FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2007
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Commission file number 1-5805 |
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
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Delaware
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13-2624428 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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270 Park Avenue, New York, New York
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10017 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes þ No
Number
of shares of common stock outstanding as of October 31, 2007:
3,359,043,795
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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Nine months ended |
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(in millions, except per share, headcount and ratio data) |
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September 30, |
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As of or for the period ended, |
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3Q07 |
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2Q07 |
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1Q07 |
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4Q06 |
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3Q06 |
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2007 |
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2006 |
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Selected income statement data |
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Noninterest revenue(a) |
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$ |
8,786 |
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$ |
12,593 |
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$ |
12,850 |
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$ |
10,501 |
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$ |
10,166 |
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$ |
34,229 |
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$ |
30,256 |
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Net interest income |
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7,326 |
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6,315 |
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6,118 |
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5,692 |
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5,379 |
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19,759 |
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15,550 |
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Total net revenue |
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16,112 |
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18,908 |
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18,968 |
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16,193 |
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15,545 |
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53,988 |
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45,806 |
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Provision for credit losses |
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1,785 |
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1,529 |
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1,008 |
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1,134 |
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812 |
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4,322 |
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2,136 |
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Noninterest expense |
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9,327 |
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11,028 |
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10,628 |
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9,885 |
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9,796 |
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30,983 |
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28,958 |
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Income tax expense |
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1,627 |
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2,117 |
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2,545 |
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1,268 |
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1,705 |
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6,289 |
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4,969 |
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Income from continuing operations |
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3,373 |
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4,234 |
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4,787 |
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3,906 |
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3,232 |
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12,394 |
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9,743 |
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Income from discontinued operations(b) |
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620 |
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65 |
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175 |
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Net income |
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$ |
3,373 |
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$ |
4,234 |
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$ |
4,787 |
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$ |
4,526 |
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$ |
3,297 |
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$ |
12,394 |
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$ |
9,918 |
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Per common share |
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Basic earnings per share: |
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Income from continuing operations |
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$ |
1.00 |
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$ |
1.24 |
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$ |
1.38 |
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$ |
1.13 |
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$ |
0.93 |
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$ |
3.63 |
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$ |
2.81 |
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Net income |
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1.00 |
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1.24 |
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1.38 |
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1.31 |
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0.95 |
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3.63 |
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2.86 |
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Diluted earnings per share: |
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Income from continuing operations |
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$ |
0.97 |
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$ |
1.20 |
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$ |
1.34 |
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$ |
1.09 |
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$ |
0.90 |
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$ |
3.52 |
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$ |
2.73 |
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Net income |
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0.97 |
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1.20 |
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1.34 |
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1.26 |
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0.92 |
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3.52 |
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2.78 |
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Cash dividends declared per share |
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0.38 |
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0.38 |
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0.34 |
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0.34 |
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0.34 |
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1.10 |
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1.02 |
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Book value per share |
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35.72 |
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35.08 |
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34.45 |
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33.45 |
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32.75 |
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Common shares outstanding |
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Average: Basic |
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3,376 |
# |
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3,415 |
# |
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3,456 |
# |
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3,465 |
# |
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3,469 |
# |
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3,416 |
# |
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3,472 |
# |
Diluted |
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3,478 |
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3,522 |
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3,560 |
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3,579 |
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3,574 |
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3,520 |
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3,572 |
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Common shares at period end |
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3,359 |
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3,399 |
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3,416 |
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3,462 |
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3,468 |
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Share price(c) |
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High |
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$ |
50.48 |
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$ |
53.25 |
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$ |
51.95 |
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$ |
49.00 |
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$ |
47.49 |
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$ |
53.25 |
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$ |
47.49 |
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Low |
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42.16 |
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47.70 |
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45.91 |
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45.51 |
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40.40 |
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42.16 |
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37.88 |
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Close |
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45.82 |
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48.45 |
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48.38 |
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48.30 |
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46.96 |
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Market capitalization |
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153,901 |
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164,659 |
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165,280 |
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167,199 |
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162,835 |
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Financial ratios |
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Return on common equity (ROE):(d) |
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Income from continuing operations |
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11 |
% |
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14 |
% |
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17 |
% |
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14 |
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11 |
% |
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14 |
% |
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12 |
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Net income |
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11 |
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14 |
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17 |
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16 |
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12 |
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14 |
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12 |
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Return on assets (ROA):(d) |
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Income from continuing operations |
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0.91 |
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1.19 |
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1.41 |
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1.14 |
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0.98 |
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1.16 |
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1.02 |
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Net income |
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0.91 |
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1.19 |
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1.41 |
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1.32 |
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1.00 |
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1.16 |
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1.02 |
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Overhead ratio |
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58 |
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58 |
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56 |
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61 |
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63 |
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57 |
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63 |
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Tier 1 capital ratio |
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8.4 |
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8.4 |
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8.5 |
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8.7 |
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8.6 |
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Total capital ratio |
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12.5 |
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12.0 |
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11.8 |
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12.3 |
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12.1 |
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Selected balance sheet data (period-end) |
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Total assets |
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$ |
1,479,575 |
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$ |
1,458,042 |
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$ |
1,408,918 |
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$ |
1,351,520 |
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$ |
1,338,029 |
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Loans |
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486,320 |
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465,037 |
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449,765 |
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483,127 |
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463,544 |
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Deposits |
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678,091 |
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651,370 |
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626,428 |
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638,788 |
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582,115 |
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Long-term debt |
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173,696 |
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159,493 |
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143,274 |
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133,421 |
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126,619 |
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Total stockholders equity |
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119,978 |
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119,211 |
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117,704 |
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115,790 |
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113,561 |
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Headcount |
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179,847 |
# |
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179,664 |
# |
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176,314 |
# |
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174,360 |
# |
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171,589 |
# |
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Credit quality metrics |
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Allowance for credit losses |
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$ |
8,971 |
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$ |
8,399 |
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$ |
7,853 |
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$ |
7,803 |
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$ |
7,524 |
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Nonperforming assets(e) |
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3,181 |
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2,586 |
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2,421 |
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2,341 |
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2,300 |
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Allowance for loan losses to total loans(f) |
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1.76 |
% |
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1.71 |
% |
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1.74 |
% |
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1.70 |
% |
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1.65 |
% |
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Net charge-offs |
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$ |
1,221 |
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$ |
985 |
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$ |
903 |
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$ |
930 |
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$ |
790 |
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$ |
3,109 |
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$ |
2,112 |
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Net charge-off rate(d)(f) |
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1.07 |
% |
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0.90 |
% |
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0.85 |
% |
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0.84 |
% |
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0.74 |
% |
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0.94 |
% |
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|
0.69 |
% |
Wholesale net charge-off (recovery) rate(d)(f) |
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0.19 |
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(0.07 |
) |
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(0.02 |
) |
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0.07 |
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(0.03 |
) |
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0.04 |
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(0.04 |
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Managed card net charge-off rate(d) |
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3.64 |
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3.62 |
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3.57 |
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3.45 |
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3.58 |
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3.61 |
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3.29 |
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(a) |
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The Firm adopted SFAS 157
in the first quarter of 2007. See Note 3 on page 73 of this Form 10-Q
for additional information. |
(b) |
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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
reported as discontinued operations for each 2006 period. |
(c) |
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JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London
Stock Exchange Limited and the Tokyo Stock Exchange. The high, low and closing prices of
JPMorgan Chases common stock are from The New York Stock Exchange Composite Transaction Tape. |
(d) |
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Ratios are based upon annualized amounts.
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(e) |
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Excludes purchased wholesale loans held-for-sale. |
(f) |
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End-of-period and average Loans at fair value and loans held-for-sale were excluded when
calculating the allowance coverage ratios and net charge-off rates, respectively. |
3
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides managements discussion and analysis (MD&A) of the
financial condition and results of operations for JPMorgan Chase. See the Glossary of terms on
pages 114116 for definitions of terms used throughout this Form 10-Q. The MD&A included in this
Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations
of JPMorgan Chases management and are subject to significant risks and uncertainties. These risks
and uncertainties could cause JPMorgan Chases 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 119 of this Form 10-Q and the JPMorgan Chase Annual Report
on Form 10-K for the year ended December 31, 2006, as amended (2006 Annual Report or 2006 Form
10-K), Part I, Item 1A: Risk factors to which
reference is hereby made).
INTRODUCTION
JPMorgan Chase & Co. (JPMorgan Chase or the Firm), a financial holding company incorporated
under Delaware law in 1968, is a leading global financial services firm and one of the largest
banking institutions in the United States of America (U.S.), with $1.5 trillion in assets, $120.0
billion in stockholders equity and operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and businesses, financial transaction processing and
asset management. Under the JPMorgan and Chase brands, the Firm serves millions of customers in the
U.S. and many of the worlds most prominent corporate, institutional and government clients.
JPMorgan Chases principal bank subsidiaries are JPMorgan Chase Bank, National Association
(JPMorgan Chase Bank, N.A.), a national banking association with branches in 17 states; 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. 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
JPMorgan 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, and research. The Investment Bank (IB) also
commits the Firms own capital to proprietary investing and trading activities.
Retail Financial Services
Retail Financial Services (RFS), which includes the Regional Banking, Mortgage Banking and Auto
Finance reporting segments, helps meet the financial needs of consumers and businesses. RFS
provides convenient consumer banking through the nations fourth-largest branch network and
third-largest ATM network. RFS is a top-five mortgage originator and servicer, the second-largest
home equity originator, the largest noncaptive originator of automobile loans and one of the
largest student loan originators.
RFS serves customers through 3,096 bank branches, 8,943 ATMs and 280 mortgage offices, and through
relationships with more than 15,000 auto dealerships and 4,300 schools and universities. Over
13,000 branch salespeople assist customers, across a 17-state footprint from New York to Arizona,
with checking and savings accounts, mortgage, home equity and business loans, investments and
insurance. More than 1,200 additional mortgage officers provide home loans throughout the country.
Card Services
With 154 million cards in circulation and $149.1 billion in managed loans, Chase Card Services
(CS) is one of the nations largest credit card issuers. Customers used Chase cards for $259.1
billion worth of transactions in the nine months ended September 30, 2007.
Chase offers a wide variety of general-purpose cards to satisfy the needs of individual consumers,
small businesses and partner organizations, including cards issued with AARP, Amazon, Continental
Airlines, Marriott, Southwest Airlines, Sony, United Airlines, the Walt Disney Company and many
other well-known brands and organizations. Chase also issues private-label cards with Circuit City,
Kohls, Sears Canada and BP.
4
Chase Paymentech Solutions, LLC, a joint venture with JPMorgan Chase and First Data Corporation, is
the largest processor of MasterCard and Visa payments in the world, having handled 14.3 billion
transactions in the nine months ended September 30, 2007.
Commercial Banking
Commercial Banking (CB) serves more than 30,000 clients, including corporations, municipalities,
financial institutions and not-for-profit entities. These clients generally have annual revenue
ranging from $10 million to $2 billion. Commercial bankers serve clients nationally throughout the
RFS footprint and in offices located in other major markets.
Commercial Banking offers its clients industry knowledge, experience, a dedicated service model,
comprehensive solutions and local expertise. The Firms broad platform positions CB to deliver
extensive product capabilities including lending, treasury services, investment banking and
asset management to meet its clients U.S. and international financial needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in providing transaction, investment and
information services to support the needs of institutional clients worldwide. TSS is one of the
largest cash management providers in the world and a leading global custodian. Treasury Services
(TS) provides a variety of cash management products, trade finance and logistics solutions,
wholesale card products, and liquidity management capabilities to small and midsized companies,
multinational corporations, financial institutions and government entities. TS partners with the
Commercial Banking, Retail Financial Services and Asset Management business segments to serve
clients firmwide. As a result, certain TS revenues are included in other segments results.
Worldwide Securities Services (WSS) stores, values, clears and services securities and
alternative investments for investors and broker-dealers; and manages Depositary Receipt programs
globally.
Asset Management
With assets under supervision of $1.5 trillion, Asset Management (AM) 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 both money market instruments and bank deposits. AM also provides trust and estate and
banking services to high-net-worth clients, and retirement services for corporations and
individuals. The majority of AMs client assets are in actively managed portfolios.
OTHER BUSINESS EVENTS
Investment in SLM Corporation
On April 16, 2007, an investor group, comprised of JPMorgan Chase Bank, N.A. and three other
firms (the investor group), announced an Agreement and Plan of Merger (the merger agreement) to
acquire SLM Corporation (Sallie Mae) for $60 per share in
cash. On September 26, 2007, the investor
group advised Sallie Mae that if the conditions to the closing of the merger agreement were
required to be measured at that time, the conditions to closing would not be satisfied because
Sallie Mae had suffered a Material Adverse Effect as defined in the merger agreement. On October 2,
2007, the investor group advised Sallie Mae that it would be willing to revise its offer, and
proposed a revised purchase price for Sallie Mae, composed of $50 in cash and warrants with a
payout of up to an additional $10 per share. That offer was rejected by Sallie Mae and, on October
8, 2007, Sallie Mae filed a lawsuit in Delaware Chancery Court against the investor group. The
lawsuit seeks a declaration that, among other things, the investor group repudiated the merger
agreement, that no Material Adverse Effect has occurred and that Sallie Mae may terminate the
Agreement and collect a $900 million termination fee (the reverse termination fee), of which
JPMorgan Chases portion would be approximately $224 million. On October 15, 2007, the investor
group filed an Answer and Counterclaims to Sallie Maes lawsuit. In addition, the investor group
has waived Sallie Maes obligations to comply with certain of its agreements and covenants under
the merger agreement, including Sallie Maes agreements to refrain from negotiating with other
possible buyers, and has waived its right to receive the reverse termination fee from Sallie Mae in
the event that another buyer acquires Sallie Mae. A trial date has not yet been set.
Headquarters for the Investment Bank in London and New York
On May 3, 2007, JPMorgan Chase announced plans to build a new investment banking headquarters in
London. The building will have more than one million square feet with at least five trading floors
of approximately 70,000 useable square feet each. The Firm is expecting the building to open late
2012. On June 14, 2007, JPMorgan Chase announced it will build a new 1.3 million square-foot global
investment banking headquarters in the World Trade Center complex in New York City. The Firm
expects the building to open by late 2012.
Master Liquidity Enhancement Conduit
On October 15, 2007, JPMorgan Chase and several other financial institutions announced an agreement
in principle to create a master liquidity enhancement conduit (M-LEC) and provide
liquidity support for it in order to enhance liquidity in the market for asset-backed commercial
paper and medium-term notes issued by structured investment vehicles. The financial institutions
are working toward the finalization of the various terms.
5
EXECUTIVE OVERVIEW
This overview of managements discussion and analysis highlights selected information and may not
contain all of the information that is important to readers of this Form 10-Q. For a more complete
understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and
market risks, and the critical accounting estimates, affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except per share and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected income statement data |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
16,112 |
|
|
$ |
15,545 |
|
|
|
4 |
% |
|
$ |
53,988 |
|
|
$ |
45,806 |
|
|
|
18 |
% |
Provision for credit losses |
|
|
1,785 |
|
|
|
812 |
|
|
|
120 |
|
|
|
4,322 |
|
|
|
2,136 |
|
|
|
102 |
|
Total noninterest expense |
|
|
9,327 |
|
|
|
9,796 |
|
|
|
(5 |
) |
|
|
30,983 |
|
|
|
28,958 |
|
|
|
7 |
|
Income from continuing operations |
|
|
3,373 |
|
|
|
3,232 |
|
|
|
4 |
|
|
|
12,394 |
|
|
|
9,743 |
|
|
|
27 |
|
Income from discontinued operations |
|
|
|
|
|
|
65 |
|
|
NM |
|
|
|
|
|
|
|
175 |
|
|
NM |
|
Net income |
|
|
3,373 |
|
|
|
3,297 |
|
|
|
2 |
|
|
|
12,394 |
|
|
|
9,918 |
|
|
|
25 |
|
|
|
|
|
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|
Diluted earnings per share |
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.97 |
|
|
$ |
0.90 |
|
|
|
8 |
% |
|
$ |
3.52 |
|
|
$ |
2.73 |
|
|
|
29 |
% |
Net income |
|
|
0.97 |
|
|
|
0.92 |
|
|
|
5 |
|
|
|
3.52 |
|
|
|
2.78 |
|
|
|
27 |
|
Return on common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
14 |
% |
|
|
12 |
% |
|
|
|
|
Net income |
|
|
11 |
|
|
|
12 |
|
|
|
|
|
|
|
14 |
|
|
|
12 |
|
|
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|
Business overview
The Firm reported 2007 third-quarter Net income of $3.4 billion, or $0.97 per share, compared with
Net income of $3.3 billion, or $0.92 per share, for the third quarter of 2006. Return on common
equity for the quarter was 11% compared with 12% in the prior year.
Net income for the first nine months of 2007 was $12.4 billion, or $3.52 per share, compared with
$9.9 billion, or $2.78 per share, in the prior year. Return on common equity was 14% for the first
nine months of 2007, compared with 12% for the prior-year period.
In the first quarter of 2007, the Firm adopted SFAS 157 (Fair Value Measurements) and SFAS 159
(Fair Value Option). For a discussion of SFAS 157 and SFAS 159, see Note 3 on pages 7380 and
Note 4 on pages 8083 of this Form 10-Q.
The rate of growth in the global economy slowed in the third quarter, but still expanded by
approximately 4% annually, while inflation broadly remained well-contained. The industrial
economies continued to grow by approximately 2% annually (with the U.S. economy growing at 3.9%).
The developing economies continued to grow, although at a slightly
slower rate than their recent level of 8%
annual growth. Global financial markets were mixed during the quarter, and capital markets
activity declined from the historically high levels of the first six
months of 2007, as concerns
about losses on U.S. subprime mortgage investments triggered a flight to quality in the capital
markets and credit markets experienced spread widening and lower
levels of liquidity. In spite of these challenges, both U.S. and
international equity markets posted gains during the quarter: the S&P 500 and international indices
were up, on average, approximately 1% and 5%, respectively. The U.S.
Treasury market rallied, with rates dropping approximately 100 basis
points during the quarter. In September of 2007, the Federal Reserve Board
lowered the federal funds rate from 5.25%
to 4.75% in an effort to help offset the adverse effects of the market
disruption.
The
Firms performance benefited from investments in all of its
businesses, which has driven organic revenue growth and improved operating margins over time. These
benefits were tempered by the capital markets environment, which experienced significantly wider
spreads and reduced levels of liquidity in the mortgage and corporate credit markets, resulting in
lower earnings in the Investment Bank. In addition, continued weakness in the housing markets led
to an increased Provision for credit losses and, as a result, lower earnings in Retail Financial
Services. The Firms other businesses each posted improved
results versus the prior year with Asset Management and Treasury
& Securities Services reporting record earnings; Card Services
and Commercial Banking growing earnings at a double-digit pace; and
Private Equity realizing strong results.
The discussion that follows highlights the current-quarter performance of each business segment
compared with the prior-year quarter and discusses results on a managed basis unless otherwise
noted. For more information about managed basis, see Explanation and reconciliation of the Firms
use of non-GAAP financial measures on pages 1316 of this Form 10-Q .
Investment Bank net income decreased from the prior year, driven by lower net revenue as well as a
higher Provision for credit losses, partially offset by lower noninterest expense. Investment
banking fees decreased, reflecting lower debt underwriting fees offset partially by record advisory
fees. Fixed Income Markets revenue declined due to markdowns on leveraged lending funded loans and
unfunded commitments and markdowns on collateralized debt obligation (CDO)
6
warehouses and unsold positions. In addition, Fixed Income Markets declined due to weak
credit-trading performance and significantly lower commodities results, compared with a strong
prior-year quarter. These lower results in Fixed Income Markets were offset partially by record
revenue in both rates and currencies. Equity Markets revenue decreased from the prior year, as
weaker trading results were offset partially by strong client revenue across businesses. The
Provision for credit losses was up, driven by an increase in the allowance for credit losses,
primarily related to portfolio growth. The decrease in noninterest expense was due primarily to
lower performance-based compensation expense.
Retail Financial Services net income decreased from the prior year due to lower results in Regional
Banking, primarily related to an increase in the Provision for credit losses. Total net revenue
increased due primarily to the absence of a prior-year negative valuation adjustment to the
mortgage servicing right (MSR) asset, the Bank of New York transaction and higher deposit-related
fees. Total net revenue also benefited from the classification of certain mortgage loan origination
costs as expense, due to the adoption of SFAS 159, and wider spreads on loans. These benefits were
offset partially by markdowns on the mortgage warehouse and pipeline and a continued shift to
narrowerspread deposit products. The increase in the Provision for credit losses was due
primarily to an increase in the allowance for credit losses related to the home equity portfolio.
Total noninterest expense increased due to the Bank of New York transaction; the classification of
certain loan origination costs as expense, due to the adoption of SFAS 159; and investments in the
retail distribution network.
Card Services net income increased from the prior year, benefiting from higher revenue, partially
offset by an increase in the Provision for credit losses. Total net revenue increased, reflecting a
higher level of fees, higher average loan balances and increased net interchange income. These
benefits were offset partially by the discontinuation of certain billing practices (including the
elimination of certain over-limit fees and the two-cycle billing method for calculating finance
charges) and a narrower loan spread. The Managed provision for credit losses increased, reflecting
a higher level of net charge-offs. Credit quality was stable in the quarter. Total noninterest
expense was up slightly, primarily due to higher volume-related expense.
Commercial Banking grew net income over the prior-year period, as an increase in Total net revenue
and a decrease in Total noninterest expense were offset partially by a higher Provision for credit
losses. Total net revenue increased due to double-digit growth in liability and loan balances,
reflecting organic growth and the Bank of New York transaction. These increases were offset
partially by a continued shift to narrower-spread liability products and spread compression in the
loan and liability portfolios. The increase in Provision for credit losses largely reflected
portfolio activity and growth in loan balances. Total noninterest expense decreased, as lower
performance-based compensation expense was offset partially by higher volume-related expense.
Treasury & Securities Services achieved record net income, driven by record Total net revenue,
partially offset by higher noninterest expense. Total net revenue growth was driven by increased
product usage by new and existing clients, market appreciation, growth in electronic volumes and
higher liability balances. These benefits were offset partially by spread compression and a
continued shift to narrower-spread liability products. Total noninterest expense increased, due
primarily to higher expense related to business and volume growth, as well as investment in new
product platforms.
Asset Management generated record net income, reflecting record Total net revenue, partially offset
by higher noninterest expense. Total net revenue benefited largely from increased assets under
management, higher performance and placement fees, increases in deposit and loan balances and wider
deposit spreads. The Provision for credit losses increased, reflecting a higher level of recoveries
in the prior year. Total noninterest expense increased, due largely to higher compensation,
primarily performance-based, and investments in all business segments.
Corporate segment net income increased from the prior year, benefiting from higher Total net
revenue and lower noninterest expense. The increase in Total net revenue was driven primarily by
higher private equity gains, higher trading-related gains and a gain from the sale of MasterCard
shares. Partially offsetting the increased revenue was a narrower net interest spread. Total
noninterest expense decreased due to lower compensation expense and continuing business
efficiencies.
Income from discontinued operations was $65 million in the third quarter of 2006. Discontinued
operations (included in the Corporate segment results) include the income statement activity of
selected corporate trust businesses sold to The Bank of New York.
JPMorgan Chase realized approximately $740 million (pretax) of merger savings during the quarter
ended September 30, 2007, which is an annualized rate of approximately $2.96 billion. Merger costs
of $61 million were expensed during the third quarter of 2007, bringing the total amount expensed
since the merger announcement to $3.7 billion (including capitalized costs). In the third quarter
of 2007, the Firm successfully completed the in-sourcing of its credit card processing platform and
the conversion of the wholesale deposit system. The wholesale deposit conversion was the largest in
the Firms history, involving approximately $180 billion in customer balances, and was the last
significant merger integration event.
7
The Managed provision for credit losses was $2.4 billion, up by $944 million, or 67%, from the
prior year. The wholesale Provision for credit losses was $351 million, compared with $35 million
in the prior year, reflecting an increase in the allowance for credit losses, primarily related to
portfolio growth. Wholesale net charge-offs were $82 million, compared with net recoveries of $11
million, resulting in net charge-off rates of 0.19% and recoveries of 0.03%, respectively. The
total consumer Managed provision for credit losses was $2.0 billion, compared with $1.4 billion in
the prior year, primarily reflecting an increase in the allowance for credit losses related to the
home equity portfolio and growth in the subprime mortgage portfolio. Consumer managed net
charge-offs were $1.7 billion, compared with $1.4 billion, resulting in managed net charge-off
rates of 1.96% and 1.69%, respectively. The Firm had total nonperforming assets of $3.2 billion at
September 30, 2007, up by $881 million, or 38%, from the prior-year level of $2.3 billion.
The Firm had, at September 30, 2007, Total stockholders equity of $120.0 billion and a Tier 1
capital ratio of 8.4%. The Firm purchased $2.1 billion, or 47.0 million shares, of common stock
during the quarter.
Business outlook
The following forward-looking statements are based upon the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases results to differ materially from those set forth in
such forward-looking statements.
JPMorgan Chases outlook for the fourth quarter of 2007 should be viewed against the backdrop of
the global economy, financial markets activity (including interest rate movements), the
geopolitical environment, the competitive environment and client activity levels. Each of these
interlinked factors will affect the performance of the Firms lines of business.
The Investment banking fee pipeline was lower at September 30, 2007, than it was at June 30, 2007,
due largely to a lower level of debt underwriting activity. In light
of current capital
market and economic conditions, management remains cautious with regard to the realization of this
pipeline. Capital market conditions are still being affected by the
disruption in the mortgage market, as well as by overall lower levels
of liquidity and wider credit spreads, all of which could potentially
lead to reduced levels of client activity, difficulty in syndicating
leveraged loans, lower investment banking fees and lower trading revenue.
While there have been some successfully completed leveraged finance
transactions during the fourth quarter of 2007, the Firm continues to
hold a substantial amount of leveraged loans and unfunded commitments
as held-for-sale ($40.6 billion as of September 30, 2007). These
positions are difficult to hedge effectively and further markdowns
could result if market conditions worsen for this asset class. The
Firms CDO and subprime mortgage warehouse and trading positions
could also be negatively affected by market conditions during the
fourth quarter of 2007.
Future economic conditions may also cause the Provision for credit losses to increase over time.
The consumer Provision for credit losses could increase
as a result of a higher level of losses in
Retail Financial Services home equity loan portfolio and growth in the retained subprime mortgage
loan portfolio. Given the potential stress on the consumer from continued downward pressure on
housing prices and the elevated inventory of unsold houses nationally, management remains cautious
with respect to the home equity portfolio. Management currently expects that quarterly losses
related to the home equity portfolio to increase over the next few
quarters, to a range of $250
million to $270 million per quarter, or a net charge-off rate of
1.05% to 1.10%. In addition, the consumer provision could increase
due to a higher level of net charge-offs in Card Services, as losses
continue to return to a more normal level, which could be in the
range of 4.00% to 4.50% of managed loans by the end of 2008.
The wholesale Provision for credit losses may also increase over time
as a result of loan growth, customer activity and changes in
underlying credit conditions. In addition, a weaker overall economy may lead to an increase in both the wholesale and consumer provision for credit losses.
Management
continues to believe that the net loss in Treasury and Other
Corporate on a combined basis will be approximately $50 million to
$100 million per quarter over time; and that private equity results,
which are dependent upon the capital markets, could continue to be
volatile. Firmwide, Total noninterest expense is anticipated to reflect investments in each business, recent
acquisitions and divestitures and other operating efficiencies. Management continues to believe
that annual merger savings will reach approximately $3.0 billion by the end of 2007. Management
currently expects total merger costs (including costs associated with the Bank of New York
transaction) will be approximately $3.8 billion, and that all remaining costs will be incurred by
the end of 2007.
8
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of JPMorgan Chases consolidated results of
operations on a reported basis. Factors that relate primarily to a single business segment are
discussed in more detail within that business segment than they are in this consolidated section.
For a discussion of the Critical accounting estimates used by the Firm that affect the Consolidated
results of operations, see page 66 of this Form 10-Q and pages 8385 of the JPMorgan Chase 2006
Form 10-K.
Total net revenue
The following table presents the components of Total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Investment banking fees |
|
$ |
1,336 |
|
|
$ |
1,416 |
|
|
|
(6 |
)% |
|
$ |
4,973 |
|
|
$ |
3,955 |
|
|
|
26 |
% |
Principal transactions |
|
|
237 |
|
|
|
2,737 |
|
|
|
(91 |
) |
|
|
8,274 |
|
|
|
8,187 |
|
|
|
1 |
|
Lending & deposit-related fees |
|
|
1,026 |
|
|
|
867 |
|
|
|
18 |
|
|
|
2,872 |
|
|
|
2,573 |
|
|
|
12 |
|
Asset management, administration and commissions |
|
|
3,663 |
|
|
|
2,842 |
|
|
|
29 |
|
|
|
10,460 |
|
|
|
8,682 |
|
|
|
20 |
|
Securities gains (losses) |
|
|
237 |
|
|
|
40 |
|
|
|
493 |
|
|
|
16 |
|
|
|
(578 |
) |
|
NM |
|
Mortgage fees and related income |
|
|
221 |
|
|
|
62 |
|
|
|
256 |
|
|
|
1,220 |
|
|
|
516 |
|
|
|
136 |
|
Credit card income |
|
|
1,777 |
|
|
|
1,567 |
|
|
|
13 |
|
|
|
5,054 |
|
|
|
5,268 |
|
|
|
(4 |
) |
Other income |
|
|
289 |
|
|
|
635 |
|
|
|
(54 |
) |
|
|
1,360 |
|
|
|
1,653 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
8,786 |
|
|
|
10,166 |
|
|
|
(14 |
) |
|
|
34,229 |
|
|
|
30,256 |
|
|
|
13 |
|
Net interest income |
|
|
7,326 |
|
|
|
5,379 |
|
|
|
36 |
|
|
|
19,759 |
|
|
|
15,550 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
16,112 |
|
|
$ |
15,545 |
|
|
|
4 |
|
|
$ |
53,988 |
|
|
$ |
45,806 |
|
|
|
18 |
|
|
Total net revenue for the third quarter of 2007 was $16.1 billion, up by $567 million, or 4%,
from the prior year. This increase was the result of higher Net interest income; record Asset
management, administration and commissions revenue; strong private equity gains (included in
Principal transactions revenue); and higher Credit card income. These improvements were partly
offset by a significant decline in trading revenue within Principal transactions revenue,
reflecting markdowns on leveraged lending funded loans and unfunded commitments and lower fixed
income trading results. For the first nine months of 2007, Total net revenue was $54.0 billion, up
by $8.2 billion, or 18%, from the prior year. The increase was driven by higher Net interest
income; very strong private equity gains; record Asset management, administration and commissions
revenue; and record Investment banking fees. Lower trading revenue in the 2007 third quarter
partially offset these increases.
Investment banking fees in the third quarter of 2007 declined slightly from the comparable period
last year, reflecting lower debt underwriting fees offset partially by record advisory fees. In the
first nine months of 2007, Investment banking fees were a record for the Firm, reflecting record
fees for advisory and debt and equity underwriting. For a further discussion of Investment banking
fees, which are primarily recorded in IB, see the IB segment results on pages 1720 of this Form
10-Q.
Principal transactions revenue consists of trading revenue and private equity gains. In the third
quarter of 2007, the Firm recognized a net loss of $548 million from trading activities primarily
reflecting markdowns of $1.3 billion (net of fees) on $40.6 billion of leveraged lending funded
loans and unfunded commitments, as well as markdowns of $339 million (net of risk management
results) on $6.8 billion of CDO warehouses and unsold positions. For the first nine months of 2007,
trading revenue was lower by $2.4 billion compared with the same period last year, primarily
reflecting markdowns of $1.4 billion (net of fees) on leveraged lending funded loans and unfunded
commitments, as well as markdowns of $358 million (net of risk management results) on CDO
warehouses and unsold positions. In addition, trading revenue was also impacted by weak credit
trading and significantly lower commodities results, compared with a strong prior year, partially
offset by record revenue in rates and currencies, and strong equity trading results across all
products. IBs Credit Portfolio results increased from the third quarter of 2006 due to higher
trading revenue from risk management activities; in addition, for the first nine months of 2007,
IBs Credit Portfolio benefited from an adjustment to the valuation of the Firms derivative
liabilities measured at fair value, to reflect the credit quality of the Firm as part of the
adoption of SFAS 157. Private equity gains in the third quarter and first nine months of 2007
increased compared with the same periods in 2006, reflecting a higher level of gains and the
classification of certain private equity carried interest as Compensation expense. Also favorably
affecting the first nine months of 2007 was a fair value adjustment in the first quarter of 2007 on
nonpublic private equity investments resulting from the adoption of SFAS 157. For a further
discussion of Principal transactions revenue, see the IB and Corporate segment results on pages
1720 and 4041, respectively, and Note 5 on pages 8385 of this Form 10-Q.
9
Lending & deposit-related fees rose from the third quarter and first nine months of 2006 as a
result of higher deposit-related fees and the Bank of New York transaction. For a further
discussion of Lending & deposit-related fees, which are partly recorded in RFS and CB, see the RFS
segment results on pages 2128 and the CB segment results on pages 3334 of this Form 10-Q.
Asset management, administration and commissions revenue reached record levels in the third quarter
and first nine months of 2007, primarily due to an increase in assets under management and higher
performance and placement fees in AM. The growth in assets under management, which reached $1.2
trillion at the end of the third quarter of 2007, up 24% from the prior year, was the result of net
asset inflows into the Institutional, Retail and Private Bank segments and market appreciation.
Also contributing to the rise in Asset management, administration and commissions revenue were
higher assets under custody in TSS, driven by new business and market appreciation. In addition,
other service fees were higher due to a combination of new clients and increased product usage by
existing clients. In addition, commissions revenue increased due to higher brokerage transaction
volume (primarily included within Fixed Income and Equity Markets revenue of IB) and higher
investment sales volume in RFS; these were partly offset by the sale of the insurance business in
the third quarter of 2006, and a charge in the first quarter of 2007 resulting from accelerated
surrenders of customer annuities. For additional information on these fees and commissions, see the
segment discussions for IB on pages 1720, RFS on pages 2128, TSS on pages 3536, and AM on
pages 3739, of this Form 10-Q.
The favorable variances in Securities gains (losses) for the third quarter and first nine months of
2007 when compared with the same periods in 2006 were primarily the result of a $115 million gain
from the sale of MasterCard shares; higher gains from marketable securities received from loan
workouts in IB; and improvements in the results of Treasurys portfolio-repositioning activities.
For a further discussion of Securities gains (losses), which are mostly recorded in the Firms
Treasury business, see the Corporate segment discussion on pages 4041 of this Form 10-Q.
Mortgage fees and related income increased from the third quarter and first nine months of 2006.
Net mortgage servicing improved due primarily to the absence of a prior-year negative valuation
adjustment of $235 million to the MSR asset and growth in third-party loans serviced. In the quarter-to-quarter
comparison, production revenue declined as markdowns of $186 million on the mortgage warehouse and
pipeline were offset partially by an increase in mortgage loan originations and the classification
of certain loan origination costs as expense (loan origination costs previously netted against
revenue commenced being recorded as an expense in the first quarter of 2007 due to the adoption of
SFAS 159). For the first nine months of 2007, production revenue was up from the same period in
2006 as a result of increased mortgage loan originations, and the classification of certain loan
origination costs as expense (loan origination costs previously netted against revenue are
currently recorded as expense due to the adoption of SFAS 159). These increases were offset
partially by markdowns of $186 million on the mortgage warehouse and pipeline. Mortgage fees and
related income exclude the impact of NII and AFS securities gains and losses related to mortgage
activities. For a discussion of Mortgage fees and related income, which is recorded primarily in
RFSs Mortgage Banking business, see the Mortgage Banking discussion on pages 2627 of this Form
10-Q.
Credit card income rose from the third quarter of 2006 due primarily to an increase in net
interchange income, which benefited from higher charge volume; and an increase in servicing fees
earned in connection with securitization activities, which were favorably affected by higher net
interest income earned on the securitized credit card loans. For the first nine months of 2007,
Credit card income decreased due primarily to lower servicing fees earned in connection with
securitization activities, which were affected unfavorably by lower net interest income earned and
higher net credit losses incurred on the securitized credit card loans. These were partially offset
by an increase in net interchange income and a higher level of fee-based revenue. For further
discussion of Credit card income, see CSs segment results on pages 2932 of this Form 10-Q.
Other
income declined from the third quarter and first nine months of 2006.
The decrease from the first nine months of 2006 was driven by the
absence of a $103 million gain in the second quarter of 2006,
related to the sale of MasterCard shares in its initial public
offering; and lower net gains on credit card securitizations. These
were offset partially by higher gains on the sale of leveraged leases
and education loans, increased income from automobile operating leases, and
the absence of a loss related to auto loans transferred to the
held-for-sale portfolio in the first quarter of 2006.
Net
interest income rose from the third quarter of 2006, primarily from
the following: higher trading-related Net interest income, due to a
shift of Interest expense to Principal transactions revenue (related
to certain IB structured notes to which fair value accounting was
elected in connection with the adoption of SFAS 159); a higher level
of credit card loans and fees; growth in liability and deposit
balances, primarily in the wholesale businesses; and the impact of
the Bank of New York transaction. These increases were offset
partially by compression in Treasurys net interest spread and a
shift to narrower spread liability and deposit products. Net interest
income in the first nine months of 2007 rose from the same period of
last year, driven by the aforementioned items, with the exception of
an improvement in Treasurys net interest spread. These were
offset partially by narrower spreads on credit card loans. The
Firms total average interest-earning assets for the third
quarter of 2007 were $1.1 trillion, up 15% from the third
quarter of 2006. The increase was primarily a result of higher
Trading assets debt instruments, Available for sale
securities, and Loans. The net interest yield on these
10
assets,
on a fully-taxable equivalent basis, was 2.57%, an increase of
40 basis points from the prior year, partly reflecting the
adoption of SFAS 159. The Firms total average interest earning
assets for the first nine months of 2007 were $1.1 trillion, up
12% from the first nine months of 2006. The increase was also driven
by the aforementioned items, partially offset by a decline in
Interests in purchased receivables as a result of the restructuring and
deconsolidation during the second quarter of 2006 of certain
multi-seller conduits that the Firm administered. The net interest
yield on these assets, on a fully taxable-equivalent basis, was
2.44%, an increase of 30 basis points from the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Provision for credit losses |
|
$ |
1,785 |
|
|
$ |
812 |
|
|
|
120 |
% |
|
$ |
4,322 |
|
|
$ |
2,136 |
|
|
|
102 |
% |
|
The Provision for credit losses in the third quarter and first nine months of 2007 rose from
the comparable prior-year periods. The increase from the third quarter of 2006 in the consumer
Provision for credit losses was due to a net $306 million increase in the Allowance for loan losses
due to higher estimated losses for home equity loans. The increase from the first nine months of
2006 in the consumer provision was due to: a net increase of $635 million in the Allowance for loan
losses resulting from higher estimated losses for home equity loans; an increase in subprime
mortgage loan balances; and an increase in credit card net charge-offs. Credit card net charge-offs
for the nine months ended September 30, 2006 benefited following the change in bankruptcy
legislation in the fourth quarter of 2005. The increase in the wholesale provision from the third
quarter of 2006 reflected an increase in the Allowance for credit losses, primarily related to
portfolio growth. The increase in the wholesale provision from the
first nine months of 2006 primarily
reflected an increase in the allowance due to portfolio activity and growth. For a
more detailed discussion of the loan portfolio and the Allowance for loan losses, see the segment
discussions for RFS on pages 2128, CS on pages 2932, and IB on pages 1720, and Credit risk
management on pages 5162 of this Form 10-Q.
Noninterest expense
The following table presents the components of Noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Compensation expense |
|
$ |
4,677 |
|
|
$ |
5,390 |
|
|
|
(13 |
)% |
|
$ |
17,220 |
|
|
$ |
16,206 |
|
|
|
6 |
% |
Occupancy expense |
|
|
657 |
|
|
|
563 |
|
|
|
17 |
|
|
|
1,949 |
|
|
|
1,710 |
|
|
|
14 |
|
Technology, communications and equipment expense |
|
|
950 |
|
|
|
911 |
|
|
|
4 |
|
|
|
2,793 |
|
|
|
2,656 |
|
|
|
5 |
|
Professional & outside services |
|
|
1,260 |
|
|
|
1,111 |
|
|
|
13 |
|
|
|
3,719 |
|
|
|
3,204 |
|
|
|
16 |
|
Marketing |
|
|
561 |
|
|
|
550 |
|
|
|
2 |
|
|
|
1,500 |
|
|
|
1,595 |
|
|
|
(6 |
) |
Other expense |
|
|
812 |
|
|
|
877 |
|
|
|
(7 |
) |
|
|
2,560 |
|
|
|
2,324 |
|
|
|
10 |
|
Amortization of intangibles |
|
|
349 |
|
|
|
346 |
|
|
|
1 |
|
|
|
1,055 |
|
|
|
1,058 |
|
|
|
|
|
Merger costs |
|
|
61 |
|
|
|
48 |
|
|
|
27 |
|
|
|
187 |
|
|
|
205 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
9,327 |
|
|
$ |
9,796 |
|
|
|
(5 |
) |
|
$ |
30,983 |
|
|
$ |
28,958 |
|
|
|
7 |
|
|
Total noninterest expense for the third quarter of 2007 was $9.3 billion, down by $469
million, or 5%, from the prior year. Expense decreased due to lower Compensation expense, primarily
incentive-based, partially offset by investments across the business segments and acquisitions. For
the first nine months of 2007, Total noninterest expense was $31.0 billion, up by $2.0 billion, or
7%, from the prior year, driven by higher Compensation expense, primarily incentive-based, as well
as investments across the business segments and acquisitions.
The decrease in Compensation expense from the third quarter of 2006 was primarily the result of
lower performance-based incentives, business divestitures and continuing business efficiencies.
These declines were offset partially by additional headcount from the Bank of New York transaction,
acquisitions and investments in the businesses; the classification of certain private equity
carried interest from Principal transactions revenue; and the classification of certain loan
origination costs (previously netted against revenue) due to the adoption of SFAS 159. Compensation
expense for the first nine months of 2007 increased from the prior-year period, reflecting the
aforementioned items, with the exception of performance-based incentives, which were higher in the
current year period. These increases were offset partially by the absence of a prior-year expense
of $459 million from the adoption of SFAS 123R. For a detailed discussion of the adoption of SFAS
123R see Note 9 on page 88 of this Form 10-Q.
The increases in Occupancy expense from the third quarter and first nine months of 2006 were driven
by ongoing investments in the businesses; in particular, the retail distribution network, which
includes the incremental expense from The Bank of New York branches. Partially offsetting the
increase in Occupancy expense was continuing business efficiencies.
11
The increases in Technology, communications and equipment expense, when compared with the third
quarter and first nine months of 2006, were due primarily to higher depreciation expense on owned
automobiles subject to operating leases, and technology investments to support business growth.
These increases were offset partially by continuing business efficiencies.
Professional & outside services rose from the third quarter and first nine months of 2006,
reflecting higher brokerage expense and credit card processing costs resulting from growth in
transaction volume. Also contributing to the increases were acquisitions and investments in the
businesses.
Marketing expense was relatively flat compared with the third quarter of 2006. The decrease from
the first nine months of 2006 was due to a reduction in credit card marketing expense.
Other expense decreased from the third quarter of 2006 due to a higher level of legal-related
recoveries and lower legal expense, offset partially by business growth and investments in the
businesses. For the nine-month period comparison, Other expense was higher due to increased net
legal-related costs reflecting a lower level of recoveries and higher expense. Also contributing to
the increase were business growth and investments in the businesses offset partially by the sale of
the insurance business at the beginning of the third quarter of 2006, lower credit card
fraud-related losses and continuing business efficiencies.
For a discussion of Amortization of intangibles and Merger costs, refer to Note 17 and Note 10 on
pages 101103 and 89, respectively, of this Form 10-Q.
Income tax expense
The Firms Income from continuing operations before income tax expense, Income tax expense and
effective tax rate were as follows for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except rate) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Income from continuing operations before income tax expense |
|
$ |
5,000 |
|
|
$ |
4,937 |
|
|
$ |
18,683 |
|
|
$ |
14,712 |
|
Income tax expense |
|
|
1,627 |
|
|
|
1,705 |
|
|
|
6,289 |
|
|
|
4,969 |
|
Effective tax rate |
|
|
32.5 |
% |
|
|
34.5 |
% |
|
|
33.7 |
% |
|
|
33.8 |
% |
|
The effective tax rate decrease for the third quarter of 2007 compared with the prior year
third quarter was primarily attributable to a favorable resolution of a tax audit.
Income from discontinued operations
Income from discontinued operations was zero in all periods of 2007 compared with $65 million and
$175 million in the third quarter and first nine months of 2006, respectively. Discontinued
operations (included in the Corporate segment results) include the income statement activity of
selected corporate trust businesses that were sold to The Bank of New York on October 1, 2006.
12
EXPLANATION AND RECONCILIATION OF THE FIRMS USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated financial statements using accounting principles generally
accepted in the United States of America (U.S. GAAP); these financial statements appear on pages
6871 of this Form 10-Q. That presentation, which is referred to as reported basis, provides the
reader with an understanding of the Firms results that can be tracked consistently from year to
year and enables a comparison of the Firms performance with other companies U.S. GAAP financial
statements.
In addition to analyzing the Firms results on a reported basis, management reviews the Firms and
the line-of-business results on a managed basis, which is a non-GAAP financial measure. The
Firms definition of managed basis starts with the reported U.S. GAAP results and includes certain
reclassifications that assume credit card loans securitized by CS remain on the balance sheet and
present revenue on a fully taxable-equivalent (FTE) basis. These adjustments do not have any
impact on Net income as reported by the lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with SFAS 140 still remain on the balance sheet and that the
earnings on the securitized loans are classified in the same manner as the earnings on retained
loans recorded on the balance sheet. 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 upon managed financial information. In addition, the same underwriting
standards and ongoing risk monitoring are used for both loans on the balance sheet 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 balance sheet. 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 balance sheet and the Firms retained interests in securitized loans. For a
reconciliation of reported to managed basis of CS results, see Card Services segment results on
pages 2932 of this Form 10-Q. For information regarding the securitization process, and loans and
residual interests sold and securitized, see Note 15 on pages 9499 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on an FTE basis.
Accordingly, revenue from tax-exempt securities and investments that receive tax credits is
presented in the managed results on a basis comparable to taxable securities and investments. This
non-GAAP financial measure allows management to assess the comparability of revenues arising from
both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within Income tax expense.
Management also uses certain non-GAAP financial measures at the segment level, because it believes
these 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.
13
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2007 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(b) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,336 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,336 |
|
Principal transactions |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
Lending & deposit-related fees |
|
|
1,026 |
|
|
|
|
|
|
|
|
|
|
|
1,026 |
|
Asset management, administration and commissions |
|
|
3,663 |
|
|
|
|
|
|
|
|
|
|
|
3,663 |
|
Securities gains |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
Mortgage fees and related income |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
221 |
|
Credit card income |
|
|
1,777 |
|
|
|
(836 |
) |
|
|
|
|
|
|
941 |
|
Other income |
|
|
289 |
|
|
|
|
|
|
|
192 |
|
|
|
481 |
|
|
Noninterest revenue |
|
|
8,786 |
|
|
|
(836 |
) |
|
|
192 |
|
|
|
8,142 |
|
Net interest income |
|
|
7,326 |
|
|
|
1,414 |
|
|
|
95 |
|
|
|
8,835 |
|
|
Total net revenue |
|
|
16,112 |
|
|
|
578 |
|
|
|
287 |
|
|
|
16,977 |
|
Provision for credit losses |
|
|
1,785 |
|
|
|
578 |
|
|
|
|
|
|
|
2,363 |
|
Noninterest expense |
|
|
9,327 |
|
|
|
|
|
|
|
|
|
|
|
9,327 |
|
|
Income from continuing operations before income tax expense |
|
|
5,000 |
|
|
|
|
|
|
|
287 |
|
|
|
5,287 |
|
Income tax expense |
|
|
1,627 |
|
|
|
|
|
|
|
287 |
|
|
|
1,914 |
|
|
Income from continuing operations |
|
|
3,373 |
|
|
|
|
|
|
|
|
|
|
|
3,373 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,373 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,373 |
|
|
Net income diluted earnings per share |
|
$ |
0.97 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.97 |
|
|
Return on common equity(a) |
|
|
11 |
% |
|
|
|
% |
|
|
|
% |
|
|
11 |
% |
Return on equity less goodwill(a) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Return on assets(a) |
|
|
0.91 |
|
|
NM |
|
|
NM |
|
|
|
0.87 |
|
Overhead ratio |
|
|
58 |
|
|
NM |
|
|
NM |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2006 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(b) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,416 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,416 |
|
Principal transactions |
|
|
2,737 |
|
|
|
|
|
|
|
|
|
|
|
2,737 |
|
Lending & deposit-related fees |
|
|
867 |
|
|
|
|
|
|
|
|
|
|
|
867 |
|
Asset management, administration and commissions |
|
|
2,842 |
|
|
|
|
|
|
|
|
|
|
|
2,842 |
|
Securities gains |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Mortgage fees and related income |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Credit card income |
|
|
1,567 |
|
|
|
(721 |
) |
|
|
|
|
|
|
846 |
|
Other income |
|
|
635 |
|
|
|
|
|
|
|
165 |
|
|
|
800 |
|
|
Noninterest revenue |
|
|
10,166 |
|
|
|
(721 |
) |
|
|
165 |
|
|
|
9,610 |
|
Net interest income |
|
|
5,379 |
|
|
|
1,328 |
|
|
|
57 |
|
|
|
6,764 |
|
|
Total net revenue |
|
|
15,545 |
|
|
|
607 |
|
|
|
222 |
|
|
|
16,374 |
|
Provision for credit losses |
|
|
812 |
|
|
|
607 |
|
|
|
|
|
|
|
1,419 |
|
Noninterest expense |
|
|
9,796 |
|
|
|
|
|
|
|
|
|
|
|
9,796 |
|
|
Income from continuing operations before income tax expense |
|
|
4,937 |
|
|
|
|
|
|
|
222 |
|
|
|
5,159 |
|
Income tax expense |
|
|
1,705 |
|
|
|
|
|
|
|
222 |
|
|
|
1,927 |
|
|
Income from continuing operations |
|
|
3,232 |
|
|
|
|
|
|
|
|
|
|
|
3,232 |
|
Income from discontinued operations |
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
Net income |
|
$ |
3,297 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,297 |
|
|
Net income diluted earnings per share |
|
$ |
0.92 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.92 |
|
|
Return on common equity(a) |
|
|
11 |
% |
|
|
|
% |
|
|
|
% |
|
|
11 |
% |
Return on equity less goodwill(a) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Return on assets(a) |
|
|
0.98 |
|
|
NM |
|
|
NM |
|
|
|
0.95 |
|
Overhead ratio |
|
|
63 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2007 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(b) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
4,973 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,973 |
|
Principal transactions |
|
|
8,274 |
|
|
|
|
|
|
|
|
|
|
|
8,274 |
|
Lending & deposit-related fees |
|
|
2,872 |
|
|
|
|
|
|
|
|
|
|
|
2,872 |
|
Asset management, administration and commissions |
|
|
10,460 |
|
|
|
|
|
|
|
|
|
|
|
10,460 |
|
Securities gains |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Mortgage fees and related income |
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
1,220 |
|
Credit card income |
|
|
5,054 |
|
|
|
(2,370 |
) |
|
|
|
|
|
|
2,684 |
|
Other income |
|
|
1,360 |
|
|
|
|
|
|
|
501 |
|
|
|
1,861 |
|
|
Noninterest revenue |
|
|
34,229 |
|
|
|
(2,370 |
) |
|
|
501 |
|
|
|
32,360 |
|
Net interest income |
|
|
19,759 |
|
|
|
4,131 |
|
|
|
287 |
|
|
|
24,177 |
|
|
Total net revenue |
|
|
53,988 |
|
|
|
1,761 |
|
|
|
788 |
|
|
|
56,537 |
|
Provision for credit losses |
|
|
4,322 |
|
|
|
1,761 |
|
|
|
|
|
|
|
6,083 |
|
Noninterest expense |
|
|
30,983 |
|
|
|
|
|
|
|
|
|
|
|
30,983 |
|
|
Income from continuing operations before income tax expense |
|
|
18,683 |
|
|
|
|
|
|
|
788 |
|
|
|
19,471 |
|
Income tax expense |
|
|
6,289 |
|
|
|
|
|
|
|
788 |
|
|
|
7,077 |
|
|
Income from continuing operations |
|
|
12,394 |
|
|
|
|
|
|
|
|
|
|
|
12,394 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,394 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,394 |
|
|
Net income
diluted earnings per share |
|
$ |
3.52 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.52 |
|
|
Return on common equity(a) |
|
|
14 |
% |
|
|
|
% |
|
|
|
% |
|
|
14 |
% |
Return on equity less goodwill(a) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Return on assets(a) |
|
|
1.16 |
|
|
NM |
|
|
NM |
|
|
|
1.11 |
|
Overhead ratio |
|
|
57 |
|
|
NM |
|
|
NM |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2006 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(b) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
3,955 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,955 |
|
Principal transactions |
|
|
8,187 |
|
|
|
|
|
|
|
|
|
|
|
8,187 |
|
Lending & deposit-related fees |
|
|
2,573 |
|
|
|
|
|
|
|
|
|
|
|
2,573 |
|
Asset management, administration and commissions |
|
|
8,682 |
|
|
|
|
|
|
|
|
|
|
|
8,682 |
|
Securities (losses) |
|
|
(578 |
) |
|
|
|
|
|
|
|
|
|
|
(578 |
) |
Mortgage fees and related income |
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
516 |
|
Credit card income |
|
|
5,268 |
|
|
|
(2,783 |
) |
|
|
|
|
|
|
2,485 |
|
Other income |
|
|
1,653 |
|
|
|
|
|
|
|
481 |
|
|
|
2,134 |
|
|
Noninterest revenue |
|
|
30,256 |
|
|
|
(2,783 |
) |
|
|
481 |
|
|
|
27,954 |
|
Net interest income |
|
|
15,550 |
|
|
|
4,400 |
|
|
|
175 |
|
|
|
20,125 |
|
|
Total net revenue |
|
|
45,806 |
|
|
|
1,617 |
|
|
|
656 |
|
|
|
48,079 |
|
Provision for credit losses |
|
|
2,136 |
|
|
|
1,617 |
|
|
|
|
|
|
|
3,753 |
|
Noninterest expense |
|
|
28,958 |
|
|
|
|
|
|
|
|
|
|
|
28,958 |
|
|
Income from continuing operations before income tax expense |
|
|
14,712 |
|
|
|
|
|
|
|
656 |
|
|
|
15,368 |
|
Income tax expense |
|
|
4,969 |
|
|
|
|
|
|
|
656 |
|
|
|
5,625 |
|
|
Income from continuing operations |
|
|
9,743 |
|
|
|
|
|
|
|
|
|
|
|
9,743 |
|
Income from discontinued operations |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
Net income |
|
$ |
9,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,918 |
|
|
Net income
diluted earnings per share |
|
$ |
2.78 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.78 |
|
|
Return on common equity(a) |
|
|
12 |
% |
|
|
|
% |
|
|
|
% |
|
|
12 |
% |
Return on equity less goodwill(a) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Return on assets(a) |
|
|
1.02 |
|
|
NM |
|
|
NM |
|
|
|
0.97 |
|
Overhead ratio |
|
|
63 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
|
|
|
(a) |
|
Based upon Income from continuing operations. |
(b) |
|
Credit card
securitizations affect CS. See pages 2932 of this Form 10-Q for further
information. |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2007 |
|
|
2006 |
|
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Loans period-end |
|
$ |
486,320 |
|
|
$ |
69,643 |
|
|
$ |
555,963 |
|
|
$ |
463,544 |
|
|
$ |
65,245 |
|
|
$ |
528,789 |
|
Total assets
average |
|
|
1,477,334 |
|
|
|
66,100 |
|
|
|
1,543,434 |
|
|
|
1,309,139 |
|
|
|
62,971 |
|
|
|
1,372,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2007 |
|
|
2006 |
|
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Loans period-end |
|
$ |
486,320 |
|
|
$ |
69,643 |
|
|
$ |
555,963 |
|
|
$ |
463,544 |
|
|
$ |
65,245 |
|
|
$ |
528,789 |
|
Total assets
average |
|
|
1,429,772 |
|
|
|
65,715 |
|
|
|
1,495,487 |
|
|
|
1,297,344 |
|
|
|
65,797 |
|
|
|
1,363,141 |
|
|
BUSINESS SEGMENT RESULTS
The Firm is managed on a line-of-business basis. The business-segment financial results
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 segment. The segments
are based upon the products and services provided, or the type of customer served, and they reflect
the manner in which financial information is currently evaluated by management. Results of these
lines of business are presented on a managed basis. For further discussion of Business segment
results, see pages 3435 of JPMorgan Chases 2006 Annual Report.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a
stand-alone business. The management reporting process that derives business segment results
allocates income and expense using market-based methodologies. For a further discussion of those
methodologies, see Business Segment Results Description of business segment reporting
methodology on page 34 of JPMorgan Chases 2006 Annual Report. The Firm continues to assess the
assumptions, methodologies and reporting classifications used for segment reporting, and further
refinements may be implemented in future periods.
Segment Results Managed Basis(a)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
|
September 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Investment Bank |
|
$ |
2,946 |
|
|
$ |
4,816 |
|
|
|
(39 |
)% |
|
$ |
2,378 |
|
|
$ |
3,244 |
|
|
|
(27 |
)% |
|
$ |
296 |
|
|
$ |
976 |
|
|
|
(70 |
)% |
|
|
6 |
% |
|
|
18 |
% |
Retail Financial Services |
|
|
4,201 |
|
|
|
3,555 |
|
|
|
18 |
|
|
|
2,469 |
|
|
|
2,139 |
|
|
|
15 |
|
|
|
639 |
|
|
|
746 |
|
|
|
(14 |
) |
|
|
16 |
|
|
|
21 |
|
Card Services |
|
|
3,867 |
|
|
|
3,646 |
|
|
|
6 |
|
|
|
1,262 |
|
|
|
1,253 |
|
|
|
1 |
|
|
|
786 |
|
|
|
711 |
|
|
|
11 |
|
|
|
22 |
|
|
|
20 |
|
Commercial Banking |
|
|
1,009 |
|
|
|
933 |
|
|
|
8 |
|
|
|
473 |
|
|
|
500 |
|
|
|
(5 |
) |
|
|
258 |
|
|
|
231 |
|
|
|
12 |
|
|
|
15 |
|
|
|
17 |
|
Treasury & Securities Services |
|
|
1,748 |
|
|
|
1,499 |
|
|
|
17 |
|
|
|
1,134 |
|
|
|
1,064 |
|
|
|
7 |
|
|
|
360 |
|
|
|
256 |
|
|
|
41 |
|
|
|
48 |
|
|
|
46 |
|
Asset Management |
|
|
2,205 |
|
|
|
1,636 |
|
|
|
35 |
|
|
|
1,366 |
|
|
|
1,115 |
|
|
|
23 |
|
|
|
521 |
|
|
|
346 |
|
|
|
51 |
|
|
|
52 |
|
|
|
39 |
|
Corporate(b) |
|
|
1,001 |
|
|
|
289 |
|
|
|
246 |
|
|
|
245 |
|
|
|
481 |
|
|
|
(49 |
) |
|
|
513 |
|
|
|
31 |
|
|
NM |
|
|
NM |
|
|
NM |
|
|
Total |
|
$ |
16,977 |
|
|
$ |
16,374 |
|
|
|
4 |
% |
|
$ |
9,327 |
|
|
$ |
9,796 |
|
|
|
(5 |
)% |
|
$ |
3,373 |
|
|
$ |
3,297 |
|
|
|
2 |
% |
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
|
September 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Investment Bank |
|
$ |
14,998 |
|
|
$ |
13,973 |
|
|
|
7 |
% |
|
$ |
10,063 |
|
|
$ |
9,655 |
|
|
|
4 |
% |
|
$ |
3,015 |
|
|
$ |
2,665 |
|
|
|
13 |
% |
|
|
19 |
% |
|
|
17 |
% |
Retail Financial Services |
|
|
12,664 |
|
|
|
11,097 |
|
|
|
14 |
|
|
|
7,360 |
|
|
|
6,636 |
|
|
|
11 |
|
|
|
2,283 |
|
|
|
2,495 |
|
|
|
(8 |
) |
|
|
19 |
|
|
|
24 |
|
Card Services |
|
|
11,264 |
|
|
|
10,995 |
|
|
|
2 |
|
|
|
3,691 |
|
|
|
3,745 |
|
|
|
(1 |
) |
|
|
2,310 |
|
|
|
2,487 |
|
|
|
(7 |
) |
|
|
22 |
|
|
|
24 |
|
Commercial Banking |
|
|
3,019 |
|
|
|
2,782 |
|
|
|
9 |
|
|
|
1,454 |
|
|
|
1,494 |
|
|
|
(3 |
) |
|
|
846 |
|
|
|
754 |
|
|
|
12 |
|
|
|
18 |
|
|
|
18 |
|
Treasury & Securities Services |
|
|
5,015 |
|
|
|
4,572 |
|
|
|
10 |
|
|
|
3,358 |
|
|
|
3,162 |
|
|
|
6 |
|
|
|
975 |
|
|
|
834 |
|
|
|
17 |
|
|
|
43 |
|
|
|
48 |
|
Asset Management |
|
|
6,246 |
|
|
|
4,840 |
|
|
|
29 |
|
|
|
3,956 |
|
|
|
3,294 |
|
|
|
20 |
|
|
|
1,439 |
|
|
|
1,002 |
|
|
|
44 |
|
|
|
50 |
|
|
|
38 |
|
Corporate(b) |
|
|
3,331 |
|
|
|
(180 |
) |
|
NM |
|
|
|
1,101 |
|
|
|
972 |
|
|
|
13 |
|
|
|
1,526 |
|
|
|
(319 |
) |
|
NM |
|
|
NM |
|
NM |
|
|
Total |
|
$ |
56,537 |
|
|
$ |
48,079 |
|
|
|
18 |
% |
|
$ |
30,983 |
|
|
$ |
28,958 |
|
|
|
7 |
% |
|
$ |
12,394 |
|
|
$ |
9,918 |
|
|
|
25 |
% |
|
|
14 |
% |
|
|
12 |
% |
|
|
|
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit
card securitizations. |
(b) |
|
Net income (loss) includes Income from discontinued operations (after-tax) of $65 million and
$175 million for the three and nine months ended September 30, 2006, respectively. There was
no income from discontinued operations during the first nine months of 2007. |
16
INVESTMENT BANK
For a
discussion of the business profile of IB, see pages 3637 of JPMorgan Chases 2006
Annual Report and page 4 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,330 |
|
|
$ |
1,419 |
|
|
|
(6 |
)% |
|
$ |
4,959 |
|
|
$ |
3,957 |
|
|
|
25 |
% |
Principal transactions(a) |
|
|
(848 |
) |
|
|
2,548 |
|
|
NM |
|
|
|
4,456 |
|
|
|
7,185 |
|
|
|
(38 |
) |
Lending & deposit-related fees |
|
|
118 |
|
|
|
127 |
|
|
|
(7 |
) |
|
|
304 |
|
|
|
398 |
|
|
|
(24 |
) |
Asset management, administration and commissions |
|
|
712 |
|
|
|
512 |
|
|
|
39 |
|
|
|
1,996 |
|
|
|
1,671 |
|
|
|
19 |
|
All other income |
|
|
(76 |
) |
|
|
159 |
|
|
NM |
|
|
|
88 |
|
|
|
437 |
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,236 |
|
|
|
4,765 |
|
|
|
(74 |
) |
|
|
11,803 |
|
|
|
13,648 |
|
|
|
(14 |
) |
Net interest income |
|
|
1,710 |
(e) |
|
|
51 |
|
|
NM |
|
|
|
3,195 |
(e) |
|
|
325 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(b) |
|
|
2,946 |
|
|
|
4,816 |
|
|
|
(39 |
) |
|
|
14,998 |
|
|
|
13,973 |
|
|
|
7 |
|
Provision for credit losses |
|
|
227 |
|
|
|
7 |
|
|
NM |
|
|
|
454 |
|
|
|
128 |
|
|
|
255 |
|
Credit reimbursement from TSS(c) |
|
|
31 |
|
|
|
30 |
|
|
|
3 |
|
|
|
91 |
|
|
|
90 |
|
|
|
1 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,178 |
|
|
|
2,093 |
|
|
|
(44 |
) |
|
|
6,404 |
|
|
|
6,310 |
|
|
|
1 |
|
Noncompensation expense |
|
|
1,200 |
|
|
|
1,151 |
|
|
|
4 |
|
|
|
3,659 |
|
|
|
3,345 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,378 |
|
|
|
3,244 |
|
|
|
(27 |
) |
|
|
10,063 |
|
|
|
9,655 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
372 |
|
|
|
1,595 |
|
|
|
(77 |
) |
|
|
4,572 |
|
|
|
4,280 |
|
|
|
7 |
|
Income tax expense |
|
|
76 |
|
|
|
619 |
|
|
|
(88 |
) |
|
|
1,557 |
|
|
|
1,615 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
296 |
|
|
$ |
976 |
|
|
|
(70 |
) |
|
$ |
3,015 |
|
|
$ |
2,665 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
6 |
% |
|
|
18 |
% |
|
|
|
|
|
|
19 |
% |
|
|
17 |
% |
|
|
|
|
ROA |
|
|
0.17 |
|
|
|
0.62 |
|
|
|
|
|
|
|
0.59 |
|
|
|
0.55 |
|
|
|
|
|
Overhead ratio |
|
|
81 |
|
|
|
67 |
|
|
|
|
|
|
|
67 |
|
|
|
69 |
|
|
|
|
|
Compensation expense as a % of total net revenue(d) |
|
|
40 |
|
|
|
42 |
|
|
|
|
|
|
|
43 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
595 |
|
|
$ |
436 |
|
|
|
36 |
|
|
$ |
1,627 |
|
|
$ |
1,177 |
|
|
|
38 |
|
Equity underwriting |
|
|
267 |
|
|
|
275 |
|
|
|
(3 |
) |
|
|
1,169 |
|
|
|
851 |
|
|
|
37 |
|
Debt underwriting |
|
|
468 |
|
|
|
708 |
|
|
|
(34 |
) |
|
|
2,163 |
|
|
|
1,929 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
1,330 |
|
|
|
1,419 |
|
|
|
(6 |
) |
|
|
4,959 |
|
|
|
3,957 |
|
|
|
25 |
|
Fixed income markets(a) |
|
|
687 |
|
|
|
2,468 |
|
|
|
(72 |
) |
|
|
5,724 |
|
|
|
6,675 |
|
|
|
(14 |
) |
Equity markets(a) |
|
|
537 |
|
|
|
658 |
|
|
|
(18 |
) |
|
|
3,325 |
|
|
|
2,500 |
|
|
|
33 |
|
Credit portfolio(a) |
|
|
392 |
|
|
|
271 |
|
|
|
45 |
|
|
|
990 |
|
|
|
841 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,946 |
|
|
$ |
4,816 |
|
|
|
(39 |
) |
|
$ |
14,998 |
|
|
$ |
13,973 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
1,016 |
|
|
$ |
2,803 |
|
|
|
(64 |
) |
|
$ |
7,037 |
|
|
$ |
7,066 |
|
|
|
|
|
Europe/Middle East/Africa |
|
|
1,389 |
|
|
|
1,714 |
|
|
|
(19 |
) |
|
|
5,967 |
|
|
|
5,535 |
|
|
|
8 |
|
Asia/Pacific |
|
|
541 |
|
|
|
299 |
|
|
|
81 |
|
|
|
1,994 |
|
|
|
1,372 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,946 |
|
|
$ |
4,816 |
|
|
|
(39 |
) |
|
$ |
14,998 |
|
|
$ |
13,973 |
|
|
|
7 |
|
|
|
|
|
(a) |
|
As a result of the adoption on January 1, 2007,
of SFAS 157, IB recognized a benefit, in
the first quarter of 2007, of $166 million in Total net revenue (primarily in Credit
Portfolio, but with smaller impacts to Equity Markets and Fixed Income Markets) relating to
the incorporation of an adjustment to the valuation of the Firms derivative liabilities and
other liabilities measured at fair value that reflects the credit quality of the Firm. |
(b) |
|
Total net revenue
included tax-equivalent adjustments due primarily to tax-exempt income
from municipal bond investments and income tax credits related to affordable housing
investments of $255 million and $197 million for the quarters ended September 30, 2007 and
2006, respectively, and $697 million and $584 million for year-to-date 2007 and 2006,
respectively. |
(c) |
|
Treasury & Securities Services is charged a credit reimbursement related to certain exposures
managed within the Investment Bank credit portfolio on behalf of clients shared with TSS. |
(d) |
|
For 2006, the Compensation expense to Total net revenue ratio was adjusted to present this
ratio as if SFAS 123R had always been in effect. IB management believes that adjusting the
Compensation expense to Total net revenue ratio for the incremental impact of adopting SFAS
123R provides a more meaningful measure of IBs Compensation expense to Total net revenue
ratio for 2006. |
(e) |
|
Net Interest Income for 2007 increased from the prior year due primarily to the adoption of
SFAS 159. For certain IB structured notes, all components of earnings are reported in
Principal transactions, causing a shift between Principal transactions revenue and Net
interest income in 2007. |
17
Quarterly results
Net income was $296 million, down by $680 million, or 70%, compared with the prior year. The
decrease in earnings reflected lower net revenue as well as a higher Provision for credit losses,
partially offset by lower noninterest expense.
Net revenue was $2.9 billion, down by $1.9 billion, or 39%, from the prior year. Investment banking
fees were $1.3 billion, down by 6% from the prior year, reflecting lower debt underwriting fees
offset partially by record advisory fees. Debt underwriting fees were $468 million, down 34%,
reflecting lower bond underwriting and loan syndication fees, which were negatively affected by
market conditions. Advisory fees were $595 million, up 36%, driven by a strong performance across
all regions. Equity underwriting fees were $267 million, down 3%, driven by lower revenue in Europe
and Asia, partially offset by strong performance in the Americas in common stock and convertible
offerings. Fixed Income Markets revenue was $687 million, down by $1.8 billion, or 72%, from the
prior year. The decrease was primarily due to markdowns of $1.3 billion (net of fees) on leveraged
lending funded loans and unfunded commitments and markdowns of $339 million (net of risk
management results) on CDO warehouses and unsold positions. Fixed Income Markets revenue also
decreased due to weak credit trading performance and significantly lower commodities results,
compared with a strong prior-year quarter. These lower results were offset partially by record
revenue in both rates and currencies. Equity Markets revenue was $537 million, down 18% from the
prior year, as weaker trading results were offset partially by strong client revenue across
businesses. Fixed Income Markets and Equity Markets had a combined benefit of $454 million from the
widening of the Firms credit spread on certain structured liabilities, with an impact of $304
million and $150 million, respectively. Credit Portfolio revenue was $392 million, up 45% from the
prior year, primarily due to higher trading revenue from risk
management activities and gains from loan
workouts.
The Provision for credit losses was $227 million, compared with $7 million in the prior year. The
provision was up due to an increase in the Allowance for credit losses, primarily related to
portfolio growth. Net charge-offs were $67 million, compared with net recoveries of $8 million in
the prior year. The Allowance for loan losses to average loans retained was 1.80% for the current
quarter, an increase from 1.64% in the prior year. Nonperforming assets were $325 million, compared
with $456 million from the prior year.
Noninterest expense was $2.4 billion, down by $866 million, or 27%, from the prior year. The
decrease was due primarily to lower performance-based compensation.
Year-to-date results
Net income was $3.0 billion, driven by record year-to-date revenues of $15.0 billion. Compared with
the prior year, net income increased by $350 million, or 13%, reflecting record investment banking
fees and equity markets revenue, partially offset by weaker fixed income results and increases in
noninterest expense and the Provision for credit losses.
Net revenue was $15.0 billion, up by $1.0 billion, or 7%, from the prior year, driven by record
investment banking fees and record equity market results. Investment banking fees were $5.0
billion, up 25% from the prior year, driven by record fees across advisory, debt underwriting and
equity underwriting. Advisory fees were $1.6 billion, up 38%, benefiting from strong performance
across all regions. Debt underwriting fees were $2.2 billion, up 12%, driven by record loan
syndication fees and record bond underwriting. Equity underwriting fees were $1.2 billion, up 37%,
reflecting strong performance across all regions. Fixed Income Markets revenue decreased by 14%
from the prior year, primarily due to markdowns of $1.4 billion (net of fees) on leverage lending
funded loans and unfunded commitments and markdowns of $358 million (net of risk management
results) on CDO warehouses and unsold positions. Fixed Income Markets revenue also decreased due to
weak credit trading and significantly lower commodities results, compared with a strong prior year.
These lower results were offset partially by record revenue in rates and currencies. Equity Markets
revenue was $3.3 billion, up 33%, benefiting from strong trading results across all products and
strong client revenue. Credit Portfolio revenue was $990 million, up 18%, primarily due to higher
trading revenue from risk management activities, partially offset by lower gains from loan sales and
workouts.
The Provision for credit losses was $454 million, an increase of $326 million from the prior year.
The change was due to a net increase of $240 million in the Allowance for credit losses, primarily
due to portfolio activity and growth. In addition, there were $45 million of net charge-offs in the
current year, compared with $41 million of net recoveries in the prior period. The Allowance for
loan losses to average loans was 1.85% for 2007, compared with a ratio of 1.74% in the prior year.
Noninterest
expense was $10.1 billion, up by $408 million, or 4%, from
the prior year.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
710,665 |
|
|
$ |
626,245 |
|
|
|
13 |
% |
|
$ |
688,730 |
|
|
$ |
648,101 |
|
|
|
6 |
% |
Trading
assets debt and equity instruments(a) |
|
|
372,212 |
|
|
|
283,915 |
|
|
|
31 |
|
|
|
355,708 |
|
|
|
268,256 |
|
|
|
33 |
|
Trading
assets derivatives receivables |
|
|
63,017 |
|
|
|
53,184 |
|
|
|
18 |
|
|
|
59,336 |
|
|
|
52,769 |
|
|
|
12 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(b) |
|
|
61,919 |
|
|
|
61,623 |
|
|
|
|
|
|
|
59,996 |
|
|
|
58,137 |
|
|
|
3 |
|
Loans at fair value and loans held-for-sale(a) |
|
|
17,315 |
|
|
|
24,030 |
|
|
|
(28 |
) |
|
|
15,278 |
|
|
|
21,072 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
79,234 |
|
|
|
85,653 |
|
|
|
(7 |
) |
|
|
75,274 |
|
|
|
79,209 |
|
|
|
(5 |
) |
Adjusted assets(c) |
|
|
625,619 |
|
|
|
539,278 |
|
|
|
16 |
|
|
|
600,688 |
|
|
|
520,718 |
|
|
|
15 |
|
Equity |
|
|
21,000 |
|
|
|
21,000 |
|
|
|
|
|
|
|
21,000 |
|
|
|
20,670 |
|
|
|
2 |
|
|
Headcount |
|
|
25,691 |
# |
|
|
23,447 |
# |
|
|
10 |
|
|
|
25,691 |
# |
|
|
23,447 |
# |
|
|
10 |
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
67 |
|
|
$ |
(8 |
) |
|
NM |
|
|
$ |
45 |
|
|
$ |
(41 |
) |
|
NM |
|
Nonperforming
assets:(d)
Nonperforming loans |
|
|
265 |
|
|
|
420 |
|
|
|
(37 |
) |
|
|
265 |
|
|
|
420 |
|
|
|
(37 |
) |
Other nonperforming assets |
|
|
60 |
|
|
|
36 |
|
|
|
67 |
|
|
|
60 |
|
|
|
36 |
|
|
|
67 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,112 |
|
|
|
1,010 |
|
|
|
10 |
|
|
|
1,112 |
|
|
|
1,010 |
|
|
|
10 |
|
Allowance for lending-related commitments |
|
|
568 |
|
|
|
292 |
|
|
|
95 |
|
|
|
568 |
|
|
|
292 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance for credit losses |
|
|
1,680 |
|
|
|
1,302 |
|
|
|
29 |
|
|
|
1,680 |
|
|
|
1,302 |
|
|
|
29 |
|
|
Net charge-off (recovery) rate(a)(b) |
|
|
0.43 |
% |
|
|
(0.05 |
)% |
|
|
|
|
|
|
0.10 |
% |
|
|
(0.09 |
)% |
|
|
|
|
Allowance for loan losses to average loans(a)(b) |
|
|
1.80 |
|
|
|
1.64 |
|
|
|
|
|
|
|
1.85 |
|
|
|
1.74 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans(d) |
|
|
585 |
|
|
|
253 |
|
|
|
|
|
|
|
585 |
|
|
|
253 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.33 |
|
|
|
0.49 |
|
|
|
|
|
|
|
0.35 |
|
|
|
0.53 |
|
|
|
|
|
Market
risk average trading
and credit portfolio VAR(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
98 |
|
|
$ |
63 |
|
|
|
56 |
|
|
$ |
72 |
|
|
$ |
58 |
|
|
|
24 |
|
Foreign exchange |
|
|
23 |
|
|
|
24 |
|
|
|
(4 |
) |
|
|
21 |
|
|
|
23 |
|
|
|
(9 |
) |
Equities |
|
|
35 |
|
|
|
32 |
|
|
|
9 |
|
|
|
43 |
|
|
|
29 |
|
|
|
48 |
|
Commodities and other |
|
|
28 |
|
|
|
46 |
|
|
|
(39 |
) |
|
|
34 |
|
|
|
48 |
|
|
|
(29 |
) |
Less: portfolio diversification(f) |
|
|
(72 |
) |
|
|
(82 |
) |
|
|
12 |
|
|
|
(68 |
) |
|
|
(74 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total trading VAR(g) |
|
|
112 |
|
|
|
83 |
|
|
|
35 |
|
|
|
102 |
|
|
|
84 |
|
|
|
21 |
|
Credit portfolio VAR(h) |
|
|
17 |
|
|
|
14 |
|
|
|
21 |
|
|
|
14 |
|
|
|
14 |
|
|
|
|
|
Less: portfolio diversification(f) |
|
|
(22 |
) |
|
|
(8 |
) |
|
|
(175 |
) |
|
|
(16 |
) |
|
|
(9 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit portfolio VAR |
|
$ |
107 |
|
|
$ |
89 |
|
|
|
20 |
|
|
$ |
100 |
|
|
$ |
89 |
|
|
|
12 |
|
|
|
|
|
(a) |
|
As a result of the adoption of SFAS 159 in the first quarter of 2007, $11.7 billion of
loans were reclassified to trading assets. Loans at fair value and loans held-for-sale were
excluded when calculating the allowance coverage ratio and Net charge-off rate. |
(b) |
|
Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and
excluded loans at fair value. |
(c) |
|
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 consolidated under FIN 46R; (3) cash and
securities segregated and on deposit for regulatory and other purposes; and (4) goodwill and
intangibles. 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
believed an adjusted asset amount that excluded the assets discussed above, which were
considered to have a low risk profile, provided a more meaningful measure of balance sheet
leverage in the securities industry. |
(d) |
|
Nonperforming loans included Loans held-for-sale of $75 million and $21 million at September
30, 2007 and 2006, respectively, which were excluded from the allowance coverage ratios.
Nonperforming loans excluded distressed loans held-for-sale purchased as part of IBs
proprietary activities and assets classified as trading assets. Loans elected under the fair
value option and classified within trading assets are also excluded from Nonperforming loans. |
(e) |
|
For a more complete
description of VAR, see pages 6265 of this Form 10-Q. |
(f) |
|
Average VARs were less than the sum of the VARs of their market risk components, which was
due to risk offsets resulting from portfolio diversification. The diversification effect
reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks of the positions themselves. |
(g) |
|
Trading VAR includes substantially all trading activities in IB. Trading VAR does not
include VAR related to the debit valuation adjustments (DVA) taken on derivative and
structured liabilities to reflect the credit quality of the Firm. See the DVA Sensitivity
table on page 64 of this Form 10-Q for further details. |
(h) |
|
Included VAR on derivative credit valuation adjustments, hedges of the credit valuation
adjustment and mark-to-market hedges of the retained loan portfolio, which were all reported
in Principal Transactions revenue. The VAR did not include the retained loan portfolio. |
19
According to Thomson Financial, for the first nine months of 2007, the Firm was ranked #1 in
Global Equity and Equity-Related; #1 in Global Syndicated Loans; #4 in Global Announced M&A; #2 in
Global Debt, Equity and Equity-Related; and #2 in Global Long-term Debt based upon volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
Full Year 2006 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related |
|
|
7 |
% |
|
|
#2 |
|
|
|
7 |
% |
|
|
#2 |
|
Global syndicated loans |
|
|
14 |
|
|
|
#1 |
|
|
|
14 |
|
|
|
#1 |
|
Global long-term debt |
|
|
7 |
|
|
|
#2 |
|
|
|
6 |
|
|
|
#3 |
|
Global equity and equity-related |
|
|
9 |
|
|
|
#1 |
|
|
|
7 |
|
|
|
#6 |
|
Global announced M&A |
|
|
23 |
|
|
|
#4 |
|
|
|
23 |
|
|
|
#4 |
|
U.S. debt, equity and equity-related |
|
|
10 |
|
|
|
#2 |
|
|
|
9 |
|
|
|
#2 |
|
U.S. syndicated loans |
|
|
26 |
|
|
|
#1 |
|
|
|
26 |
|
|
|
#1 |
|
U.S. long-term debt |
|
|
11 |
|
|
|
#2 |
|
|
|
12 |
|
|
|
#2 |
|
U.S. equity and equity-related(b) |
|
|
11 |
|
|
|
#2 |
|
|
|
8 |
|
|
|
#6 |
|
U.S. announced M&A |
|
|
26 |
|
|
|
#5 |
|
|
|
28 |
|
|
|
#3 |
|
|
|
|
|
(a) |
|
Source: Thomson Financial Securities data. Global announced M&A was based upon rank
value; all other rankings were based upon 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%. |
(b) |
|
References U.S. domiciled equity and equity-related transactions, per Thomson Financial. |
20
RETAIL FINANCIAL SERVICES
For a
discussion of the business profile of RFS, see pages 3842 of JPMorgan Chases 2006
Annual Report and page 4 of this Form 10-Q.
During the first quarter of 2006, RFS completed the purchase of Collegiate Funding Services, which
contributed an education loan servicing capability and provided an entry into the Federal Family
Education Loan Program consolidation market. On July 1, 2006, RFS sold its life insurance and
annuity-underwriting businesses to Protective Life Corporation. On October 1, 2006, JPMorgan Chase
completed the Bank of New York transaction, significantly strengthening RFSs distribution network
in the New York tri-state area. See Note 2 on page 73 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
492 |
|
|
$ |
406 |
|
|
|
21 |
% |
|
$ |
1,385 |
|
|
$ |
1,167 |
|
|
|
19 |
% |
Asset management, administration and commissions |
|
|
336 |
|
|
|
326 |
|
|
|
3 |
|
|
|
943 |
|
|
|
1,129 |
|
|
|
(16 |
) |
Securities (losses) |
|
|
|
|
|
|
(7 |
) |
|
NM |
|
|
|
|
|
|
|
(52 |
) |
|
NM |
|
Mortgage fees and related income(a) |
|
|
229 |
|
|
|
67 |
|
|
|
242 |
|
|
|
1,206 |
|
|
|
507 |
|
|
|
138 |
|
Credit card income |
|
|
167 |
|
|
|
136 |
|
|
|
23 |
|
|
|
472 |
|
|
|
380 |
|
|
|
24 |
|
Other income |
|
|
296 |
|
|
|
170 |
|
|
|
74 |
|
|
|
687 |
|
|
|
381 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,520 |
|
|
|
1,098 |
|
|
|
38 |
|
|
|
4,693 |
|
|
|
3,512 |
|
|
|
34 |
|
Net interest income |
|
|
2,681 |
|
|
|
2,457 |
|
|
|
9 |
|
|
|
7,971 |
|
|
|
7,585 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,201 |
|
|
|
3,555 |
|
|
|
18 |
|
|
|
12,664 |
|
|
|
11,097 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
680 |
|
|
|
114 |
|
|
|
496 |
|
|
|
1,559 |
|
|
|
299 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense(a) |
|
|
1,087 |
|
|
|
886 |
|
|
|
23 |
|
|
|
3,256 |
|
|
|
2,707 |
|
|
|
20 |
|
Noncompensation expense(a) |
|
|
1,265 |
|
|
|
1,142 |
|
|
|
11 |
|
|
|
3,753 |
|
|
|
3,595 |
|
|
|
4 |
|
Amortization of intangibles |
|
|
117 |
|
|
|
111 |
|
|
|
5 |
|
|
|
351 |
|
|
|
334 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,469 |
|
|
|
2,139 |
|
|
|
15 |
|
|
|
7,360 |
|
|
|
6,636 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,052 |
|
|
|
1,302 |
|
|
|
(19 |
) |
|
|
3,745 |
|
|
|
4,162 |
|
|
|
(10 |
) |
Income tax expense |
|
|
413 |
|
|
|
556 |
|
|
|
(26 |
) |
|
|
1,462 |
|
|
|
1,667 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
639 |
|
|
$ |
746 |
|
|
|
(14 |
) |
|
$ |
2,283 |
|
|
$ |
2,495 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
16 |
% |
|
|
21 |
% |
|
|
|
|
|
|
19 |
% |
|
|
24 |
% |
|
|
|
|
Overhead ratio(a) |
|
|
59 |
|
|
|
60 |
|
|
|
|
|
|
|
58 |
|
|
|
60 |
|
|
|
|
|
Overhead ratio excluding core deposit intangibles(a)(b) |
|
|
56 |
|
|
|
57 |
|
|
|
|
|
|
|
55 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
(a)
|
|
The Firm adopted SFAS 159 in the first quarter of 2007. As a result, certain
loan-origination costs have been classified as expense (previously netted against revenue) for
the three and nine months ended September 30, 2007. |
(b)
|
|
Retail Financial Services uses the overhead ratio excluding the amortization of core deposit
intangibles (CDI), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in earlier years and a lower overhead ratio in later years; this
method would result in an improving overhead ratio over time, all things remaining equal. This
non-GAAP ratio excluded Regional Bankings core deposit intangible amortization expense
related to the Bank of New York transaction and the Bank One merger of $116 million and $109
million for the three months ended September 30, 2007 and 2006, respectively, and $347 million
and $328 million for the nine months ended September 30, 2007 and 2006, respectively. |
21
Quarterly results
Net income was $639 million, down by $107 million, or 14%, from the prior year, due to lower
results in Regional Banking, primarily due to an increase in the Provision for credit losses.
Net revenue was $4.2 billion, up by $646 million, or 18%, from the prior year. Net interest income
was $2.7 billion, up by $224 million, or 9%, due to the Bank of New York transaction, wider spreads
on loans and higher deposit balances. These benefits were offset partially by a shift to
narrowerspread deposit products. Noninterest revenue was $1.5 billion, up by $422 million, or
38%, benefiting from the absence of a prior-year negative valuation adjustment to the MSR asset;
increases in deposit-related fees; an increase in mortgage loan originations; a higher level of
education loan sales; and increased mortgage loan servicing revenue. Noninterest revenue also
benefited from the Bank of New York transaction and the classification of certain mortgage loan
origination costs as expense (loan origination costs previously netted against revenue commenced
being recorded as an expense in the first quarter of 2007 due to the adoption of SFAS 159). These
benefits were offset partially by markdowns on the mortgage warehouse and pipeline.
The Provision for credit losses was $680 million, compared with $114 million in the prior year. The
current-quarter provision includes a net increase of $306 million in the Allowance for loan losses
related to home equity loans as continued weak housing prices have resulted in an increase in
estimated losses for high loan-to-value loans. Home equity net charge-offs were $150 million (0.65%
net charge-off rate), compared with $29 million (0.15% net charge-off rate) in the prior year. In
addition, the current-quarter provision includes an increase in the Allowance for loan losses,
reflecting increased loan balances resulting from the decision to retain rather than sell subprime
mortgage loans. Subprime mortgage net charge-offs were $40 million (1.62% net charge-off rate),
compared with $13 million (0.36% net charge-off rate) in the prior year.
Noninterest expense was $2.5 billion, up by $330 million, or 15%, due to the Bank of New York
transaction, the classification of certain loan origination costs as expense due to the adoption of
SFAS 159, investments in the retail distribution network and an increase in loan originations in
Mortgage Banking.
Year-to-date results
Net income was $2.3 billion, down by $212 million, or 8%, from the prior year, as lower results in
Regional Banking and Auto Finance, primarily due to an increase in the Provision for credit losses,
were offset partially by improved results in Mortgage Banking.
Net revenue was $12.7 billion, up by $1.6 billion, or 14%, from the prior year. Net interest income
was $8.0 billion, up by $386 million, or 5%, due to the Bank of New York transaction, wider spreads
on loans and higher deposit balances. These benefits were offset partially by the sale of the
insurance business, a shift to narrowerspread deposit products and a decrease in loan balances.
Noninterest revenue was $4.7 billion, up by $1.2 billion, or 34%, benefiting from increases in
deposit-related fees; the absence of a prior-year negative valuation adjustment to the MSR asset;
an increase in mortgage originations; increased mortgage loan servicing revenue; higher operating
lease revenue; and a higher level of education loan sales. Noninterest revenue also benefited from
the Bank of New York transaction and the classification of certain mortgage loan origination costs
as expense (loan origination costs previously netted against revenue commenced being recorded as an
expense in the first quarter of 2007 due to the adoption of SFAS 159). These benefits were offset
partially by markdowns on the mortgage warehouse and pipeline and the sale of the insurance
business.
The Provision for credit losses was $1.6 billion, compared with $299 million in the prior year. The
year-to-date provision includes a net increase of $635 million in the Allowance for loan losses
related to home equity loans, as continued weak housing prices have resulted in an increase in
estimated losses for high loan-to-value loans. Home equity net charge-offs were $316 million (0.47%
net charge-off rate), compared with $92 million (0.16% net charge-off rate) in the prior year. In
addition, the year-to-date provision reflects an increase in estimated losses in the subprime
mortgage portfolio, as well as increased loan balances resulting from the decision to retain rather
than sell subprime mortgage loans. Subprime mortgage net charge-offs were $86 million (1.28% net
charge-off rate), compared with $30 million (0.27% net charge-off rate) in the prior year. Home
equity and subprime mortgage underwriting standards were tightened during the year-to-date period,
and pricing actions were implemented to reflect elevated risks in these segments.
Noninterest expense was $7.4 billion, up by $724 million, or 11%, due to the Bank of New York
transaction, the classification of certain loan origination costs as expense due to the adoption of
SFAS 159, investments in the retail distribution network and an increase in loan originations in
Mortgage Banking. These increases were offset partially by the sale of the insurance business.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
216,754 |
|
|
$ |
227,056 |
|
|
|
(5 |
)% |
|
$ |
216,754 |
|
|
$ |
227,056 |
|
|
|
(5 |
)% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
172,498 |
|
|
|
188,549 |
|
|
|
(9 |
) |
|
|
172,498 |
|
|
|
188,549 |
|
|
|
(9 |
) |
Loans at fair value and loans held-for-sale(a) |
|
|
18,274 |
|
|
|
17,005 |
|
|
|
7 |
|
|
|
18,274 |
|
|
|
17,005 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
190,772 |
|
|
|
205,554 |
|
|
|
(7 |
) |
|
|
190,772 |
|
|
|
205,554 |
|
|
|
(7 |
) |
Deposits |
|
|
216,135 |
|
|
|
198,260 |
|
|
|
9 |
|
|
|
216,135 |
|
|
|
198,260 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
214,852 |
|
|
$ |
225,307 |
|
|
|
(5 |
) |
|
$ |
216,218 |
|
|
$ |
230,307 |
|
|
|
(6 |
) |
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
168,495 |
|
|
|
189,313 |
|
|
|
(11 |
) |
|
|
165,479 |
|
|
|
186,852 |
|
|
|
(11 |
) |
Loans at fair value and loans held-for-sale(a) |
|
|
19,560 |
|
|
|
13,994 |
|
|
|
40 |
|
|
|
24,289 |
|
|
|
14,411 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
188,055 |
|
|
|
203,307 |
|
|
|
(8 |
) |
|
|
189,768 |
|
|
|
201,263 |
|
|
|
(6 |
) |
Deposits |
|
|
216,904 |
|
|
|
198,967 |
|
|
|
9 |
|
|
|
217,669 |
|
|
|
197,491 |
|
|
|
10 |
|
Equity |
|
|
16,000 |
|
|
|
14,300 |
|
|
|
12 |
|
|
|
16,000 |
|
|
|
14,167 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
68,528 |
# |
|
|
61,915 |
# |
|
|
11 |
|
|
|
68,528 |
# |
|
|
61,915 |
# |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
350 |
|
|
$ |
128 |
|
|
|
173 |
|
|
$ |
805 |
|
|
$ |
362 |
|
|
|
122 |
|
Nonperforming loans(b)(d) |
|
|
1,991 |
|
|
|
1,404 |
|
|
|
42 |
|
|
|
1,991 |
|
|
|
1,404 |
|
|
|
42 |
|
Nonperforming assets |
|
|
2,404 |
|
|
|
1,595 |
|
|
|
51 |
|
|
|
2,404 |
|
|
|
1,595 |
|
|
|
51 |
|
Allowance for loan losses |
|
|
2,105 |
|
|
|
1,306 |
|
|
|
61 |
|
|
|
2,105 |
|
|
|
1,306 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(c) |
|
|
0.82 |
% |
|
|
0.27 |
% |
|
|
|
|
|
|
0.65 |
% |
|
|
0.26 |
% |
|
|
|
|
Allowance for loan losses to ending loans(c) |
|
|
1.22 |
|
|
|
0.69 |
|
|
|
|
|
|
|
1.22 |
|
|
|
0.69 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans(c) |
|
|
107 |
|
|
|
95 |
|
|
|
|
|
|
|
107 |
|
|
|
95 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
1.04 |
|
|
|
0.68 |
|
|
|
|
|
|
|
1.04 |
|
|
|
0.68 |
|
|
|
|
|
|
|
|
|
(a) |
|
Loans included prime mortgage loans originated with the intent to sell, which, for new
originations on or after January 1, 2007, were accounted for at fair value under SFAS 159.
These loans, classified as Trading assets on the Consolidated balance sheets, totaled $14.4
billion at September 30, 2007. Average Loans included $14.1 billion and $11.4 billion of these
loans for the three and nine months ended September 30, 2007,
respectively. |
(b) |
|
Nonperforming loans included Loans held-for-sale and Loans accounted for at fair value under
SFAS 159 of $17 million and $24 million at September 30, 2007 and 2006, respectively. Certain
of these loans are classified as Trading assets on the Consolidated balance sheet. |
(c) |
|
Loans held-for-sale and Loans accounted for at fair value under SFAS 159 were excluded when
calculating the allowance coverage ratio and the Net charge-off rate. |
(d) |
|
Excluded Nonperforming assets related to (1) loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by U.S. government agencies of $1.3 billion and
$1.1 billion at September 30, 2007 and 2006, respectively, and (2) education 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 $241 million and $189 million at September 30, 2007
and 2006, respectively. These amounts for GNMA and education loans are excluded, as
reimbursement is proceeding normally. |
REGIONAL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
$ |
1,013 |
|
|
$ |
855 |
|
|
|
18 |
% |
|
$ |
2,783 |
|
|
$ |
2,526 |
|
|
|
10 |
% |
Net interest income |
|
|
2,325 |
|
|
|
2,107 |
|
|
|
10 |
|
|
|
6,920 |
|
|
|
6,539 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Net revenue |
|
|
3,338 |
|
|
|
2,962 |
|
|
|
13 |
|
|
|
9,703 |
|
|
|
9,065 |
|
|
|
7 |
|
Provision for credit losses |
|
|
574 |
|
|
|
53 |
|
|
NM |
|
|
|
1,301 |
|
|
|
189 |
|
|
NM |
|
Noninterest expense |
|
|
1,760 |
|
|
|
1,611 |
|
|
|
9 |
|
|
|
5,238 |
|
|
|
5,095 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,004 |
|
|
|
1,298 |
|
|
|
(23 |
) |
|
|
3,164 |
|
|
|
3,781 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
611 |
|
|
$ |
744 |
|
|
|
(18 |
) |
|
$ |
1,930 |
|
|
$ |
2,265 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
21 |
% |
|
|
29 |
% |
|
|
|
|
|
|
22 |
% |
|
|
30 |
% |
|
|
|
|
Overhead ratio |
|
|
53 |
|
|
|
54 |
|
|
|
|
|
|
|
54 |
|
|
|
56 |
|
|
|
|
|
Overhead ratio excluding core deposit intangibles(a) |
|
|
49 |
|
|
|
51 |
|
|
|
|
|
|
|
50 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
(a) |
|
Regional Banking uses the overhead ratio excluding the amortization of CDI, a non-GAAP
financial measure, to evaluate the underlying expense trends of the business. Including CDI
amortization expense in the overhead ratio calculation results in a higher overhead ratio in
earlier years and a lower overhead ratio in later years; this method would result in an
improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excluded
Regional Bankings core deposit intangible amortization expense related to the Bank of New
York transaction and the Bank One merger of $116 million and $109 million for the three months
ended September 30, 2007 and 2006, respectively, and $347 million and $328 million for the
nine months ended September 30, 2007 and 2006, respectively. |
23
Quarterly results
Regional Banking net income was $611 million, down by $133 million, or 18%, from the prior year.
Net revenue was $3.3 billion, up by $376 million, or 13%, benefiting from the following: the Bank
of New York transaction; increases in deposit-related fees; a higher level of education loan sales;
growth in deposits and wider loan spreads. These benefits were offset partially by a shift to
narrowerspread deposit products. The Provision for credit losses was $574 million, compared with
$53 million in the prior year. The increase in provision was due to the home equity and subprime
mortgage portfolios (see Retail Financial Services discussion of Provision for credit losses for
further detail). Noninterest expense was $1.8 billion, up by $149 million, or 9%, from the prior
year due to the Bank of New York transaction and investments in the retail distribution network.
Year-to-date results
Regional Banking net income was $1.9 billion, down by $335 million, or 15%, from the prior
year. Net revenue was $9.7 billion, up by $638 million, or 7%, benefiting from the following: the
Bank of New York transaction; increases in deposit-related fees; growth in deposits; wider loan
spreads; and a higher level of education loan sales. These benefits were offset partially by the
sale of the insurance business and a shift to narrowerspread deposit products. The Provision for
credit losses was $1.3 billion, compared with $189 million in the prior year. The increase in
provision was due to the home equity and subprime mortgage portfolios (see Retail Financial
Services discussion of Provision for credit losses for further detail). Noninterest expense was
$5.2 billion, up by $143 million, or 3%, from the prior year as the Bank of New York transaction
and investments in the retail distribution network were offset partially by the sale of the
insurance business.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in billions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity origination volume |
|
$ |
11.2 |
|
|
$ |
13.3 |
|
|
|
(16 |
)% |
|
$ |
38.5 |
|
|
$ |
39.0 |
|
|
|
(1 |
)% |
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
93.0 |
|
|
$ |
80.4 |
|
|
|
16 |
|
|
$ |
93.0 |
|
|
$ |
80.4 |
|
|
|
16 |
|
Mortgage(a) |
|
|
12.3 |
|
|
|
46.6 |
|
|
|
(74 |
) |
|
|
12.3 |
|
|
|
46.6 |
|
|
|
(74 |
) |
Business banking |
|
|
14.9 |
|
|
|
13.1 |
|
|
|
14 |
|
|
|
14.9 |
|
|
|
13.1 |
|
|
|
14 |
|
Education |
|
|
10.2 |
|
|
|
9.4 |
|
|
|
9 |
|
|
|
10.2 |
|
|
|
9.4 |
|
|
|
9 |
|
Other loans(b) |
|
|
2.4 |
|
|
|
2.2 |
|
|
|
9 |
|
|
|
2.4 |
|
|
|
2.2 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
|
132.8 |
|
|
|
151.7 |
|
|
|
(12 |
) |
|
|
132.8 |
|
|
|
151.7 |
|
|
|
(12 |
) |
End-of-period deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
64.5 |
|
|
$ |
59.8 |
|
|
|
8 |
|
|
$ |
64.5 |
|
|
$ |
59.8 |
|
|
|
8 |
|
Savings |
|
|
95.7 |
|
|
|
86.9 |
|
|
|
10 |
|
|
|
95.7 |
|
|
|
86.9 |
|
|
|
10 |
|
Time and other |
|
|
46.5 |
|
|
|
41.5 |
|
|
|
12 |
|
|
|
46.5 |
|
|
|
41.5 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period deposits |
|
|
206.7 |
|
|
|
188.2 |
|
|
|
10 |
|
|
|
206.7 |
|
|
|
188.2 |
|
|
|
10 |
|
Average loans owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
91.8 |
|
|
$ |
78.8 |
|
|
|
16 |
|
|
$ |
89.1 |
|
|
$ |
76.4 |
|
|
|
17 |
|
Mortgage(a) |
|
|
9.9 |
|
|
|
47.8 |
|
|
|
(79 |
) |
|
|
9.2 |
|
|
|
46.5 |
|
|
|
(80 |
) |
Business banking |
|
|
14.8 |
|
|
|
13.0 |
|
|
|
14 |
|
|
|
14.5 |
|
|
|
12.9 |
|
|
|
12 |
|
Education |
|
|
9.8 |
|
|
|
8.9 |
|
|
|
10 |
|
|
|
10.4 |
|
|
|
7.7 |
|
|
|
35 |
|
Other loans(b) |
|
|
2.4 |
|
|
|
2.2 |
|
|
|
9 |
|
|
|
2.6 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans(c) |
|
|
128.7 |
|
|
|
150.7 |
|
|
|
(15 |
) |
|
|
125.8 |
|
|
|
146.1 |
|
|
|
(14 |
) |
Average deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
64.9 |
|
|
$ |
60.3 |
|
|
|
8 |
|
|
$ |
66.5 |
|
|
$ |
61.9 |
|
|
|
7 |
|
Savings |
|
|
97.1 |
|
|
|
88.1 |
|
|
|
10 |
|
|
|
97.4 |
|
|
|
89.1 |
|
|
|
9 |
|
Time and other |
|
|
43.3 |
|
|
|
39.0 |
|
|
|
11 |
|
|
|
42.5 |
|
|
|
35.6 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
205.3 |
|
|
|
187.4 |
|
|
|
10 |
|
|
|
206.4 |
|
|
|
186.6 |
|
|
|
11 |
|
Average assets |
|
|
140.6 |
|
|
|
159.1 |
|
|
|
(12 |
) |
|
|
138.1 |
|
|
|
160.3 |
|
|
|
(14 |
) |
Average equity |
|
|
11.8 |
|
|
|
10.2 |
|
|
|
16 |
|
|
|
11.8 |
|
|
|
10.1 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(d) |
|
|
2.39 |
% |
|
|
1.57 |
% |
|
|
|
|
|
|
2.39 |
% |
|
|
1.57 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
150 |
|
|
$ |
29 |
|
|
|
417 |
|
|
$ |
316 |
|
|
$ |
92 |
|
|
|
243 |
|
Mortgage |
|
|
40 |
|
|
|
14 |
|
|
|
186 |
|
|
|
86 |
|
|
|
35 |
|
|
|
146 |
|
Business banking |
|
|
33 |
|
|
|
19 |
|
|
|
74 |
|
|
|
88 |
|
|
|
53 |
|
|
|
66 |
|
Other loans |
|
|
23 |
|
|
|
1 |
|
|
|
NM |
|
|
|
88 |
|
|
|
21 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
246 |
|
|
|
63 |
|
|
|
290 |
|
|
|
578 |
|
|
|
201 |
|
|
|
188 |
|
Net charge-off rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
0.65 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
0.47 |
% |
|
|
0.16 |
% |
|
|
|
|
Mortgage |
|
|
1.60 |
|
|
|
0.12 |
|
|
|
|
|
|
|
1.25 |
|
|
|
0.10 |
|
|
|
|
|
Business banking |
|
|
0.88 |
|
|
|
0.58 |
|
|
|
|
|
|
|
0.81 |
|
|
|
0.55 |
|
|
|
|
|
Other loans |
|
|
1.01 |
|
|
|
0.05 |
|
|
|
|
|
|
|
1.28 |
|
|
|
0.36 |
|
|
|
|
|
Total net charge-off rate(c) |
|
|
0.78 |
|
|
|
0.17 |
|
|
|
|
|
|
|
0.63 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets(e) |
|
$ |
2,206 |
|
|
$ |
1,417 |
|
|
|
56 |
|
|
$ |
2,206 |
|
|
$ |
1,417 |
|
|
|
56 |
|
|
|
|
|
(a)
|
|
As of January 1, 2007, $19.4 billion of held-for-investment prime mortgage loans were
transferred from RFS to Treasury within the Corporate segment for risk management and
reporting purposes. The transfer had no impact on the financial results of Regional Banking.
Balances reported at and for the three and nine months ended September 30, 2007, primarily
reflected subprime mortgage loans owned. |
(b) |
|
Included commercial loans derived from community development activities and, prior to July 1,
2006, insurance policy loans. |
(c) |
|
Average loans included Loans held-for-sale of $3.2 billion and $2.5 billion for the three
months ended September 30, 2007 and 2006, respectively and $3.8 billion and $2.6 billion for
the nine months ended September 30, 2007 and 2006, respectively. These amounts were excluded
when calculating the Net charge-off rate. |
(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 $590 million and $462
million at September 30, 2007 and 2006, respectively. These amounts are excluded as
reimbursement is proceeding normally. |
(e) |
|
Excluded Nonperforming assets related to education 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 $241 million and $189 million at September 30, 2007 and 2006, respectively.
These amounts are excluded as reimbursement is proceeding normally. |
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Investment sales volume (in millions) |
|
$ |
4,346 |
|
|
$ |
3,536 |
|
|
|
23 |
% |
|
$ |
14,246 |
|
|
$ |
10,781 |
|
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
3,096 |
# |
|
|
2,677 |
# |
|
|
419 |
# |
|
|
3,096 |
# |
|
|
2,677 |
# |
|
|
419 |
# |
ATMs |
|
|
8,943 |
|
|
|
7,825 |
|
|
|
1,118 |
|
|
|
8,943 |
|
|
|
7,825 |
|
|
|
1,118 |
|
Personal bankers(a) |
|
|
9,503 |
|
|
|
7,484 |
|
|
|
2,019 |
|
|
|
9,503 |
|
|
|
7,484 |
|
|
|
2,019 |
|
Sales specialists(a) |
|
|
4,025 |
|
|
|
3,471 |
|
|
|
554 |
|
|
|
4,025 |
|
|
|
3,471 |
|
|
|
554 |
|
Active online customers (in thousands)(b) |
|
|
5,706 |
|
|
|
4,717 |
|
|
|
989 |
|
|
|
5,706 |
|
|
|
4,717 |
|
|
|
989 |
|
Checking accounts (in thousands) |
|
|
10,644 |
|
|
|
9,270 |
|
|
|
1,374 |
|
|
|
10,644 |
|
|
|
9,270 |
|
|
|
1,374 |
|
|
|
|
|
(a) |
|
Employees acquired as part of the Bank of New York transaction are included beginning
June 30, 2007. This transaction was completed on October 1, 2006. |
(b) |
|
During the quarter ended June 30, 2007, RFS changed the methodology for determining active
online customers to include all individual RFS customers with one or more online accounts that
have been active within 90 days of period end, including customers who also have online
accounts with Card Services. Prior periods have been restated to conform to this new
methodology. |
MORTGAGE BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios and where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue(a) |
|
$ |
176 |
|
|
$ |
197 |
|
|
|
(11 |
)% |
|
$ |
1,039 |
|
|
$ |
618 |
|
|
|
68 |
% |
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
629 |
|
|
|
579 |
|
|
|
9 |
|
|
|
1,845 |
|
|
|
1,702 |
|
|
|
8 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
(810 |
) |
|
|
(1,075 |
) |
|
|
25 |
|
|
|
250 |
|
|
|
127 |
|
|
|
97 |
|
Other changes in fair value |
|
|
(377 |
) |
|
|
(327 |
) |
|
|
(15 |
) |
|
|
(1,138 |
) |
|
|
(1,068 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total changes in MSR asset fair value |
|
|
(1,187 |
) |
|
|
(1,402 |
) |
|
|
15 |
|
|
|
(888 |
) |
|
|
(941 |
) |
|
|
6 |
|
Derivative valuation adjustments and other |
|
|
788 |
|
|
|
824 |
|
|
|
(4 |
) |
|
|
(353 |
) |
|
|
(475 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
230 |
|
|
|
1 |
|
|
|
NM |
|
|
|
604 |
|
|
|
286 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
406 |
|
|
|
198 |
|
|
|
105 |
|
|
|
1,643 |
|
|
|
904 |
|
|
|
82 |
|
Noninterest expense(a) |
|
|
485 |
|
|
|
334 |
|
|
|
45 |
|
|
|
1,469 |
|
|
|
987 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
(79 |
) |
|
|
(136 |
) |
|
|
42 |
|
|
|
174 |
|
|
|
(83 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
(48 |
) |
|
$ |
(83 |
) |
|
|
42 |
|
|
$ |
107 |
|
|
$ |
(51 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
NM |
|
|
|
NM |
|
|
|
|
|
|
|
7 |
% |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions)
Third-party mortgage loans serviced (ending) |
|
$ |
600.0 |
|
|
$ |
510.7 |
|
|
|
17 |
|
|
$ |
600.0 |
|
|
$ |
510.7 |
|
|
|
17 |
|
MSR net carrying value (ending) |
|
|
9.1 |
|
|
|
7.4 |
|
|
|
23 |
|
|
|
9.1 |
|
|
|
7.4 |
|
|
|
23 |
|
Average mortgage loans held-for-sale(b) |
|
|
16.4 |
|
|
|
10.5 |
|
|
|
56 |
|
|
|
20.4 |
|
|
|
11.1 |
|
|
|
84 |
|
Average assets |
|
|
31.4 |
|
|
|
22.4 |
|
|
|
40 |
|
|
|
35.0 |
|
|
|
24.5 |
|
|
|
43 |
|
Average equity |
|
|
2.0 |
|
|
|
1.7 |
|
|
|
18 |
|
|
|
2.0 |
|
|
|
1.7 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel
(in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
11.1 |
|
|
$ |
10.1 |
|
|
|
10 |
|
|
$ |
35.6 |
|
|
$ |
30.0 |
|
|
|
19 |
|
Wholesale |
|
|
9.8 |
|
|
|
7.7 |
|
|
|
27 |
|
|
|
32.5 |
|
|
|
23.8 |
|
|
|
37 |
|
Correspondent |
|
|
7.2 |
|
|
|
2.7 |
|
|
|
167 |
|
|
|
18.4 |
|
|
|
9.8 |
|
|
|
88 |
|
CNT (Negotiated transactions) |
|
|
11.1 |
|
|
|
8.5 |
|
|
|
31 |
|
|
|
32.9 |
|
|
|
25.8 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
Total(c) |
|
$ |
39.2 |
|
|
$ |
29.0 |
|
|
|
35 |
|
|
$ |
119.4 |
|
|
$ |
89.4 |
|
|
|
34 |
|
|
|
|
|
(a) |
|
The Firm adopted SFAS 159 in the first quarter of 2007. As a result, certain loan
origination costs have been classified as expense (previously netted against revenue) for the
three and nine months ended September 30, 2007. |
(b) |
|
Included $14.1 billion and $11.4 billion of prime mortgage loans at fair value for the three
and nine months ended September 30, 2007, respectively. These loans are classified as Trading
assets on the Consolidated balance sheets for 2007. |
(c) |
|
During the second quarter of 2007, RFS changed its definition of mortgage originations to
include all newly originated mortgage loans sourced through RFS channels, and to exclude all
mortgage loan originations sourced through IB channels. Prior periods have been restated to
conform to this new definition. |
26
Quarterly results
Mortgage Banking net loss was $48 million, compared with a net loss of $83 million in the prior
year. Net revenue was $406 million, up by $208 million. Net revenue comprises production revenue
and net mortgage servicing revenue. Production revenue was $176 million, down by $21 million, as
markdowns of $186 million on the mortgage warehouse and pipeline were offset partially by an
increase in mortgage loan originations and the classification of certain loan origination costs as
expense (loan origination costs previously netted against revenue commenced being recorded as an
expense in the first quarter of 2007 due to the adoption of SFAS 159). Net mortgage servicing
revenue, which includes loan servicing revenue, MSR risk management results and other changes in
fair value, was $230 million, compared with $1 million in the prior year. Loan servicing revenue of
$629 million increased by $50 million on growth of 17% in third-party loans serviced. MSR risk
management revenue of negative $22 million improved by $229 million, due primarily to the absence
of a prior-year negative valuation adjustment of $235 million to the MSR asset. Other changes in
fair value of the MSR asset, representing run-off of the asset against the realization of servicing
cash flows, were negative $377 million, compared with negative $327 million in the prior year.
Noninterest expense was $485 million, up by $151 million, or 45%. The increase reflected the
classification of certain loan origination costs due to the adoption of SFAS 159, and higher
compensation expense, the result of higher loan originations and a greater number of loan officers.
Year-to-date results
Mortgage Banking net income was $107 million, compared with a net loss of $51 million in the prior
year. Net revenue was $1.6 billion, up by $739 million. Net revenue comprises production revenue
and net mortgage servicing revenue. Production revenue was $1.0 billion, up by $421 million, due to
an increase in mortgage loan originations and the classification of certain loan origination costs
as expense (loan origination costs previously netted against revenue commenced being recorded as an
expense in the first quarter of 2007 due to the adoption of SFAS 159). These increases were offset
partially by markdowns of $186 million on the mortgage warehouse and pipeline, in the third quarter
of 2007. Net mortgage servicing revenue, which includes loan servicing revenue, MSR risk management
results and other changes in fair value, was $604 million, compared with $286 million in the prior
year. Loan servicing revenue of $1.8 billion increased by $143 million on growth of 17% in
third-party loans serviced. MSR risk management revenue of negative $103 million improved by $245
million, due primarily to the absence of a prior-year negative valuation adjustment of $235 million
to the MSR asset. Other changes in fair value of the MSR asset, representing run-off of the asset
against the realization of servicing cash flows, were negative $1.1 billion. Noninterest expense
was $1.5 billion, up by $482 million, or 49%. The increase reflected the classification of certain
loan origination costs due to the adoption of SFAS 159, and higher compensation expense, the result
of higher loan originations and a greater number of loan officers.
27
AUTO FINANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Noninterest revenue |
|
$ |
140 |
|
|
$ |
110 |
|
|
|
27 |
% |
|
$ |
409 |
|
|
$ |
244 |
|
|
|
68 |
% |
Net interest income |
|
|
307 |
|
|
|
285 |
|
|
|
8 |
|
|
|
898 |
|
|
|
884 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
447 |
|
|
|
395 |
|
|
|
13 |
|
|
|
1,307 |
|
|
|
1,128 |
|
|
|
16 |
|
Provision for credit losses |
|
|
96 |
|
|
|
61 |
|
|
|
57 |
|
|
|
247 |
|
|
|
110 |
|
|
|
125 |
|
Noninterest expense |
|
|
224 |
|
|
|
194 |
|
|
|
15 |
|
|
|
653 |
|
|
|
554 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
127 |
|
|
|
140 |
|
|
|
(9 |
) |
|
|
407 |
|
|
|
464 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
76 |
|
|
$ |
85 |
|
|
|
(11 |
) |
|
$ |
246 |
|
|
$ |
281 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
14 |
% |
|
|
14 |
% |
|
|
|
|
|
|
15 |
% |
|
|
16 |
% |
|
|
|
|
ROA |
|
|
0.70 |
|
|
|
0.77 |
|
|
|
|
|
|
|
0.76 |
|
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto origination volume |
|
$ |
5.2 |
|
|
$ |
5.5 |
|
|
|
(5 |
) |
|
$ |
15.7 |
|
|
$ |
14.3 |
|
|
|
10 |
|
End-of-period loans and lease related assets |
Loans outstanding |
|
$ |
40.3 |
|
|
$ |
38.1 |
|
|
|
6 |
|
|
$ |
40.3 |
|
|
$ |
38.1 |
|
|
|
6 |
|
Lease financing receivables |
|
|
0.6 |
|
|
|
2.2 |
|
|
|
(73 |
) |
|
|
0.6 |
|
|
|
2.2 |
|
|
|
(73 |
) |
Operating lease assets |
|
|
1.8 |
|
|
|
1.5 |
|
|
|
20 |
|
|
|
1.8 |
|
|
|
1.5 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans and lease
related assets |
|
|
42.7 |
|
|
|
41.8 |
|
|
|
2 |
|
|
|
42.7 |
|
|
|
41.8 |
|
|
|
2 |
|
Average loans and lease related assets |
Loans outstanding(a) |
|
$ |
39.9 |
|
|
$ |
38.9 |
|
|
|
3 |
|
|
$ |
39.8 |
|
|
$ |
40.1 |
|
|
|
(1 |
) |
Lease financing receivables |
|
|
0.7 |
|
|
|
2.5 |
|
|
|
(72 |
) |
|
|
1.1 |
|
|
|
3.2 |
|
|
|
(66 |
) |
Operating lease assets |
|
|
1.8 |
|
|
|
1.4 |
|
|
|
29 |
|
|
|
1.7 |
|
|
|
1.2 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans and lease
related assets |
|
|
42.4 |
|
|
|
42.8 |
|
|
|
(1 |
) |
|
|
42.6 |
|
|
|
44.5 |
|
|
|
(4 |
) |
Average assets |
|
|
42.9 |
|
|
|
43.8 |
|
|
|
(2 |
) |
|
|
43.1 |
|
|
|
45.6 |
|
|
|
(5 |
) |
Average equity |
|
|
2.2 |
|
|
|
2.4 |
|
|
|
(8 |
) |
|
|
2.2 |
|
|
|
2.4 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate |
|
|
1.65 |
% |
|
|
1.61 |
% |
|
|
|
|
|
|
1.65 |
% |
|
|
1.61 |
% |
|
|
|
|
Net charge-offs |
Loans |
|
$ |
98 |
|
|
$ |
63 |
|
|
|
56 |
|
|
$ |
218 |
|
|
$ |
155 |
|
|
|
41 |
|
Lease receivables |
|
|
1 |
|
|
|
2 |
|
|
|
(50 |
) |
|
|
3 |
|
|
|
6 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
99 |
|
|
|
65 |
|
|
|
52 |
|
|
|
221 |
|
|
|
161 |
|
|
|
37 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(a) |
|
|
0.97 |
% |
|
|
0.66 |
% |
|
|
|
|
|
|
0.73 |
% |
|
|
0.53 |
% |
|
|
|
|
Lease receivables |
|
|
0.57 |
|
|
|
0.32 |
|
|
|
|
|
|
|
0.36 |
|
|
|
0.25 |
|
|
|
|
|
Total net charge-off rate(a) |
|
|
0.97 |
|
|
|
0.64 |
|
|
|
|
|
|
|
0.72 |
|
|
|
0.51 |
|
|
|
|
|
Nonperforming assets |
|
$ |
156 |
|
|
$ |
174 |
|
|
|
(10 |
) |
|
$ |
156 |
|
|
$ |
174 |
|
|
|
(10 |
) |
|
|
|
|
(a) |
|
For the three and nine month periods ended September 30, 2006, Average loans included
Loans held-for-sale of $943 million and $709 million, respectively. These amounts are excluded
when calculating the Net charge-off rate. For the three and nine month periods ended September
30, 2007, Auto loans classified as held-for-sale were insignificant. |
Quarterly results
Auto Finance net income was $76 million, down by $9 million, or 11%, from the prior year. Net
revenue was $447 million, up by $52 million, or 13%, reflecting higher automobile operating lease
revenue and wider loan spreads. The Provision for credit losses was $96 million, an increase of $35
million, reflecting an increase in estimated losses from low prior-year levels. Noninterest expense
of $224 million increased by $30 million, or 15%, driven by increased depreciation expense on owned
automobiles subject to operating leases.
Year-to-date results
Auto Finance net income was $246 million, down by $35 million, or 12%, from the prior year. Net
revenue was $1.3 billion, up by $179 million, or 16%, reflecting higher automobile operating lease
revenue, wider loan spreads and the absence of a prior-year $50 million pretax loss related to auto
loans transferred to held-for-sale. The Provision for credit losses was $247 million, an increase
of $137 million, reflecting an increase in estimated losses from low prior-year levels. Noninterest
expense of $653 million increased by $99 million, or 18%, driven by increased depreciation expense
on owned automobiles subject to operating leases.
28
CARD SERVICES
For a
discussion of the business profile of CS, see pages 4345 of JPMorgan Chases 2006
Annual Report and pages 45 of this Form 10-Q.
JPMorgan Chase uses the concept of managed receivables to evaluate the credit performance of its
credit card loans, both loans on the balance sheet and loans that have been securitized. 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. For further information, see Explanation and Reconciliation
of the Firms Use of non-GAAP Financial Measures on pages 1316 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement datamanaged basis |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
692 |
|
|
$ |
636 |
|
|
|
9 |
% |
|
$ |
1,973 |
|
|
$ |
1,890 |
|
|
|
4 |
% |
All other income |
|
|
67 |
|
|
|
126 |
|
|
|
(47 |
) |
|
|
239 |
|
|
|
246 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
759 |
|
|
|
762 |
|
|
|
|
|
|
|
2,212 |
|
|
|
2,136 |
|
|
|
4 |
|
Net interest income |
|
|
3,108 |
|
|
|
2,884 |
|
|
|
8 |
|
|
|
9,052 |
|
|
|
8,859 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,867 |
|
|
|
3,646 |
|
|
|
6 |
|
|
|
11,264 |
|
|
|
10,995 |
|
|
|
2 |
|
|
Provision for credit losses |
|
|
1,363 |
|
|
|
1,270 |
|
|
|
7 |
|
|
|
3,923 |
|
|
|
3,317 |
|
|
|
18 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
256 |
|
|
|
251 |
|
|
|
2 |
|
|
|
761 |
|
|
|
761 |
|
|
|
|
|
Noncompensation expense |
|
|
827 |
|
|
|
823 |
|
|
|
|
|
|
|
2,383 |
|
|
|
2,429 |
|
|
|
(2 |
) |
Amortization of intangibles |
|
|
179 |
|
|
|
179 |
|
|
|
|
|
|
|
547 |
|
|
|
555 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,262 |
|
|
|
1,253 |
|
|
|
1 |
|
|
|
3,691 |
|
|
|
3,745 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,242 |
|
|
|
1,123 |
|
|
|
11 |
|
|
|
3,650 |
|
|
|
3,933 |
|
|
|
(7 |
) |
Income tax expense |
|
|
456 |
|
|
|
412 |
|
|
|
11 |
|
|
|
1,340 |
|
|
|
1,446 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
786 |
|
|
$ |
711 |
|
|
|
11 |
|
|
$ |
2,310 |
|
|
$ |
2,487 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization gains (amortization) |
|
$ |
|
|
|
$ |
48 |
|
|
|
NM |
|
|
$ |
39 |
|
|
$ |
50 |
|
|
|
(22 |
) |
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
22 |
% |
|
|
20 |
% |
|
|
|
|
|
|
22 |
% |
|
|
24 |
% |
|
|
|
|
Overhead ratio |
|
|
33 |
|
|
|
34 |
|
|
|
|
|
|
|
33 |
|
|
|
34 |
|
|
|
|
|
|
Quarterly results
Net income was $786 million, up by $75 million, or 11%, from the prior year. Earnings benefited
from higher revenue offset partially by an increase in the Provision for credit losses.
End-of-period managed loans of $149.1 billion increased by $5.2 billion, or 4%, from the prior
year. Average managed loans of $148.7 billion increased by $7.0 billion, or 5%, from the prior
year. Both end-of-period and average managed loans benefited from organic growth.
Net managed revenue was $3.9 billion, up by $221 million, or 6%, from the prior year. Net interest
income was $3.1 billion, up by $224 million, or 8%, from the prior year. The increase in net
interest income was driven by an increased level of fees and higher average loan balances. These
benefits were offset partially by the discontinuation of certain billing practices (including the
elimination of certain over-limit fees and the two-cycle billing method for calculating finance
charges) and a narrower loan spread. Noninterest revenue was $759 million, flat compared with the
prior year. Increased net interchange income, which benefited from higher charge volume, was offset
by lower net securitization gains. Charge volume growth of 3% reflects an approximate 10% growth
rate in sales volume, offset primarily by a lower level of balance transfers, the result of a more
targeted marketing effort.
The Managed provision for credit losses was $1.4 billion, up by $93 million, or 7%, from the prior
year due to a higher level of net charge-offs. Credit quality was stable in the quarter, with a
managed net charge-off rate for the quarter of 3.64%, up from 3.58% in the prior year. The 30-day
managed delinquency rate was 3.25%, up from 3.17% in the prior year.
Noninterest expense was $1.3 billion, up by $9 million, or 1%, compared with the prior year,
primarily due to higher volume-related expense.
29
Year-to-date results
Net income was $2.3 billion, down by $177 million, or 7%, from the prior year. Prior-year results
benefited from significantly lower net charge-offs following the change in bankruptcy legislation
in the fourth quarter of 2005.
End-of-period managed loans of $149.1 billion increased by $5.2 billion, or 4%, from the prior
year. Average managed loans of $148.5 billion increased by $9.5 billion, or 7%, from the prior
year. Both end-of-period and average managed loans benefited from organic growth.
Net managed revenue was $11.3 billion, up by $269 million, or 2%, from the prior year. Net interest
income was $9.1 billion, up by $193 million, or 2%, compared with the prior year. The increase in
net interest income was driven by higher average loan balances and an increased level of fees.
These benefits were offset partially by a narrower loan spread, the discontinuation of certain
billing practices (including the elimination of over-limit fees and the two-cycle method for
calculating finance charges) and increased revenue reversals, resulting from a higher level of
charge-offs. Noninterest revenue was $2.2 billion, up by $76 million, or 4%, from the prior year.
The increase reflects a higher level of fee-based revenue and increased net interchange income,
benefiting from 5% higher charge volume. Charge volume reflects an approximate 10% growth rate in
sales volume, offset partially by a lower level of balance transfers, the result of a more targeted
marketing effort.
The Managed provision for credit losses was $3.9 billion, up by $606 million, or 18%, from the
prior year. The prior year benefited from lower net charge-offs, following the change in bankruptcy
legislation in the fourth quarter of 2005. The managed net charge-off rate increased to 3.61%, up
from 3.29% in the prior year. The 30-day managed delinquency rate was 3.25%, up from 3.17% in the
prior year.
Noninterest expense was $3.7 billion, down by $54 million, or 1%, compared with the prior year,
primarily due to lower marketing expense and lower fraud-related expense, offset partially by
higher volume-related expense.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount, ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8.29 |
% |
|
|
8.07 |
% |
|
|
|
|
|
|
8.15 |
% |
|
|
8.52 |
% |
|
|
|
|
Provision for credit losses |
|
|
3.64 |
|
|
|
3.56 |
|
|
|
|
|
|
|
3.53 |
|
|
|
3.19 |
|
|
|
|
|
Noninterest revenue |
|
|
2.03 |
|
|
|
2.13 |
|
|
|
|
|
|
|
1.99 |
|
|
|
2.05 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
6.68 |
|
|
|
6.65 |
|
|
|
|
|
|
|
6.61 |
|
|
|
7.39 |
|
|
|
|
|
Noninterest expense |
|
|
3.37 |
|
|
|
3.51 |
|
|
|
|
|
|
|
3.32 |
|
|
|
3.60 |
|
|
|
|
|
Pretax income (ROO) |
|
|
3.31 |
|
|
|
3.14 |
|
|
|
|
|
|
|
3.29 |
|
|
|
3.78 |
|
|
|
|
|
Net income |
|
|
2.10 |
|
|
|
1.99 |
|
|
|
|
|
|
|
2.08 |
|
|
|
2.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
89.8 |
|
|
$ |
87.5 |
|
|
|
3 |
% |
|
$ |
259.1 |
|
|
$ |
246.2 |
|
|
|
5 |
% |
Net accounts opened (in thousands)(b) |
|
|
3,957 |
# |
|
|
4,186 |
# |
|
|
(5 |
) |
|
|
11,102 |
# |
|
|
31,477 |
# |
|
|
(65 |
) |
Credit cards issued (in thousands) |
|
|
153,637 |
|
|
|
139,513 |
|
|
|
10 |
|
|
|
153,637 |
|
|
|
139,513 |
|
|
|
10 |
|
Number of registered Internet customers (in
millions) |
|
|
26.4 |
|
|
|
20.4 |
|
|
|
29 |
|
|
|
26.4 |
|
|
|
20.4 |
|
|
|
29 |
|
Merchant acquiring business(c) |
Bank card volume (in billions) |
|
$ |
181.4 |
|
|
$ |
168.7 |
|
|
|
8 |
|
|
$ |
524.7 |
|
|
$ |
482.7 |
|
|
|
9 |
|
Total transactions (in millions) |
|
|
4,990 |
# |
|
|
4,597 |
# |
|
|
9 |
|
|
|
14,266 |
# |
|
|
13,203 |
# |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
79,409 |
|
|
$ |
78,587 |
|
|
|
1 |
|
|
$ |
79,409 |
|
|
$ |
78,587 |
|
|
|
1 |
|
Securitized loans |
|
|
69,643 |
|
|
|
65,245 |
|
|
|
7 |
|
|
|
69,643 |
|
|
|
65,245 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
149,052 |
|
|
$ |
143,832 |
|
|
|
4 |
|
|
$ |
149,052 |
|
|
$ |
143,832 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
154,956 |
|
|
$ |
148,272 |
|
|
|
5 |
|
|
$ |
155,206 |
|
|
$ |
146,192 |
|
|
|
6 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
79,993 |
|
|
$ |
76,655 |
|
|
|
4 |
|
|
$ |
80,301 |
|
|
$ |
71,129 |
|
|
|
13 |
|
Securitized loans |
|
|
68,673 |
|
|
|
65,061 |
|
|
|
6 |
|
|
|
68,200 |
|
|
|
67,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
148,666 |
|
|
$ |
141,716 |
|
|
|
5 |
|
|
$ |
148,501 |
|
|
$ |
138,991 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
18,887 |
# |
|
|
18,696 |
# |
|
|
1 |
|
|
|
18,887 |
# |
|
|
18,696 |
# |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,363 |
|
|
$ |
1,280 |
|
|
|
6 |
|
|
$ |
4,008 |
|
|
$ |
3,417 |
|
|
|
17 |
|
Net charge-off rate |
|
|
3.64 |
% |
|
|
3.58 |
% |
|
|
|
|
|
|
3.61 |
% |
|
|
3.29 |
% |
|
|
|
|
Managed delinquency ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ days |
|
|
3.25 |
% |
|
|
3.17 |
% |
|
|
|
|
|
|
3.25 |
% |
|
|
3.17 |
% |
|
|
|
|
90+ days |
|
|
1.50 |
|
|
|
1.48 |
|
|
|
|
|
|
|
1.50 |
|
|
|
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,107 |
|
|
$ |
3,176 |
|
|
|
(2 |
) |
|
$ |
3,107 |
|
|
$ |
3,176 |
|
|
|
(2 |
) |
Allowance for loan losses to period-end loans |
|
|
3.91 |
% |
|
|
4.04 |
% |
|
|
|
|
|
|
3.91 |
% |
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Represents Total net revenue less Provision for credit losses. |
(b) |
|
Year-to-date 2006 included approximately 21 million accounts from the acquisition of the
Kohls private-label portfolio in the second quarter of 2006. |
(c) |
|
Represents 100% of the merchant acquiring business. |
31
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to disclose
the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
Reported basis for the period |
|
$ |
1,528 |
|
|
$ |
1,357 |
|
|
|
13 |
% |
|
$ |
4,343 |
|
|
$ |
4,673 |
|
|
|
(7 |
)% |
Securitization adjustments |
|
|
(836 |
) |
|
|
(721 |
) |
|
|
(16 |
) |
|
|
(2,370 |
) |
|
|
(2,783 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
692 |
|
|
$ |
636 |
|
|
|
9 |
|
|
$ |
1,973 |
|
|
$ |
1,890 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
1,694 |
|
|
$ |
1,556 |
|
|
|
9 |
|
|
$ |
4,921 |
|
|
$ |
4,459 |
|
|
|
10 |
|
Securitization adjustments |
|
|
1,414 |
|
|
|
1,328 |
|
|
|
6 |
|
|
|
4,131 |
|
|
|
4,400 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
3,108 |
|
|
$ |
2,884 |
|
|
|
8 |
|
|
$ |
9,052 |
|
|
$ |
8,859 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
3,289 |
|
|
$ |
3,039 |
|
|
|
8 |
|
|
$ |
9,503 |
|
|
$ |
9,378 |
|
|
|
1 |
|
Securitization adjustments |
|
|
578 |
|
|
|
607 |
|
|
|
(5 |
) |
|
|
1,761 |
|
|
|
1,617 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
3,867 |
|
|
$ |
3,646 |
|
|
|
6 |
|
|
$ |
11,264 |
|
|
$ |
10,995 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
785 |
|
|
$ |
663 |
|
|
|
18 |
|
|
$ |
2,162 |
|
|
$ |
1,700 |
|
|
|
27 |
|
Securitization adjustments |
|
|
578 |
|
|
|
607 |
|
|
|
(5 |
) |
|
|
1,761 |
|
|
|
1,617 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit losses |
|
$ |
1,363 |
|
|
$ |
1,270 |
|
|
|
7 |
|
|
$ |
3,923 |
|
|
$ |
3,317 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
88,856 |
|
|
$ |
85,301 |
|
|
|
4 |
|
|
$ |
89,491 |
|
|
$ |
80,395 |
|
|
|
11 |
|
Securitization adjustments |
|
|
66,100 |
|
|
|
62,971 |
|
|
|
5 |
|
|
|
65,715 |
|
|
|
65,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
154,956 |
|
|
$ |
148,272 |
|
|
|
5 |
|
|
$ |
155,206 |
|
|
$ |
146,192 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net charge-offs data for the period |
|
$ |
785 |
|
|
$ |
673 |
|
|
|
17 |
|
|
$ |
2,247 |
|
|
$ |
1,800 |
|
|
|
25 |
|
Securitization adjustments |
|
|
578 |
|
|
|
607 |
|
|
|
(5 |
) |
|
|
1,761 |
|
|
|
1,617 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
1,363 |
|
|
$ |
1,280 |
|
|
|
6 |
|
|
$ |
4,008 |
|
|
$ |
3,417 |
|
|
|
17 |
|
|
|
|
|
(a) |
|
JPMorgan Chase uses the concept of managed receivables to evaluate the credit
performance and overall performance of the underlying credit card loans, both sold and not
sold; as the same borrower is continuing to use the credit card for ongoing charges, a
borrowers credit performance will affect both the receivables sold under SFAS 140 and those
not sold. Thus, in its disclosures regarding managed receivables, JPMorgan Chase treats the
sold receivables as if they were still on the balance sheet in order to disclose the credit
performance (such as Net charge-off rates) of the entire managed credit card portfolio.
Managed results exclude the impact of credit card securitizations on Total net revenue, the
Provision for credit losses, net charge-offs and loan receivables. Securitization does not
change reported net income versus managed earnings; however, it does affect the classification
of items on the Consolidated statements of income and Consolidated balance sheets. For further
information, see Explanation and Reconciliation of the Firms Use of non-GAAP Financial
Measures on pages 1316 of this Form 10-Q. |
32
COMMERCIAL BANKING
For a
discussion of the business profile of CB, see pages 4647 of JPMorgan Chases 2006 Annual
Report and page 5 of this Form 10-Q.
On October 1, 2006, JPMorgan Chase completed the acquisition of The Bank of New Yorks consumer,
business banking and middle-market banking businesses adding approximately $2.3 billion in loans
and $1.2 billion in deposits to CB.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
159 |
|
|
$ |
145 |
|
|
|
10 |
% |
|
$ |
475 |
|
|
$ |
434 |
|
|
|
9 |
% |
Asset management, administration and commissions |
|
|
24 |
|
|
|
16 |
|
|
|
50 |
|
|
|
68 |
|
|
|
47 |
|
|
|
45 |
|
All other income(a) |
|
|
107 |
|
|
|
95 |
|
|
|
13 |
|
|
|
394 |
|
|
|
282 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
290 |
|
|
|
256 |
|
|
|
13 |
|
|
|
937 |
|
|
|
763 |
|
|
|
23 |
|
Net interest income |
|
|
719 |
|
|
|
677 |
|
|
|
6 |
|
|
|
2,082 |
|
|
|
2,019 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,009 |
|
|
|
933 |
|
|
|
8 |
|
|
|
3,019 |
|
|
|
2,782 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
112 |
|
|
|
54 |
|
|
|
107 |
|
|
|
174 |
|
|
|
49 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
160 |
|
|
|
190 |
|
|
|
(16 |
) |
|
|
522 |
|
|
|
566 |
|
|
|
(8 |
) |
Noncompensation expense |
|
|
300 |
|
|
|
296 |
|
|
|
1 |
|
|
|
890 |
|
|
|
883 |
|
|
|
1 |
|
Amortization of intangibles |
|
|
13 |
|
|
|
14 |
|
|
|
(7 |
) |
|
|
42 |
|
|
|
45 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
473 |
|
|
|
500 |
|
|
|
(5 |
) |
|
|
1,454 |
|
|
|
1,494 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
424 |
|
|
|
379 |
|
|
|
12 |
|
|
|
1,391 |
|
|
|
1,239 |
|
|
|
12 |
|
Income tax expense |
|
|
166 |
|
|
|
148 |
|
|
|
12 |
|
|
|
545 |
|
|
|
485 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
258 |
|
|
$ |
231 |
|
|
|
12 |
|
|
$ |
846 |
|
|
$ |
754 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
15 |
% |
|
|
17 |
% |
|
|
|
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
Overhead ratio |
|
|
47 |
|
|
|
54 |
|
|
|
|
|
|
|
48 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
(a) |
|
IB-related and commercial card revenues are included in All other income. |
Quarterly results
Net income was $258 million, up by $27 million, or 12%, from the prior year. The increase was
driven by growth in net revenue and lower noninterest expense, offset primarily by a higher
Provision for credit losses.
Net revenue was $1.0 billion, up by $76 million, or 8%, from the prior year. Net interest income
was $719 million, up by $42 million, or 6%. The increase was driven by double-digit growth in
liability and loan balances, reflecting organic growth and the Bank of New York transaction,
partially offset by a continued shift to narrowerspread liability products and spread compression
in the loan and liability portfolios. Noninterest revenue was $290 million, up by $34 million, or
13%, primarily due to higher deposit-related fees and other income.
Middle Market Banking revenue was $680 million, an increase of $63 million, or 10%, from the prior
year, due to the Bank of New York transaction, higher deposit-related fees, and growth in
investment banking revenue. Mid-Corporate Banking revenue was $167 million, an increase of $7
million, or 4%. Real Estate Banking revenue was $108 million, a decrease of $11 million, or 9%.
The Provision for credit losses was $112 million, compared with $54 million in the prior year. The
current-quarter provision largely reflected portfolio activity and growth in loan balances. The
Allowance for loan losses to average loans retained was 2.67% for the current quarter, which
decreased from 2.70% in the prior year. Nonperforming loans were $134 million, down 15% from the
prior year. The net charge-off rate was 0.13% in the current quarter compared with 0.16% in the
prior year.
Noninterest expense was $473 million, down by $27 million, or 5%, from the prior year, as lower
performance-based compensation expense was offset partially by higher volume-related expense.
Year-to-date results
Net income was $846 million, an increase of $92 million, or 12%, from the prior year due primarily
to growth in net revenue, partially offset by higher Provision for credit losses.
Net revenue of $3.0 billion increased by $237 million, or 9%. Net interest income of $2.1 billion
increased by $63 million, or 3%, driven by double-digit growth in liability balances and loans,
which reflected organic growth and the Bank of New York transaction, largely offset by the
continued shift to narrowerspread liability products and spread compression in the loan and
33
liability portfolios. Noninterest revenue was $937 million, up by $174 million, or 23%, due to
higher investment banking-related revenues, increased deposit-related fees and gains related to the
sale of securities acquired in the satisfaction of debt.
On a segment basis, Middle Market Banking revenue was $2.0 billion, an increase of $120 million, or
6%, primarily due to the Bank of New York transaction, growth in investment banking revenue and
higher deposit-related fees. Mid-Corporate Banking revenue was $576 million, an increase of $118
million, or 26%, reflecting higher lending revenue, investment banking revenue, and gains on sales
of securities acquired in the satisfaction of debt. Real Estate Banking revenue of $319 million
decreased by $19 million, or 6%.
Provision for credit losses was $174 million, compared with $49 million in the prior year. The
increase in the Allowance for credit losses reflected portfolio activity and growth in loan
balances. The Allowance for loan losses to average loans was 2.75%, compared with 2.76% in the
prior year.
Noninterest expense was $1.5 billion, a decrease of $40 million, or 3%, largely due to lower
compensation expense driven by the absence of prior-year expense from the adoption of SFAS 123R,
partially offset by expense related to the Bank of New York transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratio and headcount data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
343 |
|
|
$ |
335 |
|
|
|
2 |
% |
|
$ |
1,039 |
|
|
$ |
985 |
|
|
|
5 |
% |
Treasury services |
|
|
594 |
|
|
|
551 |
|
|
|
8 |
|
|
|
1,719 |
|
|
|
1,667 |
|
|
|
3 |
|
Investment banking |
|
|
64 |
|
|
|
60 |
|
|
|
7 |
|
|
|
222 |
|
|
|
166 |
|
|
|
34 |
|
Other |
|
|
8 |
|
|
|
(13 |
) |
|
NM |
|
|
|
39 |
|
|
|
(36 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,009 |
|
|
$ |
933 |
|
|
|
8 |
|
|
$ |
3,019 |
|
|
$ |
2,782 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenues, gross(a) |
|
$ |
194 |
|
|
$ |
170 |
|
|
|
14 |
|
|
$ |
661 |
|
|
$ |
470 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
680 |
|
|
$ |
617 |
|
|
|
10 |
|
|
$ |
1,994 |
|
|
$ |
1,874 |
|
|
|
6 |
|
Mid-Corporate Banking |
|
|
167 |
|
|
|
160 |
|
|
|
4 |
|
|
|
576 |
|
|
|
458 |
|
|
|
26 |
|
Real Estate Banking |
|
|
108 |
|
|
|
119 |
|
|
|
(9 |
) |
|
|
319 |
|
|
|
338 |
|
|
|
(6 |
) |
Other |
|
|
54 |
|
|
|
37 |
|
|
|
46 |
|
|
|
130 |
|
|
|
112 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,009 |
|
|
$ |
933 |
|
|
|
8 |
|
|
$ |
3,019 |
|
|
$ |
2,782 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
86,652 |
|
|
$ |
57,378 |
|
|
|
51 |
|
|
$ |
84,643 |
|
|
$ |
56,246 |
|
|
|
50 |
|
Loans and leases(b) |
|
|
61,272 |
|
|
|
53,404 |
|
|
|
15 |
|
|
|
59,595 |
|
|
|
52,227 |
|
|
|
14 |
|
Liability balances(c) |
|
|
88,081 |
|
|
|
72,009 |
|
|
|
22 |
|
|
|
84,697 |
|
|
|
71,781 |
|
|
|
18 |
|
Equity |
|
|
6,700 |
|
|
|
5,500 |
|
|
|
22 |
|
|
|
6,435 |
|
|
|
5,500 |
|
|
|
17 |
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
37,617 |
|
|
$ |
32,890 |
|
|
|
14 |
|
|
$ |
37,016 |
|
|
$ |
32,418 |
|
|
|
14 |
|
Mid-Corporate Banking |
|
|
12,076 |
|
|
|
8,756 |
|
|
|
38 |
|
|
|
11,484 |
|
|
|
8,205 |
|
|
|
40 |
|
Real Estate Banking |
|
|
7,144 |
|
|
|
7,564 |
|
|
|
(6 |
) |
|
|
7,038 |
|
|
|
7,505 |
|
|
|
(6 |
) |
Other |
|
|
4,435 |
|
|
|
4,194 |
|
|
|
6 |
|
|
|
4,057 |
|
|
|
4,099 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
61,272 |
|
|
$ |
53,404 |
|
|
|
15 |
|
|
$ |
59,595 |
|
|
$ |
52,227 |
|
|
|
14 |
|
|
Headcount |
|
|
4,158 |
# |
|
|
4,447 |
# |
|
|
(6 |
) |
|
|
4,158 |
# |
|
|
4,447 |
# |
|
|
(6 |
) |
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
20 |
|
|
$ |
21 |
|
|
|
(5 |
) |
|
$ |
11 |
|
|
$ |
11 |
|
|
|
|
|
Nonperforming loans |
|
|
134 |
|
|
|
157 |
|
|
|
(15 |
) |
|
|
134 |
|
|
|
157 |
|
|
|
(15 |
) |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,623 |
|
|
|
1,431 |
|
|
|
13 |
|
|
|
1,623 |
|
|
|
1,431 |
|
|
|
13 |
|
Allowance for lending-related commitments |
|
|
236 |
|
|
|
156 |
|
|
|
51 |
|
|
|
236 |
|
|
|
156 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
1,859 |
|
|
|
1,587 |
|
|
|
17 |
|
|
|
1,859 |
|
|
|
1,587 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(b) |
|
|
0.13 |
% |
|
|
0.16 |
% |
|
|
|
|
|
|
0.02 |
% |
|
|
0.03 |
% |
|
|
|
|
Allowance for loan losses to average loans(b) |
|
|
2.67 |
|
|
|
2.70 |
|
|
|
|
|
|
|
2.75 |
|
|
|
2.76 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
1,211 |
|
|
|
911 |
|
|
|
|
|
|
|
1,211 |
|
|
|
911 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.22 |
|
|
|
0.29 |
|
|
|
|
|
|
|
0.22 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the total revenue related to investment banking products sold to CB clients. |
(b) |
|
Average loans include Loans held-for-sale of $433 million and $359 million for the quarters
ended September 30, 2007 and 2006, respectively, and $550 million and $321 million for
year-to-date 2007 and 2006, respectively. These amounts are excluded when calculating the Net
charge-off rate and the allowance coverage ratio. |
(c) |
|
Liability balances included deposits and deposits swept to on-balance sheet
liabilities. |
34
TREASURY & SECURITIES SERVICES
For a
discussion of the business profile of TSS, see pages 4849 of JPMorgan Chases 2006
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
244 |
|
|
$ |
183 |
|
|
|
33 |
% |
|
$ |
676 |
|
|
$ |
549 |
|
|
|
23 |
% |
Asset management, administration and commissions |
|
|
730 |
|
|
|
642 |
|
|
|
14 |
|
|
|
2,244 |
|
|
|
1,975 |
|
|
|
14 |
|
All other income |
|
|
171 |
|
|
|
155 |
|
|
|
10 |
|
|
|
480 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,145 |
|
|
|
980 |
|
|
|
17 |
|
|
|
3,400 |
|
|
|
3,003 |
|
|
|
13 |
|
Net interest income |
|
|
603 |
|
|
|
519 |
|
|
|
16 |
|
|
|
1,615 |
|
|
|
1,569 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,748 |
|
|
|
1,499 |
|
|
|
17 |
|
|
|
5,015 |
|
|
|
4,572 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
9 |
|
|
|
1 |
|
|
|
NM |
|
|
|
15 |
|
|
|
1 |
|
|
|
NM |
|
Credit reimbursement to IB(a) |
|
|
(31 |
) |
|
|
(30 |
) |
|
|
(3 |
) |
|
|
(91 |
) |
|
|
(90 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
579 |
|
|
|
557 |
|
|
|
4 |
|
|
|
1,746 |
|
|
|
1,643 |
|
|
|
6 |
|
Noncompensation expense |
|
|
538 |
|
|
|
489 |
|
|
|
10 |
|
|
|
1,563 |
|
|
|
1,462 |
|
|
|
7 |
|
Amortization of intangibles |
|
|
17 |
|
|
|
18 |
|
|
|
(6 |
) |
|
|
49 |
|
|
|
57 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,134 |
|
|
|
1,064 |
|
|
|
7 |
|
|
|
3,358 |
|
|
|
3,162 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
574 |
|
|
|
404 |
|
|
|
42 |
|
|
|
1,551 |
|
|
|
1,319 |
|
|
|
18 |
|
Income tax expense |
|
|
214 |
|
|
|
148 |
|
|
|
45 |
|
|
|
576 |
|
|
|
485 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
360 |
|
|
$ |
256 |
|
|
|
41 |
|
|
$ |
975 |
|
|
$ |
834 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
48 |
% |
|
|
46 |
% |
|
|
|
|
|
|
43 |
% |
|
|
48 |
% |
|
|
|
|
Overhead ratio |
|
|
65 |
|
|
|
71 |
|
|
|
|
|
|
|
67 |
|
|
|
69 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
33 |
|
|
|
27 |
|
|
|
|
|
|
|
31 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
(a) |
|
TSS was charged a credit reimbursement related to certain exposures managed within the IB
credit portfolio on behalf of clients shared with TSS. For a further discussion, see Credit
reimbursement on page 35 of JPMorgan Chases 2006 Annual Report. |
(b) |
|
Pretax margin represents Income before income tax expense divided by Total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was a record $360 million, up by $104 million, or 41%, from the prior year, driven by
record revenue offset partially by higher noninterest expense.
Net revenue was $1.7 billion, up by $249 million, or 17%, from the prior year. Worldwide Securities
Services net revenue of $968 million was up by $166 million, or 21%. The growth was driven by
increased product usage by new and existing clients and market appreciation, partially offset by
spread compression and a shift to narrower-spread liability products. Treasury Services net revenue
of $780 million was up by $83 million, or 12%, driven by growth in electronic volumes and higher
liability balances. These benefits were offset partially by a continued shift to narrower-spread
liability products. TSS firmwide net revenue, which includes Treasury Services net revenue recorded
in other lines of business, grew to $2.4 billion, up by $308 million, or 15%. Treasury Services
firmwide net revenue grew to $1.4 billion, up by $142 million, or 11%.
Noninterest expense was $1.1 billion, up by $70 million, or 7%, from the prior year. The increase
was due to higher expense related to business and volume growth, as well as investment in new
product platforms.
Year-to-date results
Net income was $975 million, up by $141 million, or 17%, from the prior year. The increase was
driven by record revenue, partially offset by higher noninterest expense.
Net revenue was $5.0 billion, up by $443 million, or 10%, from the prior year. Worldwide Securities
Services net revenue was $2.8 billion, up by $346 million, or 14%, driven by increased product
usage by new and existing clients and market appreciation, partially offset by spread compression
and a shift to narrower-spread liability products. Treasury Services net revenue was $2.2 billion,
up by $97 million, or 5%, driven by growth in electronic volumes and higher liability balances.
These benefits were offset partially by a continued shift to narrower-spread liability products.
TSS firmwide net revenues, which includes Treasury Services net revenue recorded in other lines of
business, grew to $6.9 billion, up by $538 million, or 8%. Treasury Services firmwide net revenue
grew to $4.1 billion, up by $192 million, or 5%.
35
Noninterest expense was $3.4 billion, up by $196 million, or 6%. The increase was due to higher
expense related to business and volume growth as well as investment in new product platforms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount, ratio data and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services |
|
$ |
780 |
|
|
$ |
697 |
|
|
|
12 |
% |
|
$ |
2,189 |
|
|
$ |
2,092 |
|
|
|
5 |
% |
Worldwide Securities Services |
|
|
968 |
|
|
|
802 |
|
|
|
21 |
|
|
|
2,826 |
|
|
|
2,480 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,748 |
|
|
$ |
1,499 |
|
|
|
17 |
|
|
$ |
5,015 |
|
|
$ |
4,572 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
15,614 |
|
|
$ |
12,873 |
|
|
|
21 |
|
|
$ |
15,614 |
|
|
$ |
12,873 |
|
|
|
21 |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ ACH transactions originated (in millions) |
|
|
943 |
# |
|
|
886 |
# |
|
|
6 |
|
|
|
2,886 |
# |
|
|
2,572 |
# |
|
|
12 |
|
Total US$ clearing volume (in thousands) |
|
|
28,031 |
|
|
|
26,252 |
|
|
|
7 |
|
|
|
82,650 |
|
|
|
77,940 |
|
|
|
6 |
|
International electronic funds transfer volume
(in thousands)(a) |
|
|
41,415 |
|
|
|
35,322 |
|
|
|
17 |
|
|
|
125,882 |
|
|
|
104,318 |
|
|
|
21 |
|
Wholesale check volume (in millions) |
|
|
731 |
|
|
|
860 |
|
|
|
(15 |
) |
|
|
2,269 |
|
|
|
2,616 |
|
|
|
(13 |
) |
Wholesale cards issued (in thousands)(b) |
|
|
18,108 |
|
|
|
16,662 |
|
|
|
9 |
|
|
|
18,108 |
|
|
|
16,662 |
|
|
|
9 |
|
Selected balance sheets (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
55,688 |
|
|
$ |
30,558 |
|
|
|
82 |
|
|
$ |
50,829 |
|
|
$ |
30,526 |
|
|
|
67 |
|
Loans |
|
|
20,602 |
|
|
|
15,231 |
|
|
|
35 |
|
|
|
19,921 |
|
|
|
14,396 |
|
|
|
38 |
|
Liability balances(c) |
|
|
236,381 |
|
|
|
192,518 |
|
|
|
23 |
|
|
|
221,606 |
|
|
|
188,330 |
|
|
|
18 |
|
Equity |
|
|
3,000 |
|
|
|
2,200 |
|
|
|
36 |
|
|
|
3,000 |
|
|
|
2,314 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
25,209 |
# |
|
|
24,575 |
# |
|
|
3 |
|
|
|
25,209 |
# |
|
|
24,575 |
# |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide revenue(d) |
|
$ |
1,442 |
|
|
$ |
1,300 |
|
|
|
11 |
|
|
$ |
4,101 |
|
|
$ |
3,909 |
|
|
|
5 |
|
Treasury & Securities Services firmwide
revenue(d) |
|
|
2,410 |
|
|
|
2,102 |
|
|
|
15 |
|
|
|
6,927 |
|
|
|
6,389 |
|
|
|
8 |
|
Treasury Services firmwide overhead ratio(e) |
|
|
54 |
% |
|
|
57 |
% |
|
|
|
|
|
|
57 |
% |
|
|
56 |
% |
|
|
|
|
Treasury & Securities Services firmwide
overhead ratio(e) |
|
|
59 |
|
|
|
63 |
|
|
|
|
|
|
|
60 |
|
|
|
61 |
|
|
|
|
|
Treasury Services firmwide liability balances
(average)(f) |
|
$ |
201,671 |
|
|
$ |
162,326 |
|
|
|
24 |
|
|
$ |
192,560 |
|
|
$ |
159,897 |
|
|
|
20 |
|
Treasury & Securities Services firmwide
liability balances (average)(f) |
|
|
324,462 |
|
|
|
264,527 |
|
|
|
23 |
|
|
|
306,302 |
|
|
|
259,477 |
|
|
|
18 |
|
|
|
|
|
(a) |
|
International electronic funds transfer includes non-US$ ACH and clearing volume. |
(b) |
|
Wholesale cards issued included domestic commercial card, stored value card, prepaid card,
and government electronic benefit card products. |
(c) |
|
Liability balances
included deposits and deposits swept to onbalance sheet liabilities. |
TSS firmwide metrics
TSS firmwide metrics include certain TSS product revenues and liability balances reported in other
lines of business for customers who are also customers of those lines of business. In order to
capture the firmwide impact of TS and TSS products and revenues, management reviews firmwide
metrics such as liability balances, revenues and overhead ratios in assessing financial performance
for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.
|
|
|
(d) |
|
Firmwide revenue included TS revenue recorded in the CB, Regional Banking and AM lines of
business (see below) and excluded FX revenues recorded in IB for TSS-related FX activity. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Treasury Services revenue reported in CB |
|
$ |
592 |
|
|
$ |
551 |
|
|
|
7 |
% |
|
$ |
1,717 |
|
|
$ |
1,667 |
|
|
|
3 |
% |
Treasury Services revenue reported in other lines
of business |
|
|
70 |
|
|
|
52 |
|
|
|
35 |
|
|
|
195 |
|
|
|
150 |
|
|
|
30 |
|
|
TSS firmwide FX revenue, which includes FX revenue recorded in TSS and FX revenue
associated with TSS customers who are FX customers of IB, was $144 million and $85 million for
the quarters ended September 30, 2007 and 2006, respectively, and $395 million and $349 million
year-to-date 2007 and 2006, respectively.
|
|
|
(e) |
|
Overhead ratios have been calculated based upon firmwide revenues and TSS and TS expenses,
respectively, including those allocated to certain other lines of business. FX revenues and
expenses recorded in IB for TSS-related FX activity were not included in this ratio. |
(f) |
|
Firmwide liability balances included TSs liability balances recorded in certain other lines
of business. Liability balances associated with TS customers who were also customers of the CB
line of business were not included in TS liability balances. |
36
ASSET MANAGEMENT
For a
discussion of the business profile of AM, see pages 5052 of JPMorgan Chases 2006
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration and commissions |
|
$ |
1,760 |
|
|
$ |
1,285 |
|
|
|
37 |
% |
|
$ |
4,920 |
|
|
$ |
3,786 |
|
|
|
30 |
% |
All other income |
|
|
152 |
|
|
|
120 |
|
|
|
27 |
|
|
|
495 |
|
|
|
329 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,912 |
|
|
|
1,405 |
|
|
|
36 |
|
|
|
5,415 |
|
|
|
4,115 |
|
|
|
32 |
|
Net interest income |
|
|
293 |
|
|
|
231 |
|
|
|
27 |
|
|
|
831 |
|
|
|
725 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,205 |
|
|
|
1,636 |
|
|
|
35 |
|
|
|
6,246 |
|
|
|
4,840 |
|
|
|
29 |
|
|
Provision for credit losses |
|
|
3 |
|
|
|
(28 |
) |
|
NM |
|
|
|
(17 |
) |
|
|
(42 |
) |
|
|
60 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
848 |
|
|
|
676 |
|
|
|
25 |
|
|
|
2,491 |
|
|
|
2,027 |
|
|
|
23 |
|
Noncompensation expense |
|
|
498 |
|
|
|
417 |
|
|
|
19 |
|
|
|
1,405 |
|
|
|
1,201 |
|
|
|
17 |
|
Amortization of intangibles |
|
|
20 |
|
|
|
22 |
|
|
|
(9 |
) |
|
|
60 |
|
|
|
66 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,366 |
|
|
|
1,115 |
|
|
|
23 |
|
|
|
3,956 |
|
|
|
3,294 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
836 |
|
|
|
549 |
|
|
|
52 |
|
|
|
2,307 |
|
|
|
1,588 |
|
|
|
45 |
|
Income tax expense |
|
|
315 |
|
|
|
203 |
|
|
|
55 |
|
|
|
868 |
|
|
|
586 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
521 |
|
|
$ |
346 |
|
|
|
51 |
|
|
$ |
1,439 |
|
|
$ |
1,002 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
52 |
% |
|
|
39 |
% |
|
|
|
|
|
|
50 |
% |
|
|
38 |
% |
|
|
|
|
Overhead ratio |
|
|
62 |
|
|
|
68 |
|
|
|
|
|
|
|
63 |
|
|
|
68 |
|
|
|
|
|
Pretax margin ratio(a) |
|
|
38 |
|
|
|
34 |
|
|
|
|
|
|
|
37 |
|
|
|
33 |
|
|
|
|
|
|
Selected
metrics |
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private bank |
|
$ |
686 |
|
|
$ |
469 |
|
|
|
46 |
% |
|
$ |
1,892 |
|
|
$ |
1,379 |
|
|
|
37 |
% |
Retail |
|
|
639 |
|
|
|
456 |
|
|
|
40 |
|
|
|
1,768 |
|
|
|
1,344 |
|
|
|
32 |
|
Institutional |
|
|
603 |
|
|
|
464 |
|
|
|
30 |
|
|
|
1,771 |
|
|
|
1,348 |
|
|
|
31 |
|
Private client services |
|
|
277 |
|
|
|
247 |
|
|
|
12 |
|
|
|
815 |
|
|
|
769 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,205 |
|
|
$ |
1,636 |
|
|
|
35 |
|
|
$ |
6,246 |
|
|
$ |
4,840 |
|
|
|
29 |
|
|
|
|
|
(a) |
|
Pretax margin represents Income before income tax expense divided by Total net revenue,
which is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was a record $521 million, up by $175 million, or 51%, from the prior year. Results
benefited from record net revenue offset partially by higher noninterest expense.
Net revenue was $2.2 billion, up by $569 million, or 35%, from the prior year. Noninterest revenue,
primarily fees and commissions, was $1.9 billion, up by $507 million, or 36%. This result was due
largely to increased assets under management and higher performance and placement fees. Net
interest income was $293 million, up by $62 million, or 27%, from the prior year, largely due to
higher deposit and loan balances and wider deposit spreads.
Private Bank revenue grew 46%, to $686 million, due to higher asset management and placement fees,
increased loan and deposit balances, and wider deposit spreads. Retail revenue grew 40%, to $639
million, primarily due to market appreciation and net asset inflows. Institutional revenue grew
30%, to $603 million, due to net asset inflows and performance fees. Private Client Services
revenue grew 12%, to $277 million, due to increased revenue from higher assets under management and
higher deposit balances.
The Provision for credit losses was $3 million, compared with a benefit of $28 million in the prior
year, reflecting a higher level of recoveries in the prior year.
Noninterest expense was $1.4 billion, up by $251 million, or 23%, from the prior year. The increase
was due largely to higher compensation, primarily performance-based, and investments in all
business segments.
37
Year-to-date results
Net income was a record $1.4 billion, up by $437 million, or 44%, from the prior year.
Results benefited from record net revenue, partially offset by higher noninterest expense.
Net revenue was $6.2 billion, up by $1.4 billion, or 29%, from the prior year. Noninterest revenue,
primarily fees and commissions, was $5.4 billion, up by $1.3 billion, or 32%. This result was due
largely to increased assets under management and higher performance and placement fees. Net
interest income was $831 million, up by $106 million, or 15%, largely due to higher deposit and
loan balances and slightly wider deposit spreads.
Private Bank revenue grew 37%, to $1.9 billion, due to higher asset management and placement fees,
increased loan and deposit balances, and wider deposit spreads. Retail revenue grew 32%, to $1.8
billion, primarily due to market appreciation and net asset inflows. Institutional revenue grew
31%, to $1.8 billion, due to net asset inflows and performance fees. Private Client Services
revenue grew 6%, to $815 million, due to increased revenue from higher assets under management and
higher deposit balances, partially offset by a shift to narrower-spread deposit products.
The Provision for credit losses was a benefit of $17 million, compared with a benefit of $42
million in the prior year.
Noninterest expense was $4.0 billion, up by $662 million, or 20%, from the prior year. The increase
was due largely to higher compensation expense, primarily performance-based, investments in all
business segments, and increased minority-interest expense related to Highbridge Capital
Management. These factors were partially offset by the absence of prior-year expense from the
adoption of SFAS 123R.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount, ratios and ranking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
data, and where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,680 |
# |
|
|
1,489 |
# |
|
|
13 |
% |
|
|
1,680 |
# |
|
|
1,489 |
# |
|
|
13 |
% |
Retirement planning services participants |
|
|
1,495,000 |
|
|
|
1,372,000 |
|
|
|
9 |
|
|
|
1,495,000 |
|
|
|
1,372,000 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5 Star Funds(a) |
|
|
55 |
% |
|
|
58 |
% |
|
|
(5 |
) |
|
|
55 |
% |
|
|
58 |
% |
|
|
(5 |
) |
% of AUM in 1st and 2nd quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
47 |
% |
|
|
79 |
% |
|
|
(41 |
) |
|
|
47 |
% |
|
|
79 |
% |
|
|
(41 |
) |
3 years |
|
|
73 |
% |
|
|
75 |
% |
|
|
(3 |
) |
|
|
73 |
% |
|
|
75 |
% |
|
|
(3 |
) |
5 years |
|
|
76 |
% |
|
|
80 |
% |
|
|
(5 |
) |
|
|
76 |
% |
|
|
80 |
% |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheets data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
53,879 |
|
|
$ |
43,524 |
|
|
|
24 |
|
|
$ |
50,498 |
|
|
$ |
42,597 |
|
|
|
19 |
|
Loans(c) |
|
|
30,928 |
|
|
|
26,770 |
|
|
|
16 |
|
|
|
28,440 |
|
|
|
25,695 |
|
|
|
11 |
|
Deposits |
|
|
59,907 |
|
|
|
51,395 |
|
|
|
17 |
|
|
|
56,920 |
|
|
|
50,360 |
|
|
|
13 |
|
Equity |
|
|
4,000 |
|
|
|
3,500 |
|
|
|
14 |
|
|
|
3,834 |
|
|
|
3,500 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
14,510 |
# |
|
|
12,761 |
# |
|
|
14 |
|
|
|
14,510 |
# |
|
|
12,761 |
# |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(5 |
) |
|
$ |
(24 |
) |
|
|
79 |
|
|
$ |
(10 |
) |
|
$ |
(21 |
) |
|
|
52 |
|
Nonperforming loans |
|
|
28 |
|
|
|
57 |
|
|
|
(51 |
) |
|
|
28 |
|
|
|
57 |
|
|
|
(51 |
) |
Allowance for loan losses |
|
|
115 |
|
|
|
112 |
|
|
|
3 |
|
|
|
115 |
|
|
|
112 |
|
|
|
3 |
|
Allowance for lending-related commitments |
|
|
6 |
|
|
|
4 |
|
|
|
50 |
|
|
|
6 |
|
|
|
4 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
(0.06 |
)% |
|
|
(0.36 |
)% |
|
|
|
|
|
|
(0.05 |
)% |
|
|
(0.11 |
)% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.37 |
|
|
|
0.42 |
|
|
|
|
|
|
|
0.40 |
|
|
|
0.44 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
411 |
|
|
|
196 |
|
|
|
|
|
|
|
411 |
|
|
|
196 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.09 |
|
|
|
0.21 |
|
|
|
|
|
|
|
0.10 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
(a) |
|
Derived from Morningstar for the United States; Micropal for the United Kingdom,
Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
(b) |
|
Quartile rankings sourced from Lipper for the United States and Taiwan; Micropal for the
United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. |
(c) |
|
Held-for-investment prime mortgage loans transferred from AM to Treasury within the Corporate
segment during the three and nine months ended September 30, 2007, were $1.2 billion and $6.5
billion, respectively. There were no loans transferred during 2006. Although the loans,
together with the responsibility for the investment management of the portfolio, were
transferred to Treasury, the transfer has no material impact on the financial results of AM. |
38
Assets under supervision
Assets under supervision were $1.5 trillion, up 22%, or $274 billion, from the prior year. Assets
under management were $1.2 trillion, up 24%, or $228 billion, from the prior year. The increase was
the result of net asset inflows into the Institutional segment, primarily in liquidity and
alternative products; the Retail segment, primarily fixed income, equity and alternative products;
the Private Bank segment, primarily in liquidity and alternative products; and from market
appreciation. Custody, brokerage, administration and deposit balances were $376 billion, up by $46
billion.
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
|
|
As of September 30, |
|
2007 |
|
|
2006 |
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
368 |
|
|
$ |
281 |
|
Fixed income |
|
|
195 |
|
|
|
171 |
|
Equities & balanced |
|
|
481 |
|
|
|
392 |
|
Alternatives |
|
|
119 |
|
|
|
91 |
|
|
Total Assets under management |
|
|
1,163 |
|
|
|
935 |
|
Custody/brokerage/administration/deposits |
|
|
376 |
|
|
|
330 |
|
|
Total Assets under supervision |
|
$ |
1,539 |
|
|
$ |
1,265 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
Institutional |
|
$ |
603 |
|
|
$ |
503 |
|
Private Bank |
|
|
196 |
|
|
|
150 |
|
Retail |
|
|
304 |
|
|
|
228 |
|
Private Client Services |
|
|
60 |
|
|
|
54 |
|
|
Total Assets under management |
|
$ |
1,163 |
|
|
$ |
935 |
|
|
Institutional |
|
$ |
604 |
|
|
$ |
505 |
|
Private Bank |
|
|
423 |
|
|
|
347 |
|
Retail |
|
|
399 |
|
|
|
309 |
|
Private Client Services |
|
|
113 |
|
|
|
104 |
|
|
Total Assets under supervision |
|
$ |
1,539 |
|
|
$ |
1,265 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
745 |
|
|
$ |
596 |
|
International |
|
|
418 |
|
|
|
339 |
|
|
Total Assets under management |
|
$ |
1,163 |
|
|
$ |
935 |
|
|
U.S./Canada |
|
$ |
1,022 |
|
|
$ |
855 |
|
International |
|
|
517 |
|
|
|
410 |
|
|
Total Assets under supervision |
|
$ |
1,539 |
|
|
$ |
1,265 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
308 |
|
|
$ |
221 |
|
Fixed income |
|
|
46 |
|
|
|
45 |
|
Equity |
|
|
235 |
|
|
|
184 |
|
|
Total mutual fund assets |
|
$ |
589 |
|
|
$ |
450 |
|
|
|
|
|
(a) |
|
Excludes Assets under management of American Century Companies, Inc, in which the Firm
has 44% ownership. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management rollforward |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in billions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Beginning balance |
|
$ |
1,109 |
|
|
$ |
898 |
|
|
$ |
1,013 |
|
|
$ |
847 |
|
Flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
33 |
|
|
|
15 |
|
|
|
52 |
|
|
|
20 |
|
Fixed income |
|
|
(2 |
) |
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
Equities, balanced and alternatives |
|
|
2 |
|
|
|
3 |
|
|
|
24 |
|
|
|
29 |
|
Market/performance/other impacts |
|
|
21 |
|
|
|
15 |
|
|
|
68 |
|
|
|
29 |
|
|
Ending balance |
|
$ |
1,163 |
|
|
$ |
935 |
|
|
$ |
1,163 |
|
|
$ |
935 |
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
$ |
1,347 |
|
|
$ |
1,149 |
|
Net asset flows |
|
|
41 |
|
|
|
26 |
|
|
|
106 |
|
|
|
71 |
|
Market/performance/other impacts |
|
|
26 |
|
|
|
26 |
|
|
|
86 |
|
|
|
45 |
|
|
Ending balance |
|
$ |
1,539 |
|
|
$ |
1,265 |
|
|
$ |
1,539 |
|
|
$ |
1,265 |
|
|
39
CORPORATE
For a discussion of the business profile of Corporate, see
pages 5354 of JPMorgan Chases
2006 Annual Report.
The transaction with The Bank of New York closed on October 1, 2006. As a result of this
transaction, select corporate trust businesses were transferred from TSS to the Corporate segment
and are reported in discontinued operations for 2006. See Note 2 on
page 73 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions(a)(b) |
|
$ |
1,082 |
|
|
$ |
195 |
|
|
|
455 |
% |
|
$ |
3,779 |
|
|
$ |
945 |
|
|
|
300 |
% |
Securities gains (losses)(c) |
|
|
128 |
|
|
|
24 |
|
|
|
433 |
|
|
|
(107 |
) |
|
|
(626 |
) |
|
|
83 |
|
All other income(d) |
|
|
70 |
|
|
|
125 |
|
|
|
(44 |
) |
|
|
228 |
|
|
|
458 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,280 |
|
|
|
344 |
|
|
|
272 |
|
|
|
3,900 |
|
|
|
777 |
|
|
|
402 |
|
Net interest income (expense) |
|
|
(279 |
) |
|
|
(55 |
) |
|
|
(407 |
) |
|
|
(569 |
) |
|
|
(957 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,001 |
|
|
|
289 |
|
|
|
246 |
|
|
|
3,331 |
|
|
|
(180 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(31 |
) |
|
|
1 |
|
|
|
NM |
|
|
|
(25 |
) |
|
|
1 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense(b) |
|
|
569 |
|
|
|
737 |
|
|
|
(23 |
) |
|
|
2,040 |
|
|
|
2,192 |
|
|
|
(7 |
) |
Noncompensation expense(e) |
|
|
674 |
|
|
|
731 |
|
|
|
(8 |
) |
|
|
2,048 |
|
|
|
1,679 |
|
|
|
22 |
|
Merger costs |
|
|
61 |
|
|
|
48 |
|
|
|
27 |
|
|
|
187 |
|
|
|
205 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1,304 |
|
|
|
1,516 |
|
|
|
(14 |
) |
|
|
4,275 |
|
|
|
4,076 |
|
|
|
5 |
|
Net expenses allocated to other businesses |
|
|
(1,059 |
) |
|
|
(1,035 |
) |
|
|
(2 |
) |
|
|
(3,174 |
) |
|
|
(3,104 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
245 |
|
|
|
481 |
|
|
|
(49 |
) |
|
|
1,101 |
|
|
|
972 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income tax expense |
|
|
787 |
|
|
|
(193 |
) |
|
|
NM |
|
|
|
2,255 |
|
|
|
(1,153 |
) |
|
|
NM |
|
|
Income tax expense (benefit) |
|
|
274 |
|
|
|
(159 |
) |
|
|
NM |
|
|
|
729 |
|
|
|
(659 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
513 |
|
|
|
(34 |
) |
|
NM |
|
|
|
1,526 |
|
|
|
(494 |
) |
|
NM |
|
Income from discontinued operations(f) |
|
|
|
|
|
|
65 |
|
|
|
NM |
|
|
|
|
|
|
|
175 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
513 |
|
|
$ |
31 |
|
|
|
NM |
|
|
$ |
1,526 |
|
|
$ |
(319 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity(a)(b) |
|
$ |
733 |
|
|
$ |
188 |
|
|
|
290 |
|
|
$ |
3,279 |
|
|
$ |
892 |
|
|
|
268 |
|
Treasury and Corporate other(c) |
|
|
268 |
|
|
|
101 |
|
|
|
165 |
|
|
|
52 |
|
|
|
(1,072 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,001 |
|
|
$ |
289 |
|
|
|
246 |
|
|
$ |
3,331 |
|
|
$ |
(180 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity(a) |
|
$ |
409 |
|
|
$ |
95 |
|
|
|
331 |
|
|
$ |
1,809 |
|
|
$ |
491 |
|
|
|
268 |
|
Treasury and Corporate other(c) |
|
|
142 |
|
|
|
(99 |
) |
|
NM |
|
|
|
(167 |
) |
|
|
(858 |
) |
|
|
81 |
|
Merger costs |
|
|
(38 |
) |
|
|
(30 |
) |
|
|
(27 |
) |
|
|
(116 |
) |
|
|
(127 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
513 |
|
|
|
(34 |
) |
|
NM |
|
|
|
1,526 |
|
|
|
(494 |
) |
|
NM |
|
Income from discontinued operations(f) |
|
|
|
|
|
|
65 |
|
|
|
NM |
|
|
|
|
|
|
|
175 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) |
|
$ |
513 |
|
|
$ |
31 |
|
|
|
NM |
|
|
$ |
1,526 |
|
|
$ |
(319 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
22,864 |
# |
|
|
25,748 |
# |
|
|
(11 |
) |
|
|
22,864 |
# |
|
|
25,748 |
# |
|
|
(11 |
) |
|
|
|
|
(a) |
|
The Firm adopted SFAS 157
in the first quarter of 2007. See Note 3 on pages 7380 of
this Form 10-Q for additional information. |
(b) |
|
2007 included the classification of certain private equity carried interest from Net revenue
to Compensation expense. |
(c) |
|
Included a gain of $115 million in the third quarter of 2007 related to the sale of
MasterCard shares. |
(d) |
|
The nine months ended September 30, 2006, included a gain of $103 million related to the sale
of Mastercard shares in its initial public offering, which occurred during the second quarter
of 2006. |
(e) |
|
Included insurance recoveries related to settlement of the Enron and WorldCom class action
litigations and for certain other material proceedings of $17 million and $375 million for the
quarter and nine months ended September 30, 2006, respectively. |
(f) |
|
On October 1, 2006, the Firm completed the exchange of selected corporate trust businesses,
including trustee, paying agent, loan agency and document-management services, for the
consumer, business banking and middle-market banking businesses of The Bank of New York. The
results of operations of these corporate trust businesses were reported as discontinued
operations for 2006. |
Quarterly results
Net income was $513 million, compared with $31 million in the prior year, benefiting from increased
net revenue and lower noninterest expense. Prior-year results also included net income from
discontinued operations of $65 million.
Net revenue was $1.0 billion, compared with $289 million in the prior year. The increase was driven
by Private Equity gains of $766 million, compared with $226 million, reflecting a higher level of
gains and the classification of certain private equity carried interest as compensation expense.
Net revenue also increased due to higher trading-related gains and a $115 million gain from the
sale of MasterCard shares. The increase in revenue was offset partially by a narrower net interest
spread.
40
Noninterest expense was $245 million, down by $236 million from the prior year. The decrease was
driven by lower compensation expense and continuing business efficiencies. Partially offsetting the
benefit of lower expense was the impact of the classification of certain private equity carried
interest as compensation expense.
Year-to-date results
Net income was $1.5 billion, compared with net loss of $319 million in the prior year, benefiting
from increased net revenue, partially offset by higher expense. Prior-year results also included
net income from discontinued operations of $175 million.
Net revenue was $3.3 billion, compared with a negative $180 million in the prior year. The increase
was driven by Private Equity gains of $3.4 billion, compared with $1.0 billion, reflecting a higher
level of gains, the classification of certain private equity carried interest as compensation
expense and a fair value adjustment on nonpublic investments resulting from the adoption of SFAS
157. Net revenue also increased due to a $115 million gain from the sale of MasterCard shares,
lower securities losses and improved net interest income. Prior-year results included a $103
million gain related to the MasterCard initial public offering.
Noninterest expense was $1.1 billion, compared with $972 million in the prior year. The increase
was driven by higher net legal costs, reflecting a lower level of recoveries and higher expense. In
addition, expense increased due to the classification of certain private equity carried interest as
compensation expense offset partially by business efficiencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses)(a) |
|
$ |
126 |
|
|
$ |
24 |
|
|
|
425 |
% |
|
$ |
(109 |
) |
|
$ |
(626 |
) |
|
|
83 |
% |
Investment securities portfolio (average) |
|
|
85,470 |
|
|
|
68,619 |
|
|
|
25 |
|
|
|
86,552 |
|
|
|
57,545 |
|
|
|
50 |
|
Investment securities portfolio (ending) |
|
|
86,495 |
|
|
|
77,116 |
|
|
|
12 |
|
|
|
86,495 |
|
|
|
77,116 |
|
|
|
12 |
|
Mortgage loans (average)(b) |
|
|
29,854 |
|
|
|
|
|
|
|
NM |
|
|
|
27,326 |
|
|
|
|
|
|
|
NM |
|
Mortgage loans (ending)(b) |
|
|
32,804 |
|
|
|
|
|
|
|
NM |
|
|
|
32,804 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
504 |
|
|
$ |
194 |
|
|
|
160 |
|
|
$ |
2,212 |
|
|
$ |
969 |
|
|
|
128 |
|
Unrealized gains (losses) |
|
|
227 |
|
|
|
4 |
|
|
|
NM |
|
|
|
1,038 |
|
|
|
(7 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct investments(c) |
|
|
731 |
|
|
|
198 |
|
|
|
269 |
|
|
|
3,250 |
|
|
|
962 |
|
|
|
238 |
|
Third-party fund investments |
|
|
35 |
|
|
|
28 |
|
|
|
25 |
|
|
|
122 |
|
|
|
50 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains(d) |
|
$ |
766 |
|
|
$ |
226 |
|
|
|
239 |
|
|
$ |
3,372 |
|
|
$ |
1,012 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e) |
|
|
|
|
|
|
|
|
|
Direct investments |
|
September 30, 2007 |
|
December 31, 2006 |
|
Change |
|
Publicly-held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
409 |
|
|
$ |
587 |
|
|
|
(30 |
)% |
Cost |
|
|
291 |
|
|
|
451 |
|
|
|
(35 |
) |
Quoted public value |
|
|
560 |
|
|
|
831 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately-held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
5,336 |
|
|
|
4,692 |
|
|
|
14 |
|
Cost |
|
|
5,003 |
|
|
|
5,795 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
839 |
|
|
|
802 |
|
|
|
5 |
|
Cost |
|
|
1,078 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
Total
private equity portfolio Carrying value |
|
$ |
6,584 |
|
|
$ |
6,081 |
|
|
|
8 |
|
Total
private equity portfolio Cost |
|
$ |
6,372 |
|
|
$ |
7,326 |
|
|
|
(13 |
) |
|
|
|
|
(a) |
|
Losses reflected repositioning of the Treasury investment securities portfolio. |
(b) |
|
Held-for-investment prime mortgage loans were transferred from RFS and AM. The transfer has
no material impact on the financial results of Corporate. |
(c) |
|
Private equity gains include a fair value adjustment related to the adoption of SFAS 157 in
the first quarter of 2007. In addition, 2007 includes the reclassification of certain private
equity carried interest from Net revenue to Compensation expense. |
(d) |
|
Included in Principal transactions revenue. |
(e) |
|
For more information on the Firms policies regarding the valuation of the private equity
portfolio, see Note 5 on pages 8385 of this Form 10-Q. |
(f) |
|
Unfunded commitments to third-party equity funds were $883 million and $589 million at
September 30, 2007 and December 31, 2006, respectively. |
The carrying value of the private equity portfolio at September 30, 2007, was $6.6 billion,
up $503 million from December 31, 2006. The portfolio increase was due primarily to favorable
valuation adjustments on nonpublic investments and new investments, partially offset by sales
activity. The portfolio represented 8.8% of the Firms stockholders equity less goodwill at
September 30, 2007, up from 8.6% at December 31, 2006.
41
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
September 30, 2007 |
|
December 31, 2006 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
32,766 |
|
|
$ |
40,412 |
|
Deposits with banks |
|
|
26,714 |
|
|
|
13,547 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
135,589 |
|
|
|
140,524 |
|
Securities borrowed |
|
|
84,697 |
|
|
|
73,688 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
389,119 |
|
|
|
310,137 |
|
Derivative receivables |
|
|
64,592 |
|
|
|
55,601 |
|
Securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
97,659 |
|
|
|
91,917 |
|
Held-to-maturity |
|
|
47 |
|
|
|
58 |
|
Loans, net of Allowance for loan losses |
|
|
478,207 |
|
|
|
475,848 |
|
Other receivables |
|
|
36,411 |
|
|
|
27,585 |
|
Goodwill |
|
|
45,335 |
|
|
|
45,186 |
|
Other intangible assets |
|
|
15,500 |
|
|
|
14,852 |
|
All other assets |
|
|
72,939 |
|
|
|
62,165 |
|
|
Total assets |
|
$ |
1,479,575 |
|
|
$ |
1,351,520 |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
678,091 |
|
|
$ |
638,788 |
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
178,767 |
|
|
|
162,173 |
|
Commercial paper and other borrowed funds |
|
|
65,132 |
|
|
|
36,902 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
80,748 |
|
|
|
90,488 |
|
Derivative payables |
|
|
68,426 |
|
|
|
57,469 |
|
Long-term debt and trust preferred capital debt securities |
|
|
188,626 |
|
|
|
145,630 |
|
Beneficial interests issued by consolidated variable interest entities |
|
|
13,283 |
|
|
|
16,184 |
|
All other liabilities |
|
|
86,524 |
|
|
|
88,096 |
|
|
Total liabilities |
|
|
1,359,597 |
|
|
|
1,235,730 |
|
Stockholders equity |
|
|
119,978 |
|
|
|
115,790 |
|
|
Total liabilities and stockholders equity |
|
$ |
1,479,575 |
|
|
$ |
1,351,520 |
|
|
Consolidated balance sheets overview
At September 30, 2007, the Firms total assets were $1.5 trillion, an increase of $128.1 billion,
or 9%, from December 31, 2006. Total liabilities were $1.4 trillion, an increase of $123.9 billion,
or 10%, from December 31, 2006. Stockholders equity was $120.0 billion, an increase of $4.2
billion, or 4%, from December 31, 2006. The following is a discussion of the significant changes in
balance sheet items from December 31, 2006.
Deposits with banks; Federal funds sold and securities purchased under resale agreements;
Securities borrowed; Federal funds purchased and securities sold under repurchase agreements
The Firm utilizes Deposits with banks, Federal funds sold and securities purchased under resale
agreements, Securities borrowed, and Federal funds purchased and securities sold under repurchase
agreements as part of its liquidity management activities to manage the Firms cash positions and
risk-based capital requirements, and to support the Firms trading activities, including its risk
management activities. In particular, Federal funds purchased and securities sold under repurchase
agreements are used to maximize liquidity access and minimize funding costs. The increases from
December 31, 2006, in Deposits with banks and Securities borrowed reflected higher levels of funds
that were available for short-term investment opportunities and a higher volume of securities
needed for trading purposes, respectively. Securities sold under repurchase agreements increased
primarily due to higher short-term requirements to fund trading positions. For additional
information on the Firms Liquidity risk management, see pages
4951 of this Form 10-Q.
Trading
assets and liabilities debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary
risk-taking activities. These instruments consist primarily of fixed income securities, including
government and corporate debt; equity, including convertible securities; loans; and physical
commodities. The increase in trading assets from December 31, 2006, was due primarily to
the more active capital markets environment, with growth in client-driven market-making activities,
particularly for debt securities. In addition, a total of $31.0 billion of loans are now
accounted for at fair value under SFAS 159 and classified as trading assets in the Consolidated
balance sheet at September 30, 2007. The trading assets accounted for under SFAS 159 are
primarily certain prime mortgage loans warehoused by RFS for sale or securitization purposes, and
loans warehoused by IB. The decrease in trading liabilities reflects a lower volume of
short positions on debt instruments, due to
42
the difficult fixed income market environment that occurred during the third quarter of 2007.
For additional information, refer to Note 4 and Note 5 on pages
8083 and 8385, respectively, of this Form 10-Q.
Trading assets and liabilities derivative receivables and payables
The Firm utilizes various interest rate, foreign exchange, equity, credit and commodity derivatives
for market-making, proprietary risk-taking and risk-management purposes. Derivative
receivables increased $9.0 billion from December 31, 2006, primarily due to higher equity, credit
derivative and foreign exchange receivables as a result of higher equity market levels, widening
credit spreads and the decline in the U.S. dollar, respectively. The increase in derivative
payables from December 31, 2006, was due primarily to higher payables on equity-related and foreign
exchange derivatives due to the strength of the equities markets and the decline in the value of
the U.S. Dollar, respectively. For additional information, refer to Derivative
contracts and Note 5 on pages 5658 and 8385, respectively, of this Form 10-Q.
Securities
Almost all of the Firms securities portfolios are classified as AFS and are used primarily to
manage the Firms exposure to interest rate movements. The AFS portfolio increased from December
31, 2006, primarily due to net purchases of securities by Treasury associated with managing the
Firms exposure to interest rates. For additional information related to securities, refer to the
Corporate segment discussion and to Note 11 on pages 4041 and 8990, respectively, of this Form
10-Q.
Loans
The Firm provides loans to customers of all sizes, from large corporate and institutional clients
to individual consumers. The Firm manages the risk/reward relationship of each portfolio and
discourages the retention of loan assets that do not generate a positive return above the cost of
risk-adjusted capital. Loans, net of the Allowance for loan losses, rose slightly from
December 31, 2006, primarily due to: business growth in wholesale lending activity, mainly in IB
and CB; organic growth in the Home Equity portfolio; and the decision during the current quarter to
retain rather than sell subprime mortgage loans. These increases were partly offset by a
decline in consumer loans as certain prime mortgage loans originated after January 1, 2007, are
classified as Trading assets and accounted for at fair value under SFAS 159. In
addition, certain loans warehoused in IB were transferred to Trading assets on January 1, 2007, as
part of the adoption of SFAS 159. Also contributing to the decrease were typical
seasonal declines in credit card receivables, partially offset by organic growth. For a
more detailed discussion of the loan portfolio and the Allowance for loan losses, refer to Credit
risk management on pages 5162 of this Form 10-Q.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired
entity over the net fair value amounts assigned to assets acquired and liabilities assumed. The
increase in Goodwill primarily resulted from certain acquisitions by TSS and CS, and
currency-translation adjustments on the Sears Canada credit card acquisition. These
factors were partially offset by a reduction in Goodwill from the adoption of FIN 48, as well as
adjustments for tax-related purchase accounting adjustments associated with the Bank One merger.
For additional information see Notes 17 and 20 on pages 101 and 105, respectively, of this Form
10-Q.
Other intangible assets
The Firms other intangible assets consist of MSRs, purchased credit card relationships, other
credit cardrelated intangibles, core deposit intangibles, and all other intangibles. The increase
in Other intangible assets reflects higher MSRs of $1.6 billion primarily due to MSR additions from
loan sales and MSR purchases. Partially offsetting these increases were other changes in the fair
value of MSRs, related primarily to modeled mortgage servicing portfolio runoff (or time decay),
and the amortization of intangibles, in particular, credit card business-related intangibles and
core deposit intangibles. For additional information on MSRs and other intangible assets, see Note
17 on pages 101103 of this Form 10-Q.
Deposits
The Firms deposits represent a liability to customers, both retail and wholesale, for funds held
on their behalf. Deposits are generally classified by location (U.S. and non-U.S.), whether they
are interest or noninterest-bearing, and by type (i.e., demand, money market deposit accounts
(MMDAs), savings, time, negotiable order of withdrawal (NOW) accounts). Deposits help provide a
stable and consistent source of funding for the Firm. Deposits increased from December 31, 2006,
primarily reflecting wholesale deposits driven by net growth in business volumes, particularly,
interest-bearing deposits within TSS and AM. For more information on deposits, refer to
the RFS, TSS, and AM segment discussions and the Liquidity risk management discussion on pages
2128, 3536, 3739, and 4951, respectively, of this Form 10-Q. For more
information on wholesale liability balances, including deposits, refer to the CB and TSS segment
discussions on pages 3334 and 3536, respectively, of this Form 10-Q.
43
Commercial paper and other borrowed funds
The Firm utilizes Commercial paper and other borrowed funds as part of its liquidity management
activities to cover short-term funding needs, as well as in connection with TSSs cash management
product in which clients excess funds, primarily in TSS, CB and RFS, are transferred into
commercial paper overnight sweep accounts. The increases in Commercial paper and other
borrowed funds were due primarily to growth in the volume of liability balances in sweep accounts,
higher short-term requirements to fund trading positions and AFS securities inventory levels, and
the Firms ongoing efforts to further build liquidity by increasing the amounts held of liquid
securities and overnight investments that may be readily converted to cash. For
additional information on the Firms Liquidity risk management, see pages 4951 of this Form 10-Q.
Beneficial interests issued by consolidated variable interest entities (VIEs)
Beneficial interests issued by consolidated VIEs declined from December 31, 2006, primarily as a
result of the restructuring during the first quarter of 2007 of a Firm-administered multi-seller
conduit. For additional information related to multi-seller conduits, refer to
Off-balance sheet arrangements and contractual cash obligations on pages 4748 and Note 16 on
pages 100101 of this Form 10-Q.
Long-term debt and trust preferred capital debt securities
The Firm utilizes Long-term debt and trust preferred capital debt securities as part of its
longer-term liquidity and capital management activities. Long-term debt and trust preferred capital
debt securities increased from December 31, 2006, reflecting net new issuances, including
client-driven structured notes in IB. For additional information on the Firms long-term debt
activities, see the Liquidity risk management discussion on pages 4951 of this Form 10-Q.
Stockholders equity
Total stockholders equity increased from year-end 2006 to $120.0 billion at September 30,
2007. The increase was primarily the result of Net income for the first nine months of 2007, net
shares issued under the Firms employee stock-based compensation plans, and the cumulative effect
on Retained earnings of changes in accounting principles of $915 million. These were offset
partially by stock repurchases and the declaration of cash dividends. The $915 million increase in
Retained earnings resulting from the adoption of new accounting principles primarily reflected $287
million related to SFAS 157, $199 million related to SFAS 159 and $436 million related to FIN 48 in
the first quarter of 2007. For a further discussion of capital, see the Capital management section
that follows; for a further discussion of the accounting changes, see Accounting and Reporting
Developments on pages 6667, Note 3 on pages 7380, Note 4 on pages 8083 and Note 20 on page
105 of this Form 10-Q.
44
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chases capital management highlights developments since
December 31, 2006, and should be read in conjunction with
Capital Management, on pages 5759 of
JPMorgan Chases 2006 Annual Report.
The Firms capital management framework is intended to ensure that there is capital sufficient to
support the underlying risks of the Firms business activities, as measured by economic risk
capital, and to maintain well-capitalized status under regulatory requirements. In addition, the
Firm holds capital above these requirements in amounts deemed appropriate to achieve managements
regulatory and debt rating objectives. The process of assigning equity to the lines of business is
integrated into the Firms capital framework and is overseen by the Asset-Liability Committee
(ALCO).
Line of business equity
Equity for a line of business represents the amount of capital the Firm believes the business would
require if it were operating independently, incorporating sufficient capital to address economic
risk measures, regulatory capital requirements and capital levels for similarly rated peers. Return
on equity is measured and internal targets for expected returns are established as a key measure of
a business segments performance. The Firm may revise its equity capital-allocation methodology in
the future.
In accordance with SFAS 142, the lines of business perform the required Goodwill impairment
testing. For a further discussion of Goodwill and impairment testing, see Critical accounting
estimates and Note 16 on pages 85 and 121, respectively, of JPMorgan Chases 2006 Annual Report,
and Note 17 on page 101 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
Line of business equity |
|
Quarterly Averages |
|
(in billions) |
|
3Q07 |
|
|
3Q06 |
|
|
Investment Bank |
|
$ |
21.0 |
|
|
$ |
21.0 |
|
Retail Financial Services |
|
|
16.0 |
|
|
|
14.3 |
|
Card Services |
|
|
14.1 |
|
|
|
14.1 |
|
Commercial Banking |
|
|
6.7 |
|
|
|
5.5 |
|
Treasury & Securities Services |
|
|
3.0 |
|
|
|
2.2 |
|
Asset Management |
|
|
4.0 |
|
|
|
3.5 |
|
Corporate |
|
|
54.2 |
|
|
|
51.2 |
|
|
Total common stockholders equity |
|
$ |
119.0 |
|
|
$ |
111.8 |
|
|
Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying the Firms business
activities, utilizing internal risk-assessment methodologies. The Firm assigns economic capital
primarily based upon four risk factors: credit risk, market risk, operational risk and, principally
for the Firms Private Equity business, private equity risk.
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
|
(in billions) |
|
3Q07 |
|
|
3Q06 |
|
|
Credit risk |
|
$ |
24.8 |
|
|
$ |
22.3 |
|
Market risk |
|
|
9.7 |
|
|
|
9.6 |
|
Operational risk |
|
|
5.6 |
|
|
|
5.7 |
|
Private equity risk |
|
|
3.7 |
|
|
|
3.3 |
|
|
Economic risk capital |
|
|
43.8 |
|
|
|
40.9 |
|
Goodwill |
|
|
45.3 |
|
|
|
43.4 |
|
Other(a) |
|
|
29.9 |
|
|
|
27.5 |
|
|
Total common stockholders equity |
|
$ |
119.0 |
|
|
$ |
111.8 |
|
|
|
|
|
(a) |
|
Reflects additional capital required, in managements view, to meet its regulatory and
debt rating objectives. |
Regulatory capital
The Firms banking regulator, the Federal Reserve Board (FRB), establishes capital requirements,
including well-capitalized standards for the consolidated financial holding company. The Office of
the Comptroller of the Currency (OCC) establishes similar capital requirements and standards for
the Firms national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
45
Tier 1 capital was $86.1 billion at September 30, 2007, compared with $81.1 billion at December 31,
2006, an increase of $5.0 billion. The increase was due primarily to net income of $12.4 billion;
net issuances of common stock under the Firms employee stock-based compensation plans of $3.0
billion; net issuances of $1.6 billion of qualifying trust preferred capital debt securities; and
the effects of the adoption of new accounting principles reflecting increases of $287 million for
SFAS 157, $199 million for SFAS 159 and $436 million for FIN 48. These increases were partially
offset by decreases in Stockholders equity net of Accumulated other comprehensive income (loss)
due to common stock repurchases of $8.0 billion and dividends declared of $3.8 billion. In
addition, the change in capital reflects the exclusion of a $651 million valuation adjustment to
certain liabilities pursuant to SFAS 157 to reflect the credit quality of the Firm. Additional
information regarding the Firms capital ratios and the federal regulatory capital standards to
which it is subject is presented in Note 26 on pages 129130 of JPMorgan Chases 2006 Annual
Report.
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at September 30, 2007, and December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk- |
|
|
Adjusted |
|
|
Tier 1 |
|
|
Total |
|
|
Tier 1 |
|
|
|
Tier 1 |
|
|
|
|
|
|
weighted |
|
|
average |
|
|
capital |
|
|
capital |
|
|
leverage |
|
(in millions, except ratios) |
|
capital |
|
|
Total capital |
|
|
assets(c) |
|
|
assets(d) |
|
|
ratio |
|
|
ratio |
|
|
ratio |
|
|
September 30, 2007(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
86,096 |
|
|
$ |
128,543 |
|
|
$ |
1,028,551 |
|
|
$ |
1,423,171 |
|
|
|
8.4 |
% |
|
|
12.5 |
% |
|
|
6.0 |
% |
JPMorgan Chase Bank, N.A. |
|
|
75,539 |
|
|
|
108,306 |
|
|
|
920,447 |
|
|
|
1,211,591 |
|
|
|
8.2 |
|
|
|
11.8 |
|
|
|
6.2 |
|
Chase Bank USA, N.A. |
|
|
9,499 |
|
|
|
10,807 |
|
|
|
71,484 |
|
|
|
61,285 |
|
|
|
13.3 |
|
|
|
15.1 |
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
81,055 |
|
|
$ |
115,265 |
|
|
$ |
935,909 |
|
|
$ |
1,308,699 |
|
|
|
8.7 |
% |
|
|
12.3 |
% |
|
|
6.2 |
% |
JPMorgan Chase Bank, N.A. |
|
|
68,726 |
|
|
|
96,103 |
|
|
|
840,057 |
|
|
|
1,157,449 |
|
|
|
8.2 |
|
|
|
11.4 |
|
|
|
5.9 |
|
Chase Bank USA, N.A. |
|
|
9,242 |
|
|
|
11,506 |
|
|
|
77,638 |
|
|
|
66,202 |
|
|
|
11.9 |
|
|
|
14.8 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
% |
|
|
10.0 |
% |
|
|
5.0 |
%(e) |
Minimum capital ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
8.0 |
|
|
|
3.0 |
(f) |
|
|
|
|
(a) |
|
Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany
transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of
intercompany transactions. |
(b) |
|
As defined by the regulations issued by the FRB, OCC and FDIC. |
(c) |
|
Includes offbalance sheet risk-weighted assets in the amounts of $345.4 billion, $329.3
billion and $14.2 billion, respectively, at September 30, 2007, and $305.3 billion, $290.1
billion and $12.7 billion, respectively, at December 31, 2006, for JPMorgan Chase and its
significant banking subsidiaries. |
(d) |
|
Average adjusted assets for purposes of calculating the leverage ratio include total average
assets adjusted for unrealized gains/losses on securities, less deductions for disallowed
goodwill and other intangible assets, investments in certain subsidiaries and the total
adjusted carrying value of nonfinancial equity investments that are subject to deductions from
Tier 1 capital. |
(e) |
|
Represents requirements for banking subsidiaries pursuant to regulations issued under the
Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component
in the definition of a well-capitalized bank holding company. |
(f) |
|
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending
on factors specified in regulations issued by the FRB and OCC. |
Dividends
The Firms common stock dividend policy reflects JPMorgan Chases earnings outlook, desired
dividend payout ratios, need to maintain an adequate capital level and alternative investment
opportunities. The Firm continues to target a dividend payout ratio of approximately 3040% of Net
income over time. On September 18, 2007, the Board of Directors declared a quarterly dividend of
$0.38 per share on the outstanding shares of the corporations common stock, payable on October 31,
2007, to stockholders of record at the close of business on October 5, 2007. On April 17, 2007, the
Board of Directors increased the quarterly dividend $0.04 per share, or 12%, to $0.38 per share
effective with the dividend that was paid on July 31, 2007.
46
Stock repurchases
During the quarter and nine months ended September 30, 2007, under the respective stock repurchase
programs then in effect, the Firm repurchased a total of 47.0 million and 164.6 million shares for
$2.1 billion and $8.0 billion at an average price per share of $45.42 and $48.67, respectively.
During the quarter and nine months ended September 30, 2006, under the respective stock repurchase
programs then in effect, the Firm repurchased a total of 20.0 million and 69.5 million shares for
$900 million and $2.9 billion at an average price per share of $44.88 and $42.22, respectively.
On April 17, 2007, the Board of Directors authorized the repurchase of up to $10.0 billion of the
Firms common shares. The new authorization commenced April 19, 2007, and replaced the Firms
previous $8.0 billion repurchase program. The new $10.0 billion authorization will be utilized at
managements discretion, and the timing of purchases and the exact number of shares purchased will
depend on market conditions and alternative investment opportunities. The new repurchase program
does not include specific price targets or timetables; may be executed through open market
purchases, privately negotiated transactions or utilizing Rule 10b5-1 programs; and may be
suspended at any time. For additional information regarding repurchases of the Firms equity
securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on
pages 121122 of this Form 10-Q.
OFFBALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Special-purpose entities
JPMorgan Chase is involved with several types of offbalance sheet arrangements, including special
purpose entities (SPEs), lines of credit and loan commitments. The principal uses of SPEs are to
obtain sources of liquidity for JPMorgan Chase and its clients by securitizing financial assets,
and to create other investment products for clients. These arrangements are an important part of
the financial markets, providing market liquidity by facilitating investors access to specific
portfolios of assets and risks. For example, SPEs are integral to the markets for mortgage-backed
securities, commercial paper and other asset-backed securities.
JPMorgan Chase is involved with SPEs in three broad categories: loan securitizations, multi-seller
conduits and client intermediation. Capital is held, as deemed appropriate, against all SPE-related
transactions and related exposures, such as derivative transactions and lending-related
commitments. For further discussion of SPEs and the Firms accounting for these types of exposures,
see Note 1 on pages 7273 of this Form 10-Q and Note 14 on pages 114118 and Note 15 on pages
118120 of JPMorgan Chases 2006 Annual Report.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank, N.A., were downgraded below specific levels,
primarily P-1, A-1 and F1 for Moodys, Standard & Poors and Fitch, respectively. The amounts of
these liquidity commitments were $96.9 billion and $74.4 billion at September 30, 2007, and
December 31, 2006, respectively. These liquidity commitments are generally included in the Firms
other unfunded commitments to extend credit and asset purchase agreements, as shown in the table on
the following page. Alternatively, if JPMorgan Chase Bank, N.A. were downgraded, the Firm could be
replaced by another liquidity provider in lieu of providing funding under the liquidity commitment,
or, in certain circumstances, could facilitate the sale or refinancing of the assets in the SPE in
order to provide liquidity. For further information, refer to Note 15 on pages 118120 of JPMorgan
Chases 2006 Annual Report.
The Firm also has exposure to certain SPEs arising from derivative transactions; these transactions
are recorded at fair value on the Firms Consolidated balance sheets with changes in fair value
(i.e., mark-to-market (MTM) gains and losses) recorded in Principal transactions revenue. Such
MTM gains and losses are not included in the revenue amounts reported in the following table.
The following table summarizes certain revenue information related to consolidated and
nonconsolidated VIEs with which the Firm has significant involvement, and qualifying SPEs
(QSPEs). The revenue reported in the table below primarily represents servicing and credit fee
income.
Revenue from VIEs and QSPEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
2007 |
|
$ |
56 |
|
|
$ |
865 |
|
|
$ |
921 |
|
|
$ |
158 |
|
|
$ |
2,552 |
|
|
$ |
2,710 |
|
2006 |
|
$ |
55 |
|
|
$ |
788 |
|
|
$ |
843 |
|
|
$ |
162 |
|
|
$ |
2,366 |
|
|
$ |
2,528 |
|
|
47
Offbalance sheet lending-related financial instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments and guarantees) to
meet the financing needs of its customers. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterparty draw down the commitment or the
Firm be required to fulfill its obligation under the guarantee, and the counterparty subsequently
fail to perform according to the terms of the contract. Most of these commitments and guarantees
expire without a default occurring or without being drawn. As a result, the total contractual
amount of these instruments is not, in the Firms view, representative of its actual future credit
exposure or funding requirements. Further, certain commitments, primarily related to consumer
financings, are cancelable, upon notice, at the option of the Firm. For further discussion of
lending-related commitments and guarantees and the Firms accounting for them, see Credit risk
management on pages 6476 and Note 29 on pages 132134 of JPMorgan Chases 2006 Annual Report.
The following table presents offbalance sheet lending-related financial instruments and
guarantees for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
|
September 30, 2007 |
|
|
2006 |
|
By remaining maturity |
|
|
|
|
|
1-<3 |
|
|
3-5 |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
< 1 year |
|
|
years |
|
|
years |
|
|
> 5 years |
|
|
Total |
|
|
Total |
|
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a) |
|
$ |
726,405 |
|
|
$ |
3,272 |
|
|
$ |
3,344 |
|
|
$ |
68,667 |
|
|
$ |
801,688 |
|
|
$ |
747,535 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments to extend credit(b)(c)(d) |
|
|
109,348 |
|
|
|
67,478 |
|
|
|
66,535 |
|
|
|
18,514 |
|
|
|
261,875 |
|
|
|
229,204 |
|
Asset purchase agreements(e) |
|
|
30,301 |
|
|
|
44,765 |
|
|
|
14,466 |
|
|
|
3,868 |
|
|
|
93,400 |
|
|
|
67,529 |
|
Standby letters of credit and guarantees(c)(f)(g) |
|
|
27,071 |
|
|
|
23,770 |
|
|
|
47,496 |
|
|
|
8,466 |
|
|
|
106,803 |
|
|
|
89,132 |
|
Other letters of credit(c) |
|
|
4,828 |
|
|
|
1,099 |
|
|
|
126 |
|
|
|
14 |
|
|
|
6,067 |
|
|
|
5,559 |
|
|
Total wholesale |
|
|
171,548 |
|
|
|
137,112 |
|
|
|
128,623 |
|
|
|
30,862 |
|
|
|
468,145 |
|
|
|
391,424 |
|
|
Total lending-related |
|
$ |
897,953 |
|
|
$ |
140,384 |
|
|
$ |
131,967 |
|
|
$ |
99,529 |
|
|
$ |
1,269,833 |
|
|
$ |
1,138,959 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(h) |
|
$ |
384,462 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
384,462 |
|
|
$ |
318,095 |
|
Derivatives qualifying as guarantees(i) |
|
|
25,802 |
|
|
|
10,472 |
|
|
|
27,553 |
|
|
|
24,608 |
|
|
|
88,435 |
|
|
|
71,531 |
|
|
|
|
|
(a) |
|
Includes Credit card lending-related commitments of $700.2 billion at September 30, 2007,
and $657.1 billion at December 31, 2006, that represent the total available credit to the
Firms cardholders. The Firm has not experienced, and does not anticipate, that all of its
cardholders will utilize their entire available lines of credit at the same time. The Firm can
reduce or cancel a credit card commitment by providing the cardholder prior notice or, in some
cases, without notice as permitted by law. |
(b) |
|
Includes unused advised lines of credit totaling $39.2 billion at September 30, 2007, and
$39.0 billion at December 31, 2006, which are not legally binding. In regulatory filings with
the FRB, unused advised lines are not reportable. |
(c) |
|
Represents contractual amount net of risk participations totaling $25.6 billion at September
30, 2007, and $32.8 billion at December 31, 2006. |
(d) |
|
Excludes firmwide unfunded commitments to private third-party equity funds of $936 million
and $686 million at September 30, 2007, and December 31, 2006, respectively. |
(e) |
|
The maturity is based upon the underlying assets in the SPE, which are primarily asset
purchase agreements to the Firms administered multi-seller asset-backed commercial paper
conduits. It also includes $1.4 billion of asset purchase agreements to other third-party
entities at September 30, 2007, and December 31, 2006. |
(f) |
|
JPMorgan Chase held collateral relating to $15.4 billion and $13.5 billion of these
arrangements at September 30, 2007, and December 31, 2006, respectively. |
(g) |
|
Includes unused commitments to issue standby letters of credit of $59.1 billion and $45.7
billion at September 30, 2007, and December 31, 2006, respectively. |
(h) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$387.4 billion at September 30, 2007, and $317.9 billion at December 31, 2006. |
(i) |
|
Represents notional amounts of derivatives qualifying as guarantees. For further discussion
of guarantees, see Note 29 on pages 132134 of JPMorgan Chases 2006 Annual Report. |
RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chases business activities. The Firms risk management
framework and governance structure are intended to provide comprehensive controls and ongoing
management of the major risks inherent in its business activities. In addition, this framework
recognizes the diversity among the Firms core businesses, which helps reduce the impact of
volatility in any particular area on the Firms operating results as a whole. There are eight major
risk types identified in the business activities of the Firm: liquidity risk, credit risk, market
risk, interest rate risk, operational risk, legal and reputation risk, fiduciary risk and private
equity risk.
For further discussion of these risks see pages 6182 of JPMorgan Chases 2006 Annual Report.
48
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chases liquidity management framework highlights
developments since December 31, 2006, and should be read in conjunction with pages 6263 of
JPMorgan Chases 2006 Annual Report.
Liquidity risk arises from the general funding needs of the Firms activities and in the management
of its assets and liabilities. JPMorgan Chases liquidity management framework is intended to
maximize liquidity access and minimize funding costs. Through active liquidity management, the Firm
seeks to preserve stable, reliable and cost-effective sources of funding. This access enables the
Firm to replace maturing obligations when due and fund assets at appropriate maturities and rates.
To accomplish this, management uses a variety of methods to mitigate liquidity and related risks,
taking into consideration market conditions, prevailing interest rates, liquidity needs and the
desired maturity profile of liabilities, among other factors.
Funding
Sources of funds
As of September 30, 2007, the Firms liquidity position remained strong based upon its liquidity
metrics. JPMorgan Chases long-dated funding, including core liabilities, exceeded illiquid assets,
and the Firm believes its obligations can be met even if access to funding is impaired.
Consistent with its liquidity management policy, the Firm has raised funds at the Parent company
level in excess of its obligations and those of its nonbank subsidiaries that mature over the next
12 months.
The diversity of the Firms funding sources enhances financial flexibility and limits dependence on
any one source, thereby minimizing the cost of funds. The deposits held by the RFS, CB, TSS and AM
lines of business are generally a consistent source of funding for JPMorgan Chase Bank, N.A. As of
September 30, 2007, total deposits for the Firm were $678.1 billion. A significant portion of the
Firms deposits are retail deposits, which are less sensitive to interest rate changes and
therefore are considered more stable than market-based wholesale deposits. The Firm also benefits
from stable wholesale liability balances originated by RFS, CB, TSS and AM through the normal
course of business. Such liability balances include deposits that are swept to onbalance sheet
liabilities (e.g., commercial paper, Federal funds purchased and securities sold under repurchase
agreements). These liability balances are also a stable and consistent source of funding due to the
nature of the businesses from which they are generated. For further discussions of deposit and
liability balance trends, see the discussion of the results for the Firms business segments and
the Balance Sheet Analysis on pages 1739 and 4244, respectively, of this Form 10-Q.
Additional sources of unsecured funds include a variety of short- and long-term instruments,
including federal funds purchased, commercial paper, bank notes, long-term debt and trust preferred
capital debt securities. This funding is managed centrally, using regional expertise and local
market access, to ensure active participation by the Firm in the global financial markets while
maintaining consistent global pricing. These markets serve as cost-effective and diversified
sources of funds and are critical components of the Firms liquidity management. Decisions
concerning the timing and tenor of accessing these markets are based upon relative costs, general
market conditions, prospective views of balance sheet growth and a targeted liquidity profile.
Funding flexibility is also provided by the Firms ability to access secured funding from the
repurchase and asset securitization markets. These markets are evaluated on an ongoing basis to
achieve an appropriate balance of secured and unsecured funding. The ability to securitize loans,
and the associated gains on those securitizations, are principally dependent upon the credit
quality and yields of the assets securitized and are generally not dependent upon the credit
ratings of the issuing entity. Transactions between the Firm and its securitization structures are
reflected in JPMorgan Chases consolidated financial statements and notes to the consolidated
financial statements. These relationships include retained interests in securitization trusts,
liquidity facilities and derivative transactions. For further details, see Offbalance sheet
arrangements and contractual cash obligations, Note 15 and Note 23 on pages 4748, 9499 and
106107, respectively, of this Form 10-Q.
Issuance
During the third quarter and first nine months of 2007, JPMorgan Chase issued $24.2 billion and
$77.1 billion, respectively, of long-term debt and trust preferred capital debt securities. These
issuances included IB structured notes, the issuances of which are generally client-driven and not
for funding or capital management purposes as the proceeds are generally used to fund securities
which mitigate risk associated with structured note exposures. The issuances of long-term debt and
trust preferred capital debt securities were offset partially by $10.0 billion and $40.4 billion,
respectively, of debt and trust preferred securities that matured or were redeemed during the third
quarter and first nine months of 2007, including IB structured notes. The increase in long-term
debt and trust preferred capital securities was used primarily to fund certain illiquid assets held
by the Parent company and to build liquidity. During the third quarter and first nine months of
2007, Commercial paper increased $8.9 billion and $15.1 billion, respectively, and Other borrowed
funds increased $1.9 billion and $13.1 billion, respectively.
49
The growth in both Commercial paper and Other borrowed funds was used to further build liquidity by
increasing the amounts held of liquid securities and overnight investments that may be readily
converted to cash. In addition, during the third quarter and first nine months of 2007, the Firm
securitized $3.8 billion and $27.7 billion, respectively, of residential mortgage loans; $3.5
billion and $14.2 billion, respectively, of credit card loans; and $1.2 billion of education loans
in the third quarter of 2007. The Firm did not securitize any auto loans during the nine months
ended September 30, 2007. For further discussion of loan securitizations, see Note 15 on pages
9499 of this Form 10-Q.
In connection with the issuance of certain of its trust preferred capital debt securities, the Firm
has entered into Replacement Capital Covenants (RCCs) granting certain rights to the holders of
covered debt, as defined in the RCCs, that prohibit the repayment, redemption or purchase of the
trust preferred capital debt securities except, with limited exceptions, to the extent that
JPMorgan Chase has received specified amounts of proceeds from the sale of certain qualifying
securities. Currently the Firms covered debt is its 5.875% Junior Subordinated Deferrable Interest
Debentures, Series O, due in 2035. For more information regarding these covenants, reference is
made to the respective RCCs entered into by the Firm in connection with the issuances of such trust
preferred capital debt securities, which are filed with the Securities and Exchange Commission
under cover of Forms 8-K.
Cash Flows
Cash and due from banks decreased $7.6 billion in the first nine months of 2007 compared with a
decrease of $391 million in the first nine months of 2006. A discussion of the significant changes
in Cash and due from banks during the nine months ended September 30, 2007 and 2006, follows:
Cash Flows from Operating Activities
For the nine months ended September 30, 2007 and 2006, net cash used in operating activities was
$81.3 billion and $35.1 billion, respectively. JPMorgan Chases operating assets and liabilities
support the Firms capital markets and lending activities,
including the origination or purchase of loans held-for-sale. The
amount and timing of cash flows related to the Firms operating
activities may vary significantly in the normal course of business as
a result of the level of client-driven activities, market conditions
and trading strategies. Management believes cash flows from operations,
available cash balances and short- and long-term borrowings will be sufficient to fund the Firms
operating liquidity needs.
Cash Flows from Investing Activities
The Firms investing activities are primarily transactions involving loans initially designated as
held-for-investment, other receivables, and AFS investment securities. For the nine months ended
September 30, 2007, net cash of $41.3 billion was used in investing activities, primarily for
purchases of investment securities in Treasurys AFS portfolio to manage the Firms exposure to
interest rates; net additions to the wholesale and consumer (primarily home equity) loans
held-for-investment; and to increase Deposits with banks as a result of the availability of cash
for short-term investment opportunities. These uses of cash were partially offset by cash proceeds
received from: sales and maturities of AFS securities; credit card, residential mortgage, education
and wholesale loan sales and securitization activities; and the typical seasonal decline in
consumer credit card receivables as customer payments exceeded new loans generated from customer
charges.
For the nine months ended September 30, 2006, net cash of $105.6 billion was used in investing
activities. Net cash was invested to fund: purchases of Treasurys AFS securities in connection
with repositioning the portfolio in response to changes in interest rates; net additions to the
retained wholesale loan portfolio, mainly resulting from capital markets activity in IB (including
leveraged financings associated with mergers and acquisitions and syndications activities); net
additions in retail home equity loans; the acquisition in the second quarter of a private-label
credit card portfolio; and the acquisition of Collegiate Funding Services, a leader in education
loan servicing and consolidation, on March 1, 2006. These uses of cash were partially offset by
cash proceeds provided from: sales and maturities of AFS securities; credit card, residential
mortgage, auto and wholesale loan sales and securitization activities; the net decline in auto
loans and leases, which was caused partially by the de-emphasis of vehicle leasing and the sale of
the insurance business on July 1, 2006.
Cash Flows from Financing Activities
The Firms financing activities are primarily transactions involving customer deposits and its
debt, common stock and preferred stock. In the first nine months of 2007, net cash provided by
financing activities was $114.7 billion due to: a net increase in wholesale deposits from growth in
business volumes, in particular, interest-bearing deposits at TSS and AM; net issuances of
Long-term debt and trust preferred capital debt securities to fund certain liquid assets held by
the Parent company and to build liquidity; growth in Commercial paper
issuances and Other borrowed funds to
further build liquidity; and an increase in securities sold under repurchase agreements in
connection with the funding of trading and AFS securities positions. Cash was used to repurchase
common stock and to pay dividends.
50
In the first nine months of 2006, net cash provided by financing activities was $140.1 billion due
to: net cash received from growth in deposits reflecting, on the retail side, new account
acquisitions and the ongoing expansion of the retail branch distribution network, and on the
wholesale side, higher business volumes; increases in securities sold under repurchase agreements
to fund trading positions and higher levels of AFS securities positions; and net issuances of
Long-term debt and trust preferred capital debt securities. The net cash provided was partially
offset by cash used for common stock repurchases and the payment of cash dividends on common and
preferred stock.
Credit ratings
The credit ratings of JPMorgan Chases parent holding company and each of its significant banking
subsidiaries as of September 30, 2007, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
Senior long-term debt |
|
|
Moodys |
|
S&P |
|
Fitch |
|
Moodys |
|
S&P |
|
Fitch |
|
JPMorgan Chase & Co. |
|
P-1 |
|
A-1+ |
|
F1+ |
|
Aa2 |
|
AA- |
|
AA- |
JPMorgan Chase Bank, N.A. |
|
P-1 |
|
A-1+ |
|
F1+ |
|
Aaa |
|
AA |
|
AA- |
Chase Bank USA, N.A. |
|
P-1 |
|
A-1+ |
|
F1+ |
|
Aaa |
|
AA |
|
AA- |
|
On March 2, 2007, Moodys raised senior long-term debt ratings on JPMorgan Chase & Co. and the
operating bank subsidiaries to Aa2 and Aaa, respectively, from Aa3 and Aa2, respectively. The cost
and availability of unsecured financing are influenced by credit ratings. A reduction in these
ratings could have an adverse effect on the Firms access to liquidity sources, increase the cost
of funds, trigger additional collateral requirements and decrease the number of investors and
counterparties willing to lend. 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.
If the Firms ratings were downgraded by one notch, the Firm estimates the incremental cost of
funds and the potential loss of funding to be negligible. Additionally, the Firm estimates the
additional funding requirements for VIEs and other third-party commitments associated with a one
notch downgrade would not be material. For additional information on the impact of a credit ratings
downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see
Special-purpose entities on page 47 and Ratings profile of derivative receivables MTM on pages
5657 of this Form 10-Q.
CREDIT RISK MANAGEMENT
The following discussion of JPMorgan Chases credit portfolio as of September 30, 2007,
highlights developments since December 31, 2006. This section should be read in conjunction with
pages 6476 and page 83, and Notes 12, 13, 29, and 30 of JPMorgan Chases 2006 Annual Report, and
Notes 13, 14, and 23 on pages 9194 and 106107, respectively, of this Form 10-Q.
The Firm assesses its consumer credit exposure on a managed basis, which includes credit card
receivables that have been securitized. For a reconciliation of the Provision for credit losses on
a reported basis to managed basis, see pages 1316 of this Form 10-Q.
CREDIT PORTFOLIO
The following table presents JPMorgan Chases credit portfolio as of September 30, 2007, and
December 31, 2006. Total credit exposure at September 30, 2007, increased by $145.8 billion from
December 31, 2006, reflecting an increase of $99.7 billion and $46.1 billion in the wholesale and
consumer credit portfolios, respectively. During the first nine months of 2007 lending-related
commitments increased $130.9 billion ($76.7 billion and $54.2 billion in the wholesale and consumer
portfolios, respectively), derivatives increased $9.0 billion and managed loans increased $5.9
billion ($14.0 billion increase in wholesale partially offset by an $8.1 billion decrease in
consumer). RFS loans accounted for at lower of cost or fair value declined, as prime mortgage loans
originated with the intent to sell after January 1, 2007, are classified as Trading assets and
accounted for at fair value under SFAS 159. In addition, certain loans warehoused in IB were
transferred to Trading assets on January 1, 2007, as part of the adoption of SFAS 159. Also
effective January 1, 2007, $24.7 billion of prime mortgages
held-for-investment purposes were
transferred from RFS ($19.4 billion) and AM ($5.3 billion) to the Corporate sector for risk
management purposes. While this transfer had no impact on the RFS, AM or Corporate financial
results, the AM prime mortgages that were transferred are now reported in consumer mortgage loans.
51
In the table below, reported loans include loans accounted for at fair value and loans
held-for-sale, which are carried at the lower of cost or fair value with changes in
value recorded in Noninterest revenue. However, these loans accounted for at fair value and loans
held-for-sale are excluded from the average loan balances used for the net charge-off
rate calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure |
|
|
Nonperforming assets(i) |
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported(a)(b) |
|
$ |
486,320 |
|
|
$ |
483,127 |
|
|
$ |
2,662 |
(j) |
|
$ |
2,077 |
(j) |
Loans securitized(c) |
|
|
69,643 |
|
|
|
66,950 |
|
|
|
|
|
|
|
|
|
|
Total managed loans(d) |
|
|
555,963 |
|
|
|
550,077 |
|
|
|
2,662 |
|
|
|
2,077 |
|
Derivative receivables |
|
|
64,592 |
|
|
|
55,601 |
|
|
|
34 |
|
|
|
36 |
|
|
Total managed credit-related assets |
|
|
620,555 |
|
|
|
605,678 |
|
|
|
2,696 |
|
|
|
2,113 |
|
Lending-related commitments(e) |
|
|
1,269,833 |
|
|
|
1,138,959 |
|
|
NA |
|
|
NA |
|
Assets acquired in loan satisfactions |
|
NA |
|
|
NA |
|
|
|
485 |
|
|
|
228 |
|
|
Total credit portfolio |
|
$ |
1,890,388 |
|
|
$ |
1,744,637 |
|
|
$ |
3,181 |
|
|
$ |
2,341 |
|
|
Net credit derivative hedges notional(f) |
|
$ |
(62,075 |
) |
|
$ |
(50,733 |
) |
|
$ |
|
|
|
$ |
(16 |
) |
Collateral held against derivatives(g) |
|
|
(7,423 |
) |
|
|
(6,591 |
) |
|
NA |
|
|
NA |
|
Memo: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans at fair value and loans held-for-sale |
|
|
24,491 |
|
|
|
55,251 |
|
|
|
75 |
|
|
|
120 |
|
Nonperforming purchased(h) |
|
|
|
|
|
|
251 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
(in millions, except ratios) |
|
Net charge-offs |
|
|
charge-off rate |
|
|
Net charge-offs |
|
|
charge-off rate |
|
|
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2006 |
|
|
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
1,221 |
|
|
$ |
790 |
|
|
|
1.07 |
% |
|
|
0.74 |
% |
|
$ |
3,109 |
|
|
$ |
2,112 |
|
|
|
0.94 |
% |
|
|
0.69 |
% |
Loans securitized(c) |
|
|
578 |
|
|
|
607 |
|
|
|
3.34 |
|
|
|
3.70 |
|
|
|
1,761 |
|
|
|
1,617 |
|
|
|
3.45 |
|
|
|
3.19 |
|
|
Total managed loans |
|
$ |
1,799 |
|
|
$ |
1,397 |
|
|
|
1.37 |
% |
|
|
1.13 |
% |
|
$ |
4,870 |
|
|
$ |
3,729 |
|
|
|
1.28 |
% |
|
|
1.05 |
% |
|
|
|
|
(a) |
|
Loans (other than those for which the SFAS 159 fair value option has been elected)
are presented net of unearned income and net deferred loan fees of $1.0 billion and $1.3
billion at September 30, 2007, and December 31, 2006, respectively. |
(b) |
|
Includes loans at fair value and loans held-for-sale of $6.1 billion and $18.4 billion,
respectively, at September 30, 2007 and loans held-for-sale of $55.2 billion at December 31,
2006. |
(c) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Card Services on pages 2932 of this Form 10-Q. |
(d) |
|
Loans past due
90 days and over and accruing includes credit card receivables reported of
$1.3 billion at both September 30, 2007, and December 31, 2006, and related credit card
securitizations of $935 million and $962 million at September 30, 2007, and December 31, 2006,
respectively. |
(e) |
|
Includes wholesale unused advised lines of credit totaling $39.2 billion and $39.0 billion at
September 30, 2007, and December 31, 2006, respectively, which are not legally binding. In
regulatory filings with the Federal Reserve Board, unused advised lines are not reportable.
Credit card lending-related commitments of $700.2 billion and $657.1 billion at September 30,
2007, and December 31, 2006, respectively, represent the total available credit to its
cardholders. The Firm has not experienced, and does not anticipate, that all of its
cardholders will utilize their entire available lines of credit at the same time. The Firm can
reduce or cancel a credit card commitment by providing the cardholder prior notice or, in some
cases, without notice as permitted by law. |
(f) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. Includes $22.7 billion at both September 30,
2007, and December 31, 2006, which represents the notional amount of structured portfolio
protection; the Firm retains a minimal first risk of loss on this portfolio. |
(g) |
|
Represents other liquid securities collateral held by the Firm. |
(h) |
|
Represents distressed held-for-sale wholesale loans purchased as part of IBs proprietary
activities, which are excluded from nonperforming assets. During the first quarter of 2007,
the Firm elected the fair value option of accounting for this portfolio of nonperforming
loans. These loans are classified as Trading assets at September 30, 2007. |
(i) |
|
Includes nonperforming loans held-for-sale of $75 million and $120 million as of September
30, 2007, and December 31, 2006, respectively. |
(j) |
|
Excludes nonperforming assets related to (1) loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by U.S. government agencies of $1.3 billion and
$1.2 billion September 30, 2007, and December 31, 2006, respectively, and (2) education 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 $241 million and $219 million as of
September 30, 2007, and December 31, 2006, respectively. These amounts for GNMA and education
loans are excluded, as reimbursement is proceeding normally. |
52
WHOLESALE CREDIT PORTFOLIO
As of September 30, 2007, wholesale exposure (IB, CB, TSS and AM) had increased by $99.7 billion,
or 16%, from December 31, 2006, primarily due to a $76.7 billion increase in lending-related
commitments and a $14.0 billion increase in loans. The increase in overall lending activity was
partly due to growth in leveraged lending funded and unfunded exposures, mainly in IB. Partly
offsetting these increases was the first quarter transfer of $11.7 billion of loans warehoused in
IB to Trading assets upon the adoption of SFAS 159. Derivative receivables increased $9.0 billion
primarily due to higher receivables on equity-related and credit derivatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure |
|
|
Nonperforming assets(g) |
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Loans reported(a)(b) |
|
$ |
197,728 |
|
|
$ |
183,742 |
|
|
$ |
427 |
|
|
$ |
391 |
|
Derivative receivables |
|
|
64,592 |
|
|
|
55,601 |
|
|
|
34 |
|
|
|
36 |
|
|
Total wholesale credit-related assets |
|
|
262,320 |
|
|
|
239,343 |
|
|
|
461 |
|
|
|
427 |
|
Lending-related commitments(c) |
|
|
468,145 |
|
|
|
391,424 |
|
|
NA |
|
|
NA |
|
Assets acquired in loan satisfactions |
|
NA |
|
|
NA |
|
|
|
28 |
|
|
|
3 |
|
|
Total wholesale credit exposure |
|
$ |
730,465 |
|
|
$ |
630,767 |
|
|
$ |
489 |
|
|
$ |
430 |
|
|
Net credit derivative hedges notional(d) |
|
$ |
(62,075 |
) |
|
$ |
(50,733 |
) |
|
$ |
|
|
|
$ |
(16 |
) |
Collateral held against derivatives(e) |
|
|
(7,423 |
) |
|
|
(6,591 |
) |
|
NA |