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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of
The Securities Exchange Act of 1934
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For the fiscal year ended
December 31, 2009
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Commission file |
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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 |
(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, NY
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10017 |
(Address of principal executive offices)
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(Zip code) |
Registrants telephone number, including area code: (212) 270-6000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Common stock |
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The New York Stock Exchange |
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The London Stock Exchange |
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The Tokyo Stock Exchange |
Warrants, each to purchase one share of Common Stock |
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The New York Stock Exchange |
Depositary Shares each representing a one-fourth interest in a share of 6.15% Cumulative Preferred Stock, Series E |
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The New York Stock Exchange |
Depositary Shares each representing a one-fourth interest in a share of 5.72% Cumulative Preferred Stock, Series F |
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The New York Stock Exchange |
Depositary Shares each representing a one-fourth interest in a share of 5.49% Cumulative Preferred Stock, Series G |
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The New York Stock Exchange |
Depositary Shares each representing a one-four hundredth interest in a share of 8.625% Non-Cumulative Preferred Stock, Series J |
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The New York Stock Exchange |
Guarantee of 7.00% Capital Securities, Series J, of J.P. Morgan Chase Capital X |
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The New York Stock Exchange |
Guarantee of 5 7/8% Capital Securities, Series K, of J.P. Morgan Chase Capital XI |
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The New York Stock Exchange |
Guarantee of 6.25% Capital Securities, Series L, of J.P. Morgan Chase Capital XII |
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The New York Stock Exchange |
Guarantee of 6.20% Capital Securities, Series N, of J.P. Morgan Chase Capital XIV |
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The New York Stock Exchange |
Guarantee of 6.35% Capital Securities, Series P, of J.P. Morgan Chase Capital XVI |
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The New York Stock Exchange |
Guarantee of 6.625% Capital Securities, Series S, of J.P. Morgan Chase Capital XIX |
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The New York Stock Exchange |
Guarantee of 6.875% Capital Securities, Series X, of J.P. Morgan Chase Capital XXIV |
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The New York Stock Exchange |
Guarantee of Fixed-to-Floating Rate Capital Securities, Series Z, of JPMorgan Chase Capital XXVI |
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The New York Stock Exchange |
Guarantee of Fixed-to-Floating Rate Capital Securities, Series BB, of JPMorgan Chase Capital XXVIII |
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The New York Stock Exchange |
Guarantee of 7.20% Preferred Securities of BANK ONE Capital VI |
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The New York Stock Exchange |
KEYnotes Exchange Traded Notes Linked to the First Trust Enhanced 130/30 Large Cap Index |
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NYSE Arca, Inc. |
Alerian MLP Index ETNs due May 24, 2024 |
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NYSE Arca, Inc. |
Buffer Notes Based Upon S&P 500® Index due November 24, 2010 |
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NYSE Arca, Inc. |
Euro Floating Rate Global Notes due July 27, 2012 |
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The NYSE Alternext U.S. LLC |
Principal Protected Notes Linked to S&P 500® Index due September 30, 2010 |
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The NYSE Alternext U.S. LLC |
Principal Protected Notes Linked to the Dow Jones Industrial AverageSM due March 23, 2011 |
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The NYSE Alternext U.S. LLC |
Medium Term Notes, Linked to a Basket of Three International Equity Indices due August 2, 2010 |
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The NYSE Alternext U.S. LLC |
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. x Yes o No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. o Yes x No
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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
x Large accelerated filer |
o Accelerated filer |
o Non-accelerated filer
(Do not check if a smaller reporting company) | o Smaller reporting company |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes x No
The aggregate market value of JPMorgan Chase & Co. common stock held by non-affiliates of
JPMorgan Chase & Co. on June 30, 2009 was approximately $133,193,936,622.
Number of shares of common stock outstanding on January 31, 2010: 3,973,010,673
Documents incorporated by Reference: Portions of the Registrants Proxy Statement for the
annual meeting of stockholders to be held on May 18, 2010, are incorporated by reference in this
Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
Part I
ITEM 1: BUSINESS
Overview
JPMorgan Chase & Co. (JPMorgan Chase or the Firm) is a financial holding company incorporated
under Delaware law in 1968. JPMorgan Chase is one of the largest banking institutions in the United
States of America (U.S.), with $2.0 trillion in assets, $165.4 billion in stockholders equity
and operations in more than 60 countries.
JPMorgan Chases principal bank subsidiaries are JPMorgan Chase Bank, National Association
(JPMorgan Chase Bank, N.A.), a national banking association with U.S. branches in 23 states, and
Chase Bank USA, National Association (Chase Bank USA, N.A.), a national banking association that
is the Firms credit cardissuing bank. JPMorgan Chases principal nonbank subsidiary is J.P.
Morgan Securities Inc. (JPMorgan Securities), the Firms U.S. investment banking firm. The bank
and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches
and subsidiaries, representative offices and subsidiary foreign banks.
The Firms website is www.jpmorganchase.com. JPMorgan Chase makes available free of charge, through
its website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it
electronically files such material with, or furnishes such material to, the U.S. Securities and
Exchange Commission (the SEC). The Firm has adopted, and posted on its website, a Code of Ethics
for its Chairman and Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
other senior financial officers.
Business segments
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 is provided in the Business segment results section of Managements
discussion and analysis of financial condition and results of operations (MD&A), beginning on
page 53 and in Note 34 on page 237.
Competition
JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment.
Competitors include other banks, brokerage firms, investment banking companies, merchant banks,
hedge funds, insurance companies, mutual fund companies, credit card companies, mortgage banking
companies, trust companies, securities processing companies, automobile financing companies,
leasing companies, e-commerce and other Internet-based companies, and a variety of other financial
services and advisory
companies. JPMorgan Chases businesses generally compete on the basis of the
quality and range of their products and services, transaction execution, innovation and price.
Competition also varies based on the types of clients, customers, industries and geographies
served. With respect to some of its geographies and products, JPMorgan Chase competes globally;
with respect to others, the Firm competes on a regional basis. The Firms ability to compete also
depends on its ability to attract and retain its professional and other personnel, and on its
reputation.
The financial services industry has experienced consolidation and convergence in recent years, as
financial institutions involved in a broad range of financial products and services have merged
and, in some cases, failed. This convergence trend is expected to continue. Consolidation could
result in competitors of JPMorgan Chase gaining greater capital and other resources, such as a
broader range of products and services and geographic diversity. It is likely that competition will
become even more intense as the Firms businesses continue to compete with other financial
institutions that are or may become larger or better capitalized, or that may have a stronger local
presence in certain geographies.
Supervision and regulation
The Firm is subject to regulation under state and federal laws in the U.S., as well as the
applicable laws of each of the various jurisdictions outside the U.S. in which the Firm does
business.
Recent Events affecting the Firm: Events since early 2008 affecting the financial services industry
and, more generally, the financial markets and the economy as a whole, have led to various
proposals for changes in the regulation of the financial services industry. In 2009, the House of
Representatives passed the Wall Street Reform and Consumer Protection Act of 2009, which, among
other things, calls for the establishment of a Consumer Financial Protection Agency having broad
authority to regulate providers of credit, savings, payment and other consumer financial products
and services; creates a new structure for resolving troubled or failed financial institutions;
requires certain over-the-counter derivative transactions to be cleared in a central clearinghouse
and/or effected on the exchange; revises the assessment base for the calculation of the Federal
Deposit Insurance Corporation (FDIC) assessments; and creates a structure to regulate
systemically important financial companies, including providing regulators with the power to
require such companies to sell or transfer assets and terminate activities if they determine that
the size or scope of activities of the company pose a threat to the safety and soundness of the
company or the financial stability of the United States. Other proposals have been made both
domestically and internationally, including additional capital and liquidity requirements and
limitations on size or types of activity in which banks may engage. It is not clear at this time
which of these proposals will be finally enacted into law, or what form they will take, or what new
proposals may be made, as the debate over financial reform continues in 2010. The description below
summarizes the current regulatory structure in which the Firm operates, could change significantly
and, accordingly, the structure of the Firm and the products and services it offers could also
change significantly as a result.
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Part I
Permissible business activities: JPMorgan Chase elected to become a financial holding company as of
March 13, 2000, pursuant to the provisions of the Gramm-Leach-Bliley Act (GLBA). Under
regulations implemented by the Board of Governors of the Federal Reserve System (the Federal
Reserve Board), if any depository institution controlled by a financial holding company ceases to
meet certain capital or management standards, the Federal Reserve Board may impose corrective
capital and/or managerial requirements on the financial holding company and place limitations on
its ability to conduct the broader financial activities permissible for financial holding
companies. In addition, the Federal Reserve Board may require divestiture of the holding companys
depository institutions if the deficiencies persist. The regulations also provide that if any
depository institution controlled by a financial holding company fails to maintain a satisfactory
rating under the Community Reinvestment Act (CRA), the Federal Reserve Board must prohibit the
financial holding company and its subsidiaries from engaging in any additional activities other
than those permissible for bank holding companies that are not financial holding companies. At
December 31, 2009, the depository-institution subsidiaries of JPMorgan Chase met the capital,
management and CRA requirements necessary to permit the Firm to conduct the broader activities
permitted under GLBA.
Financial holding companies and bank holding companies are required to obtain the approval of the
Federal Reserve Board before they may acquire more than five percent of the voting shares of an
unaffiliated bank. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the Riegle-Neal Act), the Federal Reserve Board may approve an application for such an
acquisition without regard to whether the transaction is prohibited under the law of any state,
provided that the acquiring bank holding company, before or after the acquisition, does not control
more than 10% of the total amount of deposits of insured depository institutions in the U.S. or
more than 30% (or such greater or lesser amounts as permitted under state law) of the total
deposits of insured depository institutions in the state in which the acquired bank has its home
office or a branch.
Regulation by Federal Reserve Board under GLBA: Under GLBAs system of functional regulation, the
Federal Reserve Board acts as an umbrella regulator, and certain of JPMorgan Chases subsidiaries
are regulated directly by additional authorities based on the particular activities of those
subsidiaries. JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A., are regulated by the Office of
the Comptroller of the Currency (OCC). See Other supervision and regulation below for a further
description of the regulatory supervision to which the Firms subsidiaries are subject.
Dividend restrictions: Federal law imposes limitations on the payment of dividends by national
banks. Dividends payable by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., as national bank
subsidiaries of JPMorgan Chase, are limited to the lesser of the amounts calculated under a recent
earnings test and an undivided profits test. Under the recent earnings test, a dividend may not
be paid if the total of all dividends declared by a bank in any calendar year is in excess of the
current years net income combined with the retained net income of the two preceding years, unless
the national bank obtains the approval of the OCC. Under the undivided
profits test, a dividend may
not be paid in excess of a banks undivided profits. See Note 28 on page 228 for the amount of
dividends that the Firms principal bank subsidiaries could pay, at January 1, 2010 and 2009, to
their respective bank holding companies without the approval of their banking regulators.
In addition to the dividend restrictions described above, the OCC, the Federal Reserve Board and
the FDIC have authority to prohibit or limit the payment of dividends by the banking organizations
they supervise, including JPMorgan Chase and its bank and bank holding company subsidiaries, if, in
the banking regulators opinion, payment of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking organization.
For a discussion of additional dividend restrictions relating to the Capital Purchase Program, see
Note 23 on pages 222-223.
Capital requirements: Federal banking regulators have adopted risk-based capital and leverage
guidelines that require the Firms capital-to-assets ratios to meet certain minimum standards.
The risk-based capital ratio is determined by allocating assets and specified offbalance sheet
financial instruments into risk weighted categories, with higher levels of capital being required
for the categories perceived as representing greater risk. Under the guidelines, capital is divided
into two tiers: Tier 1 capital and Tier 2 capital. The amount of Tier 2 capital may not exceed the
amount of Tier 1 capital. Total capital is the sum of Tier 1 capital and Tier 2 capital. Under the
guidelines, banking organizations are required to maintain a total capital ratio (total capital to
risk-weighted assets) of 8% and a Tier 1 capital ratio of 4%. For a further description of these
guidelines, see Note 29 on pages 228229.
The federal banking regulators also have established minimum leverage ratio guidelines. The
leverage ratio is defined as Tier 1 capital divided by adjusted average total assets. The minimum
leverage ratio is 3% for bank holding companies that are considered strong under Federal Reserve
Board guidelines or which have implemented the Federal Reserve Boards risk-based capital measure
for market risk. Other bank holding companies must have a minimum leverage ratio of 4%. Bank
holding companies may be expected to maintain ratios well above the minimum levels, depending upon
their particular condition, risk profile and growth plans.
The minimum risk-based capital requirements adopted by the 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). U.S. banking regulators published a final Basel II
rule in December 2007 which requires JPMorgan Chase to implement Basel II at the holding company
level, as well as at certain of its key U.S. bank subsidiaries. For additional information
regarding Basel II, see Regulatory capital on page 83.
Effective January 1, 2008, the SEC authorized JPMorgan Securities to use the alternative method of
computing net capital for broker/dealers that are part of Consolidated Supervised Entities as
defined by SEC rules. Accordingly, JPMorgan Securities may
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calculate deductions for market risk using its internal market risk models. For additional
information regarding the Firms regulatory capital, see Regulatory capital on pages 8384.
Federal Deposit Insurance Corporation Improvement Act: The Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) provides a framework for regulation of depository institutions
and their affiliates, including parent holding companies, by their federal banking regulators. As
part of that Framework, the FDICIA requires the relevant federal banking regulator to take prompt
corrective action with respect to a depository institution if that institution does not meet
certain capital adequacy standards.
Supervisory actions by the appropriate federal banking regulator under the prompt corrective
action rules generally depend upon an institutions classification within five capital categories.
The regulations apply only to banks and not to bank holding companies such as JPMorgan Chase;
however, subject to limitations that may be imposed pursuant to GLBA, the Federal Reserve Board is
authorized to take appropriate action at the holding company level, based on the undercapitalized
status of the holding companys subsidiary banking institutions. In certain instances relating to
an undercapitalized banking institution, the bank holding company would be required to guarantee
the performance of the undercapitalized subsidiarys capital restoration plan and might be liable
for civil money damages for failure to fulfill its commitments on that guarantee.
Deposit Insurance: Under current FDIC regulations, each depository institution is assigned to a
risk category based on capital and supervisory measures. In 2009, the FDIC revised the method for
calculating the assessment rate for depository institutions by introducing several adjustments to
an institutions initial base assessment rate. A depository institution is assessed premiums by the
FDIC based on its risk category as adjusted and the amount of deposits held. Higher levels of banks
failures over the past two years have dramatically increased resolution costs of the FDIC and
depleted the deposit insurance fund. In addition, the amount of FDIC insurance coverage for insured
deposits has been increased generally from $100,000 per depositor to $250,000 per depositor. In
light of the increased stress on the deposit insurance fund caused by these developments, and in
order to maintain a strong funding position and restore the reserve ratios of the deposit insurance
fund, the FDIC imposed a special assessment in June, 2009, has increased assessment rates of
insured institutions generally, and required them to prepay on December 30, 2009 the premiums that
are expected to become due over the next three years.
Powers of the FDIC upon insolvency of an insured depository institution: If the FDIC is appointed
the conservator or receiver of an insured depository institution upon its insolvency or in certain
other events, the FDIC has the power: (1) to transfer any of the depository institutions assets
and liabilities to a new obligor without the approval of the depository institutions creditors;
(2) to enforce the terms of the depository institutions contracts pursuant to their terms; or (3)
to repudiate or disaffirm any contract or lease to which the depository institution is a party, the
performance of which
is determined by the FDIC to be burdensome and the disaffirmation or
repudiation of which is determined by the FDIC to promote the orderly administration of the
depository institution. The above provisions would be applicable to obligations and liabilities of
JPMorgan Chases subsidiaries that are insured depository institutions, such as JPMorgan Chase
Bank, N.A., and Chase Bank USA, N.A., including, without limitation, obligations under senior or
subordinated debt issued by those banks to investors (referred to below as public noteholders) in
the public markets.
Under federal law, the claims of a receiver of an insured depository institution for administrative
expense and the claims of holders of U.S. deposit liabilities (including the FDIC, as subrogee of
the depositors) have priority over the claims of other unsecured creditors of the institution,
including public noteholders and depositors in non-U.S. offices, in the event of the liquidation or
other resolution of the institution. As a result, whether or not the FDIC would ever seek to
repudiate any obligations held by public noteholders or depositors in non-U.S. offices of any
subsidiary of the Firm that is an insured depository institution, such as JPMorgan Chase Bank,
N.A., or Chase Bank USA, N.A., such persons would be treated differently from, and could receive,
if anything, substantially less than the depositors in U.S. offices of the depository.
An FDIC-insured depository institution can be held liable for any loss incurred or expected to be
incurred by the FDIC in connection with another FDIC-insured institution under common control with
such institution being in default or in danger of default (commonly referred to as
cross-guarantee liability). An FDIC cross-guarantee claim against a depository institution is
generally superior in right of payment to claims of the holding company and its affiliates against
such depository institution.
The Bank Secrecy Act: The Bank Secrecy Act (BSA) requires all financial institutions, including
banks and securities broker-dealers, to, among other things, establish a risk-based system of
internal controls reasonably designed to prevent money laundering and the financing of terrorism.
The BSA includes a variety of recordkeeping and reporting requirements (such as cash and suspicious
activity reporting), as well as due diligence/know-your-customer documentation requirements. The
Firm has established a global anti-money laundering program in order to comply with BSA
requirements.
Other supervision and regulation: Under current Federal Reserve Board policy, JPMorgan Chase is
expected to act as a source of financial strength to its bank subsidiaries and to commit resources
to support these subsidiaries in circumstances where it might not do so absent such policy.
However, because GLBA provides for functional regulation of financial holding company activities by
various regulators, GLBA prohibits the Federal Reserve Board from requiring payment by a holding
company or subsidiary to a depository institution if the functional regulator of the payor objects
to such payment. In such a case, the Federal Reserve Board could instead require the divestiture of
the depository institution and impose operating restrictions pending the divestiture.
The bank subsidiaries of JPMorgan Chase are subject to certain restrictions imposed by federal law
on extensions of credit to, and certain other transactions with, the Firm and certain other
affiliates,
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Part I
and on investments in stock or securities of JPMorgan Chase and those affiliates. These
restrictions prevent JPMorgan Chase and other affiliates from borrowing from a bank subsidiary
unless the loans are secured in specified amounts and are subject to certain other limits. For more
information, see Note 28 on page 230.
The Firms banks and certain of its nonbank subsidiaries are subject to direct supervision and
regulation by various other federal and state authorities (some of which are considered functional
regulators under GLBA). JPMorgan Chases national bank subsidiaries, such as JPMorgan Chase Bank,
N.A., and Chase Bank USA, N.A., are subject to supervision and regulation by the OCC and, in
certain matters, by the Federal Reserve Board and the FDIC. Supervision and regulation by the
responsible regulatory agency generally includes comprehensive annual reviews of all major aspects
of the relevant banks business and condition, and imposition of periodic reporting requirements
and limitations on investments, among other powers.
The Firm conducts securities underwriting, dealing and brokerage activities in the U.S. through
JPMorgan Securities and other broker-dealer subsidiaries, all of which are subject to regulations
of the SEC, the Financial Industry Regulatory Authority and the New York Stock Exchange, among
others. The Firm conducts similar securities activities outside the U.S. subject to local
regulatory requirements. In the United Kingdom (U.K.), those activities are conducted by J.P.
Morgan Securities Ltd., which is regulated by the Financial Services Authority of the U.K. The
operations of JPMorgan Chase mutual funds also are subject to regulation by the SEC.
The Firm has subsidiaries that are members of futures exchanges in the U.S. and abroad and are
registered accordingly. In the U.S., three subsidiaries are registered as futures commission
merchants, with other subsidiaries registered with the Commodity Futures Trading Commission (the
CFTC) as commodity pool operators and commodity trading advisors. These CFTC-registered
subsidiaries are also members of the National Futures Association. The Firms U.S. energy business
is subject to regulation by the Federal Energy Regulatory Commission. It is also subject to other
extensive and evolving energy, commodities, environmental and other governmental regulation both in
the U.S. and other jurisdictions globally.
The types of activities in which the non-U.S. branches of JPMorgan Chase Bank, N.A., and the
international subsidiaries of JPMorgan Chase may engage are subject to various restrictions imposed
by the Federal Reserve Board. Those non-U.S. branches and international subsidiaries also are
subject to the laws and regulatory authorities of the countries in which they operate.
The activities of JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. as consumer lenders also are
subject to regulation under various U.S. federal laws, including the Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting, Fair Debt Collection Practice and Electronic Funds Transfer
acts, as well as various state laws. These statutes impose requirements on consumer loan
origination and collection practices.
Under the requirements imposed by GLBA, JPMorgan Chase and its subsidiaries are required
periodically to disclose to their retail customers the Firms policies and practices with
respect
to the sharing of nonpublic customer information with JPMorgan Chase affiliates and others, and the
confidentiality and security of that information. Under GLBA, retail customers also must be given
the opportunity to opt out of information-sharing arrangements with nonaffiliates, subject to
certain exceptions set forth in GLBA.
ITEM 1A: RISK FACTORS
The following discussion sets forth some of the more important risk factors that could
materially affect our financial condition and operations. Other factors that could affect our
financial condition and operations are discussed in the Forward-looking statements section on
page 135. However, factors besides those discussed below, in MD&A or elsewhere in this or other
reports that we filed or furnished with the SEC, also could adversely affect us. You should not
consider any descriptions of such factors to be a complete set of all potential risks that could
affect us.
Our results of operations have been, and may continue to be, adversely affected by U.S. and
international financial market and economic conditions.
Our businesses have been, and in the future will continue to be, materially affected by economic
and market conditions, including factors such as the liquidity of the global financial markets; the
level and volatility of debt and equity prices, interest rates and currency and commodities prices;
investor sentiment; corporate or other scandals that reduce confidence in the financial markets;
inflation; the availability and cost of capital and credit; the occurrence of natural disasters,
acts of war or terrorism; and the degree to which U.S. or international economies are expanding or
experiencing recessionary pressures. These factors can affect, among other things, the activity
levels of clients with respect to the size, number and timing of transactions involving our
investment and commercial banking businesses, including our underwriting and advisory businesses;
the realization of cash returns from our private equity and principal investments businesses; the
volume of transactions that we execute for our customers and, therefore, the revenue we receive
from commissions and spreads; the number and size of underwritings we manage on behalf of clients;
and the willingness of financial sponsors or other investors to participate in loan syndications or
underwritings managed by us.
We generally maintain large trading portfolios in the fixed income, currency, commodity and equity
markets and we may have from time to time significant positions, including positions in securities
in markets that lack pricing transparency or liquidity. The revenue derived from mark-to-market
values of our businesses are affected by many factors, including our credit standing; our success
in effectively hedging our market and other risks; volatility in interest rates and equity, debt
and commodities markets; credit spreads and availability of liquidity in the capital markets; and
other economic and business factors. We anticipate that revenue relating to our trading and
principal investment businesses will continue to experience volatility and there can be no
assurance that such volatility relating to the above factors or other conditions that may affect
pricing or our ability to realize returns from such investments could not materially adversely
affect our earnings.
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The fees we earn for managing third-party assets are also dependent upon general economic
conditions. For example, a higher level of U.S. or non-U.S. interest rates or a downturn in trading
markets could affect the valuations of the third-party assets we manage or hold in custody, which,
in turn, could affect our revenue. Moreover, even in the absence of a market downturn, below-market
or sub-par performance by our investment management businesses could result in outflows of assets
under management and supervision and, therefore, reduce the fees that we receive.
During 2008, U.S. and global financial markets were extremely volatile and were materially and
adversely affected by a significant lack of liquidity, loss of confidence in the financial sector,
disruptions in the credit markets, reduced business activity, rising unemployment, declining home
prices, and erosion of consumer confidence. These factors contributed to adversely affecting our
business, financial condition and results of operations in 2008 and into early 2009. While the
business environment stabilized during the latter half of 2009, the current economic environment
remains weak, which affects our businesses profitability.
Our consumer businesses are particularly affected by domestic economic conditions. Such conditions
include U.S. interest rates; the rate of unemployment; housing prices; the level of consumer
confidence; changes in consumer spending; and the number of personal bankruptcies, among others.
The deterioration of these conditions can diminish demand for the consumer businesses products and
services, or increase the cost to provide such products and services. In addition, adverse economic
conditions, such as declines in home prices, could lead to an increase in mortgage and other loan
delinquencies and higher net charge-offs, which can adversely affect our earnings.
During 2008 and continuing in 2009, higher levels of bank failures have dramatically increased
resolution costs of the Federal Deposit Insurance Corporation and depleted the deposit insurance
fund. In order to maintain a strong funding position and restore reserve ratios of the deposit
insurance fund, the FDIC has increased assessment rates of insured institutions and adopted a rule
in November 2009 requiring banks to prepay three years worth of premiums to replenish the depleted
insurance fund. If there are additional bank or financial institutions failures, we may be required
to pay even higher FDIC premiums than the recently increased levels. Any future increases of FDIC
insurance premiums may adversely impact our earnings.
In connection with the sale and securitization of loans (whether with or without recourse), the
originator is generally required to make a variety of customary
representations and warranties
regarding both the originator and the loans being sold or securitized. We and certain of our
subsidiaries, as well as entities acquired by us as part of the Bear Stearns merger, and the
Washington Mutual and other transactions, have made such representations and warranties in
connection with the sale and securitization of loans, and we will continue to do so in the ordinary
course of our lending business.
If a loan does not comply with such representations or warranties
is sold or securitized, we may be obligated to repurchase the loan and bear any associated loss
directly, or we may be obligated to indemnify the purchaser against any such losses. In 2009, the
costs of repurchasing mortgage loans that had been sold to government agencies such as Freddie Mac
and Fannie Mae increased substantially, and could continue to
increase substantially further. Accordingly, repurchase and/or indemnity obligations to government-sponsored enterprises or to private third-party purchasers could
materially and adversely affect our results of operations and earnings in the future.
We cannot provide assurance that any of the above-mentioned conditions, or further continued
deterioration in economic, market or business conditions, will not have a material negative effect
on the Firm in the future.
If we do not effectively manage our liquidity, our business could be negatively affected.
Our liquidity is critical to our ability to operate our businesses, grow and be profitable. Some
potential conditions that could negatively affect our liquidity include illiquid or volatile
markets, diminished access to capital markets, unforeseen cash or capital requirements (including,
among others, commitments that may be triggered to special purpose entities (SPEs) or other
entities), difficulty or inability to sell assets, unforeseen outflows of cash or collateral, and
lack of market or customer confidence in us or our prospects. These conditions may be caused by
events over which we have little or no control. For example, the liquidity crisis experienced in
2008 and into early 2009 increased our cost of funding and limited our access to some of our
traditional sources of liquidity such as securitized debt offerings backed by mortgages, loans,
credit card receivables and other assets. These or other conditions detrimental to our liquidity
may occur in the future.
The credit ratings of JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are
important in order to maintain our liquidity. A reduction in their credit ratings could have an
adverse effect on our access to liquidity sources, increase our cost of funds, trigger additional
collateral or funding requirements, and decrease the number of investors and counterparties willing
to lend to us, thereby curtailing our business operations and reducing our profitability. Reduction
in the ratings of certain SPEs or other entities to which we have a funding or other commitment
could also negatively affect our liquidity where such ratings changes lead, directly or indirectly,
to us being required to purchase assets or otherwise provide funding. 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.
Our cost of obtaining long-term unsecured funding is directly related to our credit spreads (the
amount in excess of the interest rate of U.S. Treasury securities (or other benchmark securities)
of the same maturity that we need to pay to our debt investors). Increases in our credit spreads
can significantly increase the cost of this funding. Changes in credit spreads are continuous and
market-driven, and influenced by market perceptions of our creditworthiness. As such, our credit
spreads may be unpredictable and highly volatile.
5
Part I
As a holding company, we rely on the earnings of our subsidiaries for our cash flow and consequent
ability to pay dividends and satisfy our obligations. These payments by subsidiaries may take the
form of dividends, loans or other payments. Several of our principal subsidiaries are subject to
capital adequacy requirements or other regulatory or contractual restrictions on their ability to
provide such payments. Limitations in the payments we receive from our subsidiaries could
negatively affect our liquidity position.
The financial condition of our customers, clients and counterparties, including other financial
institutions, could adversely affect us.
A number of our products expose us to credit risk, including loans, leases and lending commitments,
derivatives, trading account assets and assets held-for-sale. As one of the nations largest
lenders, we have exposures to many different products and counterparties, and the credit quality of
our exposures can have a significant impact on our earnings. We estimate and establish reserves for
credit risks and potential credit losses inherent in our credit exposure (including unfunded
lending commitments). This process, which is critical to our financial results and condition,
requires difficult, subjective and complex judgments, including forecasts of how economic
conditions might impair the ability of our borrowers to repay their loans. As is the case with any
such assessments, there is always the chance that we will fail to identify the proper factors or
that we will fail to accurately estimate the impact of factors that we identify. Any such failure
could result in increases in delinquencies and default rates.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or
other relationships. We routinely execute transactions with counterparties in the financial
services industry, including brokers and dealers, commercial banks, investment banks, mutual and
hedge funds, and other institutional clients. Many of these transactions expose us to credit risk
in the event of default by the counterparty or client, which can be exacerbated during periods of
market illiquidity, such as experienced in 2008 and early 2009. During such periods, our credit
risk also may be further increased when the collateral held by us cannot be realized upon or is
liquidated at prices that are not sufficient to recover the full amount of the loan or derivative
exposure due us. In addition, disputes with counterparties as to the valuation of collateral
significantly increases in times of market stress and illiquidity. We cannot provide assurance that
any such losses would not materially and adversely affect our results of operations or earnings.
An example of the risks associated with our relationships with other financial institutions is
the collapse of Lehman Brothers Holdings Inc. (LBHI). On September 15, 2008, LBHI filed a
voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York, and
thereafter several of its subsidiaries also filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code (LBHI and such subsidiaries collectively, Lehman). On September 19, 2008,
a liquidation case under the Securities Investor Protection Act
(SIPA) was commenced in the United States
District Court for the Southern District of New York for Lehman Brothers Inc. (LBI), LBHIs U.S.
broker-dealer subsidiary, and that court now presides over the LBI
SIPA liquidation case. We were LBIs clearing bank and,
among other actions, made collateral calls totaling approximately $8
billion in September 2008 and liquidated approximately $18 billion of securities subsequent to
Lehmans bankruptcy filing. We are the largest secured creditor in the Lehman and LBI cases,
according to Lehmans schedules. It is possible that claims may be asserted against us and/or our
security interests, including by the LBHI Creditors Committee, the SIPA Trustee appointed in the
LBI liquidation case, the principal acquirer of LBIs assets, and others in connection with Lehman
and LBI cases. We intend to defend ourself against any such claims. The LBHI examiner has filed a
report with the Bankruptcy Court regarding his investigation into the
collapse of Lehman. The
report remains under seal.
If the current weak economic environment continues for an extended period of time, or deteriorates
further, there is a greater likelihood that more of our customers or counterparties could become
delinquent on their loans or other obligations to us which, in turn, could result in a higher level
of charge-offs and provision for credit losses, or requirements that we purchase assets or provide
other funding, any of which could adversely affect our financial condition. Moreover, a significant
deterioration in the credit quality of one of our counterparties could lead to concerns about the
credit quality of other counterparties in the same industry, thereby exacerbating our credit risk
exposure, and increasing the losses, including mark-to-market losses, we could incur in our
trading and clearing businesses.
Concentration of credit and market risk could increase the potential for significant losses.
We have exposure to increased levels of risk when a number of customers are engaged in similar
business activities or activities in the same geographic region, or when they have similar economic
features that would cause their ability to meet contractual obligations to be similarly affected by
changes in economic conditions. We regularly monitor various segments of our portfolio exposures to
assess potential concentration risks. Our efforts to diversify or hedge our credit portfolio
against concentration risks may not be successful and any concentration of credit risk could
increase the potential for significant losses in our credit portfolio. In addition, disruptions in
the liquidity or transparency of the financial markets may result in our inability to sell,
syndicate or realize upon securities, loans or other instruments or positions held by us, thereby
leading to increased concentrations of such positions. These concentrations could expose us to
losses if the mark-to-market value of the securities, loans or other instruments or positions
decline causing us to take write downs. Moreover, the inability to reduce our positions not only
increases the market and credit risks associated with such positions, but also increases the level
of risk-weighted assets on our balance sheet, thereby increasing our capital requirements and
funding costs, all of which could adversely affect our businesses operations and profitability.
Our framework for managing risks may not be effective in mitigating risk and loss to us.
Our risk management framework seeks to mitigate risk and loss to us. We have established processes
and procedures intended to identify, measure, monitor, report and analyze the types of risk to
which we are subject, including liquidity risk, credit risk, market
6
risk, interest rate risk, operational risk, legal and fiduciary risk, reputational risks and
private equity risk, among others. However, as with any risk management framework, there are
inherent limitations to our risk management strategies as there may exist, or develop in the
future, risks that we have not appropriately anticipated or identified. If our risk management
framework proves ineffective, we could suffer unexpected losses and could be materially adversely
affected.
Our risk management strategies may not be effective because in a difficult or less liquid market
environment other market participants may be attempting to use the same or similar strategies to
deal with the difficult market conditions. In such circumstances, it may be difficult for us to
reduce our risk positions due to the activity of such other market participants.
Our derivatives businesses may expose us to unexpected market, credit and operational risks that
could cause us to suffer unexpected losses. Severe declines in asset values, unanticipated credit
events, or unforeseen circumstances that may cause previously uncorrelated factors to become
correlated (and vice versa) may create losses resulting from risks not appropriately taken into
account in the development, structuring or pricing of a derivative instrument. In addition, certain
of our derivative transactions require the physical settlement by delivery of securities,
commodities or obligations that we do not own; if we are not able to obtain such securities,
commodities or obligations within the required timeframe for delivery, this could cause us to
forfeit payments otherwise due to us and could result in settlement delays, which could damage our
reputation and ability to transact future business. In addition, in situations where derivatives
transactions are not settled or confirmed on a timely basis, we may be subject to heightened credit
and operational risk, and in the event of a default, we may find the contract more difficult to
enforce. Further, as new and more complex derivative products are created, disputes regarding the
terms or the settlement procedures of the contracts could arise, which could force us to incur
unexpected costs, including transaction and legal costs, and impair our ability to manage
effectively our risk exposure from these products.
Many of our hedging strategies and other risk management techniques have a basis in historic market
behavior, and all such strategies and techniques are based to some degree on managements
subjective judgment. For example, many models used by us are based on assumptions regarding
correlations among prices of various asset classes or other market indicators. In times of market
stress, such as occurred during 2008, or in the event of other unforeseen circumstances, previously
uncorrelated indicators may become correlated, or conversely, previously correlated indicators may
make unrelated movements. These sudden market movements or unanticipated or unidentified market or
economic movements have in some circumstances limited the effectiveness of our risk management
strategies, causing us to incur losses. In addition, as our businesses change and grow and the
markets in which they operate continue to evolve, our risk management framework may not always keep
sufficient pace with those changes. For example, there is the risk that the credit and market risks
associated with new products or new business strategies may not be appropriately identified,
monitored or managed. We cannot provide
assurance that our risk management framework, including our
underlying assumptions or strategies, will at all times be accurate and effective.
Our operations are subject to risk of loss from unfavorable economic, monetary, political, legal
and other developments in the United States and around the world.
Our businesses and earnings are affected by the fiscal and other policies that are adopted by
various regulatory authorities of the United States, non-U.S. governments and international
agencies.
The Board of Governors of the Federal Reserve System regulates the supply of money and credit in
the United States. Its policies determine in large part the cost of funds for lending and investing
and the return earned on those loans and investments. The market impact from such policies can also
materially decrease the value of financial assets that we hold, such as debt securities and
mortgage servicing rights (MSRs). Its policies also can adversely affect borrowers, potentially
increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
Changes in Federal Reserve Board policies are beyond our control and, consequently, the impact of
these changes on our activities and results of operations is difficult to predict.
Our businesses and revenue are also subject to the risks inherent in maintaining international
operations and in investing and trading in securities of companies worldwide. These risks include,
among others, risk of loss from the outbreak of hostilities or acts of terrorism and various
unfavorable political, economic, legal or other developments, including social or political
instability, changes in governmental policies or policies of central banks, expropriation,
nationalization, confiscation of assets, price controls, capital controls, exchange controls, and
changes in laws and regulations. Further, various countries in which we operate or invest, or in
which we may do so in the future, have in the past experienced severe economic disruptions
particular to that country or region, including extreme currency fluctuations, high inflation, or
low or negative growth, among other negative conditions. Crime, corruption, war or military
actions, acts of terrorism and a lack of an established legal and regulatory framework are
additional challenges in some of these countries, particularly in certain emerging markets. Revenue
from international operations and trading in non-U.S. securities may be subject to negative
fluctuations as a result of the above considerations. The impact of these fluctuations could be
accentuated as some trading markets are smaller, less liquid and more volatile than larger markets.
Also, any of the above-mentioned events or circumstances in one country can, and has in the past,
affected our operations and investments in another country or countries, including our operations
in the U.S. Any such unfavorable conditions or developments could have an adverse impact on our
business and results of operations.
Our power generation and commodities activities are subject to extensive regulation, potential
catastrophic events and environmental risks and regulation that may expose us to significant cost
and liability.
We engage in power generation, and in connection with the commodities activities of our Investment
Bank, we engage in the storage, transportation, marketing or trading of several
7
Part I
commodities, including metals, agricultural products, crude oil, oil products, natural gas,
electric power, emission credits, coal, freight, and related products and indices. We have also invested in companies engaged in wind energy and in sourcing, developing and trading emission reduction credits. As a result of
these activities, we are subject to extensive and evolving energy, commodities, environmental, and
other governmental laws and regulations. We expect laws and regulations affecting our power
generation and commodities activities to expand in scope and complexity. We may incur substantial
costs in complying with current or future laws and regulations and the failure to comply with these
laws and regulations may result in substantial civil and criminal fines and penalties. In addition,
liability may be incurred without regard to fault under certain environmental laws and regulations
for remediation of contaminations. Our power generation and commodities activities also further
exposes us to the risk of unforeseen and catastrophic events, including natural disasters, leaks,
spills, explosions, release of toxic substances, fires, accidents on land and at sea, wars, and
terrorist attacks that could result in personal injuries, loss of life, property damage, damage to
our reputation and suspension of operations. In addition, our power generation activities are
subject to disruptions, many of which are outside of our control, from the breakdown or failure of
power generation equipment, transmission lines or other equipment or processes, and the contractual
failure of performance by third-party suppliers or service providers, including the failure to
obtain and deliver raw materials necessary for the operation of power generation facilities. Our
actions to mitigate our risks related to the abovementioned considerations may not prove adequate
to address every contingency. In addition, insurance covering some of these risks may not be
available, and the proceeds, if any, from insurance recovery may not be adequate to cover
liabilities with respect to particular incidents. As a result, our financial condition and results
of operations may be adversely affected by such events.
We rely on our systems, employees and certain counterparties, and certain failures could materially
adversely affect our operations.
Our businesses are dependent on our ability to process, record and monitor a large number of
increasingly complex transactions. If any of our financial, accounting, or other data processing
systems fail or have other significant shortcomings, we could be materially adversely affected. We
are similarly dependent on our employees. We could be materially adversely affected if one of our
employees causes a significant operational break-down or failure, either as a result of human error
or where an individual purposefully sabotages or fraudulently manipulates our operations or
systems. Third parties with which we do business could also be sources of operational risk to us,
including relating to breakdowns or failures of such parties own systems or employees. Any of
these occurrences could diminish our ability to operate one or more of our businesses, or result in
potential liability to clients, reputational damage and regulatory intervention, any of which could
materially adversely affect us.
If personal, confidential or proprietary information of customers or clients in our possession were
to be mishandled or misused, we could suffer significant regulatory consequences, reputational
damage and financial loss. Such mishandling or misuse could include circumstances where, for
example, such information was erroneously provided to
parties who are not permitted to have the
information, either by fault of our systems, employees, or counterparties, or such information was
intercepted or otherwise inappropriately taken by third parties.
We may be subject to disruptions of our operating systems arising from events that are wholly or
partially beyond our control, which may include, for example, computer viruses, electrical or
telecommunications outages, or other damage to our property or assets; natural disasters; health
emergencies or pandemics; or events arising from local or larger scale political events, including
terrorist acts. Such disruptions may give rise to losses in service to customers and loss or
liability to us.
In a firm as large and complex as ours, lapses or deficiencies in internal control over financial
reporting may occur from time to time, and there is no assurance that significant deficiencies or
material weaknesses in internal controls may not occur in the future. In addition, there is the
risk that our controls and procedures as well as business continuity and data security systems
could prove to be inadequate. Any such failure could adversely affect our operations and results of
operations by requiring us to expend significant resources to correct the defect, as well as by
exposing us to litigation, regulatory fines or penalties or losses not covered by insurance.
We operate within a highly regulated industry and our business and results are significantly
affected by the laws and regulations to which we are subject.
We are subject to regulation under state and federal laws in the U.S., as well as the applicable
laws of each of the various other jurisdictions outside the U.S. in which we do business. These
laws and regulations affect the type and manner in which we do business and may limit our ability
to expand our product offerings, pursue acquisitions, or restrict the scope of operations and
services provided.
Recent market and economic conditions have led to new legislation and numerous proposals for
changes in the regulation of the financial services industry, including significant additional
legislation and regulation in the United States. For example, new legislation and regulation
affecting the credit card industry is expected to adversely affect our Card Services business by
reducing revenue and increasing compliance costs.
Recent proposals for further regulation of financial institutions, both domestically and
internationally, include calls to increase their capital and liquidity requirements; limit the size
and types of the activities permitted; and increase taxes on some institutions. For example, the
Wall Street Reform and Consumer Protection Act of 2009 recently passed by the U.S. House of
Representatives would, among other things, establish a Consumer Financial Protection Agency having
broad authority to regulate providers of credit, savings, payment and other consumer financial
products and services, as well as create a structure to regulate systemically important financial
companies, and provide regulators with the power to require such companies to sell or transfer
assets and terminate activities if the regulators determine that the size or scope of activities of
the company pose a threat to the safety and soundness of the company or the financial stability of
the United States. Also proposed is more comprehensive regulation of the over-the-counter
derivatives market, including providing for
8
more strict capital and margin requirements, the central clearing of standardized over-the-counter
derivatives, and heightened supervision of all over-the-counter derivatives dealers and major
market participants, including the Firm.
These new (and other) legislative and regulatory changes could result in significant loss of
revenue, limit our ability to pursue business opportunities we might otherwise consider engaging
in, impact the value of assets that we hold, require us to change certain of our business
practices, impose additional costs on us, or otherwise adversely affect our businesses.
Accordingly, we cannot provide assurance that any such new legislation or regulation would not have
an adverse effect on our business, results of operations or financial condition.
If we do not comply with current or future legislation and regulations that apply to our
operations, we may be subject to fines, penalties or material restrictions on our businesses in the
jurisdiction where the violation occurred. In recent years, regulatory oversight and enforcement
have increased substantially, imposing additional costs and increasing the potential risks
associated with our operations. As this regulatory trend continues, it could adversely affect our
operations and, in turn, our financial results.
We face significant legal risks, both from regulatory investigations and proceedings and from
private actions brought against us.
We are named as a defendant or are otherwise involved in various legal proceedings, including class
actions and other litigation or disputes with third parties, as well as investigations or
proceedings brought by regulatory agencies. Actions brought against us may result in judgments,
settlements, fines, penalties or other results adverse to us, which could materially adversely
affect our business, financial condition or results of operation, or cause us serious reputational
harm. As a participant in the financial services industry, it is likely we will continue to
experience a high level of litigation and regulatory scrutiny and investigations related to our
businesses and operations.
There is increasing competition in the financial services industry which may adversely affect our
results of operations.
We operate in a highly competitive environment and we expect competitive conditions to continue to
intensify as continued merger activity in the financial services industry produces larger,
better-capitalized and more geographically diverse companies that are capable of offering a wider
array of financial products and services at more competitive prices.
We also face an increasing array of competitors. Competitors include other banks, brokerage firms,
investment banking companies, merchant banks, hedge funds, private equity firms, insurance
companies, mutual fund companies, credit card companies, mortgage banking companies, trust
companies, securities processing companies, automobile financing companies, leasing companies,
e-commerce and other Internet-based companies, and a variety of other financial services and
advisory companies. Technological advances and the growth of e-commerce have made it possible for
non-depository institutions to offer products and services that traditionally were banking
products, and for financial institutions and other companies to provide electronic
and
Internet-based financial solutions, including electronic securities trading. Our businesses
generally compete on the basis of the quality and variety of our products and services, transaction
execution, innovation, reputation and price. Ongoing or increased competition in any one or all of
these areas may put downward pressure on prices for our products and services or may cause us to
lose market share. Increased competition also may require us to make additional capital investment
in our businesses in order to remain competitive. These investments may increase expense or may
require us to extend more of our capital on behalf of clients in order to execute larger, more
competitive transactions. We cannot provide assurance that the significant and increasing
competition in the financial services industry will not materially adversely affect our future
results of operations.
Our acquisitions and the integration of acquired businesses may not result in all of the benefits
anticipated.
We have in the past and may in the future seek to grow our business by acquiring other businesses.
There can be no assurance that our acquisitions will have the anticipated positive results,
including results relating to: the total cost of integration; the time required to complete the
integration; the amount of longer-term cost savings; the overall performance of the combined
entity; or an improved price for our common stock. Integration of an acquired business can be
complex and costly, sometimes including combining relevant accounting and data processing systems
and management controls, as well as managing relevant relationships with employees, clients,
suppliers and other business partners. Integration efforts could divert management attention and
resources, which could adversely affect our operations or results. We cannot provide assurance that
any integration efforts of acquisitions already consummated or any new acquisitions would not
result in the occurrence of unanticipated costs or losses.
We may continue to experience increased credit costs or need to take additional markdowns and
allowances for loan losses on the assets and loans acquired in the merger (the Bear Stearns
merger) by JPMorgan Chase and The Bear Stearns Companies Inc. (Bear Stearns) and in connection
with the acquisition of Washington Mutual Banks (Washington Mutual) banking operations (the
Washington Mutual transaction). We cannot assure you that as our integration efforts continue in
connection with these transactions, other unanticipated costs or losses will not be incurred.
Acquisitions may also result in business disruptions that cause us to lose customers or cause
customers to remove their accounts from us and move their business to competing financial
institutions. It is possible that the integration process related to acquisitions could result in
the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and
policies that could adversely affect our ability to maintain relationships with clients, customers,
depositors and employees. The loss of key employees in connection with an acquisition could
adversely affect our ability to successfully conduct our business.
Damage to our reputation could damage our businesses.
Maintaining a positive reputation is critical to our attracting and maintaining customers,
investors and employees. Damage to our
9
Part I
reputation can therefore cause significant harm to our business and prospects. Harm to our
reputation can arise from numerous sources, including, among others, employee misconduct,
litigation or regulatory outcomes, failing to deliver minimum standards of service and quality,
compliance failures, unethical behavior, and the activities of customers and counterparties.
Further, negative publicity regarding us, whether or not true, may result in harm to our prospects.
Actions by the financial services industry generally or by certain members of or individuals in the
industry can also affect our reputation. For example, the role played by financial services firms
in the financial crisis has damaged the reputation of the industry as a whole.
We could suffer significant reputational harm if we fail to properly identify and manage potential
conflicts of interest. Management of potential conflicts of interests has become increasingly
complex as we expand our business activities through more numerous transactions, obligations and
interests with and among our clients. The failure to adequately address, or the perceived failure
to adequately address, conflicts of interest could affect the willingness of clients to deal with
us, or give rise to litigation or enforcement actions. Therefore, there can be no assurance that
conflicts of interest will not arise in the future that could cause material harm to us.
Our ability to attract and retain qualified employees is critical to the success of our business
and failure to do so may materially adversely affect our performance.
Our employees are our most important resource and, in many areas of the financial services
industry, competition for qualified personnel is intense. The imposition on us or on our employees
of certain of the currently proposed restrictions or taxes on executive compensation may adversely
affect our ability to attract and retain qualified senior management and employees. If we are
unable to continue to retain and attract qualified employees, our performance, including our
competitive position, could be materially adversely affected.
Our financial statements are based in part on assumptions and estimates which, if wrong, could
cause unexpected losses in the future.
Pursuant to accounting principles generally accepted in the United States of America, we are
required to use certain assumptions and estimates in preparing our financial statements, including
in determining credit loss reserves, reserves related to litigations and the fair value of certain
assets and liabilities, among other items. If assumptions or estimates underlying our financial
statements are incorrect, we may experience material losses.
Certain of our financial instruments, including trading assets and liabilities, available-for-sale
securities, certain loans, MSRs, private equity investments, structured notes and certain
repurchase and resale agreements, among other items, require a determination of their fair value in
order to prepare our financial statements. Where quoted market prices are not available, we may
make fair value determinations based on internally developed models or other means which ultimately
rely to some degree on management judgment. Some of these and other assets and liabilities may have
no direct observable price levels, making their valuation
particularly subjective, being based on
significant estimation
and judgment. In addition, sudden illiquidity in markets or declines in
prices of certain loans and securities may make it more difficult to value certain balance sheet
items, which may lead to the possibility that such valuations will be subject to further change or
adjustment and could lead to declines in our earnings.
ITEM 1B: UNRESOLVED SEC STAFF COMMENTS
None.
ITEM 2: PROPERTIES
JPMorgan Chases headquarters is located in New York City at 270 Park Avenue, which is a
50-story office building owned by JPMorgan Chase. This location contains approximately 1.3 million
square feet of space. The building is currently undergoing a major renovation in five stages. The
design seeks to attain the highest sustainability rating for renovations of existing buildings
under the Leadership in Energy and Environmental Design (LEED) Green Building Rating System. The
renovations of floors 15 50 are complete. The renovation of the exterior Plaza and the lobby
began in the fourth quarter 2009. The total renovation is expected to be substantially completed by
mid-year 2011.
In connection with the Bear Stearns merger in 2008, JPMorgan Chase acquired 383 Madison Avenue in
New York City, a 45-story, 1.1 million square-foot office building on land which is subject to a
ground lease through 2096. This building serves as the U.S. headquarters of JPMorgan Chases
Investment Bank.
In total, JPMorgan Chase owned or leased approximately 12.9 million square feet of commercial
office and retail space in New York City at December 31, 2009. JPMorgan Chase and its subsidiaries
also own or lease significant administrative and operational facilities in Houston and Dallas,
Texas (4.4 million square feet); Chicago, Illinois (3.9 million square feet); Columbus, Ohio
(2.7 million square feet); Phoenix, Arizona (1.4 million square feet); Jersey City, New Jersey
(1.2 million square feet); San Francisco, California (1.0 million square feet); Seattle, Washington
(1.0 million square feet); Wilmington, Delaware (1.0 million square feet); and 5,154 retail
branches in 23 states. At December 31, 2009, the Firm occupied approximately 72.5 million total
square feet of space in the United States.
At December 31, 2009, the Firm managed and occupied approximately 3.7 million total square feet of
space in Europe, Middle East and Africa.
In the United Kingdom, JPMorgan Chase leased approximately 2.6 million square feet of office space
and owned a 360,000 square-foot operations center at December 31, 2009. In 2008, JPMorgan Chase
acquired a 999-year leasehold interest in land at Canary Wharf, London, as the possible future site
for construction of a new European headquarters building. Initially, the design was for a building
area of 1.9 million square feet and up to five trading floors; it is now modified to 1.7 million
square feet and up to four trading floors. JPMorgan Chase is currently in the design development
stage and continues to identify and evaluate further opportunities to modify the design. JPMorgan
Chase, by agreement with the developer (as renegotiated in 2009), has the ability to defer
commencement of the main construction through at least October 2011. JPMorgan Chase
10
is reconsidering its occupancy options in London during this deferral period. The building design will
strive to achieve the highest possible environmental efficiency rating.
In addition, JPMorgan Chase and its subsidiaries occupy offices and other administrative and
operational facilities in the Asia Pacific region, Latin America and Canada under various types of
ownership and leasehold agreements, aggregating approximately 4.4 million total square feet of
space at December 31, 2009.
The properties occupied by JPMorgan Chase are used across all of the Firms business segments and
for corporate purposes. JPMorgan Chase continues to evaluate its current and projected space
requirements and may determine from time to time that certain of its premises and facilities are no
longer necessary for its operations. There is no assurance that the Firm will be able to dispose of
any such excess premises or that it will not incur charges in connection with such dispositions.
Such disposition costs may be material to the Firms results of operations in a given period.
ITEM 3: LEGAL PROCEEDINGS
Bear Stearns Shareholder Litigation and Related Matters. Various shareholders of Bear Stearns
have commenced purported class actions against Bear Stearns and certain of its former officers
and/or directors on behalf of all persons who purchased or otherwise acquired common stock of Bear
Stearns between December 14, 2006 and March 14, 2008 (the Class Period). The actions, originally
commenced in several federal courts, allege that the defendants issued materially false and
misleading statements regarding Bear Stearns business and financial results and that, as a result
of those false statements, Bear Stearns common stock traded at artificially inflated prices during
the Class Period. In connection with these allegations, the complaints assert claims for violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Separately, several individual
shareholders of Bear Stearns have commenced or threatened to commence arbitration proceedings and
lawsuits asserting claims similar to those in the putative class actions.
In addition, Bear Stearns and certain of its former officers and/or directors have also been named
as defendants in a number of purported class actions commenced in the United States District Court
for the Southern District of New York seeking to represent the interests of participants in the
Bear Stearns Employee Stock Ownership Plan (ESOP) during the time period of December 2006 to
March 2008. These actions allege that defendants breached their fiduciary duties to plaintiffs and
to the other participants and beneficiaries of the ESOP by (a) failing to manage prudently the
ESOPs investment in Bear Stearns securities; (b) failing to communicate fully and accurately about
the risks of the ESOPs investment in Bear Stearns stock; (c) failing to avoid or address alleged
conflicts of interest; and (d) failing to monitor those who managed and administered the ESOP. In
connection with these allegations, each plaintiff asserts claims for violations under various
sections of the Employee Retirement Income Security Act (ERISA) and seeks reimbursement to the
ESOP for all losses, an unspecified amount of monetary damages and imposition of a constructive
trust.
Bear Stearns, former members of Bear Stearns Board of Directors and certain of Bear Stearns
former executive officers have also been named as defendants in two purported shareholder
derivative suits, subsequently consolidated into one action, pending in the United States District
Court for the Southern District of New York. Plaintiffs are asserting claims for breach of
fiduciary duty, violations of federal securities laws, waste of corporate assets and gross
mismanagement, unjust enrichment, abuse of control and indemnification and contribution in
connection with the losses sustained by Bear Stearns as a result of its purchases of subprime loans
and certain repurchases of its own common stock. Certain individual defendants are also alleged to
have sold their holdings of Bear Stearns common stock while in possession of material nonpublic
information. Plaintiffs seek compensatory damages in an unspecified amount and an order directing
Bear Stearns to improve its corporate governance procedures. Plaintiffs later filed a second
amended complaint asserting, for the first time, purported class action claims for violation of
Section 10(b) of the Securities Exchange Act of 1934, as well as new allegations concerning events
that took place in March 2008.
All of the above-described actions filed in federal courts were ordered transferred and joined for
pre-trial purposes before the United States District Court for the Southern District of New York.
Motions to dismiss have been filed in the purported securities class action, the shareholders
derivative action and the ERISA action.
Bear Stearns Merger Litigation. Seven putative class actions (five that were commenced in New York
and two that were commenced in Delaware) were consolidated in New York State Court in Manhattan
under the caption In re Bear Stearns Litigation. Bear Stearns, as well as its former directors and
certain of its former executive officers, were named as defendants. JPMorgan Chase was also named
as a defendant. The actions allege, among other things, that the individual defendants breached
their fiduciary duties and obligations to Bear Stearns shareholders by agreeing to the proposed
merger. The Firm was alleged to have aided and abetted the alleged breaches of fiduciary duty;
breached its fiduciary duty as controlling shareholder/controlling entity; tortiously interfered
with the Bear Stearns shareholders voting rights; and to have been unjustly enriched. Plaintiffs
initially sought to enjoin the proposed merger and enjoin the Firm from voting certain shares
acquired by the Firm in connection with the proposed merger. The plaintiffs subsequently informed
the Court that they were withdrawing that motion, but amended the consolidated complaint to pursue
claims, which included a claim for an unspecified amount of compensatory damages. In December 2008,
the court granted summary judgment in favor of all the defendants. Plaintiffs have filed a notice
of appeal.
Bear Stearns Hedge Fund Matters. Bear Stearns, certain current or former subsidiaries of Bear
Stearns, including Bear Stearns Asset Management, Inc. (BSAM) and Bear Stearns & Co. Inc., and
certain current or former Bear Stearns employees are named defendants (collectively the Bear
Stearns defendants) in multiple civil actions and arbitrations relating to the failure of the Bear
Stearns High Grade Structured Credit Strategies Master Fund, Ltd. (the High Grade Fund) and the
Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Master Fund, Ltd.
11
Part I
(the Enhanced Leverage Fund) (collectively, the Funds). BSAM served as investment manager for
both of the Funds, which were organized such that there were U.S. and Cayman Islands feeder funds
that invested substantially all their assets, directly or indirectly, in the Funds. The Funds are
in liquidation.
There are five civil actions pending in the United States District Court for the Southern District
of New York relating to the Funds. Three of these actions involve derivative lawsuits brought on
behalf of purchasers of partnership interests in the two U.S. feeder funds. Plaintiffs in these
actions allege that the Bear Stearns defendants mismanaged the Funds and made material
misrepresentations to and/or withheld information from investors in the funds. These actions seek,
among other things, unspecified compensatory damages based on alleged investor losses. A fourth
action, brought by the Joint Voluntary Liquidators of the Cayman Islands feeder funds, makes
allegations similar to those asserted in the derivative lawsuits related to the U.S. feeder funds,
and seeks compensatory and punitive damages. A motion to dismiss or alternatively to stay is
pending in one of the derivative suits relating to one of the U.S. feeder funds. In the remaining
three cases, motions to dismiss have been granted in part and denied in part, and discovery is
ongoing The fifth action was brought by Bank of America and Banc of America Securities LLC
(together BofA) alleging breach of contract and fraud in connection with a May 2007 $4 billion
securitization, known as a CDO-squared, for which BSAM served as collateral manager. This
securitization was composed of certain collateralized debt obligation (CDO) holdings that were
purchased by BofA from the High Grade Fund and the Enhanced Leverage Fund. Defendants motion to
dismiss in this action was largely denied; an amended complaint was filed; and discovery is ongoing
in this case as well.
Ralph Cioffi and Matthew Tannin, the portfolio managers for the Funds, were tried on criminal
charges of securities fraud and conspiracy to commit securities and wire fraud brought by the
United States Attorneys Office for the Eastern District of New York. The U.S. Attorneys Office
contended, among other things, that Cioffi and Tannin made misrepresentations concerning the Funds
performance, prospects and liquidity, as well as their personal investments in the Funds. On
November 10, 2009, after a five-week trial, the jury found Cioffi and Tannin not guilty of all
charges submitted to the jury. The United States Securities and Exchange Commission is proceeding
with its action against Cioffi and Tannin.
Municipal Derivatives Investigations and Antitrust Litigation. The Department of Justices
Antitrust Division and the Securities and Exchange Commission have been investigating JPMorgan
Chase and Bear Stearns for possible antitrust and securities violations in connection with the
bidding or sale of guaranteed investment contracts and derivatives to municipal issuers. Although
the principal focus of the investigations to date has been the period 2001 to 2005, the
investigations may also include transactions beyond that period. A group of state attorneys
general and the Office of the Comptroller of the Currency (OCC) have opened investigations into
the same underlying conduct. JPMorgan Chase has been cooperating with all of these investigations.
The Philadelphia Office of the SEC provided notice to JPMorgan Securities Inc. (JPMSI)
that it
intends to recommend that the SEC bring civil charges in connection with its investigations. JPMSI
has responded to that notice, as well as to a separate notice that that Philadephia Office provided
to Bear, Stearns & Co. Inc.
Purported class action lawsuits and individual actions (the Municipal Derivatives Actions) have
been filed against JPMorgan Chase and Bear Stearns, as well as numerous other providers and
brokers, alleging antitrust violations in the markets for financial instruments related to
municipal bond offerings referred to collectively as municipal derivatives. The Municipal
Derivatives Actions have been consolidated in the United States District Court for the Southern
District of New York, and defendants have moved to dismiss the consolidated class action complaint.
The court has stayed discovery pending disposition of the motion to dismiss Certain plaintiffs
asserting class and individual claims under federal and California state law declined to join in
the consolidated class action complaints and have filed separate complaints, which defendants have
also moved to dismiss.
On November 4, 2009, JPMSI consented to the entry of an SEC administrative order finding that JPMSI
violated Sections 17(a)(2) and (3) of the Securities Act of 1933, Section 15B(c)(1) of the
Securities Exchange Act of 1934, and Municipal Securities Rulemaking Board Rule G-17 in connection
with certain Jefferson County, Alabama (the County) bond underwritings and related swap
transactions in 2002 and 2003 by failing to disclose in confirmations and official deal documents
descriptions of payments that had been made to mostly local Alabama businesses at the direction of
representatives of the Jefferson County Commission. JPMSI entered into the settlement with the SEC
without admitting or denying the SECs findings Shortly thereafter, the County filed a complaint
against the Firm and several other defendants in the Circuit Court of Jefferson County, Alabama.
The suit alleges that the Firm made payments to certain third parties in exchange for which it was
chosen to underwrite warrants issued by the County and chosen as the counterparty for certain swaps
executed by the County. In its complaint, Jefferson County alleges that JPMSI concealed these third
party payments and that, but for this concealment, the County would not have entered into the
transactions. The County further alleges that the transactions increased the risks of its capital
structure and that, following the downgrade of certain insurers that insured the warrants, the
Countys interest obligations increased and the principal due on a portion of its outstanding
warrants was accelerated. The Firm has moved to dismiss the Countys complaint.
A putative class action was filed on behalf of sewer ratepayers against the Firm and numerous other
defendants, based on substantially the same conduct described above (the Wilson Action). The Firm
moved to dismiss the claims for lack of standing. The plaintiff in the Wilson Action recently filed
a fifth amended complaint, which the Firm also moved to dismiss for lack of standing. Both motions
remain pending.
The Alabama Public Schools and College Authority (APSCA) brought a declaratory judgment action in
the United States District Court for the Northern District of Alabama claiming that certain
interest rate swaption transactions entered into with JPMorgan
12
Chase Bank, N.A. (Chase) are void on the grounds that the APSCA purportedly did not have the
authority to enter into transactions or, alternatively, are voidable at the APSCAs option because
of its alleged inability to issue refunding bonds in relation to the swaption. Following the denial
of its motion to dismiss the action, Chase answered the complaint and filed a counterclaim seeking
the amounts due under the swaption transactions. Discovery is under way.
Interchange Litigation. A group of merchants have filed a series of putativie class action
complaints in several federal courts. The complaints allege that VISA and MasterCard, as well as
certain other banks and their respective bank holding companies, including Chase Bank USA, N.A.,
and JPMorgan Chase, conspired to set the price of credit card interchange fees and enacted
respective association rules in violation of Section 1 of the Sherman Act, and engaged in
tying/bundling and exclusive dealing. All cases have been consolidated in the United States
District Court for the Eastern District of New York for pretrial proceedings. The amended
consolidated class action complaint extended the claims beyond credit to debit cards. Defendants
filed a motion to dismiss all claims that predated January 1, 2004. The Court granted the motion to
dismiss these claims. Plaintiffs then filed a second amended consolidated class action complaint.
The basic theories of the complaint remain the same, and defendants again filed motions to dismiss.
The Court has not yet ruled on the motions. Fact discovery has closed, and expert discovery in the
case is ongoing. The plaintiffs have filed a motion seeking class certification, and the defendants
have opposed that motion. The Court has not yet ruled on the class certification motion.
In addition to the consolidated class action complaint, plaintiffs filed supplemental complaints
challenging the MasterCard and Visa IPOs (the IPO Complaints). With respect to MasterCard,
plaintiffs allege that the offering violated Section 7 of the Clayton Act and Section 1 of the
Sherman Act and that the offering was a fraudulent conveyance. With respect to the Visa IPO,
plaintiffs are challenging the Visa IPO on antitrust theories parallel to those articulated in the
MasterCard IPO pleading. Defendants have filed motions to dismiss the IPO Complaints. The Court has
not yet ruled on the motions.
Mortgage-Backed Securities Litigation. JPMC and affiliates, heritage-Bear and affiliates and
heritage WaMu affiliates have been named as defendants in a number of cases relating to various
roles they played in mortgage-backed securities (MBS) offerings. These cases are generally
purported class action suits, actions by individual purchasers of securities, or actions by
insurance companies that guaranteed payments of principal and interest for particular tranches.
Although the allegations vary by lawsuit, these cases generally allege that the offering documents
for the securitization trusts contained material misrepresentations and omissions, including
statements regarding the underwriting standards pursuant to which the underlying mortgage loans
were issued, the ratings given to the tranches by rating agencies, and the appraisal standards that
were used.
Purported class actions are pending against JPMorgan Chase, heritage Bear Stearns, and certain of
their current and former employees in the United States District Courts for the
Eastern and
Southern Districts of New York. Heritage Washington Mutual affiliates, WaMu Asset Acceptance Corp.
and WaMu Capital Corp.; are defendants in two purported class action cases, pending in the Western
District of Washington. In addition to allegations as to mortgage underwriting standards and
ratings, plaintiffs in these cases also allege that defendants failed to disclose Washington Mutual
Banks alleged coercion of or collusion with appraisal vendors to inflate appraisal valuations of
the loans in the pools. Motions to dismiss have been filed in one of the cases.
In addition to the purported class actions, JPMC affiliates and several heritage Bear Stearns
entities are defendants in actions in state court in Pennsylvania and in state court in Washington
brought by the Federal Home Loan Banks of Pittsburgh and Seattle, respectively. These actions
relate to each Federal Home Loan Banks purchases of certificates in MBS offerings. Defendants
responses to the complaint brought by the FHLB of Pittsburgh are due on February 26, 2010.
Defendants have removed the action brought by the FHLB of Seattle to federal court.
EMC Mortgage Corporation (EMC), a subsidiary of JPMC, is a defendant in four pending actions
commenced by bond insurers that guaranteed payment on certain classes of MBS offerings sponsored by
EMC. Two of the actions, commenced respectively by Ambac Assurance Corporation and Syncora
Guarantee, Inc., (Syncora) are pending in the United States District Court for the Southern
District of New York and involve five securitizations sponsored by EMC. The third action was
commenced by Syncora, seeking access to certain loan files. The fourth was filed by CIFG Assurance
North America, Inc. in state court in Texas, and involves one securitization sponsored by EMC. In
each action, Plaintiffs claim the underlying mortgage loans had origination defects that
purportedly violate certain representations and warranties given by EMC to plaintiffs and that EMC
has breached the relevant agreements between the parties by failing to repurchase allegedly
defective mortgage loans. Each action seeks unspecified damages and an order compelling EMC to
repurchase those loans.
An action is pending in the United States District Court for the Southern District of New York
brought on behalf of purchasers of certificates issued by various MBS securitizations sponsored by
affiliates of IndyMac Bancorp (IndyMac Trusts). JPMSI, along with numerous other underwriters and
individuals, is named as a defendant, both in its own capacity and as successor to Bear Stearns &
Co. The defendants have moved to dismiss. JPMC and JPMSI are defendants in an action pending in
state court in Pennsylvania brought by FHLB-Pittsburgh, relating to its purchase of a certificate
issued by one IndyMac Trust. Defendants responses to the complaint are due on February 26, 2010.
JPMC, as successor to Bear Stearns, and other underwriters, along with certain individuals, are
defendants in an action pending in state court in California brought by MBIA Insurance Corp.
(MBIA) relating to certain certificates issued by three IndyMac trusts, as to two of which Bear
Stearns was an underwriter, and as to which MBIA provided guaranty insurance policies. MBIA
purports to be subrogated to the rights of the certificate holders, and seeks recovery of sums it
has paid and will pay pursuant to those policies.
13
Part I
A heritage Bear Stearns subsidiary is a defendant in a purported class action that is pending in
federal court in New Mexico against a number of financial institutions that served as depositors
and/or underwriters for 10 MBS offerings issued by Thornburg Mortgage, a bankrupt mortgage
originator.
The Firm and certain other heritage entities have been sued in other purported class actions for
their roles an underwriter or depositor of third party MBS offerings but, other than the matters
described in the above two paragraphs, the Firm is indemnified in these other litigations.
Auction-Rate Securities Investigations and Litigation. Beginning in March 2008, several regulatory
authorities initiated investigations of a number of industry participants, including the Firm,
concerning possible state and federal securities law violations in connection with the sale of
auction-rate securities. The market for many such securities had frozen and a significant number of
auctions for those securities began to fail in February 2008.
The Firm, on behalf of itself and affiliates, agreed to a settlement in principle with the New York
Attorney Generals Office which provided, among other things, that the Firm would offer to purchase
at par certain auction-rate securities purchased from J.P. Morgan Securities Inc., Chase Investment
Services Corp. and Bear, Stearns & Co. Inc. by individual investors, charities, and small- to
medium-sized businesses. The Firm also agreed to a substantively similar settlement in principle
with the Office of Financial Regulation for the State of Florida and the North American Securities
Administrator Association (NASAA) Task Force, which agreed to recommend approval of the
settlement to all remaining states, Puerto Rico and the U.S. Virgin Islands. The Firm finalized the
settlement agreements with the New York Attorney Generals Office and the Office of Financial
Regulation for the State of Florida. The settlement agreements provide for the payment of penalties
totaling $25 million to all states. The Firm is currently in the process of finalizing consent
agreements with NASAAs member states. Approximately half of these consent agreements have been
finalized to date.
The Firm is also the subject of a putative securities class action in the United States District
Court for the Southern District of New York and a number of individual arbitrations and lawsuits in
various forums, brought by institutional and individual investors, relating to the Firms sales of
auction-rate securities. One action is brought by an issuer of auction-rate securities. The actions
generally allege that the Firm and other firms manipulated the market for auction-rate securities
by placing bids at auctions that affected these securities clearing rates or otherwise supported
the auctions without properly disclosing these activities. Some actions also allege that the Firm
misrepresented that auction-rate securities were short-term instruments. Plaintiffs filed an
amended consolidated complaint, and defendants responses to the complaint are due on March 3,
2010.
Additionally, the Firm was named in two putative antitrust class actions in the United States
District Court for the Southern District of New York, which actions allege that the Firm, in
collusion with numerous other financial institution defendants, entered into an unlawful conspiracy
in violation of Section 1 of the Sherman Act.
Specifically, the complaints allege that defendants
acted collusively to maintain and stabilize the auction-rate securities market and similarly acted
collusively in withdrawing their support for the auction-rate securities market in February 2008.
On January 26, 2010, the District Court dismissed both actions. The time to file an appeal has not
yet expired.
City of Milan Litigation and Criminal Investigation. In January 2009, the City of Milan, Italy (the
City) issued civil proceedings against (among others) JPMorgan Chase Bank, National Association
(JPMCB) and J.P. Morgan Securities Ltd. (JPMSL) (together, JPM) in the District Court of
Milan. The proceedings relate to a (a) a bond issue by the City in June 2005 (the Bond) and (b)
an associated swap transaction, which was subsequently restructured on a number of occasions
between 2005 and 2007 (the Swap). The City seeks damages and/or other remedies against JPM (among
others) on the grounds of alleged fraudulent and deceitful acts and alleged breach of advisory
obligations by JPM (among others) in connection with the Swap and the Bond, together with related
swap transactions with other counterparties. The civil proceedings continue. No trial date has been
set. In January 2009, JPMCB also received a notice from the Prosecutor at the Court of Milan
placing it and certain current and former JPM personnel under investigation in connection with the
above transactions. Since April 2009, JPMCB has been contesting an attachment order obtained by the
Prosecutor, purportedly to freeze assets potentially subject to confiscation in the event of a
conviction. The original Euro 92 million attachment has been reduced to Euro 44.9 million, and
JMPCBs application for a further reduction remains pending. In November 2009, the Prosecutor filed
a request to proceed to trial in respect of the above transactions against (a) four current and
former JPM personnel and (b) JPMCB for administrative liability under Italian Law 231/2001 in
respect of alleged crimes committed by those personnel. The preliminary hearing at which these
requests will be determined began in January 2010 and continues, with further hearing dates
scheduled. The sanctions that potentially could be imposed under Italian law 231/2001 include
monetary penalties and restrictions on conduct of JPMCBs business in the jurisdiction.
Washington Mutual Litigations. Subsequent to JPMorgan Chases acquisition from the Federal Deposit
Insurance Corporation (FDIC) of substantially all of the assets and certain specified liabilities
of Washington Mutual Bank, Henderson Nevada (Washington Mutual Bank), on September 26, 2008,
Washington Mutual Banks parent holding company, Washington Mutual, Inc. (WMI) and its
wholly-owned subsidiary, WMI Investment Corp. (together, the Debtors) both commenced voluntary
cases under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court
for the District of Delaware (the Bankruptcy Case). In the Bankruptcy Case, the Debtors have
asserted rights and interests in certain assets. The assets in dispute include principally the
following: (a) approximately $4 billion in securities contributed by WMI to Washington Mutual Bank;
(b) the right to tax refunds arising from overpayments attributable to operations of Washington
Mutual Bank and its subsidiaries; (c) ownership of and other rights in approximately $4 billion
that WMI contends are deposit accounts at Washington
14
Mutual Bank and one of its subsidiaries; and (d) ownership of and rights in various other contracts
and other assets (collectively, the Disputed Assets).
JPMorgan Chase commenced an adversary proceeding in the Bankruptcy Case against the Debtors and
(for interpleader purposes only) the FDIC seeking a declaratory judgment and other relief
determining JPMorgan Chases legal title to and beneficial interest in the Disputed Assets.
Discovery is underway in the JPMorgan Chase adversary proceeding.
The Debtors commenced a separate adversary proceeding in the Bankruptcy Case against JPMorgan
Chase, seeking turnover of the same $4 billion in purported deposit funds and recovery for alleged
unjust enrichment for failure to turn over the funds. The Debtors have moved for summary judgment
in the turnover proceeding. Discovery is under way in the turnover proceeding.
In both JPMorgan Chases adversary proceeding and the Debtors turnover proceeding, JPMorgan Chase
and the FDIC have argued that the Bankruptcy Court lacks jurisdiction to adjudicate certain claims.
JPMorgan Chase moved to have the adversary proceedings transferred to United States District Court
for the District of Columbia and to withdraw jurisdiction from the Bankruptcy Court to the District
Court. That motion is fully briefed. In addition, JPMorgan Chase and the FDIC filed papers with the
United States District Court for the District of Delaware appealing the Bankruptcy Courts rulings
rejecting the jurisdictional arguments, and that appeal is fully briefed. JPMorgan Chase is also
appealing a separate Bankruptcy Court decision holding, in part, that the Bankruptcy Court could
proceed with certain matters while the first appeal is pending. Briefing on that appeal is under
way.
The Debtors submitted claims substantially similar to those submitted in the Bankruptcy Court in
the FDIC receivership for, among other things, ownership of certain Disputed Assets, as well as
claims challenging the terms of the agreement pursuant to which substantially all of the assets of
Washington Mutual Bank were sold by the FDIC to JPMorgan Chase. The FDIC, as receiver, disallowed
the Debtors claims and the Debtors filed an action against the FDIC in the United States District
Court for the District of Columbia challenging the FDICs disallowance of the Debtors claims,
claiming ownership of the Disputed Assets, and seeking money damages from the FDIC. JPMorgan Chase
has intervened in the action. On January 7, 2010, the District Court stayed the action pending
developments in the Bankruptcy Court and ordered the parties to submit a joint status report every
120 days. In connection with the stay, the District Court denied WMIs and the FDICs motions to
dismiss without prejudice.
In addition, the Debtors moved in the Bankruptcy Court to take discovery from JPMorgan Chase
purportedly related to a litigation originally filed in the 122nd State District Court of Galveston
County, Texas (the Texas Action). JPMorgan Chase opposed the motion, but the Bankruptcy Court
ordered that the discovery proceed. Debtors are also seeking related discovery from various third
parties, including several government agencies. Plaintiffs in the Texas Action are certain holders
of WMI common stock and the debt of WMI and Washington Mutual Bank who have sued JPMorgan Chase for
unspecified damages alleging that JPMorgan
Chase acquired substantially all of the assets of
Washington Mutual Bank from the FDIC at an allegedly too low price. The FDIC intervened in the
Texas Action, had it removed to the United States District Court for the Southern District of
Texas, and then the FDIC and JPMorgan Chase moved to have the Texas Action dismissed or
transferred. The Court transferred the Texas Action to the District of Columbia. Plaintiffs have
moved to have the FDIC dismissed as a party and to remand the action to the state court, or, in the
alternative, dismissed for lack of subject matter jurisdiction. JPMorgan Chase and the FDIC have
moved to have the entire action dismissed. The motions to dismiss are fully briefed.
Other proceedings related to Washington Mutuals failure also pending before the United States
District Court for the District of Columbia include a lawsuit brought by Deutsche Bank National
Trust Company against the FDIC alleging breach of various mortgage securitization agreements and
alleged violation of certain representations and warranties given by certain WMI subsidiaries in
connection with those securitization agreements. JPMorgan Chase has not been named a party to the
Deutsche Bank litigation, but the complaint includes assertions that JPMorgan Chase may have
assumed certain liabilities.
Securities Lending Litigation. JPMorgan Chase Bank N.A. (JPMorgan) has been named as a defendant
in four putative class actions asserting ERISA and non-ERISA claims pending in the United States
District Court for the Southern District of New York related to the Firms securities lending
business. Three of the pending actions relate to losses of plaintiffs money (i.e., cash collateral
for securities loan transactions) in medium-term notes of a structured investment vehicle known as
Sigma Finance Inc. (Sigma). The fourth action concerns losses of money invested in Lehman
Brothers medium-term notes, as well as asset-backed securities offered by nine other issuers.
Investment Management Litigation. Four cases have been filed claiming that investment portfolios
managed by JPMorgan Investment Management Inc. (JPMIM) were inappropriately invested in
securities backed by subprime residential real estate collateral. Plaintiffs claim that JPMIM and
related defendants are liable for the loss in market value of these securities. The first case was
filed by NM Homes One, Inc. in federal court in New York. The second case, filed by Assured
Guaranty (U.K.) in New York state court, was dismissed and Assured has appealed the courts
decision. The third case was filed by Ambac Assurance UK Limited in New York state court and
JPMIMs motion to dismiss the complaint is pending. The fourth case was filed by CMMF LLP in New
York state court in December 2009; the Court granted JPMIMs motion to dismiss the claims, other
than claims for breach of contract and misrepresentation. Both CMMF and JPMIM have filed notices of
appeal.
Enron Litigation. JPMorgan Chase and certain of its officers and directors are involved in several
lawsuits arising out of its banking relationships with Enron Corp. and its subsidiaries (Enron).
A number of actions and other proceedings against the Firm have been resolved, including a class
action lawsuit captioned Newby v. Enron Corp. and adversary proceedings brought by Enrons
bankruptcy estate. The remaining Enron-related actions include individual actions by Enron
investors, creditors and counterparties.
15
Part I
The remaining litigation also includes a suit against JPMorgan Chase alleging, in relevant part,
breach of contract and breach of fiduciary duty based upon the Firms role as Indenture Trustee in
connection with an indenture agreement between JPMorgan Chase and Enron. The case has been
dismissed, but plaintiffs have appealed the dismissal and their appeal is pending before the New
York State Court of Appeals.
A putative class action on behalf of JPMorgan Chase employees who participated in the Firms 401(k)
plan asserted claims under the Employee Retirement Income Security Act (ERISA) for alleged
breaches of fiduciary duties and negligence by JPMorgan Chase, its directors and named officers.
Plaintiffs motion for class certification and the Firms motion for judgment on the pleadings are
both fully briefed.
IPO Allocation Litigation. JPMorgan Chase and certain of its securities subsidiaries were named,
along with numerous other firms in the securities industry, as defendants in a large number of
putative class action lawsuits filed in the United States District Court for the Southern District
of New York alleging improprieties in connection with the allocation of securities in various
public offerings, including some offerings for which a JPMorgan Chase entity served as an
underwriter. They also claim violations of securities laws arising from alleged material
misstatements and omissions in registration statements and prospectuses for the initial public
offerings (IPOs) and alleged market manipulation with respect to aftermarket transactions in the
offered securities. Bear, Stearns & Co., Inc. is named as a defendant in a little less than a third
of the pending IPO securities cases. Antitrust lawsuits based on similar allegations have been
dismissed with prejudice. A settlement was reached in the securities cases, which the District
Court approved; the Firms share of the settlement is
approximately $62 million. Appeals and a
petition for leave to appeal have been filed in the United States Court of Appeals for the Second
Circuit seeking reversal of the decision approving the settlement.
In addition to the various cases, proceedings and investigations discussed above, JPMorgan Chase
and its subsidiaries are named as defendants or otherwise involved in a number of other legal
actions and governmental proceedings arising in connection with their businesses. Additional
actions, investigations or proceedings may be initiated from time to time in the future. In view of
the inherent difficulty of predicting the outcome of legal matters, particularly where the
claimants seek very large or indeterminate damages, or where the cases present novel legal
theories, involve a large number of parties or are in early stages of discovery, the Firm cannot
state with confidence what the eventual outcome of these pending matters will be, what the timing
of the ultimate resolution of these matters will be or what the eventual loss, fines, penalties or
impact related to each pending matter may be. JPMorgan Chase believes, based upon its current
knowledge, after consultation with counsel and after taking into account its current litigation
reserves, that the outcome of the legal actions, proceedings and investigations currently pending
against it should not have a material adverse effect on the Firms consolidated financial
condition. However, in light of the uncertainties involved in such proceedings, actions and
investigations, there is no assurance that the ultimate resolution of these matters will not
significantly exceed the reserves currently accrued by the Firm; as a result, the outcome of a
particular matter may be material to JPMorgan Chases operating results for a particular period,
depending on, among other factors, the size of the loss or liability imposed and the level of
JPMorgan Chases income for that period.
16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive officers of the registrant
|
|
|
|
|
|
|
Name |
|
Age |
|
Positions and offices |
|
|
(at December 31, 2009) |
|
|
|
|
|
|
|
|
|
James Dimon
|
|
|
53 |
|
|
Chairman of the Board since December 31, 2006, and
President and Chief Executive Officer since December 31,
2005. He had been President and Chief Operating Officer
from July 1, 2004, until December 31, 2005. |
|
|
|
|
|
|
|
Frank J. Bisignano
|
|
|
50 |
|
|
Chief Administrative Officer since December 2005. Prior
to joining JPMorgan Chase, he had been Chief Executive
Officer of Citigroup Inc.s Global Transaction Services. |
|
|
|
|
|
|
|
Steven D. Black
|
|
|
57 |
|
|
Vice Chairman since January 2010. He had been Executive
Chairman of the Investment Bank since September 2009,
prior to which he had been Co-Chief Executive Officer of
the Investment Bank from March 2004 until September 2009. |
|
|
|
|
|
|
|
Michael J. Cavanagh
|
|
|
43 |
|
|
Chief Financial Officer. |
|
|
|
|
|
|
|
Stephen M. Cutler
|
|
|
48 |
|
|
General Counsel since February 2007. Prior to joining
JPMorgan Chase, he was a partner and co-chair of the
Securities Department at the law firm of WilmerHale since
October 2005. Prior to joining WilmerHale, he had been
Director of the Division of Enforcement at the U.S.
Securities and Exchange Commission since October 2001. |
|
|
|
|
|
|
|
William M. Daley
|
|
|
61 |
|
|
Head of Corporate Responsibility since June 2007, and
Chairman of the Midwest Region since May 2004. |
|
|
|
|
|
|
|
John L. Donnelly
|
|
|
53 |
|
|
Director of Human Resources since January 2009. Prior to
joining JPMorgan Chase, he had been Global Head of Human
Resources at Citigroup, Inc. since July 2007 and Head of
Human Resources and Corporate Affairs for Citi Markets
and Banking business from 1998 until 2007. |
|
|
|
|
|
|
|
Ina R. Drew
|
|
|
53 |
|
|
Chief Investment Officer since February 2005. |
|
|
|
|
|
|
|
Mary Callahan Erdoes
|
|
|
42 |
|
|
Chief Executive Officer of Asset Management since
September 2009. From March 2005 to September 2009, she
was Chief Executive Officer of Private Banking. Prior to
2005, she was responsible for investment solutions and
strategy for private banking clients worldwide. |
|
|
|
|
|
|
|
Samuel Todd Maclin
|
|
|
53 |
|
|
Chief
Executive Officer of Commercial Banking. |
|
|
|
|
|
|
|
Jay Mandelbaum
|
|
|
47 |
|
|
Head of Strategy and Business Development. |
|
|
|
|
|
|
|
Heidi Miller
|
|
|
56 |
|
|
Chief Executive Officer of Treasury & Securities Services. |
|
|
|
|
|
|
|
Charles W. Scharf
|
|
|
44 |
|
|
Chief Executive Officer of Retail Financial Services. |
|
|
|
|
|
|
|
Gordon A. Smith
|
|
|
51 |
|
|
Chief Executive Officer of Card Services since June 2007.
Prior to joining JPMorgan Chase, he was with American
Express Company for more than 25 years. From August 2005
until June 2007, he was president of American Express
global commercial card business. Prior to that, he was
president of the consumer card services group and was
responsible for all consumer card products in the U.S. |
|
|
|
|
|
|
|
James E. Staley
|
|
|
53 |
|
|
Chief Executive Officer of the Investment Bank since
September 2009, prior to which he had been Chief
Executive Officer of Asset Management. |
|
|
|
|
|
|
|
Barry L. Zubrow
|
|
|
56 |
|
|
Chief Risk Officer since November 2007. Prior to joining
JPMorgan Chase, he was a private investor and has been
Chairman of the New Jersey Schools Development Authority
since March 2006. |
Unless otherwise noted, during the five fiscal years ended December 31, 2009, all of JPMorgan
Chases above-named executive officers have continuously held senior-level positions with JPMorgan
Chase. There are no family relationships among the foregoing executive officers.
17
Part II
ITEM 5: MARKET FOR REGISTRANTS COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY SECURITIES
The outstanding shares of JPMorgan Chase common stock are listed and traded on the New York
Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. For the quarterly high and
low prices of JPMorgan Chases common stock for the last two years, see the section entitled
Supplementary information Selected quarterly financial data (unaudited) on page 241. For a
comparison of the cumulative total return for JPMorgan Chase common stock with the comparable total
return of the S&P 500 Index and the S&P Financial Index over the five-year period ended December
31, 2009, see Five-year stock performance, on page 39.
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 enabled the Firm to retain approximately $5 billion in
common equity during 2009, and was taken to ensure the Firm had sufficient capital strength in the
event the very weak economic conditions that existed at the beginning of the year further
deteriorated. JPMorgan Chase declared quarterly cash dividends on its common stock in the amount of
$0.05 per share for each quarter of 2009 and $0.38 per share for each quarter of 2008.
The common dividend payout ratio, based on reported net income, was 9% for 2009, 114% for 2008, and
34% for 2007. For a discussion of restrictions on dividend payments, see Note 23 on pages 222223.
At January 31, 2010, there were
231,559 holders of record of JPMorgan Chase common stock.
For information regarding securities authorized for issuance under the Firms employee stock-based
compensation plans, see Item 12 on page 20.
In April 2007, the Board of Directors approved a stock repurchase program that authorizes the
repurchase of up to $10.0 billion of the Firms common shares. In connection with the U.S.
Treasurys sale of the warrants it received as part of the Capital Purchase Progam, the
Board of Directors amended the Firms securities repurchase program to authorize the repurchase of
warrants for its stock. During the years ended December 31, 2009 and 2008, the Firm did not
repurchase any shares of its common stock. As of December 31, 2009, $6.2 billion of authorized
repurchase capacity remained under the repurchase program with
respect to repurchases of common
stock, and all the authorized repurchase capacity remained with respect to the warrants. For
further information regarding the Capital Purchase Program, see Capital Management Capital
Purchase Program on page 83.
The authorization to repurchase common stock and warrants will be utilized at managements
discretion, and the timing of purchases and the exact number of shares and warrants purchased is
subject to various factors, including market conditions; legal considerations affecting the amount
and timing of repurchase activity; the Firms capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative potential investment opportunities. The
repurchase program does not include specific price targets or timetables, may be executed through
open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and
may be suspended at any time. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its
equity during periods when it would not otherwise be repurchasing common stock for example,
during internal trading black-out periods. All purchases under a Rule 10b5-1 plan must be made
according to a predefined plan that is established when the Firm is not aware of material nonpublic
information.
For a discussion of restrictions on stock repurchases, see Note 23 on pages 222223.
Stock repurchases under the stock-based incentive plans
Participants in the Firms stock-based incentive plans may have shares withheld to cover income
taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable
plan and not under the Firms share repurchase program. Shares repurchased between October 28,
2008, and June 17, 2009, (the date the Series K Preferred Stock issued to the U.S. Treasury was
redeemed) were repurchased in accordance with an exemption from the Capital Purchase Programs
stock repurchase restrictions. Shares repurchased pursuant to these plans during 2009 were as
follows:
|
|
|
|
|
|
|
|
|
Year ended |
|
Total shares |
|
|
Average price |
|
December 31, 2009 |
|
repurchased |
|
|
paid per share |
|
|
First quarter |
|
|
986,407 |
|
|
$ |
19.53 |
|
|
Second quarter |
|
|
659 |
|
|
|
32.43 |
|
|
Third quarter |
|
|
253 |
|
|
|
38.44 |
|
|
October |
|
|
13 |
|
|
|
45.42 |
|
November |
|
|
|
|
|
|
|
|
December |
|
|
155,290 |
|
|
|
41.96 |
|
|
Fourth quarter |
|
|
155,303 |
|
|
|
41.96 |
|
|
Total for 2009 |
|
|
1,142,622 |
|
|
$ |
22.59 |
|
|
18
Parts II and III
ITEM 6: SELECTED FINANCIAL DATA
For five-year selected financial data, see Five-year summary of consolidated financial
highlights (unaudited) on page 38 and Selected annual financial data (unaudited) on page 242.
ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements discussion and analysis of financial condition and results of operations, entitled
Managements discussion and analysis, appears on pages 39134. Such information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto, which appear on pages 138240.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information related to market risk, see the Market Risk Management section on pages
118124.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, together with the Notes thereto and the report of
PricewaterhouseCoopers LLP dated February 24, 2010, thereon, appear on pages 137240.
Supplementary financial data for each full quarter within the two years ended December 31, 2009,
are included on page 241 in the table entitled Supplementary information Selected quarterly
financial data (unaudited). Also included is a Glossary of terms on pages 243245.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of the Firms management, including its Chairman and Chief
Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on
that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded
that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the
Certification statements issued by the Chairman and Chief Executive Officer and Chief Financial
Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting.
Nevertheless, because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase,
lapses or deficiencies in internal controls may occur from time to time, and there can be no
assurance that any such deficiencies will not result in significant deficiencies or even material
weaknesses in internal controls in the future. See page 136 for Managements report on internal
control over financial reporting. There was no change in the Firms internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that
occurred during the fourth quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, the Firms internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
Part III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See Item 13 below.
ITEM 11: EXECUTIVE COMPENSATION
See Item 13 below.
19
Parts III and IV
ITEM 12: SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED
STOCKHOLDER MATTERS
For security ownership of certain beneficial owners and
management, see Item 13 below.
The following table details the total number of shares available for issuance under JPMorgan
Chases employee stock-based incentive plans (including shares available for issuance to
nonemployee directors). The Firm is not authorized to grant stock-based incentive awards to
nonemployees, other than to nonemployee directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares to be |
|
Weighted-average |
|
Number of shares remaining |
December 31, 2009 |
|
issued upon exercise of |
|
exercise price of |
|
available for future issuance under |
(Shares in thousands) |
|
outstanding options/SARs |
|
outstanding options/SARs |
|
stock compensation plans |
|
Plan category |
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based
incentive plans
approved
by
shareholders |
|
|
179,160 |
|
|
$ |
45.81 |
|
|
|
199,194 |
(a) |
Employee
stock-based
incentive plans not
approved
by shareholders |
|
|
86,475 |
|
|
|
45.83 |
|
|
|
|
|
|
Total |
|
|
265,635 |
|
|
$ |
45.82 |
|
|
|
199,194 |
|
|
|
|
|
(a) |
|
Represents future shares available under the shareholder-approved 2005 Long-Term
Incentive Plan, as amended and restated effective May 20, 2008. |
All future shares will be issued under the shareholder-approved 2005 Long-Term Incentive Plan,
as amended and restated effective May 20, 2008. For further information, see Note 9 on pages
184186.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information to be provided in Items 10, 11, 12, 13 and 14 of Form 10-K and not otherwise
included herein is incorporated by reference to the Firms definitive proxy statement for its 2010
Annual Meeting of Stockholders to be held on May 18, 2010, which will be filed with the SEC within
120 days of the end of the Firms fiscal year ended December 31, 2009.
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
See Item 13.
Part IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
|
Exhibits, financial statement schedules |
|
1. |
|
Financial statements |
|
|
|
The Consolidated Financial Statements, the Notes thereto and the report thereon listed in
Item 8 are set forth commencing on page 137. |
|
2. |
|
Financial statement schedules |
3. |
|
Exhibits |
|
3.1 |
|
Restated Certificate of Incorporation of JPMorgan Chase & Co., effective April 5, 2006
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase
& Co. (File No. 1-5805) filed April 7, 2006). |
|
3.2 |
|
Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series
I (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan
Chase & Co. (File No. 1-5805) filed April 24, 2008). |
|
3.3 |
|
Certificate of Designations of 6.15% Cumulative Preferred Stock, Series E (incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008). |
|
3.4 |
|
Certificate of Designations of 5.72% Cumulative Preferred Stock, Series F (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008). |
|
3.5 |
|
Certificate of Designations of 5.49% Cumulative Preferred Stock, Series G (incorporated by
reference to Exhibit 3.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.
1-5805) filed July 16, 2008). |
|
3.6 |
|
Certificate of Designations of 8.625% Non-Cumulative Preferred Stock, Series J (incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K/A of
JPMorgan Chase & Co. (File No. 1-5805) filed September 17, 2008). |
20
3.7 |
|
By-laws of JPMorgan Chase & Co., effective January 19, 2010 (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed
January 25, 2010). |
|
4.1(a) |
|
Indenture, dated as of December 1, 1989, between Chemical Banking Corporation (now known as
JPMorgan Chase & Co.) and The Chase Manhattan Bank (National Association) (succeeded by
Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference to Exhibit 4.1(a)
to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2008). |
|
4.1(b) |
|
First Supplemental Indenture, dated as of November 1, 2007, between JPMorgan Chase & Co. and
Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of December 1,
1989 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan
Chase & Co. (File No. 1-5805) filed November 7, 2007). |
|
4.1(c) |
|
Fifth Supplemental Indenture, dated as of December 22, 2008, between JPMorgan Chase & Co.
and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of
December 1, 1989 (incorporated by reference to Exhibit 4.1(c) to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008). |
|
4.2(a) |
|
Indenture, dated as of April 1, 1987, as amended and restated as of December 15, 1992,
between Chemical Banking Corporation (now known as JPMorgan Chase & Co.) and Morgan Guaranty
Trust Company of New York (succeeded by U.S. Bank Trust National Association), as Trustee
(incorporated by reference to Exhibit 4.3(a) to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). |
|
4.2(b) |
|
Third Supplemental Indenture, dated as of December 29, 2000, between The Chase Manhattan
Corporation (now known as JPMorgan Chase & Co.) and U.S. Bank Trust National Association, as
Trustee, to the Indenture, dated as of April 1, 1987, as amended and restated as of
December 15, 1992 (incorporated by reference to Exhibit 4.3(c) to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). |
|
4.3(a) |
|
Indenture, dated as of May 25, 2001, between JPMorgan Chase & Co. and Bankers Trust Company
(succeeded by Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference to
Exhibit 4(a)(1) to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No.
333-52826) filed June 13, 2001). |
4.3(b) |
|
First Supplemental Indenture, dated as of April 9, 2008, between JPMorgan Chase & Co. and
Deutsche Bank Trust Company Americas, as Trustee to the Indenture, dated as of May 25, 2001
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase
& Co. (File no. 1-5805) filed October 31, 2008). |
|
4.4(a) |
|
Junior Subordinated Indenture, dated as of December 1, 1996, between The Chase Manhattan
Corporation (now known as JPMorgan Chase & Co.) and The Bank of New York (succeeded by The
Bank of New York Mellon), as Trustee (incorporated by reference to Exhibit 4.4(a) to the
Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2008). |
|
4.4(b) |
|
Supplemental Indenture (First), dated as of September 23, 2004, between JPMorgan Chase & Co.
and The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to
the Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File
No. 333-126750) filed September 23, 2004). |
|
4.4(c) |
|
Supplemental Indenture (Second), dated as of May 19, 2005, between JPMorgan Chase & Co. and
The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to the
Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No.
333-126750) filed July 21, 2005. |
|
4.5 |
|
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008). |
|
4.6 |
|
Form of Deposit Agreement (incorporated by reference to Exhibit 4(d) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). |
|
4.7 |
|
Form of Deposit Agreement (incorporated by reference to Exhibit 4(e) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). |
|
4.8 |
|
Form of Deposit Agreement (incorporated by reference to Exhibit 4(f) to the Registration
Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). |
|
4.9 |
|
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed August 21, 2008). |
21
Part IV
Other instruments defining the rights of holders of long-term debt securities of JPMorgan Chase &
Co. and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation
S-K. JPMorgan Chase & Co. agrees to furnish copies of these instruments to the SEC upon request.
10.1 |
|
Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., as amended and
restated July 2001 and as of December 31, 2004 (incorporated by reference to Exhibit 10.1 to
the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2007).* |
|
10.2 |
|
2005 Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., effective
as of January 1, 2005 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).* |
|
10.3 |
|
Post-Retirement Compensation Plan for Non-Employee Directors of The Chase Manhattan
Corporation, as amended and restated, effective May 21, 1996 (incorporated by reference to
Exhibit 10.3 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for
the year ended December 31, 2008).* |
|
10.4 |
|
2005 Deferred Compensation Program of JPMorgan Chase & Co., restated effective as of December
31, 2008 (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K of
JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.5 |
|
JPMorgan Chase & Co. 2005 Long-Term Incentive Plan
as amended and restated effective May 20, 2008 (incorporated by reference to Appendix B of
Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed March 31, 2008).* |
|
10.6 |
|
Key Executive Performance Plan of JPMorgan Chase & Co., restated as of January 1, 2005
(incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of JPMorgan Chase
& Co. (File No. 1-5805) for the year ended December 31, 2005).* |
|
10.7 |
|
Excess Retirement Plan of JPMorgan Chase & Co., restated and amended as of December 31, 2008,
as amended.* |
|
10.8 |
|
1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies, as
amended, dated December 11, 1996 (incorporated by reference to Exhibit 10.8 to the Annual
Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31,
2008).* |
|
10.9 |
|
Executive Retirement Plan of JPMorgan Chase & Co., as amended and restated December 31, 2008
(incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K of JPMorgan Chase
& Co. (File No. 1-5805) for the year ended December 31, 2008).* |
10.10 |
|
Amendment to Bank One Corporation Director Stock Plan, as amended and restated effective
February 1, 2003 (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K
of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.11 |
|
Summary of Bank One Corporation Director Deferred Compensation Plan (incorporated by
reference to Exhibit 10.19 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No.
1-5805) for the year ended December 31, 2005).* |
|
10.12 |
|
Bank One Corporation Stock Performance Plan, as amended and restated effective February 20,
2001 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.13 |
|
Bank One Corporation Supplemental Savings and Investment Plan, as amended and restated
effective December 31, 2008 (incorporated by reference to Exhibit 10.13 to the Annual Report
on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.14 |
|
Revised and Restated Banc One Corporation 1989 Stock Incentive Plan, effective January 18,
1989 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.15 |
|
Banc One Corporation Revised and Restated 1995 Stock Incentive Plan, effective April 17,
1995 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).* |
|
10.16 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 2005 stock
appreciation rights (incorporated by reference to Exhibit 10.31 to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005).* |
|
10.17 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of October 2005 stock
appreciation rights (incorporated by reference to Exhibit 10.33 to the Annual Report on Form
10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005).* |
|
10.18 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive
Plan Award Agreement of January 22, 2008 stock appreciation rights (incorporated by reference
to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan
Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).* |
22
10.19 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008
restricted stock units (incorporated by reference to Exhibit 10.26 to the Annual Report on
Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).* |
|
10.20 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock
appreciation rights, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.20
to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2008).* |
|
10.21 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member stock appreciation rights, dated as of January 20, 2009 (incorporated by
reference to Exhibit 10.21 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No.
1-5805) for the year ended December 31, 2008).* |
|
10.22 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted
stock units, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.22 to the
Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2008).* |
|
10.23 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member stock appreciation rights, dated as of February 3, 2010.* |
|
10.24 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member restricted stock units, dated as of February 3, 2010.* |
|
10.25 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating
Committee member restricted stock units, dated as of January 20, 2009 (incorporated by
reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No.
1-5805) for the year ended December 31, 2008).* |
|
10.26 |
|
Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008
stock appreciation rights for James Dimon (incorporated by reference to Exhibit 10.27 to the
Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended
December 31, 2007).* |
10.27 |
|
Form of JPMorgan Chase & Co. Performance-Based Incentive Compensation Plan, effective as of
January 1, 2006, as amended.* |
|
10.28 |
|
Form of Warrant to purchase common stock (incorporated by reference to Exhibit 4.2 to the
Form 8-A of JPMorgan Chase & Co. (File No. 1-5805) filed December 11, 2009). |
|
12.1 |
|
Computation of ratio of earnings to fixed charges. |
|
12.2 |
|
Computation of ratio of earnings to fixed charges and preferred stock dividend requirements. |
|
21.1 |
|
List of Subsidiaries of JPMorgan Chase & Co. |
|
22.1 |
|
Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended
December 31, 2009 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of
1934). |
|
23.1 |
|
Consent of independent registered public accounting firm. |
|
31.1 |
|
Certification. |
|
31.2 |
|
Certification. |
|
32 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.** |
|
|
|
101.INS |
|
XBRL Instance Document.*** |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document.*** |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document.*** |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document.*** |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document.*** |
|
|
|
* |
|
This exhibit is a management contract or compensatory plan or arrangement. |
|
** |
|
This exhibit shall not be deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit
shall not be deemed incorporated into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934. |
|
*** |
|
As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for
purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to liability under those sections. |
23
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
37 |
Five-year summary of consolidated financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share, headcount and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended December 31, |
|
2009 |
|
|
2008(d) |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
100,434 |
|
|
$ |
67,252 |
|
|
$ |
71,372 |
|
|
$ |
61,999 |
|
|
$ |
54,248 |
|
Total noninterest expense |
|
|
52,352 |
|
|
|
43,500 |
|
|
|
41,703 |
|
|
|
38,843 |
|
|
|
38,926 |
|
|
Pre-provision profit(a) |
|
|
48,082 |
|
|
|
23,752 |
|
|
|
29,669 |
|
|
|
23,156 |
|
|
|
15,322 |
|
Provision for credit losses |
|
|
32,015 |
|
|
|
19,445 |
|
|
|
6,864 |
|
|
|
3,270 |
|
|
|
3,483 |
|
Provision
for credit losses
accounting conformity(b) |
|
|
|
|
|
|
1,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax
expense/(benefit) |
|
|
16,067 |
|
|
|
2,773 |
|
|
|
22,805 |
|
|
|
19,886 |
|
|
|
11,839 |
|
Income tax expense/(benefit) |
|
|
4,415 |
|
|
|
(926 |
) |
|
|
7,440 |
|
|
|
6,237 |
|
|
|
3,585 |
|
|
Income from continuing operations |
|
|
11,652 |
|
|
|
3,699 |
|
|
|
15,365 |
|
|
|
13,649 |
|
|
|
8,254 |
|
Income from discontinued operations(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795 |
|
|
|
229 |
|
|
Income before extraordinary gain |
|
|
11,652 |
|
|
|
3,699 |
|
|
|
15,365 |
|
|
|
14,444 |
|
|
|
8,483 |
|
Extraordinary gain(d) |
|
|
76 |
|
|
|
1,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,728 |
|
|
$ |
5,605 |
|
|
$ |
15,365 |
|
|
$ |
14,444 |
|
|
$ |
8,483 |
|
|
Per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.25 |
|
|
$ |
0.81 |
|
|
$ |
4.38 |
|
|
$ |
3.83 |
|
|
$ |
2.30 |
|
Net income |
|
|
2.27 |
|
|
|
1.35 |
|
|
|
4.38 |
|
|
|
4.05 |
|
|
|
2.37 |
|
Diluted earnings(e)(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.24 |
|
|
$ |
0.81 |
|
|
$ |
4.33 |
|
|
$ |
3.78 |
|
|
$ |
2.29 |
|
Net income |
|
|
2.26 |
|
|
|
1.35 |
|
|
|
4.33 |
|
|
|
4.00 |
|
|
|
2.35 |
|
Cash dividends declared per share |
|
|
0.20 |
|
|
|
1.52 |
|
|
|
1.48 |
|
|
|
1.36 |
|
|
|
1.36 |
|
Book value per share |
|
|
39.88 |
|
|
|
36.15 |
|
|
|
36.59 |
|
|
|
33.45 |
|
|
|
30.71 |
|
Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average: Basic(e) |
|
|
3,862.8 |
|
|
|
3,501.1 |
|
|
|
3,403.6 |
|
|
|
3,470.1 |
|
|
|
3,491.7 |
|
Diluted(e) |
|
|
3,879.7 |
|
|
|
3,521.8 |
|
|
|
3,445.3 |
|
|
|
3,516.1 |
|
|
|
3,511.9 |
|
Common shares at period-end |
|
|
3,942.0 |
|
|
|
3,732.8 |
|
|
|
3,367.4 |
|
|
|
3,461.7 |
|
|
|
3,486.7 |
|
Share price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
47.47 |
|
|
$ |
50.63 |
|
|
$ |
53.25 |
|
|
$ |
49.00 |
|
|
$ |
40.56 |
|
Low |
|
|
14.96 |
|
|
|
19.69 |
|
|
|
40.15 |
|
|
|
37.88 |
|
|
|
32.92 |
|
Close |
|
|
41.67 |
|
|
|
31.53 |
|
|
|
43.65 |
|
|
|
48.30 |
|
|
|
39.69 |
|
Market capitalization |
|
|
164,261 |
|
|
|
117,695 |
|
|
|
146,986 |
|
|
|
167,199 |
|
|
|
138,387 |
|
Selected ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity (ROE)(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6 |
% |
|
|
2 |
% |
|
|
13 |
% |
|
|
12 |
% |
|
|
8 |
% |
Net income |
|
|
6 |
|
|
|
4 |
|
|
|
13 |
|
|
|
13 |
|
|
|
8 |
|
Return on tangible common equity (ROTCE)(f)(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
10 |
|
|
|
4 |
|
|
|
22 |
|
|
|
24 |
|
|
|
15 |
|
Net income |
|
|
10 |
|
|
|
6 |
|
|
|
22 |
|
|
|
24 |
|
|
|
15 |
|
Return on assets (ROA): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
0.58 |
|
|
|
0.21 |
|
|
|
1.06 |
|
|
|
1.04 |
|
|
|
0.70 |
|
Net income |
|
|
0.58 |
|
|
|
0.31 |
|
|
|
1.06 |
|
|
|
1.10 |
|
|
|
0.72 |
|
Overhead ratio |
|
|
52 |
|
|
|
65 |
|
|
|
58 |
|
|
|
63 |
|
|
|
72 |
|
Tier 1 capital ratio |
|
|
11.1 |
|
|
|
10.9 |
|
|
|
8.4 |
|
|
|
8.7 |
|
|
|
8.5 |
|
Total capital ratio |
|
|
14.8 |
|
|
|
14.8 |
|
|
|
12.6 |
|
|
|
12.3 |
|
|
|
12.0 |
|
Tier 1 leverage ratio |
|
|
6.9 |
|
|
|
6.9 |
|
|
|
6.0 |
|
|
|
6.2 |
|
|
|
6.3 |
|
Tier 1 common capital ratio(h) |
|
|
8.8 |
|
|
|
7.0 |
|
|
|
7.0 |
|
|
|
7.3 |
|
|
|
7.0 |
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
$ |
411,128 |
|
|
$ |
509,983 |
|
|
$ |
491,409 |
|
|
$ |
365,738 |
|
|
$ |
298,377 |
|
Securities |
|
|
360,390 |
|
|
|
205,943 |
|
|
|
85,450 |
|
|
|
91,975 |
|
|
|
47,600 |
|
Loans |
|
|
633,458 |
|
|
|
744,898 |
|
|
|
519,374 |
|
|
|
483,127 |
|
|
|
419,148 |
|
Total assets |
|
|
2,031,989 |
|
|
|
2,175,052 |
|
|
|
1,562,147 |
|
|
|
1,351,520 |
|
|
|
1,198,942 |
|
Deposits |
|
|
938,367 |
|
|
|
1,009,277 |
|
|
|
740,728 |
|
|
|
638,788 |
|
|
|
554,991 |
|
Long-term debt |
|
|
266,318 |
|
|
|
270,683 |
|
|
|
199,010 |
|
|
|
145,630 |
|
|
|
119,886 |
|
Common stockholders equity |
|
|
157,213 |
|
|
|
134,945 |
|
|
|
123,221 |
|
|
|
115,790 |
|
|
|
107,072 |
|
Total stockholders equity |
|
|
165,365 |
|
|
|
166,884 |
|
|
|
123,221 |
|
|
|
115,790 |
|
|
|
107,211 |
|
Headcount |
|
|
222,316 |
|
|
|
224,961 |
|
|
|
180,667 |
|
|
|
174,360 |
|
|
|
168,847 |
|
|
|
|
|
(a) |
|
Pre-provision profit is total net revenue less noninterest expense. The Firm believes
that this financial measure is useful in assessing the ability of a lending institution to
generate income in excess of its provision for credit losses. |
(b) |
|
Results for 2008 included an accounting conformity loan loss reserve provision related to the
acquisition of Washington Mutual Banks banking operations. |
(c) |
|
On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust
businesses for the consumer, business banking and middle-market banking businesses of The Bank
of New York Company Inc. The results of operations of these corporate trust businesses are
being reported as discontinued operations for each of the periods presented. |
(d) |
|
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual.
On May 30, 2008, a wholly-owned subsidiary of JPMorgan Chase merged with and into The Bear
Stearns Companies Inc. (Bear Stearns), and Bear Stearns became a wholly-owned subsidiary of
JPMorgan Chase. The Washington Mutual acquisition resulted in negative goodwill, and
accordingly, the Firm recorded an extraordinary gain. For additional information on these
transactions, see Note 2 on pages 143148 of this Annual Report. |
(e) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised as required. For further
discussion of the guidance, see Note 25 on page 224 of this Annual Report. |
(f) |
|
The calculation of 2009 earnings per share and net income applicable to common equity include
a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of
U.S. Troubled Asset Relief Program (TARP) preferred capital in the second quarter of 2009.
Excluding this reduction, the adjusted ROE and ROTCE were 7% and 11% for 2009. For further
discussion, see Explanation and reconciliation of the Firms use of non-GAAP financial
measures on pages 5052 of this Annual Report. |
(g) |
|
For further discussion of ROTCE, a non-GAAP financial measure, see Explanation and
reconciliation of the Firms use of non-GAAP financial
measures on pages 5052 of this
Annual Report. |
(h) |
|
Tier 1 common is calculated as Tier 1 capital less qualifying perpetual preferred stock,
qualifying trust preferred securities and qualifying minority interest in subsidiaries. The
Firm uses the Tier 1 common capital ratio, a non-GAAP financial measure, to assess and compare
the quality and composition of the Firms capital with the capital of other financial services
companies. For further discussion, see Regulatory capital on pages
8284 of this Annual
Report. |
|
|
|
|
38
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
Managements discussion and analysis
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase
& Co. (JPMorgan Chase or the Firm) common stock with the cumulative return of the S&P 500 Stock
Index and the S&P Financial Index. The S&P 500 Index is a commonly referenced U.S. equity benchmark
consisting of leading companies from different economic sectors. The S&P Financial Index is an
index of 78 financial companies, all of which are within the S&P 500. The Firm is a component of
both industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2004, in
JPMorgan Chase common stock and in each of the above S&P indices. The comparison assumes that all
dividends are reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in dollars) |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
|
JPMorgan Chase |
|
$ |
100.00 |
|
$ |
105.68 |
|
$ |
132.54 |
|
$ |
123.12 |
|
$ |
91.84 |
|
$ |
123.15 |
|
S&P Financial Index |
|
|
100.00 |
|
|
106.48 |
|
|
126.91 |
|
|
103.27 |
|
|
46.14 |
|
|
54.09 |
|
S&P 500 Index |
|
|
100.00 |
|
|
104.91 |
|
|
121.48 |
|
|
128.16 |
|
|
80.74 |
|
|
102.11 |
|
|
This section of the JPMorgan Chases Annual Report for the year ended December 31, 2009
(Annual Report) provides managements discussion and analysis (MD&A) of the financial condition
and results of operations of JPMorgan Chase. See the Glossary of
terms on pages 243245 for
definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report
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 the Firms 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 page 135 of this Annual Report) and in the JPMorgan Chase Annual
Report on Form 10-K for the year ended December 31, 2009 (2009 Form 10-K), in Part I, Item 1A:
Risk factors, to which reference is hereby made.
JPMorgan Chase
& Co., 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 $2.0 trillion in assets, $165.4 billion in stockholders equity and operations in
more than 60 countries as of December 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 bank 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 clients of the Investment Bank (IB) 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. IB also
commits the Firms own capital to principal investing and trading activities on a limited basis.
Retail Financial Services
Retail Financial Services (RFS), which includes the Retail Banking and Consumer Lending
businesses, 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 15,400 ATMs (second-largest nationally), as well as online and mobile banking around the clock.
More than 23,900 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 nearly 2,100 schools and universities nationwide.
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JPMorgan Chase & Co. / 2009 Annual Report
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39 |
Managements discussion and analysis
Card Services
Card Services (CS) is one of the nations largest credit card issuers, with more than 145 million
credit cards in circulation and over $163 billion in managed loans. Customers used Chase cards to
meet more than $328 billion of their spending needs in 2009.
Chase continues to innovate, despite a very difficult business
environment, launching new products and services such as Blueprint, Ultimate Rewards, Chase
Sapphire and Ink from Chase, and earning a market leadership position in building loyalty and
rewards programs. Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one
of the leading processors of credit-card payments.
Commercial Banking
Commercial Banking (CB) serves nearly 25,000 clients nationally, including corporations,
municipalities, financial institutions and not-for-profit entities with annual revenue generally
ranging from
$10 million to $2 billion, and more than 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 $1.7 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
products, 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.
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40
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JPMorgan Chase & Co. / 2009 Annual Report |
This executive overview of managements discussion and analysis
highlights selected information and may not contain all of the information that is important to
readers of this Annual Report. For a complete description of events, trends and uncertainties, as
well as the capital, liquidity, credit, operational and market risks and the critical accounting
estimates affecting the Firm and its various lines of business, this Annual Report should be read
in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except per share data and ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
100,434 |
|
|
$ |
67,252 |
|
|
|
49 |
% |
Total noninterest expense |
|
|
52,352 |
|
|
|
43,500 |
|
|
|
20 |
|
Pre-provision profit |
|
|
48,082 |
|
|
|
23,752 |
|
|
|
102 |
|
Provision for credit losses |
|
|
32,015 |
|
|
|
20,979 |
|
|
|
53 |
|
Income before extraordinary gain |
|
|
11,652 |
|
|
|
3,699 |
|
|
|
215 |
|
Extraordinary gain |
|
|
76 |
|
|
|
1,906 |
|
|
|
(96 |
) |
Net income |
|
|
11,728 |
|
|
|
5,605 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
$ |
2.24 |
|
|
$ |
0.81 |
|
|
|
177 |
|
Net income |
|
|
2.26 |
|
|
|
1.35 |
|
|
|
67 |
|
Return on common equity |
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
|
6 |
% |
|
|
2 |
% |
|
|
|
|
Net income |
|
|
6 |
|
|
|
4 |
|
|
|
|
|
Capital ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
11.1 |
|
|
|
10.9 |
|
|
|
|
|
Tier 1 common capital |
|
|
8.8 |
|
|
|
7.0 |
|
|
|
|
|
|
Business overview
JPMorgan Chase reported 2009 net income of $11.7 billion, or $2.26 per share, compared with net
income of $5.6 billion, or $1.35 per share, in 2008. Total net revenue in 2009 was $100.4 billion,
compared with $67.3 billion in 2008. Return on common equity was 6% in 2009 and 4% in 2008. Results
benefited from the impact of the acquisition of the banking operations of Washington Mutual Bank
(Washington Mutual) on September 25, 2008, and the impact of the merger with The Bear Stearns
Companies Inc. (Bear Stearns) on May 30, 2008.
The increase in net income for the year was driven by record net revenue, including record revenue
in the Investment Bank reflecting modest net gains on legacy leveraged-lending and mortgage-related
positions compared with net markdowns in the prior year. Partially offsetting the growth in the
Firms revenue was an increase in the provision for credit losses, driven by an increase in the
consumer provision, and higher noninterest expense reflecting the impact of the Washington Mutual
transaction.
The business environment in
2009 gradually improved throughout the year. The year began with a continuation
of the weak conditions experienced in 2008 - the global economy contracted sharply
in the first quarter, labor markets deteriorated rapidly and unemployment rose, credit
was tight, liquidity was diminished, and businesses continued to downsize and cut
inventory levels rapidly. Throughout the year, the Board of
Governors of the Federal Reserve System (Federal Reserve) took actions
to stabilize the financial markets and promote an economic revival. It held its
policy rate close to zero and indicated that this policy was likely to remain in
place for some time, given economic conditions. In addition, it greatly expanded
a program it launched at the end of 2008, with a plan to buy up to $1.7 trillion
of securities, including Treasury securities, mortgage-backed securities and
obligations of government-sponsored agencies. The U.S. government and various
regulators continued their efforts to stabilize the U.S. economy, putting in place
a financial rescue plan that supplemented the interest rate and other actions that
had been taken by the Federal Reserve and the U.S. Department of the Treasury (the U.S. Treasury)
in the second half of 2008. These efforts began to take effect during 2009. Developing
economies rebounded significantly and contraction in developed economies slowed. Credit
conditions improved in the summer, with most credit spreads narrowing dramatically.
By the third quarter of the year, many spreads had returned to pre-crisis levels. By
the fourth quarter, economic activity was expanding and signs emerged that the deterioration in the labor market was abating, although by the end of the year unemployment reached 10%, its highest level since 1983. The housing sector showed some signs of improvement and household spending appeared to be expanding at a moderate rate, though it remained constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses were continuing to reduce capital investment, though at a slower pace, and remained reluctant to add to payrolls. Financial market conditions in the fourth quarter became more supportive of economic growth.
Amidst this difficult
operating environment, JPMorgan Chase benefited from the diversity of its leading
franchises, as demonstrated by the continued earnings strength of its Investment
Bank, Commercial Banking, Asset Management, and Retail Banking franchises. Significant
market share and efficiency gains helped all of the Firms businesses maintain leadership
positions: the Investment Bank ranked #1 for Global Investment Banking fees for 2009;
in Commercial Banking, at year-end 2009, the total revenue related to investment
banking products sold to CB clients doubled from its level at the time of the JPMorgan Chase-Bank One merger. In addition, the Firm completed the integration of Washington Mutual and continued to invest in its businesses,
demonstrated by growth in checking and credit card accounts.
Throughout 2009, the Firm remained focused on maintaining a strong balance sheet. In addition to
the capital generated from earnings, the Firm issued $5.8 billion of common stock and reduced its
quarterly dividend. The Firm also increased its consumer allowance for credit losses by $7.8
billion, bringing the total allowance for credit losses to $32.5 billion, or 5.5% of total loans.
The Firm recorded a $1.1 billion one-time noncash adjustment to common stockholders equity related
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JPMorgan Chase & Co. / 2009 Annual Report
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41 |
Managements discussion and analysis
to the redemption of the $25.0 billion of Series K Preferred Stock issued to the U.S. Treasury
under the Capital Purchase Program. Even with this adjustment, the Firm ended 2009 with a very
strong Tier 1 Capital ratio of 11.1% and a Tier 1 Common ratio of 8.8%.
Throughout this turbulent financial period, JPMorgan Chase supported and served its 90 million
customers and the communities in which it operates; delivered consumer-friendly products and
policies; and continued to lend. The Firm extended nearly $250 billion in new credit to consumers
during the year and for its corporate and municipal clients, either lent or assisted them in
raising approximately $1 trillion in loans, stocks or bonds. The Firm also remained committed to
helping homeowners meet the challenges of declining home prices and rising unemployment. Since
2007, the Firm has initiated over 900,000 actions to prevent foreclosures through its own programs
and through government mortgage-modification programs. During 2009 alone, JPMorgan Chase offered
approximately 600,000 loan modifications to struggling homeowners. Of these, 89,000 loans have
achieved permanent modification. By March 31, 2010, the Firm will have opened 51 Chase
Homeownership Centers across the country and already has over 14,000 employees dedicated to
mortgage loss mitigation.
Management remains confident that JPMorgan Chases capital and reserve strength, combined with its
significant earnings power, will allow the Firm to meet the uncertainties that lie ahead and still
continue investing in its businesses and serving its clients and shareholders over the long term.
The discussion that follows highlights the performance of each business segment compared with the
prior year and presents 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 5052 of this Annual Report.
Investment Bank reported record net income in 2009 compared with a net loss in
2008. The significant rebound in earnings was driven by record net revenue, partially offset by
increases in both noninterest expense and the provision for credit losses. The increase in net
revenue was driven by record Fixed Income Markets revenue, reflecting strong results across most
products, as well as modest net gains on legacy leveraged lending and mortgage-related positions,
compared with over $10 billion of net markdowns in the prior year. Investment banking fees rose to
record levels, as higher equity and debt underwriting fees were partially offset by lower advisory
fees. Record Equity Markets revenue was driven by solid client revenue, particularly in prime
services, and strong trading results. The net revenue results for IB in 2009 included losses from
the tightening of the Firms credit spread on certain structured liabilities and derivatives,
compared with gains in 2008 from the widening of the spread on those liabilities. The provision for
credit losses increased, driven by continued weakness in the credit environment. IB ended the year
with a ratio of allowance for loan losses to end-of-period loans retained of 8.25%. Noninterest
expense increased, reflecting higher performance-based compensation offset partially by lower
headcount-related expense.
Retail Financial Services net income decreased from the prior year, as an increase in the provision
for credit losses and higher noninterest expense were predominantly offset by double-digit growth
in net revenue. Higher net revenue reflected the impact of the Washington Mutual transaction, wider
loan and deposit spreads, and higher net mortgage servicing revenue. The provision for credit
losses increased from the prior year as weak economic conditions and housing price declines
continued to drive higher estimated losses for the home equity and mortgage loan portfolios. RFS
ended the year with a ratio of allowance for loan losses to ending loans, excluding purchased
credit-impaired loans of 5.09%. Noninterest expense was higher, reflecting the impact of the
Washington Mutual transaction and higher servicing and default-related expense.
Card Services reported a net loss for the year, compared with net income in 2008. The decline was
driven by a significantly higher provision for credit losses, partially offset by higher net
revenue. The double-digit growth 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 were partially offset by higher
revenue reversals associated with higher charge-offs, a decreased level of fees and lower average
loan balances. The provision for credit losses increased, reflecting continued weakness in the
credit environment. CS ended the year with a ratio of allowance for loan losses to end-of-period
loans of 12.28%. Noninterest expense increased due to the dissolution of the Chase Paymentech
Solutions joint venture and the impact of the Washington Mutual transaction, partially offset by
lower marketing expense.
Commercial Banking net income decreased from 2008, as an increase in provision for credit losses and
higher noninterest expense were predominantly offset by higher net revenue. Double-digit growth in
net revenue reflected the impact of the Washington Mutual transaction and record levels of lending-
and deposit-related and investment banking fees. Revenue rose in all business segments: Middle
Market Banking, Commercial Term Lending, Mid-Corporate Banking and Real Estate Banking. The
provision for credit losses increased, reflecting continued weakness throughout the year in the
credit environment across all business segments, predominantly in
real estaterelated segments. CB
ended the year with a ratio of allowance for loan losses to end-of-period loans retained of 3.12%.
Noninterest expense increased due to the impact of the Washington Mutual transaction and higher
Federal Deposit Insurance Corporation (FDIC) insurance premiums.
Treasury & Securities Services net income declined from the prior year, driven by
lower net revenue. The decrease in net revenue reflected lower Worldwide Securities Services net
revenue, driven by lower balances and spreads on liability products; lower securities lending
balances, primarily as a result of declines in asset valuations and demand; and the effect of
market depreciation on certain custody assets. Treasury Services net revenue also declined,
reflecting lower deposit balances and spreads, offset by higher trade revenue driven by wider
spreads and growth across cash management and card product volumes. Noninterest expense rose
slightly compared
|
|
|
|
42
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
with the prior year, reflecting higher FDIC insurance premiums offset by lower
headcount-related expense.
Asset Management net income increased from the prior year, due to higher net revenue, offset
largely by higher noninterest expense and a higher provision for credit losses. The increase in net
revenue reflected higher valuations of the Firms seed capital investments, net inflows, wider loan
spreads and higher deposit balances, offset partially by the effect of lower market levels and
narrower deposit spreads. Asset Managements businesses reported mixed revenue results:
Institutional and Private Bank revenue were up while Retail and Private Wealth Management revenue
were down. Assets under supervision increased for the year, due to the effect of higher market
valuations and inflows in fixed income and equity products offset partially by outflows in cash
products. The provision for credit losses increased compared with the prior year, reflecting
continued weakness in the credit environment. Noninterest expense was higher, reflecting the effect
of the Bear Stearns merger, higher performance-based compensation and higher FDIC insurance
premiums, offset largely by lower headcount-related expense.
Corporate/Private Equity net income increased in 2009, reflecting elevated levels of trading gains
and net interest income, securities gains, an after-tax gain from the sale of MasterCard shares and
reduced losses from Private Equity compared with 2008. Trading gains and net interest income
increased due to the Firms significant purchases of mortgage-backed securities guaranteed by U.S.
government agencies, corporate debt securities, U.S. Treasury and government agency securities and
other asset-backed securities. These investments were generally associated with the Chief Investment Offices management of
interest rate risk and investment of cash resulting from the excess funding the Firm continued to
experience during 2009. The increase in securities was partially offset by sales of higher-coupon
instruments (part of repositioning the investment portfolio) as well as prepayments and maturities.
Firmwide, the managed provision for credit losses was $38.5 billion, up by $13.9 billion, or 56%,
from the prior year. The prior year included a $1.5 billion charge to conform Washington Mutuals
allowance for loan losses, which affected both the consumer and wholesale portfolios. For the
purposes of the following analysis, this charge is excluded. The consumer-managed provision for
credit losses was $34.5 billion, compared with $20.4 billion in the prior year, reflecting an
increase in the allowance for credit losses in the home lending and credit card loan portfolios.
Consumer-managed net charge-offs were $26.3 billion, compared with $13.0 billion in the prior year,
resulting in managed net charge-off rates of 5.85% and 3.22%, respectively. The wholesale provision
for credit losses was $4.0 billion, compared with $2.7 billion in the prior year, reflecting
continued weakness in the credit environment throughout 2009. Wholesale net charge-offs were $3.1
billion, compared with $402 million in the prior year, resulting in net charge-off rates of 1.40%
and 0.18%, respectively. The Firms nonperforming assets totaled $19.7 billion at December 31,
2009, up from $12.7 billion. The total allowance for credit losses increased by $8.7 billion from
the prior year-end,
resulting in a loan loss coverage ratio at December 31, 2009, of 5.51%,
compared with 3.62% at December 31, 2008.
Total stockholders equity at December 31, 2009, was $165.4 billion.
2010 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 the Firms actual results to differ materially from those set forth in such
forward-looking statements.
JPMorgan Chases outlook for 2010 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. The Firm continues to monitor the U.S. and international economies and
political environments. The outlook for capital markets remains uncertain, and further declines in
U.S. housing prices in certain markets and increases in the unemployment rate, either of which
could adversely affect the Firms financial results, are possible. In addition, as a result of
recent market conditions, the U.S. Congress and regulators have increased their focus on the
regulation of financial institutions; any legislation or regulations that may be adopted as a
result could limit or restrict the Firms operations, and could impose additional costs on the Firm
in order to comply with such new laws or rules.
Given the potential stress on consumers from rising unemployment and continued downward pressure on
housing prices, management remains cautious with respect to the credit outlook for the consumer
loan portfolios. Possible continued weakness in credit trends could result in higher credit costs
and require additions to the consumer allowance for credit losses. Based on managements current
economic outlook, quarterly net charge-offs could reach $1.4 billion for the home equity portfolio,
$600 million for the prime mortgage portfolio and $500 million for the subprime mortgage portfolio
over the next several quarters. The managed net charge-off rate for Card Services (excluding the
Washington Mutual credit card portfolio) could approach 11% by the first quarter of 2010, including
the adverse timing effect of a payment holiday program of approximately 60 basis points. The
managed net charge-off rate for the Washington Mutual credit card portfolio could approach 24% over
the next several quarters. These charge-off rates are likely to move even higher if the economic
environment deteriorates beyond managements current expectations. Similarly, wholesale credit
costs and net charge-offs could increase in the next several quarters if the credit environment
deteriorates.
The Investment Bank continues to operate in an uncertain environment, and as noted above, results
could be adversely affected if the credit environment were to deteriorate further. Trading results
can be volatile and 2009 included elevated client volumes and spread levels. As such, management
expects Fixed Income and Equity Markets revenue to normalize over time as conditions stabilize.
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JPMorgan Chase & Co. / 2009 Annual Report
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|
43 |
Managements discussion and analysis
In the Retail Banking segment within Retail Financial Services, although management expects
underlying growth, results will be under pressure from the credit environment and ongoing lower
consumer spending levels. In addition, the Firm has made changes, consistent
with (and in certain respects, beyond) the requirements of
newly-enacted legislation, in its policies relating to
non-sufficient funds and overdraft fees. Although management estimates are, at this point in time,
preliminary and subject to change, such changes are expected to result in an annualized reduction
in net income of approximately $500 million, beginning in the first quarter of 2010.
In the Consumer Lending segment within Retail Financial Services, at current production and
estimated run-off levels, the Home Lending portfolio of $263 billion at December 31, 2009, is
expected to decline by approximately 1015% and could possibly average approximately $240 billion
in 2010 and approximately $200 billion in 2011. Based on managements preliminary estimate, which
is subject to change, the effect of such a reduction in the Home Lending portfolio is expected to
reduce 2010 net interest income in the portfolio by approximately $1 billion from the 2009 level.
Additionally, revenue could be negatively affected by
elevated levels of repurchases of mortgages previously sold to, for
example, government-sponsored enterprises.
Management expects noninterest expense in Retail Financial Services to remain at or above 2009
levels, reflecting investments in new branch builds and sales force hires as well as continued
elevated servicing, default and foreclosed asset related costs.
Card Services faces rising credit costs in 2010, as well as continued pressure on both charge
volumes and credit card receivables growth, reflecting continued lower levels of consumer spending.
In addition, as a result of the recently-enacted credit card legislation, management estimates,
which are preliminary and subject to change, are that CSs annual net income may be adversely
affected by approximately $500 million to $750 million. Further, management expects average Card
outstandings to decline by approximately 10-15% in 2010 due to
the run-off of the Washington Mutual portfolio and lower balance transfer levels. As a result
of all
these factors, management currently expects CS to report net losses in each of the first two quarters of 2010 (of approximately
$1 billion in the first quarter and somewhat less than that in
the second quarter) before the effect of any potential reserve actions. Results in the second half of 2010 will
likely be dependent on the economic environment and potential reserve actions.
Commercial Banking results could be negatively affected by rising credit costs, a decline in loan
demand and reduced liability balances.
Earnings in Treasury & Securities Services and Asset Management will be affected by the impact of
market levels on assets under management, supervision and custody. Additionally, earnings in
Treasury & Securities Services could be affected by liability balance flows.
Earnings in Private Equity (within the Corporate/Private Equity segment) will likely be volatile
and continue to be influenced by capital markets activity, market levels, the performance of the
broader economy and investment-specific issues. Corporates net interest income levels and
securities gains will generally trend with the size of the investment portfolio in Corporate;
however, the high level of trading gains in Corporate in the second half of 2009 is not likely to
continue. In the near-term, Corporate quarterly net income (excluding Private Equity,
merger-related items and any significant nonrecurring items) is expected to decline to
approximately $300 million, subject to the size and duration of the investment securities
portfolio.
Lastly, with regard to any decision by the Firms Board of
Directors concerning any increase in the level of the common stock
dividend, their determination will be subject to their judgment that
the likelihood of another severe economic downturn has sufficiently
diminished, that overall business performance has stabilized, and that
such action is warranted taking into consideration the Firms earnings outlook, need to
maintain adequate capital levels, alternative investment
opportunities, and appropriate dividend payout ratios. When in the
Boards judgment, based on the foregoing, the Board believes it appropriate to increase the dividend to an annual payout level in the range of $0.75 to $1.00 per share, the Board would likely move forward with such an increase, and follow at some later time with an additional increase or additional increases sufficient to return to the Firms historical dividend ratio of approximately 30% to 40% of
normalized earnings over time.
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|
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|
44 |
|
JPMorgan Chase & Co. / 2009 Annual Report |
CONSOLIDATED RESULTS OF OPERATIONS
This following section provides a comparative discussion of JPMorgan Chases
Consolidated Results of Operations on a reported basis for the three-year period ended December 31,
2009. 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
127131 of this Annual Report.
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, (in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Investment banking fees |
|
$ |
7,087 |
|
|
$ |
5,526 |
|
|
$ |
6,635 |
|
Principal transactions |
|
|
9,796 |
|
|
|
(10,699 |
) |
|
|
9,015 |
|
Lending- and deposit-related fees |
|
|
7,045 |
|
|
|
5,088 |
|
|
|
3,938 |
|
Asset management, administration
and commissions |
|
|
12,540 |
|
|
|
13,943 |
|
|
|
14,356 |
|
Securities gains |
|
|
1,110 |
|
|
|
1,560 |
|
|
|
164 |
|
Mortgage fees and related income |
|
|
3,678 |
|
|
|
3,467 |
|
|
|
2,118 |
|
Credit card income |
|
|
7,110 |
|
|
|
7,419 |
|
|
|
6,911 |
|
Other income |
|
|
916 |
|
|
|
2,169 |
|
|
|
1,829 |
|
|
Noninterest revenue |
|
|
49,282 |
|
|
|
28,473 |
|
|
|
44,966 |
|
Net interest income |
|
|
51,152 |
|
|
|
38,779 |
|
|
|
26,406 |
|
|
Total net revenue |
|
$ |
100,434 |
|
|
$ |
67,252 |
|
|
$ |
71,372 |
|
|
2009 compared with 2008
Total net revenue was $100.4 billion, up by $33.2 billion, or 49%, from the prior year. The
increase was driven by higher principal transactions revenue, primarily related to improved
performance across most fixed income and equity products, and the absence of net markdowns on
legacy leveraged lending and mortgage positions in IB, as well as higher levels of trading gains
and investment securities income in Corporate/Private Equity. Results also benefited from the
impact of the Washington Mutual transaction, which contributed to increases in net interest income,
lending- and deposit-related fees, and mortgage fees and related income. Lastly, higher investment
banking fees also contributed to revenue growth. These increases in revenue were offset partially
by reduced fees and commissions from the effect of lower market levels on assets under management
and custody, and the absence of proceeds from the sale of Visa shares in its initial public
offering in the first quarter of 2008.
Investment banking fees increased from the prior year, due to higher equity and debt underwriting
fees. For a further discussion of investment banking fees, which are primarily recorded in IB, see
IB segment results on pages 5557 of this Annual Report.
Principal transactions revenue, which consists of revenue from trading and private equity investing
activities, was significantly higher compared with the prior year. Trading revenue increased,
driven by
improved performance across most fixed income and equity products; modest net gains on legacy
leveraged lending and mortgage-related positions, compared with net markdowns of $10.6 billion in
the prior year; and gains on trading positions in Corporate/Private Equity, compared with losses in
the prior year of $1.1 billion on markdowns of Federal National Mortgage Association (Fannie Mae)
and Federal Home Loan Mortgage Corporation (Freddie Mac) preferred securities. These increases in
revenue were offset partially by an aggregate
loss of $2.3 billion from the tightening of the
Firms credit spread on certain structured liabilities and derivatives, compared with gains of $2.0
billion in the prior year from widening spreads on these liabilities and derivatives. The Firms
private equity investments produced a slight net loss in 2009, a significant improvement from a
larger net loss in 2008. For a further discussion of principal transactions revenue, see IB and
Corporate/Private Equity segment results on pages 5557 and
7475, respectively, and Note 3 on
pages 148165 of this Annual Report.
Lending- and deposit-related fees rose from the prior year, predominantly reflecting the impact of
the Washington Mutual transaction and organic growth in both lending- and deposit-related fees in
RFS, CB, IB and TSS. For a further discussion of lending- and deposit-related fees, which are
mostly recorded in RFS, TSS and CB, see the RFS segment results on
pages 5863, the TSS segment
results on pages 6970, and the CB segment results on pages
6768 of this Annual Report.
The decline in asset management, administration and commissions revenue compared with the prior
year was largely due to lower asset management fees in AM from the effect of lower market levels.
Also contributing to the decrease were lower administration fees in TSS, driven by the effect of
market depreciation on certain custody assets and lower securities lending balances; and lower
brokerage commissions revenue in IB, predominantly related to lower transaction volume. For
additional information on these fees and commissions, see the segment discussions for TSS on pages
6970, and AM on pages 7173 of this Annual Report.
Securities gains were lower in 2009 and included credit losses related to other-than-temporary
impairment and lower gains on the sale of MasterCard shares of $241 million in 2009, compared with
$668 million in 2008. These decreases were offset partially by higher gains from repositioning the
Corporate investment securities portfolio in connection with managing the Firms structural
interest rate risk. For a further discussion of securities gains, which are mostly recorded in
Corporate/Private Equity, see the Corporate/Private Equity segment
discussion on pages 7475 of
this Annual Report.
Mortgage fees and related income increased slightly from the prior year, as higher net mortgage
servicing revenue was largely offset by lower production revenue. The increase in net mortgage
servicing revenue was driven by growth in average third-party loans serviced as a result of the
Washington Mutual transaction. Mortgage production revenue declined from the prior year, reflecting
an increase in
estimated
losses from the repurchase of previously-sold loans, offset partially by wider
margins on new originations. For a discussion of mortgage fees and related income, which is
recorded primarily in RFSs Consumer Lending business, see the Consumer Lending discussion on pages
6063 of this Annual Report.
Credit card income, which includes the impact of the Washington Mutual transaction, decreased
slightly compared with the prior year,
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JPMorgan Chase & Co. / 2009 Annual Report
|
|
45 |
Managements discussion and analysis
due to lower servicing fees earned in connection with CS
securitization activities, largely as a result of higher credit losses. The decrease was partially
offset by wider loan margins on securitized credit card loans; higher merchant servicing revenue
related to the dissolution of the Chase Paymentech Solutions joint venture; and higher interchange
income. For a further discussion of credit card income, see the CS
segment results on pages 6466
of this Annual Report.
Other income decreased from the prior year, due predominantly to the absence of $1.5 billion in
proceeds from the sale of Visa shares during its initial public offering in the first quarter of
2008, and a $1.0 billion gain on the dissolution of the Chase Paymentech Solutions joint venture in
the fourth quarter of 2008; and lower net securitization income in CS. These items were partially
offset by a $464 million charge recognized in 2008 related to the repurchase of auction-rate
securities at par; the absence of a $423 million loss incurred in the second quarter of 2008,
reflecting the Firms 49.4% share of Bear Stearns losses from April 8 to May 30, 2008; and higher
valuations on certain investments, including seed capital in AM.
Net interest income increased from the prior year, driven by the Washington Mutual transaction,
which contributed to higher average loans and deposits. The Firms interest-earning assets were
$1.7 trillion, and the net yield on those assets, on a fully taxable-equivalent (FTE) basis, was
3.12%, an increase of 25 basis points from 2008. Excluding the impact of the Washington Mutual
transaction, the increase in net interest income in 2009 was driven by a higher level of investment
securities, as well as a wider net interest margin, which reflected the overall decline in market
interest rates during the year. Declining interest rates had a positive effect on the net interest
margin, as rates paid on the Firms interest-bearing liabilities decreased faster relative to the decline in rates earned on
interest-earning assets. These increases in net interest income were offset partially by lower loan
balances, which included the effect of lower customer demand, repayments and charge-offs.
2008 compared with 2007
Total net revenue of $67.3 billion was down $4.1 billion, or 6%, from the prior year. The decline
resulted from the extremely challenging business environment for financial services firms in 2008.
Principal transactions revenue decreased significantly and included net markdowns on
mortgage-related positions and leveraged lending funded and unfunded commitments, losses on
preferred securities of Fannie Mae and Freddie Mac, and losses on private equity investments. Also
contributing to the decline in total net revenue were losses and markdowns recorded in other
income, including the Firms share of Bear Stearns losses from April 8 to May 30, 2008. These
declines were largely offset by higher net interest income, proceeds from the sale of Visa shares
in its initial public offering, and the gain on the dissolution of the Chase Paymentech joint
venture.
Investment banking fees were down from the record level of the prior year due to lower debt
underwriting fees, as well as lower advisory and equity underwriting fees, both of which were at
record levels in 2007. These declines were attributable to reduced
market activity. For a further
discussion
of investment banking fees, which are primarily recorded in IB, see IB segment results
on pages 5557 of this Annual Report.
In 2008, principal transactions revenue declined by $19.7 billion from the prior year. Trading
revenue decreased by $14.5 billion to a negative $9.8 billion, compared with positive $4.7 billion
in 2007. The decline in trading revenue was largely driven by net markdowns of $5.9 billion on
mortgage-related exposures, compared with $1.4 billion in net markdowns in the prior year; net
markdowns of $4.7 billion on leveraged lending funded and unfunded commitments, compared with $1.3
billion in net markdowns in the prior year; losses of $1.1 billion on preferred securities of
Fannie Mae and Freddie Mac; and weaker equity trading results, compared with a record level in
2007. In addition, trading revenue was adversely affected by additional losses and costs to reduce
risk related to Bear Stearns positions. Partially offsetting the decline in trading revenue were
record results in rates and currencies, credit trading, commodities and emerging markets, as well
as strong Equity Markets client revenue; and total gains of $2.0 billion from the widening of the
Firms credit spread on certain structured liabilities and derivatives, compared with $1.3 billion
in 2007. Private equity results also declined substantially from the prior year, recording losses
of $908 million in 2008, compared with gains of $4.3 billion in 2007. In addition, the first
quarter of 2007 included a fair value adjustment related to the adoption of new FASB guidance on
fair value measurement. For a further discussion of principal transactions revenue, see IB and
Corporate/Private Equity segment results on pages 5557 and
7475, respectively, and Note 3 on
pages 148165 of this Annual Report.
Lending- and deposit-related fees rose from 2007, predominantly resulting from higher
deposit-related fees and the impact of the Washington Mutual transaction. For a further discussion
of Lending- and deposit-related fees, which are mostly recorded in RFS, TSS and CB, see the RFS
segment results on pages 5863, the TSS segment results on pages
6970 and the CB segment results
on pages 6768 of this Annual Report.
The decline in asset management, administration and commissions revenue compared with 2007 was
driven by lower asset management fees in AM, due to lower performance fees and the effect of lower
market levels. This decline was partially offset by an increase in commissions revenue, related
predominantly to higher brokerage transaction volume within IBs Equity Markets revenue, which
included additions from Bear Stearns Prime Services business; and higher administration fees in TSS, driven by wider spreads in securities lending and
increased product usage by new and existing clients. For additional information on these fees and
commissions, see the segment discussions for IB on pages 5557,
RFS on pages 5863, TSS on pages
6970 and AM on pages 7173 of this Annual Report.
The increase in securities gains compared with the prior year was due to the repositioning of the
Corporate investment securities portfolio, as part of managing the structural interest rate risk of
the
|
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46
|
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JPMorgan Chase & Co. / 2009 Annual Report |
Firm; and higher gains from the sale of MasterCard shares. For a further discussion of
securities gains, which are mostly recorded in the Firms Corporate/Private Equity business, see
the Corporate/Private Equity segment discussion on pages 7475 of this Annual Report.
Mortgage fees and related income increased from the prior year, driven by higher net mortgage
servicing revenue, which benefited from an improvement in mortgage servicing rights (MSR) risk
management results and increased loan servicing revenue. Mortgage production revenue increased
slightly, as growth in originations was predominantly offset by markdowns on the mortgage warehouse
and increased losses related to the repurchase of previously sold loans. For a discussion of
mortgage fees and related income, which is recorded primarily in RFSs Consumer Lending business,
see the Consumer Lending discussion on pages 6063 of this Annual Report.
Credit card income rose compared with the prior year, driven by increased interchange income, due
to higher customer charge volume in CS and higher debit card transaction volume in RFS; the impact
of the Washington Mutual transaction; and increased servicing fees resulting from a higher level of
securitized receivables. These results were partially offset by increases in volume-driven payments
to partners and expense related to rewards programs. For a further discussion of credit card
income, see CSs segment results on pages 6466 of this Annual Report.
Other income increased compared with the prior year, due predominantly to the proceeds from the
sale of Visa shares in its initial public offering of $1.5 billion, the gain on the dissolution of
the Chase Paymentech joint venture of $1.0 billion, and gains on sales of certain other assets.
These proceeds and gains were partially offset by lower valuations on certain investments,
including seed capital in AM; a $464 million charge related to the offer to repurchase auction-rate
securities at par; losses of $423 million reflecting the Firms 49.4% ownership in Bear Stearns
losses from April 8 to May 30, 2008; and lower net securitization income in CS.
Net interest income increased from the prior year driven, in part, by the Washington Mutual
transaction, which contributed to higher average loans and deposits, and, to a lesser extent, by
the Bear Stearns merger. The Bear Stearns Prime Services business contributed to higher net
interest income, as this business increased average balances in other interest-earning assets
(primarily customer receivables) and other interest-bearing liabilities (primarily customer
payables). The Firms interest-earning assets were $1.4 trillion, and the net yield on those
assets, on an FTE basis, was 2.87%, an increase of 48 basis points from 2007. Excluding the impact
of the Washington Mutual transaction and the Bear Stearns merger, the increase in net interest
income in 2008 was driven by a wider net interest margin, which reflected the overall decline in
market interest rates during the year. The decline in rates had a positive effect on the net
interest margin, as rates paid on the Firms interest-bearing liabilities decreased faster relative
to the decrease in rates earned on interest-earning
assets. Growth in consumer and wholesale loan
balances also contributed to the increase in net interest income.
Provision for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Wholesale |
|
$ |
3,974 |
|
|
$ |
3,327 |
|
|
$ |
934 |
|
Consumer |
|
|
28,041 |
|
|
|
17,652 |
|
|
|
5,930 |
|
|
Total provision for credit losses |
|
$ |
32,015 |
|
|
$ |
20,979 |
|
|
$ |
6,864 |
|
|
2009 compared with 2008
The provision for credit losses in 2009 rose by $11.0 billion compared with the prior year,
predominantly due to a significant increase in the consumer provision. The prior year included a
$1.5 billion charge to conform Washington Mutuals allowance for loan losses, which affected both
the consumer and wholesale portfolios. For the purpose of the following analysis, this charge is
excluded. The consumer provision reflected additions to the allowance for loan losses for the home
equity, mortgage and credit card portfolios, as weak economic conditions, housing price declines
and higher unemployment rates continued to drive higher estimated losses for these portfolios.
Included in the 2009 addition to the allowance for loan losses was a $1.6 billion provision related
to estimated deterioration in the Washington Mutual purchased credit-impaired portfolio. The
wholesale provision increased from the prior year, reflecting continued weakness in the credit
environment in 2009 compared with the prior year. For a more detailed discussion of the loan
portfolio and the allowance for loan losses, see the segment
discussions for RFS on pages 5863,
CS on pages 6466, IB on pages 5557 and CB on pages 6768, and the Allowance for Credit Losses
section on pages 115117 of this Annual Report.
2008 compared with 2007
The provision for credit losses in 2008 rose by $14.1 billion compared with the prior year, due to
increases in both the consumer and wholesale provisions. The increase in the consumer provision
reflected higher estimated losses for home equity and mortgages resulting from declining housing
prices; an increase in estimated losses for the auto, student and business banking loan portfolios;
and an increase in the allowance for loan losses and higher charge-offs of credit card loans. The
increase in the wholesale provision was driven by a higher allowance resulting from a weakening
credit environment and growth in retained loans. The wholesale provision in the first quarter of
2008 also included the effect of the transfer of $4.9 billion of funded and unfunded leveraged
lending commitments to retained loans from the held-for-sale portfolio. In addition, in 2008 both
the consumer and wholesale provisions were affected by a $1.5 billion charge to conform assets
acquired from Washington Mutual to the Firms loan loss methodologies. For a more detailed
discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for
RFS on pages 5863, CS on pages 6466, IB on pages
5557 and CB on pages 6768, and the Credit
Risk Management section on pages 93117 of this Annual Report.
|
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JPMorgan Chase & Co. / 2009 Annual Report
|
|
47 |
Managements discussion and analysis
Noninterest expense
The following table presents the components of noninterest
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Compensation expense |
|
$ |
26,928 |
|
|
$ |
22,746 |
|
|
$ |
22,689 |
|
Noncompensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy expense |
|
|
3,666 |
|
|
|
3,038 |
|
|
|
2,608 |
|
Technology, communications
and equipment expense |
|
|
4,624 |
|
|
|
4,315 |
|
|
|
3,779 |
|
Professional & outside services |
|
|
6,232 |
|
|
|
6,053 |
|
|
|
5,140 |
|
Marketing |
|
|
1,777 |
|
|
|
1,913 |
|
|
|
2,070 |
|
Other expense(a)(b) |
|
|
7,594 |
|
|
|
3,740 |
|
|
|
3,814 |
|
Amortization of intangibles |
|
|
1,050 |
|
|
|
1,263 |
|
|
|
1,394 |
|
|
Total noncompensation expense |
|
|
24,943 |
|
|
|
20,322 |
|
|
|
18,805 |
|
Merger costs |
|
|
481 |
|
|
|
432 |
|
|
|
209 |
|
|
Total noninterest expense |
|
$ |
52,352 |
|
|
$ |
43,500 |
|
|
$ |
41,703 |
|
|
|
|
|
(a) |
|
Includes a $675 million FDIC special assessment in 2009. |
(b) |
|
Includes foreclosed property expense of $1.4 billion, $213 million and $56 million for 2009,
2008 and 2007, respectively. For additional information regarding foreclosed property, see
Note 13 on pages 192196 of this Annual Report. |
2009 compared with 2008
Total noninterest expense was $52.4 billion, up $8.9 billion, or 20%, from the prior year. The
increase was driven by the impact of the Washington Mutual transaction, higher performance-based
compensation expense, higher FDIC-related costs and increased mortgage servicing and
default-related expense. These items were offset partially by lower headcount-related expense,
including salary and benefits but excluding performance-based incentives, and other noncompensation
costs related to employees.
Compensation expense increased in 2009 compared with the prior year, reflecting higher
performance-based incentives, as well as the impact of the Washington Mutual transaction. Excluding
these two items, compensation expense decreased as a result of a reduction in headcount,
particularly in the wholesale businesses and in Corporate.
Noncompensation expense increased from the prior year, due predominantly to the following: the
impact of the Washington Mutual transaction; higher ongoing FDIC insurance premiums and an FDIC
special assessment of $675 million recognized in the second quarter of 2009; higher mortgage
servicing and default-related expense, which included an increase in foreclosed property expense of
$1.2 billion; higher litigation costs; and the effect of the dissolution of the Chase Paymentech
Solutions joint venture. The increase was partially offset by lower headcount-related expense,
particularly in IB, TSS and AM; a decrease in amortization of intangibles, predominantly related to
purchased credit card relationships; lower mortgage reinsurance losses; and a decrease in credit
card marketing expense. For a discussion of amortization of intangibles, refer to Note 17 on pages
214217 of this Annual Report.
For information on merger costs, refer to Note 10 on page 186 of this Annual Report.
2008 compared with 2007
Total noninterest expense for 2008 was $43.5 billion, up $1.8 billion, or 4%, from the prior year.
The increase was driven by the additional operating costs related to the Washington Mutual
transaction and Bear Stearns merger and investments in the businesses, partially offset by lower
performance-based incentives.
Compensation expense increased slightly from the prior year, predominantly driven by investments in
the businesses, including headcount additions associated with the Bear Stearns merger and
Washington Mutual transaction, largely offset by lower performance-based incentives.
Noncompensation expense increased from the prior year as a result of the Bear Stearns merger and
Washington Mutual transaction. Excluding the effect of these transactions, noncompensation expense
decreased due to a net reduction in other expense related to litigation; lower credit card and
consumer lending marketing expense; and a decrease in the amortization of intangibles, as certain
purchased credit card relationships were fully amortized in 2007, and the amortization rate for
core deposit intangibles declined in accordance with the amortization schedule. These decreases
were offset partially by increases in professional & outside services, driven by investments in new
product platforms in TSS, and business and volume growth in CS credit card processing and IB
brokerage, clearing and exchange transaction processing. Also contributing to the increases were
the following: an increase in other expense due to higher mortgage reinsurance losses and mortgage
servicing expense due to increased delinquencies and defaults in RFS; an increase in technology,
communications and equipment expense, reflecting higher depreciation expense on owned automobiles
subject to operating leases in RFS, and other technology-related investments across the businesses;
and an increase in occupancy expense, partly related to the expansion of RFSs retail distribution
network. For a further discussion of amortization of intangibles, refer to Note 17 on pages
214217 of this Annual Report.
For information on merger costs, refer to Note 10 on page 186 of this Annual Report.
|
|
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|
48
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|
JPMorgan Chase & Co. / 2009 Annual Report |
Income tax expense
The following table presents the Firms income before income tax expense/(benefit) and
extraordinary gain, income tax expense/(benefit) and effective tax rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except rate) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Income before income tax
expense/ (benefit) and
extraordinary gain |
|
$ |
16,067 |
|
|
$ |
2,773 |
|
|
$ |
22,805 |
|
Income tax expense/(benefit) |
|
|
4,415 |
|
|
|
(926 |
) |
|
|
7,440 |
|
Effective tax rate |
|
|
27.5 |
% |
|
|
(33.4 |
)% |
|
|
32.6 |
% |
|
2009 compared with 2008
The change in the effective tax rate compared with the prior year was primarily the result of
higher reported pretax income and changes in the proportion of income subject to U.S. federal and
state and local taxes. Benefits related to tax-exempt income, business tax credits and tax audit
settlements increased in 2009 relative to 2008; however, the impact of these items on the effective
tax rate was reduced by the significantly higher level of pretax income in 2009. In addition, 2008
reflected the realization of benefits of $1.1 billion 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. For a further discussion of income taxes, see Critical Accounting
Estimates Used by the Firm on pages 127131 and Note 27 on pages
226228 of this Annual Report.
2008 compared with 2007
The decrease in the effective tax rate in 2008 compared with the prior year was the result of
significantly lower reported pretax income, combined with changes in the proportion of income
subject to U.S. federal taxes. Also contributing to the decrease in the effective tax rate was
increased business tax credits and the realization of a $1.1 billion benefit from the release of
deferred tax liabilities. These deferred tax liabilities were associated with the undistributed
earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely. These
decreases were partially offset by changes in state and local taxes, and equity losses representing
the Firms 49.4% ownership interest in Bear Stearns losses from April 8 to May 30, 2008, for which
no income tax benefit was recorded.
Extraordinary gain
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual.
This transaction was accounted for under the purchase method of accounting for business
combinations. The adjusted net asset value of the banking operations after purchase accounting
adjustments was higher than the consideration paid by JPMorgan Chase, resulting in an extraordinary
gain. The preliminary gain recognized in 2008 was $1.9 billion. In the third quarter of 2009, the
Firm recognized a $76 million increase in the extraordinary gain associated with the final purchase
accounting adjustments for the acquisition. For a further discussion of the Washington Mutual
transaction, see Note 2 on pages 143148 of this Annual Report.
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JPMorgan Chase & Co. / 2009 Annual Report
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49 |
Managements discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRMS USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using accounting principals
generally accepted in the United States of America (U.S. GAAP); these financial statements appear
on pages 138141 of this Annual Report. 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 sheets, and presents revenue on a 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 U.S. GAAP 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 6466
of this Annual Report. For information regarding the securitization process, and loans and residual
interests sold and securitized, see Note 15 on pages 198205 of this Annual Report.
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to managed basis.
(Table continues on next page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
tax- |
|
|
|
|
|
|
|
|
|
|
|
|
tax- |
|
|
|
|
(in millions, except per share and ratio data) |
|
Reported results |
|
|
Credit card(d) |
|
|
equivalent adjustments |
|
|
Managed basis |
|
|
Reported results |
|
|
Credit card(d) |
|
|
equivalent adjustments |
|
|
Managed basis |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
7,087 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,087 |
|
|
$ |
5,526 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,526 |
|
Principal transactions |
|
|
9,796 |
|
|
|
|
|
|
|
|
|
|
|
9,796 |
|
|
|
(10,699 |
) |
|
|
|
|
|
|
|
|
|
|
(10,699 |
) |
Lending- and deposit-related fees |
|
|
7,045 |
|
|
|
|
|
|
|
|
|
|
|
7,045 |
|
|
|
5,088 |
|
|
|
|
|
|
|
|
|
|
|
5,088 |
|
Asset management, administration
and commissions |
|
|
12,540 |
|
|
|
|
|
|
|
|
|
|
|
12,540 |
|
|
|
13,943 |
|
|
|
|
|
|
|
|
|
|
|
13,943 |
|
Securities gains |
|
|
1,110 |
|
|
|
|
|
|
|
|
|
|
|
1,110 |
|
|
|
1,560 |
|
|
|
|
|
|
|
|
|
|
|
1,560 |
|
Mortgage fees and related income |
|
|
3,678 |
|
|
|
|
|
|
|
|
|
|
|
3,678 |
|
|
|
3,467 |
|
|
|
|
|
|
|
|
|
|
|
3,467 |
|
Credit card income |
|
|
7,110 |
|
|
|
(1,494 |
) |
|
|
|
|
|
|
5,616 |
|
|
|
7,419 |
|
|
|
(3,333 |
) |
|
|
|
|
|
|
4,086 |
|
Other income |
|
|
916 |
|
|
|
|
|
|
|
1,440 |
|
|
|
2,356 |
|
|
|
2,169 |
|
|
|
|
|
|
|
1,329 |
|
|
|
3,498 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
49,282 |
|
|
|
(1,494 |
) |
|
|
1,440 |
|
|
|
49,228 |
|
|
|
28,473 |
|
|
|
(3,333 |
) |
|
|
1,329 |
|
|
|
26,469 |
|
Net interest income |
|
|
51,152 |
|
|
|
7,937 |
|
|
|
330 |
|
|
|
59,419 |
|
|
|
38,779 |
|
|
|
6,945 |
|
|
|
579 |
|
|
|
46,303 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
100,434 |
|
|
|
6,443 |
|
|
|
1,770 |
|
|
|
108,647 |
|
|
|
67,252 |
|
|
|
3,612 |
|
|
|
1,908 |
|
|
|
72,772 |
|
Noninterest expense |
|
|
52,352 |
|
|
|
|
|
|
|
|
|
|
|
52,352 |
|
|
|
43,500 |
|
|
|
|
|
|
|
|
|
|
|
43,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-provision profit |
|
|
48,082 |
|
|
|
6,443 |
|
|
|
1,770 |
|
|
|
56,295 |
|
|
|
23,752 |
|
|
|
3,612 |
|
|
|
1,908 |
|
|
|
29,272 |
|
Provision for credit losses |
|
|
32,015 |
|
|
|
6,443 |
|
|
|
|
|
|
|
38,458 |
|
|
|
19,445 |
|
|
|
3,612 |
|
|
|
|
|
|
|
23,057 |
|
Provision
for credit losses accounting
conformity(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,534 |
|
|
|
|
|
|
|
|
|
|
|
1,534 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense/
(benefit) and extraordinary gain |
|
|
16,067 |
|
|
|
|
|
|
|
1,770 |
|
|
|
17,837 |
|
|
|
2,773 |
|
|
|
|
|
|
|
1,908 |
|
|
|
4,681 |
|
Income tax expense/(benefit) |
|
|
4,415 |
|
|
|
|
|
|
|
1,770 |
|
|
|
6,185 |
|
|
|
(926 |
) |
|
|
|
|
|
|
1,908 |
|
|
|
982 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
|
11,652 |
|
|
|
|
|
|
|
|
|
|
|
11,652 |
|
|
|
3,699 |
|
|
|
|
|
|
|
|
|
|
|
3,699 |
|
Extraordinary gain |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
1,906 |
|
|
|
|
|
|
|
|
|
|
|
1,906 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,728 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,728 |
|
|
$ |
5,605 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(b)(c) |
|
$ |
2.24 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.24 |
|
|
$ |
0.81 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.81 |
|
Return on assets(c) |
|
|
0.58 |
% |
|
NM |
|
|
NM |
|
|
|
0.55 |
% |
|
|
0.21 |
% |
|
NM |
|
|
NM |
|
|
|
0.20 |
% |
Overhead ratio |
|
|
52 |
|
|
NM |
|
|
NM |
|
|
|
48 |
|
|
|
65 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
Loans period-end |
|
$ |
633,458 |
|
|
$ |
84,626 |
|
|
$ |
|
|
|
$ |
718,084 |
|
|
$ |
744,898 |
|
|
$ |
85,571 |
|
|
$ |
|
|
|
$ |
830,469 |
|
Total assets
average |
|
|
2,024,201 |
|
|
|
82,233 |
|
|
|
|
|
|
|
2,106,434 |
|
|
|
1,791,617 |
|
|
|
76,904 |
|
|
|
|
|
|
|
1,868,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
2008 included an accounting conformity loan loss reserve provision related to the
acquisition of Washington Mutuals banking operations. |
(b) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised. For further discussion of the
guidance, see Note 25 on page 224 of this Annual Report. |
(c) |
|
Based on income before extraordinary gain. |
(d) |
|
See pages 6466 of this Annual Report for a discussion of the effect of credit card
securitizations on CS. |
|
|
|
|
50
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
On January 1, 2010, the Firm adopted the new consolidation accounting guidance for
VIEs. As the Firm will be deemed to be the primary beneficiary of its credit card securitization
trusts as a result of this guidance, the Firm will consolidate the assets and liabilities of these
credit card securitization trusts at their carrying values on January 1, 2010, and credit
cardrelated income and credit costs associated with these securitization activities will be
prospectively recorded on the 2010 Consolidated Statements of Income in the same classifications
that are currently used to report such items on a managed basis. For additional information on the
new accounting guidance, see Accounting and reporting
developments on pages 132134 of this
Annual Report.
Total net revenue for each of the business segments and the Firm is presented on a FTE basis.
Accordingly, investments that receive tax credits and revenue from tax-exempt securities are
presented in the managed results on a basis comparable to taxable investments and securities. This
non-GAAP financial measure allows management to assess
(Table continued from previous page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
Reported |
|
|
|
|
|
|
tax-equivalent |
|
|
Managed |
|
results |
|
|
Credit card(d) |
|
|
adjustments |
|
|
basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,635 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,635 |
|
|
9,015 |
|
|
|
|
|
|
|
|
|
|
|
9,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,938 |
|
|
|
|
|
|
|
|
|
|
|
3,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,356 |
|
|
|
|
|
|
|
|
|
|
|
14,356 |
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,118 |
|
|
|
|
|
|
|
|
|
|
|
2,118 |
|
|
6,911 |
|
|
|
(3,255 |
) |
|
|
|
|
|
|
3,656 |
|
|
1,829 |
|
|
|
|
|
|
|
683 |
|
|
|
2,512 |
|
|
|
|
|
|
|
|
|
44,966 |
|
|
|
(3,255 |
) |
|
|
683 |
|
|
|
42,394 |
|
|
26,406 |
|
|
|
5,635 |
|
|
|
377 |
|
|
|
32,418 |
|
|
|
|
|
|
|
|
|
71,372 |
|
|
|
2,380 |
|
|
|
1,060 |
|
|
|
74,812 |
|
|
41,703 |
|
|
|
|
|
|
|
|
|
|
|
41,703 |
|
|
|
|
|
|
|
|
|
29,669 |
|
|
|
2,380 |
|
|
|
1,060 |
|
|
|
33,109 |
|
|
6,864 |
|
|
|
2,380 |
|
|
|
|
|
|
|
9,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,805 |
|
|
|
|
|
|
|
1,060 |
|
|
|
23,865 |
|
|
7,440 |
|
|
|
|
|
|
|
1,060 |
|
|
|
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,365 |
|
|
|
|
|
|
|
|
|
|
|
15,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,365 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4.33 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4.33 |
|
|
1.06 |
% |
|
NM |
|
|
NM |
|
|
|
1.01 |
% |
|
58 |
|
|
NM |
|
|
NM |
|
|
|
56 |
|
|
|
|
|
|
|
|
$ |
519,374 |
|
|
$ |
72,701 |
|
|
$ |
|
|
|
$ |
592,075 |
|
|
1,455,044 |
|
|
|
66,780 |
|
|
|
|
|
|
|
1,521,824 |
|
|
|
|
|
|
|
|
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.
Tangible common equity (TCE) represents common stockholders equity (i.e., total stockholders
equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill,
net of related deferred tax liabilities. ROTCE, a non-GAAP financial ratio, measures the Firms
earnings as a percentage of TCE and is, in managements view, another meaningful measure to assess
the Firms use of equity.
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.
Calculation of certain U.S. GAAP and non-GAAP metrics
The table below reflects the formulas used to calculate both the
following U.S. GAAP and non-GAAP measures.
Return on common equity
Net income* / Average common stockholders equity
Return on tangible common equity(e)
Net income* / Average tangible common equity
Return on assets
Reported net income / Total average assets
Managed net income / Total average managed assets(f)
(including average securitized credit card receivables)
Overhead ratio
Total noninterest expense / Total net revenue
* |
|
Represents net income applicable to common equity |
|
(e) |
|
The Firm uses ROTCE, a non-GAAP financial measure, to evaluate the
Firms use of equity and to facilitate comparisons with competitors.
Refer to the following page for the calculation of average tangible common
equity. |
|
(f) |
|
The Firm uses return on managed assets, a non-GAAP financial measure, to
evaluate the overall performance of the managed credit card portfolio,
including securitized credit card loans. |
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
51 |
Managements discussion and analysis
Average tangible common equity
|
|
|
|
|
|
|
|
|
Year ended December 31, (in millions) |
|
2009 |
|
|
2008 |
|
|
Common stockholders equity |
|
$ |
145,903 |
|
|
$ |
129,116 |
|
Less: Goodwill |
|
|
48,254 |
|
|
|
46,068 |
|
Less: Certain identifiable intangible assets |
|
|
5,095 |
|
|
|
5,779 |
|
Add: Deferred tax liabilities(a) |
|
|
2,547 |
|
|
|
2,369 |
|
|
TCE |
|
$ |
95,101 |
|
|
$ |
79,638 |
|
|
|
|
|
(a) |
|
Represents deferred tax liabilities related to tax-deductible goodwill and to
identifiable intangibles created in non-taxable transactions, which are netted against
goodwill and other intangibles when calculating TCE. |
Impact on ROE of redemption of TARP preferred stock
issued to the U.S. Treasury
The calculation of 2009 net income applicable to common equity includes a one-time, noncash
reduction of $1.1 billion resulting from the repayment of TARP preferred capital. Excluding this
reduction, ROE would have been 7% for 2009. The Firm views adjusted ROE, a non-GAAP financial
measure, as meaningful because it enables the comparability to prior periods.
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
|
|
Excluding the |
|
(in millions, except ratios) |
|
As reported |
|
|
TARP redemption |
|
|
Return on equity |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,728 |
|
|
$ |
11,728 |
|
Less: Preferred stock dividends |
|
|
1,327 |
|
|
|
1,327 |
|
Less: Accelerated amortization from
redemption of preferred stock issued
to the U.S. Treasury |
|
|
1,112 |
|
|
|
|
|
|
Net income applicable to common equity |
|
$ |
9,289 |
|
|
$ |
10,401 |
|
|
Average common stockholders equity |
|
$ |
145,903 |
|
|
$ |
145,903 |
|
|
ROE |
|
|
6 |
% |
|
|
7 |
% |
|
Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S.
Treasury
Net income applicable to common equity for the year ended December 31, 2009, included a one-time,
noncash reduction of approximately $1.1 billion resulting from the repayment of TARP preferred
capital. The following table presents the effect on net income applicable to common stockholders
and the $0.27 reduction to diluted earnings per share for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
|
|
Effect of |
|
(in millions, except per share) |
|
As reported |
|
|
TARP redemption |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,728 |
|
|
$ |
|
|
Less: Preferred stock dividends |
|
|
1,327 |
|
|
|
|
|
Less: Accelerated amortization from redemption
of preferred stock issued to the U.S. Treasury |
|
|
1,112 |
|
|
|
1,112 |
|
|
Net income applicable to common equity |
|
$ |
9,289 |
|
|
$ |
(1,112 |
) |
Less: Dividends and undistributed earnings
allocated to participating securities |
|
|
515 |
|
|
|
(62 |
) |
|
Net income applicable to common stockholders |
|
$ |
8,774 |
|
|
$ |
(1,050 |
) |
|
Total weighted average diluted shares outstanding |
|
|
3,879.7 |
|
|
|
3,879.7 |
|
|
Net income per share |
|
$ |
2.26 |
|
|
$ |
(0.27 |
) |
|
Other financial measures
The Firm also discloses the allowance for loan losses to total retained loans, excluding home
lending purchased credit-impaired loans and loans held by the Washington Mutual Master Trust. For a
further discussion of this credit metric, see Allowance for Credit
Losses on pages 115117 of this
Annual Report.
|
|
|
|
52
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
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.
(a) Bear
Stearns Private Client Services was renamed to JPMorgan Securities at
the beginning of 2010.
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. Business segment reporting
methodologies used by the Firm are discussed below. The Firm continues to assess the assumptions,
methodologies and reporting classifications used for segment reporting, and further refinements
may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and services to the Firms clients, the
participating business segments agree to share revenue from those transactions. The segment results
reflect these revenue-sharing agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income and expense to each business and
transfer the primary interest rate risk exposures to the Treasury group within the
Corporate/Private Equity
business segment. The allocation process is unique to each business
segment and considers the interest rate risk, liquidity risk and regulatory requirements of that segments stand-alone peers. This process is overseen
by senior management and reviewed by the Firms Asset-Liability Committee (ALCO). Business
segments may retain certain interest rate exposures, subject to management approval, that would be
expected in the normal operation of a similar peer business.
Capital allocation
Each business segment is allocated capital by taking into consideration stand-alone peer
comparisons, economic risk measures and regulatory capital requirements. The amount of capital
assigned to each business is referred to as equity. For a further discussion, see Capital
managementLine of business equity on pages 84-85 of this Annual Report.
Expense allocation
Where business segments use services provided by support units within the Firm, the costs of those
support units are allocated to the business segments. The expense is allocated based on their
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
53 |
Managements discussion and analysis
actual cost or the lower of actual cost or market, as well as upon usage of the services provided.
In contrast, certain other expense related to certain corporate functions, or to certain technology
and operations, are not allocated to the business segments and are retained in Corporate. Retained
expense includes: parent company costs that would not be incurred if the segments were stand-alone
businesses; adjustments to align certain corporate staff, technology and operations allocations
with market prices; and other one-time items not aligned with the business segments.
Segment
results Managed basis(a)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Total net revenue |
|
|
Noninterest expense |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Investment
Bank(b) |
|
$ |
28,109 |
|
|
$ |
12,335 |
|
|
$ |
18,291 |
|
|
$ |
15,401 |
|
|
$ |
13,844 |
|
|
$ |
13,074 |
|
Retail Financial Services |
|
|
32,692 |
|
|
|
23,520 |
|
|
|
17,305 |
|
|
|
16,748 |
|
|
|
12,077 |
|
|
|
9,905 |
|
Card Services |
|
|
20,304 |
|
|
|
16,474 |
|
|
|
15,235 |
|
|
|
5,381 |
|
|
|
5,140 |
|
|
|
4,914 |
|
Commercial Banking |
|
|
5,720 |
|
|
|
4,777 |
|
|
|
4,103 |
|
|
|
2,176 |
|
|
|
1,946 |
|
|
|
1,958 |
|
Treasury & Securities Services |
|
|
7,344 |
|
|
|
8,134 |
|
|
|
6,945 |
|
|
|
5,278 |
|
|
|
5,223 |
|
|
|
4,580 |
|
Asset Management |
|
|
7,965 |
|
|
|
7,584 |
|
|
|
8,635 |
|
|
|
5,473 |
|
|
|
5,298 |
|
|
|
5,515 |
|
Corporate/Private Equity(b) |
|
|
6,513 |
|
|
|
(52 |
) |
|
|
4,298 |
|
|
|
1,895 |
|
|
|
(28 |
) |
|
|
1,757 |
|
|
Total |
|
$ |
108,647 |
|
|
$ |
72,772 |
|
|
$ |
74,812 |
|
|
$ |
52,352 |
|
|
$ |
43,500 |
|
|
$ |
41,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Net income/(loss) |
|
|
Return on equity |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Investment Bank(b) |
|
$ |
6,899 |
|
|
$ |
(1,175 |
) |
|
$ |
3,139 |
|
|
|
21 |
% |
|
|
(5 |
)% |
|
|
15 |
% |
Retail Financial Services |
|
|
97 |
|
|
|
880 |
|
|
|
2,925 |
|
|
|
|
|
|
|
5 |
|
|
|
18 |
|
Card Services |
|
|
(2,225 |
) |
|
|
780 |
|
|
|
2,919 |
|
|
|
(15 |
) |
|
|
5 |
|
|
|
21 |
|
Commercial Banking |
|
|
1,271 |
|
|
|
1,439 |
|
|
|
1,134 |
|
|
|
16 |
|
|
|
20 |
|
|
|
17 |
|
Treasury & Securities Services |
|
|
1,226 |
|
|
|
1,767 |
|
|
|
1,397 |
|
|
|
25 |
|
|
|
47 |
|
|
|
47 |
|
Asset Management |
|
|
1,430 |
|
|
|
1,357 |
|
|
|
1,966 |
|
|
|
20 |
|
|
|
24 |
|
|
|
51 |
|
Corporate/Private
Equity(b)(c) |
|
|
3,030 |
|
|
|
557 |
|
|
|
1,885 |
|
|
NM |
|
|
NM |
|
|
NM |
|
|
Total |
|
$ |
11,728 |
|
|
$ |
5,605 |
|
|
$ |
15,365 |
|
|
|
6 |
% |
|
|
4 |
% |
|
|
13 |
% |
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit
card securitizations. |
(b) |
|
In the second quarter of 2009, IB began reporting its credit reimbursement from TSS as a
component of its total net revenue, whereas TSS continues to report its credit reimbursement
to IB as a separate line item on its income statement (not part of total net revenue).
Corporate/Private Equity includes an adjustment to offset IBs
inclusion of the credit reimbursement in total net revenue. Prior periods have been revised for IB
and Corporate/Private Equity to reflect this presentation. |
(c) |
|
Net income included an extraordinary gain of $76 million and $1.9 billion related to the
Washington Mutual transaction for 2009 and 2008, respectively. |
|
|
|
54
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
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, research and thought leadership. IB also
commits the Firms own capital to principal investing and trading
activities on a limited basis.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008(e) |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
7,169 |
|
|
$ |
5,907 |
|
|
$ |
6,616 |
|
Principal transactions(a) |
|
|
8,154 |
|
|
|
(7,042 |
) |
|
|
4,409 |
|
Lending- and deposit-related fees |
|
|
664 |
|
|
|
463 |
|
|
|
446 |
|
Asset management, administration
and commissions |
|
|
2,650 |
|
|
|
3,064 |
|
|
|
2,701 |
|
All other income(b) |
|
|
(115 |
) |
|
|
(341 |
) |
|
|
43 |
|
|
Noninterest revenue |
|
|
18,522 |
|
|
|
2,051 |
|
|
|
14,215 |
|
Net interest income |
|
|
9,587 |
|
|
|
10,284 |
|
|
|
4,076 |
|
|
Total net revenue(c) |
|
|
28,109 |
|
|
|
12,335 |
|
|
|
18,291 |
|
Provision for credit losses |
|
|
2,279 |
|
|
|
2,015 |
|
|
|
654 |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
9,334 |
|
|
|
7,701 |
|
|
|
7,965 |
|
Noncompensation expense |
|
|
6,067 |
|
|
|
6,143 |
|
|
|
5,109 |
|
|
Total noninterest expense |
|
|
15,401 |
|
|
|
13,844 |
|
|
|
13,074 |
|
|
Income/(loss) before income tax
expense/(benefit) |
|
|
10,429 |
|
|
|
(3,524 |
) |
|
|
4,563 |
|
Income tax expense/(benefit)(d) |
|
|
3,530 |
|
|
|
(2,349 |
) |
|
|
1,424 |
|
|
Net income/(loss) |
|
$ |
6,899 |
|
|
$ |
(1,175 |
) |
|
$ |
3,139 |
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
21 |
% |
|
|
(5 |
)% |
|
|
15 |
% |
ROA |
|
|
0.99 |
|
|
|
(0.14 |
) |
|
|
0.45 |
|
Overhead ratio |
|
|
55 |
|
|
|
112 |
|
|
|
71 |
|
Compensation expense as % of total
net revenue |
|
|
33 |
|
|
|
62 |
|
|
|
44 |
|
|
(a) |
|
The 2009 results reflect modest net gains on legacy leveraged lending and mortgage-related
positions, compared with net markdowns of $10.6 billion and $2.7 billion in 2008 and 2007,
respectively. |
(b) |
|
TSS was charged a credit reimbursement related to certain exposures managed within IB
credit portfolio on behalf of clients shared with TSS. IB recognizes this credit reimbursement
in its credit portfolio business in all other income. Prior periods have been revised to
conform to the current presentation. |
(c) |
|
Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of
$1.4 billion, $1.7 billion and $927 million for 2009, 2008 and 2007, respectively. |
(d) |
|
The income tax benefit in 2008 includes the result of reduced deferred tax liabilities on overseas earnings. |
(e) |
|
Results for 2008 include seven months of the combined Firms (JPMorgan Chase & Co.s and Bear Stearns) results and five months of heritage JPMorgan Chase results. 2007 reflects heritage JPMorgan Chase & Co. results
only. |
The following table provides IBs total net revenue by business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008(d) |
|
|
2007 |
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
1,867 |
|
|
$ |
2,008 |
|
|
$ |
2,273 |
|
Equity underwriting |
|
|
2,641 |
|
|
|
1,749 |
|
|
|
1,713 |
|
Debt underwriting |
|
|
2,661 |
|
|
|
2,150 |
|
|
|
2,630 |
|
|
Total investment banking fees |
|
|
7,169 |
|
|
|
5,907 |
|
|
|
6,616 |
|
Fixed income markets(a) |
|
|
17,564 |
|
|
|
1,957 |
|
|
|
6,339 |
|
Equity markets(b) |
|
|
4,393 |
|
|
|
3,611 |
|
|
|
3,903 |
|
Credit portfolio(c) |
|
|
(1,017 |
) |
|
|
860 |
|
|
|
1,433 |
|
|
Total net revenue |
|
$ |
28,109 |
|
|
$ |
12,335 |
|
|
$ |
18,291 |
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
15,156 |
|
|
$ |
2,610 |
|
|
$ |
8,245 |
|
Europe/Middle East/Africa |
|
|
9,790 |
|
|
|
7,710 |
|
|
|
7,330 |
|
Asia/Pacific |
|
|
3,163 |
|
|
|
2,015 |
|
|
|
2,716 |
|
|
Total net revenue |
|
$ |
28,109 |
|
|
$ |
12,335 |
|
|
$ |
18,291 |
|
|
(a) |
|
Fixed income markets primarily include client and portfolio management revenue related to
market-making across global fixed income markets, including foreign exchange, interest rate,
credit and commodities markets. |
(b) |
|
Equities markets primarily include client and portfolio management revenue related to
market-making across global equity products, including cash instruments, derivatives and
convertibles. |
(c) |
|
Credit portfolio revenue includes net interest income, fees and the impact of loan sales
activity, as well as gains or losses on securities received as part of a loan restructuring,
for IBs credit portfolio. Credit portfolio revenue also includes the results of risk
management related to the Firms lending and derivative activities, and changes in the credit
valuation adjustment, which is the component of the fair value of a derivative that reflects
the credit quality of the counterparty. Additionally, credit portfolio revenue incorporates an
adjustment to the valuation of the Firms derivative
liabilities. See pages 93117 of the
Credit Risk Management section of this Annual Report for further discussion. |
(d) |
|
Results for 2008 include seven months of the combined Firms (JPMorgan Chase & Co.s and Bear
Stearns) results and five months of heritage JPMorgan Chase & Co. results. 2007 reflects
heritage JPMorgan Chase & Co.s results only. |
2009 compared with 2008
Net income was $6.9 billion, compared with a net loss of $1.2 billion in the prior year. These
results reflected significantly higher total net revenue, partially offset by higher noninterest
expense and a higher provision for credit losses.
Total net revenue was $28.1 billion, compared with $12.3 billion in the prior year. Investment
banking fees were up 21% to $7.2 billion, consisting of debt underwriting fees of $2.7 billion (up
24%), equity underwriting fees of $2.6 billion (up 51%), and advisory fees of $1.9 billion (down
7%). Fixed Income Markets revenue was $17.6 billion, compared with $2.0 billion in the prior year,
reflecting improved performance across most products and modest net gains on legacy leveraged
lending and mortgage-related positions, compared with net markdowns of $10.6 billion in the prior
year. These results also included losses of $1.0 billion from the tightening of the Firms credit
spread on certain structured liabilities, compared with gains
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
55 |
Managements discussion and analysis
of $814 million in the prior year.
Equity Markets revenue was $4.4 billion, up 22% from the prior year, driven by strong client
revenue across products, particularly prime services, and improved trading results. These results
also included losses of $536 million from the tightening of the Firms credit spread on certain
structured liabilities, compared with gains of $510 million in the prior year. Credit Portfolio
revenue was a loss of $1.0 billion versus a gain of $860 million in the prior year, driven by
mark-to-market losses on hedges of retained loans compared with gains in the prior year, partially
offset by the positive net impact of credit spreads on derivative assets and liabilities.
The provision for credit losses was $2.3 billion, compared with $2.0 billion in the prior year,
reflecting continued weakness in the credit environment. The allowance for loan losses to
end-of-period loans retained was 8.25%, compared with 4.83% in the prior year. Net charge-offs were
$1.9 billion, compared with $105 million in the prior year. Total nonperforming assets were $4.2
billion, compared with $2.5 billion in the prior year.
Noninterest expense was $15.4 billion, up $1.6 billion, or 11%, from the prior
year, driven by higher performance-based compensation expense, partially offset by lower
headcount-related expense.
Return on Equity was 21% on $33.0 billion of average allocated capital, compared with negative 5%
on $26.1 billion of average allocated capital in the prior year.
2008 compared with 2007
Net loss was $1.2 billion, a decrease of $4.3 billion from the prior year, driven by lower total
net revenue, a higher provision for credit losses and higher noninterest expense, partially offset
by a reduction in deferred tax liabilities on overseas earnings.
Total net revenue was $12.3 billion, down $6.0 billion, or 33%, from the prior year. Investment
banking fees were $5.9 billion, down 11% from the prior year, driven by lower debt underwriting and
advisory fees reflecting reduced market activity. Debt underwriting fees were $2.2 billion, down
18% from the prior year, driven by lower loan syndication and bond underwriting fees. Advisory fees
of $2.0 billion declined 12% from the prior year. Equity underwriting fees were $1.7 billion, up 2%
from the prior year driven by improved market share. Fixed Income Markets revenue was $2.0 billion,
compared with $6.3 billion in the prior year. The decrease was driven by $5.9 billion of net
markdowns on mortgage-related exposures and $4.7 billion of net markdowns on leveraged lending
funded and unfunded commitments. Revenue was also adversely impacted by additional losses and costs
to reduce risk related to Bear Stearns positions. These results were offset by record performance
in rates and currencies, credit trading, commodities and emerging markets as well as $814 million
of gains from the widening of the Firms credit spread on certain structured liabilities and
derivatives. Equity Markets revenue was $3.6 billion, down 7% from the prior year, reflecting weak
trading results, partially offset by strong client revenue across products including prime
services, as well as $510 million of gains from the widening of the Firms credit spread on certain
structured liabilities and derivatives. Credit portfolio revenue was $860 million, down 40%, driven
by losses from widening counterparty credit spreads.
The provision for credit losses was $2.0 billion, an increase of $1.4 billion from the prior year,
predominantly reflecting a higher allowance for credit losses, driven by a weakening credit
environment, as well as the effect of the transfer of $4.9 billion of funded and unfunded leveraged
lending commitments to retained loans from held-for-sale in the first quarter of 2008. Net
charge-offs for the year were $105 million, compared with $36 million in the prior year. Total
nonperforming assets were $2.5 billion, an increase of $2.0 billion compared with the prior year,
reflecting a weakening credit environment. The allowance for loan losses to average loans was 4.71%
for 2008, compared with a ratio of 2.14% in the prior year.
Noninterest expense was $13.8 billion, up $770 million, or 6%, from the prior year, reflecting
higher noncompensation expense driven primarily by additional expense relating to the Bear Stearns
merger, offset partially by lower performance-based compensation expense.
Return on equity was negative 5% on $26.1 billion of average allocated capital, compared with 15%
on $21.0 billion in the prior year.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Selected balance sheet data
(period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
$ |
45,544 |
|
|
$ |
71,357 |
|
|
$ |
67,528 |
|
Loans held-for-sale and
loans at
fair value |
|
|
3,567 |
|
|
|
13,660 |
|
|
|
22,283 |
|
|
Total loans |
|
|
49,111 |
|
|
|
85,017 |
|
|
|
89,811 |
|
Equity |
|
$ |
33,000 |
|
|
$ |
33,000 |
|
|
$ |
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data
(average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
699,039 |
|
|
$ |
832,729 |
|
|
$ |
700,565 |
|
Trading
assets debt and equity
instruments |
|
|
273,624 |
|
|
|
350,812 |
|
|
|
359,775 |
|
Trading
assets derivative
receivables |
|
|
96,042 |
|
|
|
112,337 |
|
|
|
63,198 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
62,722 |
|
|
|
73,108 |
|
|
|
62,247 |
|
Loans held-for-sale and
loans at
fair value |
|
|
7,589 |
|
|
|
18,502 |
|
|
|
17,723 |
|
|
Total loans |
|
|
70,311 |
|
|
|
91,610 |
|
|
|
79,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted assets(b) |
|
|
538,724 |
|
|
|
679,780 |
|
|
|
611,749 |
|
Equity |
|
|
33,000 |
|
|
|
26,098 |
|
|
|
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
24,654 |
|
|
|
27,938 |
|
|
|
25,543 |
|
|
(a) |
|
Loans retained included credit portfolio loans, leveraged leases and other accrual loans,
and excluded loans held-for-sale and loans 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); (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 (AML 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. |
|
|
|
56
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,904 |
|
|
$ |
105 |
|
|
$ |
36 |
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained(a)(b) |
|
|
3,196 |
|
|
|
1,143 |
|
|
|
303 |
|
Nonperforming loans held-for-sale
and
loans at fair value |
|
|
308 |
|
|
|
32 |
|
|
|
50 |
|
|
Total nonperforming loans |
|
|
3,504 |
|
|
|
1,175 |
|
|
|
353 |
|
Derivative receivables |
|
|
529 |
|
|
|
1,079 |
|
|
|
29 |
|
Assets acquired in loan
satisfactions |
|
|
203 |
|
|
|
247 |
|
|
|
71 |
|
|
Total nonperforming assets |
|
|
4,236 |
|
|
|
2,501 |
|
|
|
453 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
3,756 |
|
|
|
3,444 |
|
|
|
1,329 |
|
Allowance for lending-related
commitments |
|
|
485 |
|
|
|
360 |
|
|
|
560 |
|
|
Total allowance for credit losses |
|
|
4,241 |
|
|
|
3,804 |
|
|
|
1,889 |
|
Net charge-off rate(a)(c) |
|
|
3.04 |
% |
|
|
0.14 |
% |
|
|
0.06 |
% |
Allowance for loan losses to
period-end
loans retained(a)(d) |
|
|
8.25 |
|
|
|
4.83 |
|
|
|
1.97 |
|
Allowance for loan losses to average
loans retained(a)(c) |
|
|
5.99 |
|
|
|
4.71 |
(h) |
|
|
2.14 |
|
Allowance for loan losses to
nonperforming loans retained(a)(b) |
|
|
118 |
|
|
|
301 |
|
|
|
439 |
|
Nonperforming loans to total
period-end loans |
|
|
7.13 |
|
|
|
1.38 |
|
|
|
0.39 |
|
Nonperforming loans to average loans |
|
|
4.98 |
|
|
|
1.28 |
|
|
|
0.44 |
|
Market risk-average trading and
credit portfolio VaR 99%
confidence level(d) |
|
|
|
|
|
|
|
|
|
|
|
|
Trading activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
221 |
|
|
$ |
181 |
|
|
$ |
80 |
|
Foreign exchange |
|
|
30 |
|
|
|
34 |
|
|
|
23 |
|
Equities |
|
|
75 |
|
|
|
57 |
|
|
|
48 |
|
Commodities and other |
|
|
32 |
|
|
|
32 |
|
|
|
33 |
|
Diversification(e) |
|
|
(131 |
) |
|
|
(108 |
) |
|
|
(77 |
) |
|
Total trading VaR(f) |
|
|
227 |
|
|
|
196 |
|
|
|
107 |
|
Credit portfolio VaR(g) |
|
|
101 |
|
|
|
69 |
|
|
|
17 |
|
Diversification(e) |
|
|
(80 |
) |
|
|
(63 |
) |
|
|
(18 |
) |
|
Total trading and credit portfolio VaR |
|
$ |
248 |
|
|
$ |
202 |
|
|
$ |
106 |
|
|
(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) |
|
Allowance for loan losses of $1.3 billion and $430 million were held against these
nonperforming loans at December 31, 2009 and 2008, respectively. |
(c) |
|
Loans held-for-sale and loans at fair value were excluded when calculating the allowance
coverage ratio and net charge-off rate. |
(d) |
|
Results for 2008 include seven months of the combined Firms (JPMorgan Chase & Co.s and Bear
Stearns) results and five months of heritage JPMorgan Chase & Co.s results only.
2007 reflects heritage JPMorgan Chase & Co. results. For a more complete description of
value-at-risk (VaR), see pages 118122 of this Annual Report. |
(e) |
|
Average VaRs were less than the sum of the VaRs of their market risk components, due to risk
offsets resulting from portfolio diversification. The diversification effect reflected the
fact that the risks were not perfectly correlated. For further discussion of VaR, see pages
118122 of this Annual Report. The risk of a portfolio of positions is usually less than the
sum of the risks of the positions themselves. |
(f) |
|
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 VaR discussion on pages 118122 and the DVA
Sensitivity table on page 122 of this Annual Report 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. |
(g) |
|
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. |
(h) |
|
Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio
would be 4.84% for 2008. The average balance of the loan extended to Bear Stearns was $1.9
billion for 2008. |
Market shares and rankings(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
|
Market |
|
|
|
|
|
Market |
|
|
|
|
|
Market |
|
|
December 31, |
|
share |
|
Rankings |
|
share |
|
Rankings |
|
share |
|
Rankings |
|
Global debt,
equity and
equity-related |
|
|
10 |
% |
|
|
#1 |
|
|
|
9 |
% |
|
|
#1 |
|
|
|
8 |
% |
|
|
#2 |
|
Global syndicated
loans |
|
|
10 |
|
|
|
1 |
|
|
|
11 |
|
|
|
1 |
|
|
|
13 |
|
|
|
1 |
|
Global long-term
debt(b) |
|
|
9 |
|
|
|
1 |
|
|
|
9 |
|
|
|
3 |
|
|
|
7 |
|
|
|
3 |
|
Global equity and
equity-related(c) |
|
|
13 |
|
|
|
1 |
|
|
|
10 |
|
|
|
1 |
|
|
|
9 |
|
|
|
2 |
|
Global announced
M&A(d) |
|
|
24 |
|
|
|
3 |
|
|
|
28 |
|
|
|
2 |
|
|
|
27 |
|
|
|
4 |
|
U.S. debt, equity
and equity-
related |
|
|
14 |
|
|
|
1 |
|
|
|
15 |
|
|
|
2 |
|
|
|
10 |
|
|
|
2 |
|
U.S. syndicated
loans |
|
|
23 |
|
|
|
1 |
|
|
|
24 |
|
|
|
1 |
|
|
|
24 |
|
|
|
1 |
|
U.S. long-term
debt(b) |
|
|
14 |
|
|
|
1 |
|
|
|
15 |
|
|
|
2 |
|
|
|
10 |
|
|
|
2 |
|
U.S. equity and
equity-related(c) |
|
|
13 |
|
|
|
1 |
|
|
|
11 |
|
|
|
1 |
|
|
|
11 |
|
|
|
5 |
|
U.S. announced
M&A(d) |
|
|
35 |
|
|
|
3 |
|
|
|
35 |
|
|
|
2 |
|
|
|
28 |
|
|
|
3 |
|
|
(a) |
|
Source: Thomson Reuters. Results for 2008 are pro forma for the Bear Stearns merger.
Results for 2007 represent heritage JPMorgan Chase & Co. only. |
(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 and 2007
include transactions withdrawn since December 31, 2008 and 2007. U.S. announced
M&A represents any U.S. involvement ranking. |
According to Thomson Reuters, in 2009, the Firm was ranked #1 in Global Debt, Equity and Equity-related; #1 in
Global Equity and Equity-related; #1 in Global Long-Term Debt: #1 in Global Syndicated Loans and #3 in Global
Announced M&A, based on volume.
According to Dealogic, the Firm was ranked #1 in Global
Investment Banking Fees generated during 2009, based on revenue.
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
57 |
Managements discussion and analysis
RETAIL FINANCIAL SERVICES
Retail Financial Services, which includes the Retail Banking and
Consumer Lending businesses, 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
15,400 ATMs (second-largest nationally), as well as online and mobile banking
around the clock. More than 23,900 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 nearly 2,100 schools and universities nationwide.
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the
FDIC for $1.9 billion through a purchase of substantially all of the assets and assumption of
specified liabilities of Washington Mutual. Washington Mutuals banking operations consisted of a
retail bank network of 2,244 branches, a nationwide credit card lending business, a multi-family
and commercial real estate lending business, and nationwide mortgage banking activities. The
transaction expanded the Firms U.S. consumer branch network in California, Florida, Washington,
Georgia, Idaho, Nevada and Oregon and created the nations third-largest branch network.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and
deposit-related fees
|
|
$ |
3,969 |
|
|
$ |
2,546 |
|
|
$ |
1,881 |
|
Asset management,
administration
and commissions
|
|
|
1,674 |
|
|
|
1,510 |
|
|
|
1,275 |
|
Mortgage fees and related
income
|
|
|
3,794 |
|
|
|
3,621 |
|
|
|
2,094 |
|
Credit card income
|
|
|
1,635 |
|
|
|
939 |
|
|
|
646 |
|
Other income
|
|
|
1,128 |
|
|
|
739 |
|
|
|
883 |
|
|
Noninterest revenue
|
|
|
12,200 |
|
|
|
9,355 |
|
|
|
6,779 |
|
Net interest income
|
|
|
20,492 |
|
|
|
14,165 |
|
|
|
10,526 |
|
|
Total net revenue
|
|
|
32,692 |
|
|
|
23,520 |
|
|
|
17,305 |
|
|
Provision for credit losses
|
|
|
15,940 |
|
|
|
9,905 |
|
|
|
2,610 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
6,712 |
|
|
|
5,068 |
|
|
|
4,369 |
|
Noncompensation expense
|
|
|
9,706 |
|
|
|
6,612 |
|
|
|
5,071 |
|
Amortization of intangibles
|
|
|
330 |
|
|
|
397 |
|
|
|
465 |
|
|
Total noninterest expense
|
|
|
16,748 |
|
|
|
12,077 |
|
|
|
9,905 |
|
|
Income before income tax expense/(benefit)
|
|
|
4 |
|
|
|
1,538 |
|
|
|
4,790 |
|
Income tax expense/(benefit)
|
|
|
(93 |
) |
|
|
658 |
|
|
|
1,865 |
|
|
Net income
|
|
$ |
97 |
|
|
$ |
880 |
|
|
$ |
2,925 |
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE
|
|
|
|
% |
|
|
5 |
% |
|
|
18 |
% |
Overhead ratio
|
|
|
51 |
|
|
|
51 |
|
|
|
57 |
|
Overhead ratio excluding
core deposit intangibles(a)
|
|
|
50 |
|
|
|
50 |
|
|
|
55 |
|
|
(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
would result in a higher overhead ratio in the earlier years and a lower overhead ratio in
later years; this method would therefore result in an improving overhead ratio over time, all
things remaining equal. The non-GAAP ratio excludes Retail Bankings core deposit intangible
amortization expense related to the Bank of New York transaction and the Bank One merger of
$328 million, $394 million and $460 million for the years ended December 31, 2009, 2008 and
2007, respectively. |
2009 compared with 2008
Net income was $97 million, a decrease of $783 million from the prior year, as the increase in
provision for credit losses more than offset the positive impact of the Washington Mutual
transaction.
Net revenue was $32.7 billion, an increase of $9.2 billion, or 39%, from the prior year. Net
interest income was $20.5 billion, up by $6.3 billion, or 45%, reflecting the impact of the
Washington Mutual transaction, and wider loan and deposit spreads. Noninterest revenue was $12.2
billion, up by $2.8 billion, or 30%, driven by the impact of the Washington Mutual transaction,
wider margins on mortgage originations and higher net mortgage servicing revenue, partially offset by
$1.6 billion in estimated losses related to the repurchase of previously sold loans.
The provision for credit losses was $15.9 billion, an increase of $6.0 billion from the prior year.
Weak economic conditions and housing price declines continued to drive higher estimated losses for
the home equity and mortgage loan portfolios. The provision included an addition of $5.8 billion to
the allowance for loan losses, compared with an addition of $5.0 billion in the prior year.
Included in the 2009 addition to the allowance for loan losses was a $1.6 billion increase related
to estimated deterioration in the Washington Mutual purchased credit-impaired portfolio. To date,
no charge-offs have been recorded on purchased credit-impaired loans; see page 62 of this Annual
Report for the net charge-off rates, as reported. Home equity net charge-offs were $4.7 billion
(4.32% excluding purchased credit-impaired loans), compared with $2.4 billion (2.39% excluding
purchased credit-impaired loans) in the prior year. Subprime mortgage net charge-offs were $1.6
billion (11.86% excluding purchased credit-impaired loans), compared with $933 million (6.10%
excluding purchased credit-impaired loans) in the prior year. Prime mortgage net charge-offs were
$1.9 billion (3.05% excluding purchased credit-impaired loans), compared with $526 million (1.18%
excluding purchased credit-impaired loans) in the prior year.
Noninterest expense was $16.7 billion, an increase of $4.7 billion, or 39%. The increase reflected
the impact of the Washington Mutual transaction and higher servicing and default-related
expense.
|
|
|
58
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
2008 compared with 2007
Net income was $880 million, a decrease of $2.0 billion, or 70%, from the prior year, as a
significant increase in the provision for credit losses was partially offset by positive MSR risk
management results and the positive impact of the Washington Mutual transaction.
Total net revenue was $23.5 billion, an increase of $6.2 billion, or 36%, from the prior year. Net
interest income was $14.2 billion, up $3.6 billion, or 35%, benefiting from the Washington Mutual
transaction, wider loan and deposit spreads, and higher loan and deposit balances. Noninterest
revenue was $9.4 billion, up $2.6 billion, or 38%, as positive MSR risk management results, the
impact of the Washington Mutual transaction, higher mortgage origination volume and higher
deposit-related fees were partially offset by an increase in losses related to the repurchase of
previously sold loans and markdowns on the mortgage warehouse.
The provision for credit losses was $9.9 billion, an increase of $7.3 billion from the prior year.
Delinquency rates have increased due to overall weak economic conditions, while housing price
declines have continued to drive increased loss severities, particularly for high loan-to-value
home equity and mortgage loans. The provision includes $4.7 billion in additions to the allowance
for loan losses for the heritage Chase home equity and mortgage portfolios. Home equity net
charge-offs were $2.4 billion (2.23% net charge-off rate; 2.39% excluding purchased credit-impaired
loans), compared with $564 million (0.62% net charge-off rate) in the prior year. Subprime mortgage
net charge-offs were $933 million (5.49% net charge-off rate; 6.10% excluding purchased
credit-impaired loans), compared with $157 million (1.55% net charge-off rate) in the prior year.
Prime mortgage net charge-offs were $526 million (1.05% net charge-off rate; 1.18% excluding
purchased credit-impaired loans), compared with $33 million (0.13% net charge-off rate) in the
prior year. The provision for credit losses was also
affected by an increase in estimated losses for the auto, student and business banking loan
portfolios.
Total noninterest expense was $12.1 billion, an increase of $2.2 billion, or 22%, from the prior
year, reflecting the impact of the Washington Mutual transaction, higher mortgage reinsurance
losses, higher mortgage servicing expense and investments in the retail distribution network.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount and |
|
|
|
|
|
|
|
|
|
ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Selected
balance sheet data
(period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
387,269 |
|
|
$ |
419,831 |
|
|
$ |
256,351 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
340,332 |
|
|
|
368,786 |
|
|
|
211,324 |
|
Loans held-for-sale and
loans
at fair value(a) |
|
|
14,612 |
|
|
|
9,996 |
|
|
|
16,541 |
|
|
Total loans |
|
|
354,944 |
|
|
|
378,782 |
|
|
|
227,865 |
|
Deposits |
|
|
357,463 |
|
|
|
360,451 |
|
|
|
221,129 |
|
Equity |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
16,000 |
|
Selected balance sheet data
(average) |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
407,497 |
|
|
$ |
304,442 |
|
|
$ |
241,112 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
354,789 |
|
|
|
257,083 |
|
|
|
191,645 |
|
Loans held-for-sale and
loans
at fair value(a) |
|
|
18,072 |
|
|
|
17,056 |
|
|
|
22,587 |
|
|
Total loans |
|
|
372,861 |
|
|
|
274,139 |
|
|
|
214,232 |
|
Deposits |
|
|
367,696 |
|
|
|
258,362 |
|
|
|
218,062 |
|
Equity |
|
|
25,000 |
|
|
|
19,011 |
|
|
|
16,000 |
|
Headcount |
|
|
108,971 |
|
|
|
102,007 |
|
|
|
69,465 |
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
10,113 |
|
|
$ |
4,877 |
|
|
$ |
1,350 |
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained |
|
|
10,611 |
|
|
|
6,548 |
|
|
|
2,760 |
|
Nonperforming loans
held-for-
sale and loans at fair
value |
|
|
234 |
|
|
|
236 |
|
|
|
68 |
|
|
Total nonperforming
loans(b)(c)(d) |
|
|
10,845 |
|
|
|
6,784 |
|
|
|
2,828 |
|
Nonperforming
assets(b)(c)(d) |
|
|
12,098 |
|
|
|
9,077 |
|
|
|
3,378 |
|
Allowance for loan losses |
|
|
14,776 |
|
|
|
8,918 |
|
|
|
2,668 |
|
Net charge-off rate(f) |
|
|
2.85 |
% |
|
|
1.90 |
% |
|
|
0.70 |
% |
Net charge-off rate excluding
purchased credit-impaired
loans(e)(f) |
|
|
3.75 |
|
|
|
2.08 |
|
|
|
0.70 |
|
Allowance for loan losses to
ending loans
retained(f) |
|
|
4.34 |
|
|
|
2.42 |
|
|
|
1.26 |
|
Allowance for loan losses to
ending loans excluding
purchased credit-impaired
loans(e)(f) |
|
|
5.09 |
|
|
|
3.19 |
|
|
|
1.26 |
|
Allowance for loan losses to
nonperforming loans
retained(b)(e)(f) |
|
|
124 |
|
|
|
136 |
|
|
|
97 |
|
Nonperforming loans to total
loans |
|
|
3.06 |
|
|
|
1.79 |
|
|
|
1.24 |
|
Nonperforming loans to total
loans excluding purchased
credit-impaired loans |
|
|
3.96 |
|
|
|
2.34 |
|
|
|
1.24 |
|
|
(a) |
|
Loans at fair value consist of prime mortgage loans originated with the intent to sell
that are accounted for at fair value and classified as trading assets on the Consolidated
Balance Sheets. These loans totaled $12.5 billion, $8.0 billion and $12.6 billion at December
31, 2009, 2008 and 2007, respectively. Average balances of these loans totaled $15.8 billion,
$14.2 billion and $11.9 billion for the years ended December 31, 2009, 2008 and 2007,
respectively. |
(b) |
|
Excludes purchased credit-impaired loans that were acquired as part of the Washington Mutual
transaction. These loans were accounted for on a pool basis, and the pools are considered to
be performing. |
(c) |
|
Certain of these loans are classified as trading assets on the Consolidated Balance Sheets. |
(d) |
|
At December 31, 2009, 2008 and 2007, nonperforming loans and assets excluded: (1) mortgage
loans insured by U.S. government agencies of $9.0 billion, $3.0 billion and $1.1 billion,
respectively; (2) real estate owned insured |
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
59 |
Managements
discussion and analysis
|
|
|
|
|
by U.S. government agencies of $579 million, $364
million and $452 million, respectively; and (3) 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 $542 million, $437 million and $417 million, respectively. These
amounts are excluded, as reimbursement is proceeding normally. |
(e) |
|
Excludes the impact of purchased credit-impaired loans 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. During 2009, an allowance for loan losses of $1.6 billion was
recorded for these loans, which has also been excluded from applicable ratios. To date, no
charge-offs have been recorded for these loans. |
(f) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and net charge-off rate. |
Retail Banking
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Noninterest revenue |
|
$ |
7,169 |
|
|
$ |
4,951 |
|
|
$ |
3,763 |
|
Net interest income |
|
|
10,781 |
|
|
|
7,659 |
|
|
|
6,193 |
|
|
Total net revenue |
|
|
17,950 |
|
|
|
12,610 |
|
|
|
9,956 |
|
Provision for credit losses |
|
|
1,142 |
|
|
|
449 |
|
|
|
79 |
|
Noninterest expense |
|
|
10,357 |
|
|
|
7,232 |
|
|
|
6,166 |
|
|
Income before income tax
expense |
|
|
6,451 |
|
|
|
4,929 |
|
|
|
3,711 |
|
Net income |
|
$ |
3,903 |
|
|
$ |
2,982 |
|
|
$ |
2,245 |
|
|
Overhead ratio |
|
|
58 |
% |
|
|
57 |
% |
|
|
62 |
% |
Overhead ratio excluding
core deposit
intangibles(a) |
|
|
56 |
|
|
|
54 |
|
|
|
57 |
|
|
|
|
|
(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 would result in a higher overhead ratio
in the earlier years and a lower overhead ratio in later years; this method would therefore
result in an improving overhead ratio over time, all things remaining equal. The non-GAAP
ratio excludes Retail Bankings core deposit intangible amortization expense related to the
Bank of New York transaction and the Bank One merger of $328 million, $394 million and $460
million for the years ended December 31, 2009, 2008 and 2007, respectively. |
2009 compared with 2008
Retail Banking reported net income of $3.9 billion, up by $921 million, or 31%, from the prior
year. Total net revenue was $18.0 billion, up by $5.3 billion, or 42%, from the prior year. The
increase reflected the impact of the Washington Mutual transaction, wider deposit spreads, higher
average deposit balances and higher debit card income. The provision for credit losses was $1.1
billion, compared with $449 million in the prior year, reflecting higher estimated losses in the
Business Banking portfolio. Noninterest expense was $10.4 billion, up by $3.1 billion, or 43%. The
increase reflected the impact of the Washington Mutual transaction, higher FDIC insurance premiums
and higher headcount-related expense.
2008 compared with 2007
Retail Banking net income was $3.0 billion, up $737 million, or 33%, from the prior year. Total net
revenue was $12.6 billion, up $2.7 billion, or 27%, reflecting the impact of the Washington Mutual
transaction, wider deposit spreads, higher deposit-related fees, and higher deposit balances. The
provision for credit losses was $449 million, compared with $79 million in the prior year,
reflecting an increase in the allowance for loan losses for Business Banking loans due to higher
estimated losses on
the portfolio. Noninterest expense was $7.2 billion, up $1.1 billion, or 17%, from
the prior year,
due to the Washington Mutual transaction and investments in the retail distribution network.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in billions, except ratios and |
|
|
|
|
|
|
|
|
|
where otherwise noted) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Business banking origination volume |
|
$ |
2.3 |
|
|
$ |
5.5 |
|
|
$ |
6.9 |
|
End-of-period loans owned |
|
|
17.0 |
|
|
|
18.4 |
|
|
|
15.6 |
|
End-of-period deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
121.9 |
|
|
$ |
109.2 |
|
|
$ |
66.9 |
|
Savings |
|
|
153.4 |
|
|
|
144.0 |
|
|
|
96.0 |
|
Time and other |
|
|
58.0 |
|
|
|
89.1 |
|
|
|
48.6 |
|
|
Total end-of-period deposits |
|
|
333.3 |
|
|
|
342.3 |
|
|
|
211.5 |
|
Average loans owned |
|
$ |
17.8 |
|
|
$ |
16.7 |
|
|
$ |
14.9 |
|
Average deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
113.5 |
|
|
$ |
77.1 |
|
|
$ |
65.8 |
|
Savings |
|
|
150.9 |
|
|
|
114.3 |
|
|
|
97.1 |
|
Time and other |
|
|
76.4 |
|
|
|
53.2 |
|
|
|
43.8 |
|
|
Total average deposits |
|
|
340.8 |
|
|
|
244.6 |
|
|
|
206.7 |
|
Deposit margin |
|
|
2.96 |
% |
|
|
2.89 |
% |
|
|
2.72 |
% |
Average assets |
|
$ |
28.9 |
|
|
$ |
26.3 |
|
|
$ |
25.0 |
|
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratio) |
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
842 |
|
|
$ |
346 |
|
|
$ |
163 |
|
Net charge-off rate |
|
|
4.73 |
% |
|
|
2.07 |
% |
|
|
1.09 |
% |
Nonperforming assets |
|
$ |
839 |
|
|
$ |
424 |
|
|
$ |
294 |
|
|
Retail branch business metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Investment sales volume (in millions) |
|
$ |
21,784 |
|
|
$ |
17,640 |
|
|
$ |
18,360 |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
5,154 |
|
|
|
5,474 |
|
|
|
3,152 |
|
ATMs |
|
|
15,406 |
|
|
|
14,568 |
|
|
|
9,186 |
|
Personal bankers |
|
|
17,991 |
|
|
|
15,825 |
|
|
|
9,650 |
|
Sales specialists |
|
|
5,912 |
|
|
|
5,661 |
|
|
|
4,105 |
|
Active online customers
(in thousands) |
|
|
15,424 |
|
|
|
11,710 |
|
|
|
5,918 |
|
Checking accounts (in thousands) |
|
|
25,712 |
|
|
|
24,499 |
|
|
|
10,839 |
|
|
Consumer Lending
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Noninterest revenue |
|
$ |
5,031 |
|
|
$ |
4,404 |
|
|
$ |
3,016 |
|
Net interest income |
|
|
9,711 |
|
|
|
6,506 |
|
|
|
4,333 |
|
|
Total net revenue |
|
|
14,742 |
|
|
|
10,910 |
|
|
|
7,349 |
|
Provision for credit losses |
|
|
14,798 |
|
|
|
9,456 |
|
|
|
2,531 |
|
Noninterest expense |
|
|
6,391 |
|
|
|
4,845 |
|
|
|
3,739 |
|
|
Income/(loss) before income
tax expense/(benefit) |
|
|
(6,447 |
) |
|
|
(3,391 |
) |
|
|
1,079 |
|
Net income/(loss) |
|
$ |
(3,806 |
) |
|
$ |
(2,102 |
) |
|
$ |
680 |
|
|
Overhead ratio |
|
|
43 |
% |
|
|
44 |
% |
|
|
51 |
% |
|
2009 compared with 2008
Consumer Lending reported a net loss of $3.8 billion, compared with a net loss of $2.1 billion in
the prior year.
Net revenue was $14.7 billion, up by $3.8 billion, or 35%, from the prior year. The increase was
driven by the impact of the Washington Mutual transaction, wider loan spreads and higher mortgage
fees and related income, partially offset by lower heritage Chase loan balances. Mortgage
production revenue was $503 million,
|
|
|
|
|
|
60
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
down $395 million from the prior year, as an increase in
losses from the repurchase of previously-sold loans was predominantly offset by wider margins on
new originations. Operating revenue, which represents loan servicing revenue net of other changes
in fair value of the MSR asset, was $1.7 billion, compared with $1.2 billion in the prior year,
reflecting growth in average third-party loans serviced as a result of the Washington Mutual
transaction. MSR risk management results were $1.6 billion, compared with $1.5 billion in the prior
year, reflecting the positive impact of a decrease in estimated future mortgage prepayments during
2009.
The provision for credit losses was $14.8 billion, compared with $9.5 billion in the prior year,
reflecting continued weakness in the home equity and mortgage loan portfolios (see Retail Financial
Services discussion of the provision for credit losses, above on page 58 and Allowance for Credit
Losses on pages 115117 of this Annual Report, for further detail).
Noninterest expense was $6.4 billion, up by $1.5 billion, or 32%, from the prior year, reflecting
higher servicing and default-related expense and the impact of the Washington Mutual transaction.
2008 compared with 2007
Consumer Lending net loss was $2.1 billion, compared with net income of $680
million in the prior year. Total net revenue was $10.9 billion, up $3.6 billion, or 48%, driven by
higher mortgage fees and related income, the impact of the Washington Mutual transaction, higher
loan balances and wider loan spreads.
The increase in mortgage fees and related income was primarily driven by higher net mortgage
servicing revenue. Mortgage production revenue of $898 million was up $18 million, as higher
mortgage origination volume was predominantly offset by an increase in losses related to the
repurchase of previously sold loans and markdowns of the mortgage warehouse. Operating revenue,
which represents loan servicing revenue net of other changes in fair value of the MSR asset was
$1.2 billion, an increase of $403 million, or 50%, from the prior year reflecting growth in average
third-party loans serviced which increased 42%, primarily due to the Washington Mutual transaction.
MSR risk management results were $1.5 billion, compared with $411 million in the prior year.
The provision for credit losses was $9.5 billion, compared with $2.5 billion in the prior year. The
provision reflected weakness in the home equity and mortgage portfolios (see Retail Financial
Services discussion of the provision for credit losses for further detail).
Noninterest expense was $4.8 billion, up $1.1 billion, or 30%, from the prior year, reflecting
higher mortgage reinsurance losses, the impact of the Washington Mutual transaction and higher
servicing expense due to increased delinquencies and defaults.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in billions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Loans excluding purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
101.4 |
|
|
$ |
114.3 |
|
|
$ |
94.8 |
|
Prime mortgage |
|
|
59.4 |
|
|
|
65.2 |
|
|
|
34.0 |
|
Subprime mortgage |
|
|
12.5 |
|
|
|
15.3 |
|
|
|
15.5 |
|
Option ARMs |
|
|
8.5 |
|
|
|
9.0 |
|
|
|
|
|
Student loans |
|
|
15.8 |
|
|
|
15.9 |
|
|
|
11.0 |
|
Auto loans |
|
|
46.0 |
|
|
|
42.6 |
|
|
|
42.3 |
|
Other |
|
|
0.7 |
|
|
|
1.3 |
|
|
|
2.1 |
|
|
Total end-of-period loans owned |
|
$ |
244.3 |
|
|
$ |
263.6 |
|
|
$ |
199.7 |
|
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
108.3 |
|
|
$ |
99.9 |
|
|
$ |
90.4 |
|
Prime mortgage |
|
|
62.2 |
|
|
|
45.0 |
|
|
|
30.4 |
|
Subprime mortgage |
|
|
13.9 |
|
|
|
15.3 |
|
|
|
12.7 |
|
Option ARMs |
|
|
8.9 |
|
|
|
2.3 |
|
|
|
|
|
Student loans |
|
|
16.1 |
|
|
|
13.6 |
|
|
|
10.5 |
|
Auto loans |
|
|
43.6 |
|
|
|
43.8 |
|
|
|
41.1 |
|
Other |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
2.3 |
|
|
Total average loans owned |
|
$ |
254.0 |
|
|
$ |
221.0 |
|
|
$ |
187.4 |
|
|
Purchased credit-impaired loans(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
26.5 |
|
|
$ |
28.6 |
|
|
$ |
|
|
Prime mortgage |
|
|
19.7 |
|
|
|
21.8 |
|
|
|
|
|
Subprime mortgage |
|
|
6.0 |
|
|
|
6.8 |
|
|
|
|
|
Option ARMs |
|
|
29.0 |
|
|
|
31.6 |
|
|
|
|
|
|
Total end-of-period loans owned |
|
$ |
81.2 |
|
|
$ |
88.8 |
|
|
$ |
|
|
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
27.6 |
|
|
$ |
7.1 |
|
|
$ |
|
|
Prime mortgage |
|
|
20.8 |
|
|
|
5.4 |
|
|
|
|
|
Subprime mortgage |
|
|
6.3 |
|
|
|
1.7 |
|
|
|
|
|
Option ARMs |
|
|
30.5 |
|
|
|
8.0 |
|
|
|
|
|
|
Total average loans owned |
|
$ |
85.2 |
|
|
$ |
22.2 |
|
|
$ |
|
|
|
Total consumer lending portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
127.9 |
|
|
$ |
142.9 |
|
|
$ |
94.8 |
|
Prime mortgage |
|
|
79.1 |
|
|
|
87.0 |
|
|
|
34.0 |
|
Subprime mortgage |
|
|
18.5 |
|
|
|
22.1 |
|
|
|
15.5 |
|
Option ARMs |
|
|
37.5 |
|
|
|
40.6 |
|
|
|
|
|
Student loans |
|
|
15.8 |
|
|
|
15.9 |
|
|
|
11.0 |
|
Auto loans |
|
|
46.0 |
|
|
|
42.6 |
|
|
|
42.3 |
|
Other |
|
|
0.7 |
|
|
|
1.3 |
|
|
|
2.1 |
|
|
Total end-of-period loans owned |
|
$ |
325.5 |
|
|
$ |
352.4 |
|
|
$ |
199.7 |
|
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
135.9 |
|
|
$ |
107.0 |
|
|
$ |
90.4 |
|
Prime mortgage |
|
|
83.0 |
|
|
|
50.4 |
|
|
|
30.4 |
|
Subprime mortgage |
|
|
20.2 |
|
|
|
17.0 |
|
|
|
12.7 |
|
Option ARMs |
|
|
39.4 |
|
|
|
10.3 |
|
|
|
|
|
Student loans |
|
|
16.1 |
|
|
|
13.6 |
|
|
|
10.5 |
|
Auto loans |
|
|
43.6 |
|
|
|
43.8 |
|
|
|
41.1 |
|
Other |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
2.3 |
|
|
Total average loans owned(b) |
|
$ |
339.2 |
|
|
$ |
243.2 |
|
|
$ |
187.4 |
|
|
|
|
|
(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 Chase acquisition date. |
(b) |
|
Total average loans owned includes loans held-for-sale of $2.2 billion, $2.8 billion and
$10.6 billion for the years ended December 31, 2009, 2008 and 2007, respectively. |
|
|
|
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
61 |
Managements
discussion and analysis
Consumer Lending (continued)
Credit data and quality statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs excluding
purchased credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
4,682 |
|
|
$ |
2,391 |
|
|
$ |
564 |
|
Prime mortgage |
|
|
1,886 |
|
|
|
526 |
|
|
|
33 |
|
Subprime mortgage |
|
|
1,648 |
|
|
|
933 |
|
|
|
157 |
|
Option ARMs |
|
|
63 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
627 |
|
|
|
568 |
|
|
|
354 |
|
Other |
|
|
365 |
|
|
|
113 |
|
|
|
79 |
|
|
Total net charge-offs |
|
$ |
9,271 |
|
|
$ |
4,531 |
|
|
$ |
1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate excluding
purchased credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
4.32 |
% |
|
|
2.39 |
% |
|
|
0.62 |
% |
Prime mortgage |
|
|
3.05 |
|
|
|
1.18 |
|
|
|
0.13 |
|
Subprime mortgage |
|
|
11.86 |
|
|
|
6.10 |
|
|
|
1.55 |
|
Option ARMs |
|
|
0.71 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.44 |
|
|
|
1.30 |
|
|
|
0.86 |
|
Other |
|
|
2.39 |
|
|
|
0.93 |
|
|
|
0.88 |
|
Total net charge-off rate
excluding purchased
credit-impaired loans(b) |
|
|
3.68 |
|
|
|
2.08 |
|
|
|
0.67 |
|
|
Net charge-off rate reported |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
3.45 |
% |
|
|
2.23 |
% |
|
|
0.62 |
% |
Prime mortgage |
|
|
2.28 |
|
|
|
1.05 |
|
|
|
0.13 |
|
Subprime mortgage |
|
|
8.16 |
|
|
|
5.49 |
|
|
|
1.55 |
|
Option ARMs |
|
|
0.16 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.44 |
|
|
|
1.30 |
|
|
|
0.86 |
|
Other |
|
|
2.39 |
|
|
|
0.93 |
|
|
|
0.88 |
|
Total net charge-off rate(b) |
|
|
2.75 |
|
|
|
1.89 |
|
|
|
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate excluding
purchased credit-impaired
loans(c)(d)(e) |
|
|
5.93 |
% |
|
|
4.21 |
% |
|
|
3.10 |
% |
Allowance for loan losses |
|
$ |
13,798 |
|
|
$ |
8,254 |
|
|
$ |
2,418 |
|
Nonperforming assets(f)(g) |
|
|
11,259 |
|
|
|
8,653 |
|
|
|
3,084 |
|
Allowance for loan losses to
ending loans |
|
|
4.27 |
% |
|
|
2.36 |
% |
|
|
1.24 |
% |
Allowance for loan losses to
ending
loans excluding purchased
credit-impaired loans(a) |
|
|
5.04 |
|
|
|
3.16 |
|
|
|
1.24 |
|
|
|
|
|
(a) |
|
Excludes the impact of purchased credit-impaired loans 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 the credit losses over the
remaining life of the portfolio. During 2009, an allowance for loan losses of $1.6 billion was
recorded for these loans, which has also been excluded from applicable ratios. To date, no
charge-offs have been recorded for these loans. |
(b) |
|
Average loans included loans held-for-sale of $2.2 billion, $2.8 billion and $10.6 billion
for the years ended December 31, 2009, 2008 and 2007, respectively, which were excluded when
calculating the net charge-off rate. |
(c) |
|
Excluded mortgage loans that are insured by U.S. government agencies of $9.7 billion, $3.5
billion and $1.4 billion at December 31, 2009, 2008 and 2007, respectively. These amounts were
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 $942 million, $824
million and $663 million at December 31, 2009, 2008 and 2007, respectively. These amounts are
excluded, as reimbursement is proceeding normally. |
(e) |
|
The delinquency rate for purchased credit-impaired loans was 27.79% and 17.89% at December
31, 2009 and 2008, respectively. |
(f) |
|
At December 31, 2009, 2008 and 2007, nonperforming assets excluded: (1) mortgage loans
insured by U.S. government agencies of $9.0 billion, $3.0 billion and $1.1 billion,
respectively; (2) real estate owned insured by U.S. government agencies of $579 million, $364
million and $452 million, respectively; and (3) 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 $542 million, $437 million and $417 million, respectively. These
amounts are excluded, as reimbursement is proceeding normally. |
(g) |
|
Excludes purchased credit-impaired loans 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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in billions, except ratios and where |
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Origination volume |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by
channel |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
53.9 |
|
|
$ |
41.1 |
|
|
$ |
45.5 |
|
Wholesale(a) |
|
|
11.8 |
|
|
|
29.4 |
|
|
|
42.7 |
|
Correspondent |
|
|
72.8 |
|
|
|
55.5 |
|
|
|
27.9 |
|
CNT (negotiated transactions) |
|
|
12.2 |
|
|
|
43.0 |
|
|
|
43.3 |
|
|
Total mortgage
origination volume |
|
|
150.7 |
|
|
|
169.0 |
|
|
|
159.4 |
|
|
Home equity |
|
|
2.4 |
|
|
|
16.3 |
|
|
|
48.3 |
|
Student loans |
|
|
4.2 |
|
|
|
6.9 |
|
|
|
7.0 |
|
Auto |
|
|
23.7 |
|
|
|
19.4 |
|
|
|
21.3 |
|
Application volume |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage application volume
by channel |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
90.9 |
|
|
|
89.1 |
|
|
|
80.7 |
|
Wholesale(a) |
|
|
16.4 |
|
|
|
63.0 |
|
|
|
86.7 |
|
Correspondent |
|
|
99.3 |
|
|
|
82.5 |
|
|
|
41.5 |
|
|
Total mortgage
application volume |
|
|
206.6 |
|
|
|
234.6 |
|
|
|
208.9 |
|
|
Average mortgage loans
held-for-sale and loans at fair
value(b) |
|
|
16.2 |
|
|
|
14.6 |
|
|
|
18.8 |
|
Average assets |
|
|
378.6 |
|
|
|
278.1 |
|
|
|
216.1 |
|
Third-party mortgage loans
serviced (ending) |
|
|
1,082.1 |
|
|
|
1,172.6 |
|
|
|
614.7 |
|
Third-party mortgage loans
serviced (average) |
|
|
1,119.1 |
|
|
|
810.9 |
|
|
|
571.5 |
|
MSR net carrying value (ending) |
|
|
15.5 |
|
|
|
9.3 |
|
|
|
8.6 |
|
Ratio of MSR net carrying value
(ending) to third-party mortgage
loans serviced (ending) |
|
|
1.43 |
% |
|
|
0.79 |
% |
|
|
1.40 |
% |
|
Supplemental mortgage fees
and related income details
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
503 |
|
|
$ |
898 |
|
|
$ |
880 |
|
|
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
4,942 |
|
|
|
3,258 |
|
|
|
2,334 |
|
Other changes in MSR
asset fair value |
|
|
(3,279 |
) |
|
|
(2,052 |
) |
|
|
(1,531 |
) |
|
Total operating revenue |
|
|
1,663 |
|
|
|
1,206 |
|
|
|
803 |
|
Risk management: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in MSR asset fair
value due to inputs or
assumptions in model |
|
|
5,804 |
|
|
|
(6,849 |
) |
|
|
(516 |
) |
Derivative valuation
adjustments and other |
|
|
(4,176 |
) |
|
|
8,366 |
|
|
|
927 |
|
|
Total risk management |
|
|
1,628 |
|
|
|
1,517 |
|
|
|
411 |
|
|
Total net mortgage servicing
revenue |
|
|
3,291 |
|
|
|
2,723 |
|
|
|
1,214 |
|
|
Mortgage fees and related income |
|
|
3,794 |
|
|
|
3,621 |
|
|
|
2,094 |
|
|
Ratio of annualized loan servicing
revenue to third-party mortgage
loans serviced (average) |
|
|
0.44 |
% |
|
|
0.40 |
% |
|
|
0.41 |
% |
MSR revenue multiple(c) |
|
|
3.25 |
x |
|
|
1.98 |
x |
|
|
3.41 |
x |
|
|
|
|
(a) |
|
Includes rural housing loans sourced through brokers and underwritten under U.S.
Department of Agriculture guidelines. |
(b) |
|
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 $15.8 billion, $14.2 billion and $11.9 billion
for the years ended December 31, 2009, 2008 and 2007, respectively. |
(c) |
|
Represents the ratio of MSR net carrying value (ending) to third-party mortgage loans
serviced (ending) divided by the ratio of annualized loan servicing revenue to third-party
mortgage loans serviced (average). |
|
|
|
|
|
|
62
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
Mortgage origination channels comprise the following:
Retail Borrowers who are buying or refinancing a home through direct contact
with a mortgage banker employed by the Firm using a branch office, the
Internet or by phone. Borrowers are frequently referred to a mortgage banker
by a banker in a Chase branch, real estate brokers, home builders or other
third parties.
Wholesale A third-party mortgage broker refers loan applications to a
mortgage banker at the Firm. Brokers are independent loan originators that
specialize in finding and counseling borrowers but do not provide funding for
loans. The Firm exited the broker channel during 2008.
Correspondent Banks, thrifts, other mortgage banks and other financial
institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (CNTs) These transactions occur when
mid- to large-sized mortgage lenders, banks and bank-owned mortgage companies
sell servicing to the Firm on an as-originated basis, and exclude purchased
bulk servicing transactions. These transactions supplement traditional
production channels and provide growth opportunities in the servicing
portfolio in stable and rising-rate periods.
Production revenue Includes net gains or losses on originations and sales of
prime and subprime mortgage loans, other production-related fees and losses
related to the repurchase of previously sold loans.
Net mortgage servicing revenue includes the following
components:
(a) |
|
Operating revenue comprises: |
|
|
|
all gross income earned from servicing third-party mortgage loans
including stated service fees, excess service fees, late fees and other
ancillary fees. |
|
|
|
modeled servicing portfolio runoff (or time decay). |
|
(b) |
|
Risk management comprises: |
|
|
|
changes in MSR asset fair value due to market-based inputs such as
interest rates and volatility, as well as updates to
assumptions used in the MSR valuation model. |
|
|
|
derivative valuation adjustments and other, which represents changes in
the fair value of derivative instruments used to offset the impact of
changes in the market-based inputs to the MSR valuation model. |
|
|
|
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
63 |
Managements discussion and analysis
CARD SERVICES
Card Services is one of the nations largest credit
card issuers, with more than 145 million credit cards in circulation and over
$163 billion in managed loans. Customers used Chase cards to meet more than
$328 billion of their spending needs in 2009.
Chase continues to innovate, despite a very difficult business environment,
launching new products and services such as Blueprint, Ultimate Rewards, Chase
Sapphire and Ink from Chase, and earning a market leadership position in
building loyalty and rewards programs. Through its merchant acquiring business,
Chase Paymentech Solutions, Chase is one of the leading processors of
credit-card payments.
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 5052 of this Annual Report. 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.
The following discussion of CSs financial results reflects the acquisition of Washington Mutuals
credit cards operations, as a result of the Washington Mutual transaction on September 25, 2008,
and the dissolution of the Chase Paymentech Solutions joint venture on November 1, 2008. See Note 2
on pages 143148 of this Annual Report for more information concerning these transactions.
Selected income statement data managed basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
3,612 |
|
|
$ |
2,768 |
|
|
$ |
2,685 |
|
All other income |
|
|
(692 |
) |
|
|
(49 |
) |
|
|
361 |
|
|
Noninterest revenue |
|
|
2,920 |
|
|
|
2,719 |
|
|
|
3,046 |
|
Net interest income |
|
|
17,384 |
|
|
|
13,755 |
|
|
|
12,189 |
|
|
Total net revenue |
|
|
20,304 |
|
|
|
16,474 |
|
|
|
15,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
18,462 |
|
|
|
10,059 |
|
|
|
5,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,376 |
|
|
|
1,127 |
|
|
|
1,021 |
|
Noncompensation expense |
|
|
3,490 |
|
|
|
3,356 |
|
|
|
3,173 |
|
Amortization of intangibles |
|
|
515 |
|
|
|
657 |
|
|
|
720 |
|
|
Total noninterest expense |
|
|
5,381 |
|
|
|
5,140 |
|
|
|
4,914 |
|
|
Income/(loss) before income tax expense/(benefit) |
|
|
(3,539 |
) |
|
|
1,275 |
|
|
|
4,610 |
|
Income tax expense/(benefit) |
|
|
(1,314 |
) |
|
|
495 |
|
|
|
1,691 |
|
|
Net income/(loss) |
|
$ |
(2,225 |
) |
|
$ |
780 |
|
|
$ |
2,919 |
|
|
Memo: Net securitization income/(loss) |
|
$ |
(474 |
) |
|
$ |
(183 |
) |
|
$ |
67 |
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
(15 |
)% |
|
|
5 |
% |
|
|
21 |
% |
Overhead ratio |
|
|
27 |
|
|
|
31 |
|
|
|
32 |
|
|
2009 compared with 2008
Card Services reported a net loss of $2.2 billion, compared with net income of $780 million in the
prior year. The decrease was driven by a higher provision for credit losses, partially offset by
higher total net revenue.
End-of-period managed loans were $163.4 billion, a decrease of $26.9 billion, or 14%, from the
prior year, reflecting lower charge volume and a higher level of charge-offs. Average managed loans
were $172.4 billion, an increase of $9.5 billion, or 6%, from the prior year, primarily due to the
impact of the Washington Mutual transaction. Excluding the impact of the Washington Mutual
transaction, end-of-period and average managed loans for 2009 were $143.8 billion and $148.8
billion, respectively.
Managed total net revenue was $20.3 billion, an increase of $3.8 billion, or 23%, from the prior
year. Net interest income was $17.4 billion, up by $3.6 billion, or 26%, from the prior year,
driven by wider loan spreads and the impact of the Washington Mutual transaction. These benefits
were offset partially by higher revenue reversals associated with higher charge-offs, a decreased
level of fees, lower average managed loan balances, and the impact of legislative changes.
Noninterest revenue was $2.9 billion, an increase of $201 million, or 7%, from the prior year. The
increase was driven by higher merchant servicing revenue related to the dissolution of the Chase
Paymentech Solutions joint venture and the impact of the Washington Mutual transaction, partially
offset by lower securitization income.
The managed provision for credit losses was $18.5 billion, an increase of $8.4 billion from the
prior year, reflecting a higher level of charge-offs and an addition of $2.4 billion to the
allowance for loan losses, reflecting continued weakness in the credit environment. The managed net
charge-off rate was 9.33%, up from 5.01% in the prior year. The 30-day managed delinquency rate was
6.28%, up from 4.97% in the prior year. Excluding the impact of the Washington Mutual transaction,
the managed net charge-off rate was 8.45%, and the 30-day managed delinquency rate was 5.52%.
Noninterest expense was $5.4 billion, an increase of $241 million, or 5%, from the prior year, due
to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington
Mutual transaction, partially offset by lower marketing expense.
2008 compared with 2007
Net income was $780 million, a decline of $2.1 billion, or 73%, from the prior year. The decrease
was driven by a higher provision for credit losses, partially offset by higher total net revenue.
Average managed loans were $162.9 billion, an increase of $13.5 billion, or 9%, from the prior
year. End-of-period managed loans were $190.3 billion, an increase of $33.3 billion, or 21%, from
the prior year. Excluding Washington Mutual, average managed loans were $155.9 billion and
end-of-period managed loans were $162.1
|
|
|
64
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
billion. The increases in both average managed loans and end-of-period managed loans were
predominantly due to the impact of the Washington Mutual transaction and organic portfolio growth.
Managed total net revenue was $16.5 billion, an increase of $1.2 billion, or 8%, from the prior
year. Net interest income was $13.8 billion, up $1.6 billion, or 13%, from the prior year, driven
by the Washington Mutual transaction, higher average managed loan balances, and wider loan spreads.
These benefits were offset partially by the effect of higher revenue reversals associated with
higher charge-offs. Noninterest revenue was $2.7 billion, a decrease of $327 million, or 11%, from
the prior year, driven by increased rewards expense, lower securitization income driven by higher
credit losses, and higher volume-driven payments to partners; these were largely offset by
increased interchange income, benefiting from a 4% increase in charge volume, as well as the impact
of the Washington Mutual transaction.
The managed provision for credit losses was $10.1 billion, an increase of $4.3 billion, or 76%,
from the prior year, due to an increase of $1.7 billion in the allowance for loan losses and a
higher level of charge-offs. The managed net charge-off rate increased to 5.01%, up from 3.68% in
the prior year. The 30-day managed delinquency rate was 4.97%, up from 3.48% in the prior year.
Excluding Washington Mutual, the managed net charge-off rate was 4.92% and the 30-day delinquency
rate was 4.36%.
Noninterest expense was $5.1 billion, an increase of $226 million, or 5%, from the prior year,
predominantly due to the impact of the Washington Mutual transaction.
The following are brief descriptions of selected business metrics within Card Services.
|
|
Charge volume Dollar amount of cardmember purchases, balance transfers and cash advance
activity. |
|
|
|
Net accounts opened Includes originations, purchases and sales. |
|
|
|
Merchant acquiring business A business that processes bank card transactions for
merchants. |
|
|
Bank card volume Dollar amount of transactions processed for merchants. |
|
|
|
Total transactions Number of transactions and authorizations processed for merchants. |
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
65 |
Managements discussion and analysis
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ratios |
|
|
|
|
|
|
|
|
|
and where otherwise noted) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of average managed
outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
10.08 |
% |
|
|
8.45 |
% |
|
|
8.16 |
% |
Provision for credit losses |
|
|
10.71 |
|
|
|
6.18 |
|
|
|
3.82 |
|
Noninterest revenue |
|
|
1.69 |
|
|
|
1.67 |
|
|
|
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk adjusted margin(a) |
|
|
1.07 |
|
|
|
3.94 |
|
|
|
6.38 |
|
Noninterest expense |
|
|
3.12 |
|
|
|
3.16 |
|
|
|
3.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income/(loss) (ROO)(b) |
|
|
(2.05 |
) |
|
|
0.78 |
|
|
|
3.09 |
|
Net income/(loss) |
|
|
(1.29 |
) |
|
|
0.48 |
|
|
|
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
328.3 |
|
|
$ |
368.9 |
|
|
$ |
354.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net accounts opened (in millions)(c) |
|
|
10.2 |
|
|
|
27.9 |
|
|
|
16.4 |
|
Credit cards issued (in millions) |
|
|
145.3 |
|
|
|
168.7 |
|
|
|
155.0 |
|
Number of registered internet
customers (in millions) |
|
|
32.3 |
|
|
|
35.6 |
|
|
|
28.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant acquiring business(d) |
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
409.7 |
|
|
$ |
713.9 |
|
|
$ |
719.1 |
|
Total transactions (in billions) |
|
|
18.0 |
|
|
|
21.4 |
|
|
|
19.7 |
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
78,786 |
|
|
$ |
104,746 |
|
|
$ |
84,352 |
|
Securitized loans |
|
|
84,626 |
|
|
|
85,571 |
|
|
|
72,701 |
|
|
Managed loans |
|
$ |
163,412 |
|
|
$ |
190,317 |
|
|
$ |
157,053 |
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
192,749 |
|
|
$ |
173,711 |
|
|
$ |
155,957 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
87,029 |
|
|
$ |
83,293 |
|
|
$ |
79,980 |
|
Securitized loans |
|
|
85,378 |
|
|
|
79,566 |
|
|
|
69,338 |
|
|
Managed average loans |
|
$ |
172,407 |
|
|
$ |
162,859 |
|
|
$ |
149,318 |
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,326 |
|
|
$ |
14,100 |
|
|
Headcount |
|
|
22,676 |
|
|
|
24,025 |
|
|
|
18,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
16,077 |
|
|
$ |
8,159 |
|
|
$ |
5,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(e) |
|
|
9.33 |
% |
|
|
5.01 |
% |
|
|
3.68 |
% |
Managed delinquency rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day(e) |
|
|
6.28 |
% |
|
|
4.97 |
% |
|
|
3.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
90+ day(e) |
|
|
3.59 |
|
|
|
2.34 |
|
|
|
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(f)(g) |
|
$ |
9,672 |
|
|
$ |
7,692 |
|
|
$ |
3,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to period-end loans(f)(h) |
|
|
12.28 |
% |
|
|
7.34 |
% |
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats Washington Mutual only(i) |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
19,653 |
|
|
$ |
28,250 |
|
|
|
|
|
Managed average loans |
|
|
23,642 |
|
|
|
6,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(j) |
|
|
17.11 |
% |
|
|
14.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
adjusted
margin(a)(j) |
|
|
(0.93 |
) |
|
|
4.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(k) |
|
|
18.79 |
|
|
|
12.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(k) |
|
|
12.72 |
|
|
|
9.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90+ day delinquency rate(k) |
|
|
7.76 |
|
|
|
4.39 |
|
|
|
|
|
|
Key stats excluding Washington Mutual |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
143,759 |
|
|
$ |
162,067 |
|
|
$ |
157,053 |
|
Managed average loans |
|
|
148,765 |
|
|
|
155,895 |
|
|
|
149,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(j) |
|
|
8.97 |
% |
|
|
8.16 |
% |
|
|
8.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
adjusted
margin(a)(j) |
|
|
1.39 |
|
|
|
3.93 |
|
|
|
6.38 |
|
Net charge-off rate |
|
|
8.45 |
|
|
|
4.92 |
|
|
|
3.68 |
|
30+ day delinquency rate |
|
|
5.52 |
|
|
|
4.36 |
|
|
|
3.48 |
|
90+ day delinquency rate |
|
|
3.13 |
|
|
|
2.09 |
|
|
|
1.65 |
|
|
|
|
|
(a) |
|
Represents total net revenue less provision for credit losses. |
|
|
|
(b) |
|
Pretax return on average managed outstandings. |
(c) |
|
Results for 2008 included approximately 13 million credit card accounts acquired by JPMorgan
Chase in the Washington Mutual transaction. |
(d) |
|
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 period January 1 through October 31, 2008, the data
presented represents activity for the Chase Paymentech Solutions joint venture, and for the
period November 1, 2008, through December 31, 2009, the data presented represents activity for
Chase Paymentech Solutions. |
(e) |
|
Results for 2009 and 2008 reflect the impact of purchase accounting adjustments related to
the Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust. |
(f) |
|
Based on loans on balance sheets (reported basis). |
(g) |
|
The 2008 allowance for loan losses included an amount related to loans acquired in the
Washington Mutual transaction. |
(h) |
|
Includes $1.0 billion of loans at December 31, 2009, held by the Washington Mutual Master
Trust, which were consolidated onto the Card Services balance sheet at fair value during the
second quarter of 2009. No allowance for loan losses was recorded for these loans as of
December 31, 2009. Excluding these loans, the allowance for loan losses to period-end loans was 12.43%. |
(i) |
|
Statistics are only presented for periods after September 25, 2008, the date of the
Washington Mutual transaction. |
(j) |
|
As a percentage of average managed outstandings. |
(k) |
|
Excludes the impact of purchase accounting adjustments related to the Washington Mutual
transaction and the consolidation of the Washington Mutual Master Trust. |
The financial information presented below reconciles reported basis and managed basis to disclose
the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
5,106 |
|
|
$ |
6,082 |
|
|
$ |
5,940 |
|
Securitization adjustments |
|
|
(1,494 |
) |
|
|
(3,314 |
) |
|
|
(3,255 |
) |
|
Managed credit card income |
|
$ |
3,612 |
|
|
$ |
2,768 |
|
|
$ |
2,685 |
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
9,447 |
|
|
$ |
6,838 |
|
|
$ |
6,554 |
|
Securitization adjustments |
|
|
7,937 |
|
|
|
6,917 |
|
|
|
5,635 |
|
|
Managed net interest income |
|
$ |
17,384 |
|
|
$ |
13,755 |
|
|
$ |
12,189 |
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
13,861 |
|
|
$ |
12,871 |
|
|
$ |
12,855 |
|
Securitization adjustments |
|
|
6,443 |
|
|
|
3,603 |
|
|
|
2,380 |
|
|
Managed total net revenue |
|
$ |
20,304 |
|
|
$ |
16,474 |
|
|
$ |
15,235 |
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
12,019 |
|
|
$ |
6,456 |
|
|
$ |
3,331 |
|
Securitization adjustments |
|
|
6,443 |
|
|
|
3,603 |
|
|
|
2,380 |
|
|
Managed provision for
credit losses |
|
$ |
18,462 |
|
|
$ |
10,059 |
|
|
$ |
5,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
110,516 |
|
|
$ |
96,807 |
|
|
$ |
89,177 |
|
Securitization adjustments |
|
|
82,233 |
|
|
|
76,904 |
|
|
|
66,780 |
|
|
Managed average assets |
|
$ |
192,749 |
|
|
$ |
173,711 |
|
|
$ |
155,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
9,634 |
|
|
$ |
4,556 |
|
|
$ |
3,116 |
|
Securitization adjustments |
|
|
6,443 |
|
|
|
3,603 |
|
|
|
2,380 |
|
|
Managed net charge-offs |
|
$ |
16,077 |
|
|
$ |
8,159 |
|
|
$ |
5,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rates |
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
|
11.07 |
% |
|
|
5.47 |
% |
|
|
3.90 |
% |
Securitized |
|
|
7.55 |
|
|
|
4.53 |
|
|
|
3.43 |
|
|
Managed net charge-off rate |
|
|
9.33 |
|
|
|
5.01 |
|
|
|
3.68 |
|
|
|
|
|
(a) |
|
For a discussion of managed basis, see the non-GAAP financial measures discussion on pages
5052 of this Annual Report. |
|
|
|
66
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
COMMERCIAL BANKING
Commercial Banking serves nearly 25,000 clients
nationally, including corporations, municipalities,
financial institutions and not-for-profit entities with annual revenue
generally ranging from $10 million to $2 billion, and more than 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.
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from
the FDIC, adding approximately $44.5 billion in loans to the Commercial Term Lending, Real
Estate Banking and Other businesses in Commercial Banking.
Commercial Banking is divided into four primary client segments: Middle Market Banking, Commercial
Term Lending, Mid-Corporate Banking, and Real Estate Banking. Middle Market Banking covers
corporate, municipal, financial institution and not-for-profit clients, with annual revenue
generally ranging between $10 million and $500 million. Mid-Corporate Banking covers clients with
annual revenue generally ranging between $500 million and $2 billion and focuses on clients that
have broader investment banking needs. Commercial Term Lending primarily provides term financing to
real estate investors/owners for multi-family properties as well as financing office, retail and
industrial properties. Real Estate Banking provides full-service banking to investors and
developers of institutional-grade real estate properties.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and deposit-related fees |
|
$ |
1,081 |
|
|
$ |
854 |
|
|
$ |
647 |
|
Asset management, administration
and commissions |
|
|
140 |
|
|
|
113 |
|
|
|
92 |
|
All other income(a) |
|
|
596 |
|
|
|
514 |
|
|
|
524 |
|
|
Noninterest revenue |
|
|
1,817 |
|
|
|
1,481 |
|
|
|
1,263 |
|
Net interest income |
|
|
3,903 |
|
|
|
3,296 |
|
|
|
2,840 |
|
|
Total net revenue |
|
|
5,720 |
|
|
|
4,777 |
|
|
|
4,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,454 |
|
|
|
464 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
776 |
|
|
|
692 |
|
|
|
706 |
|
Noncompensation expense |
|
|
1,359 |
|
|
|
1,206 |
|
|
|
1,197 |
|
Amortization of intangibles |
|
|
41 |
|
|
|
48 |
|
|
|
55 |
|
|
Total noninterest expense |
|
|
2,176 |
|
|
|
1,946 |
|
|
|
1,958 |
|
|
Income before income
tax expense |
|
|
2,090 |
|
|
|
2,367 |
|
|
|
1,866 |
|
Income tax expense |
|
|
819 |
|
|
|
928 |
|
|
|
732 |
|
|
Net income |
|
$ |
1,271 |
|
|
$ |
1,439 |
|
|
$ |
1,134 |
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
2,663 |
|
|
$ |
1,743 |
|
|
$ |
1,419 |
|
Treasury services |
|
|
2,642 |
|
|
|
2,648 |
|
|
|
2,350 |
|
Investment banking |
|
|
394 |
|
|
|
334 |
|
|
|
292 |
|
Other |
|
|
21 |
|
|
|
52 |
|
|
|
42 |
|
|
Total Commercial Banking revenue |
|
$ |
5,720 |
|
|
$ |
4,777 |
|
|
$ |
4,103 |
|
|
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
IB revenue, gross(b) |
|
$ |
1,163 |
|
|
$ |
966 |
|
|
$ |
888 |
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
3,055 |
|
|
$ |
2,939 |
|
|
$ |
2,689 |
|
Commercial Term Lending(c) |
|
|
875 |
|
|
|
243 |
|
|
|
|
|
Mid-Corporate Banking |
|
|
1,102 |
|
|
|
921 |
|
|
|
815 |
|
Real Estate Banking(c) |
|
|
461 |
|
|
|
413 |
|
|
|
421 |
|
Other(c) |
|
|
227 |
|
|
|
261 |
|
|
|
178 |
|
|
Total Commercial Banking revenue |
|
$ |
5,720 |
|
|
$ |
4,777 |
|
|
$ |
4,103 |
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
16 |
% |
|
|
20 |
% |
|
|
17 |
% |
Overhead ratio |
|
|
38 |
|
|
|
41 |
|
|
|
48 |
|
|
|
|
|
(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 and 2008 include total net revenue on net assets acquired in the Washington
Mutual transaction. |
2009 compared with 2008
Net income was $1.3 billion, a decrease of $168 million, or 12%, from the prior year, as higher
provision for credit losses and noninterest expense was partially offset by higher net revenue,
reflecting the impact of the Washington Mutual transaction.
Record net revenue of $5.7 billion increased $943 million, or 20%, from the prior year. Net
interest income of $3.9 billion increased $607 million, or 18%, driven by the impact of the
Washington Mutual transaction. Noninterest revenue was $1.8 billion, an increase of $336 million,
or 23%, from the prior year, reflecting higher lending- and deposit-related fees and higher
investment banking fees and other income.
On a client-segment basis, revenue from Middle Market Banking was $3.1 billion, an increase of $116
million, or 4%, from the prior year due to higher liability balances, a shift to higher-spread
liability products, wider loan spreads, higher lending- and deposit-related fees, and higher other
income, partially offset by a narrowing of spreads on liability products and reduced loan balances.
Revenue from Commercial Term Lending (a new client segment acquired in the Washington Mutual
transaction encompassing multi-family and commercial mortgage loans) was $875 million, an increase
of $632 million. Mid-Corporate Banking revenue was $1.1 billion, an increase of $181 million, or
20%, driven by higher investment banking fees, increased loan spreads, and higher lending- and
deposit-related fees. Real Estate Banking revenue was $461 million, an increase of $48 million, or
12%, due to the impact of the Washington Mutual transaction.
The provision for credit losses was $1.5 billion, compared with
$464 million in the prior year, reflecting continued weakness in the credit environment,
predominantly in real estate-related segments. Net charge-offs were $1.1 billion (1.02% net
charge-off rate), compared with $288 million (0.35% net charge-off rate) in the prior year. The
allowance for loan losses to end-of-period loans retained was 3.12%, up from 2.45% in the prior
year. Nonperforming loans were $2.8 billion, an increase of $1.8 billion from the prior year.
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
67 |
Managements discussion and analysis
Noninterest expense was $2.2 billion, an increase of $230 million, or 12%, from the prior year, due
to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.
2008 compared with 2007
Net income was $1.4 billion, an increase of $305 million, or 27%, from the prior year, due to
growth in total net revenue including the impact of the Washington Mutual transaction, partially
offset by a higher provision for credit losses.
Record total net revenue of $4.8 billion increased $674 million, or 16%. Net interest income of
$3.3 billion increased $456 million, or 16%, driven by double-digit growth in liability and loan
balances and the impact of the Washington Mutual transaction, partially offset by spread
compression in the liability and loan portfolios. Noninterest revenue was $1.5 billion, up $218
million, or 17%, due to higher deposit- and lending-related fees.
On a client-segment basis, Middle Market Banking revenue was
$2.9 billion, an increase of $250 million, or 9%, from the prior year due
predominantly to higher deposit-related fees and growth in liability and loan balances. Revenue
from Commercial Term Lending, a new client segment acquired in the Washington Mutual transaction,
was $243 million. Mid-Corporate Banking revenue was $921 million, an increase of $106 million, or
13%, reflecting higher loan balances, investment banking revenue and deposit-related fees. Real
Estate Banking revenue of $413 million decreased $8 million, or 2%.
Provision for credit losses was $464 million, an increase of $185 million, or 66%, compared with
the prior year, reflecting a weakening credit environment and loan growth. Net charge-offs were
$288 million (0.35% net charge-off rate), compared with $44 million (0.07% net charge-off rate) in
the prior year, predominantly related to an increase in real estate charge-offs. The allowance for
loan losses increased by $1.1 billion, which primarily reflected the impact of the Washington
Mutual transaction. Nonperforming assets were $1.1 billion, an increase of $1.0 billion compared
with the prior year, predominantly reflecting the Washington Mutual transaction and higher real
estaterelated balances.
Noninterest expense was $1.9 billion, a decrease of $12 million, or 1%, from the prior year, due to
lower performance-based incentive compensation and volume-based charges from service providers,
predominantly offset by the impact of the Washington Mutual transaction.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Selected balance sheet data (period-end): |
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
$ |
97,108 |
|
|
$ |
115,130 |
|
|
$ |
64,835 |
|
Loans held-for-sale and
loans at fair value |
|
|
324 |
|
|
|
295 |
|
|
|
1,366 |
|
|
Total loans |
|
$ |
97,432 |
|
|
$ |
115,425 |
|
|
$ |
66,201 |
|
Equity |
|
|
8,000 |
|
|
|
8,000 |
|
|
|
6,700 |
|
|
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount and |
|
|
|
|
|
|
|
|
|
ratio data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Selected balance sheet data (average): |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
135,408 |
|
|
$ |
114,299 |
|
|
$ |
87,140 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
106,421 |
|
|
|
81,931 |
|
|
|
60,231 |
|
Loans held-for-sale and
loans at fair value |
|
|
317 |
|
|
|
406 |
|
|
|
863 |
|
|
Total loans |
|
$ |
106,738 |
|
|
$ |
82,337 |
|
|
$ |
61,094 |
|
Liability balances(a) |
|
|
113,152 |
|
|
|
103,121 |
|
|
|
87,726 |
|
Equity |
|
$ |
8,000 |
|
|
$ |
7,251 |
|
|
$ |
6,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
37,459 |
|
|
$ |
42,193 |
|
|
$ |
37,333 |
|
Commercial Term Lending(b) |
|
|
36,806 |
|
|
|
9,310 |
|
|
|
|
|
Mid-Corporate Banking |
|
|
15,951 |
|
|
|
16,297 |
|
|
|
12,481 |
|
Real Estate Banking(b) |
|
|
12,066 |
|
|
|
9,008 |
|
|
|
7,116 |
|
Other(b) |
|
|
4,456 |
|
|
|
5,529 |
|
|
|
4,164 |
|
|
Total Commercial Banking loans |
|
$ |
106,738 |
|
|
$ |
82,337 |
|
|
$ |
61,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,151 |
|
|
|
5,206 |
|
|
|
4,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,089 |
|
|
$ |
288 |
|
|
$ |
44 |
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained(c) |
|
|
2,764 |
|
|
|
1,026 |
|
|
|
146 |
|
Nonperforming loans held-for-
sale and loans held at fair value |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
2,801 |
|
|
|
1,026 |
|
|
|
146 |
|
Nonperforming assets |
|
|
2,989 |
|
|
|
1,142 |
|
|
|
148 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(d) |
|
|
3,025 |
|
|
|
2,826 |
|
|
|
1,695 |
|
Allowance for lending-related
commitments |
|
|
349 |
|
|
|
206 |
|
|
|
236 |
|
|
Total allowance for credit losses |
|
|
3,374 |
|
|
|
3,032 |
|
|
|
1,931 |
|
|
Net charge-off rate |
|
|
1.02 |
% |
|
|
0.35 |
% |
|
|
0.07 |
% |
Allowance for loan losses to period-end loans
retained |
|
|
3.12 |
|
|
|
2.45 |
|
|
|
2.61 |
|
Allowance for loan losses to average loans retained |
|
|
2.84 |
|
|
|
3.04 |
(e) |
|
|
2.81 |
|
Allowance for loan losses
to nonperforming loans retained |
|
|
109 |
|
|
|
275 |
|
|
|
1,161 |
|
Nonperforming loans to total period-end loans |
|
|
2.87 |
|
|
|
0.89 |
|
|
|
0.22 |
|
Nonperforming loans to total average loans |
|
|
2.62 |
|
|
|
1.10 |
(e) |
|
|
0.24 |
|
|
|
|
|
(a) |
|
Liability balances include deposits and deposits swept to onbalance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
(b) |
|
Results for 2009 and 2008 include loans acquired in the Washington Mutual transaction. |
(c) |
|
Allowance for loan losses of $581 million, $208 million and $32 million were held against
nonperforming loans retained for the periods ended December 31, 2009, 2008, and 2007,
respectively. |
(d) |
|
Beginning in 2008, the allowance for loan losses included an amount related to loans acquired
in the Washington Mutual transaction and the Bear Stearns merger. |
(e) |
|
Average loans in the calculation of this ratio were adjusted to include $44.5 billion of
loans acquired in the Washington Mutual transaction as if the transaction occurred on July 1,
2008. Excluding this adjustment, the unadjusted allowance for loan losses to average loans
retained and nonperforming loans to total average loans ratios would have been 3.45% and
1.25%, respectively, for the period ended December 31, 2008. |
|
|
|
68
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
TREASURY & SECURITIES SERVICES
Treasury & Securities Services 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
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.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratio data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and deposit-related fees |
|
$ |
1,285 |
|
|
$ |
1,146 |
|
|
$ |
923 |
|
Asset management, administration
and commissions |
|
|
2,631 |
|
|
|
3,133 |
|
|
|
3,050 |
|
All other income |
|
|
831 |
|
|
|
917 |
|
|
|
708 |
|
|
Noninterest revenue |
|
|
4,747 |
|
|
|
5,196 |
|
|
|
4,681 |
|
Net interest income |
|
|
2,597 |
|
|
|
2,938 |
|
|
|
2,264 |
|
|
Total net revenue |
|
|
7,344 |
|
|
|
8,134 |
|
|
|
6,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
55 |
|
|
|
82 |
|
|
|
19 |
|
Credit reimbursement to IB(a) |
|
|
(121 |
) |
|
|
(121 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,544 |
|
|
|
2,602 |
|
|
|
2,353 |
|
Noncompensation expense |
|
|
2,658 |
|
|
|
2,556 |
|
|
|
2,161 |
|
Amortization of intangibles |
|
|
76 |
|
|
|
65 |
|
|
|
66 |
|
|
Total noninterest expense |
|
|
5,278 |
|
|
|
5,223 |
|
|
|
4,580 |
|
|
Income before income tax expense |
|
|
1,890 |
|
|
|
2,708 |
|
|
|
2,225 |
|
Income tax expense |
|
|
664 |
|
|
|
941 |
|
|
|
828 |
|
|
Net income |
|
$ |
1,226 |
|
|
$ |
1,767 |
|
|
$ |
1,397 |
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services(b) |
|
$ |
3,702 |
|
|
$ |
3,779 |
|
|
$ |
3,190 |
|
Worldwide Securities Services(b) |
|
|
3,642 |
|
|
|
4,355 |
|
|
|
3,755 |
|
|
Total net revenue |
|
$ |
7,344 |
|
|
$ |
8,134 |
|
|
$ |
6,945 |
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
25 |
% |
|
|
47 |
% |
|
|
47 |
% |
Overhead ratio |
|
|
72 |
|
|
|
64 |
|
|
|
66 |
|
Pretax margin ratio(c) |
|
|
26 |
|
|
|
33 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans(d) |
|
$ |
18,972 |
|
|
$ |
24,508 |
|
|
$ |
18,562 |
|
Equity |
|
|
5,000 |
|
|
|
4,500 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
35,963 |
|
|
$ |
54,563 |
|
|
$ |
53,350 |
|
Loans(d) |
|
|
18,397 |
|
|
|
26,226 |
|
|
|
20,821 |
|
Liability balances(e) |
|
|
248,095 |
|
|
|
279,833 |
|
|
|
228,925 |
|
Equity |
|
|
5,000 |
|
|
|
3,751 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
26,609 |
|
|
|
27,070 |
|
|
|
25,669 |
|
|
|
|
|
(a) |
|
IB credit portfolio group manages certain exposures on behalf of clients shared with TSS. TSS
reimburses IB for a portion of the total cost of managing the credit portfolio. IB recognizes
this credit reimbursement as a component of noninterest revenue. |
(b) |
|
Reflects an internal reorganization for escrow products from Worldwide Securities Services to
Treasury Services revenue of $168 million, $224 million and $177 million for the years ended
December 31, 2009, 2008 and 2007, 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, commercial card and trade finance loans. |
(e) |
|
Liability balances include deposits and deposits swept to onbalance sheet liabilities, such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
2009 compared with 2008
Net income was $1.2 billion, a decrease of $541 million, or 31%, from the prior year, driven by
lower net revenue.
Net revenue was $7.3 billion, a decrease of $790 million, or 10%, from the prior year. Worldwide
Securities Services net revenue was $3.6 billion, a decrease of $713 million, or 16%. The decrease
was driven by lower securities lending balances, primarily as a result of declines in asset
valuations and demand, lower balances and spreads on liability products, and the effect of market
depreciation on certain custody assets. Treasury Services net revenue was $3.7 billion, a decrease
of $77 million, or 2%, reflecting spread compression on deposit products, offset by higher trade
revenue driven by wider spreads and growth across cash management and card product volumes.
TSS generated firmwide net revenue of $10.2 billion, including $6.6 billion of net revenue in
Treasury Services; of that amount, $3.7 billion was recorded in the Treasury Services business,
$2.6 billion was recorded in the Commercial Banking business, and $245 million was recorded in
other lines of business. The remaining $3.6 billion of net revenue was recorded in Worldwide
Securities Services.
The provision for credit losses was $55 million, a decrease of $27 million from the prior year.
Noninterest expense was $5.3 billion, an increase of $55 million from the prior year. The increase
was driven by higher FDIC insurance premiums, predominantly offset by lower headcount-related
expense.
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
69 |
Managements discussion and analysis
2008 compared with 2007
Net income was a record $1.8 billion, an increase of $370 million, or 26%, from the prior year,
driven by higher total net revenue. This increase was largely offset by higher noninterest expense.
Total net revenue was a record $8.1 billion, an increase of $1.2 billion, or 17%, from the prior
year. Worldwide Securities Services posted record net revenue of $4.4 billion, an increase of $600
million, or 16%, from the prior year. The growth was driven by wider spreads in securities lending,
foreign exchange and liability products, increased product usage by new and existing clients
(largely in custody, fund services, alternative investment services and depositary receipts) and
higher liability balances, reflecting increased client deposit activity resulting from recent
market conditions. These benefits were offset partially by market depreciation. Treasury Services
posted record net revenue of $3.8 billion, an increase of $589 million, or 18%, reflecting higher
liability balances and volume growth in electronic funds transfer products and trade loans. Revenue
growth from higher liability balances reflects increased client deposit activity resulting from
recent market conditions as well as organic growth. TSS firmwide net revenue, which includes
Treasury Services net revenue recorded in other lines of business, grew to $11.1 billion, an
increase of $1.5 billion, or 16%. Treasury Services firmwide net revenue grew to $6.7 billion, an
increase of $916 million, or 16%.
Noninterest expense was $5.2 billion, an increase of $643 million, or 14%, from the prior year,
reflecting higher expense related to business and volume growth as well as continued investment in
new product platforms.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratio data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue reported(a) |
|
$ |
3,702 |
|
|
$ |
3,779 |
|
|
$ |
3,190 |
|
Treasury Services revenue
reported in CB |
|
|
2,642 |
|
|
|
2,648 |
|
|
|
2,350 |
|
Treasury Services revenue
reported in other lines of
business |
|
|
245 |
|
|
|
299 |
|
|
|
270 |
|
|
Treasury Services firmwide
revenue(a)(b) |
|
|
6,589 |
|
|
|
6,726 |
|
|
|
5,810 |
|
Worldwide Securities Services revenue(a) |
|
|
3,642 |
|
|
|
4,355 |
|
|
|
3,755 |
|
|
Treasury & Securities Services firmwide revenue(b) |
|
$ |
10,231 |
|
|
$ |
11,081 |
|
|
$ |
9,565 |
|
Treasury Services firmwide liability balances
(average)(c)(d) |
|
$ |
274,472 |
|
|
$ |
264,195 |
|
|
$ |
217,142 |
|
Treasury & Securities Services firmwide liability
balances
(average)(c) |
|
|
361,247 |
|
|
|
382,947 |
|
|
|
316,651 |
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead ratio(e) |
|
|
53 |
% |
|
|
50 |
% |
|
|
55 |
% |
Treasury & Securities Services firmwide overhead
ratio(e) |
|
|
62 |
|
|
|
57 |
|
|
|
60 |
|
|
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratio data |
|
|
|
|
|
|
|
|
|
and where otherwise noted) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
14,885 |
|
|
$ |
13,205 |
|
|
$ |
15,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S.$ ACH transactions
originated (in millions) |
|
|
3,896 |
|
|
|
4,000 |
|
|
|
3,870 |
|
Total U.S.$ clearing volume
(in thousands) |
|
|
113,476 |
|
|
|
115,742 |
|
|
|
111,036 |
|
International electronic funds transfer
volume (in thousands)(f) |
|
|
193,348 |
|
|
|
171,036 |
|
|
|
168,605 |
|
Wholesale check volume
(in millions) |
|
|
2,184 |
|
|
|
2,408 |
|
|
|
2,925 |
|
Wholesale cards issued
(in thousands)(g) |
|
|
27,138 |
|
|
|
22,784 |
|
|
|
18,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs/(recoveries) |
|
$ |
19 |
|
|
$ |
(2 |
) |
|
$ |
|
|
Nonperforming loans |
|
|
14 |
|
|
|
30 |
|
|
|
|
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
88 |
|
|
|
74 |
|
|
|
18 |
|
Allowance for lending-related
commitments |
|
|
84 |
|
|
|
63 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
172 |
|
|
|
137 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off/(recovery) rate |
|
|
0.10 |
% |
|
|
(0.01 |
)% |
|
|
|
% |
Allowance for loan losses to period-end
loans |
|
|
0.46 |
|
|
|
0.30 |
|
|
|
0.10 |
|
Allowance for loan losses to average loans |
|
|
0.48 |
|
|
|
0.28 |
|
|
|
0.09 |
|
Allowance for loan losses to
nonperforming loans |
|
NM |
|
|
|
247 |
|
|
NM |
|
Nonperforming loans to period-end loans |
|
|
0.07 |
|
|
|
0.12 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.08 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects an internal reorganization for escrow products from Worldwide Securities Services to
Treasury Services revenue of $168 million, $224 million and $177 million for the years ended
December 31, 2009, 2008 and 2007, respectively. |
(b) |
|
TSS firmwide revenue includes FX revenue recorded in TSS and FX revenue associated with TSS
customers who are FX customers of IB. However, some of the FX revenue associated with TSS
customers who are FX customers of IB is not included in TS and TSS firmwide revenue. These
amounts were $661 million, $880 million and $552 million, for the years ended December 31,
2009, 2008 and 2007, respectively. |
(c) |
|
Firmwide liability balances include liability balances recorded in CB. |
(d) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to TS liability balances, of $15.6 billion, $21.5 billion and $18.1 billion for the years
ended December 31, 2009, 2008 and 2007, 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, stored value, prepaid and government
electronic benefit card products. |
|
|
|
70
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
ASSET MANAGEMENT
Asset Management, with assets under supervision of $1.7 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.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Asset management,
administration and commissions |
|
$ |
5,621 |
|
|
$ |
6,004 |
|
|
$ |
6,821 |
|
All other income |
|
|
751 |
|
|
|
62 |
|
|
|
654 |
|
|
Noninterest revenue |
|
|
6,372 |
|
|
|
6,066 |
|
|
|
7,475 |
|
Net interest income |
|
|
1,593 |
|
|
|
1,518 |
|
|
|
1,160 |
|
|
Total net revenue |
|
|
7,965 |
|
|
|
7,584 |
|
|
|
8,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
188 |
|
|
|
85 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
3,375 |
|
|
|
3,216 |
|
|
|
3,521 |
|
Noncompensation expense |
|
|
2,021 |
|
|
|
2,000 |
|
|
|
1,915 |
|
Amortization of intangibles |
|
|
77 |
|
|
|
82 |
|
|
|
79 |
|
|
Total noninterest expense |
|
|
5,473 |
|
|
|
5,298 |
|
|
|
5,515 |
|
|
Income before income tax expense |
|
|
2,304 |
|
|
|
2,201 |
|
|
|
3,138 |
|
Income tax expense |
|
|
874 |
|
|
|
844 |
|
|
|
1,172 |
|
|
Net income |
|
$ |
1,430 |
|
|
$ |
1,357 |
|
|
$ |
1,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
Private Bank(a) |
|
$ |
2,585 |
|
|
$ |
2,565 |
|
|
$ |
2,362 |
|
Institutional |
|
|
2,065 |
|
|
|
1,775 |
|
|
|
2,525 |
|
Retail |
|
|
1,580 |
|
|
|
1,620 |
|
|
|
2,408 |
|
Private Wealth Management(a) |
|
|
1,316 |
|
|
|
1,387 |
|
|
|
1,340 |
|
Bear Stearns Private Client
Services(b) |
|
|
419 |
|
|
|
237 |
|
|
|
|
|
|
Total net revenue |
|
$ |
7,965 |
|
|
$ |
7,584 |
|
|
$ |
8,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
24 |
% |
|
|
51 |
% |
Overhead ratio |
|
|
69 |
|
|
|
70 |
|
|
|
64 |
|
Pretax margin ratio(c) |
|
|
29 |
|
|
|
29 |
|
|
|
36 |
|
|
|
|
|
(a) |
|
In 2008, certain clients were transferred from Private Bank to Private Wealth Management.
Prior periods have been revised to conform to this change. |
(b) |
|
Bear Stearns Private Client Services was renamed to JPMorgan Securities at the beginning of
2010. |
(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. |
2009 compared with 2008
Net income was $1.4 billion, an increase of $73 million, or 5%, from the prior year, due to higher
total net revenue, offset largely by higher noninterest expense and provision for credit losses.
Total net revenue was $8.0 billion, an increase of $381 million, or 5%, from the prior year.
Noninterest revenue was $6.4 billion, an increase of $306 million, or 5%, due to higher valuations
of seed capital investments and net inflows, offset largely by lower market levels. Net interest
income was $1.6 billion, up by $75 million, or 5%, from the prior year, due to wider loan spreads
and higher deposit balances, offset partially by narrower deposit spreads.
Revenue from the Private Bank was $2.6 billion, up 1% from the prior year due to wider loan spreads
and higher deposit balances, offset partially by the effect of lower market levels. Revenue from
Institutional was $2.1 billion, up 16% due to higher valuations of seed capital investments and net
inflows, offset partially by the effect of lower market levels. Revenue from Retail was $1.6
billion, down 2% due to the effect of lower market levels, offset largely by higher valuations of
seed capital investments. Revenue from Private Wealth Management was $1.3 billion, down 5% due to
narrower deposit spreads and the effect of lower market levels, offset partially by higher deposit
balances and wider loan spreads. Bear Stearns Private Client Services contributed $419 million to
revenue.
The provision for credit losses was $188 million, an increase of $103 million from the prior year,
reflecting continued weakness in the credit environment.
Noninterest expense was $5.5 billion, an increase of $175 million, or 3%, from the prior year due
to the effect of the Bear Stearns merger, higher performance-based compensation and higher FDIC
insurance premiums, offset largely by lower headcount-related expense.
2008 compared with 2007
Net income was $1.4 billion, a decline of $609 million, or 31%, from the prior year, driven by
lower total net revenue offset partially by lower noninterest expense.
Total net revenue was $7.6 billion, a decrease of $1.1 billion, or 12%, from the prior year.
Noninterest revenue was $6.1 billion, a decline of $1.4 billion, or 19%, due to lower performance
fees and the effect of market levels, including the impact of lower market valuations of seed
capital investments. The lower results were offset partially by the benefit of the Bear Stearns
merger and increased revenue from net asset inflows. Net interest income was $1.5 billion, up $358
million, or 31%, from the prior year, due to higher deposit and loan balances and wider deposit
spreads.
Private Bank revenue grew 9% to $2.6 billion, due to increased deposit and loan balances and net
asset inflows, partially offset by the effect of lower markets and lower performance fees.
Institutional revenue declined 30% to $1.8 billion due to lower performance fees, partially offset
by net liquidity inflows. Retail revenue declined 33% to $1.6 billion due to the effect of lower
markets, including the impact of lower market valuations of seed capital investments and net equity
outflows. Private Wealth Management revenue grew 4% to $1.4 billion due to higher deposit and loan
balances. Bear Stearns Brokerage contributed $237 million to revenue.
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
71 |
Managements discussion and analysis
The provision for credit losses was $85 million, compared with a benefit of $18 million in the
prior year, reflecting a weakening credit environment.
Noninterest expense was $5.3 billion, down $217 million, or 4%, compared with the prior year due to
lower performance-based compensation, largely offset by the effect of the Bear Stearns merger and
higher compensation expense resulting from increased average headcount.
Selected metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ranking |
|
|
|
|
|
|
|
|
|
data, and where |
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors(a) |
|
|
1,934 |
|
|
|
1,840 |
|
|
|
1,868 |
|
Retirement planning
services participants
(in thousands) |
|
|
1,628 |
|
|
|
1,531 |
|
|
|
1,501 |
|
Bear Stearns brokers(b) |
|
|
376 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 &
5 Star Funds(c) |
|
|
42 |
% |
|
|
42 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of AUM in 1st and 2nd
quartiles:(d) |
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
57 |
% |
|
|
54 |
% |
|
|
57 |
% |
3 years |
|
|
62 |
% |
|
|
65 |
% |
|
|
75 |
% |
5 years |
|
|
74 |
% |
|
|
76 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
37,755 |
|
|
$ |
36,188 |
|
|
$ |
36,089 |
|
Equity |
|
|
7,000 |
|
|
|
7,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
60,249 |
|
|
$ |
65,550 |
|
|
$ |
51,882 |
|
Loans |
|
|
34,963 |
|
|
|
38,124 |
|
|
|
29,496 |
|
Deposits |
|
|
77,005 |
|
|
|
70,179 |
|
|
|
58,863 |
|
Equity |
|
|
7,000 |
|
|
|
5,645 |
|
|
|
3,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
15,136 |
|
|
|
15,339 |
|
|
|
14,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs/(recoveries) |
|
$ |
117 |
|
|
$ |
11 |
|
|
$ |
(8 |
) |
Nonperforming loans |
|
|
580 |
|
|
|
147 |
|
|
|
12 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
269 |
|
|
|
191 |
|
|
|
112 |
|
Allowance for lending-
related commitments |
|
|
9 |
|
|
|
5 |
|
|
|
7 |
|
|
Total allowance for credit losses |
|
$ |
278 |
|
|
$ |
196 |
|
|
$ |
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off/(recovery) rate |
|
|
0.33 |
% |
|
|
0.03 |
% |
|
|
(0.03 |
)% |
Allowance for loan losses to period-end loans |
|
|
0.71 |
|
|
|
0.53 |
|
|
|
0.31 |
|
Allowance for loan losses to average loans |
|
|
0.77 |
|
|
|
0.50 |
|
|
|
0.38 |
|
Allowance for loan losses to nonperforming
loans |
|
|
46 |
|
|
|
130 |
|
|
|
933 |
|
Nonperforming loans to period-end loans |
|
|
1.54 |
|
|
|
0.41 |
|
|
|
0.03 |
|
Nonperforming loans to average loans |
|
|
1.66 |
|
|
|
0.39 |
|
|
|
0.04 |
|
|
|
|
|
(a) |
|
Prior periods have been restated to conform to current methodologies. |
(b) |
|
Bear Stearns Private Client Services was renamed to JPMorgan Securities at the beginning of
2010. |
(c) |
|
Derived from following rating services: Morningstar for the United States; Micropal for the
United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
(d) |
|
Derived from following rating services: Lipper for the United States and Taiwan; Micropal for
the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. |
AMs client segments comprise the following:
Institutional brings comprehensive global investment services including
asset management, pension analytics, asset-liability management and active
risk-budgeting strategies to corporate and public institutions, endowments,
foundations, not-for-profit organizations and governments worldwide.
Retail provides worldwide investment management services and retirement
planning and administration, through third-party and direct distribution of a
full range of investment vehicles.
The Private Bank addresses every facet of wealth management for
ultra-high-net-worth individuals and families worldwide, including investment
management, capital markets and risk management, tax and estate planning,
banking, capital raising and specialty-wealth advisory services.
Private Wealth Management offers high-net-worth individuals, families and
business owners in the United States comprehensive wealth management
solutions, including investment management, capital markets and risk
management, tax and estate planning, banking and specialty-wealth advisory
services.
Bear Stearns Private Client Services (renamed to JPMorgan Securities at the
beginning of 2010) provides investment advice and wealth management services
to high-net-worth individuals, money managers, and small corporations.
J.P. Morgan Asset Management has established two high-level measures of its overall performance.
|
|
Percentage of assets under management in funds rated 4 and 5 stars (3 year).
Mutual fund rating services rank funds based on their risk-adjusted performance
over various periods. A 5 star rating is the best and represents the top 10% of
industry wide ranked funds. A 4 star rating represents the next 22% of industry
wide ranked funds. The worst rating is a 1 star rating. |
|
|
|
Percentage of assets under management in first- or second- quartile funds
(one, three and five years). Mutual fund rating services rank funds according
to a peer-based performance system, which measures returns according to
specific time and fund classification (small, mid, multi and large cap). |
|
|
|
72
|
|
JPMorgan Chase & Co. / 2009 Annual Report |
Assets under supervision
2009 compared with 2008
Assets under supervision were $1.7 trillion, an increase of $205 billion, or 14%, from the prior
year. Assets under management were $1.2 trillion, an increase of $116 billion, or 10%, from the
prior year. The increases were due to the effect of higher market valuations and inflows in fixed
income and equity products offset partially by outflows in cash products. Custody, brokerage,
administration and deposit balances were $452 billion, up by $89 billion, due to the effect of
higher market levels on custody and brokerage balances, and brokerage inflows in the Private Bank.
The Firm also has a 42% interest in American Century Companies, Inc., whose AUM totaled $86 billion
and $70 billion at December 31, 2009 and 2008, respectively, which are excluded from the AUM above.
2008 compared with 2007
Assets under supervision were $1.5 trillion, a decrease of $76 billion, or 5%, from the prior year.
Assets under management were $1.1 trillion, down $60 billion, or 5%, from the prior year. The
decrease was due to the effect of lower market valuations and non-liquidity outflows, predominantly
offset by liquidity product inflows across all segments and the addition of Bear Stearns assets
under management. Custody, brokerage, administration and deposit balances were $363 billion, down
$16 billion due to the effect of lower markets on brokerage and custody balances, offset by the
addition of Bear Stearns Brokerage. The Firm also has a 43% interest in American Century Companies,
Inc., whose AUM totaled $70 billion and $102 billion at December 31, 2008 and 2007, respectively,
which are excluded from the AUM above.
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision(a) |
|
|
|
|
|
|
|
|
|
As of or for the year |
|
|
|
|
|
|
|
|
|
ended December 31, (in billions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
591 |
|
|
$ |
613 |
|
|
$ |
400 |
|
Fixed income |
|
|
226 |
|
|
|
180 |
|
|
|
200 |
|
Equities & multi-asset |
|
|
339 |
|
|
|
240 |
|
|
|
472 |
|
Alternatives |
|
|
93 |
|
|
|
100 |
|
|
|
121 |
|
|
Total assets under management |
|
|
1,249 |
|
|
|
1,133 |
|
|
|
1,193 |
|
Custody/brokerage/administration/deposits |
|
|
452 |
|
|
|
363 |
|
|
|
379 |
|
|
Total assets under supervision |
|
$ |
1,701 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
709 |
|
|
$ |
681 |
|
|
$ |
632 |
|
Private Bank(b) |
|
|
187 |
|
|
|
181 |
|
|
|
183 |
|
Retail |
|
|
270 |
|
|
|
194 |
|
|
|
300 |
|
Private Wealth Management(b) |
|
|
69 |
|
|
|
71 |
|
|
|
78 |
|
Bear Stearns Private Client Services(c) |
|
|
14 |
|
|
|
6 |
|
|
|
|
|
|
Total assets under management |
|
$ |
1,249 |
|
|
$ |
1,133 |
|
|
$ |
1,193 |
|
|
Institutional |
|
$ |
710 |
|
|
$ |
682 |
|
|
$ |
633 |
|
Private Bank(b) |
|
|
452 |
|
|
|
378 |
|
|
|
403 |
|
Retail |
|
|
355 |
|
|
|
262 |
|
|
|
394 |
|
Private Wealth Management(b) |
|
|
129 |
|
|
|
124 |
|
|
|
142 |
|
Bear Stearns Private Client Services(c) |
|
|
55 |
|
|
|
50 |
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,701 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
|
As of or for the year |
|
|
|
|
|
|
|
|
|
ended December 31, (in billions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
U.S./Canada |
|
$ |
837 |
|
|
$ |
798 |
|
|
$ |
760 |
|
International |
|
|
412 |
|
|
|
335 |
|
|
|
433 |
|
|
Total assets under management |
|
$ |
1,249 |
|
|
$ |
1,133 |
|
|
$ |
1,193 |
|
|
U.S./Canada |
|
$ |
1,182 |
|
|
$ |
1,084 |
|
|
$ |
1,032 |
|
International |
|
|
519 |
|
|
|
412 |
|
|
|
540 |
|
|
Total assets under supervision |
|
$ |
1,701 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
539 |
|
|
$ |
553 |
|
|
$ |
339 |
|
Fixed income |
|
|
67 |
|
|
|
41 |
|
|
|
46 |
|
Equities |
|
|
143 |
|
|
|
92 |
|
|
|
218 |
|
Alternatives |
|
|
9 |
|
|
|
7 |
|
|
|
6 |
|
|
Total mutual fund assets |
|
$ |
758 |
|
|
$ |
693 |
|
|
$ |
609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management
rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1 |
|
$ |
1,133 |
|
|
$ |
1,193 |
|
|
$ |
1,013 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
(23 |
) |
|
|
210 |
|
|
|
78 |
|
Fixed income |
|
|
34 |
|
|
|
(12 |
) |
|
|
9 |
|
Equities, multi-asset and
alternative |
|
|
17 |
|
|
|
(47 |
) |
|
|
28 |
|
Market/performance/other impacts(d) |
|
|
88 |
|
|
|
(211 |
) |
|
|
65 |
|
|
Ending balance, December 31 |
|
$ |
1,249 |
|
|
$ |
1,133 |
|
|
$ |
1,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision
rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, January 1 |
|
$ |
1,496 |
|
|
$ |
1,572 |
|
|
$ |
1,347 |
|
Net asset flows |
|
|
50 |
|
|
|
181 |
|
|
|
143 |
|
Market/performance/other impacts(d) |
|
|
155 |
|
|
|
(257 |
) |
|
|
82 |
|
|
Ending balance, December 31 |
|
$ |
1,701 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
|
|
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm had a
42%, 43% and 44% ownership at December 31, 2009, 2008 and 2007, respectively. |
(b) |
|
In 2008, certain clients were transferred from Private Bank to Private Wealth Management.
Prior periods have been revised to conform to this change. |
(c) |
|
Bear Stearns Private Client Services was renamed to JPMorgan Securities at the beginning of
2010. |
(d) |
|
Includes $15 billion for assets under management and $68 billion for assets under supervision
from the Bear Stearns merger in the second quarter of 2008. |
|
|
|
JPMorgan Chase & Co. / 2009 Annual Report
|
|
73 |
Managements discussion and analysis
CORPORATE/PRIVATE EQUITY
The Corporate/Private Equity sector comprises
Private Equity, Treasury, the Chief Investment Office, corporate staff units
and expense that is centrally managed. Treasury and the Chief Investment
Office manage capital, liquidity, interest rate and foreign exchange risk and
the investment portfolio for the Firm. The corporate staff units include
Central Technology and Operations, Internal Audit, Executive Office, Finance,
Human Resources, Marketing & Communications, Legal & Compliance, Corporate
Real Estate and General Services, Risk Management, Corporate Responsibility
and Strategy & Development. Other centrally managed expense includes the
Firms occupancy and pension-related expense, net of allocations to the
business.
Selected income statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions(a)(b) |
|
$ |
1,574 |
|
|
$ |
(3,588 |
) |
|
$ |
4,552 |
|
Securities gains/(losses)(c) |
|
|
1,139 |
|
|
|
1,637 |
|
|
|
39 |
|
All other income(d) |
|
|
58 |
|
|
|
1,673 |
|
|
|
465 |
|
|
Noninterest revenue |
|
|
2,771 |
|
|
|
(278 |
) |
|
|
5,056 |
|
Net interest income/(expense) |
|
|
3,863 |
|
|
|
347 |
|
|
|
(637 |
) |
|
Total net revenue |
|
|
6,634 |
|
|
|
69 |
|
|
|
4,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
80 |
|
|
|
447 |
(i)(j) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
accounting conformity(e) |
|
|
|
|
|
|
1,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,811 |
|
|
|
2,340 |
|
|
|
2,754 |
|
Noncompensation expense(f) |
|
|
3,597 |
|
|
|
1,841 |
|
|
|
3,025 |
|
Merger costs |
|
|
481 |
|
|
|
432 |
|
|
|
209 |
|
|
Subtotal |
|
|
6,889 |
|
|
|
4,613 |
|
|
|
5,988 |
|
Net expense allocated to other businesses |
|
|
(4,994 |
) |
|
|
(4,641 |
) |
|
|
(4,231 |
) |
|
Total noninterest expense |
|
|
1,895 |
|
|
|
(28 |
) |
|
|
1,757 |
|
|
Income/(loss) before income
tax expense/(benefit) and extraordinary gain |
|
|
4,659 |
|
|
|
(1,884 |
) |
|
|
2,673 |
|
Income tax expense/(benefit)(g) |
|
|
1,705 |
|
|
|
(535 |
) |
|
|
788 |
|
|
Income/(loss) before
extraordinary gain |
|
|
2,954 |
|
|
|
(1,349 |
) |
|
|
1,885 |
|
Extraordinary gain(h) |
|
|
76 |
|
|
|
1,906 |
|
|
|
|
|
|
Net income |
|
$ |
3,030 |
|
|
$ |
557 |
|
|
$ |
1,885 |
|
|
|
|
|
(a) |
|
Included losses on preferred equity interests in Fannie Mae and Freddie Mac in 2008. |
(b) |
|
The Firm adopted the new guidance for fair value in the first quarter of 2007. See Note 3 on
pages 148165 of this Annual Report for additional information. |
(c) |
|
Included gain on sale of MasterCard shares in 2008. |
(d) |
|
Included a gain from the dissolution of the Chase Paymentech Solutions joint venture and
proceeds from the sale of Visa shares in its initial public offering in 2008. |
(e) |
|
Represents an accounting conformity loan loss reserve provision related to the acquisition of
Washington Mutual Banks banking operations. |
(f) |
|
Included $675 million FDIC special assessment during second quarter of 2009 and a release of
credit card litigation reserves in 2008 and insurance recoveries related to settlement of the
Enron and WorldCom class action litigations. |
(g) |
|
Includes tax benefits recognized upon resolution of tax audits. |
(h) |
|
Effective September 25, 2008, JPMorgan Chase acquired Washington Mutuals banking operations
from the FDIC for $1.9 billion. The fair value of the Washington Mutual net assets acquired
exceeded the purchase price, which resulted in negative goodwill. In accordance with U.S. GAAP
for business combinations, 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 in 2008. As a result of the final
refinement of the purchase price allocation during the third quarter of 2009, the Firm
recognized a $76 million increase in the extraordinary gain |
(i) |
|
In November 2008, the Firm transferred $5.8 billion of higher quality credit card loans from
the legacy Chase portfolio to a securitization trust previously established by Washington
Mutual (the Trust). As a result of converting higher credit quality Chase-originated on-book
receivables to the Trusts sellers interest which has a higher overall loss rate reflective
of the total assets within the Trust, approximately $400 million of incremental provision
expense was recorded during the fourth quarter. |
|
|
|
|
|
This incremental provision expense was
recorded in the Corporate segment as the action related to the acquisition of Washington
Mutuals banking operations. For further discussion of credit card securitizations, see Note
15 on pages 198205 of this Annual Report. |
(j) |
|
Includes $9 million of credit card securitizations related to the Washington Mutual
transaction. |
2009 compared with 2008
Net income was $3.0 billion compared with $557 million in the prior year.
Net loss for Private Equity was $78 million compared with a net loss of $690 million in the prior
year. Net revenue was $18 million, an increase of $981 million, reflecting Private Equity losses of
$54 million compared with losses of $894 million. Noninterest expense was $141 million, an increase
of $21 million.
Net income for Corporate was $3.7 billion, compared with $1.5 billion in the prior year. Current
year results reflect higher levels of trading gains and net interest income, securities gains, an
after-tax gain of $150 million from the sale of MasterCard shares, partially offset by a $419
million FDIC special assessment. Trading gains and net interest income increased due to the Chief Investment Offices (CIO)
significant purchases of mortgage-backed securities guaranteed by U.S. government agencies,
corporate debt securities, U.S. Treasury and government agency securities and other asset-backed
securities. These investments were generally associated with the management of interest rate risk
and investment of cash resulting from the excess funding the Firm continued to experience during
2009. The increase in securities was partially offset by sales of higher-coupon instruments (part
of repositioning the investment portfolio) as well as prepayments and maturities.
Selected income statement and balance sheet data for Treasury/CIO
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains(a) |
|
$ |
1,147 |
|
|
$ |
1,652 |
|
|
$ |
37 |
|
Investment securities portfolio (average)(b) |
|
|
324,037 |
|
|
|
113,010 |
|
|
|
88,037 |
|
Investment securities portfolio (ending)(b) |
|
|
340,163 |
< |