase of $4.1 billion, or 85%, from the prior year. Net
interest income was $5.2 billion, up by $2.2 billion, or 70%, benefiting from the Washington Mutual
transaction and wider deposit and loan spreads. Noninterest revenue was $3.6 billion, up by $1.9
billion, or 113%, driven by the impact of the Washington Mutual transaction, positive MSR risk
management results, higher mortgage production revenue and higher deposit-related fees.
The provision for credit losses was $3.9 billion, an increase of $1.2 billion, or 44%, from the
prior year. Delinquency rates increased due to overall weak economic conditions, while housing
price declines continued to drive increased loss severities, particularly for high loan-to-value
home equity and mortgage loans. The provision included $1.7 billion in additions to the allowance
for loan losses, primarily for the home lending portfolio. Home equity net charge-offs were $1.1
billion (3.14% net charge-off rate; 3.93% excluding purchased credit-impaired loans), compared with
$447 million (1.89% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were
$364 million (6.83% net charge-off rate; 9.91% excluding purchased credit-impaired loans), compared
with $149 million (3.82% net charge-off rate) in the prior year. Prime mortgage net charge-offs
were $312 million (1.46% net charge-off rate; 1.95% excluding purchased credit-impaired loans),
compared with $50 million (0.56% net charge-off rate) in the prior year.
21
Noninterest expense was $4.2 billion, an increase of $1.6 billion, or 62%, from the prior year,
reflecting the impact of the Washington Mutual transaction, higher servicing expense, higher
mortgage reinsurance losses and higher FDIC insurance premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
|
(in millions, except headcount and ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
412,505 |
|
|
$ |
262,118 |
|
|
|
57 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
364,220 |
|
|
|
218,489 |
|
|
|
67 |
|
Loans held-for-sale and loans at fair value(a) |
|
|
12,529 |
|
|
|
18,000 |
|
|
|
(30 |
) |
|
|
|
|
|
Total loans |
|
|
376,749 |
|
|
|
236,489 |
|
|
|
59 |
|
Deposits |
|
|
380,140 |
|
|
|
230,854 |
|
|
|
65 |
|
Equity |
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
423,472 |
|
|
$ |
260,013 |
|
|
|
63 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
366,925 |
|
|
|
214,586 |
|
|
|
71 |
|
Loans held-for-sale and loans at fair value(a) |
|
|
16,526 |
|
|
|
17,841 |
|
|
|
(7 |
) |
|
|
|
|
|
Total loans |
|
|
383,451 |
|
|
|
232,427 |
|
|
|
65 |
|
Deposits |
|
|
370,278 |
|
|
|
225,555 |
|
|
|
64 |
|
Equity |
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
100,677 |
|
|
|
70,095 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
2,176 |
|
|
$ |
825 |
|
|
|
164 |
|
Nonperforming loans(b)(c)(d)(e) |
|
|
7,978 |
|
|
|
3,742 |
|
|
|
113 |
|
Nonperforming assets(b)(c)(d)(e) |
|
|
9,846 |
|
|
|
4,359 |
|
|
|
126 |
|
Allowance for loan losses |
|
|
10,619 |
|
|
|
4,496 |
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(f) |
|
|
2.41 |
% |
|
|
1.55 |
% |
|
|
|
|
Net charge-off rate excluding purchased credit-impaired loans(f)(g) |
|
|
3.16 |
|
|
|
1.55 |
|
|
|
|
|
Allowance for loan losses to ending loans(f) |
|
|
2.92 |
|
|
|
2.06 |
|
|
|
|
|
Allowance for loan losses to ending loans excluding purchased credit-impaired
loans(f)(g) |
|
|
3.84 |
|
|
|
2.06 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans(b)(f) |
|
|
138 |
|
|
|
124 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
2.12 |
|
|
|
1.58 |
|
|
|
|
|
Nonperforming loans to total loans excluding purchased credit-impaired loans(b) |
|
|
2.76 |
|
|
|
1.58 |
|
|
|
|
|
|
(a) |
|
Prime mortgages originated with the intent to sell are accounted for at fair value and
classified as trading assets on the Consolidated Balance Sheets. These loans totaled $8.9
billion and $13.5 billion at March 31, 2009 and 2008, respectively. Average balances of these
loans totaled $13.4 billion for both of the quarters ended March 31, 2009 and 2008. |
|
(b) |
|
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as
part of the Washington Mutual transaction. These loans are accounted for on a pool basis and
the pools are considered to be performing under SOP 03-3. |
|
(c) |
|
Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair
value of $264 million and $129 million at March 31, 2009 and 2008, respectively. Certain of
these loans are classified as trading assets on the Consolidated Balance Sheets. |
|
(d) |
|
Nonperforming loans and assets excluded: (1) loans eligible for repurchase, as well as loans
repurchased from Government National Mortgage Association (GNMA) pools that are insured by
U.S. government agencies, of $4.6 billion and $1.8 billion at March 31, 2009 and 2008,
respectively; and (2) student loans that are 90 days past due and still accruing, which are
insured by U.S. government agencies under the Federal Family Education Loan Program, of $433
million and $418 million at March 31, 2009 and 2008, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally. |
|
(e) |
|
During the second quarter of 2008, the policy for classifying subprime mortgage and home
equity loans as nonperforming was changed to conform to all other home lending products.
Amounts for first quarter 2008 have been revised to reflect this change. |
|
(f) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and the net charge-off rate. |
|
(g) |
|
Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that
were acquired as part of the Washington Mutual transaction. These loans were accounted for at
fair value on the acquisition date, which incorporated managements estimate, as of that
date, of credit losses over the remaining life of the portfolio. No allowance for loan losses
has been recorded for these loans. |
22
RETAIL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Noninterest revenue |
|
$ |
1,718 |
|
|
$ |
966 |
|
|
|
78 |
% |
Net interest income |
|
|
2,614 |
|
|
|
1,545 |
|
|
|
69 |
|
|
|
|
|
|
Total net revenue |
|
|
4,332 |
|
|
|
2,511 |
|
|
|
73 |
|
Provision for credit losses |
|
|
325 |
|
|
|
49 |
|
|
|
NM |
|
Noninterest expense |
|
|
2,580 |
|
|
|
1,562 |
|
|
|
65 |
|
|
|
|
|
|
Income before income tax expense |
|
|
1,427 |
|
|
|
900 |
|
|
|
59 |
|
Net income |
|
$ |
863 |
|
|
$ |
545 |
|
|
|
58 |
|
|
|
|
|
|
Overhead ratio |
|
|
60 |
% |
|
|
62 |
% |
|
|
|
|
Overhead ratio excluding core deposit intangibles(a) |
|
|
58 |
|
|
|
58 |
|
|
|
|
|
|
(a) |
|
Retail Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP
financial measure, to evaluate the underlying expense trends of the business. Including CDI
amortization expense in the overhead ratio calculation results in a higher overhead ratio in
the earlier years and a lower overhead ratio in later years; this method would result in an
improving overhead ratio over time, all things remaining equal. This ratio excludes Retail
Bankings core deposit intangible amortization expense, related to the 2006 Bank of New York
transaction and the 2004 Bank One merger, of $83 million and $99 million for the quarters
ended March 31, 2009 and 2008, respectively. |
Quarterly results
Retail Banking reported net income of $863 million, up by $318 million, or 58%, from the prior
year.
Net revenue was $4.3 billion, up by $1.8 billion, or 73%, from the prior year, reflecting the
impact of the Washington Mutual transaction, wider deposit spreads and higher deposit-related fees.
The provision for credit losses was $325 million, compared with $49 million in the prior year, due
to an increase in the allowance for loan losses for Business Banking loans, reflecting a weakening
credit environment.
Noninterest expense was $2.6 billion, up by $1.0 billion, or 65%, from the prior year, due to the
impact of the Washington Mutual transaction and higher FDIC insurance premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in billions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business banking origination volume |
|
$ |
0.5 |
|
|
$ |
1.8 |
|
|
|
(72 |
)% |
End-of-period loans owned |
|
|
18.2 |
|
|
|
15.9 |
|
|
|
14 |
|
End-of-period deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
113.9 |
|
|
$ |
69.0 |
|
|
|
65 |
|
Savings |
|
|
152.4 |
|
|
|
105.4 |
|
|
|
45 |
|
Time and other |
|
|
86.5 |
|
|
|
44.6 |
|
|
|
94 |
|
|
|
|
|
|
Total end-of-period deposits |
|
|
352.8 |
|
|
|
219.0 |
|
|
|
61 |
|
Average loans owned |
|
$ |
18.4 |
|
|
$ |
15.8 |
|
|
|
16 |
|
Average deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
109.4 |
|
|
$ |
66.1 |
|
|
|
66 |
|
Savings |
|
|
148.2 |
|
|
|
100.3 |
|
|
|
48 |
|
Time and other |
|
|
88.2 |
|
|
|
47.7 |
|
|
|
85 |
|
|
|
|
|
|
Total average deposits |
|
|
345.8 |
|
|
|
214.1 |
|
|
|
62 |
|
Deposit margin |
|
|
2.85 |
% |
|
|
2.64 |
% |
|
|
|
|
Average assets |
|
$ |
30.2 |
|
|
$ |
25.4 |
|
|
|
19 |
|
|
|
|
|
|
Credit data and quality statistics (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
175 |
|
|
$ |
49 |
|
|
|
257 |
|
Net charge-off rate |
|
|
3.86 |
% |
|
|
1.25 |
% |
|
|
|
|
Nonperforming assets |
|
$ |
579 |
|
|
$ |
328 |
|
|
|
77 |
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
Retail branch business metrics |
|
2009 |
|
2008 |
|
Change |
|
Investment sales volume (in millions) |
|
$ |
4,398 |
|
|
$ |
4,084 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
5,186 |
|
|
|
3,146 |
|
|
|
65 |
|
ATMs |
|
|
14,159 |
|
|
|
9,237 |
|
|
|
53 |
|
Personal bankers |
|
|
15,544 |
|
|
|
9,826 |
|
|
|
58 |
|
Sales specialists |
|
|
5,454 |
|
|
|
4,133 |
|
|
|
32 |
|
Active online customers (in thousands) |
|
|
12,882 |
|
|
|
6,454 |
|
|
|
100 |
|
Checking accounts (in thousands) |
|
|
24,984 |
|
|
|
11,068 |
|
|
|
126 |
|
|
CONSUMER LENDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratio) |
|
2009 |
|
2008 |
|
Change |
|
Noninterest revenue |
|
$ |
1,879 |
|
|
$ |
723 |
|
|
|
160 |
% |
Net interest income |
|
|
2,624 |
|
|
|
1,529 |
|
|
|
72 |
|
|
|
|
|
|
Total net revenue |
|
|
4,503 |
|
|
|
2,252 |
|
|
|
100 |
|
Provision for credit losses |
|
|
3,552 |
|
|
|
2,639 |
|
|
|
35 |
|
Noninterest expense |
|
|
1,591 |
|
|
|
1,010 |
|
|
|
58 |
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(640 |
) |
|
|
(1,397 |
) |
|
|
54 |
|
|
|
|
|
|
Net income (loss) |
|
$ |
(389 |
) |
|
$ |
(856 |
) |
|
|
55 |
|
Overhead ratio |
|
|
35 |
% |
|
|
45 |
% |
|
|
|
|
|
Quarterly results
Consumer Lending reported a net loss of $389 million, compared with a net loss of $856 million in
the prior year.
Net revenue was $4.5 billion, nearly double the $2.3 billion recorded in the prior year, driven by
the impact of the Washington Mutual transaction, higher mortgage fees and related income, and wider
loan spreads. The increase in mortgage fees and related income was driven by higher net mortgage
servicing revenue and higher mortgage production revenue. Mortgage production revenue was $481
million, up by $105 million, as wider margins on new originations were offset partially by an
increase in reserves for the repurchase of previously-sold loans and lower mortgage origination
volumes. Net mortgage servicing revenue (which includes loan servicing revenue, MSR risk management
results and other changes in fair value) was $1.2 billion, an increase of $1.0 billion from the
prior year. Loan servicing revenue was $1.2 billion, up by $629 million, reflecting 83% growth in
third-party loans serviced. MSR risk management results were positive $1.0 billion, compared with
negative $19 million in the prior year, reflecting the positive impact of a decrease in estimated
future mortgage prepayments and positive hedging results. Other changes in fair value of the MSR
asset were negative $1.1 billion, compared with negative $425 million in the prior year.
The provision for credit losses was $3.6 billion, compared with $2.6 billion in the prior year. The
provision reflected weakness in the home equity, mortgage and student loan portfolios (see Retail
Financial Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $1.6 billion, up by $581 million, or 58%, from the prior year, reflecting
the impact of the Washington Mutual transaction, higher servicing expense due to increased
delinquencies and defaults, and higher mortgage reinsurance losses.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in billions) |
|
2009 |
|
2008 |
|
Change |
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
Loans excluding purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
111.7 |
|
|
$ |
95.0 |
|
|
|
18 |
% |
Prime mortgage |
|
|
65.4 |
|
|
|
38.2 |
|
|
|
71 |
|
Subprime mortgage |
|
|
14.6 |
|
|
|
15.8 |
|
|
|
(8 |
) |
Option ARMs |
|
|
9.0 |
|
|
|
|
|
|
NM |
Student loans |
|
|
17.3 |
|
|
|
12.4 |
|
|
|
40 |
|
Auto loans |
|
|
43.1 |
|
|
|
44.7 |
|
|
|
(4 |
) |
Other |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
262.1 |
|
|
$ |
207.1 |
|
|
|
27 |
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
113.4 |
|
|
$ |
95.0 |
|
|
|
19 |
|
Prime mortgage |
|
|
65.4 |
|
|
|
36.0 |
|
|
|
82 |
|
Subprime mortgage |
|
|
14.9 |
|
|
|
15.7 |
|
|
|
(5 |
) |
Option ARMs |
|
|
8.8 |
|
|
|
|
|
|
NM |
Student loans |
|
|
17.0 |
|
|
|
12.0 |
|
|
|
42 |
|
Auto loans |
|
|
42.5 |
|
|
|
43.2 |
|
|
|
(2 |
) |
Other |
|
|
1.5 |
|
|
|
1.3 |
|
|
|
15 |
|
|
|
|
|
|
Total average loans |
|
$ |
263.5 |
|
|
$ |
203.2 |
|
|
|
30 |
|
|
|
|
|
|
Purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
28.4 |
|
|
$ |
|
|
|
NM |
Prime mortgage |
|
|
21.4 |
|
|
|
|
|
|
NM |
Subprime mortgage |
|
|
6.6 |
|
|
|
|
|
|
NM |
Option ARMs |
|
|
31.2 |
|
|
|
|
|
|
NM |
|
|
|
|
|
Total end-of-period loans |
|
$ |
87.6 |
|
|
$ |
|
|
|
NM |
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
28.4 |
|
|
$ |
|
|
|
NM |
Prime mortgage |
|
|
21.6 |
|
|
|
|
|
|
NM |
Subprime mortgage |
|
|
6.7 |
|
|
|
|
|
|
NM |
Option ARMs |
|
|
31.4 |
|
|
|
|
|
|
NM |
|
|
|
|
|
Total average loans |
|
$ |
88.1 |
|
|
$ |
|
|
|
NM |
|
|
|
|
|
Total consumer lending portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
140.1 |
|
|
$ |
95.0 |
|
|
|
47 |
|
Prime mortgage |
|
|
86.8 |
|
|
|
38.2 |
|
|
|
127 |
|
Subprime mortgage |
|
|
21.2 |
|
|
|
15.8 |
|
|
|
34 |
|
Option ARMs |
|
|
40.2 |
|
|
|
|
|
|
NM |
Student loans |
|
|
17.3 |
|
|
|
12.4 |
|
|
|
40 |
|
Auto loans |
|
|
43.1 |
|
|
|
44.7 |
|
|
|
(4 |
) |
Other |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
349.7 |
|
|
$ |
207.1 |
|
|
|
69 |
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
141.8 |
|
|
$ |
95.0 |
|
|
|
49 |
|
Prime mortgage |
|
|
87.0 |
|
|
|
36.0 |
|
|
|
142 |
|
Subprime mortgage |
|
|
21.6 |
|
|
|
15.7 |
|
|
|
38 |
|
Option ARMs |
|
|
40.2 |
|
|
|
|
|
|
NM |
Student loans |
|
|
17.0 |
|
|
|
12.0 |
|
|
|
42 |
|
Auto loans |
|
|
42.5 |
|
|
|
43.2 |
|
|
|
(2 |
) |
Other |
|
|
1.5 |
|
|
|
1.3 |
|
|
|
15 |
|
|
|
|
|
|
Total average loans owned(b) |
|
$ |
351.6 |
|
|
$ |
203.2 |
|
|
|
73 |
|
|
(a) |
|
Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction
for which a deterioration in credit quality occurred between the origination date and JPMorgan
Chases acquisition date. Under SOP 03-3, these loans were initially recorded at fair value
and accrete interest income over the estimated life of the loan when cash flows are reasonably
estimable, even if the underlying loans are contractually past due. |
|
(b) |
|
Total average loans includes loans held-for-sale of $3.1 billion and $4.4 billion for the
quarters ended March 31, 2009 and 2008, respectively. |
25
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Net charge-offs excluding purchased credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
1,098 |
|
|
$ |
447 |
|
|
|
146 |
% |
Prime mortgage |
|
|
312 |
|
|
|
50 |
|
|
|
NM |
|
Subprime mortgage |
|
|
364 |
|
|
|
149 |
|
|
|
144 |
|
Option ARMs |
|
|
4 |
|
|
|
|
|
|
|
NM |
|
Auto loans |
|
|
174 |
|
|
|
118 |
|
|
|
47 |
|
Other |
|
|
49 |
|
|
|
12 |
|
|
|
308 |
|
|
|
|
|
|
Total net charge-offs |
|
$ |
2,001 |
|
|
$ |
776 |
|
|
|
158 |
|
|
|
|
|
|
Net charge-off rate excluding purchased credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
3.93 |
% |
|
|
1.89 |
% |
|
|
|
|
Prime mortgage |
|
|
1.95 |
|
|
|
0.56 |
|
|
|
|
|
Subprime mortgage |
|
|
9.91 |
|
|
|
3.82 |
|
|
|
|
|
Option ARMs |
|
|
0.18 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.66 |
|
|
|
1.10 |
|
|
|
|
|
Other |
|
|
1.25 |
|
|
|
0.52 |
|
|
|
|
|
Total net charge-off rate excluding purchased credit-impaired loans(b) |
|
|
3.12 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
|
Net charge-off rate reported: |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
3.14 |
% |
|
|
1.89 |
% |
|
|
|
|
Prime mortgage |
|
|
1.46 |
|
|
|
0.56 |
|
|
|
|
|
Subprime mortgage |
|
|
6.83 |
|
|
|
3.82 |
|
|
|
|
|
Option ARMs |
|
|
0.04 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.66 |
|
|
|
1.10 |
|
|
|
|
|
Other |
|
|
1.25 |
|
|
|
0.52 |
|
|
|
|
|
Total net charge-off rate reported(b) |
|
|
2.33 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate excluding purchased credit-impaired loans(c)(d)(e) |
|
|
4.73 |
% |
|
|
3.33 |
% |
|
|
|
|
Nonperforming assets(f)(g)(h) |
|
$ |
9,267 |
|
|
$ |
4,031 |
|
|
|
130 |
|
Allowance for loan losses to ending loans |
|
|
2.83 |
% |
|
|
2.10 |
% |
|
|
|
|
Allowance for loan losses to ending loans excluding purchased credit-impaired loans(a) |
|
|
3.79 |
|
|
|
2.10 |
|
|
|
|
|
|
(a) |
|
Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that
were acquired as part of the Washington Mutual transaction. These loans were accounted for at
fair value on the acquisition date, which incorporated managements estimate, as of that
date, of credit losses over the remaining life of the portfolio. No allowance for loan losses
and no charge-offs have been recorded for these loans. |
|
(b) |
|
Average loans held-for-sale of $3.1 billion and $4.4 billion for the quarters ended March
31, 2009 and 2008, respectively, were excluded when calculating the net charge-off rate. |
|
(c) |
|
Excluded loans eligible for repurchase as well as loans repurchased from GNMA pools that are
insured by U.S. government agencies, of $4.5 billion and $1.5 billion, at March 31, 2009 and
2008, respectively. These amounts are excluded, as reimbursement is proceeding normally. |
|
(d) |
|
Excluded loans that are 30 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $770 million and $734
million at March 31, 2009 and 2008, respectively. These amounts are excluded, as
reimbursement is proceeding normally. |
|
(e) |
|
The delinquency rate for purchased credit-impaired loans accounted for under SOP 03-3 was
21.36% at March 31, 2009. There were no purchased credit-impaired loans at March 31, 2008. |
|
(f) |
|
Nonperforming assets excluded: (1) loans eligible for repurchase, as well as loans
repurchased from Government National Mortgage Association (GNMA) pools that are insured by
U.S. government agencies, of $4.6 billion and $1.8 billion at March 31, 2009 and 2008,
respectively; and (2) student loans that are 90 days past due and still accruing, which are
insured by U.S. government agencies under the Federal Family Education Loan Program, of $433
million and $418 million at March 31, 2009 and 2008, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally. |
|
(g) |
|
During the second quarter of 2008, the policy for classifying subprime mortgage and home
equity loans as nonperforming was changed to conform to all other home lending products.
Amounts for first quarter 2008 have been revised to reflect this change. |
|
(h) |
|
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as
part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and
the pools are considered to be performing under SOP 03-3. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Lending (continued) |
|
Three months ended March 31, |
(in billions, except where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
Origination volume: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
13.6 |
|
|
$ |
12.6 |
|
|
|
8 |
% |
Wholesale |
|
|
2.6 |
|
|
|
10.6 |
|
|
|
(75 |
) |
Correspondent |
|
|
17.0 |
|
|
|
12.0 |
|
|
|
42 |
|
CNT (negotiated transactions) |
|
|
4.5 |
|
|
|
11.9 |
|
|
|
(62 |
) |
|
|
|
|
|
Total mortgage origination volume |
|
|
37.7 |
|
|
|
47.1 |
|
|
|
(20 |
) |
|
|
|
|
|
Home equity |
|
|
0.9 |
|
|
|
6.7 |
|
|
|
(87 |
) |
Student loans |
|
|
1.7 |
|
|
|
2.0 |
|
|
|
(15 |
) |
Auto loans |
|
|
5.6 |
|
|
|
7.2 |
|
|
|
(22 |
) |
Average mortgage loans held-for-sale and loans at fair value(a) |
|
|
14.0 |
|
|
|
13.8 |
|
|
|
1 |
|
Average assets |
|
|
393.3 |
|
|
|
234.6 |
|
|
|
68 |
|
Third-party mortgage loans serviced (ending) |
|
|
1,148.8 |
|
|
|
627.1 |
|
|
|
83 |
|
MSR net carrying value (ending) |
|
|
10.6 |
|
|
|
8.4 |
|
|
|
26 |
|
|
|
|
|
|
|
Supplemental mortgage fees and related income details |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
481 |
|
|
$ |
376 |
|
|
|
28 |
|
|
|
|
|
|
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans servicing revenue |
|
|
1,222 |
|
|
|
593 |
|
|
|
106 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
1,310 |
|
|
|
(632 |
) |
|
NM |
Other changes in fair value |
|
|
(1,073 |
) |
|
|
(425 |
) |
|
|
(152 |
) |
|
|
|
|
|
Total changes in MSR asset fair value |
|
|
237 |
|
|
|
(1,057 |
) |
|
NM |
Derivative valuation adjustments and other |
|
|
(307 |
) |
|
|
613 |
|
|
NM |
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
1,152 |
|
|
|
149 |
|
|
NM |
|
|
|
|
|
Mortgage fees and related income |
|
|
1,633 |
|
|
|
525 |
|
|
|
211 |
|
|
(a) |
|
Loans at fair value consist of prime mortgages originated with the intent to sell that are
accounted for at fair value and classified as trading assets on the Consolidated Balance
Sheets. Average balances of these loans totaled $13.4 billion for both of the quarters ended
March 31, 2009 and 2008. |
27
CARD SERVICES
For a
discussion of the business profile of CS, see pages 51-53 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance of its credit
card loans, both loans on the balance sheet and loans that have been securitized. For further
information, see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on
pages 14-16 of this Form 10-Q. Managed results exclude the impact of credit card securitizations on
total net revenue, the provision for credit losses, net charge-offs and loan receivables.
Securitization does not change reported net income; however, it does affect the classification of
items on the Consolidated Statements of Income and Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data managed basis |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
844 |
|
|
$ |
600 |
|
|
|
41 |
% |
All other income |
|
|
(197 |
) |
|
|
119 |
|
|
NM |
|
|
|
|
|
Noninterest revenue |
|
|
647 |
|
|
|
719 |
|
|
|
(10 |
) |
Net interest income |
|
|
4,482 |
|
|
|
3,185 |
|
|
|
41 |
|
|
|
|
|
|
Total net revenue |
|
|
5,129 |
|
|
|
3,904 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
4,653 |
|
|
|
1,670 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
357 |
|
|
|
267 |
|
|
|
34 |
|
Noncompensation expense |
|
|
850 |
|
|
|
841 |
|
|
|
1 |
|
Amortization of intangibles |
|
|
139 |
|
|
|
164 |
|
|
|
(15 |
) |
|
|
|
|
|
Total noninterest expense |
|
|
1,346 |
|
|
|
1,272 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(870 |
) |
|
|
962 |
|
|
NM |
Income tax expense (benefit) |
|
|
(323 |
) |
|
|
353 |
|
|
NM |
|
|
|
|
|
Net income (loss) |
|
$ |
(547 |
) |
|
$ |
609 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization income (loss) |
|
$ |
(180 |
) |
|
$ |
70 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
(15 |
)% |
|
|
17 |
% |
|
|
|
|
Overhead ratio |
|
|
26 |
|
|
|
33 |
|
|
|
|
|
|
Quarterly results
Net loss was $547 million, a decline of $1.2 billion from the prior year. The decrease was driven
by a higher provision for credit losses, partially offset by higher net revenue.
End-of-period managed loans were $176.1 billion, an increase of $25.2 billion, or 17%, from the
prior year. Average managed loans were $183.4 billion, an increase of $29.8 billion, or 19%, from
the prior year. The increase from the prior year in both end-of-period and average managed loans
was predominantly due to the impact of the Washington Mutual transaction. Excluding Washington
Mutual, end-of-period and average managed loans were $150.2 billion and $155.8 billion,
respectively.
Managed total net revenue was $5.1 billion, an increase of $1.2 billion, or 31%, from the prior
year. Net interest income was $4.5 billion, up by $1.3 billion, or 41%, from the prior year, driven
by the impact of the Washington Mutual transaction, wider loan spreads and higher average managed
loan balances. These benefits were offset partially by the effect of higher revenue reversals
associated with higher charge-offs and a decreased level of fees. Noninterest revenue was $647
million, a decrease of $72 million, or 10%, from the prior year; the decline was driven by lower
securitization income, offset by the impact of the Washington Mutual transaction and higher
merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint
venture.
The managed provision for credit losses was $4.7 billion, an increase of $3.0 billion, or 179%,
from the prior year. The provision reflected a higher level of charge-offs and an increase of $1.2
billion in the allowance for loan losses, due to a weakening credit environment. The managed net
charge-off rate for the quarter was 7.72%, up from 4.37% in the prior year. The 30-day managed
delinquency rate was 6.16%, up from 3.66% in the prior year. Excluding Washington Mutual, the
managed net charge-off rate for the first quarter was 6.86%, and the 30-day delinquency rate was
5.34%.
28
Noninterest expense was $1.3 billion, an increase of $74 million, or 6%, from the prior year, due
to the impact of the Washington Mutual transaction and the dissolution of the Chase Paymentech
Solutions joint venture, predominantly offset by lower marketing expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in millions, except headcount, ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9.91 |
% |
|
|
8.34 |
% |
|
|
|
|
Provision for credit losses |
|
|
10.29 |
|
|
|
4.37 |
|
|
|
|
|
Noninterest revenue |
|
|
1.43 |
|
|
|
1.88 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
1.05 |
|
|
|
5.85 |
|
|
|
|
|
Noninterest expense |
|
|
2.98 |
|
|
|
3.33 |
|
|
|
|
|
Pretax income (loss) (ROO)(b) |
|
|
(1.92 |
) |
|
|
2.52 |
|
|
|
|
|
Net income (loss) |
|
|
(1.21 |
) |
|
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
76.0 |
|
|
$ |
85.4 |
|
|
|
(11 |
)% |
Net accounts opened (in millions) |
|
|
2.2 |
|
|
|
3.4 |
|
|
|
(35 |
) |
Credit cards issued (in millions) |
|
|
159.0 |
|
|
|
156.4 |
|
|
|
2 |
|
Number of registered internet customers (in millions) |
|
|
33.8 |
|
|
|
26.7 |
|
|
|
27 |
|
Merchant acquiring business(c) |
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
94.4 |
|
|
$ |
182.4 |
|
|
|
(48 |
) |
Total transactions (in billions) |
|
|
4.1 |
|
|
|
5.2 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
90,911 |
|
|
$ |
75,888 |
|
|
|
20 |
|
Securitized loans |
|
|
85,220 |
|
|
|
75,062 |
|
|
|
14 |
|
|
|
|
|
|
Managed loans |
|
$ |
176,131 |
|
|
$ |
150,950 |
|
|
|
17 |
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
201,200 |
|
|
$ |
159,602 |
|
|
|
26 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
97,783 |
|
|
$ |
79,445 |
|
|
|
23 |
|
Securitized loans |
|
|
85,619 |
|
|
|
74,108 |
|
|
|
16 |
|
|
|
|
|
|
Managed average loans |
|
$ |
183,402 |
|
|
$ |
153,553 |
|
|
|
19 |
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
23,759 |
|
|
|
18,931 |
|
|
|
26 |
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in millions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
3,493 |
|
|
$ |
1,670 |
|
|
|
109 |
% |
Net charge-off rate(d) |
|
|
7.72 |
% |
|
|
4.37 |
% |
|
|
|
|
Managed delinquency rates |
|
|
|
|
|
|
|
|
|
|
|
|
30+ day(d) |
|
|
6.16 |
% |
|
|
3.66 |
% |
|
|
|
|
90+ day(d) |
|
|
3.22 |
|
|
|
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(e) |
|
$ |
8,849 |
|
|
$ |
3,404 |
|
|
|
160 |
|
Allowance for loan losses to period-end loans(e) |
|
|
9.73 |
% |
|
|
4.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats Washington Mutual only(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
25,908 |
|
|
|
|
|
|
|
|
|
Managed average loans |
|
|
27,578 |
|
|
|
|
|
|
|
|
|
Net interest income(g) |
|
|
16.45 |
% |
|
|
|
|
|
|
|
|
Risk adjusted margin(a)(g) |
|
|
4.42 |
|
|
|
|
|
|
|
|
|
Net charge-off rate(d) |
|
|
12.63 |
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(d) |
|
|
10.89 |
|
|
|
|
|
|
|
|
|
90+ day delinquency rate(d) |
|
|
5.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats excluding Washington Mutual |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
150,223 |
|
|
$ |
150,950 |
|
|
|
|
|
Managed average loans |
|
|
155,824 |
|
|
|
153,553 |
|
|
|
1 |
|
Net interest income(g) |
|
|
8.75 |
% |
|
|
8.34 |
% |
|
|
|
|
Risk adjusted margin(a)(g) |
|
|
0.46 |
|
|
|
5.85 |
|
|
|
|
|
Net charge-off rate |
|
|
6.86 |
|
|
|
4.37 |
|
|
|
|
|
30+ day delinquency rate |
|
|
5.34 |
|
|
|
3.66 |
|
|
|
|
|
90+ day delinquency rate |
|
|
2.78 |
|
|
|
1.84 |
|
|
|
|
|
|
(a) |
|
Represents total net revenue less provision for credit losses.
|
|
(b) |
|
Pretax return on average managed outstandings. |
|
(c) |
|
The Chase Paymentech Solutions joint venture was dissolved effective November 1, 2008.
JPMorgan Chase retained approximately 51% of the business and operates the business under the
name Chase Paymentech Solutions. For the three months ended March 31, 2008, the data presented
represents activity for the Chase Paymentech Solutions joint venture, and for the three months
ended March 31, 2009, the data presented represents activity for Chase Paymentech Solutions. |
|
(d) |
|
Results for first quarter 2009 reflect the impact of purchase accounting adjustments related
to the Washington Mutual transaction. |
|
(e) |
|
Based on loans on a reported basis. |
|
(f) |
|
Statistics are only presented for periods after September 25, 2008, the date of the
Washington Mutual transaction. |
|
(g) |
|
As a percentage of average managed outstandings. |
30
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to
disclose the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,384 |
|
|
$ |
1,537 |
|
|
|
(10 |
)% |
Securitization adjustments |
|
|
(540 |
) |
|
|
(937 |
) |
|
|
42 |
|
|
|
|
|
|
Managed credit card income |
|
$ |
844 |
|
|
$ |
600 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,478 |
|
|
$ |
1,567 |
|
|
|
58 |
|
Securitization adjustments |
|
|
2,004 |
|
|
|
1,618 |
|
|
|
24 |
|
|
|
|
|
|
Managed net interest income |
|
$ |
4,482 |
|
|
$ |
3,185 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,665 |
|
|
$ |
3,223 |
|
|
|
14 |
|
Securitization adjustments |
|
|
1,464 |
|
|
|
681 |
|
|
|
115 |
|
|
|
|
|
|
Managed total net revenue |
|
$ |
5,129 |
|
|
$ |
3,904 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,189 |
|
|
$ |
989 |
|
|
|
222 |
|
Securitization adjustments |
|
|
1,464 |
|
|
|
681 |
|
|
|
115 |
|
|
|
|
|
|
Managed provision for credit losses |
|
$ |
4,653 |
|
|
$ |
1,670 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
118,418 |
|
|
$ |
88,013 |
|
|
|
35 |
|
Securitization adjustments |
|
|
82,782 |
|
|
|
71,589 |
|
|
|
16 |
|
|
|
|
|
|
Managed average assets |
|
$ |
201,200 |
|
|
$ |
159,602 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,029 |
|
|
$ |
989 |
|
|
|
105 |
|
Securitization adjustments |
|
|
1,464 |
|
|
|
681 |
|
|
|
115 |
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
3,493 |
|
|
$ |
1,670 |
|
|
|
109 |
|
|
(a) |
|
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and
overall performance of the underlying credit card loans, both sold and not sold; as the same
borrower is continuing to use the credit card for ongoing charges, a borrowers credit
performance will affect both the receivables sold under SFAS 140 and those not sold. Thus,
in its disclosures regarding managed receivables, JPMorgan Chase treats the sold receivables
as if they were still on the balance sheet in order to disclose the credit performance (such
as net charge-off rates) of the entire managed credit card portfolio. Managed results
exclude the impact of credit card securitizations on total net revenue, the provision for
credit losses, net charge-offs and loan receivables. Securitization does not change reported
net income versus managed earnings; however, it does affect the classification of items on
the Consolidated Statements of Income and Consolidated Balance Sheets. For further
information, see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial
Measures on pages 14-16 of this Form 10-Q. |
31
COMMERCIAL BANKING
For a
discussion of the business profile of CB, see pages 54-55 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending
& deposit-related fees |
|
$ |
263 |
|
|
$ |
193 |
|
|
|
36 |
% |
Asset management, administration and commissions |
|
|
34 |
|
|
|
26 |
|
|
|
31 |
|
All other income(a) |
|
|
125 |
|
|
|
115 |
|
|
|
9 |
|
|
|
|
|
|
Noninterest revenue |
|
|
422 |
|
|
|
334 |
|
|
|
26 |
|
Net interest income |
|
|
980 |
|
|
|
733 |
|
|
|
34 |
|
|
|
|
|
|
Total net revenue |
|
|
1,402 |
|
|
|
1,067 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
293 |
|
|
|
101 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
200 |
|
|
|
178 |
|
|
|
12 |
|
Noncompensation expense |
|
|
342 |
|
|
|
294 |
|
|
|
16 |
|
Amortization of intangibles |
|
|
11 |
|
|
|
13 |
|
|
|
(15 |
) |
|
|
|
|
|
Total noninterest expense |
|
|
553 |
|
|
|
485 |
|
|
|
14 |
|
|
|
|
|
|
Income before income tax expense |
|
|
556 |
|
|
|
481 |
|
|
|
16 |
|
Income tax expense |
|
|
218 |
|
|
|
189 |
|
|
|
15 |
|
|
|
|
|
|
Net income |
|
$ |
338 |
|
|
$ |
292 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
665 |
|
|
$ |
379 |
|
|
|
75 |
|
Treasury services |
|
|
646 |
|
|
|
616 |
|
|
|
5 |
|
Investment banking |
|
|
73 |
|
|
|
68 |
|
|
|
7 |
|
Other |
|
|
18 |
|
|
|
4 |
|
|
|
350 |
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,402 |
|
|
$ |
1,067 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenue, gross(b) |
|
$ |
206 |
|
|
$ |
203 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
752 |
|
|
$ |
706 |
|
|
|
7 |
|
Commercial Term Lending(c) |
|
|
228 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
242 |
|
|
|
207 |
|
|
|
17 |
|
Real Estate Banking(c) |
|
|
120 |
|
|
|
97 |
|
|
|
24 |
|
Other(c) |
|
|
60 |
|
|
|
57 |
|
|
|
5 |
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,402 |
|
|
$ |
1,067 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
17 |
% |
|
|
17 |
% |
|
|
|
|
Overhead ratio |
|
|
39 |
|
|
|
45 |
|
|
|
|
|
|
(a) |
|
Revenue from investment banking products sold to CB clients and commercial card revenue is
included in all other income. |
|
(b) |
|
Represents the total revenue related to investment banking products sold to CB clients. |
|
(c) |
|
Results for 2009 include total net revenue on net assets acquired in the Washington Mutual
transaction. |
Quarterly results
Net income was $338 million, an increase of $46 million, or 16%, from the prior year, driven by
higher net revenue reflecting the impact of the Washington Mutual transaction, offset largely by a
higher provision for credit losses.
Net revenue was $1.4 billion, an increase of $335 million, or 31%, from the prior year. Net
interest income was $980 million, up by $247 million, or 34%, from the prior year, driven by the
impact of the Washington Mutual transaction. Excluding Washington Mutual, net interest income was
lower than in the prior year, as spread compression on liability products was predominantly offset
by double-digit growth in liability balances, a shift to higher-spread liability products and wider
loan spreads. Noninterest revenue was $422 million, an increase of $88 million, or 26%, from the
prior year, reflecting record levels of deposit- and lending-related fees.
32
Revenue from Middle Market Banking was $752 million, an increase of $46 million, or 7%, from the
prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington
Mutual transaction) was $228 million. Revenue from Mid-Corporate Banking was $242 million, an
increase of $35 million, or 17% from the prior year. Revenue from Real Estate Banking was $120
million, an increase of $23 million, or 24%, from the prior year due to the impact of the
Washington Mutual transaction.
The provision for credit losses was $293 million, an increase of $192 million, or 190%, from the
prior year, reflecting a weakening credit environment. The allowance for loan losses to average
loans retained was 2.59% for the current quarter, down from 2.65% in the prior year, reflecting the
changed mix of the loan portfolio resulting from the Washington Mutual transaction. Nonperforming
loans were $1.5 billion, up by $1.1 billion from the prior year, due to the impact of the
Washington Mutual transaction. Net charge-offs were $134 million (0.48% net charge-off rate),
compared with $81 million (0.48% net charge-off rate) in the prior year.
Noninterest expense was $553 million, an increase of $68 million, or 14%, from the prior year, due
to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data (period-end): |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
8,000 |
|
|
$ |
7,000 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average): |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
144,298 |
|
|
$ |
101,979 |
|
|
|
41 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
113,568 |
|
|
|
67,510 |
|
|
|
68 |
|
Loans held-for-sale and loans at fair value |
|
|
297 |
|
|
|
521 |
|
|
|
(43 |
) |
|
|
|
|
|
Total loans |
|
|
113,865 |
|
|
|
68,031 |
|
|
|
67 |
|
Liability balances(a) |
|
|
114,975 |
|
|
|
99,477 |
|
|
|
16 |
|
Equity |
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
40,728 |
|
|
$ |
40,111 |
|
|
|
2 |
|
Commercial Term Lending(b) |
|
|
36,814 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
18,416 |
|
|
|
15,150 |
|
|
|
22 |
|
Real Estate Banking(b) |
|
|
13,264 |
|
|
|
7,457 |
|
|
|
78 |
|
Other(b) |
|
|
4,643 |
|
|
|
5,313 |
|
|
|
(13 |
) |
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
113,865 |
|
|
$ |
68,031 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,545 |
|
|
|
4,075 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
134 |
|
|
$ |
81 |
|
|
|
65 |
|
Nonperforming loans(c)(d) |
|
|
1,531 |
|
|
|
446 |
|
|
|
243 |
|
Nonperforming assets |
|
|
1,651 |
|
|
|
453 |
|
|
|
264 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
2,945 |
|
|
|
1,790 |
|
|
|
65 |
|
Allowance for lending-related commitments |
|
|
240 |
|
|
|
200 |
|
|
|
20 |
|
|
|
|
|
|
Total allowance for credit losses |
|
|
3,185 |
|
|
|
1,990 |
|
|
|
60 |
|
Net charge-off rate(e) |
|
|
0.48 |
% |
|
|
0.48 |
% |
|
|
|
|
Allowance for loan losses to average loans(d)(e) |
|
|
2.59 |
|
|
|
2.65 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans(c)(d) |
|
|
192 |
|
|
|
426 |
|
|
|
|
|
Nonperforming loans to average loans(d) |
|
|
1.34 |
|
|
|
0.66 |
|
|
|
|
|
|
(a) |
|
Liability balances include deposits and deposits swept to
on-balance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
|
(b) |
|
Results for 2009 include loans acquired in the Washington Mutual transaction. |
|
(c) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $26 million at
March 31, 2008. This amount was excluded when calculating the allowance for loan losses to
nonperforming loans ratio. There were no nonperforming loans held-for-sale or held at fair
value at March 31, 2009. |
|
(d) |
|
Purchased credit-impaired wholesale loans accounted for under SOP 03-3 that were acquired in
the Washington Mutual transaction are considered nonperforming loans, because the timing and
amount of expected cash flows are not reasonably estimable. These nonperforming loans were
included when calculating the allowance coverage ratio, the allowance for loan
losses-to-nonperforming loans ratio, and the nonperforming loans-to-average loans ratio.
The carrying amount of these purchased credit-impaired loans was $210 million at March 31,
2009. |
|
(e) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and the net charge-off rate. |
33
TREASURY & SECURITIES SERVICES
For a
discussion of the business profile of TSS, see pages 56-57 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending
& deposit-related fees |
|
$ |
325 |
|
|
$ |
269 |
|
|
|
21 |
% |
Asset management, administration and commissions |
|
|
626 |
|
|
|
820 |
|
|
|
(24 |
) |
All other income |
|
|
197 |
|
|
|
200 |
|
|
|
(2 |
) |
|
|
|
|
|
Noninterest revenue |
|
|
1,148 |
|
|
|
1,289 |
|
|
|
(11 |
) |
Net interest income |
|
|
673 |
|
|
|
624 |
|
|
|
8 |
|
|
|
|
|
|
Total net revenue |
|
|
1,821 |
|
|
|
1,913 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(6 |
) |
|
|
12 |
|
|
NM |
Credit reimbursement to IB(a) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
629 |
|
|
|
641 |
|
|
|
(2 |
) |
Noncompensation expense |
|
|
671 |
|
|
|
571 |
|
|
|
18 |
|
Amortization of intangibles |
|
|
19 |
|
|
|
16 |
|
|
|
19 |
|
|
|
|
|
|
Total noninterest expense |
|
|
1,319 |
|
|
|
1,228 |
|
|
|
7 |
|
|
|
|
|
|
Income before income tax expense |
|
|
478 |
|
|
|
643 |
|
|
|
(26 |
) |
Income tax expense |
|
|
170 |
|
|
|
240 |
|
|
|
(29 |
) |
|
|
|
|
|
Net income |
|
$ |
308 |
|
|
$ |
403 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services(b) |
|
$ |
931 |
|
|
$ |
860 |
|
|
|
8 |
|
Worldwide Securities Services(b) |
|
|
890 |
|
|
|
1,053 |
|
|
|
(15 |
) |
|
|
|
|
|
Total net revenue |
|
$ |
1,821 |
|
|
$ |
1,913 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
25 |
% |
|
|
46 |
% |
|
|
|
|
Overhead ratio |
|
|
72 |
|
|
|
64 |
|
|
|
|
|
Pretax margin ratio(c) |
|
|
26 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
5,000 |
|
|
$ |
3,500 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
38,682 |
|
|
$ |
57,204 |
|
|
|
(32 |
) |
Loans(d) |
|
|
20,140 |
|
|
|
23,086 |
|
|
|
(13 |
) |
Liability balances(e) |
|
|
276,486 |
|
|
|
254,369 |
|
|
|
9 |
|
Equity |
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
26,998 |
|
|
|
26,561 |
|
|
|
2 |
|
|
(a) |
|
TSS is charged a credit reimbursement related to certain exposures managed within IB credit
portfolio on behalf of clients shared with TSS. |
|
(b) |
|
Reflects an internal reorganization for escrow products from Worldwide Securities Services to
Treasury Services revenue of $45 million and $47 million for the three months ended March 31,
2009 and 2008, respectively. |
|
(c) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
|
(d) |
|
Loan balances include wholesale overdrafts and commercial card and trade finance loans. |
|
(e) |
|
Liability balances include deposits and deposits swept to
on-balance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
Quarterly results
Net income was $308 million, a decrease of $95 million, or 24%, from the prior year, driven by
lower net revenue and higher noninterest expense.
Net revenue was $1.8 billion, a decrease of $92 million, or 5%, from the prior year. Worldwide
Securities Services net revenue was $890 million, a decrease of $163 million, or 15%, from the
prior year. The decrease was driven by lower securities lending balances, primarily as a result of
declines in asset valuations and demand, as well as the effects of market
depreciation on assets under custody, partially offset by higher net interest income. Treasury
Services net revenue was $931
34
million, an increase of $71 million, or 8%, reflecting higher
liability balances, higher trade revenue and growth across cash management products. These benefits
were offset largely by spread compression on liability products. TSS firmwide net revenue, which
includes net revenue recorded in other lines of business, was $2.5 billion, a decrease of $69
million, or 3%, compared with the prior year; the decrease was primarily due to declines in
Worldwide Securities Services. Treasury Services firmwide net revenue grew to $1.6 billion, an
increase of $94 million, or 6%, from the prior year.
The provision for credit losses was a benefit of $6 million, a decrease of $18 million from the
prior year. This improvement in the provision was driven by lower balances in trade, partially
offset by a weakening credit environment.
Noninterest expense was $1.3 billion, an increase of $91 million, or 7%, from the prior year,
reflecting higher FDIC insurance premiums and higher expense related to investment in new product
platforms.
TSS firmwide metrics
TSS firmwide metrics include revenue recorded in the CB, Retail Banking and AM lines of business
and excludes foreign exchange (FX) revenue recorded in IB for TSS-related FX activity. In order
to capture the firmwide impact of TS and TSS products and revenue, management reviews firmwide
metrics such as liability balances, revenue and overhead ratios in assessing financial
performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS
business.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended March 31, |
(in millions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue reported(a) |
|
$ |
931 |
|
|
$ |
860 |
|
|
|
8 |
% |
Treasury Services revenue reported in Commercial Banking |
|
|
646 |
|
|
|
616 |
|
|
|
5 |
|
Treasury Services revenue reported in other lines of business |
|
|
62 |
|
|
|
69 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide revenue(a)(b) |
|
|
1,639 |
|
|
|
1,545 |
|
|
|
6 |
|
Worldwide Securities Services revenue(a) |
|
|
890 |
|
|
|
1,053 |
|
|
|
(15 |
) |
|
|
|
|
|
Treasury & Securities Services firmwide revenue(b) |
|
$ |
2,529 |
|
|
$ |
2,598 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide liability balances (average)(c)(d) |
|
$ |
289,645 |
|
|
$ |
243,168 |
|
|
|
19 |
|
Treasury & Securities Services firmwide liability balances (average)(c) |
|
|
391,461 |
|
|
|
353,845 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead ratio(e) |
|
|
53 |
% |
|
|
54 |
% |
|
|
|
|
Treasury & Securities Services overhead ratio(e) |
|
|
63 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
13,532 |
|
|
$ |
15,690 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S.$ ACH transactions originated (in millions) |
|
|
978 |
|
|
|
1,004 |
|
|
|
(3 |
) |
Total U.S.$ clearing volume (in thousands) |
|
|
27,186 |
|
|
|
28,056 |
|
|
|
(3 |
) |
International electronic funds transfer volume (in thousands)(f) |
|
|
44,365 |
|
|
|
40,039 |
|
|
|
11 |
|
Wholesale check volume (in millions) |
|
|
568 |
|
|
|
623 |
|
|
|
(9 |
) |
Wholesale cards issued (in thousands)(g) |
|
|
22,233 |
|
|
|
19,122 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
2 |
|
|
$ |
|
|
|
NM |
Nonperforming loans |
|
|
30 |
|
|
|
|
|
|
NM |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
51 |
|
|
|
26 |
|
|
|
96 |
|
Allowance for lending-related commitments |
|
|
77 |
|
|
|
33 |
|
|
|
133 |
|
|
|
|
|
|
Total allowance for credit losses |
|
|
128 |
|
|
|
59 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate |
|
|
0.04 |
% |
|
|
|
% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.25 |
|
|
|
0.11 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
170 |
|
|
NM |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to Treasury Services revenue, of $45 million and $47 million for the three months ended March
31, 2009 and 2008, respectively. |
|
(b) |
|
TSS firmwide FX revenue includes FX revenue recorded in TSS and FX revenue associated with
TSS customers who are FX customers of the IB. FX revenue associated with TSS customers who are
FX customers of IB was $154 million and $191 million, for the three months ended March 31,
2009 and 2008, respectively. These amounts are not included in TS and TSS firmwide revenue. |
|
(c) |
|
Firmwide liability balances include liability balances recorded in Commercial Banking. |
35
(d) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to Treasury Services liability balances, of $18.2 billion and $21.5 billion for the three
months ended March 31, 2009 and 2008, respectively. |
|
(e) |
|
Overhead ratios have been calculated based on firmwide revenue and TSS and TS expense,
respectively, including those allocated to certain other lines of business. FX revenue and
expense recorded in IB for TSS-related FX activity are not included in this ratio. |
|
(f) |
|
International electronic funds transfer includes non-U.S. dollar ACH and clearing volume. |
|
(g) |
|
Wholesale cards issued include domestic commercial card, stored value card, prepaid card and
government electronic benefit card products. |
ASSET MANAGEMENT
For a
discussion of the business profile of AM, see pages 58-60 of JPMorgan Chases 2008 Annual
Report and on page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration and commissions |
|
$ |
1,231 |
|
|
$ |
1,531 |
|
|
|
(20 |
)% |
All other income |
|
|
69 |
|
|
|
59 |
|
|
|
17 |
|
|
|
|
|
|
Noninterest revenue |
|
|
1,300 |
|
|
|
1,590 |
|
|
|
(18 |
) |
Net interest income |
|
|
403 |
|
|
|
311 |
|
|
|
30 |
|
|
|
|
|
|
Total net revenue |
|
|
1,703 |
|
|
|
1,901 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
33 |
|
|
|
16 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
800 |
|
|
|
825 |
|
|
|
(3 |
) |
Noncompensation expense |
|
|
479 |
|
|
|
477 |
|
|
|
|
|
Amortization of intangibles |
|
|
19 |
|
|
|
21 |
|
|
|
(10 |
) |
|
|
|
|
|
Total noninterest expense |
|
|
1,298 |
|
|
|
1,323 |
|
|
|
(2 |
) |
|
|
|
|
|
Income before income tax expense |
|
|
372 |
|
|
|
562 |
|
|
|
(34 |
) |
Income tax expense |
|
|
148 |
|
|
|
206 |
|
|
|
(28 |
) |
|
|
|
|
|
Net income |
|
$ |
224 |
|
|
$ |
356 |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
Private Bank(a) |
|
$ |
583 |
|
|
$ |
596 |
|
|
|
(2 |
) |
Institutional |
|
|
460 |
|
|
|
490 |
|
|
|
(6 |
) |
Private Wealth Management(a) |
|
|
312 |
|
|
|
349 |
|
|
|
(11 |
) |
Retail |
|
|
253 |
|
|
|
466 |
|
|
|
(46 |
) |
Bear Stearns Brokerage |
|
|
95 |
|
|
|
|
|
|
NM |
|
|
|
|
|
Total net revenue |
|
$ |
1,703 |
|
|
$ |
1,901 |
|
|
|
(10 |
) |
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
13 |
% |
|
|
29 |
% |
|
|
|
|
Overhead ratio |
|
|
76 |
|
|
|
70 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
22 |
|
|
|
30 |
|
|
|
|
|
|
(a) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to Private
Wealth Management. Prior periods have been revised to conform to this change. |
|
(b) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was $224 million, a decline of $132 million, or 37%, from the prior year, due to lower
net revenue offset partially by lower noninterest expense.
Net revenue was $1.7 billion, a decrease of $198 million, or 10%, from the prior year. Noninterest
revenue was $1.3 billion, a decline of $290 million, or 18%, due to the effect of lower markets and
lower performance fees; these effects were offset partially by the benefit of the Bear Stearns
merger. Net interest income was $403 million, up by $92 million, or 30%, from the prior year,
predominantly due to higher deposit balances and wider deposit spreads.
Private Bank revenue declined 2% to $583 million, as the effects of lower markets and lower
placement fees were offset by increased deposit balances and wider deposit spreads. Institutional
revenue declined 6% to $460 million, due to lower markets and lower performance fees, offset
partially by net liquidity inflows. Private Wealth Management revenue
36
declined 11% to $312 million,
due to the effect of lower markets. Retail revenue declined by 46% to $253 million, due to the
effect of lower markets and net equity outflows. Bear Stearns Brokerage contributed $95 million to
revenue.
The provision for credit losses was $33 million, an increase of $17 million from the prior year,
reflecting a weakening credit environment.
Noninterest expense was $1.3 billion, a decrease of $25 million, or 2%, from the prior year, due to
lower performance-based compensation and lower headcount-related expense, offset by the effect of
the Bear Stearns merger and higher FDIC insurance premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
(in millions, except headcount, ratios and |
|
Three months ended March 31, |
ranking data, and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,708 |
|
|
|
1,744 |
|
|
|
(2 |
)% |
Retirement planning services participants |
|
|
1,628,000 |
|
|
|
1,519,000 |
|
|
|
7 |
|
Bear Stearns brokers |
|
|
359 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5 Star Funds(a) |
|
|
42 |
% |
|
|
49 |
% |
|
|
(14 |
) |
% of AUM in 1st and 2nd quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
54 |
% |
|
|
52 |
% |
|
|
4 |
|
3 years |
|
|
62 |
% |
|
|
73 |
% |
|
|
(15 |
) |
5 years |
|
|
66 |
% |
|
|
75 |
% |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
7,000 |
|
|
$ |
5,000 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
58,227 |
|
|
$ |
60,286 |
|
|
|
(3 |
) |
Loans |
|
|
34,585 |
|
|
|
36,628 |
|
|
|
(6 |
) |
Deposits |
|
|
81,749 |
|
|
|
68,184 |
|
|
|
20 |
|
Equity |
|
|
7,000 |
|
|
|
5,000 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
15,109 |
|
|
|
14,955 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
19 |
|
|
$ |
(2 |
) |
|
|
NM |
|
Nonperforming loans |
|
|
301 |
|
|
|
11 |
|
|
|
NM |
|
Allowance for loan losses |
|
|
215 |
|
|
|
130 |
|
|
|
65 |
|
Allowance for lending-related commitments |
|
|
4 |
|
|
|
6 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
0.22 |
% |
|
|
(0.02 |
)% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.62 |
|
|
|
0.35 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
71 |
|
|
|
1,182 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.87 |
|
|
|
0.03 |
|
|
|
|
|
|
(a) |
|
Derived from the following rating services: Morningstar for the United States; Micropal for
the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
|
(b) |
|
Derived from the following rating services: Lipper for the United States and Taiwan;
Micropal for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan |
Assets under supervision
Assets under supervision were $1.5 trillion, a decrease of $105 billion, or 7%, from the prior
year. Assets under management were $1.1 trillion, down by $72 billion, or 6%, from the prior year.
The decrease was due to the effect of lower markets and outflows from non-liquidity products,
offset largely by liquidity product inflows across all segments and the addition of Bear Stearns
assets under management. Custody, brokerage, administration and deposit balances were $349 billion,
down $33 billion, due to the effect of lower markets on brokerage and custody balances, offset by
the addition of Bear Stearns Brokerage.
37
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
As of or for the three months ended March 31, |
|
2009 |
|
2008 |
|
Assets by asset class |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
625 |
|
|
$ |
471 |
|
Fixed income |
|
|
180 |
|
|
|
200 |
|
Equities & balanced |
|
|
215 |
|
|
|
390 |
|
Alternatives |
|
|
95 |
|
|
|
126 |
|
|
Total assets under management |
|
|
1,115 |
|
|
|
1,187 |
|
Custody/brokerage/administration/deposits |
|
|
349 |
|
|
|
382 |
|
|
Total assets under supervision |
|
$ |
1,464 |
|
|
$ |
1,569 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
668 |
|
|
$ |
652 |
|
Private Bank(b) |
|
|
181 |
|
|
|
179 |
|
Retail |
|
|
184 |
|
|
|
279 |
|
Private Wealth Management(b) |
|
|
68 |
|
|
|
77 |
|
Bear Stearns Brokerage |
|
|
14 |
|
|
|
|
|
|
Total assets under management |
|
$ |
1,115 |
|
|
$ |
1,187 |
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
669 |
|
|
$ |
652 |
|
Private Bank(b) |
|
|
375 |
|
|
|
412 |
|
Retail |
|
|
250 |
|
|
|
366 |
|
Private Wealth Management(b) |
|
|
120 |
|
|
|
139 |
|
Bear Stearns Brokerage |
|
|
50 |
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,464 |
|
|
$ |
1,569 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
789 |
|
|
$ |
773 |
|
International |
|
|
326 |
|
|
|
414 |
|
|
Total assets under management |
|
$ |
1,115 |
|
|
$ |
1,187 |
|
|
U.S./Canada |
|
$ |
1,066 |
|
|
$ |
1,063 |
|
International |
|
|
398 |
|
|
|
506 |
|
|
Total assets under supervision |
|
$ |
1,464 |
|
|
$ |
1,569 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
570 |
|
|
$ |
405 |
|
Fixed income |
|
|
42 |
|
|
|
45 |
|
Equities |
|
|
93 |
|
|
|
186 |
|
|
Total mutual fund assets |
|
$ |
705 |
|
|
$ |
636 |
|
|
|
|
|
|
|
|
|
|
|
Assets under management rollforward |
|
|
|
|
|
|
|
|
Beginning balance, January 1 |
|
$ |
1,133 |
|
|
$ |
1,193 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
Liquidity |
|
|
19 |
|
|
|
68 |
|
Fixed income |
|
|
1 |
|
|
|
|
|
Equities, balanced and alternatives |
|
|
(5 |
) |
|
|
(21 |
) |
Market/performance/other impacts |
|
|
(33 |
) |
|
|
(53 |
) |
|
Ending balance, March 31 |
|
$ |
1,115 |
|
|
$ |
1,187 |
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,496 |
|
|
$ |
1,572 |
|
Net asset flows |
|
|
25 |
|
|
|
52 |
|
Market/performance/other impacts |
|
|
(57 |
) |
|
|
(55 |
) |
|
Ending balance, March 31 |
|
$ |
1,464 |
|
|
$ |
1,569 |
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm had a
42% and 44% ownership at March 31, 2009 and 2008, respectively. |
|
(b) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to Private
Wealth Management. Prior periods have been revised to conform to this change. |
38
CORPORATE / PRIVATE EQUITY
For a
discussion of the business profile of Corporate/Private Equity, see pages 61-63 of JPMorgan
Chases 2008 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended March 31, |
(in millions, except headcount) |
|
2009 |
|
2008 |
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions |
|
$ |
(1,493 |
) |
|
$ |
5 |
|
|
NM |
Securities gains |
|
|
214 |
|
|
|
42 |
|
|
|
410 |
% |
All other income(a) |
|
|
(19 |
) |
|
|
1,641 |
|
|
NM |
|
|
|
|
|
Noninterest revenue |
|
|
(1,298 |
) |
|
|
1,688 |
|
|
NM |
Net interest income (expense) |
|
|
989 |
|
|
|
(349 |
) |
|
NM |
|
|
|
|
|
Total net revenue |
|
|
(309 |
) |
|
|
1,339 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
641 |
|
|
|
639 |
|
|
|
|
|
Noncompensation expense(b) |
|
|
345 |
|
|
|
(84 |
) |
|
NM |
Merger costs |
|
|
205 |
|
|
|
|
|
|
NM |
|
|
|
|
|
Subtotal |
|
|
1,191 |
|
|
|
555 |
|
|
|
115 |
|
Net expense allocated to other businesses |
|
|
(1,279 |
) |
|
|
(1,057 |
) |
|
|
(21 |
) |
|
|
|
|
|
Total noninterest expense |
|
|
(88 |
) |
|
|
(502 |
) |
|
|
82 |
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(221 |
) |
|
|
1,841 |
|
|
NM |
Income tax expense |
|
|
41 |
|
|
|
730 |
|
|
|
(94 |
) |
|
|
|
|
|
Net income (loss) |
|
$ |
(262 |
) |
|
$ |
1,111 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(449 |
) |
|
$ |
163 |
|
|
NM |
Corporate |
|
|
140 |
|
|
|
1,176 |
|
|
|
(88 |
) |
|
|
|
|
|
Total net revenue |
|
$ |
(309 |
) |
|
$ |
1,339 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(280 |
) |
|
$ |
57 |
|
|
NM |
Corporate |
|
|
252 |
|
|
|
1,054 |
|
|
|
(76 |
) |
Merger-related items(c) |
|
|
(234 |
) |
|
|
|
|
|
NM |
|
|
|
|
|
Total net income (loss) |
|
$ |
(262 |
) |
|
$ |
1,111 |
|
|
NM |
|
|
|
|
|
Headcount |
|
|
22,339 |
|
|
|
21,769 |
|
|
|
3 |
|
|
(a) |
|
Included proceeds of $1.5 billion from the sale of Visa shares in its initial public
offering in the first quarter of 2008. |
|
(b) |
|
Included a release of credit card litigation reserves in the first quarter of 2008. |
|
(c) |
|
Included merger costs related to the Washington Mutual transaction, as well as items related
to the Bear Stearns merger, in the first quarter of 2009. |
Quarterly results
Net loss was $262 million, compared with net income of $1.1 billion in the prior year. This segment
includes the results of Private Equity and Corporate business segments, as well as merger-related
items.
Net loss for Private Equity was $280 million, compared with net income of $57 million in the prior
year. Net revenue was negative $449 million, a decrease of $612 million, reflecting Private Equity
losses of $462 million, compared with gains of $189 million in the prior year. Noninterest expense
was negative $11 million, a decrease of $87 million from the prior year, reflecting lower
compensation expense.
Net income for Corporate was $252 million, compared with net income of $1.1 billion in the prior
year (which included a benefit of $955 million (after tax) from the proceeds of the sale of Visa
shares in its initial public offering).
39
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains(a) |
|
$ |
214 |
|
|
$ |
42 |
|
|
|
410 |
% |
Investment securities portfolio (average)(b) |
|
|
265,785 |
|
|
|
83,161 |
|
|
|
220 |
|
Investment securities portfolio (ending)(b) |
|
|
316,498 |
|
|
|
94,588 |
|
|
|
235 |
|
Mortgage loans (average) |
|
|
7,210 |
|
|
|
6,730 |
|
|
|
7 |
|
Mortgage loans (ending) |
|
|
7,162 |
|
|
|
6,847 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
15 |
|
|
$ |
1,113 |
|
|
|
(99 |
) |
Unrealized gains (losses)(c) |
|
|
(409 |
) |
|
|
(881 |
) |
|
|
54 |
|
|
|
|
|
|
Total direct investments |
|
|
(394 |
) |
|
|
232 |
|
|
NM |
Third-party fund investments |
|
|
(68 |
) |
|
|
(43 |
) |
|
|
(58 |
) |
|
|
|
|
|
Total private equity gains (losses)(d) |
|
$ |
(462 |
) |
|
$ |
189 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e)
Direct investments
(in millions) |
|
March 31, 2009 |
|
December 31, 2008 |
|
Change |
|
Publicly held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
305 |
|
|
$ |
483 |
|
|
|
(37 |
)% |
Cost |
|
|
778 |
|
|
|
792 |
|
|
|
(2 |
) |
Quoted public value |
|
|
346 |
|
|
|
543 |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
4,708 |
|
|
|
5,564 |
|
|
|
(15 |
) |
Cost |
|
|
5,519 |
|
|
|
6,296 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
1,537 |
|
|
|
805 |
|
|
|
91 |
|
Cost |
|
|
2,082 |
|
|
|
1,169 |
|
|
|
78 |
|
|
|
|
|
|
Total private equity portfolio Carrying value |
|
$ |
6,550 |
|
|
$ |
6,852 |
|
|
|
(4 |
) |
Total private equity portfolio Cost |
|
$ |
8,379 |
|
|
$ |
8,257 |
|
|
|
1 |
|
|
(a) |
|
Reflects repositioning of the Corporate investment securities portfolio, and excludes
gains/losses on securities used to manage risk associated with MSRs. |
|
(b) |
|
For further discussion,
see Securities on page 42 of this
Form 10-Q. |
|
(c) |
|
Unrealized gains (losses) contain reversals of unrealized gains and losses that were
recognized in prior periods and have now been realized. |
|
(d) |
|
Included in principal transactions revenue in the Consolidated Statements of Income. |
|
(e) |
|
For more information on the Firms policies regarding the valuation of the private equity
portfolio, see Note 3 on pages 89-99 of this Form 10-Q. |
|
(f) |
|
Unfunded commitments to third-party private equity funds were $1.5 billion and $1.4 billion
at March 31, 2009, and December 31, 2008, respectively. |
The carrying value of the private equity portfolio at March 31, 2009, was $6.6 billion, down by
$302 million from December 31, 2008. The portfolio decline was primarily due to write-downs and
mark-to-market losses from publicly traded positions. The portfolio represented 5.4% of the Firms
stockholders equity less goodwill at March 31, 2009, down from 5.8% at December 31, 2008.
The increase in the carrying value of third-party fund investments was mainly due to the
reclassification of investments from direct securities to third-party funds and the inclusion of
fund investments that were previously reported as part of Commercial Banking.
40
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
March 31, 2009 |
|
December 31, 2008 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
26,681 |
|
|
$ |
26,895 |
|
Deposits with banks |
|
|
89,865 |
|
|
|
138,139 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
157,237 |
|
|
|
203,115 |
|
Securities borrowed |
|
|
127,928 |
|
|
|
124,000 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
298,453 |
|
|
|
347,357 |
|
Derivative receivables |
|
|
131,247 |
|
|
|
162,626 |
|
Securities |
|
|
333,861 |
|
|
|
205,943 |
|
Loans |
|
|
708,243 |
|
|
|
744,898 |
|
Allowance for loan losses |
|
|
(27,381 |
) |
|
|
(23,164 |
) |
|
Loans, net of allowance for loan losses |
|
|
680,862 |
|
|
|
721,734 |
|
Accrued interest and accounts receivable |
|
|
52,168 |
|
|
|
60,987 |
|
Goodwill |
|
|
48,201 |
|
|
|
48,027 |
|
Other intangible assets |
|
|
15,983 |
|
|
|
14,984 |
|
Other assets |
|
|
116,702 |
|
|
|
121,245 |
|
|
Total assets |
|
$ |
2,079,188 |
|
|
$ |
2,175,052 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
906,969 |
|
|
$ |
1,009,277 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
279,837 |
|
|
|
192,546 |
|
Commercial paper and other borrowed funds |
|
|
145,342 |
|
|
|
170,245 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
53,786 |
|
|
|
45,274 |
|
Derivative payables |
|
|
86,020 |
|
|
|
121,604 |
|
Accounts payable, accrued expense and other liabilities |
|
|
165,521 |
|
|
|
187,978 |
|
Beneficial interests issued by consolidated VIEs |
|
|
9,674 |
|
|
|
10,561 |
|
Long-term debt and trust-preferred capital debt securities |
|
|
261,845 |
|
|
|
270,683 |
|
|
Total liabilities |
|
|
1,908,994 |
|
|
|
2,008,168 |
|
Stockholders equity |
|
|
170,194 |
|
|
|
166,884 |
|
|
Total liabilities and stockholders equity |
|
$ |
2,079,188 |
|
|
$ |
2,175,052 |
|
|
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the Consolidated Balance Sheets from
December 31, 2008.
Deposits with banks; federal funds sold and securities purchased under resale agreements;
securities borrowed; federal funds purchased and securities loaned or sold under repurchase
agreements
The Firm utilizes deposits with banks, federal funds sold and securities purchased under resale
agreements, securities borrowed, and federal funds purchased and securities loaned or sold under
repurchase agreements as part of its liquidity management activities to manage the Firms cash
positions and risk-based capital requirements and to support the Firms trading and risk management
activities. In particular, the Firm uses securities purchased under resale agreements and
securities borrowed to provide funding or liquidity to clients by purchasing and borrowing clients
securities for the short-term. Federal funds purchased and securities loaned or sold under
repurchase agreements are used as short-term funding sources for the Firm and to make securities
available to clients for their short-term purposes. The decrease in deposits with banks primarily
reflected lower interbank lending compared with the elevated level at the end of 2008. The decrease
in securities purchased under resale agreements was largely due to a lower volume of excess funds
available for short-term investments. The increase in securities sold under repurchase agreements
was partly attributable to favorable pricing and to finance the increase in the AFS securities
portfolio. For additional information on the Firms Liquidity
Risk Management, see pages 49-53 of this Form 10-Q.
Trading assets and liabilities debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary
risk-taking activities. These instruments consist predominantly of fixed income securities,
including government and corporate debt; equity securities, including convertible securities;
loans, including prime mortgage and other loans warehoused by RFS and IB
for sale or securitization purposes and accounted for at fair value under SFAS 159; and physical
commodities inventories. The decrease in trading assets debt and equity instruments reflected
continued balance sheet management
41
during the period as well as the effect of the challenging
capital markets environment. For additional information, refer to Note 3 and Note 5 on pages
89-99 and 102-103, respectively, of this Form 10-Q.
Trading assets and liabilities derivative receivables and payables
Derivative instruments enable end-users to transform or mitigate exposure to credit or market
risks. The value of a derivative is derived from its reference to an underlying variable or
combination of variables such as interest rate, credit, foreign exchange, equity or commodity
prices or indices. JPMorgan Chase makes markets in derivatives for customers and also uses
derivatives to hedge or manage risks of market exposures and to make investments. The majority of
the Firms derivatives are entered into for market-making purposes. The decrease in derivative
receivables and payables was primarily related to the effect of the strengthening of the U.S.
dollar on foreign exchange, credit and interest rate derivatives. For additional information, refer
to derivative contracts, on pages 59-60, Note 3, Note 5 and Note 6 on
pages 89-99, 102-103, and
104-111, respectively, of this Form 10-Q.
Securities
Almost all of the securities portfolio is classified as AFS and is used predominantly to manage the
Firms exposure to interest rate movements, as well as to make strategic longer-term investments.
The Firm purchased a significant amount of residential mortgage-backed securities, a majority of
which are guaranteed by the U.S. Federal Government and other foreign governments, to position the
Firm for the declining interest rate environment experienced in the first quarter. This increase
was partially offset by sales of higher coupon instruments as part of this positioning as well as
prepayments and maturities. For additional information related to securities, refer to the
Corporate/Private Equity segment on pages 39-40, Note 3 and Note 12
on pages 89-99 and 114-119,
respectively, of this Form 10-Q.
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large corporate and institutional clients
to individual consumers. Loans decreased largely reflecting decreases across all wholesale lines of
business and the seasonal decline in credit card receivables.
Both the consumer and wholesale components of the allowance for loan losses increased. The consumer
allowance rose due to an increase in estimated losses for home equity, mortgage and credit card
loans due to the effects of continued housing price declines, rising unemployment and overall
weakening economic conditions. The increase in the wholesale allowance was due to the effect of the
continuing weakening credit environment. For a more detailed discussion of the loan portfolio and
the allowance for loan losses, refer to Credit Risk Management on
pages 53-70, and Notes 3, 4, 14
and 15 on pages 89-99, 99-101, 120-123 and 123-124, respectively, of this Form 10-Q.
Accrued interest and accounts receivable; accounts payable, accrued expense and other liabilities
The Firms accrued interest and accounts receivable consist of accrued interest receivable from
interest-earning assets; receivables from customers (primarily from activities related to IBs
Prime Services business); receivables from brokers, dealers and clearing organizations; and
receivables from failed securities sales. The Firms accounts payable, accrued expense and other
liabilities consist of accounts payable to customers (primarily from activities related to IBs
Prime Services business), payables to brokers, dealers and clearing organizations; payables from
failed securities purchases; accrued expense, including for interest-bearing liabilities; and all
other liabilities, including obligations to return securities received as collateral. The decrease
in accounts payable, accrued expense and other liabilities partly reflected lower levels of fails
as a result of loosening in the market for U.S. Treasury securities.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired
entity over the net fair value amounts assigned to assets acquired and liabilities assumed. The
increase in goodwill was largely due to purchase accounting adjustments related to the Bear Stearns
merger as well as an acquisition of a commodities business by IB. For additional information, see
Note 18 on pages 137-139 of this Form 10-Q.
Other intangible assets
The Firms other intangible assets consist of MSRs, purchased credit card relationships, other
credit card-related intangibles, core deposit intangibles, and other intangibles. MSRs increased
due to sales in RFS of originated loans and markups in the fair value of the MSR asset due to
changes to inputs and assumptions in the MSR valuation model, offset
partially by servicing portfolio run-off. The decrease in other intangible assets primarily
reflects amortization expense associated with credit card-related intangibles, core deposit
intangibles, and other intangibles. For additional information on MSRs and other intangible assets,
see Note 18 on pages 137-139 of this Form 10-Q.
42
Deposits
The Firms deposits represent a liability to customers, both retail and wholesale, related to
non-brokerage funds held on their behalf. Deposits are classified by location (U.S. and non-U.S.),
whether they are interest- or noninterest-bearing, and by type (i.e., demand, money market,
savings, time or negotiable order of withdrawal accounts). Deposits help provide a stable and
consistent source of funding for the Firm. Wholesale deposits declined in TSS from the elevated
levels at December 31, 2008, which reflected the strong deposit inflows as a result of the
heightened volatility and credit concerns affecting the markets during the latter part of 2008; the
decline in deposits during the first quarter of 2009, resulted from the mitigation of some of these
credit concerns. For more information on deposits, refer to the RFS, TSS and AM segment discussions
on pages 21-27, 34-36 and 36-38, respectively, and the Liquidity Risk Management discussion on
pages 49-53 of this Form 10-Q. For more information on wholesale liability balances, including
deposits, refer to the CB and TSS segment discussions on pages 32-33
and 34-36, respectively, of
this Form 10-Q.
Commercial paper and other borrowed funds
The Firm utilizes commercial paper and other borrowed funds as part of its liquidity management
activities to meet short-term funding needs, and in connection with a TSS liquidity management
product whereby excess client funds, are transferred into commercial paper overnight sweep
accounts. The decrease in other borrowed funds was predominantly due to lower advances from Federal
Home Loan Banks and lower nonrecourse advances from the Federal Reserve Bank of Boston (FRBB) to
fund purchases of asset-backed commercial paper from money market mutual funds. For additional
information on the Firms Liquidity Risk Management, see pages
49-53 of this Form 10-Q.
Long-term debt and trust-preferred capital debt securities
The Firm utilizes long-term debt and trust-preferred capital debt securities to provide
cost-effective and diversified sources of funds and as critical components of the Firms liquidity
and capital management. Long-term debt and trust-preferred capital debt securities decreased
slightly, predominantly due to maturities and redemptions, partially offset by new issuances. For
additional information on the Firms long-term debt activities, see the Liquidity Risk Management
discussion on pages 49-53 of this Form 10-Q.
Stockholders equity
The increase in total stockholders equity was largely the result of net income for the first three
months of 2009; net unrealized gains recorded within accumulated other comprehensive income related
to AFS securities; and net issuances under the Firms employee stock-based compensation plans.
These additions were partially offset by the declaration of cash dividends on preferred and common
stocks. The Firm lowered its quarterly dividend from $0.38 to $0.05
per common share, effective with
the dividend paid on April 30, 2009. This action will enable the Firm to retain an additional $5.0
billion in common equity per year. For a further discussion, see the Capital Management section
that follows, and Note 21 on page 141 of this Form 10-Q.
OFFBALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
JPMorgan Chase has several types of offbalance sheet arrangements, including arrangements with
special-purpose entities (SPEs) and the issuance of lending-related financial instruments (e.g.,
commitments and guarantees). For further discussion of contractual cash obligations, see
OffBalance Sheet Arrangements and Contractual Cash Obligations on page 68 of JPMorgan Chases
2008 Annual Report.
Special-purpose entities
The basic SPE structure involves a company selling assets to the SPE. The SPE funds the purchase of
those assets by issuing securities to investors in the form of commercial paper, short-term
asset-backed notes, medium-term notes and other forms of interest. SPEs are generally structured to
insulate investors from claims on the SPEs assets by creditors of other entities, including the
creditors of the seller of the assets.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing
financial assets, and by creating investment products for clients. The Firm is involved with SPEs
through multi-seller conduits and investor intermediation activities, and as a result of its loan
securitizations through qualifying special-purpose entities (QSPEs). For a detailed discussion of
all SPEs with which the Firm is involved, and the related accounting, see Note 1 on page 122, Note
16 on pages 168-176 and Note 17 on pages 177-186 of JPMorgan Chases 2008 Annual Report.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related
exposures, such as derivative transactions and lending-related commitments and guarantees.
43
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank, N.A., was downgraded below specific levels,
primarily P-1, A-1 and F1 for Moodys, Standard & Poors and Fitch, respectively. The amount
of these liquidity commitments was $53.8 billion and $61.0 billion at March 31, 2009, and December
31, 2008, respectively. Alternatively, if JPMorgan Chase Bank, N.A., were downgraded, the Firm
could be replaced by another liquidity provider in lieu of providing funding under the liquidity
commitments; or, in certain circumstances, the Firm could facilitate the sale or refinancing of the
assets in the SPE in order to provide liquidity. These commitments are included in other unfunded
commitments to extend credit and asset purchase agreements, as shown
in the Off-balance sheet
lending-related financial instruments and guarantees table on page 45 of this Form 10-Q.
Special-purpose entities revenue
The following table summarizes certain revenue information related to consolidated and
nonconsolidated VIEs and QSPEs with which the Firm has significant involvement. The revenue
reported in the table below predominantly represents contractual servicing and credit fee income
(i.e., income from acting as administrator, structurer or liquidity provider). It does not include
mark-to-market gains and losses from changes in the fair value of trading positions (such as
derivative transactions) entered into with VIEs. Those gains and losses are recorded in principal
transactions revenue.
|
|
|
|
|
|
|
|
|
Revenue from VIEs and QSPEs |
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
VIEs(a) |
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
120 |
|
|
$ |
57 |
|
Investor intermediation |
|
|
20 |
|
|
|
(3 |
) |
|
Total VIEs |
|
|
140 |
|
|
|
54 |
|
QSPEs(b) |
|
|
623 |
|
|
|
325 |
|
|
Total |
|
$ |
763 |
|
|
$ |
379 |
|
|
(a) |
|
Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs. |
|
(b) |
|
Excludes servicing revenue from loans sold to and securitized by third parties. The
prior-period amount has been revised to conform to the current-period presentation. |
Offbalance
sheet lending-related financial instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments) and guarantees to
meet customer financing needs. The contractual amount of these financial instruments represents the
maximum possible credit risk should the counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to
perform according to the terms of the contract. These commitments and guarantees historically
expire without being drawn, and even higher proportions expire without a default. As a result, the
total contractual amount of these instruments is not, in the Firms view, representative of its
actual future credit exposure or funding requirements. Further, certain commitments, primarily
related to consumer financings, are cancelable, upon notice, at the option of the Firm. For further
discussion of lending-related commitments and guarantees and the Firms accounting for them, see
Note 6 and Note 23 on pages 104-111 and 142-144, respectively, of
this Form 10-Q, and Credit Risk
Management on page 90 and Note 32 and Note 33 on pages 202-210 of JPMorgan Chases 2008 Annual
Report.
44
The following table presents the contractual amounts of off-balance sheet lending-related financial
instruments and guarantees for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
Dec. 31, 2008 |
|
|
|
|
|
|
Due after |
|
Due after |
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
3 years |
|
|
|
|
|
|
By remaining maturity |
|
Due in 1 |
|
through |
|
through |
|
Due after |
|
|
|
|
(in millions) |
|
year or less |
|
3 years |
|
5 years |
|
5 years |
|
Total |
|
Total |
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a) |
|
$ |
662,685 |
|
|
$ |
3,853 |
|
|
$ |
10,308 |
|
|
$ |
66,458 |
|
|
$ |
743,304 |
|
|
$ |
741,507 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend
credit(b)(c)(d)(e) |
|
|
94,730 |
|
|
|
72,677 |
|
|
|
46,817 |
|
|
|
8,005 |
|
|
|
222,229 |
|
|
|
225,863 |
|
Asset purchase agreements(f) |
|
|
17,407 |
|
|
|
25,188 |
|
|
|
3,301 |
|
|
|
1,464 |
|
|
|
47,360 |
|
|
|
53,729 |
|
Standby letters of credit and other financial
guarantees(c)(g)(h) |
|
|
24,597 |
|
|
|
35,648 |
|
|
|
26,372 |
|
|
|
2,676 |
|
|
|
89,293 |
|
|
|
95,352 |
|
Other letters of credit(c)(g) |
|
|
3,374 |
|
|
|
527 |
|
|
|
221 |
|
|
|
9 |
|
|
|
4,131 |
|
|
|
4,927 |
|
|
Total wholesale |
|
|
140,108 |
|
|
|
134,040 |
|
|
|
76,711 |
|
|
|
12,154 |
|
|
|
363,013 |
|
|
|
379,871 |
|
|
Total lending-related |
|
$ |
802,793 |
|
|
$ |
137,893 |
|
|
$ |
87,019 |
|
|
$ |
78,612 |
|
|
$ |
1,106,317 |
|
|
$ |
1,121,378 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(i) |
|
$ |
159,667 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
159,667 |
|
|
$ |
169,281 |
|
Residual value guarantees |
|
|
|
|
|
|
670 |
|
|
|
|
|
|
|
|
|
|
|
670 |
|
|
|
670 |
|
Derivatives qualifying as guarantees(j) |
|
|
11,282 |
|
|
|
7,240 |
|
|
|
34,229 |
|
|
|
32,881 |
|
|
|
85,632 |
|
|
|
83,835 |
|
|
|
|
|
(a) |
|
Includes credit card and home equity lending-related commitments of $642.5 billion and $79.4
billion, respectively, at March 31, 2009, and $623.7 billion and $95.7 billion, respectively,
at December 31, 2008. These amounts for credit card and home equity lending-related
commitments represent the total available credit for these products. The Firm has not
experienced, and does not anticipate, that all available lines of credit for these products
will be utilized at the same time. The Firm can reduce or cancel these lines of credit by
providing the borrower prior notice or, in some cases, without notice as permitted by law. |
|
(b) |
|
Includes unused advised lines of credit totaling $37.1 billion at March 31, 2009, and $36.3
billion at December 31, 2008, which are not legally binding. In regulatory filings with the
Federal Reserve, unused advised lines are not reportable. See the Glossary of Terms on page
149 of this Form 10-Q for the Firms definition of advised lines of credit. |
|
(c) |
|
Includes contractual amount of risk participations totaling $27.9 billion and $28.3 billion
at March 31, 2009, and December 31, 2008, respectively. |
|
(d) |
|
Excludes unfunded commitments to third-party private equity funds of $1.5 billion and $1.4
billion at March 31, 2009, and December 31, 2008, respectively. Also excludes unfunded
commitments for other equity investments of $877 million and $1.0 billion at March 31, 2009,
and December 31, 2008, respectively. |
|
(e) |
|
Includes commitments to investment- and noninvestment-grade counterparties in connection with
leveraged acquisitions of $3.2 billion and $3.6 billion at March 31, 2009, and December 31,
2008, respectively. |
|
(f) |
|
Largely represents asset purchase agreements to the Firms administered multi-seller,
asset-backed commercial paper conduits. The maturity is based on the weighted-average life of
the underlying assets in the SPE, which are based on the remaining life of each conduit
transactions committed liquidity facilities plus either the expected weighted-average life of
the assets should the committed liquidity facilities expire without renewal, or the expected
time to sell the underlying assets in the securitization market. It also includes $96 million
of asset purchase agreements to other third-party entities at both March 31, 2009, and
December 31, 2008. |
|
(g) |
|
JPMorgan Chase held collateral on standby letters of credit and other letters of credit of
$28.0 billion and $1.0 billion, respectively, at March 31, 2009, and $31.0 billion and $1.0
billion, respectively, at December 31, 2008. |
|
(h) |
|
Includes unissued standby letters-of-credit commitments of $37.2 billion and $39.5 billion at
March 31, 2009, and December 31, 2008, respectively. |
|
(i) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$160.5 billion and $170.1 billion at March 31, 2009, and December 31, 2008, respectively.
Securities lending collateral is comprised primarily of cash, securities issued by governments
that are members of the Organisation for Economic Co-operation and Development (OECD) and
U.S. government agencies. |
|
(j) |
|
Represents notional amounts of derivatives qualifying as guarantees. For further discussion
of guarantees, see Note 32 and Note 33 on pages 202-210 of JPMorgan Chases 2008 Annual
Report. |
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chases capital management highlights developments since
December 31, 2008, and should be read in conjunction with
Capital Management on pages 70-73 of
JPMorgan Chases 2008 Annual Report.
The Firms capital management framework is intended to ensure that there is capital sufficient to
support the underlying risks of the Firms business activities and to maintain well-capitalized
status under regulatory requirements. In addition, the Firm holds capital above these requirements
in amounts deemed appropriate to achieve the Firms regulatory and debt rating objectives. The
process of assigning equity to the lines of business is integrated into the Firms capital
framework and is overseen by the Asset-Liability Committee (ALCO).
45
Line of business equity
Equity for a line of business represents the amount the Firm believes the business would require if
it were operating independently, incorporating sufficient capital to address economic risk
measures, regulatory capital requirements and capital levels for similarly rated peers. Return on
common equity is measured and internal targets for expected returns are established as key measures
of a business segments performance.
In accordance with SFAS 142, the lines of business perform the required goodwill impairment
testing. For a further discussion of goodwill and impairment testing, see Critical Accounting
Estimates Used by the Firm and Note 18 on pages 110-111 and 186-187, respectively, of JPMorgan
Chases 2008 Annual Report, and Note 18 on pages 137-139 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
Line of business equity |
|
|
|
|
(in billions) |
|
March 31, 2009 |
|
December 31, 2008 |
|
Investment Bank |
|
$ |
33.0 |
|
|
$ |
33.0 |
|
Retail Financial Services |
|
|
25.0 |
|
|
|
25.0 |
|
Card Services |
|
|
15.0 |
|
|
|
15.0 |
|
Commercial Banking |
|
|
8.0 |
|
|
|
8.0 |
|
Treasury & Securities Services |
|
|
5.0 |
|
|
|
4.5 |
|
Asset Management |
|
|
7.0 |
|
|
|
7.0 |
|
Corporate/Private Equity |
|
|
45.2 |
|
|
|
42.4 |
|
|
Total common stockholders equity |
|
$ |
138.2 |
|
|
$ |
134.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of business equity |
|
Average for the period |
|
(in billions) |
|
1Q09 |
|
|
4Q08 |
|
|
1Q08 |
|
|
Investment Bank |
|
$ |
33.0 |
|
|
$ |
33.0 |
|
|
$ |
22.0 |
|
Retail Financial Services |
|
|
25.0 |
|
|
|
25.0 |
|
|
|
17.0 |
|
Card Services |
|
|
15.0 |
|
|
|
15.0 |
|
|
|
14.1 |
|
Commercial Banking |
|
|
8.0 |
|
|
|
8.0 |
|
|
|
7.0 |
|
Treasury & Securities Services |
|
|
5.0 |
|
|
|
4.5 |
|
|
|
3.5 |
|
Asset Management |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
5.0 |
|
Corporate/Private Equity |
|
|
43.5 |
|
|
|
46.3 |
|
|
|
56.0 |
|
|
Total common stockholders equity |
|
$ |
136.5 |
|
|
$ |
138.8 |
|
|
$ |
124.6 |
|
|
Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying the Firms business
activities, utilizing internal risk-assessment methodologies. The Firm assigns economic capital
primarily based on four risk factors: credit risk, market risk, operational risk and private equity
risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
|
(in billions) |
|
1Q09 |
|
|
4Q08 |
|
|
1Q08 |
|
|
Credit risk |
|
$ |
55.0 |
|
|
$ |
46.3 |
|
|
$ |
32.9 |
|
Market risk |
|
|
15.0 |
|
|
|
14.0 |
|
|
|
8.7 |
|
Operational risk |
|
|
9.1 |
|
|
|
7.5 |
|
|
|
5.6 |
|
Private equity risk |
|
|
4.6 |
|
|
|
5.6 |
|
|
|
4.3 |
|
|
Economic risk capital |
|
|
83.7 |
|
|
|
73.4 |
|
|
|
51.5 |
|
Goodwill |
|
|
48.1 |
|
|
|
46.8 |
|
|
|
45.7 |
|
Other(a) |
|
|
4.7 |
|
|
|
18.6 |
|
|
|
27.4 |
|
|
Total common stockholders equity |
|
$ |
136.5 |
|
|
$ |
138.8 |
|
|
$ |
124.6 |
|
|
|
|
|
(a) |
|
Reflects additional capital required, in the Firms view, to meet its regulatory and debt
rating objectives. |
Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards for the
consolidated financial holding company. The Office of the Comptroller of the Currency (OCC)
establishes similar capital requirements and standards for the Firms national banks, including
JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A.
The Federal Reserve granted the Firm, for a period of 18 months following the Bear Stearns merger,
relief up to a certain specified amount and subject to certain conditions from the Federal
Reserves risk-based capital and leverage requirements with respect to Bear Stearns risk-weighted
assets and other exposures acquired. The amount of such relief is subject to reduction by
one-sixth each quarter subsequent to the merger and expires on October 1, 2009. The OCC granted
JPMorgan Chase Bank, N.A. similar relief from its risk-based capital and leverage requirements.
46
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at March 31, 2009, and December 31, 2008. The table indicates that the Firm
and its significant banking subsidiaries were well-capitalized at each such date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
Tier 1 |
|
Total |
|
Tier 1 |
|
|
Tier 1 |
|
|
|
|
|
Risk-weighted |
|
average |
|
capital |
|
capital |
|
leverage |
(in millions, except ratios) |
|
capital |
|
Total capital |
|
assets(d) |
|
assets(e) |
|
ratio |
|
ratio |
|
ratio |
|
March 31, 2009(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
137,144 |
(c) |
|
$ |
183,109 |
|
|
$ |
1,207,490 |
|
|
$ |
1,923,186 |
|
|
|
11.4 |
% |
|
|
15.2 |
% |
|
|
7.1 |
% |
JPMorgan Chase Bank, N.A. |
|
|
100,437 |
|
|
|
143,038 |
|
|
|
1,113,618 |
|
|
|
1,651,574 |
|
|
|
9.0 |
|
|
|
12.8 |
|
|
|
6.1 |
|
Chase Bank USA, N.A. |
|
|
11,068 |
|
|
|
12,649 |
|
|
|
92,063 |
|
|
|
82,881 |
|
|
|
12.0 |
|
|
|
13.7 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
136,104 |
|
|
$ |
184,720 |
|
|
$ |
1,244,659 |
|
|
$ |
1,966,895 |
|
|
|
10.9 |
% |
|
|
14.8 |
% |
|
|
6.9 |
% |
JPMorgan Chase Bank, N.A. |
|
|
100,594 |
|
|
|
143,854 |
|
|
|
1,153,039 |
|
|
|
1,705,750 |
|
|
|
8.7 |
|
|
|
12.5 |
|
|
|
5.9 |
|
Chase Bank USA, N.A. |
|
|
11,190 |
|
|
|
12,901 |
|
|
|
101,472 |
|
|
|
87,286 |
|
|
|
11.0 |
|
|
|
12.7 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
% |
|
|
10.0 |
% |
|
|
5.0 |
%(f) |
Minimum capital ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
8.0 |
|
|
|
3.0 |
(g) |
|
|
|
|
(a) |
|
Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany
transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of
intercompany transactions. |
|
(b) |
|
As defined by the regulations issued by the Federal Reserve, OCC and FDIC. |
|
(c) |
|
The FASB has been deliberating certain amendments to both SFAS 140 and FIN 46R that may
impact the accounting for transactions that involve QSPEs and VIEs. Based on the provisions of
the current proposal and the Firms interpretation of the proposal, the Firm estimates that
the impact of consolidation of the Firms QSPEs (including the
Chase Issuance Trust; the Trust) and VIEs in accordance with those amendments
could be up to $145 billion; the resulting decrease in the Tier 1
capital ratio could be approximately 80 basis points. The ultimate
impact could differ significantly due to the FASBs continuing
deliberations on the final provisions of the rule amendments and
market conditions. Subsequent to March 31, 2009, the Firm expects to
take certain actions to the Trust, including (i) designating as
discount receivables a percentage of new card receivables
for inclusion in the Trust, which will have the effect of increasing
the yield in the Trust and (ii) increasing the level of subordination
required for the outstanding notes issued by the Trust. The impact of
these actions would be to affect the Firms Tier 1 capital
ratio; this effect is included in (and is not additive to) the 80
basis points negative impact to Tier 1 capital noted above. |
|
(d) |
|
Includes off-balance sheet risk-weighted assets of $337.7 billion, $315.5 billion and $19.6
billion, respectively, at March 31, 2009, and of $357.5 billion, $332.2 billion and $18.6
billion, respectively, at December 31, 2008, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. |
|
(e) |
|
Adjusted average assets, for purposes of calculating the leverage ratio, include total
average assets adjusted for unrealized gains/losses on securities, less deductions for
disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the
total adjusted carrying value of nonfinancial equity investments that are subject to
deductions from Tier 1 capital. |
|
(f) |
|
Represents requirements for banking subsidiaries pursuant to regulations issued under the
Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component
in the definition of a well-capitalized bank holding company. |
|
(g) |
|
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending
on factors specified in regulations issued by the Federal Reserve and OCC. |
|
|
|
Note: |
|
Rating agencies allow measures of capital to be adjusted upward for deferred tax
liabilities, which have resulted from both nontaxable business combinations and from
tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable
business combinations totaling $1.0 billion at March 31, 2009, and $1.1 billion at December
31, 2008. Additionally, the Firm had deferred tax liabilities resulting from tax-deductible
goodwill of $1.5 billion at March 31, 2009, and $1.6 billion at December 31, 2008. |
The Firms Tier 1 capital was $137.1 billion at March 31, 2009, compared with $136.1 billion at
December 31, 2008, an increase of $1.0 billion.
The following table presents the changes in Tier 1 capital for the quarter ended March 31, 2009.
|
|
|
|
|
Tier 1 capital, December 31, 2008 (in millions) |
|
$136,104 |
|
Net income |
|
|
2,141 |
|
Net issuance of common stock under employee stock-based compensation plans |
|
|
585 |
|
Dividends |
|
|
(667 |
) |
DVA on structured debt and derivative liabilities |
|
|
(652 |
) |
Goodwill and other nonqualifying intangibles (net of deferred tax liabilities) |
|
|
(275 |
) |
Other |
|
|
(92 |
) |
|
Increase in Tier 1 capital |
|
|
1,040 |
|
|
Tier 1 capital, March 31, 2009 |
|
$ |
137,144 |
|
|
Additional information regarding the Firms capital ratios and the federal regulatory capital
standards to which it is subject is presented in Note 30 on pages 200-201 of JPMorgan Chases 2008
Annual Report.
47
Capital Purchase Program
Pursuant to the Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S.
Treasury, for total proceeds of $25.0 billion, (i) 2.5 million shares of Series K Preferred Stock,
and (ii) a warrant to purchase up to 88,401,697 shares of the Firms common stock, at the exercise
price of $42.42 per share, subject to certain antidilution and other adjustments. For a discussion
of the Capital Purchase Program (CPP), including restrictions on the Firms ability to pay
dividends and repurchase or redeem common stock or any other equity securities of the Firm, see
Capital Purchase Program on page 72 of JPMorgan Chases 2008 Annual Report.
The Tier 1 capital for JPMorgan Chase included in the table above includes the impact of $25.0
billion of capital invested by the U.S. Treasury. JPMorgan Chase also measures its capital strength
excluding the impact of the capital received under the CPP. Excluding the capital invested by the
U.S. Treasury, JPMorgan Chases Tier 1 capital and Tier 1 capital ratio were $112.1 billion and
9.3%, and $111.1 billion and 8.9% at March 31, 2009, and December 31, 2008, respectively.
Basel II
The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the
Capital Accord of the Basel Committee on Banking Supervision. In 2004, the Basel Committee
published a revision to the Accord (Basel II), and in December 2007, U.S. banking regulators
published a final Basel II rule. The final U.S. rule will require JPMorgan Chase to implement Basel
II at the holding company level, as well as at certain key U.S. bank subsidiaries. The U.S.
implementation timetable consists of a qualification period, starting any time between April 1,
2008, and April 1, 2010, followed by a minimum transition period of three years. During the
transition period, Basel II risk-based capital requirements cannot fall below certain floors based
on current (Basel I) regulations. JPMorgan Chase expects to be in compliance with all relevant
Basel II rules within the established timelines. In addition, the Firm has adopted, and will
continue to adopt, based on various established timelines, Basel II rules in certain non-U.S.
jurisdictions, as required. Equity requirements calculated in accordance with Basel II are expected
to be more dynamic over time than equity requirements calculated under Basel I because the drivers
of such equity requirements are intended to be a more dynamic reflection of the Firms risk profile
and balance sheet composition. For additional information, see Basel II, on page 72 of JPMorgan
Chases 2008 Annual Report.
Broker-dealer regulatory capital
JPMorgan Chases principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities Inc.
(JPMorgan Securities) and J.P. Morgan Clearing Corp. JPMorgan Securities and J.P. Morgan Clearing
Corp. are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net Capital
Rule). JPMorgan Securities and J.P. Morgan Clearing Corp. are also registered as futures
commission merchants and subject to Rule 1.17 under the Commodity Futures Trading Commission
(CFTC).
JPMorgan Securities and J.P. Morgan Clearing Corp. have elected to compute their minimum net
capital requirements in accordance with the Alternative Net Capital Requirements of the Net
Capital Rule. At March 31, 2009, JPMorgan Securities net capital, as defined by the Net Capital
Rule, of $8.5 billion exceeded the minimum requirement by $7.9 billion. In addition to its net
capital requirements, JPMorgan Securities is required to hold tentative net capital in excess of
$1.0 billion and is also required to notify the Securities and Exchange Commission (SEC) in the
event that tentative net capital is less than $5.0 billion in accordance with the market and credit
risk standards of Appendix E of the Net Capital Rule. As of March 31, 2009, JPMorgan Securities had
tentative net capital in excess of the minimum and notification requirements.
J.P. Morgan Clearing Corp., a subsidiary of JPMorgan Securities, provides clearing and settlement
services. At March 31, 2009, J.P. Morgan Clearing Corp.s net capital, as defined by the Net
Capital Rule, of $4.9 billion exceeded the minimum requirement by $3.5 billion.
48
Dividends
On February 23, 2009, the Board of Directors reduced the Firms quarterly common stock dividend
from $0.38 to $0.05 per share, effective with the dividend paid on April 30, 2009, to shareholders
of record on April 6, 2009. The action will enable the Firm to retain an additional $5.0 billion in
common equity per year and was taken in order to help ensure that the Firms balance sheet retained
the capital strength necessary to weather a further decline in economic conditions. The Firm
expects to maintain the dividend at this level for the time being. The Firm intends to return to a
more normalized dividend payout ratio as soon as feasible after the environment has stabilized.
JPMorgan Chase declared quarterly cash dividends on its common stock in the amount of $0.38 per
share for each quarter of 2008.
The Firms ability to pay dividends is subject to restrictions. For information regarding such
restrictions, see Capital Purchase Program on page 72, and Note 24
and Note 29 on pages 193-194 and
199, respectively, of JPMorgan Chases 2008 Annual Report.
Issuance
The Firm did not issue any common or preferred stock during the first quarter of 2009.
Stock repurchases
The Firm
has a stock repurchase program pursuant to which it is authorized to repurchase shares of its stock. The Purchase Agreement concerning the issuance and sale of the Series K Preferred Stock
to the U.S. Treasury contains limitations on the Firms ability to repurchase its capital stock.
See Capital Purchase Program on page 72 of JPMorgan Chases 2008 Annual Report. During the three
months ended March 31, 2009 and 2008, the Firm did not repurchase any shares. As of March 31, 2009,
$6.2 billion of authorized repurchase capacity remained under the current $10.0 billion stock
repurchase program. For additional information regarding repurchases of the Firms equity
securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on
page 160 of this Form 10-Q.
The authorization to repurchase stock will be utilized at managements discretion, and the timing
of purchases and the exact number of shares purchased will depend on any limitations on the Firms
ability to repurchase its stock (such as the terms of the purchase agreement for the Series K
Preferred Stock), market conditions and alternative investment opportunities. The repurchase
program does not include specific price targets or timetables; may be executed through open market
purchases, privately negotiated transactions or utilizing Rule 10b5-1 programs; and may be
suspended at any time.
RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chases business activities. The Firms risk management
framework and governance structure are intended to provide comprehensive controls and ongoing
management of the major risks inherent in its business activities. In addition, this framework
recognizes the diversity among the Firms core businesses, which helps reduce the impact of
volatility in any particular area on the Firms operating results as a whole. There are eight major
risk types identified in the business activities of the Firm: liquidity risk, credit risk, market
risk, interest rate risk, operational risk, legal and reputation risk, fiduciary risk and private
equity risk.
For
further discussion of these risks, see pages 74-106 of JPMorgan Chases 2008 Annual Report and
the information below.
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chases liquidity management framework highlights developments
since December 31, 2008, and should be read in conjunction with
pages 76-80 of JPMorgan Chases
2008 Annual Report.
The ability to maintain a sufficient level of liquidity is crucial to financial services companies,
particularly their ability to maintain appropriate levels of liquidity during periods of adverse
conditions. The Firms funding strategy is to ensure liquidity and diversity of funding sources to
meet actual and contingent liabilities through both stable and adverse conditions.
JPMorgan Chase uses a centralized approach for liquidity risk management. Global funding is managed
by Corporate Treasury, using regional expertise as appropriate. Management believes that a
centralized framework maximizes liquidity access, minimizes funding costs and permits
identification and coordination of global liquidity risk.
Recent events
On February 23, 2009, JPMorgan Chase announced a reduction in the Firms quarterly common stock
dividend from $0.38 to $0.05 per share, effective with the dividend
paid on April 30, 2009, to
shareholders of record on April 6, 2009.
49
This action will enable the Firm to retain an additional $5.0 billion in common equity per year.
For additional information, see Capital Management Dividends,
on page 49 of this Form 10-Q.
On February 24, 2009, Standard & Poors lowered its ratings on the trust preferred capital debt and
noncumulative perpetual preferred securities of JPMorgan Chase & Co. from A- to BBB+. On April
2, 2009, Standard & Poors placed the subordinated credit card asset-backed securities of the Chase
Issuance Trust and the Chase Credit Card Master Trust on negative credit watch. On March 4, 2009,
Moodys revised its outlook of JPMorgan Chase & Co. from stable to negative. On April 6, 2009,
Moodys placed $6.4 billion of subordinated credit card asset-backed securities of the Chase
Issuance Trust and the Chase Credit Card Master Trust on review for possible downgrade. (For
additional information, see Credit Ratings on pages 52-53 of this Form 10-Q).
On March 30, 2009, the Federal Reserve announced that effective April 27, 2009, it will reduce the
amount it will lend against certain loans pledged as collateral to the Federal Reserve Banks for
discount window or payment system risk purposes, to reflect recent trends in the values of those
types of loans. JPMorgan Chase maintains sufficient levels of eligible collateral to pledge to the
Federal Reserve to replace the announced reduction in collateral value and, accordingly this change
by the Federal Reserve will not have a material impact on the Firms aggregate funding capacity.
Despite the market events that occurred during 2008, which continued to affect financial
institutions during the first quarter of 2009, as well as the aforementioned actions by the ratings
agencies, the Firm believes its liquidity position remained strong, based on its liquidity metrics
as of March 31, 2009. The Firm believes that its unsecured and secured funding capacity is
sufficient to meet its on- and off-balance sheet obligations. JPMorgan Chases long-dated funding,
including core liabilities, exceeded illiquid assets. In addition, during the first quarter of
2009, the Firm raised funds at the parent holding company in excess of its minimum threshold to
cover its obligations and those of its nonbank subsidiaries maturing over the next 12 months.
Funding
Sources of funds
The deposits held by the RFS, CB, TSS and AM lines of business are generally a consistent source of
funding for JPMorgan Chase Bank, N.A. As of March 31, 2009, total deposits for the Firm were $907.0
billion. During the latter half of 2008, the Firms deposits increased due in part to heightened
volatility and credit concerns in the markets. As a result of the mitigation of some of those
credit concerns in the first quarter of 2009, the Firms deposits, predominantly wholesale,
decreased by $102.3 billion, from $1.0 trillion at December 31, 2008.
A significant portion of the Firms deposits are retail deposits, which are less sensitive to
interest rate changes or market volatility and therefore are considered more stable than
market-based (i.e., wholesale) liability balances. In addition, through the normal course of
business, the Firm benefits from substantial liability balances originated by RFS, CB, TSS and AM.
These franchise-generated liability balances include deposits and deposits that are swept to
on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned
or sold under repurchase agreements), a significant portion of which are considered to be stable
and consistent sources of funding due to the nature of the businesses from which they are
generated. For further discussions of deposit and liability balance trends, see the discussion of
the results for the Firms business segments and the Balance
Sheet Analysis on pages 17-38 and
41-43, respectively, of this Form 10-Q.
Additional sources of funding include a variety of unsecured short- and long-term instruments,
including federal funds purchased, certificates of deposit, time deposits, bank notes, commercial
paper, long-term debt, trust-preferred capital debt securities, preferred stock and common stock.
Secured sources of funding include securities loaned or sold under repurchase agreements, asset
securitizations, borrowings from the Federal Reserve (including discount window borrowings, the
Primary Dealer Credit Facility and the Term Auction Facility) and borrowings from Federal Home Loan
Banks. However, the Firm does not view borrowings from the Federal Reserve as a primary means of
funding.
Issuance
During the first three months of 2009, the Firm issued approximately $13.8 billion of
FDIC-guaranteed long-term debt for general corporate purposes under the TLG Program. The Firm also
issued $4.0 billion of IB structured notes that are included within long-term debt. The issuances
of long-term debt were more than offset by $18.7 billion of such securities that matured or were
redeemed during the three months ended March 31, 2009, including $8.8 billion of IB structured
notes. During the first three months of 2009, the Firm securitized $3.9 billion of credit card
loans. For further discussion of loan securitizations, see Note 16 on
pages 124-130 of this Form
10-Q. In April 2009, the Firm issued
2.0 billion
($2.6 billion) of non-FDIC guaranteed debt in the Euro
market and $3.0 billion of non-FDIC guaranteed debt in the U.S.
market. JPMorgan Chase was one of the first U.S. financial
institutions to access the Euro and U.S. markets
without the benefit of the TLG Program, which became effective on October 14, 2008.
50
Replacement capital covenants
In connection with the issuance of certain of its trust-preferred capital debt securities and its
noncumulative perpetual preferred stock, the Firm has entered into Replacement Capital Covenants
(RCCs) granting certain rights to the holders of covered debt, as defined in the RCCs, that
prohibit the repayment, redemption or purchase of such trust-preferred capital debt securities and
noncumulative perpetual preferred stock except, with limited exceptions, to the extent that
JPMorgan Chase has received, in each such case, specified amounts of proceeds from the sale of
certain qualifying securities. Currently the Firms covered debt is its 5.875% Junior Subordinated
Deferrable Interest Debentures, Series O, due in 2035. For more information regarding these
covenants, reference is made to the respective RCCs entered into by the Firm in connection with the
issuances of such trust-preferred capital debt securities and noncumulative perpetual preferred
stock, which are filed with the U.S. Securities and Exchange Commission under cover of Forms 8-K.
Cash flows
Cash and due from banks was $26.7 billion and $46.9 billion at March 31, 2009 and 2008,
respectively. These balances decreased $214 million and increased $6.7 billion from December 31,
2008 and 2007, respectively. The following discussion highlights the major activities and
transactions that affected JPMorgan Chases cash flows during the first three months of 2009 and
2008.
Cash flows from operating activities
JPMorgan Chases operating assets and liabilities support the Firms capital markets and lending
activities, including the origination or purchase of loans initially designated as held-for-sale.
The operating assets and liabilities can vary significantly in the normal course of business due to
the amount and timing of cash flows, which are affected by client-driven activities, market
conditions and trading strategies. Management believes cash flows from operations, available cash
balances and the Firms ability to generate cash through short- and long-term borrowings are
sufficient to fund the Firms operating liquidity needs.
For the three months ended March 31, 2009, net cash provided by operating activities was $50.8
billion, largely due to a decline in trading activity reflecting continued balance sheet management
during the period as well as the effect of the challenging capital markets environment. In
addition, net cash generated from operating activities was higher than net income, largely as a
result of noncash adjustments for operating items such as the provision for credit losses,
stock-based compensation, and depreciation and amortization. Proceeds from sales, securitizations
and paydowns of loans originated or purchased with an initial intent to sell were slightly higher
than cash used to acquire such loans, but the cash flows from these loan activities remain at a
significantly reduced level as a result of the continued volatility and stress in the markets.
For the three months ended March 31, 2008, net cash used in operating activities was $2.4 billion,
which supported growth in the Firms capital markets and certain lending activities during the
period, and loans originated or purchased with an initial intent to sell; however, these activities
were at a low level in the first quarter of 2008 as a result of the turmoil in the markets since
the last half of 2007.
Cash flows from investing activities
The Firms investing activities predominantly include originating loans to be held for investment,
other receivables, the AFS securities portfolio and other short-term investment vehicles. For the
three months ended March 31, 2009, net cash of $2.8 billion was provided by investing activities,
primarily from a decrease in deposits with banks, as interbank lending declined relative to the
elevated level at the end of 2008; a decrease in securities purchased under resale agreements,
reflecting a lower volume of excess cash available for short-term investments; a net decrease in
the loan portfolio, reflecting declines across all wholesale businesses, the seasonal decline in
credit card receivables, and credit card securitization activities; and net maturities of
asset-backed commercial paper purchased from money market mutual funds in connection with a special
Federal Reserve Bank of Boston (FRBB) lending facility. Largely offsetting these cash proceeds
were net purchases of AFS securities to manage the Firms exposure to a declining interest rate
environment.
For the three months ended March 31, 2008, net cash of $68.5 billion was used in investing
activities, primarily for purchases of AFS securities to manage the Firms exposure to interest
rates; net additions to the retained wholesale and consumer (primarily home equity) loans
portfolios; and to increase deposits with banks as the result of the availability of excess cash
for short-term investment opportunities. Partially offsetting these uses of cash were cash proceeds
received from sales and maturities of AFS securities; credit card securitization activities; the
seasonal decline in credit card receivables; and cash received from the sale of an investment, net
of acquisitions.
51
Cash flows from financing activities
The Firms financing activities primarily reflect cash flows related to customer deposits, issuance
of long-term debt and trust-preferred capital debt securities, and issuance of preferred and common
stock. In the first three months of 2009, net cash used in financing activities was $53.4 billion
reflecting a decline in wholesale deposits in TSS, compared with the elevated level during the
latter part of 2008 due to the heightened volatility and credit concerns in the markets during
the first quarter of 2009 some of the credit concerns were mitigated. In addition, there was a
decline in other borrowings due to net repayments of advances from Federal Home Loan Banks and
nonrecourse advances from the FRBB to fund the purchase of asset-backed commercial paper from money
market mutual funds; net repayments of long-term debt as proceeds from new issuances (including
$13.8 billion of FDIC-guaranteed debt issued under the TLG Program and $4.0 billion of IB
structured notes) were more than offset by repayments; and the payment of cash dividends. Cash
proceeds resulted from an increase in securities loaned or sold under repurchase agreements, partly
attributable to favorable pricing and to finance the Firms increased AFS securities portfolio.
There were no open-market stock repurchases during the first three months of 2009.
In the first three months of 2008, net cash provided by financing activities was $77.3 billion, due
to increases in wholesale interest- and noninterest-bearing deposits, largely in TSS, and in
consumer deposits, in particular interest-bearing deposits in RFS; increases in federal funds
purchased and securities sold under repurchase agreements, in connection with higher short-term
requirements to fulfill clients demand for liquidity and fund the AFS securities portfolio; and
net new issuance of long-term debt. Cash was used for the payment of cash dividends, but there were
no open-market stock repurchases.
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these
ratings could have an adverse effect on the Firms access to liquidity sources, increase the cost
of funds, trigger additional collateral or funding requirements, and decrease the number of
investors and counterparties willing to lend to the Firm. Additionally, the Firms funding
requirements for VIEs and other third-party commitments may be adversely affected. For additional
information on the impact of a credit-rating downgrade on the funding requirements for VIEs, and on
derivatives and collateral agreements, see Special-purpose entities
on pages 43-44 and Ratings
profile of derivative receivables marked to market (MTM)
on page 60 and Note 6 on pages 104-111
of this Form 10-Q.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream,
strong capital ratios, strong credit quality and risk management controls, diverse funding sources,
and disciplined liquidity monitoring procedures.
The credit ratings of the parent holding company and each of the Firms significant banking
subsidiaries as of March 31, 2009, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
Senior long-term debt |
|
|
Moodys |
|
S&P |
|
Fitch |
|
Moodys |
|
S&P |
|
Fitch |
|
JPMorgan Chase & Co. |
|
P |
-1 |
|
|
|
A-1 |
|
|
|
F1+ |
|
|
Aa3 |
|
|
A+ |
|
|
AA- |
JPMorgan Chase Bank, N.A. |
|
P |
-1 |
|
|
|
A-1 |
+ |
|
|
F1+ |
|
|
Aa1 |
|
AA- |
|
AA- |
Chase Bank USA, N.A. |
|
P |
-1 |
|
|
|
A-1 |
+ |
|
|
F1+ |
|
|
Aa1 |
|
AA- |
|
AA- |
|
On March 4, 2009, Moodys revised the outlook on the Firm to negative from stable. This action was
the result of Moodys view that the Firms capital generation will be adversely affected by higher
credit costs due to the global recession.
On February 24, 2009, S&P lowered the ratings on the trust preferred debt capital securities and
other hybrid securities of 45 U.S. financial institutions, including those of JPMorgan Chase & Co.
The Firms trust preferred capital debt and non cumulative perpetual preferred securities ratings
were lowered from A- to BBB+. This action was the result of S&Ps general view that there is an
increased likelihood that issuers may suspend interest and dividend payments in the current
environment.
52
On April 2, 2009, S&P placed $2.8 billion of subordinated and certain mezzanine credit card
asset-backed securities of the Chase Issuance Trust and the Chase Credit Card Master Trust on
negative credit watch. The ratings on $72 billion of currently outstanding senior and mezzanine
securities were not affected. The action was the result of S&Ps view that the ratings on certain
subordinate securities will come under stress as trust losses continue to accelerate in the current
economic environment. On April 6, 2009, Moodys placed $6.4 billion of subordinated credit card
asset-backed securities of the Chase Issuance Trust and the Chase Credit Card Master Trust on
review for possible downgrade. The action was the result of Moodys view that several of the
trusts collateral performance measures had deteriorated and would continue to deteriorate due to a
worsening economic environment. The ratings on the Firms asset-backed securities programs are
independent from the Firms corporate ratings.
Ratings from S&P and Fitch on JPMorgan Chase & Co. and its principal bank subsidiaries remained
unchanged from December 31, 2008. At March 31, 2009, S&Ps current outlook remained negative, while Fitchs outlook
remained stable. The recent rating actions by Moodys did not have a material impact on the cost or
availability of the Firms funding. If the Firms senior long-term debt ratings were downgraded by
one additional notch, the Firm believes the incremental cost of funds or loss of funding would be
manageable, within the context of current market conditions and the Firms liquidity resources.
JPMorgan Chases unsecured debt other than, in certain cases, IB structured notes does not contain
requirements that would call for an acceleration of payments, maturities or changes in the
structure of the existing debt, nor contain collateral provisions or the creation of an additional
financial obligation, based on unfavorable changes in the Firms credit ratings, financial ratios,
earnings, cash flows or stock price. To the extent any IB structured notes do contain such
provisions, the Firm believes that, in the event of an acceleration of payments or maturities or
provision of collateral, the securities used by the Firm to risk-manage such structured notes,
together with other liquidity resources, are expected to generate funds sufficient to satisfy the
Firms obligations.
CREDIT RISK MANAGEMENT
The following pages include a discussion of JPMorgan Chases credit portfolio as of March 31, 2009,
highlighting developments since December 31, 2008. This section should be read in conjunction with
pages 80-99 and pages 107-108 and Notes 14, 15, 33, and 34 of JPMorgan Chases 2008 Annual Report.
The Firm assesses its consumer credit exposure on a managed basis, which includes credit card
receivables that have been securitized. For a reconciliation of the provision for credit losses on
a reported basis to managed basis, see pages 14-15 of this Form 10-Q.
CREDIT PORTFOLIO
The following table presents JPMorgan Chases credit portfolio as of March 31, 2009, and December
31, 2008. Total credit exposure at March 31, 2009, decreased by $85.1 billion from December 31,
2008, reflecting decreases of $69.6 billion in the wholesale portfolio and $15.5 billion in the
consumer portfolio. During the first quarter of 2009, loans decreased by $37.0 billion, derivative
receivables decreased by $31.4 billion, lending-related commitments decreased by $15.1 billion and
customer receivables decreased by $1.6 billion.
While overall portfolio exposure declined, the Firm provided over $150 billion in new loans and
lines of credit to retail and wholesale clients in the first quarter of 2009, including individual
consumers, small businesses, large corporations, not-for-profit organizations, states and
municipalities, and other financial institutions.
53
In the table below, reported loans include loans accounted for at fair value and loans
held-for-sale (which are carried at the lower of cost or fair value with changes in value recorded
in noninterest revenue); however, the held-for-sale loans and loans accounted for at fair value are
excluded from the average loan balances used for the net charge-off rate calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
Nonperforming |
|
90 days past due |
|
|
exposure |
|
assets(h)(i) |
|
and still accruing |
|
|
March 31, |
|
Dec. 31, |
|
March 31, |
|
Dec. 31, |
|
March 31, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
$ |
692,828 |
|
|
$ |
728,915 |
|
|
$ |
11,344 |
|
|
$ |
8,921 |
|
|
$ |
3,929 |
|
|
$ |
3,275 |
|
Loans held-for-sale |
|
|
9,441 |
|
|
|
8,287 |
|
|
|
20 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
5,974 |
|
|
|
7,696 |
|
|
|
37 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported(a) |
|
$ |
708,243 |
|
|
$ |
744,898 |
|
|
$ |
11,401 |
|
|
$ |
8,953 |
|
|
$ |
3,929 |
|
|
$ |
3,275 |
|
Loans securitized(b) |
|
|
85,220 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
2,362 |
|
|
|
1,802 |
|
|
Total managed loans |
|
|
793,463 |
|
|
|
830,469 |
|
|
|
11,401 |
|
|
|
8,953 |
|
|
|
6,291 |
|
|
|
5,077 |
|
Derivative receivables |
|
|
131,247 |
|
|
|
162,626 |
|
|
|
1,010 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers(c) |
|
|
14,504 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed credit-related
assets |
|
|
939,214 |
|
|
|
1,009,236 |
|
|
|
12,411 |
|
|
|
10,032 |
|
|
|
6,291 |
|
|
|
5,077 |
|
Lending-related commitments(d)(e) |
|
|
1,106,317 |
|
|
|
1,121,378 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Assets acquired in loan satisfactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
NA |
|
|
NA |
|
|
|
2,098 |
|
|
|
2,533 |
|
|
NA |
|
|
NA |
|
Other |
|
NA |
|
|
NA |
|
|
|
145 |
|
|
|
149 |
|
|
NA |
|
|
NA |
|
|
Total assets acquired in loan
satisfactions |
|
NA |
|
|
NA |
|
|
|
2,243 |
|
|
|
2,682 |
|
|
NA |
|
|
NA |
|
|
Total credit portfolio |
|
$ |
2,045,531 |
|
|
$ |
2,130,614 |
|
|
$ |
14,654 |
|
|
$ |
12,714 |
|
|
$ |
6,291 |
|
|
$ |
5,077 |
|
|
Net credit derivative hedges notional(f) |
|
$ |
(74,768 |
) |
|
$ |
(91,451 |
) |
|
$ |
(17 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
|
Collateral held against derivatives(g) |
|
|
(15,488 |
) |
|
|
(19,816 |
) |
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
Net charge-offs |
|
charge-off rate |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
4,396 |
|
|
$ |
1,906 |
|
|
|
2.51 |
% |
|
|
1.53 |
% |
Loans securitized(b) |
|
|
1,464 |
|
|
|
681 |
|
|
|
6.93 |
|
|
|
3.70 |
|
|
Total managed loans |
|
$ |
5,860 |
|
|
$ |
2,587 |
|
|
|
2.98 |
% |
|
|
1.81 |
% |
|
|
|
|
(a) |
|
Loans are presented net of unearned income and net deferred loan fees of $796 million and
$694 million at March 31, 2009, and December 31, 2008, respectively. For additional
information, see Note 14 on pages 120-123 of this Form 10-Q. |
|
(b) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Card Services on pages 28-31 of this Form 10-Q. |
|
(c) |
|
Primarily represents margin loans to prime and retail brokerage customers, which are included
in accrued interest and accounts receivable on the Consolidated Balance Sheets. |
|
(d) |
|
Included credit card and home equity lending-related commitments of $642.5 billion and $79.4
billion, respectively, at March 31, 2009; and $623.7 billion and $95.7 billion, respectively,
at December 31, 2008. For additional information, see pages
44-45 of this Form
10-Q. |
|
(e) |
|
Includes unused advised lines of credit totaling $37.1 billion at March 31, 2009, and $36.3
billion at December 31, 2008, which are not legally binding. In regulatory filings with the
Federal Reserve, unused advised lines are not reportable. See the Glossary of Terms on page
149 of this Form 10-Q for the Firms definition of advised lines of credit. |
|
(f) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage both performing and nonperforming credit
exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For
additional information, see pages 60-61 of this Form 10-Q. |
|
(g) |
|
Represents other liquid securities-collateral held by the Firm as of March 31, 2009, and
December 31, 2008, respectively. |
|
(h) |
|
Excludes nonperforming loans and assets related to: (1) loans eligible for repurchase, as
well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of
$4.6 billion and $3.3 billion at March 31, 2009, and December 31, 2008, respectively; and (2)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $433 million and $437
million at March 31, 2009, and December 31, 2008, respectively. These amounts for GNMA and
education loans are excluded, as reimbursement is proceeding normally. |
|
(i) |
|
Excludes home lending purchased credit-impaired loans accounted for under SOP 03-3 that were
acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool
basis, and the pools are considered to be performing under SOP 03-3. Also excludes loans
held-for-sale and loans at fair value. |
54
WHOLESALE CREDIT PORTFOLIO
As of March 31, 2009, wholesale exposure (IB, CB, TSS and AM) decreased by $69.6 billion from
December 31, 2008, due to decreases of $31.4 billion of derivative receivables, $19.8 billion of
loans, $16.8 billion of lending-related commitments and $1.6 billion of receivables from customers.
The decrease in derivative receivables was primarily related to the effect of the strengthening of
the U.S. dollar on foreign exchange, credit and interest rate derivative receivables. Loans and
lending-related commitments decreased across all wholesale lines of business, as lower customer
demand continued to affect the level of lending activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
Nonperforming |
|
90 days past due |
|
|
exposure |
|
assets(f) |
|
and still accruing |
|
|
March 31, |
|
Dec. 31, |
|
March 31, |
|
Dec. 31, |
|
March 31, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans retained(a) |
|
$ |
230,534 |
|
|
$ |
248,089 |
|
|
$ |
3,605 |
|
|
$ |
2,350 |
|
|
$ |
179 |
|
|
$ |
163 |
|
Loans held-for-sale |
|
|
5,776 |
|
|
|
6,259 |
|
|
|
20 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
5,974 |
|
|
|
7,696 |
|
|
|
37 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
242,284 |
|
|
$ |
262,044 |
|
|
$ |
3,662 |
|
|
$ |
2,382 |
|
|
$ |
179 |
|
|
$ |
163 |
|
Derivative receivables |
|
|
131,247 |
|
|
|
162,626 |
|
|
|
1,010 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers(b) |
|
|
14,504 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale credit-related assets |
|
|
388,035 |
|
|
|
440,811 |
|
|
|
4,672 |
|
|
|
3,461 |
|
|
|
179 |
|
|
|
163 |
|
|
Lending-related commitments(c) |
|
|
363,013 |
|
|
|
379,871 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total wholesale credit exposure |
|
$ |
751,048 |
|
|
$ |
820,682 |
|
|
$ |
4,672 |
|
|
$ |
3,461 |
|
|
$ |
179 |
|
|
$ |
163 |
|
|
Credit derivative hedges notional(d) |
|
$ |
(74,768 |
) |
|
$ |
(91,451 |
) |
|
$ |
(17 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
Collateral held against derivatives(e) |
|
|
(15,488 |
) |
|
|
(19,816 |
) |
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
|
|
(a) |
|
Includes $210 million and $224 million of purchased credit-impaired loans at March 31, 2009,
and December 31, 2008, respectively, which are accounted for in accordance with SOP 03-3. They
are considered nonperforming loans, because the timing and amount of expected future cash
flows is not reasonably estimable. For additional information, see
Note 14 on pages 120-123 of
this Form 10-Q. |
|
(b) |
|
Represents margin loans to prime and retail brokerage customers, which are included in
accrued interest and accounts receivable on the Consolidated Balance Sheets. |
|
(c) |
|
Includes unused advised lines of credit totaling $37.1 billion at March 31, 2009, and $36.3
billion at December 31, 2008, which are not legally binding. In regulatory filings with the
Federal Reserve, unused advised lines are not reportable. |
|
(d) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage both performing and nonperforming credit
exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For
additional information, see pages 60-61 of this Form 10-Q. |
|
(e) |
|
Represents other liquid securities collateral held by the Firm as of March 31, 2009, and
December 31, 2008, respectively. |
|
(f) |
|
Excludes assets acquired in loan satisfactions. See the wholesale nonperforming assets by
line of business segment table for additional information. |
The following table presents net charge-offs for the three months ended March 31, 2009 and 2008.
The amounts in the table below do not include gains from the sales of nonperforming loans.
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
Wholesale |
|
Three months ended March 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Loans reported |
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
191 |
|
|
$ |
92 |
|
Average annual net charge-off rate(a) |
|
|
0.32 |
% |
|
|
0.18 |
% |
|
|
|
|
(a) |
|
Excludes average wholesale loans held-for-sale and loans at fair value of $13.3 billion and
$20.1 billion for the quarters ended March 31, 2009 and 2008, respectively. |
55
The following table presents the change in the nonperforming loan portfolio for the three months
ended March 31, 2009 and 2008.
Nonperforming loan activity
|
|
|
|
|
|
|
|
|
Wholesale |
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Beginning balance at January 1 |
|
$ |
2,382 |
|
|
$ |
514 |
|
Additions |
|
|
1,652 |
|
|
|
590 |
|
|
Reductions: |
|
|
|
|
|
|
|
|
Paydowns and other |
|
|
165 |
|
|
|
177 |
|
Gross charge-offs |
|
|
206 |
|
|
|
130 |
|
Returned to performing |
|
|
1 |
|
|
|
9 |
|
Sales |
|
|
|
|
|
|
7 |
|
|
Total reductions |
|
|
372 |
|
|
|
323 |
|
|
Net additions (reductions) |
|
|
1,280 |
|
|
|
267 |
|
|
Ending balance |
|
$ |
3,662 |
|
|
$ |
781 |
|
|
The following table presents wholesale nonperforming assets by business segment as of March 31,
2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
Nonperforming |
|
Assets acquired in loan satisfactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
(in millions) |
|
Loans |
|
Derivatives |
|
Real estate owned |
|
Other |
|
assets |
|
Investment Bank |
|
$ |
1,795 |
|
|
$ |
1,010 |
(b) |
|
$ |
236 |
|
|
$ |
|
|
|
$ |
3,041 |
|
Commercial Banking |
|
|
1,531 |
|
|
|
|
|
|
|
108 |
|
|
|
12 |
|
|
|
1,651 |
|
Treasury & Securities Services |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
Asset Management |
|
|
301 |
|
|
|
|
|
|
|
2 |
|
|
|
16 |
|
|
|
319 |
|
Corporate/Private Equity |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
Total |
|
$ |
3,662 |
(a) |
|
$ |
1,010 |
|
|
$ |
346 |
|
|
$ |
28 |
|
|
$ |
5,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
Nonperforming |
|
Assets acquired in loan satisfactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
(in millions) |
|
Loans |
|
Derivatives |
|
Real estate owned |
|
Other |
|
assets |
|
Investment Bank |
|
$ |
1,175 |
|
|
$ |
1,079 |
(b) |
|
$ |
247 |
|
|
$ |
|
|
|
$ |
2,501 |
|
Commercial Banking |
|
|
1,026 |
|
|
|
|
|
|
|
102 |
|
|
|
14 |
|
|
|
1,142 |
|
Treasury & Securities Services |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
Asset Management |
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
172 |
|
Corporate/Private Equity |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Total |
|
$ |
2,382 |
(a) |
|
$ |
1,079 |
|
|
$ |
349 |
|
|
$ |
39 |
|
|
$ |
3,849 |
|
|
|
|
|
(a) |
|
The Firm holds allowance for loan losses of $1.2 billion and $712 million related to these
nonperforming loans resulting in allowance coverage ratios of 33% and 30% at March 31, 2009,
and December 31, 2008, respectively. Wholesale nonperforming loans represent 1.51% and 0.91%
of total wholesale loans at March 31, 2009, and December 31, 2008. |
|
(b) |
|
Nonperforming derivatives represent less than 1% of the total derivative receivables net of
cash collateral at both March 31, 2009, and December 31, 2008. |
56
The following table presents summaries of the maturity and ratings profiles of the wholesale
portfolio as of March 31, 2009, and December 31, 2008. The ratings scale is based on the Firms
internal risk ratings, which generally correspond to the ratings as defined by S&P and Moodys.
Wholesale credit exposure maturity and ratings profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity profile(d) |
|
Ratings profile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment- |
|
Noninvestment- |
|
|
|
|
|
|
|
|
|
|
|
|
Due after 1 |
|
|
|
|
|
|
|
|
|
grade (IG) |
|
grade |
|
|
|
|
|
|
At March 31, 2009 |
|
Due in 1 |
|
year through |
|
Due after |
|
|
|
|
|
AAA/Aaa to |
|
BB+/Ba1 |
|
|
|
|
|
Total % |
(in billions, except ratios) |
|
year or less |
|
5 years |
|
5 years |
|
Total |
|
BBB-/Baa3 |
|
& below |
|
Total |
|
of IG |
|
|
|
Loans |
|
|
31 |
% |
|
|
43 |
% |
|
|
26 |
% |
|
|
100 |
% |
|
$ |
141 |
|
|
$ |
90 |
|
|
$ |
231 |
|
|
|
61 |
% |
Derivative receivables |
|
|
29 |
|
|
|
35 |
|
|
|
36 |
|
|
|
100 |
|
|
|
106 |
|
|
|
25 |
|
|
|
131 |
|
|
|
81 |
|
Lending-related commitments |
|
|
39 |
|
|
|
58 |
|
|
|
3 |
|
|
|
100 |
|
|
|
300 |
|
|
|
63 |
|
|
|
363 |
|
|
|
83 |
|
|
|
|
Total excluding loans
held-for-sale and
loans at fair value |
|
|
34 |
% |
|
|
50 |
% |
|
|
16 |
% |
|
|
100 |
% |
|
$ |
547 |
|
|
$ |
178 |
|
|
$ |
725 |
|
|
|
75 |
% |
Loans held-for-sale and
loans at fair value(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
Receivables from
customers(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
Total exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
751 |
|
|
|
|
|
|
|
|
Net credit derivative
hedges notional(c) |
|
|
38 |
% |
|
|
55 |
% |
|
|
7 |
% |
|
|
100 |
% |
|
$ |
(66 |
) |
|
$ |
(9 |
) |
|
$ |
(75 |
) |
|
|
88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity profile(d) |
|
Ratings profile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment- |
|
Noninvestment- |
|
|
|
|
|
|
|
|
|
|
|
|
Due after 1 |
|
|
|
|
|
|
|
|
|
grade (IG) |
|
grade |
|
|
|
|
|
|
At December 31, 2008 |
|
Due in 1 |
|
year through |
|
Due after |
|
|
|
|
|
AAA/Aaa to |
|
BB+/Ba1 |
|
|
|
|
|
Total % |
(in billions, except ratios) |
|
year or less |
|
5 years |
|
5 years |
|
Total |
|
BBB-/Baa3 |
|
& below |
|
Total |
|
of IG |
|
|
|
Loans |
|
|
32 |
% |
|
|
43 |
% |
|
|
25 |
% |
|
|
100 |
% |
|
$ |
161 |
|
|
$ |
87 |
|
|
$ |
248 |
|
|
|
65 |
% |
Derivative receivables |
|
|
31 |
|
|
|
36 |
|
|
|
33 |
|
|
|
100 |
|
|
|
127 |
|
|
|
36 |
|
|
|
163 |
|
|
|
78 |
|
Lending-related
commitments |
|
|
37 |
|
|
|
59 |
|
|
|
4 |
|
|
|
100 |
|
|
|
317 |
|
|
|
63 |
|
|
|
380 |
|
|
|
83 |
|
|
|
|
Total excluding loans
held-for-sale and
loans at fair value |
|
|
34 |
% |
|
|
50 |
% |
|
|
16 |
% |
|
|
100 |
% |
|
$ |
605 |
|
|
$ |
186 |
|
|
$ |
791 |
|
|
|
77 |
% |
Loans held-for-sale and
loans at fair value(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
Receivables from
customers(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
Total exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
821 |
|
|
|
|
|
|
|
|
Net credit derivative
hedges notional(c) |
|
|
47 |
% |
|
|
47 |
% |
|
|
6 |
% |
|
|
100 |
% |
|
$ |
(82 |
) |
|
$ |
(9 |
) |
|
$ |
(91 |
) |
|
|
90 |
% |
|
|
|
|
|
|
(a) |
|
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans
transferred from the retained portfolio. |
|
(b) |
|
Primarily represents margin loans to prime and retail brokerage customers, which are included
in accrued interest and accounts receivable on the Consolidated Balance Sheets. |
|
(c) |
|
Represents the net notional amounts of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. |
|
(d) |
|
The maturity profile of loans and lending-related commitments is based on the remaining
contractual maturity. The maturity profile of derivative receivables is based on the maturity
profile of average exposure. See page 87 of JPMorgan Chases 2008 Annual Report for further
discussion of average exposure. |
57
Wholesale credit exposure selected industry concentration
The Firm focuses on the management and diversification of its industry concentrations, with
particular attention paid to industries with actual or potential credit concerns. At March 31,
2009, the top 15 industries were the same as those at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
Credit |
|
% of |
|
Credit |
|
% of |
(in millions, except ratios) |
|
exposure(d) |
|
Portfolio |
|
exposure(d) |
|
Portfolio |
|
Exposure by industry(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
$ |
81,339 |
|
|
|
11 |
% |
|
$ |
83,799 |
|
|
|
11 |
% |
Banks and finance companies |
|
|
62,934 |
|
|
|
9 |
|
|
|
75,577 |
|
|
|
10 |
|
Healthcare |
|
|
38,021 |
|
|
|
5 |
|
|
|
38,032 |
|
|
|
5 |
|
State and municipal governments |
|
|
34,576 |
|
|
|
5 |
|
|
|
35,954 |
|
|
|
5 |
|
Utilities |
|
|
34,198 |
|
|
|
5 |
|
|
|
34,246 |
|
|
|
4 |
|
Asset managers |
|
|
33,341 |
|
|
|
5 |
|
|
|
49,256 |
|
|
|
6 |
|
Retail and consumer services |
|
|
31,763 |
|
|
|
4 |
|
|
|
32,714 |
|
|
|
4 |
|
Consumer products |
|
|
28,034 |
|
|
|
4 |
|
|
|
29,766 |
|
|
|
4 |
|
Securities firms and exchanges |
|
|
26,906 |
|
|
|
4 |
|
|
|
25,590 |
|
|
|
3 |
|
Oil and gas |
|
|
23,934 |
|
|
|
3 |
|
|
|
24,746 |
|
|
|
3 |
|
Insurance |
|
|
16,552 |
|
|
|
2 |
|
|
|
17,744 |
|
|
|
2 |
|
Media |
|
|
16,059 |
|
|
|
2 |
|
|
|
17,254 |
|
|
|
2 |
|
Metals/mining |
|
|
14,937 |
|
|
|
2 |
|
|
|
14,980 |
|
|
|
2 |
|
Technology |
|
|
14,825 |
|
|
|
2 |
|
|
|
17,555 |
|
|
|
2 |
|
Central government |
|
|
14,032 |
|
|
|
2 |
|
|
|
15,259 |
|
|
|
2 |
|
All other(b) |
|
|
253,343 |
|
|
|
35 |
|
|
|
278,114 |
|
|
|
35 |
|
|
Subtotal |
|
$ |
724,794 |
|
|
|
100 |
% |
|
$ |
790,586 |
|
|
|
100 |
% |
|
Loans held-for-sale and loans at fair value(c) |
|
|
11,750 |
|
|
|
|
|
|
|
13,955 |
|
|
|
|
|
Receivables from customers |
|
|
14,504 |
|
|
|
|
|
|
|
16,141 |
|
|
|
|
|
|
Total |
|
$ |
751,048 |
|
|
|
|
|
|
$ |
820,682 |
|
|
|
|
|
|
|
|
|
(a) |
|
Rankings are based on exposure at March 31, 2009. The industries presented in the December
31, 2008, table reflect the same rankings of the exposure at March 31, 2009. |
|
(b) |
|
For more information on exposures to SPEs included in all
other, see Note 17 on pages 131-136
of this Form 10-Q. |
|
(c) |
|
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans
transferred from the retained portfolio. |
|
(d) |
|
Credit exposure is net of risk participations and excludes the benefit of credit derivative
hedges and collateral held against derivative receivables or loans. |
58
Wholesale criticized exposure
Exposures deemed criticized generally represent a ratings profile similar to a rating of
CCC+/Caa1 and lower, as defined by S&P and Moodys. The total criticized component of the
portfolio, excluding loans held-for-sale and loans at fair value, increased to $29.9 billion at
March 31, 2009, from $26.0 billion at year-end 2008. The increase was primarily related to
downgrades within the portfolio, mainly in IB.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
Credit |
|
% of |
|
Credit |
|
% of |
(in millions, except ratios) |
|
exposure |
|
portfolio |
|
exposure |
|
portfolio |
|
Exposure by industry(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
$ |
10,004 |
|
|
|
33 |
% |
|
$ |
7,737 |
|
|
|
30 |
% |
Banks and finance companies |
|
|
2,760 |
|
|
|
9 |
|
|
|
2,849 |
|
|
|
11 |
|
Media |
|
|
2,103 |
|
|
|
7 |
|
|
|
1,674 |
|
|
|
6 |
|
Automotive |
|
|
2,011 |
|
|
|
7 |
|
|
|
1,775 |
|
|
|
7 |
|
Building materials/construction |
|
|
1,724 |
|
|
|
6 |
|
|
|
1,363 |
|
|
|
5 |
|
Retail and consumer services |
|
|
1,350 |
|
|
|
5 |
|
|
|
1,311 |
|
|
|
5 |
|
Technology |
|
|
1,256 |
|
|
|
4 |
|
|
|
230 |
|
|
|
1 |
|
Agricultural/paper manufacturing |
|
|
684 |
|
|
|
2 |
|
|
|
819 |
|
|
|
3 |
|
Asset managers |
|
|
655 |
|
|
|
2 |
|
|
|
792 |
|
|
|
3 |
|
Insurance |
|
|
653 |
|
|
|
2 |
|
|
|
726 |
|
|
|
3 |
|
Consumer products |
|
|
627 |
|
|
|
2 |
|
|
|
712 |
|
|
|
3 |
|
Metals and mining |
|
|
544 |
|
|
|
2 |
|
|
|
591 |
|
|
|
2 |
|
Chemicals/plastics |
|
|
531 |
|
|
|
2 |
|
|
|
436 |
|
|
|
2 |
|
Transportation |
|
|
517 |
|
|
|
2 |
|
|
|
319 |
|
|
|
1 |
|
Healthcare |
|
|
428 |
|
|
|
1 |
|
|
|
262 |
|
|
|
1 |
|
All other |
|
|
4,088 |
|
|
|
14 |
|
|
|
4,401 |
|
|
|
17 |
|
|
Total excluding loans held-for-sale and loans at fair
value |
|
$ |
29,935 |
|
|
|
100 |
% |
|
$ |
25,997 |
|
|
|
100 |
% |
Loans held-for-sale and loans at fair value(b) |
|
|
2,009 |
|
|
|
|
|
|
|
2,258 |
|
|
|
|
|
Receivables from customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,944 |
|
|
|
|
|
|
$ |
28,255 |
|
|
|
|
|
|
|
|
|
(a) |
|
Rankings are based on exposure at March 31, 2009. The industries presented in the December
31, 2008, table reflect the same rankings of the exposure at March 31, 2009. |
|
(b) |
|
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans
transferred from the retained portfolio. |
Derivative contracts
In the normal course of business, the Firm uses derivative instruments to meet the needs of
customers; to generate revenue through trading activities; to manage exposure to fluctuations in
interest rates, currencies and other markets; and to manage the Firms credit exposure. For further
discussion of these contracts (including notional amounts), see Note
6 on pages 104-111 of this
Form 10-Q, and Derivative contracts on pages 87-90 (including notional amounts) and Note 32 and
Note 34 on pages 202-205 and 206-210 of JPMorgan Chases 2008 Annual Report.
The following table summarizes the net derivative receivables MTM for the periods presented.
Derivative receivables marked to market (MTM)
|
|
|
|
|
|
|
|
|
|
|
Derivative receivables MTM |
(in millions) |
|
March 31, 2009 |
|
December 31, 2008 |
|
Interest rate(a) |
|
$ |
46,375 |
|
|
$ |
49,996 |
|
Credit derivatives |
|
|
34,337 |
|
|
|
44,695 |
|
Foreign exchange(a) |
|
|
23,715 |
|
|
|
38,820 |
|
Equity |
|
|
11,486 |
|
|
|
14,285 |
|
Commodity |
|
|
15,334 |
|
|
|
14,830 |
|
|
Total, net of cash collateral |
|
|
131,247 |
|
|
|
162,626 |
|
Liquid securities collateral held against derivative receivables |
|
|
(15,488 |
) |
|
|
(19,816 |
) |
|
Total, net of all collateral |
|
$ |
115,759 |
|
|
$ |
142,810 |
|
|
|
|
|
(a) |
|
During the first quarter of 2009, cross-currency interest rate swaps previously reported in
interest rate contracts were reclassified to foreign exchange
contracts to be more consistent with industry practice. The effect of this change resulted in a reclassification of $14.1 billion
of cross-currency interest rate swaps to foreign exchange contracts as of December 31, 2008. |
59
The amount of derivative receivables reported on the Consolidated Balance Sheets of $131.2 billion
and $162.6 billion at March 31, 2009, and December 31, 2008, respectively, is the amount of the MTM
or fair value of the derivative contracts after giving effect to legally enforceable master netting
agreements, cash collateral held by the Firm and CVA. These amounts on the Consolidated Balance
Sheets represent the cost to the Firm to replace the contracts at current market rates should the
counterparty default. However, in managements view, the appropriate measure of current credit risk
should also reflect additional liquid securities held as collateral by the Firm of $15.5 billion
and $19.8 billion at March 31, 2009, and December 31, 2008, respectively, resulting in total
exposure, net of all collateral, of $115.7 billion and $142.8 billion at March 31, 2009, and
December 31, 2008, respectively. The decrease of
$27.1 billion in derivative receivables MTM, net of collateral, from
December 31, 2008, was primarily related to the effect of the strengthening of the U.S. dollar on
foreign exchange, credit and interest rate derivative receivables.
The Firm also holds additional collateral delivered by clients at the initiation of transactions.
Though this collateral does not reduce the balances noted in the table above, it is available as
security against potential exposure that could arise should the MTM of the clients derivative
transactions move in the Firms favor. As of March 31, 2009, and December 31, 2008, the Firm held
$21.6 billion and $22.2 billion of this additional collateral, respectively. The derivative
receivables MTM, net of all collateral, also does not include other credit enhancements in the form
of letters of credit.
The following table summarizes the ratings profile of the Firms derivative receivables MTM, net of
other liquid securities collateral, for the dates indicated.
Ratings profile of derivative receivables MTM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
Rating equivalent |
|
Exposure net of |
|
% of exposure |
|
Exposure net of |
|
% of exposure |
(in millions, except ratios) |
|
all collateral |
|
net of all collateral |
|
all collateral |
|
net of all collateral |
|
AAA/Aaa to AA-/Aa3 |
|
$ |
59,670 |
|
|
|
51 |
% |
|
$ |
68,708 |
|
|
|
48 |
% |
A+/A1 to A-/A3 |
|
|
18,597 |
|
|
|
16 |
|
|
|
24,748 |
|
|
|
17 |
|
BBB+/Baa1 to BBB-/Baa3 |
|
|
12,351 |
|
|
|
11 |
|
|
|
15,747 |
|
|
|
11 |
|
BB+/Ba1 to B-/B3 |
|
|
21,587 |
|
|
|
19 |
|
|
|
28,186 |
|
|
|
20 |
|
CCC+/Caa1 and below |
|
|
3,554 |
|
|
|
3 |
|
|
|
5,421 |
|
|
|
4 |
|
|
Total |
|
$ |
115,759 |
|
|
|
100 |
% |
|
$ |
142,810 |
|
|
|
100 |
% |
|
The Firm actively pursues the use of collateral agreements to mitigate counterparty credit risk in
derivatives. The percentage of the Firms derivatives transactions subject to collateral
agreements, excluding foreign exchange spot trades which are not typically covered by collateral
agreements due to their short maturity, was 88% as of both March 31, 2009, and December 31, 2008.
The Firm posted $82.3 billion and $99.1 billion of collateral at March 31, 2009, and December 31,
2008, respectively.
Certain derivative and collateral agreements include provisions that require the counterparty
and/or the Firm, upon specified downgrades in the respective credit
ratings of their legal entities, to post collateral
for the benefit of the other party. At March 31, 2009, the impact of a single-notch and
six-notch ratings downgrade to JPMorgan Chase & Co., and its subsidiaries,
primarily JPMorgan Chase Bank, N.A., would have required $1.4 billion and $4.9
billion, respectively, of additional collateral to be posted by the Firm. Certain
derivative contracts also provide for termination of the contract, generally upon a downgrade to a
specified rating of either the Firm or the counterparty, at the then-existing MTM value of the
derivative contracts.
Credit derivatives
For further detailed discussion of credit derivatives, including the types of credit derivatives,
see Credit derivatives on pages 89-90 and Note 32 on pages 202-205, respectively, of JPMorgan
Chases 2008 Annual Report. The following table presents the Firms notional amounts of credit
derivatives protection purchased and sold as of March 31, 2009, and December 31, 2008.
Credit derivative positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
|
|
|
Dealer/client |
|
Credit portfolio |
|
|
|
|
Protection |
|
Protection |
|
Protection |
|
Protection |
|
|
(in billions) |
|
purchased(b) |
|
sold(b) |
|
purchased(c) |
|
sold |
|
Total |
|
March 31, 2009 |
|
$ |
3,757 |
|
|
$ |
3,661 |
|
|
$ |
76 |
|
|
$ |
1 |
|
|
$ |
7,495 |
|
December 31,
2008(a) |
|
|
4,193 |
|
|
|
4,102 |
|
|
|
92 |
|
|
|
1 |
|
|
|
8,388 |
|
|
|
|
|
(a) |
|
The dealer/client amounts of protection purchased and
protection sold have been revised for the prior period. |
60
|
|
|
(b) |
|
Included $3.8 trillion and $3.9 trillion at March 31, 2009, and December 31, 2008,
respectively, of notional exposure within protection purchased and protection sold where the
underlying reference instrument is identical. The remaining exposure includes single-name and
index CDS which the Firm purchased to manage the remaining net protection sold. For a further
discussion on credit derivatives, see Note 6 on pages 104-111 of this Form 10-Q. |
|
(c) |
|
Included $23.9 billion and $34.9 billion at March 31, 2009, and December 31, 2008,
respectively, that represented the notional amount for structured portfolio protection; the
Firm retains the first risk of loss on this portfolio. |
Dealer/client
For a further discussion on dealer/client business related to credit protection, see Dealer/client
on page 89 of JPMorgan Chases 2008 Annual Report. At March 31, 2009, the total notional amount of
protection purchased and sold in the dealer/client business decreased by $877 billion from year-end
2008 primarily as a result of industry efforts to reduce offsetting trade activity.
Credit portfolio activities
|
|
|
|
|
|
|
|
|
Use of single-name and portfolio
credit derivatives |
|
Notional amount of protection purchased |
(in millions) |
|
March 31, 2009 |
|
December 31, 2008 |
|
Credit derivatives used to manage: |
|
|
|
|
|
|
|
|
Loans and lending-related commitments |
|
$ |
65,600 |
|
|
$ |
81,227 |
|
Derivative receivables |
|
|
10,438 |
|
|
|
10,861 |
|
|
Total(a) |
|
$ |
76,038 |
|
|
$ |
92,088 |
|
|
|
|
|
(a) |
|
Included $23.9 billion and $34.9 billion at March 31, 2009, and December 31, 2008,
respectively, that represented the notional amount for structured portfolio protection; the
Firm retains the first risk of loss on this portfolio. |
The credit derivatives used by JPMorgan Chase for credit portfolio management activities do not
qualify for hedge accounting under SFAS 133; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions revenue. In contrast, the loans and
lending-related commitments being risk-managed are accounted for on an accrual basis. This
asymmetry in accounting treatment, between loans and lending-related commitments and the credit
derivatives used in credit portfolio management activities, causes earnings volatility that is not
representative, in the Firms view, of the true changes in value of the Firms overall credit
exposure. The MTM related to the Firms credit derivatives used for managing credit exposure, as
well as the MTM related to the CVA (which reflects the credit quality of derivatives counterparty
exposure) are included in the gains and losses realized on credit derivatives disclosed in the
table below. These results can vary from year to year due to market conditions that impact specific
positions in the portfolio. For a discussion of CVA related to derivative contracts, see Derivative
receivables MTM on page 139 of JPMorgan Chases 2008 Annual
Report and page 60 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
(in millions) |
|
2009 |
|
2008 |
|
Hedges of lending-related commitments(a) |
|
$ |
(552 |
) |
|
$ |
387 |
|
CVA and hedges of CVA(a) |
|
|
123 |
|
|
|
(734 |
) |
|
Net gains (losses)(b) |
|
$ |
(429 |
) |
|
$ |
(347 |
) |
|
|
|
|
(a) |
|
These hedges do not qualify for hedge accounting under SFAS 133. |
|
(b) |
|
Excluded gains of $938 million and $1.3 billion for the quarters ended March 31, 2009 and
2008, respectively, of other principal transaction revenue that are not associated with
hedging activities. |
The Firm also actively manages wholesale credit exposure through IB and CB loan and commitment
sales. During the first three months of 2009 and 2008, the Firm sold $414 million and $1.1 billion
of loans and commitments, respectively, recognizing losses of $4 million and $5 million,
respectively. These results include gains or losses on sales of nonperforming loans, if any, as
discussed on page 56 of this Form 10-Q. These activities are not related to the Firms
securitization activities, which are undertaken for liquidity and balance sheet management
purposes. For further discussion of securitization activity, see Liquidity Risk Management and Note
16 on pages 49-53 and 124-130, respectively, of this Form 10-Q.
Lending-related commitments
Wholesale lending-related commitments were $363.0 billion at March 31, 2009, compared with $379.9
billion at December 31, 2008. See page 45 of this Form 10-Q for an explanation of the decrease in
exposure. In the Firms view, the total contractual amount of these instruments is not
representative of the Firms actual credit risk exposure or funding requirements. In determining
the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is
used as the basis for allocating credit risk capital to these instruments, the Firm has established
a loan-equivalent amount for each commitment; this amount represents the portion of the unused
commitment or other contingent exposure that is expected, based on average portfolio historical
experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount
of the Firms lending-related commitments was $189.6 billion and $204.3 billion as of March 31,
2009, and December 31, 2008, respectively.
61
Emerging markets country exposure
The Firm has a comprehensive internal process for measuring and managing exposures to emerging
markets countries. There is no common definition of emerging markets but the Firm generally
includes in its definition those countries whose sovereign debt ratings are equivalent to A+ or
lower. Exposures to a country include all credit-related lending, trading and investment
activities, whether cross-border or locally funded. In addition to monitoring country exposures,
the Firm uses stress tests to measure and manage the risk of extreme loss associated with sovereign
crises.
The table below presents the Firms exposure to its top ten emerging markets countries. The
selection of countries is based solely on the Firms largest total exposures by country and not the
Firms view of any actual or potentially adverse credit conditions. Exposure is reported based on
the country where the assets of the obligor, counterparty or guarantor are located. Exposure
amounts are adjusted for collateral and for credit enhancements (e.g., guarantees and letters of
credit) provided by third parties; outstandings supported by a guarantor located outside the
country or backed by collateral held outside the country are assigned to the country of the
enhancement provider. In addition, the effect of credit derivative hedges and other short credit or
equity trading positions are reflected in the table below. Total exposure includes exposure to both
government and private sector entities in a country.
Top 10 emerging markets country exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009 |
|
Cross-border |
|
|
|
|
|
Total |
(in billions) |
|
Lending(a) |
|
Trading(b) |
|
Other(c) |
|
Total |
|
Local(d) |
|
exposure |
|
South Korea |
|
$ |
2.2 |
|
|
$ |
1.7 |
|
|
$ |
1.0 |
|
|
$ |
4.9 |
|
|
$ |
3.1 |
|
|
$ |
8.0 |
|
India |
|
|
1.8 |
|
|
|
2.2 |
|
|
|
0.9 |
|
|
|
4.9 |
|
|
|
1.0 |
|
|
|
5.9 |
|
Brazil |
|
|
1.3 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
2.3 |
|
|
|
1.5 |
|
|
|
3.8 |
|
China |
|
|
1.8 |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
|
3.0 |
|
|
|
0.3 |
|
|
|
3.3 |
|
Mexico |
|
|
1.8 |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
|
3.0 |
|
|
|
|
|
|
|
3.0 |
|
Taiwan |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.7 |
|
|
|
2.3 |
|
|
|
3.0 |
|
Hong Kong |
|
|
1.4 |
|
|
|
0.2 |
|
|
|
1.2 |
|
|
|
2.8 |
|
|
|
|
|
|
|
2.8 |
|
United Arab Emirates |
|
|
1.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
Thailand |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
1.1 |
|
|
|
1.8 |
|
South Africa |
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
Cross-border |
|
|
|
|
|
Total |
(in billions) |
|
Lending(a) |
|
Trading(b) |
|
Other(c) |
|
Total |
|
Local(d) |
|
exposure |
|
South Korea |
|
$ |
2.9 |
|
|
$ |
1.6 |
|
|
$ |
0.9 |
|
|
$ |
5.4 |
|
|
$ |
2.3 |
|
|
$ |
7.7 |
|
India |
|
|
2.2 |
|
|
|
2.8 |
|
|
|
0.9 |
|
|
|
5.9 |
|
|
|
0.6 |
|
|
|
6.5 |
|
China |
|
|
1.8 |
|
|
|
1.6 |
|
|
|
0.3 |
|
|
|
3.7 |
|
|
|
0.8 |
|
|
|
4.5 |
|
Brazil |
|
|
1.8 |
|
|
|
|
|
|
|
0.5 |
|
|
|
2.3 |
|
|
|
1.3 |
|
|
|
3.6 |
|
Taiwan |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
2.5 |
|
|
|
3.1 |
|
Hong Kong |
|
|
1.3 |
|
|
|
0.3 |
|
|
|
1.2 |
|
|
|
2.8 |
|
|
|
|
|
|
|
2.8 |
|
United Arab Emirates |
|
|
1.8 |
|
|
|
0.7 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
Mexico |
|
|
1.9 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
South Africa |
|
|
0.9 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
Russia |
|
|
1.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
(a) |
|
Lending includes loans and accrued interest receivable, interest-bearing deposits with banks,
acceptances, other monetary assets, issued letters of credit net of participations, and
undrawn commitments to extend credit. |
|
(b) |
|
Trading includes: (1) issuer exposure on cross-border debt and equity instruments, held both
in trading and investment accounts and adjusted for the impact of issuer hedges, including
credit derivatives; and (2) counterparty exposure on derivative and foreign exchange contracts
as well as security financing trades (resale agreements and securities borrowed). |
|
(c) |
|
Other represents mainly local exposure funded cross-border including capital investments in
local entities. |
|
(d) |
|
Local exposure is defined as exposure to a country denominated in local currency, booked and
funded locally. Any exposure not meeting these criteria is defined as cross-border exposure. |
62
CONSUMER CREDIT PORTFOLIO
JPMorgan Chases consumer portfolio consists primarily of residential mortgages, home equity loans,
credit cards, auto loans, student loans and business banking loans, with a primary focus on serving
the prime consumer credit market. The consumer credit portfolio also includes certain loans
acquired in the Washington Mutual transaction, primarily mortgage, home equity and credit card
loans. The RFS portfolio includes home equity lines of credit and mortgage loans with interest-only
payment options to predominantly prime borrowers, as well as certain payment-option loans acquired
from Washington Mutual that may result in negative amortization.
A substantial portion of the consumer loans acquired in the Washington Mutual transaction were
identified as credit-impaired based on an analysis of high-risk characteristics, including product
type, loan-to-value ratios, FICO scores and delinquency status. These purchased credit-impaired
loans are accounted for under SOP 03-3 and were initially recorded at fair value at the transaction
date. The fair value of these loans includes an estimate of losses that are expected to be incurred
over the estimated remaining lives of the loans, and therefore, no allowance for loan losses was
recorded for these loans as of the transaction date.
The credit performance of the consumer portfolio across the entire product spectrum continues to be
negatively affected by the economic environment. Higher unemployment and weaker overall economic
conditions have led to a significant increase in the number of loans charged off, while continued
weak housing prices have driven a significant increase in the amount of loss recognized when the
loans are charged off. Delinquencies and nonperforming loans and assets increased in the first
quarter of 2009, consistent with the Firms expectations, a key indicator that charge-offs will
continue to remain elevated through the remainder of 2009. Additional deterioration in the overall
economic environment, including continued deterioration in the labor market, could cause
delinquencies to increase beyond the Firms current expectations, resulting in additional increases
in losses.
Since mid-2007, the Firm has taken actions to reduce risk exposure by tightening both underwriting
and loan qualification standards for real estate lending, as well as for consumer lending for
non-real estate products. Tighter income verification, more conservative collateral valuation,
reduced loan-to-value maximums and higher FICO and custom risk score requirements are just some of
the actions taken to date to mitigate risk related to new originations. These actions have resulted
in significant reductions in new originations of risk-layered loans (e.g., loans with high
loan-to-value ratios to borrowers with low FICO scores) and improved alignment of loan pricing. New
originations of subprime mortgage loans, and broker-originated mortgage and home equity loans have
been eliminated entirely.
During the first quarter of 2009, the U.S. Treasury introduced the Making Home Affordable Plan
(MHA), which includes programs designed to assist eligible homeowners in refinancing or modifying
their mortgages. The Firm is participating in MHA, while continuing to expand its other
loss-mitigation efforts for financially stressed borrowers who do not qualify for the MHA programs.
During the first quarter of 2009, the Firm performed systematic reviews of the real estate
portfolio to identify homeowners most in need of assistance, opened new regional counseling
centers, hired additional loan counselors, introduced new financing alternatives, proactively
reached out to borrowers to offer prequalified modifications, and commenced a new process to
independently review each loan before moving it into the foreclosure process.
The MHA modification programs, as well as the Firms other loss-mitigation programs, generally
represent various forms of term extensions, rate reductions and forbearances, and are expected to
result in additional increases in the balance of modified loans carried on the Firms balance
sheet, including loans accounted for as troubled debt restructurings, while minimizing the economic
loss to the Firm and providing alternatives to foreclosure.
63
The following table presents managed consumer credit-related information for the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
|
90 days past due |
|
|
Credit exposure |
|
loans(g)(h) |
|
and still accruing |
|
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding
purchased credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
111,781 |
|
|
$ |
114,335 |
|
|
$ |
1,591 |
|
|
$ |
1,394 |
|
|
$ |
|
|
|
$ |
|
|
Prime mortgage |
|
|
71,731 |
|
|
|
72,266 |
|
|
|
2,712 |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
14,594 |
|
|
|
15,330 |
|
|
|
2,545 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
8,940 |
|
|
|
9,018 |
|
|
|
97 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Auto loans(b) |
|
|
43,065 |
|
|
|
42,603 |
|
|
|
165 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
Credit card reported |
|
|
90,911 |
|
|
|
104,746 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3,317 |
|
|
|
2,649 |
|
All other loans |
|
|
33,700 |
|
|
|
33,715 |
|
|
|
625 |
|
|
|
430 |
|
|
|
433 |
|
|
|
463 |
|
Loans held-for-sale(c) |
|
|
3,665 |
|
|
|
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans excluding
purchased credit-impaired
loans(d) |
|
|
378,387 |
|
|
|
394,041 |
|
|
|
7,739 |
|
|
|
6,571 |
|
|
|
3,750 |
|
|
|
3,112 |
|
|
Consumer loans purchased
credit-impaired loans(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
28,366 |
|
|
|
28,555 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
21,398 |
|
|
|
21,855 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
6,565 |
|
|
|
6,760 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
31,243 |
|
|
|
31,643 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
Total purchased credit-impaired
loans |
|
|
87,572 |
|
|
|
88,813 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
Total consumer loans reported |
|
|
465,959 |
|
|
|
482,854 |
|
|
|
7,739 |
|
|
|
6,571 |
|
|
|
3,750 |
|
|
|
3,112 |
|
|
Credit card securitized(e) |
|
|
85,220 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
2,362 |
|
|
|
1,802 |
|
|
Total consumer loans managed |
|
|
551,179 |
|
|
|
568,425 |
|
|
|
7,739 |
|
|
|
6,571 |
|
|
|
6,112 |
|
|
|
4,914 |
|
|
Consumer lending-related
commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity(f) |
|
|
79,448 |
|
|
|
95,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
4,564 |
|
|
|
5,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
5,994 |
|
|
|
4,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card(f) |
|
|
642,534 |
|
|
|
623,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other loans |
|
|
10,764 |
|
|
|
12,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lending-related
commitments |
|
|
743,304 |
|
|
|
741,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer credit portfolio |
|
$ |
1,294,483 |
|
|
$ |
1,309,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Credit card managed |
|
$ |
176,131 |
|
|
$ |
190,317 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
5,679 |
|
|
$ |
4,451 |
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
Net charge-offs |
|
net charge-off rate(i) |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding purchased
credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
1,098 |
|
|
$ |
447 |
|
|
|
3.93 |
% |
|
|
1.89 |
% |
Prime mortgage |
|
|
312 |
|
|
|
50 |
|
|
|
1.76 |
|
|
|
0.48 |
|
Subprime mortgage |
|
|
364 |
|
|
|
149 |
|
|
|
9.91 |
|
|
|
3.82 |
|
Option ARMs |
|
|
4 |
|
|
|
|
|
|
|
0.18 |
|
|
|
|
|
Auto loans |
|
|
174 |
|
|
|
118 |
|
|
|
1.66 |
|
|
|
1.10 |
|
Credit card reported |
|
|
2,029 |
|
|
|
989 |
|
|
|
8.42 |
|
|
|
5.01 |
|
All other loans |
|
|
224 |
|
|
|
61 |
|
|
|
2.64 |
|
|
|
0.98 |
|
|
Total consumer loans excluding
purchased credit-impaired
loans(d) |
|
|
4,205 |
|
|
|
1,814 |
|
|
|
4.44 |
|
|
|
2.43 |
|
|
Total consumer loans reported |
|
|
4,205 |
|
|
|
1,814 |
|
|
|
3.61 |
|
|
|
2.43 |
|
|
Credit card securitized(e) |
|
|
1,464 |
|
|
|
681 |
|
|
|
6.93 |
|
|
|
3.70 |
|
|
Total consumer loans managed |
|
|
5,669 |
|
|
|
2,495 |
|
|
|
4.12 |
|
|
|
2.68 |
|
|
Memo: Credit card managed |
|
$ |
3,493 |
|
|
$ |
1,670 |
|
|
|
7.72 |
% |
|
|
4.37 |
% |
|
|
|
|
(a) |
|
Includes RFS, CS and residential mortgage loans reported in the Corporate/Private Equity
segment. |
|
(b) |
|
Excluded operating lease-related assets of $2.4 billion and $2.2 billion for March 31, 2009,
and December 31, 2008, respectively. |
|
(c) |
|
Included loans for prime mortgage and other (largely student loans) of $825 million and $2.8
billion at March 31, 2009, respectively, and $206 million and $1.8 billion at December 31,
2008, respectively. |
|
(d) |
|
Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction
accounted for under SOP 03-3 for which a deterioration in credit quality occurred between the
origination date and JPMorgan Chases acquisition date. Under SOP 03-3, these loans were
initially recorded at fair value and accrete interest income over the estimated life of the
loan when cash flows are reasonably estimable, even if the underlying loans are contractually
past due. For additional information, see Note 14 on pages 120-123 of this Form 10-Q. |
|
(e) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see CS on pages 28-31 of this Form 10-Q. |
|
(f) |
|
The credit card and home equity lending-related commitments represent the total available
lines of credit for these products. The Firm has not experienced, and does not anticipate,
that all available lines of credit will be utilized at the same time. For credit card
commitments and home equity commitments (if certain conditions are met), the Firm can reduce
or cancel these lines of credit by providing the borrower prior notice or, in some cases,
without notice as permitted by law. |
|
(g) |
|
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as
part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and
the pools are considered to be performing under SOP 03-3. |
|
(h) |
|
Nonperforming loans excluded: (1) loans eligible for repurchase, as well as loans repurchased
from GNMA pools that are insured by U.S. government agencies, of $4.6 billion and $3.3 billion
for March 31, 2009, and December 31, 2008, respectively; and (2) student loans that are 90
days past due and still accruing, which are insured by U.S. government agencies under the
Federal Family Education Loan Program, of $433 million and $437 million as of March 31, 2009,
and December 31, 2008, respectively. These amounts for GNMA and student loans are excluded, as
reimbursement is proceeding normally . |
|
(i) |
|
Average consumer (excluding card) loans held-for-sale and loans at fair value were $3.1
billion and $4.4 billion for the quarters ended March 31, 2009 and 2008, respectively. These
amounts were excluded when calculating the net charge-off rates. |
The following table presents consumer nonperforming assets by business segment as of March 31,
2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Assets acquired in loan |
|
|
|
|
|
|
|
|
|
Assets acquired in loan |
|
|
|
|
|
|
|
|
satisfactions |
|
|
|
|
|
|
|
|
|
satisfactions |
|
|
|
|
Nonperforming |
|
Real estate |
|
|
|
|
|
Nonperforming |
|
Nonperforming |
|
Real estate |
|
|
|
|
|
Nonperforming |
(in millions) |
|
loans |
|
owned |
|
Other |
|
assets |
|
loans |
|
owned |
|
Other |
|
assets |
|
Retail Financial
Services |
|
$ |
7,714 |
|
|
$ |
1,751 |
|
|
$ |
117 |
|
|
$ |
9,582 |
|
|
$ |
6,548 |
|
|
$ |
2,183 |
|
|
$ |
110 |
|
|
$ |
8,841 |
|
Card Services |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Corporate/Private
Equity |
|
|
21 |
|
|
|
1 |
|
|
|
|
|
|
|
22 |
|
|
|
19 |
|
|
|
1 |
|
|
|
|
|
|
|
20 |
|
|
Total |
|
$ |
7,739 |
|
|
$ |
1,752 |
|
|
$ |
117 |
|
|
$ |
9,608 |
|
|
$ |
6,571 |
|
|
$ |
2,184 |
|
|
$ |
110 |
|
|
$ |
8,865 |
|
|
65
The following discussion relates to the specific loan and lending-related categories within the
consumer portfolio.
Home equity: Home equity loans at March 31, 2009, were $111.8 billion, excluding purchased
credit-impaired loans, a decrease of $2.6 billion from year-end 2008, primarily reflecting slower
loan origination growth coupled with loan paydowns and charge-offs. The first-quarter 2009
provision for credit losses for the home equity portfolio includes net increases of $850 million to
the allowance for loan losses, reflecting the impact of the weak economic environment noted above.
The Firm estimates that loans with effective CLTVs in excess of 100% represented approximately 26%
of the home equity portfolio. Since mid-2007, the maximum effective CLTVs for new originations have
been reduced significantly (currently 50% to 70% based on
Metropolitan Statistical Area) and, new originations of stated income and
broker-originated loans have been eliminated entirely. Additional restrictions on new originations have been implemented in geographic areas experiencing
the greatest housing price depreciation and highest unemployment. Loss-mitigation strategies
include the reduction or closure of outstanding credit lines for borrowers who have experienced
significant increases in CLTVs or decreases in creditworthiness (e.g. declines in FICO scores), and
modifications of loan terms for borrowers experiencing financial difficulties.
Mortgage: Mortgage loans at March 31, 2009, which include prime mortgages, subprime mortgages,
option ARMs and mortgage loans held-for-sale, were $96.1 billion, excluding purchased
credit-impaired loans, reflecting a $730 million decrease from year-end 2008, primarily reflecting
run-off of the subprime mortgage portfolio.
Prime mortgages of $72.6 billion increased $84 million from December 2008. The first-quarter 2009
provision for credit losses includes a net increase of $560 million to the allowance for loan
losses, reflecting the impact of the weak economic environment noted above. The Firm estimates that
loans with effective LTVs in excess of 100% represented approximately 27% of the prime mortgage
portfolio. Since mid-2007, the Firm has tightened underwriting standards for nonconforming prime
mortgages, including eliminating stated income products, reducing LTV maximums, and eliminating the
broker-origination channel.
Subprime mortgages of $14.6 billion, excluding purchased credit-impaired loans, decreased $736
million from December 31, 2008, as a result of the discontinuation of new originations. The Firm
estimates that loans with effective LTVs in excess of 100% represented approximately 33% of the
subprime mortgage portfolio.
Option ARMs of $8.9 billion, excluding purchased credit-impaired loans, decreased slightly from
December 31, 2008. New originations of option ARMs were discontinued by Washington Mutual prior to
the date of the Washington Mutual transaction. This portfolio is primarily comprised of loans with
low LTVs and high borrower FICOs and for which the Firm currently expects substantially lower
losses in comparison with the purchased credit-impaired portfolio. The Firm has not, and does not,
originate option ARMs.
Auto loans: As of March 31, 2009, auto loans of $43.1 billion increased $462 million from year-end
2008. The auto loan portfolio reflects a high concentration of prime quality credits. In response
to recent increases in loan delinquencies and credit losses, particularly in Metropolitan
Statistical Areas (MSAs) experiencing the greatest housing price depreciation and highest
unemployment, credit underwriting criteria have been tightened, which has resulted in the reduction
of both extended-term and high loan-to-value financing.
Credit card: JPMorgan Chase analyzes its credit card portfolio on a managed basis, which includes
credit card receivables on the Consolidated Balance Sheets and those receivables sold to investors
through securitization. Managed credit card receivables were $176.1 billion at March 31, 2009, a
decrease of $14.2 billion from year-end 2008, reflecting seasonally lower charge volume.
66
The managed credit card net charge-off rate increased to 7.72% for the first quarter of 2009 from
4.37% in the first quarter of 2008. This increase was due primarily to higher charge-offs as a
result of the credit performance of loans acquired in the Washington Mutual transaction, as well as
the current economic environment, especially in areas experiencing the greatest housing price
depreciation and highest unemployment. Excluding the Washington Mutual portfolio, the managed
credit card net charge-off rate was 6.86% for the first quarter of 2009. The 30-day managed
delinquency rate increased to 6.16% at March 31, 2009, from 4.97% at December 31, 2008, as a result
of deterioration in the current economic environment noted above. Excluding the Washington Mutual
portfolio, the 30-day managed delinquency rate was 5.34%, up from 4.36% at December 31, 2008. The
allowance for loan losses was increased by $1.2 billion due to the weakening credit environment. As
a result of continued weakness in housing markets, account acquisition credit criteria and account
management credit practices have been tightened, particularly in MSAs experiencing significant
home-price declines. The managed credit card portfolio continues to reflect a well-seasoned,
largely rewards-based portfolio that has good U.S. geographic diversification.
All other loans: All other loans primarily include business banking loans (which are highly
collateralized loans, often with personal loan guarantees), student loans, and other secured and
unsecured consumer loans. As of March 31, 2009, other loans, including loans held-for-sale, of
$36.5 billion were up $1.0 billion from year-end 2008, primarily as a result of organic growth in
business banking and student loans. The 2009 provision for credit losses included a net increase of
$340 million to the allowance for loan losses, reflecting the impact of the weak economic
environment noted above.
Purchased credit-impaired loans: Purchased credit-impaired loans of $87.6 billion in the home
lending portfolio represent loans acquired in the Washington Mutual transaction that were recorded
at fair value at the time of acquisition under SOP 03-3. At the acquisition date, the fair value of
these loans included an estimate of losses that are expected to be incurred over the estimated
remaining lives of the loans, and therefore no allowance for loan losses was recorded for these
loans as of the acquisition date. Through the first quarter of 2009, the credit performance of
these loans has generally been consistent with the assumptions used in determining the initial fair
value of these loans, and the Firms original expectations regarding the amounts and timing of
future cash flows has not changed. A probable decrease in managements expectation of future cash
collections related to these loans could result in the need to record an allowance for credit
losses related to these loans in the future. A significant and probable increase in expected cash
flows would generally result in an increase in interest income recognized over the remaining life
of the underlying pool of loans.
Other real estate owned: As part of the residential real estate foreclosure process, loans are
written down to the fair value of the underlying real estate asset. In those instances where the Firm
gains title, ownership and possession of individual properties at the completion of the foreclosure
process, these Other Real Estate Owned (OREO) assets are managed for prompt sale and disposition
at the best possible economic value. Any further gains or losses on OREO assets are recorded as
part of other income.
67
The following tables present the geographic distribution of consumer credit outstandings by product
as of March 31, 2009, and December 31, 2008, excluding purchased credit-impaired loans acquired in
the Washington Mutual transaction.
Consumer loans by geographic region
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
March 31, |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
All |
|
consumer |
|
|
|
|
|
Total |
2009 |
|
Home |
|
Prime |
|
Subprime |
|
Option |
|
home loan |
|
|
|
|
|
Card |
|
other |
|
loans- |
|
Card |
|
consumer |
(in billions) |
|
equity |
|
mortgage |
|
mortgage |
|
ARMs |
|
portfolio |
|
Auto |
|
reported |
|
loans |
|
reported |
|
securitized |
|
loans-managed |
|
Excluding purchased
credit-impaired
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
22.6 |
|
|
$ |
22.4 |
|
|
$ |
2.0 |
|
|
$ |
3.7 |
|
|
$ |
50.7 |
|
|
$ |
4.6 |
|
|
$ |
12.8 |
|
|
$ |
2.1 |
|
|
$ |
70.2 |
|
|
$ |
12.2 |
|
|
$ |
82.4 |
|
New York |
|
|
16.4 |
|
|
|
10.2 |
|
|
|
1.7 |
|
|
|
1.0 |
|
|
|
29.3 |
|
|
|
3.6 |
|
|
|
7.2 |
|
|
|
4.8 |
|
|
|
44.9 |
|
|
|
6.4 |
|
|
|
51.3 |
|
Texas |
|
|
7.8 |
|
|
|
2.9 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
11.3 |
|
|
|
4.0 |
|
|
|
6.6 |
|
|
|
4.2 |
|
|
|
26.1 |
|
|
|
6.2 |
|
|
|
32.3 |
|
Florida |
|
|
6.0 |
|
|
|
6.1 |
|
|
|
2.2 |
|
|
|
0.9 |
|
|
|
15.2 |
|
|
|
1.5 |
|
|
|
6.0 |
|
|
|
1.1 |
|
|
|
23.8 |
|
|
|
5.3 |
|
|
|
29.1 |
|
Illinois |
|
|
7.1 |
|
|
|
3.3 |
|
|
|
0.7 |
|
|
|
0.3 |