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 June 30, 2008
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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, a
non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o |
Non-accelerated filer (Do not check if a smaller reporting company) o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Number
of shares of common stock outstanding as of July 31, 2008:
3,437,039,645
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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(in millions, except per share, headcount and ratio data) |
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Six months ended June 30, |
As of or for the period ended, |
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2Q08 |
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1Q08 |
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4Q07 |
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3Q07 |
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2Q07 |
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2008 |
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2007 |
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Selected income statement data |
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Noninterest revenue |
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$ |
10,105 |
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$ |
9,231 |
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$ |
10,161 |
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$ |
9,199 |
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$ |
12,740 |
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$ |
19,336 |
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$ |
25,606 |
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Net interest income |
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8,294 |
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7,659 |
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7,223 |
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6,913 |
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6,168 |
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15,953 |
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12,270 |
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Total net revenue |
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18,399 |
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16,890 |
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17,384 |
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16,112 |
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18,908 |
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35,289 |
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37,876 |
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Provision for credit losses |
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3,455 |
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4,424 |
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2,542 |
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1,785 |
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1,529 |
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7,879 |
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2,537 |
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Noninterest expense |
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12,177 |
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8,931 |
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10,720 |
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9,327 |
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11,028 |
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21,108 |
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21,656 |
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Income before income tax expense |
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2,767 |
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3,535 |
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4,122 |
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5,000 |
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6,351 |
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6,302 |
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13,683 |
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Income tax expense |
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764 |
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1,162 |
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1,151 |
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1,627 |
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2,117 |
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1,926 |
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4,662 |
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Net income |
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$ |
2,003 |
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$ |
2,373 |
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$ |
2,971 |
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$ |
3,373 |
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$ |
4,234 |
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$ |
4,376 |
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$ |
9,021 |
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Per common share |
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Net income per share: Basic |
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$ |
0.56 |
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$ |
0.70 |
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$ |
0.88 |
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$ |
1.00 |
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$ |
1.24 |
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$ |
1.26 |
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$ |
2.63 |
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Diluted |
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0.54 |
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0.68 |
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0.86 |
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0.97 |
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1.20 |
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1.22 |
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2.55 |
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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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0.38 |
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0.38 |
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0.38 |
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0.76 |
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0.72 |
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Book value per share |
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37.02 |
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36.94 |
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36.59 |
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35.72 |
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35.08 |
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Common shares outstanding |
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Average: Basic |
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3,426 |
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3,396 |
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3,367 |
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3,376 |
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3,415 |
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3,411 |
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3,436 |
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Diluted |
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3,531 |
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3,495 |
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3,472 |
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3,478 |
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3,522 |
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3,513 |
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3,541 |
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Common shares at period end |
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3,436 |
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3,401 |
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3,367 |
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3,359 |
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3,399 |
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Share price(a) |
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High |
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$ |
49.95 |
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$ |
49.29 |
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$ |
48.02 |
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$ |
50.48 |
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$ |
53.25 |
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$ |
49.95 |
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$ |
53.25 |
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Low |
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33.96 |
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36.01 |
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40.15 |
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42.16 |
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47.70 |
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33.96 |
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45.91 |
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Close |
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34.31 |
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42.95 |
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43.65 |
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45.82 |
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48.45 |
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Market capitalization |
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117,881 |
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146,066 |
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146,986 |
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153,901 |
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164,659 |
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Financial ratios |
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Return on common equity (ROE) |
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6 |
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8 |
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10 |
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11 |
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14 |
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7 |
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16 |
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Return on assets (ROA) |
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0.48 |
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0.61 |
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0.77 |
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0.91 |
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1.19 |
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0.54 |
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1.29 |
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Overhead ratio |
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66 |
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53 |
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62 |
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58 |
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58 |
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60 |
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57 |
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Tier 1 capital ratio |
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9.2 |
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8.3 |
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8.4 |
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8.4 |
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8.4 |
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Total capital ratio |
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13.4 |
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12.5 |
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12.6 |
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12.5 |
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12.0 |
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Tier 1 leverage ratio |
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6.4 |
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5.9 |
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6.0 |
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6.0 |
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6.2 |
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Selected balance sheet data (period-end) |
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Trading assets |
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$ |
531,997 |
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$ |
485,280 |
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$ |
491,409 |
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$ |
453,711 |
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$ |
450,546 |
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Securities |
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119,173 |
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101,647 |
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85,450 |
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97,706 |
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95,984 |
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Loans |
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538,029 |
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537,056 |
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519,374 |
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486,320 |
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465,037 |
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Total assets |
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1,775,670 |
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1,642,862 |
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1,562,147 |
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1,479,575 |
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1,458,042 |
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Deposits |
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722,905 |
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761,626 |
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740,728 |
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678,091 |
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651,370 |
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Long-term debt |
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260,192 |
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189,995 |
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183,862 |
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173,696 |
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159,493 |
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Common stockholders equity |
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127,176 |
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125,627 |
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123,221 |
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119,978 |
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119,211 |
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Total stockholders equity |
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133,176 |
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125,627 |
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123,221 |
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119,978 |
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119,211 |
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Headcount |
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195,594 |
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182,166 |
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180,667 |
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179,847 |
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179,664 |
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Credit quality metrics |
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Allowance for credit losses |
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$ |
13,932 |
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$ |
12,601 |
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$ |
10,084 |
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$ |
8,971 |
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$ |
8,399 |
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Nonperforming assets(b) |
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6,233 |
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5,143 |
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3,933 |
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3,009 |
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2,423 |
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Allowance for loan losses to total loans(c) |
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2.57 |
% |
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2.29 |
% |
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1.88 |
% |
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1.76 |
% |
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1.71 |
% |
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Net charge-offs |
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$ |
2,130 |
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$ |
1,906 |
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$ |
1,429 |
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$ |
1,221 |
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$ |
985 |
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$ |
4,036 |
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$ |
1,888 |
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Net charge-off rate(c) |
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1.67 |
% |
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1.53 |
% |
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1.19 |
% |
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1.07 |
% |
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0.90 |
% |
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1.60 |
% |
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0.88 |
% |
Wholesale net charge-off (recovery) rate(c) |
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0.08 |
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0.18 |
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0.05 |
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0.19 |
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(0.07 |
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0.13 |
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(0.04 |
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Managed Card net charge-off rate |
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4.98 |
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4.37 |
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3.89 |
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3.64 |
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3.62 |
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4.68 |
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3.59 |
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(a) |
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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. |
(b) |
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Excludes purchased held-for-sale wholesale loans. |
(c) |
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End-of-period and average loans accounted for 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 130133 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 135 and Item
1A: Risk Factors on page 139 of this Form 10-Q), as well as in the JPMorgan Chase Annual Report on
Form 10-K for the year ended December 31, 2007 (2007 Annual Report or 2007 Form 10-K),
including Part I, Item 1A: Risk factors, and the JPMorgan
Chase quarterly report on Form 10-Q for the quarter ended
March 31, 2008, including Part II, Item 1A thereof, 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 $1.8 trillion in assets,
$133.2 billion in total stockholders equity and operations in more than 60 countries. 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 subsidiaries are J.P. Morgan
Securities Inc. and Bear, Stearns & Co., Inc. (Bear Stearns & Co.), the Firms U.S. investment
banking firms, and Bear, Stearns International Limited, a full service broker-dealer based in
London, England. The Firm plans to merge J.P. Morgan Securities Inc.
and Bear Stearns & Co. on or about October 1, 2008.
JPMorgan Chases activities are organized, for management reporting purposes, into six business
segments, as well as Corporate/Private Equity. The Firms wholesale businesses comprise the
Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management
segments. The Firms consumer businesses comprise the Retail Financial Services and Card Services
segments. A description of the Firms business segments, and the products and services they
provide to their respective client bases, follows.
Investment Bank
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, prime brokerage 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, serves consumers and businesses through
bank branches, ATMs, online banking and telephone banking. Customers can use more than 3,100 bank
branches (fourth-largest nationally), 9,300 ATMs (third-largest nationally) and 300 mortgage
offices. More than 14,100 branch salespeople assist customers with checking and savings accounts,
mortgages, home equity and business loans and investments across the 17-state footprint from New
York to Arizona. Consumers also can obtain loans through more than 14,100 auto dealerships and
5,200 schools and universities nationwide.
Card Services
With more than 157 million cards in circulation and more than $155 billion in
managed loans, Card Services (CS) is one of the nations largest credit card issuers. Customers
used Chase cards to meet $179 billion worth of their spending needs in the six months ended June
30, 2008.
With hundreds of partnerships, Chase has a market leadership position in building loyalty
programs with many of the worlds most respected brands.
4
Chase Paymentech Solutions, LLC, a joint venture between JPMorgan Chase and First Data Corporation,
is a processor of MasterCard and Visa payments, which handled more than 10 billion transactions in
the six months ended June 30, 2008. On May 27, 2008, the termination of Chase Paymentech Solutions
was announced. The dissolution is expected to be completed by year-end 2008 and JPMorgan Chase will
retain approximately 51% of the business under the Chase Paymentech name.
Commercial Banking
Commercial Banking (CB) serves more than 30,000 clients nationally, including
corporations, municipalities, financial institutions and not-for-profit entities with annual
revenue generally ranging from $10 million to $2 billion. Commercial Banking delivers extensive
industry knowledge, local expertise and a dedicated service model. In partnership with the Firms
other businesses, it provides comprehensive solutions including lending, treasury services,
investment banking and asset management to meet its clients domestic and international financial
needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in
transaction, investment and information services. TSS is one of the worlds largest cash
management providers and a leading global custodian. Treasury Services (TS) provides cash
management, trade, wholesale card and liquidity products and services to small and mid-sized
companies, multinational corporations, financial institutions and government entities. TS
partners with the Commercial Banking, Retail Financial Services and Asset Management businesses
to serve clients firmwide. As a result, certain TS revenue is included in other segments
results. Worldwide Securities Services (WSS) holds, values, clears and services securities,
cash and alternative investments for investors and broker-dealers, and manages depositary receipt
programs globally.
Asset Management
With assets under supervision of $1.6 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, banking and brokerage services to high-net-worth clients, and retirement services for
corporations and individuals. The majority of AMs client assets are in actively managed
portfolios.
OTHER BUSINESS EVENTS
Merger with The Bear Stearns Companies Inc.
Effective May 30, 2008, BSC Merger Corporation, a wholly-owned subsidiary of JPMorgan Chase, merged
with The Bear Stearns Companies Inc. (Bear Stearns) pursuant to the Agreement and Plan of Merger,
dated as of March 16, 2008, as amended March 24, 2008, and Bear Stearns became a wholly-owned
subsidiary of JPMorgan Chase (the Merger). The Merger provides the Firm with a leading global
prime brokerage platform; strengthens the Firms equities and
asset management businesses; enhances
capabilities in mortgage origination, securitization and servicing; and expands the platform of the
Firms energy business. The Merger is being accounted for under the purchase method of accounting,
which requires that the assets and liabilities of Bear Stearns be fair valued. The total purchase
price to complete the Merger was $1.5 billion.
The Merger was accomplished through a series of transactions that were reflected
as step acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange
agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or
39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of
JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase
acquired approximately 24 million shares of Bear Stearns common stock in the open market at an
average purchase price of $12.37 per share. The share exchange and cash purchase transactions
resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately
prior to consummation of the Merger. Finally, on May 30, 2008,
JPMorgan Chase completed the Merger, and as a result of the Merger, each outstanding share of Bear Stearns
common stock (other than shares then held by JPMorgan Chase) was converted into the right to
receive 0.21753 shares of common stock of JPMorgan Chase. Also, on May 30, 2008, the shares of
common stock that JPMorgan Chase and Bear Stearns acquired from each other in the share exchange
transaction were cancelled. From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for
the investment in Bear Stearns under the equity method of accounting in accordance with APB 18.
During this period, JPMorgan Chase recorded reductions to its investment in Bear Stearns
representing its share of Bear Stearns net losses, which was recorded
in other income and accumulated other comprehensive income.
5
In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the FRBNY)
took control, through a limited liability company (LLC) formed for this purpose, of a portfolio
of $30 billion in assets acquired from Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of
the LLC were funded by a $28.85 billion, term loan from the FRBNY, and a $1.15 billion,
subordinated note from JPMorgan Chase. The JPMorgan Chase note is subordinated to the FRBNY loan
and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the
portfolio after repayment of the FRBNY loan, the JPMorgan Chase note
and the expenses of the LLC,
will be for the account of the FRBNY.
For further discussion of the Merger, see Note 2 on pages 8083 of this Form 10-Q.
Purchase of additional interest in Highbridge Capital Management
In January 2008, JPMorgan Chase purchased an additional equity interest in Highbridge Capital
Management, LLC (Highbridge). As a result, the Firm owns 77.5% of Highbridge as of June 30,
2008. Highbridge is a manager of hedge funds with $28 billion of assets under management at June
30, 2008. The Firm acquired a majority interest in Highbridge in 2004.
6
EXECUTIVE OVERVIEW
This overview of managements discussion and analysis highlights selected information and may not
contain all of the information that is important to readers of this Form 10-Q. For a complete
description of events, trends and uncertainties, as well as the capital, liquidity, credit and
market risks, and the critical accounting estimates affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except per share and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
18,399 |
|
|
$ |
18,908 |
|
|
|
(3 |
)% |
|
$ |
35,289 |
|
|
$ |
37,876 |
|
|
|
(7 |
)% |
Provision for credit losses |
|
|
3,455 |
|
|
|
1,529 |
|
|
|
126 |
|
|
|
7,879 |
|
|
|
2,537 |
|
|
|
211 |
|
Total noninterest expense |
|
|
12,177 |
|
|
|
11,028 |
|
|
|
10 |
|
|
|
21,108 |
|
|
|
21,656 |
|
|
|
(3 |
) |
Net income |
|
|
2,003 |
|
|
|
4,234 |
|
|
|
(53 |
) |
|
|
4,376 |
|
|
|
9,021 |
|
|
|
(51 |
) |
Earnings per share diluted |
|
$ |
0.54 |
|
|
$ |
1.20 |
|
|
|
(55 |
)% |
|
$ |
1.22 |
|
|
$ |
2.55 |
|
|
|
(52 |
)% |
Return on common equity |
|
|
6 |
% |
|
|
14 |
% |
|
|
|
|
|
|
7 |
% |
|
|
16 |
% |
|
|
|
|
|
Business overview
As previously noted, on May 30, 2008, the Firm completed the merger with Bear Stearns. The Merger
created an expanded platform to better serve institutional clients, with new capabilities in prime
brokerage and clearing and improved strength in equities, mortgage trading, commodities and asset
management. The Firm has made substantial progress towards full integration of Bear Stearns with
the Firms operations and in significantly reducing risk positions.
The Firm reported 2008 second-quarter net income of $2.0 billion, or $0.54 per share, compared with
net income of $4.2 billion, or $1.20 per share, for the second quarter of 2007. Return on common
equity for the quarter was 6%, compared with 14% in the prior year. Results in the second quarter
of 2008 included a net loss of $540 million (after-tax) related to the merger with Bear Stearns.
Excluding these merger-related items, net income would have been $2.5 billion. Additional factors
contributing to the decline in net income from the second quarter of 2007 were an increase in the
provision for credit losses reflecting higher estimated losses and an increase in the allowance for
credit losses, higher total noninterest expense and lower total net revenue. Total net revenue for
the second quarter of 2008 reflected markdowns on legacy leveraged loans and certain
mortgage-related positions in the Investment Bank, lower levels of private equity gains and lower
investment banking fees offset partially by an increase in net interest income. The provision for
credit losses in the second quarter of 2008 reflected increases in the allowance for credit losses
predominantly related to subprime and prime mortgage, wholesale and credit card loans, as well as
for higher estimated losses across all home-lending products. The increase in total noninterest
expense for the quarter was driven by higher compensation expense and the effect of the merger with
Bear Stearns (including merger-related costs).
Net income for the first six months of 2008 was $4.4 billion, or $1.22 per share, compared with net
income of $9.0 billion, or $2.55 per share, for the first six months of 2007. Return on common
equity for the first six months of 2008 was 7%, compared with 16% for the same period in 2007. The
lower results in the first half of 2008 were due to the same drivers highlighted for the second
quarter: significantly higher credit provisions, markdowns on legacy leveraged loans and certain
mortgage-related positions, lower private equity gains and the effect of the Bear Stearns merger,
partially offset by lower total noninterest expense and higher net interest income. The increase in
the provision for credit losses in the first six months of 2008 was the result of the same drivers
as those highlighted for the second quarter of 2008, plus a significant increase in the allowance
for home equity credit losses. Total noninterest expense for the first six months of 2008 declined
compared to the prior year due to lower compensation expense.
Although the U.S. economy strengthened modestly in the second quarter of 2008, partly in response
to fiscal stimulus actions, the negative effects of the credit market turmoil, declining housing
prices and rising energy prices remained severe. Labor markets remained weak as unemployment
climbed to 5.5% by the end of the quarter up from 4.6% in the prior-year quarter and 5.1% in the
first quarter of 2008. Financial markets remained under considerable stress and funding markets
continued to be affected by credit concerns. The S&P 500 stock index was down from both the end of
the first quarter of 2008 and from the second quarter of 2007. Capital markets activity was
generally consistent with the levels in the first quarter of 2008, but was down significantly
compared with the levels in the first half of 2007. The Federal Reserve reduced the federal funds
rate by 25 basis points in the quarter to 2.0%, a total reduction of 225 basis points year-to-date
in 2008, while also providing increased term liquidity through the Primary Dealer Credit Facility.
The global economy in the second quarter evolved along two different paths: the industrial
economies
7
continued to show signs of slowing growth, with some countries actually contracting in the quarter;
conversely, developing economies continued to grow rapidly, although in many instances at slower
rates than in 2007.
During the second quarter of 2008, the Firms performance was negatively affected by the overall
global economic environment, as four of the Firms six principal lines of business posted lower net
income than in the second quarter of 2007. The decline in net income in the Investment Bank
reflected additional markdowns related to legacy leveraged loans and mortgage-related exposures.
Lower results in Retail Financial Services and Card Services were driven by a higher provision for
credit losses in each business reflecting the weakening consumer credit environment and declining
housing prices, resulting in higher estimated losses. Asset Managements net income decreased due
to lower performance fees and the effects of lower markets. The lines of business did, however,
continue to generate solid underlying business momentum, producing growth in balances, accounts and
volumes. Commercial Banking and Treasury & Securities Services delivered record earnings and
revenue, benefiting from continued double-digit growth in loans and deposits as well as increased
client volumes, and RFS saw organic revenue growth as well. Notably the IB was ranked #1 for Global
Investment Banking Fees and #1 for Global Debt, Equity and Equity-related volumes for the first
half of 2008.
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 15-18 of this Form 10-Q .
Investment Bank net income was lower compared with the second quarter of 2007, reflecting increased
noninterest expense, lower total net revenue and a higher provision for credit losses. Total net
revenue declined, driven largely by markdowns on legacy leveraged lending funded and unfunded
commitments and certain mortgage-related positions. In addition, weak equities trading results and
lower investment banking advisory fees contributed to the revenue decline. The decline was
partially offset by strong performance in rates, currencies, emerging markets and credit trading,
and strong client revenue in equities. The provision for credit losses reflected an increase in the
allowance for credit losses due to the effect of a weakening credit environment. The increase in
total noninterest expense was largely driven by higher compensation expense and the effect of the
Merger.
Retail Financial Services net income declined due to a significant increase in the provision for
credit losses, largely offset by revenue growth in all businesses within RFS. Higher total net
revenue benefited from higher loan balances, higher net mortgage servicing revenue, higher mortgage
production revenue, wider deposit spreads, increased deposit-related fees and higher deposit
balances. The provision for credit losses increased substantially as housing price declines
continued to result in significant increases in estimated losses, particularly for high
loan-to-value home equity and mortgage loans. Total noninterest expense rose from the prior year,
reflecting higher mortgage production and servicing expense, and investment in the retail
distribution network.
Card Services net income decreased, driven by a higher provision for credit losses. Total managed
net revenue increased slightly, as higher average managed loan balances, an increased level of fees
and wider loan spreads were largely offset by the effect of higher revenue reversals associated
with higher charge-offs. The managed provision for credit losses increased from the prior year due
to a higher level of charge-offs and an increase in the allowance for loan losses reflecting higher
estimated losses. Total noninterest expense was flat compared with the prior-year quarter.
Commercial Banking net income was a record, driven by record total net revenue and lower total
noninterest expense. The increase in revenue resulted from double-digit growth in liability and
loan balances and higher deposit-related fees, largely offset by spread compression in the
liability and loan portfolios and a continued shift to narrower-spread liability products. The
provision for credit losses largely reflected growth in loan balances. Total noninterest expense
declined modestly compared with the prior year.
Treasury & Securities Services net income was a record, driven by record total net revenue,
partially offset by higher total noninterest expense. Both Worldwide Securities Services and
Treasury Services posted record revenue. Worldwide Securities Services revenue growth was driven by
increased product usage by new and existing clients, wider spreads in securities lending and higher
levels of market volatility in foreign exchange driven by recent market conditions. Partially
offsetting these benefits was spread compression on liability products. Treasury Services revenue
growth reflected higher liability balances and wider market-driven spreads as well as growth in
electronic and trade loan volumes. Total noninterest expense was up, reflecting higher expense
related to business and volume growth, as well as continued investment in new product platforms.
8
Asset Management net income decreased from the prior year reflecting lower revenue and higher
noninterest expense. The decrease in revenue was driven by lower performance fees and the effect of
lower markets. The lower revenue was predominantly offset by higher net asset flows, higher deposit
and loan balances and the benefit of the Merger. The provision for credit losses increased from a
benefit in the prior year, reflecting an increase in loan balances and a lower level of recoveries.
The increase in total noninterest expense was largely driven by the effect of the Merger and
increased headcount offset partially by lower performance-based compensation.
Corporate/Private Equity reported a net loss for the quarter compared with net income in the prior
year. The net loss was driven by the after-tax effect of Bear Stearns merger-related items. These
items included losses representing JPMorgan Chases equity ownership in Bear Stearns from April 8
to May 30, 2008, and other merger-related expense and revenue items. Also contributing to the
decline in net income from the prior year were lower results in Private Equity, reflecting a lower
level of gains. Providing a partial offset to these lower results was improved performance in
Corporate (excluding the Bear Stearns merger-related items), which benefited from a higher level of
securities gains (including a gain from the sale of MasterCard shares), a wider net interest spread
and a decline in total noninterest expense (largely reflecting a lower level of litigation
expense). These benefits were partially offset by an increase in the provision for credit losses
for prime mortgage.
The Firms managed provision for credit losses was $4.3 billion, up $2.2 billion, or 102%, from the
prior year, predominantly reflecting the effect of a weakening credit environment as well as loan
growth. The total consumer-managed provision for credit losses was $3.8 billion, compared with $1.9
billion in the prior year. The current-quarter consumer provision reflected an increase in
estimated losses across both the home-lending and credit card portfolios, including an increase to
the allowance for credit losses predominantly related to subprime mortgage, prime mortgage and
credit card loans. Consumer managed net charge-offs were $2.9 billion, compared with $1.6 billion
in the second quarter of 2007, resulting in managed net charge-off rates of 3.08% and 1.90%,
respectively. The wholesale provision for credit losses was $505 million, compared with $198
million in the prior year, reflecting an increase in the allowance for credit losses. Wholesale net
charge-offs were $41 million, compared with net recoveries of $29 million, resulting in a net
charge-off rate of 0.08% and a net recovery rate of 0.07%, respectively. The Firm had total
nonperforming assets of $6.2 billion at June 30, 2008, up from the prior-year level of $2.4
billion.
Total stockholders equity at June 30, 2008, was $133.2 billion, and the Tier 1 capital ratio was
9.2%, compared with 8.4% at June 30, 2007.
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 third quarter of 2008 should be viewed against the backdrop of the
global and U.S. economies, financial markets activity, the geopolitical environment, the
competitive environment and client activity levels. Each of these linked factors will affect the
performance of the Firm and its lines of business. The Firms current expectations are for the
global and U.S. economic environments to continue to be weak, for capital markets to remain under
stress and for a continued decline in U.S. housing prices. These factors have affected, and are
likely to continue to adversely impact, the Firms credit losses, overall business volumes and
earnings.
The consumer provision for credit losses could increase substantially as a result of a higher level
of losses in Retail Financial Services $95.1 billion home equity loan portfolio, $14.8 billion
subprime mortgage loan portfolio, $47.2 billion prime mortgage loan portfolio (mostly held in the
Corporate/Private Equity segment), and in Card Services $155.4 billion managed credit card
portfolio. Given the potential stress on the consumer from the continued downward pressure on
housing prices and the elevated national inventory of unsold homes, management remains extremely
cautious with respect to the home equity, mortgage and credit card
portfolios. As described below, management expects continued
deterioration in credit trends for the consumer portfolios which will
likely require additions to the consumer loan loss allowance during
the remainder of 2008. Housing price
declines in specific geographic regions and slowing economic growth continue to drive higher
estimated losses and nonperforming assets for the home equity and subprime mortgage segments and
have increasingly affected the prime mortgage segment, due in part to the high concentration of
more recent (2006 and later) originations in this portfolio. Based on managements current economic
outlook, quarterly net charge-offs in the home equity portfolio could continue to increase during
the remainder of 2008; prime and subprime mortgage net charge-offs are expected to continue to rise
significantly during the second half of 2008, with deterioration expected to continue into 2009.
Continued housing price declines could also lead to increases in non-credit losses, including
losses on repurchases of previously securitized loans
9
and higher mortgage reinsurance losses.
Management expects the managed
net charge-off rate for Card Services to increase and potentially average 6% during
2009. These charge-off rates could increase if the economic
environment continues to deteriorate. The wholesale
provision for credit losses may also increase over time as a result of loan growth, portfolio
activity and deterioration in underlying credit conditions.
The Investment Bank continues to be negatively affected by the disruption in the credit and
mortgage markets, as well as by overall lower levels of liquidity and wider credit spreads. The
continuation of these factors could potentially lead to reduced levels of client activity, lower
investment banking fees and lower trading revenue. In addition, if
the Firms own credit spreads tighten, the change in the fair
value of certain trading liabilities would also negatively affect
trading results. The Firm held $16.3 billion (gross notional) of
legacy leveraged loans and unfunded commitments as held-for-sale as of June 30, 2008. Markdowns
averaging 20% of the gross notional value have been taken on these legacy positions as of June 30,
2008. Leveraged loans and unfunded commitments are difficult to hedge effectively, and if market
conditions further deteriorate, additional markdowns may be necessary on this asset class. The
Investment Bank also held, at June 30, 2008, an aggregate $19.5 billion of prime and Alt-A mortgage
exposure and $1.9 billion of subprime mortgage exposure. In addition, the Investment Bank had
$11.6 billion of Commercial Mortgage-Backed Securities (CMBS) exposure, which is substantially
credit hedged. These mortgage exposures could be adversely affected by worsening market conditions,
further deterioration in the housing market and market activity
reflecting distressed sellers. For the third quarter to date, trading
conditions have substantially deteriorated versus the second quarter.
In particular, spreads on mortgage-backed securities and loans have
sharply widened causing the company to incur losses (net of hedges)
of approximately $1.5 billion for the quarter to date.
Earnings in Treasury & Securities Services and Asset Management could deteriorate if business
volumes or assets under management or supervision decline. Such declines could occur if the economy
weakens, as a result of lower equity markets, lower volatility in certain products or the narrowing
of spreads (which had recently been driven wider by market conditions). In addition, Treasury &
Securities Services third-quarter 2008 results will not include the benefit of the
seasonally-strong second quarter securities lending and depositary
receipts activity. Management
believes remaining Bear Stearns merger-related costs will be approximately $500 million
(after-tax); these costs are expected to be largely incurred during the second half of 2008
(approximately $150 million per quarter). Management
continues to believe the net quarterly loss in Corporate could average over time approximately $50
million to $100 million, excluding trading results related to
the Firms investment portfolio and credit costs related to
prime mortgage exposures which are expected to increase from second
quarter levels (as discussed within the consumer outlook section
above). Private Equity results, which are
dependent upon the capital markets, could remain volatile and may be significantly lower in 2008
than 2007.
10
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of JPMorgan Chases Consolidated Results of
Operations on a reported basis. Factors that related primarily to a single business segment are
discussed in more detail within that business segment. For a discussion of the Critical Accounting
Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 7274 of
this Form 10-Q and pages 9698 of JPMorgan Chases 2007 Annual Report.
Total net revenue
The following table presents the components of total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Investment banking fees |
|
$ |
1,612 |
|
|
$ |
1,898 |
|
|
|
(15 |
)% |
|
$ |
2,828 |
|
|
$ |
3,637 |
|
|
|
(22 |
)% |
Principal transactions |
|
|
752 |
|
|
|
3,713 |
|
|
|
(80 |
) |
|
|
(51 |
) |
|
|
8,200 |
|
|
NM |
|
Lending & deposit-related fees |
|
|
1,105 |
|
|
|
951 |
|
|
|
16 |
|
|
|
2,144 |
|
|
|
1,846 |
|
|
|
16 |
|
Asset management, administration and
commissions |
|
|
3,628 |
|
|
|
3,611 |
|
|
|
|
|
|
|
7,224 |
|
|
|
6,797 |
|
|
|
6 |
|
Securities gains (losses) |
|
|
647 |
|
|
|
(223 |
) |
|
NM |
|
|
|
680 |
|
|
|
(221 |
) |
|
NM |
|
Mortgage fees and related income |
|
|
696 |
|
|
|
523 |
|
|
|
33 |
|
|
|
1,221 |
|
|
|
999 |
|
|
|
22 |
|
Credit card income |
|
|
1,803 |
|
|
|
1,714 |
|
|
|
5 |
|
|
|
3,599 |
|
|
|
3,277 |
|
|
|
10 |
|
Other income |
|
|
(138 |
) |
|
|
553 |
|
|
NM |
|
|
|
1,691 |
|
|
|
1,071 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
10,105 |
|
|
|
12,740 |
|
|
|
(21 |
) |
|
|
19,336 |
|
|
|
25,606 |
|
|
|
(24 |
) |
Net interest income |
|
|
8,294 |
|
|
|
6,168 |
|
|
|
34 |
|
|
|
15,953 |
|
|
|
12,270 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
18,399 |
|
|
$ |
18,908 |
|
|
|
(3 |
) |
|
$ |
35,289 |
|
|
$ |
37,876 |
|
|
|
(7 |
) |
|
Total net revenue for the second quarter of 2008 was $18.4 billion, down $509 million, or 3%, from
the prior year. The decline was due to lower principal transactions revenue, which reflected net
markdowns on leveraged lending funded and unfunded commitments and mortgage-related net markdowns,
and lower levels of private equity gains. In addition, the Firms share of Bear Stearns losses
from April 8 to May 30, 2008, and lower investment banking fees contributed to the decline in
revenue. Higher net interest income and a gain on the sale of MasterCard shares predominantly
offset the decline. For the first six months of 2008, total net revenue was $35.3 billion, down
$2.6 billion, or 7%, from the prior year, largely reflecting the same drivers as the quarter, as
well as increases due to the proceeds from the sale of Visa shares in its initial public offering
and higher asset management, administration and commissions revenue, which reflected higher
brokerage commissions and growth in assets under custody and management.
Investment banking fees in the second quarter and first six months of 2008 declined from the record
levels of the comparable periods last year. These results were predominantly driven by lower debt
underwriting fees as well as lower advisory fees. For a further discussion of investment banking
fees, which are primarily recorded in IB, see the IB segment results on pages 1922 of this Form
10-Q.
Principal transactions revenue consists of trading revenue and private equity gains. The Firms
trading activities in the second quarter and first six months of 2008 decreased significantly from
the comparable periods in 2007, which reflected strong performance in most of the fixed income and
equities products. The decrease for the quarter was largely due to net markdowns of $696 million on
leveraged lending funded and unfunded commitments, as well as mortgage-related net markdowns of
$405 million. Also contributing to the decrease was weaker Equity Markets trading results.
Partially offsetting these declines was strong performance in rates, currencies, emerging markets,
credit trading and equities client revenue, as well as a combined benefit of $314 million from the
widening of the Firms credit spread on certain structured liabilities. The significant decrease in
trading revenue for the first six months of 2008 was largely due to markdowns taken in the IB,
including $1.8 billion on leveraged lending funded and unfunded commitments and $1.6 billion on
mortgage-related positions. These markdowns were offset partially by strong performances in rates,
currencies, emerging markets, credit trading and equities client revenue, as well as a combined
benefit of $1.3 billion from the widening of the Firms credit spread on certain structured
liabilities. Private equity gains also declined significantly compared with the second quarter and
first six months of 2007, driven by lower gains. In addition, the first quarter of 2007 included a
fair value adjustment related to the adoption of SFAS 157 (Fair Value Measurements). For a
further discussion of principal transactions revenue, see the IB and Corporate/Private Equity
segment results on pages 1922 and 4345, respectively, and Note 5 on pages 9294 of this Form
10-Q.
11
Lending & deposit-related fees rose from the second quarter and first six months of 2007,
predominantly resulting from higher deposit-related fees. For a further discussion of lending &
deposit-related fees, which are mostly recorded in RFS, TSS and CB, see the RFS segment results on
pages 2329, the TSS segment results on pages 3638, and the CB segment results on pages 3436 of
this Form 10-Q.
The increase in asset management, administration and commissions revenue compared with the second
quarter and first six months of 2007 was largely due to increased commissions revenue due mainly to
higher brokerage transaction volume (primarily included within equity markets revenue of IB) and
the absence of a charge in RFS in the first quarter of 2007, resulting from accelerated surrenders
of customer annuity contracts. TSS also contributed to the increase in asset management,
administration and commissions, driven by increased product usage by new and existing clients
(largely in custody, funds services and depositary receipts). For the second quarter and first six
months of 2008, asset management fees in AM were down slightly due to lower performance fees and
the impact of market movements. This decline was largely offset by the impact of growth in assets
under management, due to liquidity product inflows across all segments and alternative product
inflows in the Institutional and Private Bank client segments. For additional information on these
fees and commissions, see the segment discussions for IB on pages 1922, RFS on pages 2329, TSS on
pages 3638, and AM on pages 3942, of this Form 10-Q.
The favorable variances resulting from securities gains for the second quarter and first six months
of 2008, compared with securities losses in the same periods in 2007, were predominantly driven by
a gain of $668 million from the sale of MasterCard shares and a repositioning of the Corporate
investment securities portfolio. For a further discussion of securities gains, which are mostly
recorded in the Firms Corporate business, see the Corporate/Private Equity segment discussion on
pages 4345 of this Form 10-Q.
Mortgage fees and related income increased from the second quarter of 2007, driven by higher net
mortgage servicing revenue, which benefited from an improvement in
mortgage servicing rights (MSR) risk management results and
increased loan servicing revenue, and higher production revenue, which benefited from higher loan
originations. Mortgage fees and related income also increased from the first six months of 2007,
driven predominantly by increased production revenue and higher net mortgage servicing revenue. For
a discussion of mortgage fees and related income, which is recorded primarily in RFS Mortgage
Banking business, see the Mortgage Banking discussion on pages 2728 of this Form 10-Q.
Credit card income increased from the second quarter and first six months of 2007, due to higher
interchange income from higher credit card charge volume in CS and higher debit card transaction
volume in RFS, and higher servicing fees earned in connection with CS securitization activities,
predominantly reflecting wider loan margins. Also contributing to the increase was higher revenue
from fee-based products. These were offset partially by increases in volume-driven payments to
partners and expense related to reward programs. For a further discussion of credit card income,
see CS segment results on pages 3033 of this Form 10-Q.
The decrease in other income from the second quarter of 2007 was predominantly due to losses of
$423 million after tax reflecting the Firms 49.4% ownership in Bear Stearns losses from April 8
to May 30, 2008, markdowns on certain investments, higher losses on other real estate owned and
lower gains related to the sale of securities acquired in the satisfaction of debt. These losses
were partially offset by higher credit card net securitization gains and automobile operating lease
revenue. For the first six months of 2008, other income increased due to the proceeds from the sale
of Visa shares in its initial public offering ($1.5 billion pretax), partially offset by the net
unfavorable impact of the aforementioned items.
Net interest income rose from the second quarter and first six months of 2007, primarily due to the
following: higher trading-related net interest income, wider spreads on higher balances of consumer
loans, growth in liability and deposit balances in the wholesale and consumer businesses, and a
wider net interest spread in the Corporate business. These benefits were offset partly by spread
compression on deposit and liability products. The Firms total average interest-earning assets for
the second quarter of 2008 were $1.3 trillion, up 15% from the second quarter of 2007. The increase
was predominantly driven by higher loans, federal funds sold and securities purchased under resale
agreements, deposits with banks, other assets and available-for-sale (AFS) securities. The net
interest yield on these assets, on a fully taxable equivalent basis, was 2.71%, an increase of 41
basis points from the second quarter of 2007. The Firms total average interest earning assets for
the first six months of 2008 were $1.2 trillion, up 15% from the first six months of 2007, driven
by the aforementioned items, as well as higher trading assets debt instruments. The net interest
yield on these assets, on a fully taxable equivalent basis, was 2.65%, an increase of 31 basis
points from the first six months of 2007.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Provision for credit losses |
|
$ |
3,455 |
|
|
$ |
1,529 |
|
|
|
126 |
% |
|
$ |
7,879 |
|
|
$ |
2,537 |
|
|
|
211 |
% |
|
Provision for credit losses
The provision for credit losses in the second quarter and first half of 2008 rose from the
comparable prior-year periods, due to increases in both the consumer and wholesale provisions. The
increase in the consumer provision reflected increases in estimated losses for the home equity,
subprime mortgage, prime mortgage and credit card loan portfolios. The increase to wholesale
provision for the second quarter and first half of 2008 compared with prior periods was primarily
driven by the effect of a weakening credit environment. The first half of 2008 also included the
effect of the transfer of funded and unfunded leverage lending commitments to
retained loans from held-for-sale. For a more detailed discussion of the loan portfolio and the
allowance for loan losses, see the segment discussions for RFS on pages 2329, CS on pages 3033,
IB on pages 1922, CB on pages 3436 and Credit Risk Management on pages 5568 of this Form 10-Q.
Noninterest expense
The following table presents the components of noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Compensation expense |
|
$ |
6,913 |
|
|
$ |
6,309 |
|
|
|
10 |
% |
|
$ |
11,864 |
|
|
$ |
12,543 |
|
|
|
(5 |
)% |
Occupancy expense |
|
|
669 |
|
|
|
652 |
|
|
|
3 |
|
|
|
1,317 |
|
|
|
1,292 |
|
|
|
2 |
|
Technology, communications and equipment
expense |
|
|
1,028 |
|
|
|
921 |
|
|
|
12 |
|
|
|
1,996 |
|
|
|
1,843 |
|
|
|
8 |
|
Professional & outside services |
|
|
1,450 |
|
|
|
1,259 |
|
|
|
15 |
|
|
|
2,783 |
|
|
|
2,459 |
|
|
|
13 |
|
Marketing |
|
|
413 |
|
|
|
457 |
|
|
|
(10 |
) |
|
|
959 |
|
|
|
939 |
|
|
|
2 |
|
Other expense |
|
|
1,233 |
|
|
|
1,013 |
|
|
|
22 |
|
|
|
1,402 |
|
|
|
1,748 |
|
|
|
(20 |
) |
Amortization of intangibles |
|
|
316 |
|
|
|
353 |
|
|
|
(10 |
) |
|
|
632 |
|
|
|
706 |
|
|
|
(10 |
) |
Merger costs |
|
|
155 |
|
|
|
64 |
|
|
|
142 |
|
|
|
155 |
|
|
|
126 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
12,177 |
|
|
$ |
11,028 |
|
|
|
10 |
|
|
$ |
21,108 |
|
|
$ |
21,656 |
|
|
|
(3 |
) |
|
Total noninterest expense for the second quarter of 2008 was $12.2 billion, up $1.1 billion, or
10%, from the second quarter of 2007. The increase was driven by higher compensation expense, the
merger with Bear Stearns (including merger-related costs) and higher mortgage production and
servicing expense. For the first six months of 2008, total noninterest expense was $21.1 billion,
down $548 million, or 3%, from the prior year, primarily due to lower performance-based incentives.
The increase in compensation expense from the second quarter of 2007 was predominantly driven by
the merger with Bear Stearns and additional headcount due to investment in the businesses.
Compensation expense for the first six months of 2008 decreased from the prior-year period,
primarily due to lower performance-based compensation, partially offset by the aforementioned
items.
The increases in occupancy expense from the second quarter and first six months of 2007 were driven
by the merger with Bear Stearns.
Technology, communications and equipment expense increased compared with the second quarter and
first six months of 2007, due to higher technology expense related to business growth, the merger
with Bear Stearns and higher depreciation expense on owned automobiles subject to operating leases
in the Auto Finance business.
Professional & outside services rose from the second quarter and first six months of 2007,
reflecting the merger with Bear Stearns, higher expense related to business and volume growth,
including higher brokerage expense in IB and continued investment in new product platforms in TSS.
Marketing expense decreased compared with the second quarter of 2007, reflecting lower retail and
credit card marketing expense. The increase in marketing expense from the first six months of 2007
was due to higher credit card marketing expense, partly offset by lower retail marketing expense.
13
The increase in other expense from the second quarter of 2007 was due to higher mortgage production
and servicing expense, the merger with Bear Stearns and higher litigation expense. For the first
six months of 2008, other expense decreased due largely to a net reduction of litigation expense,
offset partially by higher mortgage production and servicing expense and the merger with Bear
Stearns.
For a discussion of amortization of intangibles and merger costs, refer to Note 18 and Note 10 on
pages 114116 and 97, respectively, of this Form 10-Q.
Income tax expense
The Firms income before income tax expense, income tax expense and effective tax rate were as
follows for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except rate) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Income before income tax expense |
|
$ |
2,767 |
|
|
$ |
6,351 |
|
|
$ |
6,302 |
|
|
$ |
13,683 |
|
Income tax expense |
|
|
764 |
|
|
|
2,117 |
|
|
|
1,926 |
|
|
|
4,662 |
|
Effective tax rate |
|
|
27.6 |
% |
|
|
33.3 |
% |
|
|
30.6 |
% |
|
|
34.1 |
% |
|
The decrease in the effective tax rate for the second quarter and first six months of 2008,
compared with the same periods for 2007, was the result of lower reported pretax income combined
with an increased proportion of income that was not subject to U.S. federal income taxes, and a
benefit from the release of deferred tax liabilities associated with earnings of certain non-U.S.
subsidiaries that were deemed to be reinvested indefinitely. These benefits were partially offset
by losses representing the Firms 49.4% ownership in Bear Stearns losses from April 8 to May 30,
2008, for which no income tax benefit was recorded.
14
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
7679 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 lines 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
presents revenue on a fully taxable-equivalent (FTE) basis. These adjustments do not have any
impact on net income as reported by the lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with SFAS 140 remain on the Consolidated Balance Sheets and that
the earnings on the securitized loans are classified in the same manner as the earnings on retained
loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of managed basis
to evaluate the credit performance and overall financial performance of the entire managed credit
card portfolio. Operations are funded and decisions are made about allocating resources, such as
employees and capital, based upon managed financial information. In addition, the same underwriting
standards and ongoing risk monitoring are used for both loans on the Consolidated Balance Sheets
and securitized loans. Although securitizations result in the sale of credit card receivables to a
trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to
use their credit cards; accordingly, the customers credit performance will affect both the
securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase
believes managed basis information is useful to investors, enabling them to understand both the
credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firms
retained interests in securitized loans. For a reconciliation of reported to managed basis results
for CS, see CS segment results on pages 3033 of this Form 10-Q. For information regarding the
securitization process, and loans and residual interests sold and securitized, see Note 16 on pages
103109 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on a FTE basis.
Accordingly, revenue from tax-exempt securities and investments that receive tax credits is
presented in the managed results on a basis comparable to taxable securities and investments. This
non-GAAP financial measure allows management to assess the comparability of revenue arising from
both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within income tax expense.
Management also uses certain non-GAAP financial measures at the business segment level because it
believes these other non-GAAP financial measures provide information to investors about the
underlying operational performance and trends of the particular business segment and therefore
facilitate a comparison of the business segment with the performance of its competitors.
15
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
Fully tax- |
|
|
|
|
Reported |
|
Credit |
|
equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(a) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,612 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,612 |
|
Principal transactions |
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
752 |
|
Lending & deposit-related fees |
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
1,105 |
|
Asset management, administration and commissions |
|
|
3,628 |
|
|
|
|
|
|
|
|
|
|
|
3,628 |
|
Securities gains |
|
|
647 |
|
|
|
|
|
|
|
|
|
|
|
647 |
|
Mortgage fees and related income |
|
|
696 |
|
|
|
|
|
|
|
|
|
|
|
696 |
|
Credit card income |
|
|
1,803 |
|
|
|
(843 |
) |
|
|
|
|
|
|
960 |
|
Other income |
|
|
(138 |
) |
|
|
|
|
|
|
247 |
|
|
|
109 |
|
|
Noninterest revenue |
|
|
10,105 |
|
|
|
(843 |
) |
|
|
247 |
|
|
|
9,509 |
|
Net interest income |
|
|
8,294 |
|
|
|
1,673 |
|
|
|
202 |
|
|
|
10,169 |
|
|
Total net revenue |
|
|
18,399 |
|
|
|
830 |
|
|
|
449 |
|
|
|
19,678 |
|
Provision for credit losses |
|
|
3,455 |
|
|
|
830 |
|
|
|
|
|
|
|
4,285 |
|
Noninterest expense |
|
|
12,177 |
|
|
|
|
|
|
|
|
|
|
|
12,177 |
|
|
Income before income tax expense |
|
|
2,767 |
|
|
|
|
|
|
|
449 |
|
|
|
3,216 |
|
Income tax expense |
|
|
764 |
|
|
|
|
|
|
|
449 |
|
|
|
1,213 |
|
|
Net income |
|
$ |
2,003 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,003 |
|
|
Diluted earnings per share |
|
$ |
0.54 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.54 |
|
|
Return on common equity |
|
|
6 |
% |
|
|
|
% |
|
|
|
% |
|
|
6 |
% |
Return on equity less goodwill |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Return on assets |
|
|
0.48 |
|
|
NM |
|
|
NM |
|
|
|
0.46 |
|
Overhead ratio |
|
|
66 |
|
|
NM |
|
|
NM |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Fully tax- |
|
|
|
|
Reported |
|
Credit |
|
equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(a) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,898 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,898 |
|
Principal transactions |
|
|
3,713 |
|
|
|
|
|
|
|
|
|
|
|
3,713 |
|
Lending & deposit-related fees |
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
951 |
|
Asset management, administration and commissions |
|
|
3,611 |
|
|
|
|
|
|
|
|
|
|
|
3,611 |
|
Securities gains |
|
|
(223 |
) |
|
|
|
|
|
|
|
|
|
|
(223 |
) |
Mortgage fees and related income |
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
523 |
|
Credit card income |
|
|
1,714 |
|
|
|
(788 |
) |
|
|
|
|
|
|
926 |
|
Other income |
|
|
553 |
|
|
|
|
|
|
|
199 |
|
|
|
752 |
|
|
Noninterest revenue |
|
|
12,740 |
|
|
|
(788 |
) |
|
|
199 |
|
|
|
12,151 |
|
Net interest income |
|
|
6,168 |
|
|
|
1,378 |
|
|
|
122 |
|
|
|
7,668 |
|
|
Total net revenue |
|
|
18,908 |
|
|
|
590 |
|
|
|
321 |
|
|
|
19,819 |
|
Provision for credit losses |
|
|
1,529 |
|
|
|
590 |
|
|
|
|
|
|
|
2,119 |
|
Noninterest expense |
|
|
11,028 |
|
|
|
|
|
|
|
|
|
|
|
11,028 |
|
|
Income before income tax expense |
|
|
6,351 |
|
|
|
|
|
|
|
321 |
|
|
|
6,672 |
|
Income tax expense |
|
|
2,117 |
|
|
|
|
|
|
|
321 |
|
|
|
2,438 |
|
|
Net income |
|
$ |
4,234 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,234 |
|
|
Diluted earnings per share |
|
$ |
1.20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.20 |
|
|
Return on common equity |
|
|
14 |
% |
|
|
|
% |
|
|
|
% |
|
|
14 |
% |
Return on equity less goodwill |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Return on assets |
|
|
1.19 |
|
|
NM |
|
|
NM |
|
|
|
1.13 |
|
Overhead ratio |
|
|
58 |
|
|
NM |
|
|
NM |
|
|
|
56 |
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
Fully tax- |
|
|
|
|
Reported |
|
Credit |
|
equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(a) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,828 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,828 |
|
Principal transactions |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Lending & deposit-related fees |
|
|
2,144 |
|
|
|
|
|
|
|
|
|
|
|
2,144 |
|
Asset management, administration and commissions |
|
|
7,224 |
|
|
|
|
|
|
|
|
|
|
|
7,224 |
|
Securities gains |
|
|
680 |
|
|
|
|
|
|
|
|
|
|
|
680 |
|
Mortgage fees and related income |
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
Credit card income |
|
|
3,599 |
|
|
|
(1,780 |
) |
|
|
|
|
|
|
1,819 |
|
Other income |
|
|
1,691 |
|
|
|
|
|
|
|
450 |
|
|
|
2,141 |
|
|
Noninterest revenue |
|
|
19,336 |
|
|
|
(1,780 |
) |
|
|
450 |
|
|
|
18,006 |
|
Net interest income |
|
|
15,953 |
|
|
|
3,291 |
|
|
|
326 |
|
|
|
19,570 |
|
|
Total net revenue |
|
|
35,289 |
|
|
|
1,511 |
|
|
|
776 |
|
|
|
37,576 |
|
Provision for credit losses |
|
|
7,879 |
|
|
|
1,511 |
|
|
|
|
|
|
|
9,390 |
|
Noninterest expense |
|
|
21,108 |
|
|
|
|
|
|
|
|
|
|
|
21,108 |
|
|
Income before income tax expense |
|
|
6,302 |
|
|
|
|
|
|
|
776 |
|
|
|
7,078 |
|
Income tax expense |
|
|
1,926 |
|
|
|
|
|
|
|
776 |
|
|
|
2,702 |
|
|
Net income |
|
$ |
4,376 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,376 |
|
|
Diluted earnings per share |
|
$ |
1.22 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.22 |
|
|
Return on common equity |
|
|
7 |
% |
|
|
|
% |
|
|
|
% |
|
|
7 |
% |
Return on equity less goodwill |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Return on assets |
|
|
0.54 |
|
|
NM |
|
|
NM |
|
|
|
0.52 |
|
Overhead ratio |
|
|
60 |
|
|
NM |
|
|
NM |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Fully tax- |
|
|
|
|
Reported |
|
Credit |
|
equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(a) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
3,637 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,637 |
|
Principal transactions |
|
|
8,200 |
|
|
|
|
|
|
|
|
|
|
|
8,200 |
|
Lending & deposit-related fees |
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
1,846 |
|
Asset management, administration and commissions |
|
|
6,797 |
|
|
|
|
|
|
|
|
|
|
|
6,797 |
|
Securities gains |
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
(221 |
) |
Mortgage fees and related income |
|
|
999 |
|
|
|
|
|
|
|
|
|
|
|
999 |
|
Credit card income |
|
|
3,277 |
|
|
|
(1,534 |
) |
|
|
|
|
|
|
1,743 |
|
Other income |
|
|
1,071 |
|
|
|
|
|
|
|
309 |
|
|
|
1,380 |
|
|
Noninterest revenue |
|
|
25,606 |
|
|
|
(1,534 |
) |
|
|
309 |
|
|
|
24,381 |
|
Net interest income |
|
|
12,270 |
|
|
|
2,717 |
|
|
|
192 |
|
|
|
15,179 |
|
|
Total net revenue |
|
|
37,876 |
|
|
|
1,183 |
|
|
|
501 |
|
|
|
39,560 |
|
Provision for credit losses |
|
|
2,537 |
|
|
|
1,183 |
|
|
|
|
|
|
|
3,720 |
|
Noninterest expense |
|
|
21,656 |
|
|
|
|
|
|
|
|
|
|
|
21,656 |
|
|
Income before income tax expense |
|
|
13,683 |
|
|
|
|
|
|
|
501 |
|
|
|
14,184 |
|
Income tax expense |
|
|
4,662 |
|
|
|
|
|
|
|
501 |
|
|
|
5,163 |
|
|
Net income |
|
$ |
9,021 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,021 |
|
|
Diluted earnings per share |
|
$ |
2.55 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.55 |
|
|
Return on common equity |
|
|
16 |
% |
|
|
|
% |
|
|
|
% |
|
|
16 |
% |
Return on equity less goodwill |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Return on assets |
|
|
1.29 |
|
|
NM |
|
|
NM |
|
|
|
1.24 |
|
Overhead ratio |
|
|
57 |
|
|
NM |
|
|
NM |
|
|
|
55 |
|
|
|
|
|
(a) |
|
Credit card securitizations affect CS. See pages 30-33 of this Form 10-Q for further
information. |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2008 |
|
|
2007 |
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Loans Period-end |
|
$ |
538,029 |
|
|
$ |
79,120 |
|
|
$ |
617,149 |
|
|
$ |
465,037 |
|
|
$ |
67,506 |
|
|
$ |
532,543 |
|
Total assets average |
|
|
1,668,699 |
|
|
|
74,580 |
|
|
|
1,743,279 |
|
|
|
1,431,986 |
|
|
|
65,920 |
|
|
|
1,497,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2008 |
|
|
2007 |
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Loans Period-end |
|
$ |
538,029 |
|
|
$ |
79,120 |
|
|
$ |
617,149 |
|
|
$ |
465,037 |
|
|
$ |
67,506 |
|
|
$ |
532,543 |
|
Total assets
average |
|
|
1,619,248 |
|
|
|
73,084 |
|
|
|
1,692,332 |
|
|
|
1,405,597 |
|
|
|
65,519 |
|
|
|
1,471,116 |
|
|
BUSINESS SEGMENT RESULTS
The Firm is managed on a line-of-business basis. The business segment financial results presented
reflect the current organization of JPMorgan Chase. There are six major reportable business
segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking,
Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment.
The business segments are determined based 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 38-39 of JPMorgan Chases 2007 Annual Report.
As part of the Bear Stearns merger integration, the businesses of Bear Stearns were reviewed and
aligned with the business segments of JPMorgan Chase. The Merger predominantly affected the IB and
AM lines of business. The impact of the Merger on the JPMorgan Chase business segments is discussed
in the segment results of the applicable line of business.
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 38 of JPMorgan Chases 2007 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
June 30, |
|
Total net revenue |
|
Noninterest expense |
|
Net income (loss) |
|
Return
on equity |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Investment Bank |
|
$ |
5,470 |
|
|
$ |
5,798 |
|
|
|
(6 |
)% |
|
$ |
4,734 |
|
|
$ |
3,854 |
|
|
|
23 |
% |
|
$ |
394 |
|
|
$ |
1,179 |
|
|
|
(67 |
)% |
|
|
7 |
% |
|
|
23 |
% |
Retail Financial Services |
|
|
5,015 |
|
|
|
4,357 |
|
|
|
15 |
|
|
|
2,670 |
|
|
|
2,484 |
|
|
|
7 |
|
|
|
606 |
|
|
|
785 |
|
|
|
(23 |
) |
|
|
14 |
|
|
|
20 |
|
Card Services |
|
|
3,775 |
|
|
|
3,717 |
|
|
|
2 |
|
|
|
1,185 |
|
|
|
1,188 |
|
|
|
|
|
|
|
250 |
|
|
|
759 |
|
|
|
(67 |
) |
|
|
7 |
|
|
|
22 |
|
Commercial Banking |
|
|
1,106 |
|
|
|
1,007 |
|
|
|
10 |
|
|
|
476 |
|
|
|
496 |
|
|
|
(4 |
) |
|
|
355 |
|
|
|
284 |
|
|
|
25 |
|
|
|
20 |
|
|
|
18 |
|
Treasury & Securities Services |
|
|
2,019 |
|
|
|
1,741 |
|
|
|
16 |
|
|
|
1,317 |
|
|
|
1,149 |
|
|
|
15 |
|
|
|
425 |
|
|
|
352 |
|
|
|
21 |
|
|
|
49 |
|
|
|
47 |
|
Asset Management |
|
|
2,064 |
|
|
|
2,137 |
|
|
|
(3 |
) |
|
|
1,400 |
|
|
|
1,355 |
|
|
|
3 |
|
|
|
395 |
|
|
|
493 |
|
|
|
(20 |
) |
|
|
31 |
|
|
|
53 |
|
Corporate/Private Equity |
|
|
229 |
|
|
|
1,062 |
|
|
|
(78 |
) |
|
|
395 |
|
|
|
502 |
|
|
|
(21 |
) |
|
|
(422 |
) |
|
|
382 |
|
|
NM |
|
|
NM |
|
|
NM |
|
|
Total |
|
$ |
19,678 |
|
|
$ |
19,819 |
|
|
|
(1 |
)% |
|
$ |
12,177 |
|
|
$ |
11,028 |
|
|
|
10 |
% |
|
$ |
2,003 |
|
|
$ |
4,234 |
|
|
|
(53 |
)% |
|
|
6 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, |
|
Total net revenue |
|
Noninterest expense |
|
Net income |
|
Return on equity |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Investment Bank |
|
$ |
8,481 |
|
|
$ |
12,052 |
|
|
|
(30 |
)% |
|
$ |
7,287 |
|
|
$ |
7,685 |
|
|
|
(5 |
)% |
|
$ |
307 |
|
|
$ |
2,719 |
|
|
|
(89 |
)% |
|
|
3 |
% |
|
|
26 |
% |
Retail Financial Services |
|
|
9,717 |
|
|
|
8,463 |
|
|
|
15 |
|
|
|
5,240 |
|
|
|
4,891 |
|
|
|
7 |
|
|
|
379 |
|
|
|
1,644 |
|
|
|
(77 |
) |
|
|
4 |
|
|
|
21 |
|
Card Services |
|
|
7,679 |
|
|
|
7,397 |
|
|
|
4 |
|
|
|
2,457 |
|
|
|
2,429 |
|
|
|
1 |
|
|
|
859 |
|
|
|
1,524 |
|
|
|
(44 |
) |
|
|
12 |
|
|
|
22 |
|
Commercial Banking |
|
|
2,173 |
|
|
|
2,010 |
|
|
|
8 |
|
|
|
961 |
|
|
|
981 |
|
|
|
(2 |
) |
|
|
647 |
|
|
|
588 |
|
|
|
10 |
|
|
|
19 |
|
|
|
19 |
|
Treasury & Securities Services |
|
|
3,932 |
|
|
|
3,267 |
|
|
|
20 |
|
|
|
2,545 |
|
|
|
2,224 |
|
|
|
14 |
|
|
|
828 |
|
|
|
615 |
|
|
|
35 |
|
|
|
48 |
|
|
|
41 |
|
Asset Management |
|
|
3,965 |
|
|
|
4,041 |
|
|
|
(2 |
) |
|
|
2,723 |
|
|
|
2,590 |
|
|
|
5 |
|
|
|
751 |
|
|
|
918 |
|
|
|
(18 |
) |
|
|
30 |
|
|
|
49 |
|
Corporate/Private Equity |
|
|
1,629 |
|
|
|
2,330 |
|
|
|
(30 |
) |
|
|
(105 |
) |
|
|
856 |
|
|
NM |
|
|
|
605 |
|
|
|
1,013 |
|
|
|
(40 |
) |
|
NM |
|
|
NM |
|
|
Total |
|
$ |
37,576 |
|
|
$ |
39,560 |
|
|
|
(5 |
)% |
|
$ |
21,108 |
|
|
$ |
21,656 |
|
|
|
(3 |
)% |
|
$ |
4,376 |
|
|
$ |
9,021 |
|
|
|
(51 |
)% |
|
|
7 |
% |
|
|
16 |
% |
|
|
|
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit card
securitizations. |
18
For a discussion of the business profile of the IB, see pages 40-42 of JPMorgan Chases 2007 Annual
Report and page 4 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,735 |
|
|
$ |
1,900 |
|
|
|
(9 |
)% |
|
$ |
2,941 |
|
|
$ |
3,629 |
|
|
|
(19 |
)% |
Principal transactions |
|
|
838 |
|
|
|
2,325 |
|
|
|
(64 |
) |
|
|
40 |
|
|
|
5,467 |
|
|
|
(99 |
) |
Lending & deposit-related fees |
|
|
105 |
|
|
|
93 |
|
|
|
13 |
|
|
|
207 |
|
|
|
186 |
|
|
|
11 |
|
Asset management, administration
and commissions |
|
|
709 |
|
|
|
643 |
|
|
|
10 |
|
|
|
1,453 |
|
|
|
1,284 |
|
|
|
13 |
|
All other income |
|
|
(226 |
) |
|
|
122 |
|
|
NM |
|
|
|
(292 |
) |
|
|
164 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
3,161 |
|
|
|
5,083 |
|
|
|
(38 |
) |
|
|
4,349 |
|
|
|
10,730 |
|
|
|
(59 |
) |
Net interest income |
|
|
2,309 |
|
|
|
715 |
|
|
|
223 |
|
|
|
4,132 |
|
|
|
1,322 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(a) |
|
|
5,470 |
|
|
|
5,798 |
|
|
|
(6 |
) |
|
|
8,481 |
|
|
|
12,052 |
|
|
|
(30 |
) |
Provision for credit losses |
|
|
398 |
|
|
|
164 |
|
|
|
143 |
|
|
|
1,016 |
|
|
|
227 |
|
|
|
348 |
|
Credit reimbursement from TSS(b) |
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
3,132 |
|
|
|
2,589 |
|
|
|
21 |
|
|
|
4,373 |
|
|
|
5,226 |
|
|
|
(16 |
) |
Noncompensation expense |
|
|
1,602 |
|
|
|
1,265 |
|
|
|
27 |
|
|
|
2,914 |
|
|
|
2,459 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4,734 |
|
|
|
3,854 |
|
|
|
23 |
|
|
|
7,287 |
|
|
|
7,685 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
expense |
|
|
368 |
|
|
|
1,810 |
|
|
|
(80 |
) |
|
|
238 |
|
|
|
4,200 |
|
|
|
(94 |
) |
Income tax expense (benefit) |
|
|
(26 |
) |
|
|
631 |
|
|
NM |
|
|
|
(69 |
) |
|
|
1,481 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
394 |
|
|
$ |
1,179 |
|
|
|
(67 |
) |
|
$ |
307 |
|
|
$ |
2,719 |
|
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
7 |
% |
|
|
23 |
% |
|
|
|
|
|
|
3 |
% |
|
|
26 |
% |
|
|
|
|
ROA |
|
|
0.19 |
|
|
|
0.68 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.81 |
|
|
|
|
|
Overhead ratio |
|
|
87 |
|
|
|
66 |
|
|
|
|
|
|
|
86 |
|
|
|
64 |
|
|
|
|
|
Compensation expense as a % of total
net revenue |
|
|
57 |
|
|
|
45 |
|
|
|
|
|
|
|
52 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
370 |
|
|
$ |
560 |
|
|
|
(34 |
) |
|
$ |
853 |
|
|
$ |
1,032 |
|
|
|
(17 |
) |
Equity underwriting |
|
|
542 |
|
|
|
509 |
|
|
|
6 |
|
|
|
901 |
|
|
|
902 |
|
|
|
|
|
Debt underwriting |
|
|
823 |
|
|
|
831 |
|
|
|
(1 |
) |
|
|
1,187 |
|
|
|
1,695 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
1,735 |
|
|
|
1,900 |
|
|
|
(9 |
) |
|
|
2,941 |
|
|
|
3,629 |
|
|
|
(19 |
) |
Fixed income markets |
|
|
2,347 |
|
|
|
2,445 |
|
|
|
(4 |
) |
|
|
2,813 |
|
|
|
5,037 |
|
|
|
(44 |
) |
Equity markets |
|
|
1,079 |
|
|
|
1,249 |
|
|
|
(14 |
) |
|
|
2,055 |
|
|
|
2,788 |
|
|
|
(26 |
) |
Credit portfolio |
|
|
309 |
|
|
|
204 |
|
|
|
51 |
|
|
|
672 |
|
|
|
598 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
5,470 |
|
|
$ |
5,798 |
|
|
|
(6 |
) |
|
$ |
8,481 |
|
|
$ |
12,052 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
3,165 |
|
|
$ |
2,655 |
|
|
|
19 |
|
|
$ |
3,701 |
|
|
$ |
6,021 |
|
|
|
(39 |
) |
Europe/Middle East/Africa |
|
|
1,512 |
|
|
|
2,327 |
|
|
|
(35 |
) |
|
|
3,153 |
|
|
|
4,578 |
|
|
|
(31 |
) |
Asia/Pacific |
|
|
793 |
|
|
|
816 |
|
|
|
(3 |
) |
|
|
1,627 |
|
|
|
1,453 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
5,470 |
|
|
$ |
5,798 |
|
|
|
(6 |
) |
|
$ |
8,481 |
|
|
$ |
12,052 |
|
|
|
(30 |
) |
|
|
|
|
(a) |
|
Total net revenue included tax-equivalent adjustments, predominantly due to tax-exempt income
from municipal bond investments and income tax credits related to affordable housing
investments, of $404 million and $290 million for the quarters ended June 30, 2008 and 2007,
respectively, and $693 million and $442 million for year-to-date 2008 and 2007, respectively. |
(b) |
|
TSS is charged a credit reimbursement related to certain exposures managed within the IB
credit portfolio on behalf of clients shared with TSS. |
19
Quarterly results
Net income was $394 million, a decrease from $1.2 billion in the prior year. The lower results
reflected increased noninterest expense, a decline in total net revenue and a higher provision for
credit losses, partially offset by the benefit of reduced deferred tax liabilities.
Total net revenue was $5.5 billion, a decrease of $328 million, or 6%, from the prior year.
Investment banking fees were $1.7 billion (the second-highest quarter ever), down 9% from the prior
year. Advisory fees of $370 million were down 34% from the prior year, reflecting reduced levels of
activity. Debt underwriting fees of $823 million were down 1%, driven by a decline in loan
syndication fees reflecting market conditions offset by higher bond underwriting fees. Equity
underwriting fees were $542 million, up 6% from the prior year. Fixed Income Markets revenue was
$2.3 billion, down $98 million, or 4%, from the prior year, driven largely by net markdowns of $696
million on leveraged lending funded and unfunded commitments, as well as mortgage-related net
markdowns of $405 million. These marks were partially offset by strong performance in rates,
currencies, emerging markets, and credit trading, as well as gains of $165 million from the
widening of the Firms credit spread on certain structured liabilities. Equity Markets revenue was
$1.1 billion, down $170 million, or 14% from the prior year, driven by weak trading results offset
partially by strong client revenue and a gain of $149 million from the widening of the Firms
credit spread on certain structured liabilities. Credit Portfolio revenue was $309 million, up $105
million, or 51% from the prior year, reflecting increased net interest income on higher loan
balances.
The provision for credit losses was $398 million, compared with $164 million in the prior year. The
current-quarter provision reflects a weakening credit environment. Net recoveries were $8 million,
compared with net recoveries of $16 million in the prior year. The allowance for loan losses to
total loans retained was 3.19% for the current quarter, an increase from 1.76% in the prior year.
Average loans retained were $76.2 billion, an increase of $17.2 billion, or 29%, from the prior
year, largely driven by growth in acquisition finance activity, including leveraged lending, and a
facility extended to Bear Stearns. Average fair value and held-for-sale loans were $20.4 billion,
up $5.6 billion, or 38%, from the prior year.
Noninterest expense was $4.7 billion, an increase of $880 million, or 23%, from the prior year,
largely driven by higher compensation expense and the Merger.
Year-to-date results
Net income was $307 million, down 89%, or $2.4 billion, from the prior year. The lower results
reflected a decline in total net revenue and a higher provision for credit losses, partially offset
by lower noninterest expense.
Total net revenue was $8.5 billion, a decrease of $3.6 billion, or 30%, from the prior year.
Investment banking fees were $2.9 billion, down 19% from the prior year, predominantly reflecting
lower debt underwriting and advisory fees. Advisory fees of $853 million were down 17% from the
prior year reflecting reduced levels of activity. Debt underwriting fees of $1.2 billion were down
30%, driven by lower loan syndication and bond underwriting fees, reflecting market conditions.
Equity underwriting fees of $901 million were flat to the prior year. Fixed Income Markets revenue
was $2.8 billion, down $2.2 billion, or 44%, from the prior year driven largely by net markdowns of
$1.8 billion on leveraged lending funded and unfunded commitments and mortgage-related net
markdowns of approximately $1.6 billion. These marks were partially offset by strong performance in
rates, currencies, credit trading, and emerging markets as well as gains of $827 million from the
widening of the Firms credit spread on certain structured liabilities. Equity Markets revenue was
$2.1 billion, down $733 million, or 26% from the prior year, driven by weak trading results offset
partially by strong client revenue and a gain of $436 million from the widening of the Firms
credit spread on certain structured liabilities. Credit Portfolio revenue was $672 million, up $74
million, or 12% from the prior year, reflecting higher net interest income on higher loan balances.
The provision for credit losses was $1.0 billion, compared with $227 million in the prior year,
primarily reflecting an increase in the allowance for credit losses due to the effect of a
weakening credit environment as well as the effect of the transfer of funded and unfunded leverage
lending commitments to retained loans from held-for-sale. The allowance for loan losses to total
loans retained was 3.23% compared with 1.76% in the prior year.
Total average loans retained were $75.2 billion, an increase of $16.2 billion, or 27%, from the
prior year, principally driven by growth in acquisition finance activity, including leveraged
lending, as well as liquidity financing and the Bear Stearns financing. Average fair value and
held-for-sale loans were $20.0 billion, up $5.8 billion, or 41%, from the prior year.
Noninterest expense was $7.3 billion, a decrease of $398 million, or 5%, from the prior year,
driven by lower compensation expense, partially offset by higher noncompensation expense and the
Merger.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
814,860 |
|
|
$ |
696,230 |
|
|
|
17 |
% |
|
$ |
785,344 |
|
|
$ |
677,581 |
|
|
|
16 |
% |
Trading assets-debt and equity instruments |
|
|
367,184 |
|
|
|
359,387 |
|
|
|
2 |
|
|
|
368,320 |
|
|
|
347,320 |
|
|
|
6 |
|
Trading assets-derivatives receivables |
|
|
99,395 |
|
|
|
58,520 |
|
|
|
70 |
|
|
|
94,814 |
|
|
|
57,465 |
|
|
|
65 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
76,239 |
|
|
|
59,065 |
|
|
|
29 |
|
|
|
75,173 |
|
|
|
59,019 |
|
|
|
27 |
|
Loans held-for-sale and loans at fair value |
|
|
20,440 |
|
|
|
14,794 |
|
|
|
38 |
|
|
|
20,026 |
|
|
|
14,242 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
96,679 |
|
|
|
73,859 |
|
|
|
31 |
|
|
|
95,199 |
|
|
|
73,261 |
|
|
|
30 |
|
Adjusted assets(b) |
|
|
676,777 |
|
|
|
603,839 |
|
|
|
12 |
|
|
|
669,598 |
|
|
|
588,016 |
|
|
|
14 |
|
Equity |
|
|
23,319 |
|
|
|
21,000 |
|
|
|
11 |
|
|
|
22,659 |
|
|
|
21,000 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
37,057 |
|
|
|
25,356 |
|
|
|
46 |
|
|
|
37,057 |
|
|
|
25,356 |
|
|
|
46 |
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(8 |
) |
|
$ |
(16 |
) |
|
|
50 |
|
|
$ |
5 |
|
|
$ |
(22 |
) |
|
NM |
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans(c) |
|
|
313 |
|
|
|
72 |
|
|
|
335 |
|
|
|
313 |
|
|
|
72 |
|
|
|
335 |
|
Other nonperforming assets |
|
|
177 |
|
|
|
47 |
|
|
|
277 |
|
|
|
177 |
|
|
|
47 |
|
|
|
277 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
2,429 |
|
|
|
1,037 |
|
|
|
134 |
|
|
|
2,429 |
|
|
|
1,037 |
|
|
|
134 |
|
Allowance for lending-related
commitments |
|
|
469 |
|
|
|
487 |
|
|
|
(4 |
) |
|
|
469 |
|
|
|
487 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
2,898 |
|
|
|
1,524 |
|
|
|
90 |
|
|
|
2,898 |
|
|
|
1,524 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate(c)(d) |
|
|
(0.04 |
)% |
|
|
(0.11 |
)% |
|
|
|
|
|
|
0.01 |
% |
|
|
(0.08 |
)% |
|
|
|
|
Allowance for loan losses to average
loans(c)(d) |
|
|
3.19 |
(i) |
|
|
1.76 |
|
|
|
|
|
|
|
3.23 |
(i) |
|
|
1.76 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans(c) |
|
|
843 |
|
|
|
2,206 |
|
|
|
|
|
|
|
843 |
|
|
|
2,206 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.32 |
|
|
|
0.10 |
|
|
|
|
|
|
|
0.33 |
|
|
|
0.10 |
|
|
|
|
|
Market risk-average trading
and credit portfolio VAR(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
155 |
|
|
$ |
74 |
|
|
|
109 |
|
|
$ |
137 |
|
|
$ |
60 |
|
|
|
128 |
|
Foreign exchange |
|
|
26 |
|
|
|
20 |
|
|
|
30 |
|
|
|
30 |
|
|
|
19 |
|
|
|
58 |
|
Equities |
|
|
30 |
|
|
|
51 |
|
|
|
(41 |
) |
|
|
31 |
|
|
|
46 |
|
|
|
(33 |
) |
Commodities and other |
|
|
31 |
|
|
|
40 |
|
|
|
(23 |
) |
|
|
29 |
|
|
|
37 |
|
|
|
(22 |
) |
Diversification(f) |
|
|
(92 |
) |
|
|
(73 |
) |
|
|
(26 |
) |
|
|
(91 |
) |
|
|
(65 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading VAR(g) |
|
|
150 |
|
|
|
112 |
|
|
|
34 |
|
|
|
136 |
|
|
|
97 |
|
|
|
40 |
|
Credit portfolio VAR(h) |
|
|
35 |
|
|
|
12 |
|
|
|
192 |
|
|
|
33 |
|
|
|
12 |
|
|
|
175 |
|
Diversification(f) |
|
|
(36 |
) |
|
|
(14 |
) |
|
|
(157 |
) |
|
|
(34 |
) |
|
|
(12 |
) |
|
|
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit portfolio VAR |
|
$ |
149 |
|
|
$ |
110 |
|
|
|
35 |
|
|
$ |
135 |
|
|
$ |
97 |
|
|
|
39 |
|
|
|
|
|
(a) |
|
Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and
excluded loans at fair value. |
(b) |
|
Adjusted assets, a non-GAAP financial measure, equals total assets minus (1) securities
purchased under resale agreements and securities borrowed less securities sold, not yet
purchased; (2) assets of variable interest entities (VIEs) 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 believes an adjusted asset amount that excludes the assets discussed above, which
were considered to have a low risk profile, provides a more meaningful measure of balance
sheet leverage in the securities industry. |
(c) |
|
Nonperforming loans include loans held-for-sale and loans at fair value of $25 million at
both June 30, 2008, and June 30, 2007, which were excluded from the allowance coverage ratios.
Nonperforming loans excluded distressed loans held-for-sale that were purchased as part of
IBs proprietary activities. |
(d) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and net charge-off (recovery) rate. |
(e) |
|
Results for second quarter 2008 include one month of the combined Firms results and two
months of heritage JPMorgan Chase results. All prior periods reflect heritage JPMorgan Chase
results. For a more complete description of value-at-risk (VAR), see pages 69-70 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. |
21
|
|
|
(g) |
|
Trading VAR includes predominantly all trading activities in IB; however, particular risk
parameters of certain products are not fully captured, for example, correlation risk or the
credit spread sensitivity of certain mortgage products. Trading VAR does not include VAR
related to held-for-sale funded loans and unfunded commitments, nor the debit valuation
adjustments (DVA) taken on derivative and structured liabilities to reflect the credit
quality of the Firm. See the DVA Sensitivity table on page 71 of this Form 10-Q for further
details. Trading VAR also does not include the MSR portfolio or VAR related to other corporate
functions, such as Corporate/Private Equity. |
(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 does not include the retained loan portfolio. |
(i) |
|
Excluding the impact of a loan originated in March, 2008 to Bear Stearns, the adjusted ratio
would be 3.46% for the quarter ended June 30, 2008, and 3.40% for year-to-date 2008. The
average balance of the loan extended to Bear Stearns was $6.0 billion for the quarter ended
June 30, 2008, and $3.8 billion for year-to-date 2008. The allowance for loan losses to
period-end loans was 3.35% at June 30, 2008. |
According
to Thomson Reuters, for the first six months of 2008, the Firm was ranked #1 in Global
Debt, Equity and Equity-Related; #1 in Global Equity and Equity-Related; #1 in Global Syndicated
Loans; #1 in Global Long-term Debt and #3 in Global Announced M&A based upon volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
Full Year 2007 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related |
|
|
9 |
% |
|
|
#1 |
|
|
|
8 |
% |
|
|
#2 |
|
Global syndicated loans |
|
|
13 |
|
|
|
#1 |
|
|
|
13 |
|
|
|
#1 |
|
Global long-term debt(b) |
|
|
9 |
|
|
|
#1 |
|
|
|
7 |
|
|
|
#3 |
|
Global equity and equity-related(c) |
|
|
11 |
|
|
|
#1 |
|
|
|
9 |
|
|
|
#2 |
|
Global announced M&A(d) |
|
|
27 |
|
|
|
#3 |
|
|
|
27 |
|
|
|
#4 |
|
U.S. debt, equity and equity-related |
|
|
15 |
|
|
|
#1 |
|
|
|
10 |
|
|
|
#2 |
|
U.S. syndicated loans |
|
|
30 |
|
|
|
#1 |
|
|
|
24 |
|
|
|
#1 |
|
U.S. long-term debt(b) |
|
|
15 |
|
|
|
#1 |
|
|
|
10 |
|
|
|
#2 |
|
U.S. equity and equity-related(c) |
|
|
13 |
|
|
|
#3 |
|
|
|
11 |
|
|
|
#5 |
|
U.S. announced M&A(d) |
|
|
41 |
|
|
|
#3 |
|
|
|
28 |
|
|
|
#3 |
|
|
|
|
|
(a) |
|
Source: Thomson Reuters. The results for the six months ended June 30, 2008,
are pro forma for the merger with Bear Stearns. Full-year 2007 results represent heritage
JPMorgan Chase only. |
(b) |
|
Includes asset-backed securities, mortgage-backed securities and municipal securities.
|
(c) |
|
Includes rights offerings; U.S. domiciled equity and equity-related transactions. |
(d) |
|
Global announced M&A is based upon rank value; all other rankings are 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%. Global and U.S. announced M&A market
share and rankings for 2007 included transactions withdrawn since December 31, 2007. U.S.
announced M&A represents any U.S. involvement ranking. |
22
RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 43-48 of JPMorgan Chases 2007 Annual
Report and page 4 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
497 |
|
|
$ |
470 |
|
|
|
6 |
% |
|
$ |
958 |
|
|
$ |
893 |
|
|
|
7 |
% |
Asset management, administration and
commissions |
|
|
375 |
|
|
|
344 |
|
|
|
9 |
|
|
|
752 |
|
|
|
607 |
|
|
|
24 |
|
Mortgage fees and related income |
|
|
696 |
|
|
|
495 |
|
|
|
41 |
|
|
|
1,221 |
|
|
|
977 |
|
|
|
25 |
|
Credit card income |
|
|
194 |
|
|
|
163 |
|
|
|
19 |
|
|
|
368 |
|
|
|
305 |
|
|
|
21 |
|
Other income |
|
|
198 |
|
|
|
212 |
|
|
|
(7 |
) |
|
|
352 |
|
|
|
391 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,960 |
|
|
|
1,684 |
|
|
|
16 |
|
|
|
3,651 |
|
|
|
3,173 |
|
|
|
15 |
|
Net interest income |
|
|
3,055 |
|
|
|
2,673 |
|
|
|
14 |
|
|
|
6,066 |
|
|
|
5,290 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
5,015 |
|
|
|
4,357 |
|
|
|
15 |
|
|
|
9,717 |
|
|
|
8,463 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,332 |
|
|
|
587 |
|
|
|
127 |
|
|
|
3,824 |
|
|
|
879 |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,184 |
|
|
|
1,104 |
|
|
|
7 |
|
|
|
2,344 |
|
|
|
2,169 |
|
|
|
8 |
|
Noncompensation expense |
|
|
1,386 |
|
|
|
1,264 |
|
|
|
10 |
|
|
|
2,696 |
|
|
|
2,488 |
|
|
|
8 |
|
Amortization of intangibles |
|
|
100 |
|
|
|
116 |
|
|
|
(14 |
) |
|
|
200 |
|
|
|
234 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,670 |
|
|
|
2,484 |
|
|
|
7 |
|
|
|
5,240 |
|
|
|
4,891 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
1,013 |
|
|
|
1,286 |
|
|
|
(21 |
) |
|
|
653 |
|
|
|
2,693 |
|
|
|
(76 |
) |
Income tax expense (benefit) |
|
|
407 |
|
|
|
501 |
|
|
|
(19 |
) |
|
|
274 |
|
|
|
1,049 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
606 |
|
|
$ |
785 |
|
|
|
(23 |
) |
|
$ |
379 |
|
|
$ |
1,644 |
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
14 |
% |
|
|
20 |
% |
|
|
|
|
|
|
4 |
% |
|
|
21 |
% |
|
|
|
|
Overhead ratio |
|
|
53 |
|
|
|
57 |
|
|
|
|
|
|
|
54 |
|
|
|
58 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a) |
|
|
51 |
|
|
|
54 |
|
|
|
|
|
|
|
52 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
(a) |
|
Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit
intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in the earlier years and a lower overhead ratio in later years;
this method would result in an improving overhead ratio over time, all things remaining equal.
This non-GAAP ratio excludes Regional Bankings core deposit intangible amortization expense
related to The Bank of New York transaction and the Bank One merger of $99 million and $115
million for the quarters ended June 30, 2008 and 2007, respectively, and $198 million and $231
million for year-to-date June 30, 2008 and 2007, respectively. |
Quarterly results
Net income was $606 million, a decrease of $179 million, or 23%, from the prior year, as a
significant increase in the provision for credit losses in Regional Banking was offset largely by
revenue growth in all businesses.
Total net revenue was $5.0 billion, an increase of $658 million, or 15%, from the prior year. Net
interest income was $3.0 billion, up $382 million, or 14%, due to higher loan balances, wider
deposit spreads and higher deposit balances. Noninterest revenue was $2.0 billion, up $276 million,
or 16%, driven by higher net mortgage servicing revenue, higher mortgage production revenue and
increased deposit-related fees.
The provision for credit losses was $1.3 billion, as housing price declines have continued to
result in significant increases in estimated losses, particularly for high loan-to-value home
equity and mortgage loans. Home equity net charge-offs were $511 million (2.16% net charge-off
rate), compared with $98 million (0.44% net charge-off rate) in the prior year. Subprime mortgage
net charge-offs were $192 million (4.98% net charge-off rate), compared with $26 million (1.21% net
charge-off rate) in the prior year. Prime mortgage net charge-offs (including net charge-offs
reflected in the Corporate/Private Equity segment) were $104 million (0.91% net charge-off rate),
compared with $4 million (0.05% net charge-off rate) in the prior year. The current-quarter
provision includes an increase in the allowance for loan losses of $430 million due to increases in
estimated losses in the subprime and prime mortgage portfolios. An additional increase in the
allowance for loan losses for prime mortgage loans of $170 million has been reflected in the
Corporate/Private Equity segment.
23
Noninterest expense was $2.7 billion, an increase of $186 million, or 7%, from the prior year,
reflecting higher mortgage production and servicing expense, and investment in the retail
distribution network.
Year-to-date results
Net income was $379 million, a decrease of $1.3 billion, or 77%, from the prior year, as a
significant increase in the provision for credit losses in Regional
Banking was offset partially by
revenue growth in all businesses.
Total net revenue was $9.7 billion, an increase of $1.3 billion, or 15%, from the prior year. Net
interest income was $6.1 billion, up $776 million, or 15%, due to higher loan balances and spreads,
wider deposit spreads, and higher deposit balances. These benefits were offset partially by a shift
to narrower spread deposit products. Noninterest revenue was $3.6 billion, up $478 million, or 15%,
driven by increased deposit-related fees, higher net mortgage servicing revenue, higher mortgage
production revenue and the absence of a prior-year charge resulting from accelerated surrenders of
customer annuity contracts.
The provision for credit losses was $3.8 billion, as housing price declines have continued to
result in significant increases in estimated losses, particularly for high loan-to-value home
equity and mortgage loans. Home equity net charge-offs were $958 million (2.03% net charge-off
rate), compared with $166 million (0.38% net charge-off rate) in the prior year. Subprime mortgage
net charge-offs were $341 million (4.41% net charge-off rate), compared with $46 million (1.09% net
charge-off rate) in the prior year. Prime mortgage net charge-offs (including net charge-offs
reflected in the Corporate/Private Equity segment) were $154 million (0.70% net charge-off rate),
compared with $7 million (0.05% net charge-off rate) in the prior year. The year-to-date provision
includes an increase in the allowance for loan losses of $1.1 billion for Home Equity loans and
$943 million for the subprime and prime mortgage portfolios. An additional increase in the
allowance for loan losses for prime mortgage loans of $330 million has been reflected in the
Corporate/Private Equity segment.
Noninterest expense was $5.2 billion, an increase of $349 million, or 7%, from the prior year,
reflecting higher mortgage production and servicing expense, and investment in the retail
distribution network.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
230,695 |
|
|
$ |
217,421 |
|
|
|
6 |
% |
|
$ |
230,695 |
|
|
$ |
217,421 |
|
|
|
6 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
187,595 |
|
|
|
166,992 |
|
|
|
12 |
|
|
|
187,595 |
|
|
|
166,992 |
|
|
|
12 |
|
Loans held-for-sale and loans at
fair value(a) |
|
|
16,282 |
|
|
|
23,501 |
|
|
|
(31 |
) |
|
|
16,282 |
|
|
|
23,501 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
203,877 |
|
|
|
190,493 |
|
|
|
7 |
|
|
|
203,877 |
|
|
|
190,493 |
|
|
|
7 |
|
Deposits |
|
|
223,121 |
|
|
|
217,689 |
|
|
|
2 |
|
|
|
223,121 |
|
|
|
217,689 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
232,725 |
|
|
$ |
216,692 |
|
|
|
7 |
|
|
$ |
230,143 |
|
|
$ |
216,912 |
|
|
|
6 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
185,993 |
|
|
|
165,136 |
|
|
|
13 |
|
|
|
184,106 |
|
|
|
163,946 |
|
|
|
12 |
|
Loans held-for-sale and loans at
fair value(a) |
|
|
20,492 |
|
|
|
25,166 |
|
|
|
(19 |
) |
|
|
19,167 |
|
|
|
26,692 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
206,485 |
|
|
|
190,302 |
|
|
|
9 |
|
|
|
203,273 |
|
|
|
190,638 |
|
|
|
7 |
|
Deposits |
|
|
226,487 |
|
|
|
219,171 |
|
|
|
3 |
|
|
|
226,021 |
|
|
|
218,058 |
|
|
|
4 |
|
Equity |
|
|
17,000 |
|
|
|
16,000 |
|
|
|
6 |
|
|
|
17,000 |
|
|
|
16,000 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
69,550 |
|
|
|
68,254 |
|
|
|
2 |
|
|
|
69,550 |
|
|
|
68,254 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
941 |
|
|
$ |
270 |
|
|
|
249 |
|
|
$ |
1,730 |
|
|
$ |
455 |
|
|
|
280 |
|
Nonperforming loans(b)(c)(d) |
|
|
3,515 |
|
|
|
1,597 |
|
|
|
120 |
|
|
|
3,515 |
|
|
|
1,597 |
|
|
|
120 |
|
Nonperforming
assets(b)(c)(d) |
|
|
4,123 |
|
|
|
1,936 |
|
|
|
113 |
|
|
|
4,123 |
|
|
|
1,936 |
|
|
|
113 |
|
Allowance for loan losses |
|
|
4,475 |
|
|
|
1,772 |
|
|
|
153 |
|
|
|
4,475 |
|
|
|
1,772 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(e)(f) |
|
|
1.99 |
% |
|
|
0.66 |
% |
|
|
|
|
|
|
1.85 |
% |
|
|
0.56 |
% |
|
|
|
|
Allowance for loan losses to ending
loans(e) |
|
|
2.39 |
|
|
|
1.06 |
|
|
|
|
|
|
|
2.39 |
|
|
|
1.06 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(e) |
|
|
134 |
|
|
|
125 |
|
|
|
|
|
|
|
134 |
|
|
|
125 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
1.72 |
|
|
|
0.84 |
|
|
|
|
|
|
|
1.72 |
|
|
|
0.84 |
|
|
|
|
|
|
24
|
|
|
(a) |
|
Loans included prime mortgage loans originated with the intent to sell, which were
accounted for at fair value. These loans, classified as trading assets on the Consolidated
Balance Sheets, totaled $14.1 billion and $15.2 billion at June 30, 2008 and 2007,
respectively. Average loans included prime mortgage loans, classified as trading assets on
the Consolidated Balance Sheets, of $16.9 billion and $13.5 billion for the three months
ended June 30, 2008 and 2007, respectively, and $15.2 billion and $10.0 billion for the six
months ended June 30, 2008 and 2007, respectively. |
(b) |
|
Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair
value of $180 million and $178 million at June 30, 2008 and 2007, respectively. Certain of
these loans are classified as trading assets on the Consolidated Balance Sheets. |
(c) |
|
Nonperforming loans and assets excluded (1) loans eligible for repurchase as well as loans
repurchased from Governmental National Mortgage Association (GNMA) pools that are insured
by U.S. government agencies of $1.9 billion and $1.2 billion at June 30, 2008 and 2007,
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
$371 million and $200 million at June 30, 2008 and 2007, respectively. These amounts were
excluded, as reimbursement is proceeding normally. |
(d) |
|
For the second quarter of
2008, the policy for classifying subprime mortgage and home equity loans as
nonperforming was changed to conform with all other home lending
products. Prior period nonperforming assets have been revised to
conform with this change. |
(e) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating
the allowance coverage ratio and net charge-off rate. |
(f) |
|
The net charge-off rate for the three and six months ended June 30, 2008, excluded $19
million and $33 million, respectively, of charge-offs related to prime mortgage loans held
by the Corporate/Private Equity segment. |
REGIONAL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
$ |
1,022 |
|
|
$ |
977 |
|
|
|
5 |
% |
|
$ |
1,900 |
|
|
$ |
1,770 |
|
|
|
7 |
% |
Net interest income |
|
|
2,571 |
|
|
|
2,296 |
|
|
|
12 |
|
|
|
5,114 |
|
|
|
4,595 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,593 |
|
|
|
3,273 |
|
|
|
10 |
|
|
|
7,014 |
|
|
|
6,365 |
|
|
|
10 |
|
Provision for credit losses |
|
|
1,213 |
|
|
|
494 |
|
|
|
146 |
|
|
|
3,537 |
|
|
|
727 |
|
|
|
387 |
|
Noninterest expense |
|
|
1,778 |
|
|
|
1,749 |
|
|
|
2 |
|
|
|
3,572 |
|
|
|
3,478 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
602 |
|
|
|
1,030 |
|
|
|
(42 |
) |
|
|
(95 |
) |
|
|
2,160 |
|
|
NM |
|
Net income (loss) |
|
$ |
354 |
|
|
$ |
629 |
|
|
|
(44 |
) |
|
$ |
(79 |
) |
|
$ |
1,319 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
11 |
% |
|
|
21 |
% |
|
|
|
|
|
|
(1 |
)% |
|
|
23 |
% |
|
|
|
|
Overhead ratio |
|
|
49 |
|
|
|
53 |
|
|
|
|
|
|
|
51 |
|
|
|
55 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a) |
|
|
47 |
|
|
|
50 |
|
|
|
|
|
|
|
48 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
(a) |
|
Regional Banking uses the overhead ratio (excluding the amortization of core deposit
intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in the earlier years and a lower overhead ratio in later years;
this inclusion would result in an improving overhead ratio over time, all things remaining
equal. This non-GAAP ratio excludes Regional Bankings core deposit intangible amortization
expense related to The Bank of New York transaction and the Bank One merger of $99 million and
$115 million for the quarters ended June 30, 2008 and 2007, respectively, and $198 million and
$231 million for year-to-date 2008 and 2007, respectively. |
Quarterly results
Regional Banking net income was $354 million, down $275 million, or 44%, from the prior year. Total
net revenue was $3.6 billion, up $320 million, or 10%, benefiting from higher loan balances, wider
deposit spreads, higher deposit-related fees and higher deposit balances. The provision for credit
losses was $1.2 billion, compared with $494 million in the prior year. The provision reflected
weakness in the home equity and mortgage portfolios (see Retail Financial Services discussion of
the provision for credit losses for further detail). Noninterest expense was $1.8 billion, up $29
million, or 2%, from the prior year, due to investment in the retail distribution network.
Year-to-date results
Regional Banking net loss was $79 million, compared with net income of $1.3 billion in the prior
year. Total net revenue was $7.0 billion, up $649 million, or 10%, benefiting from higher loan
balances, higher deposit-related fees, wider deposit spreads, higher deposit balances and the
absence of a prior-year charge resulting from accelerated surrenders of customer annuity contracts.
These benefits were offset partially by a shift to narrower spread deposit products. The provision
for credit losses was $3.5 billion, compared with $727 million in the prior year. The provision
reflected weakness in the home equity and mortgage portfolios (see Retail Financial Services
discussion of the provision for credit losses for further detail). Noninterest expense was $3.6
billion, up $94 million, or 3%, from the prior year, due to investment in the retail distribution
network.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in billions, except ratios and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity origination volume |
|
$ |
5.3 |
|
|
$ |
14.6 |
|
|
|
(64 |
)% |
|
$ |
12.0 |
|
|
$ |
27.3 |
|
|
|
(56 |
)% |
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
95.1 |
|
|
$ |
91.0 |
|
|
|
5 |
|
|
$ |
95.1 |
|
|
$ |
91.0 |
|
|
|
5 |
|
Mortgage(a) |
|
|
14.9 |
|
|
|
8.8 |
|
|
|
69 |
|
|
|
14.9 |
|
|
|
8.8 |
|
|
|
69 |
|
Business banking |
|
|
16.4 |
|
|
|
14.6 |
|
|
|
12 |
|
|
|
16.4 |
|
|
|
14.6 |
|
|
|
12 |
|
Education |
|
|
13.0 |
|
|
|
10.2 |
|
|
|
27 |
|
|
|
13.0 |
|
|
|
10.2 |
|
|
|
27 |
|
Other loans(b) |
|
|
1.1 |
|
|
|
2.5 |
|
|
|
(56 |
) |
|
|
1.1 |
|
|
|
2.5 |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end of period loans |
|
|
140.5 |
|
|
|
127.1 |
|
|
|
11 |
|
|
|
140.5 |
|
|
|
127.1 |
|
|
|
11 |
|
End-of-period deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
69.1 |
|
|
$ |
67.3 |
|
|
|
3 |
|
|
$ |
69.1 |
|
|
$ |
67.3 |
|
|
|
3 |
|
Savings |
|
|
105.8 |
|
|
|
97.7 |
|
|
|
8 |
|
|
|
105.8 |
|
|
|
97.7 |
|
|
|
8 |
|
Time and other |
|
|
37.0 |
|
|
|
41.9 |
|
|
|
(12 |
) |
|
|
37.0 |
|
|
|
41.9 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end of period deposits |
|
|
211.9 |
|
|
|
206.9 |
|
|
|
2 |
|
|
|
211.9 |
|
|
|
206.9 |
|
|
|
2 |
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
95.1 |
|
|
$ |
89.2 |
|
|
|
7 |
|
|
$ |
95.0 |
|
|
$ |
87.8 |
|
|
|
8 |
|
Mortgage(a) |
|
|
15.6 |
|
|
|
8.8 |
|
|
|
77 |
|
|
|
15.7 |
|
|
|
8.8 |
|
|
|
78 |
|
Business banking |
|
|
16.1 |
|
|
|
14.5 |
|
|
|
11 |
|
|
|
15.9 |
|
|
|
14.4 |
|
|
|
10 |
|
Education(c) |
|
|
12.7 |
|
|
|
10.5 |
|
|
|
21 |
|
|
|
12.4 |
|
|
|
10.8 |
|
|
|
15 |
|
Other loans(b) |
|
|
1.1 |
|
|
|
2.4 |
|
|
|
(54 |
) |
|
|
1.3 |
|
|
|
2.7 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total average loans(c) |
|
|
140.6 |
|
|
|
125.4 |
|
|
|
12 |
|
|
|
140.3 |
|
|
|
124.5 |
|
|
|
13 |
|
Average deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
68.5 |
|
|
$ |
67.2 |
|
|
|
2 |
|
|
$ |
67.4 |
|
|
$ |
67.3 |
|
|
|
|
|
Savings |
|
|
105.8 |
|
|
|
98.4 |
|
|
|
8 |
|
|
|
103.1 |
|
|
|
97.6 |
|
|
|
6 |
|
Time and other |
|
|
39.6 |
|
|
|
41.7 |
|
|
|
(5 |
) |
|
|
43.6 |
|
|
|
42.1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
213.9 |
|
|
|
207.3 |
|
|
|
3 |
|
|
|
214.1 |
|
|
|
207.0 |
|
|
|
3 |
|
Average assets |
|
|
149.3 |
|
|
|
137.7 |
|
|
|
8 |
|
|
|
149.6 |
|
|
|
136.8 |
|
|
|
9 |
|
Average equity |
|
|
12.4 |
|
|
|
11.8 |
|
|
|
5 |
|
|
|
12.4 |
|
|
|
11.8 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics
(in millions,
except ratios) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(d)(e) |
|
|
3.61 |
% |
|
|
1.88 |
% |
|
|
|
|
|
|
3.61 |
% |
|
|
1.88 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
511 |
|
|
$ |
98 |
|
|
|
421 |
|
|
$ |
958 |
|
|
$ |
166 |
|
|
|
477 |
|
Mortgage |
|
|
211 |
|
|
|
26 |
|
|
NM |
|
|
|
374 |
|
|
|
46 |
|
|
NM |
|
Business banking |
|
|
51 |
|
|
|
30 |
|
|
|
70 |
|
|
|
91 |
|
|
|
55 |
|
|
|
65 |
|
Other loans |
|
|
48 |
|
|
|
52 |
|
|
|
(8 |
) |
|
|
69 |
|
|
|
65 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
821 |
|
|
|
206 |
|
|
|
299 |
|
|
|
1,492 |
|
|
|
332 |
|
|
|
349 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
2.16 |
% |
|
|
0.44 |
% |
|
|
|
|
|
|
2.03 |
% |
|
|
0.38 |
% |
|
|
|
|
Mortgage(f) |
|
|
4.95 |
|
|
|
1.19 |
|
|
|
|
|
|
|
4.37 |
|
|
|
1.05 |
|
|
|
|
|
Business banking |
|
|
1.27 |
|
|
|
0.83 |
|
|
|
|
|
|
|
1.15 |
|
|
|
0.77 |
|
|
|
|
|
Other loans |
|
|
1.80 |
|
|
|
2.32 |
|
|
|
|
|
|
|
1.37 |
|
|
|
1.39 |
|
|
|
|
|
Total net charge-off rate(c)(f) |
|
|
2.35 |
|
|
|
0.68 |
|
|
|
|
|
|
|
2.15 |
|
|
|
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
assets(g)(h) |
|
$ |
3,506 |
|
|
$ |
1,588 |
|
|
|
121 |
|
|
$ |
3,506 |
|
|
$ |
1,588 |
|
|
|
121 |
|
|
|
|
|
(a) |
|
Balance reported predominantly reflected subprime mortgage loans owned. |
(b) |
|
Included commercial loans derived from community development activities prior to March 31,
2008. |
(c) |
|
Average loans include loans held-for-sale of $3.1 billion and $3.9 billion for the quarters
ended June 30, 2008 and 2007, respectively, and $3.6 billion and $4.1 billion for the six
months ended June 30, 2008 and 2007, respectively. These amounts were excluded when
calculating the net charge-off rate. |
(d) |
|
Excluded loans eligible for repurchase as well as loans repurchased from GNMA pools that are
insured by U.S. government agencies of $1.5 billion and $879 million at June 30, 2008 and
2007, respectively. These amounts are excluded as reimbursement is proceeding normally. |
(e) |
|
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 $594 million and $523
million at June 30, 2008 and 2007, respectively. These amounts are excluded as reimbursement
is proceeding normally. |
(f) |
|
The mortgage and total net charge-off rate for the three and six months ended June 30, 2008,
excluded $19 million and $33 million, respectively, of charge-offs related to prime mortgage
loans held by the Corporate/Private Equity segment. |
(g) |
|
Excluded (1) loans eligible for repurchase as well as loans repurchased from GNMA pools that
are insured by U.S. government agencies of $1.9 billion and $1.2 billion at June 30, 2008 and
2007, 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 $371 million and $200 million at June 30, 2008 and 2007, respectively. These amounts for
GNMA and education loans are excluded, as reimbursement is proceeding normally. |
(h) |
|
For the second quarter of
2008, the policy for classifying subprime mortgage and home equity
loans as nonperforming was changed to conform with all other home
lending products. Prior period nonperforming assets have been revised
to conform with this change. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Investment sales volume |
|
$ |
5,211 |
|
|
$ |
5,117 |
|
|
|
2 |
% |
|
$ |
9,295 |
|
|
$ |
9,900 |
|
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
3,157 |
|
|
|
3,089 |
|
|
|
2 |
|
|
|
3,157 |
|
|
|
3,089 |
|
|
|
2 |
|
ATMs |
|
|
9,310 |
|
|
|
8,649 |
|
|
|
8 |
|
|
|
9,310 |
|
|
|
8,649 |
|
|
|
8 |
|
Personal bankers |
|
|
9,995 |
|
|
|
9,025 |
|
|
|
11 |
|
|
|
9,995 |
|
|
|
9,025 |
|
|
|
11 |
|
Sales specialists |
|
|
4,116 |
|
|
|
3,915 |
|
|
|
5 |
|
|
|
4,116 |
|
|
|
3,915 |
|
|
|
5 |
|
Active online customers (in thousands) |
|
|
7,180 |
|
|
|
5,448 |
|
|
|
32 |
|
|
|
7,180 |
|
|
|
5,448 |
|
|
|
32 |
|
Checking accounts (in thousands) |
|
|
11,336 |
|
|
|
10,356 |
|
|
|
9 |
|
|
|
11,336 |
|
|
|
10,356 |
|
|
|
9 |
|
|
MORTGAGE BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
597 |
|
|
$ |
463 |
|
|
|
29 |
% |
|
$ |
1,173 |
|
|
$ |
863 |
|
|
|
36 |
% |
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
|
678 |
|
|
|
615 |
|
|
|
10 |
|
|
|
1,312 |
|
|
|
1,216 |
|
|
|
8 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
1,519 |
|
|
|
952 |
|
|
|
60 |
|
|
|
887 |
|
|
|
1,060 |
|
|
|
(16 |
) |
Other changes in fair value |
|
|
(394 |
) |
|
|
(383 |
) |
|
|
(3 |
) |
|
|
(819 |
) |
|
|
(761 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total changes in MSR asset fair value |
|
|
1,125 |
|
|
|
569 |
|
|
|
98 |
|
|
|
68 |
|
|
|
299 |
|
|
|
(77 |
) |
Derivative valuation adjustments and other |
|
|
(1,478 |
) |
|
|
(1,014 |
) |
|
|
(46 |
) |
|
|
(880 |
) |
|
|
(1,141 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
325 |
|
|
|
170 |
|
|
|
91 |
|
|
|
500 |
|
|
|
374 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
922 |
|
|
|
633 |
|
|
|
46 |
|
|
|
1,673 |
|
|
|
1,237 |
|
|
|
35 |
|
Noninterest expense |
|
|
649 |
|
|
|
516 |
|
|
|
26 |
|
|
|
1,185 |
|
|
|
984 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
273 |
|
|
|
117 |
|
|
|
133 |
|
|
|
488 |
|
|
|
253 |
|
|
|
93 |
|
Net income |
|
$ |
169 |
|
|
$ |
71 |
|
|
|
138 |
|
|
$ |
301 |
|
|
$ |
155 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
28 |
% |
|
|
14 |
% |
|
|
|
|
|
|
25 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party mortgage loans serviced (ending) |
|
$ |
659.1 |
|
|
$ |
572.4 |
|
|
|
15 |
|
|
$ |
659.1 |
|
|
$ |
572.4 |
|
|
|
15 |
|
MSR net carrying value (ending) |
|
|
10.9 |
|
|
|
9.5 |
|
|
|
15 |
|
|
|
10.9 |
|
|
|
9.5 |
|
|
|
15 |
|
Average mortgage loans held-for-sale(a) |
|
|
17.4 |
|
|
|
21.3 |
|
|
|
(18 |
) |
|
|
15.6 |
|
|
|
22.6 |
|
|
|
(31 |
) |
Average assets |
|
|
36.2 |
|
|
|
35.6 |
|
|
|
2 |
|
|
|
34.2 |
|
|
|
36.8 |
|
|
|
(7 |
) |
Average equity |
|
|
2.4 |
|
|
|
2.0 |
|
|
|
20 |
|
|
|
2.4 |
|
|
|
2.0 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel
(in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
12.5 |
|
|
$ |
13.6 |
|
|
|
(8 |
) |
|
$ |
25.1 |
|
|
$ |
24.5 |
|
|
|
2 |
|
Wholesale |
|
|
9.1 |
|
|
|
12.8 |
|
|
|
(29 |
) |
|
|
19.7 |
|
|
|
22.7 |
|
|
|
(13 |
) |
Correspondent |
|
|
17.0 |
|
|
|
6.4 |
|
|
|
166 |
|
|
|
29.0 |
|
|
|
11.2 |
|
|
|
159 |
|
CNT (Negotiated transactions) |
|
|
17.5 |
|
|
|
11.3 |
|
|
|
55 |
|
|
|
29.4 |
|
|
|
21.8 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
56.1 |
|
|
$ |
44.1 |
|
|
|
27 |
|
|
$ |
103.2 |
|
|
$ |
80.2 |
|
|
|
29 |
|
|
|
|
|
(a) |
|
Included $16.9 billion and $13.5 billion of prime mortgage loans at fair value for the
three months ended June 30, 2008 and 2007, respectively, and $15.2 billion and $10.0 billion
for the six months ended June 30, 2008 and 2007. These loans are classified as trading
assets on the Consolidated Balance Sheets. |
27
Quarterly results
Mortgage Banking net income was $169 million, an increase of $98 million, or 138% from the prior
year. Total net revenue was $922 million, up $289 million, or 46%. Total net revenue comprises
production revenue and net mortgage servicing revenue. Production revenue was $597 million, up $134
million, predominantly benefiting from higher loan originations. Net mortgage servicing revenue,
which includes loan servicing revenue, MSR risk management results and other changes in fair value,
was $325 million, compared with $170 million in the prior year. Loan servicing revenue of $678
million increased $63 million on growth of 15% in third-party loans serviced. MSR risk management
results were positive $41 million compared with negative $62 million in the prior year. Other
changes in fair value of the MSR asset were negative $394 million compared with negative $383
million in the prior year. Noninterest expense was $649 million, an increase of $133 million, or
26%. The increase reflected higher mortgage reinsurance losses, higher production expense due, in
part, to growth in origination volume, and higher servicing costs due to increased delinquencies
and defaults.
Year-to-date results
Mortgage Banking net income was $301 million, an increase of $146 million, or 94%, from the prior
year. Total net revenue was $1.7 billion, up $436 million, or 35%. Total net revenue comprises
production revenue and net mortgage servicing revenue. Production revenue was $1.2 billion, up $310
million, predominantly benefiting from higher loan originations. Net mortgage servicing revenue,
which includes loan servicing revenue, MSR risk management results and other changes in fair value,
was $500 million, compared with $374 million in the prior year. Loan servicing revenue of $1.3
billion increased $96 million on growth of 15% in third-party loans serviced. MSR risk management
results were positive $7 million compared with negative $81 million in the prior year. Other
changes in fair value of the MSR asset were negative $819 million compared with negative $761
million in the prior year. Noninterest expense was $1.2 billion, an increase of $201 million, or
20%. The increase reflected higher mortgage reinsurance losses, higher production expense due, in
part, to growth in origination volume, and higher servicing costs due to increased delinquencies
and defaults.
28
AUTO FINANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
|
|
|
|
|
(in millions, except ratios and where |
|
Three months ended June 30, |
|
Six months ended June 30, |
otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Noninterest revenue |
|
$ |
155 |
|
|
$ |
138 |
|
|
|
12 |
% |
|
$ |
306 |
|
|
$ |
269 |
|
|
|
14 |
% |
Net interest income |
|
|
343 |
|
|
|
312 |
|
|
|
10 |
|
|
|
722 |
|
|
|
591 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
498 |
|
|
|
450 |
|
|
|
11 |
|
|
|
1,028 |
|
|
|
860 |
|
|
|
20 |
|
Provision for credit losses |
|
|
117 |
|
|
|
92 |
|
|
|
27 |
|
|
|
285 |
|
|
|
151 |
|
|
|
89 |
|
Noninterest expense |
|
|
243 |
|
|
|
219 |
|
|
|
11 |
|
|
|
483 |
|
|
|
429 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
138 |
|
|
|
139 |
|
|
|
(1 |
) |
|
|
260 |
|
|
|
280 |
|
|
|
(7 |
) |
Net income |
|
$ |
83 |
|
|
$ |
85 |
|
|
|
(2 |
) |
|
$ |
157 |
|
|
$ |
170 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
15 |
% |
|
|
15 |
% |
|
|
|
|
|
|
14 |
% |
|
|
16 |
% |
|
|
|
|
ROA |
|
|
0.71 |
|
|
|
0.79 |
|
|
|
|
|
|
|
0.68 |
|
|
|
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto origination volume |
|
$ |
5.6 |
|
|
$ |
5.3 |
|
|
|
6 |
|
|
$ |
12.8 |
|
|
$ |
10.5 |
|
|
|
22 |
|
End-of-period loans and lease-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding |
|
$ |
44.7 |
|
|
$ |
40.4 |
|
|
|
11 |
|
|
$ |
44.7 |
|
|
$ |
40.4 |
|
|
|
11 |
|
Lease financing receivables |
|
|
0.2 |
|
|
|
0.8 |
|
|
|
(75 |
) |
|
|
0.2 |
|
|
|
0.8 |
|
|
|
(75 |
) |
Operating lease assets |
|
|
2.1 |
|
|
|
1.8 |
|
|
|
17 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans and
lease-related assets |
|
|
47.0 |
|
|
|
43.0 |
|
|
|
9 |
|
|
|
47.0 |
|
|
|
43.0 |
|
|
|
9 |
|
Average loans and lease-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding |
|
$ |
44.7 |
|
|
$ |
40.1 |
|
|
|
11 |
|
|
$ |
43.8 |
|
|
$ |
39.8 |
|
|
|
10 |
|
Lease financing receivables |
|
|
0.2 |
|
|
|
1.0 |
|
|
|
(80 |
) |
|
|
0.3 |
|
|
|
1.2 |
|
|
|
(75 |
) |
Operating lease assets |
|
|
2.1 |
|
|
|
1.7 |
|
|
|
24 |
|
|
|
2.0 |
|
|
|
1.7 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans and
lease-related assets |
|
|
47.0 |
|
|
|
42.8 |
|
|
|
10 |
|
|
|
46.1 |
|
|
|
42.7 |
|
|
|
8 |
|
Average assets |
|
|
47.3 |
|
|
|
43.4 |
|
|
|
9 |
|
|
|
46.4 |
|
|
|
43.3 |
|
|
|
7 |
|
Average equity |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
5 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate |
|
|
1.57 |
% |
|
|
1.43 |
% |
|
|
|
|
|
|
1.57 |
% |
|
|
1.43 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
118 |
|
|
$ |
62 |
|
|
|
90 |
|
|
$ |
235 |
|
|
$ |
120 |
|
|
|
96 |
|
Lease receivables |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
119 |
|
|
|
63 |
|
|
|
89 |
|
|
|
237 |
|
|
|
122 |
|
|
|
94 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1.06 |
% |
|
|
0.62 |
% |
|
|
|
|
|
|
1.08 |
% |
|
|
0.61 |
% |
|
|
|
|
Lease receivables |
|
|
2.01 |
|
|
|
0.40 |
|
|
|
|
|
|
|
1.34 |
|
|
|
0.34 |
|
|
|
|
|
Total net charge-off rate |
|
|
1.07 |
|
|
|
0.61 |
|
|
|
|
|
|
|
1.08 |
|
|
|
0.60 |
|
|
|
|
|
Nonperforming assets |
|
$ |
164 |
|
|
$ |
131 |
|
|
|
25 |
|
|
$ |
164 |
|
|
$ |
131 |
|
|
|
25 |
|
|
Quarterly results
Auto Finance net income was $83 million, a decrease of $2 million, or 2%, from the prior year.
Total net revenue was $498 million, up $48 million, or 11%, driven by higher loan balances and
increased automobile operating lease revenue. The provision for credit losses was $117 million, up
$25 million, reflecting higher estimated losses. The net charge-off rate was 1.07%, compared with
0.61% in the prior year. Noninterest expense of $243 million increased $24 million, or 11%, driven
by increased depreciation expense on owned automobiles subject to operating leases.
Year-to-date results
Auto Finance net income was $157 million, a decrease of $13 million, or 8%, from the prior year.
Total net revenue was $1.0 billion, up $168 million, or 20%, driven by increased automobile
operating lease revenue, a reduction in residual value reserves for direct finance leases and
higher loan balances. The provision for credit losses was $285 million, up $134 million, reflecting
higher estimated losses. The net charge-off rate was 1.08%, compared with 0.60% in the prior year.
Noninterest expense of $483 million increased $54 million, or 13%, driven by increased depreciation
expense on owned automobiles subject to operating leases.
29
CARD SERVICES
For a discussion of the business profile of CS, see pages 49-51 of JPMorgan Chases 2007 Annual
Report and pages 4-5 of this Form 10-Q.
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance of its credit
card loans, both loans on the balance sheet and loans that have been securitized. For further
information, see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on
pages 15-18 of this Form 10-Q. Managed results exclude the impact of credit card securitizations on
total net revenue, the provision for credit losses, net charge-offs and loan receivables.
Securitization does not change reported net income; however, it does affect the classification of
items on the Consolidated Statements of Income and Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data-managed basis |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
673 |
|
|
$ |
682 |
|
|
|
(1 |
)% |
|
$ |
1,273 |
|
|
$ |
1,281 |
|
|
|
(1 |
)% |
All other income |
|
|
91 |
|
|
|
80 |
|
|
|
14 |
|
|
|
210 |
|
|
|
172 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
764 |
|
|
|
762 |
|
|
|
|
|
|
|
1,483 |
|
|
|
1,453 |
|
|
|
2 |
|
Net interest income |
|
|
3,011 |
|
|
|
2,955 |
|
|
|
2 |
|
|
|
6,196 |
|
|
|
5,944 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,775 |
|
|
|
3,717 |
|
|
|
2 |
|
|
|
7,679 |
|
|
|
7,397 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
2,194 |
|
|
|
1,331 |
|
|
|
65 |
|
|
|
3,864 |
|
|
|
2,560 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
258 |
|
|
|
251 |
|
|
|
3 |
|
|
|
525 |
|
|
|
505 |
|
|
|
4 |
|
Noncompensation expense |
|
|
763 |
|
|
|
753 |
|
|
|
1 |
|
|
|
1,604 |
|
|
|
1,556 |
|
|
|
3 |
|
Amortization of intangibles |
|
|
164 |
|
|
|
184 |
|
|
|
(11 |
) |
|
|
328 |
|
|
|
368 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,185 |
|
|
|
1,188 |
|
|
|
|
|
|
|
2,457 |
|
|
|
2,429 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
396 |
|
|
|
1,198 |
|
|
|
(67 |
) |
|
|
1,358 |
|
|
|
2,408 |
|
|
|
(44 |
) |
Income tax expense |
|
|
146 |
|
|
|
439 |
|
|
|
(67 |
) |
|
|
499 |
|
|
|
884 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
250 |
|
|
$ |
759 |
|
|
|
(67 |
) |
|
$ |
859 |
|
|
$ |
1,524 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization gains |
|
$ |
36 |
|
|
$ |
16 |
|
|
|
125 |
|
|
$ |
106 |
|
|
$ |
39 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
7 |
% |
|
|
22 |
% |
|
|
|
|
|
|
12 |
% |
|
|
22 |
% |
|
|
|
|
Overhead ratio |
|
|
31 |
|
|
|
32 |
|
|
|
|
|
|
|
32 |
|
|
|
33 |
|
|
|
|
|
|
Quarterly results
Net income was $250 million, a decline of $509 million, or 67%, from the prior year. The decrease
was driven by a higher provision for credit losses.
End-of-period managed loans of $155.4 billion grew by $7.4 billion, or 5%, from the prior year.
Average managed loans of $152.8 billion increased $5.4 billion, or 4%, from the prior year. The
increase in both end-of-period and average managed loans reflects organic portfolio growth.
Managed total net revenue was $3.8 billion, an increase of $58 million, or 2%, from the prior year.
Net interest income was $3.0 billion, up $56 million, or 2%, from the prior year. The increase in
net interest income was driven by higher average managed loan balances, an increased level of fees
and wider loan spreads. These benefits were offset largely by the effect of higher revenue
reversals associated with higher charge-offs. Noninterest revenue of $764 million was flat compared
with the prior year. Increased interchange income (the result of charge volume growth of 6%),
higher revenue from fee-based products, and higher securitization income were offset by increased
rewards expense and higher volume-driven payments to partners (both netted against interchange
income).
The managed provision for credit losses was $2.2 billion, an increase of $863 million, or 65%, from
the prior year, due to a higher level of charge-offs and an increase of $300 million in the
allowance for loan losses, reflecting higher estimated losses. The managed net charge-off rate for
the quarter was 4.98%, up from 3.62% in the prior year. The 30-day managed delinquency rate was
3.46%, up from 3.00% in the prior year.
Noninterest expense of $1.2 billion was flat compared with the prior year.
30
Year-to-date results
Net income was $859 million, a decline of $665 million, or 44%, from the prior year. The decrease
was driven by a higher provision for credit losses offset partially by growth in managed total net
revenue.
Average managed loans of $153.2 billion increased $4.8 billion, or 3%, from the prior year,
reflecting organic portfolio growth.
Managed total net revenue was $7.7 billion, an increase of $282 million, or 4%, from the prior
year. Net interest income was $6.2 billion, up $252 million, or 4%, from the prior year. The
increase in net interest income was driven by an increased level of fees, higher average managed
loan balances and wider loan spreads. These benefits were offset partially by the effect of higher
revenue reversals associated with higher charge-offs. Noninterest revenue of $1.5 billion was up
$30 million, or 2%, from the prior year. Increased interchange income (the result of charge volume
growth of 6%) and higher securitization income were offset partially by increased rewards expense
and higher volume-driven payments to partners (both of which are netted against interchange
income).
The managed provision for credit losses was $3.9 billion, an increase of $1.3 billion, or 51%, from
the prior year, due to a higher level of charge-offs and an increase in the allowance for loan
losses (an increase of $300 million compared with a prior year release of $85 million), reflecting
higher estimated losses. The managed net charge-off rate increased to 4.68%, up from 3.59% in the
prior year.
Noninterest expense was $2.5 billion, up $28 million, or 1%, from the prior year.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount, ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
7.92 |
% |
|
|
8.04 |
% |
|
|
|
|
|
|
8.13 |
% |
|
|
8.08 |
% |
|
|
|
|
Provision for credit losses |
|
|
5.77 |
|
|
|
3.62 |
|
|
|
|
|
|
|
5.07 |
|
|
|
3.48 |
|
|
|
|
|
Noninterest revenue |
|
|
2.01 |
|
|
|
2.07 |
|
|
|
|
|
|
|
1.95 |
|
|
|
1.97 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
4.16 |
|
|
|
6.49 |
|
|
|
|
|
|
|
5.01 |
|
|
|
6.57 |
|
|
|
|
|
Noninterest expense |
|
|
3.12 |
|
|
|
3.23 |
|
|
|
|
|
|
|
3.23 |
|
|
|
3.30 |
|
|
|
|
|
Pretax income (ROO)(b) |
|
|
1.04 |
|
|
|
3.26 |
|
|
|
|
|
|
|
1.78 |
|
|
|
3.27 |
|
|
|
|
|
Net income |
|
|
0.66 |
|
|
|
2.06 |
|
|
|
|
|
|
|
1.13 |
|
|
|
2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
93.6 |
|
|
$ |
88.0 |
|
|
|
6 |
% |
|
$ |
179.0 |
|
|
$ |
169.3 |
|
|
|
6 |
% |
Net accounts opened (in millions) |
|
|
3.6 |
|
|
|
3.7 |
|
|
|
(3 |
) |
|
|
7.0 |
|
|
|
7.1 |
|
|
|
(1 |
) |
Credit cards issued (in millions) |
|
|
157.6 |
|
|
|
150.9 |
|
|
|
4 |
|
|
|
157.6 |
|
|
|
150.9 |
|
|
|
4 |
|
Number of registered internet customers
(in millions) |
|
|
28.0 |
|
|
|
24.6 |
|
|
|
14 |
|
|
|
28.0 |
|
|
|
24.6 |
|
|
|
14 |
|
Merchant acquiring business(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
199.3 |
|
|
$ |
179.7 |
|
|
|
11 |
|
|
$ |
381.7 |
|
|
$ |
343.3 |
|
|
|
11 |
|
Total transactions (in billions) |
|
|
5.6 |
|
|
|
4.8 |
|
|
|
17 |
|
|
|
10.8 |
|
|
|
9.3 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
76,278 |
|
|
$ |
80,495 |
|
|
|
(5 |
) |
|
$ |
76,278 |
|
|
$ |
80,495 |
|
|
|
(5 |
) |
Securitized loans |
|
|
79,120 |
|
|
|
67,506 |
|
|
|
17 |
|
|
|
79,120 |
|
|
|
67,506 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
155,398 |
|
|
$ |
148,001 |
|
|
|
5 |
|
|
$ |
155,398 |
|
|
$ |
148,001 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
161,601 |
|
|
$ |
154,406 |
|
|
|
5 |
|
|
$ |
160,601 |
|
|
$ |
155,333 |
|
|
|
3 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
75,630 |
|
|
$ |
79,000 |
|
|
|
(4 |
) |
|
$ |
77,537 |
|
|
$ |
80,458 |
|
|
|
(4 |
) |
Securitized loans |
|
|
77,195 |
|
|
|
68,428 |
|
|
|
13 |
|
|
|
75,652 |
|
|
|
67,959 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average loans |
|
$ |
152,825 |
|
|
$ |
147,428 |
|
|
|
4 |
|
|
$ |
153,189 |
|
|
$ |
148,417 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
19,570 |
|
|
|
18,913 |
|
|
|
3 |
|
|
|
19,570 |
|
|
|
18,913 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,894 |
|
|
$ |
1,331 |
|
|
|
42 |
|
|
$ |
3,564 |
|
|
$ |
2,645 |
|
|
|
35 |
|
Net charge-off rate |
|
|
4.98 |
% |
|
|
3.62 |
% |
|
|
|
|
|
|
4.68 |
% |
|
|
3.59 |
% |
|
|
|
|
Managed delinquency ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ days |
|
|
3.46 |
% |
|
|
3.00 |
% |
|
|
|
|
|
|
3.46 |
% |
|
|
3.00 |
% |
|
|
|
|
90+ days |
|
|
1.76 |
|
|
|
1.42 |
|
|
|
|
|
|
|
1.76 |
|
|
|
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(d) |
|
$ |
3,705 |
|
|
$ |
3,096 |
|
|
|
20 |
|
|
$ |
3,705 |
|
|
$ |
3,096 |
|
|
|
20 |
|
Allowance for loan losses to period-end
loans(d) |
|
|
4.86 |
% |
|
|
3.85 |
% |
|
|
|
|
|
|
4.86 |
% |
|
|
3.85 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Represents total net revenue less provision for credit losses. |
(b) |
|
Pretax return on average managed outstandings. |
(c) |
|
Represents 100% of the merchant acquiring business. |
(d) |
|
Loans on a reported basis. |
32
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 June 30, |
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,516 |
|
|
$ |
1,470 |
|
|
|
3 |
% |
|
$ |
3,053 |
|
|
$ |
2,815 |
|
|
|
8 |
% |
Securitization adjustments |
|
|
(843 |
) |
|
|
(788 |
) |
|
|
(7 |
) |
|
|
(1,780 |
) |
|
|
(1,534 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
673 |
|
|
$ |
682 |
|
|
|
(1 |
) |
|
$ |
1,273 |
|
|
$ |
1,281 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,338 |
|
|
$ |
1,577 |
|
|
|
(15 |
) |
|
$ |
2,905 |
|
|
$ |
3,227 |
|
|
|
(10 |
) |
Securitization adjustments |
|
|
1,673 |
|
|
|
1,378 |
|
|
|
21 |
|
|
|
3,291 |
|
|
|
2,717 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
3,011 |
|
|
$ |
2,955 |
|
|
|
2 |
|
|
$ |
6,196 |
|
|
$ |
5,944 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,945 |
|
|
$ |
3,127 |
|
|
|
(6 |
) |
|
$ |
6,168 |
|
|
$ |
6,214 |
|
|
|
(1 |
) |
Securitization adjustments |
|
|
830 |
|
|
|
590 |
|
|
|
41 |
|
|
|
1,511 |
|
|
|
1,183 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
3,775 |
|
|
$ |
3,717 |
|
|
|
2 |
|
|
$ |
7,679 |
|
|
$ |
7,397 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,364 |
|
|
$ |
741 |
|
|
|
84 |
|
|
$ |
2,353 |
|
|
$ |
1,377 |
|
|
|
71 |
|
Securitization adjustments |
|
|
830 |
|
|
|
590 |
|
|
|
41 |
|
|
|
1,511 |
|
|
|
1,183 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit losses |
|
$ |
2,194 |
|
|
$ |
1,331 |
|
|
|
65 |
|
|
$ |
3,864 |
|
|
$ |
2,560 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
87,021 |
|
|
$ |
88,486 |
|
|
|
(2 |
) |
|
$ |
87,517 |
|
|
$ |
89,814 |
|
|
|
(3 |
) |
Securitization adjustments |
|
|
74,580 |
|
|
|
65,920 |
|
|
|
13 |
|
|
|
73,084 |
|
|
|
65,519 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
161,601 |
|
|
$ |
154,406 |
|
|
|
5 |
|
|
$ |
160,601 |
|
|
$ |
155,333 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,064 |
|
|
$ |
741 |
|
|
|
44 |
|
|
$ |
2,053 |
|
|
$ |
1,462 |
|
|
|
40 |
|
Securitization adjustments |
|
|
830 |
|
|
|
590 |
|
|
|
41 |
|
|
|
1,511 |
|
|
|
1,183 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
1,894 |
|
|
$ |
1,331 |
|
|
|
42 |
|
|
$ |
3,564 |
|
|
$ |
2,645 |
|
|
|
35 |
|
|
|
|
|
(a) |
|
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and
overall performance of the underlying credit card loans, both sold and not sold; as the same
borrower is continuing to use the credit card for ongoing charges, a borrowers credit
performance will affect both the receivables sold under SFAS 140 and those not sold. Thus, in
its disclosures regarding managed receivables, JPMorgan Chase treats the sold receivables as
if they were still on the balance sheet in order to disclose the credit performance (such as
net charge-off rates) of the entire managed credit card portfolio. Managed results exclude
the impact of credit card securitizations on total net revenue, the provision for credit
losses, net charge-offs and loan receivables. Securitization does not change reported net
income versus managed earnings; however, it does affect the classification of items on the
Consolidated Statements of Income and Consolidated Balance Sheets. For further information,
see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on pages
1518 of this Form 10-Q. |
33
For a
discussion of the business profile of CB, see pages 5253 of JPMorgan Chases 2007 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
207 |
|
|
$ |
158 |
|
|
|
31 |
% |
|
$ |
400 |
|
|
$ |
316 |
|
|
|
27 |
% |
Asset management,
administration and
commissions |
|
|
26 |
|
|
|
21 |
|
|
|
24 |
|
|
|
52 |
|
|
|
44 |
|
|
|
18 |
|
All other income(a) |
|
|
150 |
|
|
|
133 |
|
|
|
13 |
|
|
|
265 |
|
|
|
287 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
383 |
|
|
|
312 |
|
|
|
23 |
|
|
|
717 |
|
|
|
647 |
|
|
|
11 |
|
Net interest income |
|
|
723 |
|
|
|
695 |
|
|
|
4 |
|
|
|
1,456 |
|
|
|
1,363 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,106 |
|
|
|
1,007 |
|
|
|
10 |
|
|
|
2,173 |
|
|
|
2,010 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
47 |
|
|
|
45 |
|
|
|
4 |
|
|
|
148 |
|
|
|
62 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
173 |
|
|
|
182 |
|
|
|
(5 |
) |
|
|
351 |
|
|
|
362 |
|
|
|
(3 |
) |
Noncompensation expense |
|
|
290 |
|
|
|
300 |
|
|
|
(3 |
) |
|
|
584 |
|
|
|
590 |
|
|
|
(1 |
) |
Amortization of intangibles |
|
|
13 |
|
|
|
14 |
|
|
|
(7 |
) |
|
|
26 |
|
|
|
29 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
476 |
|
|
|
496 |
|
|
|
(4 |
) |
|
|
961 |
|
|
|
981 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
583 |
|
|
|
466 |
|
|
|
25 |
|
|
|
1,064 |
|
|
|
967 |
|
|
|
10 |
|
Income tax expense |
|
|
228 |
|
|
|
182 |
|
|
|
25 |
|
|
|
417 |
|
|
|
379 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
355 |
|
|
$ |
284 |
|
|
|
25 |
|
|
$ |
647 |
|
|
$ |
588 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
18 |
% |
|
|
|
|
|
|
19 |
% |
|
|
19 |
% |
|
|
|
|
Overhead ratio |
|
|
43 |
|
|
|
49 |
|
|
|
|
|
|
|
44 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
(a) |
|
IB-related and commercial card revenue is included in all other income. |
Quarterly results
Net income was a record $355 million, an increase of $71 million, or 25%, from the prior year
driven by record total net revenue and lower noninterest expense.
Total net revenue was a record $1.1 billion, an increase of $99 million, or 10%, from the prior
year. Net interest income was $723 million, up $28 million, or 4%. The increase was driven by
double-digit growth in liability and loan balances, largely offset by spread compression in the
liability and loan portfolios and a continued shift to narrowerspread liability products.
Noninterest revenue was $383 million, an increase of $71 million, or 23%, from the prior year,
largely reflecting higher deposit-related fees as well as increases in other fee income.
Middle Market Banking revenue was $708 million, an increase of $55 million, or 8%, from the prior
year. Mid-Corporate Banking revenue was $235 million, an increase of $38 million, or 19%. Real
Estate Banking revenue was $94 million, a decline of $15 million, or 14%.
The provision for credit losses was $47 million, an increase of $2 million, or 4%, from the prior
year. The current-quarter provision largely reflects growth in loan balances. The allowance for
loan losses to total loans retained was 2.61% for the current quarter, down from 2.63% in the prior
year. Nonperforming loans were $486 million, up $351 million from the prior year, reflecting
increases in nonperforming loans in each business segment and the effect of a weakening credit
environment. Net charge-offs were $49 million (0.28% net charge-off rate), compared with net
recoveries of $8 million (0.05% net recovery rate) in the prior year.
Noninterest
expense was $476 million, a decrease of $20 million, or 4%, from the prior year.
Year-to-date results
Net income was $647 million, an increase of $59 million, or 10%, from the prior year driven by
growth in total net revenue largely offset by a higher provision for credit losses.
Total net revenue was $2.2 billion, an increase of $163 million, or 8%, from the prior year. Net
interest income was $1.5 billion, an increase of $93 million, or 7%, driven by double-digit growth
in liability balances and loans, largely offset by spread compression in the liability and loan
portfolios and the continued shift to narrower-spread liability products.
34
Noninterest revenue was $717 million, up $70 million, or 11%, due to higher deposit-related fees as
well as increases in other fee income partially offset by lower gains related to the sale of
securities acquired in the satisfaction of debt.
Middle Market Banking revenue was $1.4 billion, an increase of $100 million, or 8%. Mid-Corporate
Banking revenue was $442 million, an increase of $33 million, or 8%. Real Estate Banking revenue
was $191 million, a decline of $20 million, or 9%.
The provision for credit losses was $148 million, compared with $62 million in the prior year,
largely reflecting growth in loan balances. The allowance for loan losses to average loans was
2.67%, flat compared with the prior year. Net charge-offs were $130 million (0.38% net charge-off
rate), compared with net recoveries of $9 million (0.03% net recovery rate) in the prior year.
Noninterest expense was $961 million, a decrease of $20 million, or 2%, largely due to lower
compensation expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratio and headcount data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
376 |
|
|
$ |
348 |
|
|
|
8 |
% |
|
$ |
755 |
|
|
$ |
696 |
|
|
|
8 |
% |
Treasury services |
|
|
630 |
|
|
|
569 |
|
|
|
11 |
|
|
|
1,246 |
|
|
|
1,125 |
|
|
|
11 |
|
Investment banking |
|
|
91 |
|
|
|
82 |
|
|
|
11 |
|
|
|
159 |
|
|
|
158 |
|
|
|
1 |
|
Other |
|
|
9 |
|
|
|
8 |
|
|
|
13 |
|
|
|
13 |
|
|
|
31 |
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,106 |
|
|
$ |
1,007 |
|
|
|
10 |
|
|
$ |
2,173 |
|
|
$ |
2,010 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenue, gross(a) |
|
$ |
270 |
|
|
$ |
236 |
|
|
|
14 |
|
|
$ |
473 |
|
|
$ |
467 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
708 |
|
|
$ |
653 |
|
|
|
8 |
|
|
$ |
1,414 |
|
|
$ |
1,314 |
|
|
|
8 |
|
Mid-Corporate Banking |
|
|
235 |
|
|
|
197 |
|
|
|
19 |
|
|
|
442 |
|
|
|
409 |
|
|
|
8 |
|
Real Estate Banking |
|
|
94 |
|
|
|
109 |
|
|
|
(14 |
) |
|
|
191 |
|
|
|
211 |
|
|
|
(9 |
) |
Other |
|
|
69 |
|
|
|
48 |
|
|
|
44 |
|
|
|
126 |
|
|
|
76 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,106 |
|
|
$ |
1,007 |
|
|
|
10 |
|
|
$ |
2,173 |
|
|
$ |
2,010 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
103,469 |
|
|
$ |
84,687 |
|
|
|
22 |
|
|
$ |
102,724 |
|
|
$ |
83,622 |
|
|
|
23 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
70,682 |
|
|
|
59,071 |
|
|
|
20 |
|
|
|
69,096 |
|
|
|
58,133 |
|
|
|
19 |
|
Loans held-for-sale and loans at
fair value |
|
|
379 |
|
|
|
741 |
|
|
|
(49 |
) |
|
|
450 |
|
|
|
609 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans(b) |
|
|
71,061 |
|
|
|
59,812 |
|
|
|
19 |
|
|
|
69,546 |
|
|
|
58,742 |
|
|
|
18 |
|
Liability balances(c) |
|
|
99,404 |
|
|
|
84,187 |
|
|
|
18 |
|
|
|
99,441 |
|
|
|
82,976 |
|
|
|
20 |
|
Equity |
|
|
7,000 |
|
|
|
6,300 |
|
|
|
11 |
|
|
|
7,000 |
|
|
|
6,300 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
42,879 |
|
|
$ |
37,099 |
|
|
|
16 |
|
|
$ |
41,495 |
|
|
$ |
36,710 |
|
|
|
13 |
|
Mid-Corporate Banking |
|
|
15,357 |
|
|
|
11,692 |
|
|
|
31 |
|
|
|
15,253 |
|
|
|
11,183 |
|
|
|
36 |
|
Real Estate Banking |
|
|
7,500 |
|
|
|
6,894 |
|
|
|
9 |
|
|
|
7,479 |
|
|
|
6,984 |
|
|
|
7 |
|
Other |
|
|
5,325 |
|
|
|
4,127 |
|
|
|
29 |
|
|
|
5,319 |
|
|
|
3,865 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
71,061 |
|
|
$ |
59,812 |
|
|
|
19 |
|
|
$ |
69,546 |
|
|
$ |
58,742 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,028 |
|
|
|
4,295 |
|
|
|
(6 |
) |
|
|
4,028 |
|
|
|
4,295 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
49 |
|
|
$ |
(8 |
) |
|
|
NM |
|
|
$ |
130 |
|
|
$ |
(9 |
) |
|
|
NM |
|
Nonperforming loans(d) |
|
|
486 |
|
|
|
135 |
|
|
|
260 |
|
|
|
486 |
|
|
|
135 |
|
|
|
260 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(e) |
|
|
1,843 |
|
|
|
1,551 |
|
|
|
19 |
|
|
|
1,843 |
|
|
|
1,551 |
|
|
|
19 |
|
Allowance for lending-related
commitments |
|
|
170 |
|
|
|
222 |
|
|
|
(23 |
) |
|
|
170 |
|
|
|
222 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
2,013 |
|
|
|
1,773 |
|
|
|
14 |
|
|
|
2,013 |
|
|
|
1,773 |
|
|
|
14 |
|
Net charge-off (recovery) rate(b) |
|
|
0.28 |
% |
|
|
(0.05 |
)% |
|
|
|
|
|
|
0.38 |
% |
|
|
(0.03 |
)% |
|
|
|
|
Allowance for loan losses to average
loans(b) |
|
|
2.61 |
|
|
|
2.63 |
|
|
|
|
|
|
|
2.67 |
|
|
|
2.67 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(d) |
|
|
401 |
|
|
|
1,149 |
|
|
|
|
|
|
|
401 |
|
|
|
1,149 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.68 |
|
|
|
0.23 |
|
|
|
|
|
|
|
0.70 |
|
|
|
0.23 |
|
|
|
|
|
|
35
|
|
|
(a) |
|
Represents the total revenue related to investment banking products sold to CB clients. |
(b) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and net charge-off (recovery) rate. |
(c) |
|
Liability balances include deposits and deposits swept to on-balance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
(d) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $26 million at
June 30, 2008. This amount was excluded when calculating the allowance coverage ratios. There
were no nonperforming loans held-for-sale or held at fair value at June 30, 2007. |
(e) |
|
The allowance for loan losses at June 30, 2008, included an amount related to loans acquired
in the merger with Bear Stearns. |
TREASURY & SECURITIES SERVICES
For a
discussion of the business profile of TSS, see pages 5455 of JPMorgan Chases 2007 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
283 |
|
|
$ |
219 |
|
|
|
29 |
% |
|
$ |
552 |
|
|
$ |
432 |
|
|
|
28 |
% |
Asset management, administration and
commissions |
|
|
846 |
|
|
|
828 |
|
|
|
2 |
|
|
|
1,666 |
|
|
|
1,514 |
|
|
|
10 |
|
All other income |
|
|
228 |
|
|
|
184 |
|
|
|
24 |
|
|
|
428 |
|
|
|
309 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,357 |
|
|
|
1,231 |
|
|
|
10 |
|
|
|
2,646 |
|
|
|
2,255 |
|
|
|
17 |
|
Net interest income |
|
|
662 |
|
|
|
510 |
|
|
|
30 |
|
|
|
1,286 |
|
|
|
1,012 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,019 |
|
|
|
1,741 |
|
|
|
16 |
|
|
|
3,932 |
|
|
|
3,267 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
7 |
|
|
|
|
|
|
|
NM |
|
|
|
19 |
|
|
|
6 |
|
|
|
217 |
|
Credit reimbursement to IB(a) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
669 |
|
|
|
609 |
|
|
|
10 |
|
|
|
1,310 |
|
|
|
1,167 |
|
|
|
12 |
|
Noncompensation expense |
|
|
632 |
|
|
|
523 |
|
|
|
21 |
|
|
|
1,203 |
|
|
|
1,025 |
|
|
|
17 |
|
Amortization of intangibles |
|
|
16 |
|
|
|
17 |
|
|
|
(6 |
) |
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,317 |
|
|
|
1,149 |
|
|
|
15 |
|
|
|
2,545 |
|
|
|
2,224 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
665 |
|
|
|
562 |
|
|
|
18 |
|
|
|
1,308 |
|
|
|
977 |
|
|
|
34 |
|
Income tax expense |
|
|
240 |
|
|
|
210 |
|
|
|
14 |
|
|
|
480 |
|
|
|
362 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
425 |
|
|
$ |
352 |
|
|
|
21 |
|
|
$ |
828 |
|
|
$ |
615 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services |
|
$ |
852 |
|
|
$ |
720 |
|
|
|
18 |
|
|
$ |
1,665 |
|
|
$ |
1,409 |
|
|
|
18 |
|
Worldwide Securities Services |
|
|
1,167 |
|
|
|
1,021 |
|
|
|
14 |
|
|
|
2,267 |
|
|
|
1,858 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,019 |
|
|
$ |
1,741 |
|
|
|
16 |
|
|
$ |
3,932 |
|
|
$ |
3,267 |
|
|
|
20 |
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
49 |
% |
|
|
47 |
% |
|
|
|
|
|
|
48 |
% |
|
|
41 |
% |
|
|
|
|
Overhead ratio |
|
|
65 |
|
|
|
66 |
|
|
|
|
|
|
|
65 |
|
|
|
68 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
33 |
|
|
|
32 |
|
|
|
|
|
|
|
33 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
56,192 |
|
|
$ |
50,687 |
|
|
|
11 |
|
|
$ |
56,698 |
|
|
$ |
48,359 |
|
|
|
17 |
|
Loans(c) |
|
|
23,822 |
|
|
|
20,195 |
|
|
|
18 |
|
|
|
23,454 |
|
|
|
19,575 |
|
|
|
20 |
|
Liability balances(d) |
|
|
268,293 |
|
|
|
217,514 |
|
|
|
23 |
|
|
|
261,331 |
|
|
|
214,095 |
|
|
|
22 |
|
Equity |
|
|
3,500 |
|
|
|
3,000 |
|
|
|
17 |
|
|
|
3,500 |
|
|
|
3,000 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
27,232 |
|
|
|
25,206 |
|
|
|
8 |
|
|
|
27,232 |
|
|
|
25,206 |
|
|
|
8 |
|
|
|
|
|
(a) |
|
TSS is charged a credit reimbursement related to certain exposures managed within the IB
credit portfolio on behalf of clients shared with TSS. |
(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. |
(c) |
|
Loan balances include wholesale overdrafts, commercial card and trade finance loans. |
(d) |
|
Liability balances include deposits and deposits swept to on-balance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
36
Quarterly results
Net income was a record $425 million, an increase of $73 million, or 21%, from the prior year,
driven by record total net revenue, partially offset by higher noninterest expense.
Total net revenue was a record $2.0 billion, an increase of $278 million, or 16%, from the prior
year. Worldwide Securities Services net revenue of $1.2 billion was a record, up $146 million, or
14%, from the prior year. The growth was driven by increased product usage by new and existing
clients (largely in custody, funds services and depositary receipts), wider spreads in securities
lending and higher levels of market volatility in foreign exchange driven by recent market
conditions. These benefits were offset partially by spread compression on liability products.
Treasury Services net revenue was a record $852 million, an increase of $132 million, or 18%, from
the prior year. This increase reflected higher liability balances and wider market-driven spreads
as well as growth in electronic and trade loan volumes. TSS firmwide net revenue, which includes
Treasury Services net revenue recorded in other lines of business, grew to $2.7 billion, up $346
million, or 15%. Treasury Services firmwide net revenue grew to $1.6 billion, up $200 million, or
15%.
Noninterest expense was $1.3 billion, an increase of $168 million, or 15%, from the prior year,
reflecting higher expense related to business and volume growth as well as continued investment in
new product platforms.
Year-to-date results
Net income was $828 million, an increase of $213 million, or 35%, from the prior year. The increase
was driven by higher total net revenue, partially offset by higher noninterest expense.
Total net revenue was $3.9 billion, an increase of $665 million, or 20%, from the prior year.
Worldwide Securities Services net revenue of $2.3 billion was up $409 million, or 22%, driven by
increased product usage by new and existing clients (largely in custody, funds services and
depositary receipts), and wider spreads in securities lending and higher levels of market
volatility in foreign exchange driven by recent market conditions. These benefits were offset
partially by spread compression on liability products. Treasury Services net revenue was $1.7
billion, an increase of $256 million, or 18%, reflecting higher liability balances and wider
market-driven spreads, as well as growth in electronic and trade loan volumes. TSS firmwide revenue
grew to $5.3 billion, up $802 million, or 18%. Treasury Services firmwide net revenue grew to $3.1
billion, up $393 million, or 15%.
Noninterest expense was $2.5 billion, up $321 million, or 14%, from the prior year, reflecting
higher expense related to business and volume growth as well as continued investment in new product
platforms.
37
TSS firmwide metrics
TSS firmwide metrics include revenue recorded in the CB, Regional Banking and AM lines of business
and excludes FX revenue recorded in the IB for TSS-related FX activity. In order to capture the
firmwide impact of TS and TSS products and revenue, management reviews firmwide metrics such as
liability balances, revenue and overhead ratios in assessing financial performance for TSS.
Firmwide metrics are necessary in order to understand the aggregate TSS business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratio data and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue reported |
|
$ |
852 |
|
|
$ |
720 |
|
|
|
18 |
% |
|
$ |
1,665 |
|
|
$ |
1,409 |
|
|
|
18 |
% |
Treasury Services revenue reported in
Commercial Banking |
|
|
630 |
|
|
|
569 |
|
|
|
11 |
|
|
|
1,246 |
|
|
|
1,125 |
|
|
|
11 |
|
Treasury Services revenue reported in
other lines of business |
|
|
72 |
|
|
|
65 |
|
|
|
11 |
|
|
|
141 |
|
|
|
125 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
revenue(a) |
|
|
1,554 |
|
|
|
1,354 |
|
|
|
15 |
|
|
|
3,052 |
|
|
|
2,659 |
|
|
|
15 |
|
Worldwide Securities Services revenue |
|
|
1,167 |
|
|
|
1,021 |
|
|
|
14 |
|
|
|
2,267 |
|
|
|
1,858 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Treasury & Securities Services
firmwide revenue(a) |
|
$ |
2,721 |
|
|
$ |
2,375 |
|
|
|
15 |
|
|
$ |
5,319 |
|
|
$ |
4,517 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide liability
balances (average)(b) |
|
$ |
230,689 |
|
|
$ |
189,214 |
|
|
|
22 |
|
|
$ |
226,203 |
|
|
$ |
187,930 |
|
|
|
20 |
|
Treasury & Securities Services firmwide
liability balances (average)(b) |
|
|
367,670 |
|
|
|
301,701 |
|
|
|
22 |
|
|
|
360,758 |
|
|
|
297,072 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead
ratio(c) |
|
|
54 |
% |
|
|
59 |
% |
|
|
|
|
|
|
54 |
% |
|
|
59 |
% |
|
|
|
|
Treasury & Securities Services overhead
ratio(c) |
|
|
58 |
|
|
|
60 |
|
|
|
|
|
|
|
58 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
15,476 |
|
|
$ |
15,203 |
|
|
|
2 |
|
|
$ |
15,476 |
|
|
$ |
15,203 |
|
|
|
2 |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ ACH transactions originated
(in millions) |
|
|
993 |
|
|
|
972 |
|
|
|
2 |
|
|
|
1,997 |
|
|
|
1,943 |
|
|
|
3 |
|
Total US$ clearing volume
(in thousands) |
|
|
29,063 |
|
|
|
27,779 |
|
|
|
5 |
|
|
|
57,119 |
|
|
|
54,619 |
|
|
|
5 |
|
International electronic funds transfer
volume (in thousands)(d) |
|
|
41,432 |
|
|
|
42,068 |
|
|
|
(2 |
) |
|
|
81,471 |
|
|
|
84,467 |
|
|
|
(4 |
) |
Wholesale check volume (in millions) |
|
|
618 |
|
|
|
767 |
|
|
|
(19 |
) |
|
|
1,241 |
|
|
|
1,538 |
|
|
|
(19 |
) |
Wholesale cards issued
(in thousands)(e) |
|
|
19,917 |
|
|
|
17,535 |
|
|
|
14 |
|
|
|
19,917 |
|
|
|
17,535 |
|
|
|
14 |
|
|
|
|
|
(a) |
|
TSS firmwide FX revenue, which includes FX revenue recorded in TSS and FX revenue associated with TSS customers who are FX
customers of the IB, was $222 million and $139 million for the quarters ended June 30, 2008 and 2007, respectively, and
$413 million and $251 million year-to-date 2008 and 2007,
respectively. |
(b) |
|
Firmwide liability
balances include TS liability balances recorded in the
Commercial Banking line of business. |
(c) |
|
Overhead ratios have been calculated based upon firmwide revenue and TSS and TS expense,
respectively, including those allocated to certain other lines of business. FX revenue and
expense recorded in the IB for TSS-related FX activity are not included in this ratio. |
(d) |
|
International electronic funds transfer includes non-US$ ACH and clearing volume. |
(e) |
|
Wholesale cards issued include domestic commercial card, stored value card, prepaid card and
government electronic benefit card products. |
38
For a discussion of the business profile of AM, see pages 5658 of JPMorgan Chases 2007 Annual
Report and on page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management,
administration
and commissions |
|
$ |
1,573 |
|
|
$ |
1,671 |
|
|
|
(6 |
)% |
|
$ |
3,104 |
|
|
$ |
3,160 |
|
|
|
(2 |
)% |
All other income |
|
|
130 |
|
|
|
173 |
|
|
|
(25 |
) |
|
|
189 |
|
|
|
343 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,703 |
|
|
|
1,844 |
|
|
|
(8 |
) |
|
|
3,293 |
|
|
|
3,503 |
|
|
|
(6 |
) |
Net interest income |
|
|
361 |
|
|
|
293 |
|
|
|
23 |
|
|
|
672 |
|
|
|
538 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,064 |
|
|
|
2,137 |
|
|
|
(3 |
) |
|
|
3,965 |
|
|
|
4,041 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
17 |
|
|
|
(11 |
) |
|
|
NM |
|
|
|
33 |
|
|
|
(20 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
886 |
|
|
|
879 |
|
|
|
1 |
|
|
|
1,711 |
|
|
|
1,643 |
|
|
|
4 |
|
Noncompensation expense |
|
|
494 |
|
|
|
456 |
|
|
|
8 |
|
|
|
971 |
|
|
|
907 |
|
|
|
7 |
|
Amortization of intangibles |
|
|
20 |
|
|
|
20 |
|
|
|
|
|
|
|
41 |
|
|
|
40 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,400 |
|
|
|
1,355 |
|
|
|
3 |
|
|
|
2,723 |
|
|
|
2,590 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
647 |
|
|
|
793 |
|
|
|
(18 |
) |
|
|
1,209 |
|
|
|
1,471 |
|
|
|
(18 |
) |
Income tax expense |
|
|
252 |
|
|
|
300 |
|
|
|
(16 |
) |
|
|
458 |
|
|
|
553 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
395 |
|
|
$ |
493 |
|
|
|
(20 |
) |
|
$ |
751 |
|
|
$ |
918 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private bank |
|
$ |
765 |
|
|
$ |
646 |
|
|
|
18 |
|
|
$ |
1,420 |
|
|
$ |
1,206 |
|
|
|
18 |
|
Retail |
|
|
490 |
|
|
|
602 |
|
|
|
(19 |
) |
|
|
956 |
|
|
|
1,129 |
|
|
|
(15 |
) |
Institutional |
|
|
472 |
|
|
|
617 |
|
|
|
(24 |
) |
|
|
962 |
|
|
|
1,168 |
|
|
|
(18 |
) |
Private client services |
|
|
299 |
|
|
|
272 |
|
|
|
10 |
|
|
|
589 |
|
|
|
538 |
|
|
|
9 |
|
Bear Stearns brokerage |
|
|
38 |
|
|
|
|
|
|
|
NM |
|
|
|
38 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,064 |
|
|
$ |
2,137 |
|
|
|
(3 |
) |
|
$ |
3,965 |
|
|
$ |
4,041 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
31 |
% |
|
|
53 |
% |
|
|
|
|
|
|
30 |
% |
|
|
49 |
% |
|
|
|
|
Overhead ratio |
|
|
68 |
|
|
|
63 |
|
|
|
|
|
|
|
69 |
|
|
|
64 |
|
|
|
|
|
Pretax margin ratio(a) |
|
|
31 |
|
|
|
37 |
|
|
|
|
|
|
|
30 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
(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 $395 million, a decline of $98 million, or 20%, from the prior year driven largely
by lower performance fees and higher expense offset partially by increased total net revenue from
growth in deposit and loan balances.
Total net revenue was $2.1 billion, a decrease of $73 million, or 3%, from the prior year.
Noninterest revenue was $1.7 billion, a decline of $141 million, or 8%, due to lower performance
fees and the effect of lower markets, offset partially by increased revenue from net asset inflows,
higher placement fees and the benefit of the Merger. Net interest income was $361 million, up $68
million, or 23%, from the prior year, predominantly due to higher deposit and loan balances.
Private Bank revenue grew 18% to $765 million due to increased deposit and loan balances, higher
placement fees and higher assets under management, partially offset by lower performance fees.
Retail revenue declined 19% to $490 million due to net equity outflows. Institutional revenue
declined 24% to $472 million due to lower performance fees, partially offset by growth in assets
under management. Private Client Services revenue grew 10% to $299 million due to higher deposit
and loan balances and growth in assets under management. Bear Stearns Brokerage added $38 million
to revenue.
39
The provision for credit losses was $17 million, compared with a benefit of $11 million in the
prior year, reflecting an increase in loan balances and a lower level of recoveries.
Noninterest expense was $1.4 billion, up $45 million, or 3%, from the prior year, largely driven by
the effect of the Merger and increased headcount offset partially by lower performance-based
compensation.
Year-to-date results
Net income was $751 million, a decline of $167 million, or 18%, from the prior year reflecting
higher noninterest expense and lower revenue.
Total net revenue was $4.0 billion, a decrease of $76 million, or 2%, from the prior year.
Noninterest revenue was $3.3 billion, a decline of $210 million, or 6%, due to lower performance
fees, reduced valuations for seed capital investments in JPMorgan Funds, and the effect of lower
markets. The lower results were largely offset by increased revenue from net asset inflows, the
benefit of the Merger, and higher placement fees. Net interest income was $672 million, up $134
million, or 25%, from the prior year, predominantly due to higher deposit and loan balances.
Private Bank revenue grew 18% to $1.4 billion due to increased deposit and loan balances, higher
placement fees and higher assets under management, partially offset by lower performance fees.
Institutional revenue declined 18% to $962 million due to lower performance fees, partially offset
by growth in assets under management. Retail revenue declined 15% to $956 million due to lower
market valuations for seed capital investments and net equity outflows. Private Client Services
revenue grew 9% to $589 million due to higher deposit and loan balances and growth in assets under
management. Bear Stearns Brokerage added $38 million to revenue.
The provision for credit losses was $33 million, compared with a benefit of $20 million in the
prior year, reflecting an increase in loan balances and a lower level of recoveries.
Noninterest expense was $2.7 billion, up $133 million, or 5%, from the prior year. The increase was
due predominantly to higher compensation, reflecting increased headcount, and the effect of the
Merger.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
(in millions, except headcount, ratios
and ranking data, |
|
Three months ended June 30, |
|
Six months ended June 30, |
and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,717 |
|
|
|
1,582 |
|
|
|
9 |
% |
|
|
1,717 |
|
|
|
1,582 |
|
|
|
9 |
% |
Retirement planning services participants |
|
|
1,505,000 |
|
|
|
1,477,000 |
|
|
|
2 |
|
|
|
1,505,000 |
|
|
|
1,477,000 |
|
|
|
2 |
|
Bear Stearns brokers |
|
|
326 |
|
|
|
|
|
|
|
NM |
|
|
|
326 |
|
|
|
|
|
|
|
NM |
|
|
% of customer assets in 4 & 5 Star Funds(a) |
|
|
40 |
% |
|
|
65 |
% |
|
|
(38 |
) |
|
|
40 |
% |
|
|
65 |
% |
|
|
(38 |
) |
% of AUM in 1st and 2nd quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
51 |
% |
|
|
65 |
% |
|
|
(22 |
) |
|
|
51 |
% |
|
|
65 |
% |
|
|
(22 |
) |
3 years |
|
|
70 |
% |
|
|
77 |
% |
|
|
(9 |
) |
|
|
70 |
% |
|
|
77 |
% |
|
|
(9 |
) |
5 years |
|
|
76 |
% |
|
|
76 |
% |
|
|
|
|
|
|
76 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheets data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
65,015 |
|
|
$ |
51,710 |
|
|
|
26 |
|
|
$ |
62,651 |
|
|
$ |
48,779 |
|
|
|
28 |
|
Loans(c) |
|
|
39,264 |
|
|
|
28,695 |
|
|
|
37 |
|
|
|
37,946 |
|
|
|
27,176 |
|
|
|
40 |
|
Deposits |
|
|
69,975 |
|
|
|
55,981 |
|
|
|
25 |
|
|
|
69,079 |
|
|
|
55,402 |
|
|
|
25 |
|
Equity |
|
|
5,066 |
|
|
|
3,750 |
|
|
|
35 |
|
|
|
5,033 |
|
|
|
3,750 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
15,840 |
|
|
|
14,108 |
|
|
|
12 |
|
|
|
15,840 |
|
|
|
14,108 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
2 |
|
|
$ |
(5 |
) |
|
|
NM |
|
|
$ |
|
|
|
$ |
(5 |
) |
|
|
NM |
|
Nonperforming loans |
|
|
68 |
|
|
|
21 |
|
|
|
224 |
|
|
|
68 |
|
|
|
21 |
|
|
|
224 |
|
Allowance for loan losses |
|
|
147 |
|
|
|
105 |
|
|
|
40 |
|
|
|
147 |
|
|
|
105 |
|
|
|
40 |
|
Allowance for lending-related commitments |
|
|
5 |
|
|
|
7 |
|
|
|
(29 |
) |
|
|
5 |
|
|
|
7 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
0.02 |
% |
|
|
(0.07 |
)% |
|
|
|
|
|
|
|
% |
|
|
(0.04 |
)% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.37 |
|
|
|
0.37 |
|
|
|
|
|
|
|
0.39 |
|
|
|
0.39 |
|
|
|
|
|
Allowance
for loan losses to nonperforming loans |
|
|
216 |
|
|
|
500 |
|
|
|
|
|
|
|
216 |
|
|
|
500 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.17 |
|
|
|
0.07 |
|
|
|
|
|
|
|
0.18 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
(a) |
|
Derived from following rating services: Morningstar for the United States; Micropal for the
United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
(b) |
|
Derived from following rating services: Lipper for the United States and Taiwan; Micropal
for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. |
(c) |
|
Reflects the transfer in 2007 of held-for-investment prime mortgage loans transferred from
AM to Corporate within the Corporate/Private Equity segment. |
Assets under supervision
Assets under supervision were $1.6 trillion, an increase of $139 billion, or 9%, from the prior
year. Assets under management were $1.2 trillion, up $76 billion, or 7%, from the prior year. The
increase was due largely to liquidity product inflows across all segments and the Merger, partially
offset by lower equity markets and equity product outflows. Custody, brokerage, administration and
deposit balances were $426 billion, up $63 billion, driven by the acquisition of Bear Stearns
Brokerage.
41
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
|
|
As of June 30, |
|
2008 |
|
|
2007 |
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
478 |
|
|
$ |
333 |
|
Fixed income |
|
|
199 |
|
|
|
190 |
|
Equities & balanced |
|
|
378 |
|
|
|
467 |
|
Alternatives |
|
|
130 |
|
|
|
119 |
|
|
Total assets under management |
|
|
1,185 |
|
|
|
1,109 |
|
Custody/brokerage/administration/deposits |
|
|
426 |
|
|
|
363 |
|
|
Total assets under supervision |
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
Institutional |
|
$ |
645 |
|
|
$ |
565 |
|
Private Bank |
|
|
196 |
|
|
|
185 |
|
Retail |
|
|
276 |
|
|
|
300 |
|
Private Client Services |
|
|
60 |
|
|
|
59 |
|
Bear Stearns Brokerage |
|
|
8 |
|
|
|
|
|
|
Total assets under management |
|
$ |
1,185 |
|
|
$ |
1,109 |
|
|
Institutional |
|
$ |
646 |
|
|
$ |
566 |
|
Private Bank |
|
|
442 |
|
|
|
402 |
|
Retail |
|
|
357 |
|
|
|
393 |
|
Private Client Services |
|
|
106 |
|
|
|
111 |
|
Bear Stearns Brokerage |
|
|
60 |
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
771 |
|
|
$ |
700 |
|
International |
|
|
414 |
|
|
|
409 |
|
|
Total assets under management |
|
$ |
1,185 |
|
|
$ |
1,109 |
|
|
U.S./Canada |
|
$ |
1,093 |
|
|
$ |
971 |
|
International |
|
|
518 |
|
|
|
501 |
|
|
Total assets under supervision |
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
416 |
|
|
$ |
268 |
|
Fixed income |
|
|
47 |
|
|
|
49 |
|
Equity |
|
|
179 |
|
|
|
235 |
|
|
Total mutual fund assets |
|
$ |
642 |
|
|
$ |
552 |
|
|
|
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm has
43% ownership. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management rollforward |
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Beginning balance |
|
$ |
1,187 |
|
|
$ |
1,053 |
|
|
$ |
1,193 |
|
|
$ |
1,013 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
1 |
|
|
|
12 |
|
|
|
69 |
|
|
|
19 |
|
Fixed income |
|
|
(1 |
) |
|
|
6 |
|
|
|
(1 |
) |
|
|
8 |
|
Equities, balanced and alternative |
|
|
(3 |
) |
|
|
12 |
|
|
|
(24 |
) |
|
|
22 |
|
Market/performance/other impacts(a) |
|
|
1 |
|
|
|
26 |
|
|
|
(52 |
) |
|
|
47 |
|
|
Total assets under management |
|
$ |
1,185 |
|
|
$ |
1,109 |
|
|
$ |
1,185 |
|
|
$ |
1,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,569 |
|
|
$ |
1,395 |
|
|
$ |
1,572 |
|
|
$ |
1,347 |
|
Net asset flows |
|
|
(5 |
) |
|
|
38 |
|
|
|
47 |
|
|
|
65 |
|
Market/performance/other impacts(a) |
|
|
47 |
|
|
|
39 |
|
|
|
(8 |
) |
|
|
60 |
|
|
Total assets under supervision |
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
|
|
|
(a) |
|
Second quarter 2008 reflects $15 billion for assets under management and $68 billion for
assets under supervision from the Merger. |
42
CORPORATE / PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 5960 of JPMorgan
Chases 2007 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions |
|
$ |
(97 |
) |
|
$ |
1,372 |
|
|
|
NM |
% |
|
$ |
(92 |
) |
|
$ |
2,697 |
|
|
|
NM |
% |
Securities gains (losses)(a) |
|
|
656 |
|
|
|
(227 |
) |
|
|
NM |
|
|
|
698 |
|
|
|
(235 |
) |
|
|
NM |
|
All other income(b) |
|
|
(378 |
) |
|
|
90 |
|
|
|
NM |
|
|
|
1,261 |
|
|
|
158 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
181 |
|
|
|
1,235 |
|
|
|
(85 |
) |
|
|
1,867 |
|
|
|
2,620 |
|
|
|
(29 |
) |
Net interest income (expense) |
|
|
48 |
|
|
|
(173 |
) |
|
|
NM |
|
|
|
(238 |
) |
|
|
(290 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
229 |
|
|
|
1,062 |
|
|
|
(78 |
) |
|
|
1,629 |
|
|
|
2,330 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
290 |
|
|
|
3 |
|
|
|
NM |
|
|
|
486 |
|
|
|
6 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
611 |
|
|
|
695 |
|
|
|
(12 |
) |
|
|
1,250 |
|
|
|
1,471 |
|
|
|
(15 |
) |
Noncompensation expense(c) |
|
|
699 |
|
|
|
818 |
|
|
|
(15 |
) |
|
|
617 |
|
|
|
1,374 |
|
|
|
(55 |
) |
Merger costs |
|
|
155 |
|
|
|
64 |
|
|
|
142 |
|
|
|
155 |
|
|
|
126 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1,465 |
|
|
|
1,577 |
|
|
|
(7 |
) |
|
|
2,022 |
|
|
|
2,971 |
|
|
|
(32 |
) |
Net expense allocated to other
businesses |
|
|
(1,070 |
) |
|
|
(1,075 |
) |
|
|
|
|
|
|
(2,127 |
) |
|
|
(2,115 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
395 |
|
|
|
502 |
|
|
|
(21 |
) |
|
|
(105 |
) |
|
|
856 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
tax expense |
|
|
(456 |
) |
|
|
557 |
|
|
|
NM |
|
|
|
1,248 |
|
|
|
1,468 |
|
|
|
(15 |
) |
Income tax expense (benefit) |
|
|
(34 |
) |
|
|
175 |
|
|
|
NM |
|
|
|
643 |
|
|
|
455 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(422 |
) |
|
$ |
382 |
|
|
|
NM |
|
|
$ |
605 |
|
|
$ |
1,013 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
197 |
|
|
$ |
1,293 |
|
|
|
(85 |
) |
|
$ |
360 |
|
|
$ |
2,546 |
|
|
|
(86 |
) |
Corporate |
|
|
32 |
|
|
|
(231 |
) |
|
|
NM |
|
|
|
1,269 |
|
|
|
(216 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
229 |
|
|
$ |
1,062 |
|
|
|
(78 |
) |
|
$ |
1,629 |
|
|
$ |
2,330 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
99 |
|
|
$ |
702 |
|
|
|
(86 |
) |
|
$ |
156 |
|
|
$ |
1,400 |
|
|
|
(89 |
) |
Corporate |
|
|
19 |
|
|
|
(280 |
) |
|
|
NM |
|
|
|
989 |
|
|
|
(309 |
) |
|
|
NM |
|
Merger-related items(d) |
|
|
(540 |
) |
|
|
(40 |
) |
|
|
NM |
|
|
|
(540 |
) |
|
|
(78 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) |
|
$ |
(422 |
) |
|
$ |
382 |
|
|
|
NM |
|
|
$ |
605 |
|
|
$ |
1,013 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
22,317 |
|
|
|
23,532 |
|
|
|
(5 |
) |
|
|
22,317 |
|
|
|
23,532 |
|
|
|
(5 |
) |
|
|
|
|
(a) |
|
The second quarter of 2008 included a gain on the sale of MasterCard shares. |
(b) |
|
Included proceeds from the sale of Visa shares in its initial public offering in the first
quarter of 2008. |
(c) |
|
Included a release of credit card litigation reserves in the first quarter of 2008. |
(d) |
|
The second quarter of
2008 reflects items related to the Merger, which include
the Bear Stearns equity method investment losses, merger costs, Bear Stearns asset management
liquidation costs and Bear Stearns private client services broker retention expense. Prior
periods represent costs related to the Bank One and Bank of New York transactions. |
Quarterly results
Net loss for Corporate/Private Equity was $422 million, compared with net income of $382 million in
the prior year.
Net loss included the after-tax effects of Bear Stearns merger-related items amounting to a net
loss of $540 million. These items included losses of $423 million, which represent JPMorgan Chases
49.4% ownership in Bear Stearns losses from April 8 to May 30, 2008, which were reflected in total
net revenue. In addition, other merger-related items of $117 million ($188 million pretax) were
reflected almost entirely in noninterest expense.
Net income for Private Equity was $99 million, compared with $702 million in the prior year. Total
net revenue was $197 million, a decrease of $1.1 billion, reflecting Private Equity gains of $220
million, compared with gains of $1.3 billion in the prior year. Noninterest expense was $44
million, a decline of $154 million from the prior year, reflecting lower compensation expense.
Excluding the after-tax effect of Bear Stearns merger-related items of negative $540 million, net
income for Corporate was $19 million, compared with a net loss of $320 million in the prior year.
Total net revenue was $452 million, compared with a negative $231 million in the prior year,
reflecting a higher level of securities gains, predominantly related to a gain of
43
$668 million from the sale of MasterCard shares, and a wider net interest spread. These benefits
were offset partially by trading-related losses. The current-quarter provision for credit losses
includes an increase in the allowance for loan losses of $170 million for prime mortgage (see
Retail Financial Services discussion of provision for loan losses for further detail). Noninterest
expense was $170 million, a decrease of $135 million, or 44%, from the prior year. The decrease
reflected reduced litigation expense and the absence of prior-year merger expense related to the
Bank One merger.
Year-to-date results
Net income for Corporate/Private Equity was $605 million, compared with $1.0 billion in the prior
year.
Results included the after-tax proceeds from the sale of Visa shares in its initial public offering
($1.5 billion pretax and $955 million after-tax). In addition, the impact of Bear Stearns
merger-related items resulted in a net loss of $540 million (see Corporate/Private Equity quarterly
results discussion for further detail on Bear Stearns merger-related items).
Net income for Private Equity was $156 million, compared with $1.4 billion in the prior year. Total
net revenue was $360 million, reflecting Private Equity gains of $409 million, compared with gains
of $2.6 billion in the prior year. Noninterest expense was $119 million, a decline of $242 million
from the prior year, representing lower compensation expense.
Excluding the after-tax effect of Visa sale proceeds and the impact of Bear Stearns merger-related
items, net income for Corporate was $34 million, compared with a net loss of $387 million in the
prior year. Total net revenue (excluding the effect of Visa sale proceeds and Bear Stearns
merger-related items) was $149 million, compared with a negative $216 million in the prior year.
This increase was driven by a pretax gain of $668 million from the sale of MasterCard shares offset
largely by trading-related losses. Provision for credit losses was $476 million compared with $6
million in the prior year, predominantly reflecting an increase in the allowance for loan losses
and higher net charge-offs for prime mortgages. Noninterest expense was negative $406 million,
compared with expense of $495 million in the prior year, reflecting a reduction of credit
card-related litigation expense and the absence of prior-year merger expense related to the Bank
One merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses)(a) |
|
$ |
656 |
|
|
$ |
(227 |
) |
|
|
NM |
% |
|
$ |
698 |
|
|
$ |
(235 |
) |
|
|
NM |
% |
Investment securities portfolio (average) |
|
|
97,223 |
|
|
|
87,760 |
|
|
|
11 |
|
|
|
88,833 |
|
|
|
87,102 |
|
|
|
2 |
|
Investment securities portfolio (ending) |
|
|
103,751 |
|
|
|
86,821 |
|
|
|
19 |
|
|
|
103,751 |
|
|
|
86,821 |
|
|
|
19 |
|
Mortgage loans (average)(b) |
|
|
42,143 |
|
|
|
26,830 |
|
|
|
57 |
|
|
|
40,620 |
|
|
|
26,041 |
|
|
|
56 |
|
Mortgage loans (ending)(b) |
|
|
42,602 |
|
|
|
27,299 |
|
|
|
56 |
|
|
|
42,602 |
|
|
|
27,299 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
540 |
|
|
$ |
985 |
|
|
|
(45 |
) |
|
$ |
1,653 |
|
|
$ |
1,708 |
|
|
|
(3 |
) |
Unrealized gains (losses)(c) |
|
|
(326 |
) |
|
|
290 |
|
|
|
NM |
|
|
|
(1,207 |
) |
|
|
811 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct investments |
|
|
214 |
|
|
|
1,275 |
|
|
|
(83 |
) |
|
|
446 |
|
|
|
2,519 |
|
|
|
(82 |
) |
Third-party fund investments |
|
|
6 |
|
|
|
53 |
|
|
|
(89 |
) |
|
|
(37 |
) |
|
|
87 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains(d) |
|
$ |
220 |
|
|
$ |
1,328 |
|
|
|
(83 |
) |
|
$ |
409 |
|
|
$ |
2,606 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e) |
|
|
|
|
|
|
|
|
|
Direct investments |
|
June 30, 2008 |
|
December 31, 2007 |
|
Change |
|
Publicly held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
615 |
|
|
$ |
390 |
|
|
|
58 |
% |
Cost |
|
|
665 |
|
|
|
288 |
|
|
|
131 |
|
Quoted public value |
|
|
732 |
|
|
|
536 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
6,270 |
|
|
|
5,914 |
|
|
|
6 |
|
Cost |
|
|
6,113 |
|
|
|
4,867 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
838 |
|
|
|
849 |
|
|
|
(1 |
) |
Cost |
|
|
1,094 |
|
|
|
1,076 |
|
|
|
2 |
|
|
|
|
|
|
Total private equity portfolio Carrying value |
|
$ |
7,723 |
|
|
$ |
7,153 |
|
|
|
8 |
|
Total private equity portfolio Cost |
|
$ |
7,872 |
|
|
$ |
6,231 |
|
|
|
26 |
|
|
44
|
|
|
(a) |
|
The second quarter of 2008 included a gain on the sale of MasterCard shares. All periods
reflect repositioning of the Corporate investment securities portfolio and exclude
gains/losses on securities used to manage risk associated with MSRs. |
(b) |
|
Held-for-investment prime mortgage loans were transferred from RFS and AM to the
Corporate/Private Equity segment for risk management and reporting purposes. The initial
transfers had no material impact on the financial results of Corporate/Private Equity. |
(c) |
|
Unrealized gains (losses) contain reversals of unrealized gains and losses that were
recognized in prior periods and have now been realized. |
(d) |
|
Included in principal transactions revenue in the Consolidated Statements of Income. |
(e) |
|
For more information on the Firms policies regarding the valuation of the private equity
portfolio, see Note 3 on pages 8389 of this Form 10-Q. |
(f) |
|
Unfunded commitments to third-party private equity funds were $861 million and $881 million at June 30,
2008, and December 31, 2007, respectively. |
The carrying value of the private equity portfolio at June 30, 2008, was $7.7 billion, up from $7.2
billion at December 31, 2007. The portfolio represented 8.9% of the Firms stockholders equity
less goodwill at June 30, 2008, down from 9.2% at December 31, 2007.
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
32,255 |
|
|
$ |
40,144 |
|
Deposits with banks |
|
|
17,150 |
|
|
|
11,466 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
176,287 |
|
|
|
170,897 |
|
Securities borrowed |
|
|
142,854 |
|
|
|
84,184 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
409,608 |
|
|
|
414,273 |
|
Derivative receivables |
|
|
122,389 |
|
|
|
77,136 |
|
Securities |
|
|
119,173 |
|
|
|
85,450 |
|
Loans |
|
|
538,029 |
|
|
|
519,374 |
|
Allowance for loan losses |
|
|
(13,246 |
) |
|
|
(9,234 |
) |
|
Loans, net of allowance for loan losses |
|
|
524,783 |
|
|
|
510,140 |
|
Accrued interest and accounts receivable |
|
|
64,294 |
|
|
|
24,823 |
|
Goodwill |
|
|
45,993 |
|
|
|
45,270 |
|
Other intangible assets |
|
|
17,276 |
|
|
|
14,731 |
|
Other assets |
|
|
103,608 |
|
|
|
83,633 |
|
|
Total assets |
|
$ |
1,775,670 |
|
|
$ |
1,562,147 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
722,905 |
|
|
$ |
740,728 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
194,724 |
|
|
|
154,398 |
|
Commercial paper and other borrowed funds |
|
|
72,745 |
|
|
|
78,431 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
87,841 |
|
|
|
89,162 |
|
Derivative payables |
|
|
95,749 |
|
|
|
68,705 |
|
Accounts payable, accrued expense and other liabilities |
|
|
171,004 |
|
|
|
94,476 |
|
Beneficial interests issued by consolidated VIEs |
|
|
20,071 |
|
|
|
14,016 |
|
Long-term debt and trust preferred capital debt securities |
|
|
277,455 |
|
|
|
199,010 |
|
|
Total liabilities |
|
|
1,642,494 |
|
|
|
1,438,926 |
|
Stockholders equity |
|
|
133,176 |
|
|
|
123,221 |
|
|
Total liabilities and stockholders equity |
|
$ |
1,775,670 |
|
|
$ |
1,562,147 |
|
|
45
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the Consolidated Balance Sheet items
from December 31, 2007.
Deposits with banks; federal funds sold and securities purchased under resale agreements;
securities borrowed; federal funds purchased and securities loaned or sold under repurchase
agreements
The Firm utilizes deposits with banks, federal funds sold and securities purchased under resale
agreements, securities borrowed, and federal funds purchased and securities loaned or sold under
repurchase agreements as part of its liquidity management activities to manage the Firms cash
positions and risk-based capital requirements and to support the Firms trading and risk management
activities. In particular, the Firm uses securities purchased under resale agreements and
securities borrowed to provide funding or liquidity to clients by purchasing and borrowing clients
securities for the short-term. Federal funds purchased and securities loaned or sold under
repurchase agreements are used as short-term funding sources for the Firm. The increase from
December 31, 2007, in securities borrowed, deposits with banks, and securities purchased under
resale agreements was related to the assets acquired as a result of the Merger and
growth in demand from clients for liquidity. The increase in securities loaned or sold under
repurchase agreements reflected higher short-term funding requirements to fulfill clients demand
for liquidity and to finance the Firms AFS securities inventory, as well as the liabilities assumed
in connection with the Merger. For additional information on the Firms Liquidity Risk
Management, see pages 5355 of this Form 10-Q.
Trading assets and liabilities debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary
risk-taking activities. These instruments consist predominantly of fixed income securities,
including government and corporate debt; equity, including convertible securities; loans (including
certain prime mortgage and other loans warehoused by RFS and IB for sale or securitization purposes
and accounted for at fair value under SFAS 159); and physical commodities inventories. The
decreases in trading assets and liabilities from December 31, 2007, were largely due to the more
challenging capital markets environment, particularly for debt securities, partially offset by
the positions acquired as a result of the Merger. For additional information,
refer to Note 4 and Note 5 on pages 9092 and 9294, 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. The increase in derivative
receivables and payables was largely driven by receivables and payables positions acquired due to
the Merger, the increase in commodity derivative receivables due to sharply
higher energy prices and the effect of the weakening U.S. dollar on interest rate and foreign
exchange derivative receivables. For additional information, refer to derivative contracts and Note
5 on pages 6062 and 9294, respectively, of this Form 10-Q.
Securities
Almost all of the Firms securities portfolio is classified as AFS and is used predominantly to
manage the Firms exposure to interest rate movements. The AFS portfolio increased from December
31, 2007, predominantly as a result of net purchases, partially
offset by maturities and paydowns of mortgage-related securities. For additional information
related to securities, refer to the Corporate/Private Equity segment discussion and to Note 11 on
pages 4345 and 9798, respectively, of this Form 10-Q.
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large corporate and institutional clients
to individual consumers. Loans increased from December 31, 2007, largely due to business growth in
lending across all the wholesale businesses, as well as growth in the consumer prime mortgage
portfolio driven by the decision to retain, rather than sell, new originations of nonconforming
mortgage loans. These increases were partly offset by the seasonal decline in credit card
receivables. Both the consumer and wholesale components of the allowance for loan losses increased
from December 31, 2007. The rise in the consumer allowance was driven by an increase in estimated
losses for home equity, prime and subprime mortgage and credit card loans due to the effects of
continued weak housing prices and slowing economic growth. The increase in the wholesale allowance
was due to the effects of a weakening credit environment and the
impact of the transfer of leveraged lending loans in the IB to retained loans
from held-for-sale loans, as well as to loan
growth. For a more detailed discussion of the loan portfolio and the allowance for loan losses,
refer to Credit Risk Management on pages 5568 of this Form 10-Q.
Accrued interest and accounts receivable; accounts payable, accrued expense and other liabilities
The Firms accrued interest and accounts receivable consist of accrued interest receivable from
interest-earning assets; receivables from customers (margin loans), brokers, dealers and clearing
organizations, including trade date/settlement date receivables; and sales fails receivables. The
Firms accounts payables, accrued expense, and other liabilities consist of accounts payable to
customers, brokers, dealers and clearing organizations, including trade date/settlement date
payables
46
and sales fails payables; accrued expense, including for interest-bearing liabilities; and all
other liabilities, including obligations to return securities received as collateral. The increase
in accrued interest and accounts receivable from December 31, 2007, was due largely to the Merger,
reflecting higher customer receivables in IBs prime brokerage business. The increase in accounts
payable, accrued expense and other liabilities was also due to the Merger,
reflecting higher customer payables in IBs prime brokerage business, as well as higher obligations
to return securities received as collateral. For additional information, see Note 15 on page 102 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 was due to the purchase of an additional equity interest in Highbridge, tax-related purchase accounting adjustments associated with the Bank One merger and the merger with
Bear Stearns. For additional information, see Note 18 on pages 114116 of this Form 10-Q.
Other intangible assets
The Firms other intangible assets consist of MSRs, purchased credit card relationships, other
credit card-related intangibles, core deposit intangibles, and all other intangibles. MSRs
increased largely due to sales of originated loans and purchases of MSRs, a net increase in the
fair value of MSRs (driven primarily by higher mortgage borrowing rates) and MSRs acquired as a
result of the Merger, partially offset by servicing portfolio runoff. The
decrease in other intangible assets reflects amortization expense associated with credit
card-related and core deposit intangibles, partially offset by an increase as a result of the
purchase of an additional equity interest in Highbridge. For additional information on MSRs and
other intangible assets, see Note 18 on pages 114116 of this Form 10-Q.
Other assets
The Firms other assets consist of private equity and other investments, collateral received,
corporate and bank-owned life insurance policies, premises and equipment, and all other assets. The
increase in other assets from December 31, 2007, was driven predominantly by the Merger, reflecting
higher volume of collateral received.
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,
savings, time or negotiable order of withdrawal accounts). Deposits help provide a stable and
consistent source of funding for the Firm. Deposits were lower, compared with December 31, 2007,
predominantly from a decrease in interest-bearing U.S. deposits in Corporate, which
reflected a declining interest rate environment, reduced wholesale
funding activity and maturities; partly
offset by a net increase in non-U.S. interest-bearing deposits in TSS, driven by growth
in business volumes. For more information on deposits, refer to the TSS and RFS segment discussions
and the Liquidity Risk Management discussion on pages 3638, 2329 and 5355 of this
Form 10-Q. For more information on wholesale liability balances, including deposits, refer to the
CB and TSS segment discussions on pages 3436 and 3638 of this Form 10-Q.
Commercial paper and other borrowed funds
The Firm utilizes commercial paper and other borrowed funds as part of its liquidity management
activities to meet short-term funding needs, and in connection with TSS cash management product
whereby excess client funds, predominantly in TSS, CB and RFS, are transferred into commercial
paper overnight sweep accounts. The decrease in commercial paper and other borrowed funds was
largely due to lower short-term requirements to fund trading positions, partly offset by growth in
the volume of liability balances in sweep accounts. For additional information on the Firms
Liquidity Risk Management, see pages 5355 of this Form 10-Q.
Beneficial interests issued by consolidated variable interest entities (VIEs)
Beneficial interests issued by consolidated VIEs increased from December 31, 2007, largely as a
result of VIEs acquired in the Merger.
Long-term debt and trust preferred capital debt securities
The Firm utilizes long-term debt and trust preferred capital debt
securities to provide stable,
reliable and cost-effective sources of funding as part of its longer-term liquidity and capital
management activities. Long-term debt and trust preferred capital debt securities increased from
December 31, 2007, predominantly due to the debt assumed in connection with the Merger
and net new issuances. For additional information on the Firms long-term debt activities, see the
Liquidity Risk Management discussion on pages 5355 of this Form 10-Q.
Stockholders equity
The increase in total stockholders equity from year-end 2007 was predominantly the result of net
income for the first six months of 2008; the issuance of noncumulative perpetual preferred stock in
the second quarter of 2008; and net issuances of common stock in connection with the Merger and
under the Firms employee stock-based compensation plans. These
47
additions were partially offset by the declaration of cash dividends. For a further discussion of capital, see the Capital Management
section that follows.
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chases capital management highlights developments since
December 31, 2007, and should be read in conjunction with Capital Management on pages 6365 of
JPMorgan Chases 2007 Annual Report.
The Firms capital management framework is intended to ensure that there is capital sufficient to
support the underlying risks of the Firms business activities and to maintain well-capitalized
status under regulatory requirements. In addition, the Firm holds capital above these requirements
in amounts deemed appropriate to achieve 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 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. Line of business equity increased during the second quarter of 2008
in IB and AM due to the Bear Stearns merger. Relative to the second quarter of 2007, line of
business equity increased due to the Bear Stearns merger, business growth across the businesses
and, for AM, the purchase of the additional equity interest in Highbridge. 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 Used by the Firm and Note 18 on pages 98 and 154, respectively, of JPMorgan Chases 2007
Annual Report, and Note 18 on page 114 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of business equity |
|
Quarterly Averages |
(in billions) |
|
2Q08 |
|
|
1Q08 |
|
|
2Q07 |
|
|
Investment Bank(a) |
|
$ |
23.3 |
|
|
$ |
22.0 |
|
|
$ |
21.0 |
|
Retail Financial Services |
|
|
17.0 |
|
|
|
17.0 |
|
|
|
16.0 |
|
Card Services |
|
|
14.1 |
|
|
|
14.1 |
|
|
|
14.1 |
|
Commercial Banking |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
6.3 |
|
Treasury & Securities Services |
|
|
3.5 |
|
|
|
3.5 |
|
|
|
3.0 |
|
Asset Management(a) |
|
|
5.1 |
|
|
|
5.0 |
|
|
|
3.8 |
|
Corporate/Private Equity |
|
|
56.4 |
|
|
|
56.0 |
|
|
|
53.9 |
|
|
Total common stockholders equity |
|
$ |
126.4 |
|
|
$ |
124.6 |
|
|
$ |
118.1 |
|
|
(a) |
|
Amounts provided are quarterly averages. Equity allocated to the IB and AM as of June 30,
2008 was $26.0 billion and $5.2 billion, respectively. |
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 private
equity risk, principally for the Firms private equity business.
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
(in billions) |
|
2Q08 |
|
|
1Q08 |
|
|
2Q07 |
|
|
Credit risk(a) |
|
$ |
34.8 |
|
|
$ |
32.9 |
|
|
$ |
28.8 |
|
Market risk |
|
|
8.5 |
|
|
|
8.7 |
|
|
|
9.9 |
|
Operational risk |
|
|
5.8 |
|
|
|
5.6 |
|
|
|
5.6 |
|
Private equity risk |
|
|
5.0 |
|
|
|
4.3 |
|
|
|
3.8 |
|
|
Economic
risk capital |
|
|
54.1 |
|
|
|
51.5 |
|
|
|
48.1 |
|
Goodwill |
|
|
45.8 |
|
|
|
45.7 |
|
|
|
45.2 |
|
Other(b) |
|
|
26.5 |
|
|
|
27.4 |
|
|
|
24.8 |
|
|
Total common stockholders equity |
|
$ |
126.4 |
|
|
$ |
124.6 |
|
|
$ |
118.1 |
|
|
(a) |
|
Incorporates a change to
the wholesale credit risk methodology, which was modified to
include a through-the-cycle adjustment. The second quarter of 2007 has been revised to reflect
this methodology change. For further discussion of this change, see Credit risk capital on
page 63 of JPMorgan Chases 2007 Annual Report. |
(b) |
|
Reflects additional capital required, in managements view, to meet its regulatory and debt
rating objectives. |
48
Regulatory capital
The Board of Governors of the Federal Reserve System (the Federal Reserve Board) establishes
capital requirements, including well-capitalized standards for the bank holding company. The
Office of the Comptroller of the Currency (OCC) establishes similar capital requirements and
standards for the Firms national banks, including JPMorgan Chase Bank, N.A., and Chase Bank USA,
N.A.
The Federal Reserve Board granted the Firm, for a period of 18 months following the merger with
Bear Stearns, relief up to a certain specified amount and subject to certain conditions from the
Federal Reserve Boards risk-based capital and leverage requirements with respect to Bear Stearns
risk-weighted assets and other exposures acquired. The amount of such relief is subject to
reduction by one-sixth each quarter subsequent to the merger and expires on October 1, 2009. The
OCC granted JPMorgan Chase Bank, N.A. similar relief from its risk-based capital and leverage
requirements.
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at June 30, 2008, and December 31, 2007. The table indicates that the Firm
and its significant banking subsidiaries were well-capitalized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
Tier 1 |
|
Total |
|
Tier 1 |
|
|
Tier 1 |
|
|
|
|
|
Risk-weighted |
|
average |
|
capital |
|
capital |
|
leverage |
(in millions, except ratios) |
|
capital |
|
Total capital |
|
assets(c) |
|
assets(d) |
|
ratio |
|
ratio |
|
ratio |
|
June 30, 2008(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
98,775 |
|
|
$ |
145,012 |
|
|
$ |
1,079,199 |
|
|
$ |
1,536,439 |
|
|
|
9.2 |
% |
|
|
13.4 |
% |
|
|
6.4 |
% |
JPMorgan Chase Bank, N.A. |
|
|
80,996 |
|
|
|
118,411 |
|
|
|
988,113 |
|
|
|
1,332,324 |
|
|
|
8.2 |
|
|
|
12.0 |
|
|
|
6.1 |
|
Chase Bank USA, N.A. |
|
|
10,358 |
|
|
|
11,649 |
|
|
|
68,104 |
|
|
|
61,279 |
|
|
|
15.2 |
|
|
|
17.1 |
|
|
|
16.9 |
|
|
December 31, 2007(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
88,746 |
|
|
$ |
132,242 |
|
|
$ |
1,051,879 |
|
|
$ |
1,473,541 |
|
|
|
8.4 |
% |
|
|
12.6 |
% |
|
|
6.0 |
% |
JPMorgan Chase Bank, N.A. |
|
|
78,453 |
|
|
|
112,253 |
|
|
|
950,001 |
|
|
|
1,268,304 |
|
|
|
8.3 |
|
|
|
11.8 |
|
|
|
6.2 |
|
Chase Bank USA, N.A. |
|
|
9,407 |
|
|
|
10,720 |
|
|
|
73,169 |
|
|
|
60,905 |
|
|
|
12.9 |
|
|
|
14.7 |
|
|
|
15.5 |
|
|
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 Federal Reserve Board, OCC and Federal Deposit
Insurance Corporation (FDIC). |
(c) |
|
Includes off-balance
sheet risk-weighted assets of $414.1 billion, $356.6 billion and $12.5
billion, respectively, at June 30, 2008, and of $352.7 billion, $336.8 billion and $13.4
billion, respectively, at December 31, 2007, 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 Federal Reserve Board and OCC. |
Note: |
|
Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities
which have resulted from both nontaxable business combinations and from tax deductible
goodwill. The Firm had deferred tax liabilities resulting from nontaxable business
combinations totaling $1.9 billion at June 30, 2008, and $2.0 billion at December 31, 2007.
Additionally, the Firm had deferred tax liabilities resulting from tax deductible goodwill of
$1.2 billion at June 30, 2008, and $939 million at
December 31, 2007. The rates presented do not include
adjustments for such amounts. |
The Firms Tier 1 capital was $98.8 billion at June 30, 2008, compared with $88.7 billion at
December 31, 2007, an increase of $10.0 billion. The increase was due primarily to net income of
$4.4 billion, the issuance of noncumulative perpetual preferred stock of $6.0 billion, net
issuances of common stock under the Firms employee stock-based compensation plans of $1.8
billion, net issuances of common stock in connection with the Bear Stearns merger of $1.2 billion
and net issuances of qualifying trust preferred capital debt securities of $1.4 billion. These
increases were partially offset by decreases in stockholders equity net of accumulated other
comprehensive income (loss) primarily due to dividends declared
of $2.8 billion, a $604 million increase in the deduction for goodwill and other
nonqualifying intangibles, and a $1.1 billion (after-tax) increase in the valuation adjustment to certain liabilities 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 28 on pages
166167 of JPMorgan Chases 2007 Annual Report.
49
Basel II
The minimum risk-based capital requirements adopted by the federal banking agencies follow the
Capital Accord of the Basel Committee on Banking Supervision. In 2004, the Basel Committee
published a revision to the Accord (Basel II), and in December 2007, U.S. banking regulators
published a final Basel II rule. The final U.S. rule will require JPMorgan Chase to implement Basel
II at the holding company level, as well as at certain key U.S. bank subsidiaries. The U.S.
implementation timetable consists of a qualification period, starting any time between April 1,
2008, and April 1, 2010, followed by a minimum transition period of three years. During the
transition period, Basel II risk-based capital requirements cannot fall below certain floors based
on current (Basel I) regulations. JPMorgan Chase expects to be in compliance with all relevant
Basel II rules within the established timelines. In addition, the Firm has adopted, and will
continue to adopt, based on various established timelines, Basel II rules in certain non-U.S.
jurisdictions, as required. For additional information, see Basel II, on page 65 of JPMorgan
Chases 2007 Annual Report.
Broker-dealer regulatory capital
JPMorgan Chases principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities Inc.
(JPMorgan Securities), Bear, Stearns & Co. Inc. (Bear Stearns & Co.) and Bear, Stearns
Securities Corp. (Bear Stearns Securities). JPMorgan Securities, Bear Stearns & Co. and Bear
Stearns Securities are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net
Capital Rule). Bear Stearns & Co. and Bear Stearns Securities are also registered as futures
commissions merchants and subject to Rule 1.17 under the Commodity Futures Trading Commission
(CFTC). JPMorgan Securities and Bear Stearns & Co.
have been approved by the Securities and Exchange Commission
(SEC) to use Appendix
E of the Net Capital Rule (Appendix E), which establishes alternative net capital requirements
for broker-dealers that are subject to consolidated supervision and examination at the holding
company level. Appendix E allows JPMorgan Securities and Bear Stearns & Co. to calculate net
capital charges for market risk and derivatives-related credit risk based on mathematical models,
provided that JPMorgan Securities and Bear Stearns & Co. hold tentative net capital in excess of $1
billion and net capital in excess of $500 million. At June 30, 2008, JPMorgan Securities net
capital of $8.3 billion exceeded the minimum requirement by $7.8 billion. Bear Stearns & Co.s net
capital at June 30, 2008, of $5.7 billion exceeded the minimum requirement by $5.1 billion. The
Firm plans to merge JPMorgan Securities and Bear Stearns & Co. on or about October 1, 2008.
Bear Stearns Securities, a guaranteed subsidiary of Bear Stearns & Co., provides clearing and
settlement services. Bear Stearns Securities is required to maintain minimum net capital, as
defined, of not less than the greater of (i) 2% of aggregate debit items arising from customer
transactions, as defined in the Net Capital Rule, or (ii) 8% of customer risk maintenance margin
requirements plus 4% of non-customer risk maintenance margin requirements, all as defined in the
capital rules of the CFTC. At June 30, 2008, Bear Stearns Securities net capital of $4.7 billion
exceeded the minimum requirement by $3.6 billion.
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 30-40% of net
income over time. On May 20, 2008, the Firm declared a quarterly common stock dividend of $0.38 per
share, payable on July 31, 2008, to shareholders of record at the close of business on July 3,
2008.
Issuance
On April 23, 2008, the Firm issued $6.0 billion of noncumulative perpetual preferred stock. The
proceeds were used for general corporate purposes. For additional information regarding preferred
stock, see Note 21 on page 119 of this Form 10-Q.
Stock repurchases
For a discussion of the Firms current stock repurchase program, see Stock repurchases on page 65
of JPMorgan Chases 2007 Annual Report. During the six months ended June 30, 2008, the Firm did not
repurchase any shares. During the three and six months ended June 30, 2007, under the respective
stock repurchase programs then in effect, the Firm repurchased a total of 37 million and 118
million shares for $1.9 billion and $5.9 billion, respectively, at an average price per share of
$51.13 and $49.97, respectively. As of June 30, 2008, $6.2 billion of authorized repurchase
capacity remained under the current $10.0 billion stock repurchase program.
The current $10.0 billion authorization to repurchase stock will be utilized at managements
discretion, and the timing of purchases and the exact number of shares purchased will depend on
market conditions and alternative investment opportunities. The repurchase program does not include
specific price targets or timetables; may be executed through open market purchases, privately
negotiated transactions or utilizing Rule 10b5-1 programs; and may be suspended at any time. For
additional information regarding repurchases of the Firms equity securities, see Part II, Item 2,
Unregistered Sales of Equity Securities and Use of Proceeds, on page 140 of this Form 10-Q.
50
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
JPMorgan Chase has several types of off-balance sheet arrangements, including arrangements with
special purpose entities (SPEs) and issuance of lending-related financial instruments (e.g.,
commitments and guarantees). For further discussion of contractual cash obligations, see
Off-Balance Sheet Arrangements and Contractual Cash Obligations on page 67 of JPMorgan Chases 2007
Annual Report.
Special-purpose entities
The basic SPE structure involves a company selling assets to the SPE. The SPE funds the purchase of
those assets by issuing securities to investors in the form of commercial paper, short-term
asset-backed notes, medium-term notes and other forms of interest. SPEs are generally structured to
insulate investors from claims on the SPEs assets by creditors of other entities, including the
creditors of the seller of the assets.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing
financial assets, and by creating investment products for clients. The Firm is involved with SPEs
through multi-seller conduits and investor intermediation activities, and as a result of its loan
securitizations through qualifying special purpose entities (QSPEs). For a detailed discussion of
all SPEs with which the Firm is involved, and the related accounting, see Note 1 on page 108, Note
16 on pages 139145 and Note 17 on pages 146154 of JPMorgan Chases 2007 Annual Report.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related
exposures, such as derivative transactions and lending-related commitments and guarantees.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank, N.A., was downgraded below specific levels,
primarily P-1, A-1 and F1 for Moodys, Standard & Poors and Fitch, respectively. The amount
of these liquidity commitments was $74.3 billion and $94.0 billion at June 30, 2008, and December
31, 2007, respectively. Alternatively, if JPMorgan Chase Bank, N.A.,
were downgraded, the Firm could be replaced by another liquidity provider in lieu of providing
funding under the liquidity commitments, or in certain circumstances, the Firm could facilitate the
sale or refinancing of the assets in the SPE in order to provide liquidity. These commitments are
included in other unfunded commitments to extend credit and asset purchase agreements, as shown in
the Off-balance sheet lending-related financial instruments and guarantees table on page 52 of this
Form 10-Q.
Special-purpose entities revenue
The following table summarizes certain revenue information related to consolidated and
nonconsolidated VIEs and QSPEs with which the Firm has significant involvement. The revenue
reported in the table below predominantly represents contractual servicing and credit fee income
(i.e., income from acting as administrator, structurer, or liquidity provider). It does not include
mark-to-market gains and losses from changes in the fair value of trading positions (such as
derivative transactions) entered into with VIEs. Those gains and losses are recorded in principal
transactions revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from VIEs and QSPEs |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
VIEs:(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
67 |
|
|
$ |
46 |
|
|
$ |
124 |
|
|
$ |
84 |
|
Investor intermediation |
|
|
8 |
|
|
|
9 |
|
|
|
5 |
|
|
|
18 |
|
|
Total VIEs |
|
|
75 |
|
|
|
55 |
|
|
|
129 |
|
|
|
102 |
|
QSPEs |
|
|
1,083 |
|
|
|
841 |
|
|
|
1,981 |
|
|
|
1,687 |
|
|
Total |
|
$ |
1,158 |
|
|
$ |
896 |
|
|
$ |
2,110 |
|
|
$ |
1,789 |
|
|
(a) |
|
Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs. |
American Securitization Forum subprime adjustable rate mortgage loans modifications
In December 2007, the American Securitization Forum (ASF) issued the Streamlined Foreclosure and
Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (the
Framework). The Framework provides guidance for servicers to streamline evaluation procedures of
borrowers with certain subprime adjustable rate mortgage (ARM) loans in order to more quickly and
efficiently provide modification of such loans with terms that are more appropriate for the
individual needs of such borrowers. The Framework applies to all first-lien subprime ARM loans that
have a fixed rate of interest for an initial period of 36 months or less; are included in
securitized pools; were originated between January 1, 2005, and July 31, 2007; and have an initial
interest rate reset date between January 1, 2008, and July 31, 2010. JPMorgan Chase has adopted the
Framework, and during the three and six months ended June 30,
2008, had modified $649 million and
$836 million, respectively, of Segment 2 subprime mortgage loans. In addition,
51
during
the three and six months ended June 30, 2008, $483 million
and $524 million, respectively, of Segment 3 loans were
modified, $302 million and $377 million, respectively, were
subjected to other loss mitigation activities, and $43 million
and $76 million, respectively, were prepaid by borrowers. For additional discussion
of the Framework, see Note 16 on pages 108109 of this Form 10-Q and Note 16 on page 145 of
JPMorgan Chases 2007 Annual Report.
Off-balance 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. These commitments and guarantees predominantly expire without being
drawn and even higher proportions expire without a default.
As a result, the total contractual
amount of these instruments is not, in the Firms view, representative of its actual future credit
exposure or funding requirements. Further, certain commitments, primarily related to consumer
financings, are cancelable, upon notice, at the Firms option. For further discussion of
lending-related commitments and guarantees and the Firms accounting for them, see Credit Risk
Management on pages 7389 and Note 31 on pages 170173 of JPMorgan Chases 2007 Annual Report.
The following table presents off-balance sheet lending-related financial instruments and guarantees
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
Dec. 31,
2007 |
By remaining maturity |
|
|
|
|
|
1-<3 |
|
3-5 |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
< 1 year |
|
years |
|
years |
|
> 5 years |
|
Total |
|
Total |
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a) |
|
$ |
759,011 |
|
|
$ |
1,866 |
|
|
$ |
2,880 |
|
|
$ |
63,672 |
|
|
$ |
827,429 |
|
|
$ |
815,936 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments to extend credit(b)(c)(d)(e) |
|
|
90,166 |
|
|
|
76,623 |
|
|
|
70,896 |
|
|
|
17,668 |
|
|
|
255,353 |
|
|
|
250,954 |
|
Asset purchase agreements(f) |
|
|
23,518 |
|
|
|
38,282 |
|
|
|
5,254 |
|
|
|
1,252 |
|
|
|
68,306 |
|
|
|
90,105 |
|
Standby letters of credit and guarantees(c)(g)(h) |
|
|
29,839 |
|
|
|
28,340 |
|
|
|
35,518 |
|
|
|
6,519 |
|
|
|
100,216 |
|
|
|
100,222 |
|
Other letters of credit(c) |
|
|
5,192 |
|
|
|
738 |
|
|
|
177 |
|
|
|
46 |
|
|
|
6,153 |
|
|
|
5,371 |
|
|
Total wholesale |
|
|
148,715 |
|
|
|
143,983 |
|
|
|
111,845 |
|
|
|
25,485 |
|
|
|
430,028 |
|
|
|
446,652 |
|
|
Total lending-related |
|
$ |
907,726 |
|
|
$ |
145,849 |
|
|
$ |
114,725 |
|
|
$ |
89,157 |
|
|
$ |
1,257,457 |
|
|
$ |
1,262,588 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(i) |
|
$ |
362,246 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
362,246 |
|
|
$ |
385,758 |
|
Derivatives qualifying as guarantees(j) |
|
|
25,456 |
|
|
|
12,654 |
|
|
|
26,555 |
|
|
|
39,118 |
|
|
|
103,783 |
|
|
|
85,262 |
|
|
(a) |
|
Included credit card and home equity lending-related commitments of $736.4 billion and $66.7
billion, respectively, at June 30, 2008, and $714.8 billion and $74.2 billion, respectively,
at December 31, 2007. These amounts for credit card and home equity lending-related
commitments represent the total available credit for these products. The Firm has not
experienced, and does not anticipate, that all available lines of credit for these products
will be utilized at the same time. For credit card commitments and if certain conditions are
met for home equity commitments, the Firm can reduce or cancel these lines of credit by
providing the borrower prior notice or, in some cases, without notice as permitted by law. |
(b) |
|
Included unused advised lines of credit totaling $34.0 billion at June 30, 2008, and $38.4
billion at December 31, 2007, which are not legally binding. In regulatory filings with the
Federal Reserve Board, unused advised lines are not reportable. See the Glossary of Terms on
page 130 of this Form 10-Q for the Firms definition of advised lines of credit. |
(c) |
|
Represents contractual amount net of risk participations totaling $29.7 billion and $28.3
billion at June 30, 2008, and December 31, 2007, respectively. |
(d) |
|
Excluded unfunded
commitments to third-party private equity funds of $861 million and $881 million at
June 30, 2008, and December 31, 2007, respectively. Also excludes unfunded commitments for
other equity investments of $940 million and $903 million at June 30, 2008, and December 31,
2007, respectively. |
(e) |
|
Included in other unfunded commitments to extend credit are commitments to investment and
noninvestment grade counterparties in connection with leveraged acquisitions of $7.2 billion
and $8.2 billion at June 30, 2008, and December 31, 2007, respectively. |
(f) |
|
Largely represents asset purchase agreements to the Firms administered multi-seller,
asset-backed commercial paper conduits. The maturity is based upon the weighted-average
expected life of the underlying assets in the SPE, which are based upon the remainder of each
conduit transactions committed liquidity plus either the expected weighted average life of
the assets should the committed liquidity expire without renewal, or the expected time to sell
the underlying assets in the securitization market. It also includes
$248 million and $1.1
billion of asset purchase agreements to other third-party entities at June 30, 2008, and
December 31, 2007, respectively. |
(g) |
|
JPMorgan Chase held collateral relating to $19.1 billion and $15.8 billion of these
arrangements at June 30, 2008, and December 31, 2007, respectively. |
(h) |
|
Included unused commitments to issue standby letters of credit of $46.3 billion and $50.7
billion at June 30, 2008, and December 31, 2007, respectively. |
(i) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$369.5 billion at June 30, 2008, and $390.5 billion at December 31, 2007, respectively. |
(j) |
|
Represents notional amounts of derivatives qualifying as guarantees. For further discussion
of guarantees, see Note 31 on pages 170173 of JPMorgan Chases 2007 Annual Report. |
52
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 6995 of JPMorgan Chases 2007 Annual Report and
the information below.
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chases liquidity management framework highlights developments
since December 31, 2007, and should be read in conjunction with pages 7073 of JPMorgan Chases
2007 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 to meet actual and
contingent liquidity needs over time. 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 which take 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 June 30, 2008, 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 holding
company level sufficient to cover 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
June 30, 2008, total deposits for the Firm were $722.9 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 (i.e., wholesale) liability balances. The Firm also
benefits from substantial liability balances originated by RFS, CB, TSS and AM through the normal
course of business. Liability balances include deposits and deposits that are swept to on-balance
sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold
under repurchase agreements). These franchise-generated 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 1942 and 4548, respectively,
of this Form 10-Q.
Additional sources of funds include a variety of both short- and long-term instruments, including
federal funds purchased, commercial paper, bank notes, long-term debt, trust preferred capital debt
securities and preferred stock. 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.
Finally, funding flexibility is provided by the Firms ability to access 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 Off-Balance Sheet Arrangements and Contractual
Cash Obligations and Notes 16 and 27 on pages 5152, 103109 and 122124, respectively, of this
Form 10-Q.
53
Issuance
During the second quarter and first half of 2008, JPMorgan Chase issued approximately $18.7 billion
and $38.2 billion, respectively, of long-term debt and trust preferred capital debt securities; in
the second quarter of 2008, the Firm also issued $6.0 billion of noncumulative perpetual preferred
stock. The debt issuances included $7.9 billion and $16.9 billion, respectively, of IB structured
notes, the issuances of which are generally client-driven and not for funding or capital management
purposes as the proceeds from such transactions are generally used to purchase securities to
mitigate the risk associated with structured note exposure. The issuances of long-term debt and trust
preferred capital debt securities were offset partially by $12.5 billion and $30.0 billion of such
securities that matured or were redeemed during the second quarter and first half of 2008,
respectively, including $7.4 billion and $18.8 billion, respectively, of IB structured notes. In
addition, during the second quarter and first half of 2008, the Firm securitized $10.8 billion and
$15.3 billion, respectively, of credit card loans. The Firm did
not securitize any other consumer loans during the first half of 2008. For further discussion of loan securitizations,
see Note 16 on pages 103109 of this Form 10-Q.
In connection with the issuance of certain of its trust preferred capital debt securities and its
noncumulative perpetual preferred stock, the Firm has entered into Replacement Capital Covenants
(RCCs) granting certain rights to the holder of covered debt, as defined in the RCCs, that
prohibit the repayment, redemption or purchase of such trust preferred capital debt securities and
noncumulative perpetual preferred stock except, with limited exceptions, to the extent that
JPMorgan Chase has received, in each such case, specified amounts of proceeds from the sale of
certain qualifying securities. Currently the Firms covered debt is its 5.875% Junior Subordinated
Deferrable Interest Debentures, Series O, due in 2035. For more information regarding these
covenants, reference is made to the respective RCCs entered into by the Firm in connection with the
issuances of such trust preferred capital debt securities and noncumulative perpetual preferred
stock, which are filed with the U.S. Securities and Exchange Commission under cover of Forms 8-K.
Cash Flows
Cash and due from banks was $32.3 billion and $35.4 billion at June 30, 2008 and 2007,
respectively. These balances declined $7.9 billion and $5.0 billion from December 31, 2007 and
2006, respectively. The following discussion highlights the major activities and transactions that
affected JPMorgan Chases cash flows during the first six months of 2008 and 2007.
Cash Flows from Operating Activities
JPMorgan Chases operating assets and liabilities vary significantly in the normal course of
business due to the amount and timing of cash flows. Management
believes cash flows from operations, available cash balances and the
Firms ability to generate cash through short- and long-term
borrowings will be sufficient to fund the Firms operating
liquidity needs.
For the six months ended June 30, 2008, net
cash provided by operating activities was $24.0 billion. Net
cash generated from operating activities was higher than net income
largely as a result of adjustments for operating items such as the
provision for credit losses, depreciation and amortization,
stock-based compensation, certain other expenses and gains or losses
from sales of investment securities. In addition, proceeds from sales
of loans originated or purchased with an initial intent to sell was
slightly higher than cash used to acquire such loans, but the cash
flows from these loan sales activities were at a much lower level
than for the same period in 2007 as a result of the current market
conditions that have continued since the last half of 2007.
For the
six months ended June 30, 2007, net cash used in operating
activities was $66.4 billion, which supported growth in the
Firms capital markets and certain lending activities during the
period. The net use of cash was partially offset by proceeds from
sales of loans originated or purchased with an initial intent to
sell, which were higher than cash used to acquire such loans.
Cash Flows from Investing Activities
The Firms investing activities primarily include originating loans to be held to maturity, other
receivables, and the available-for-sale investment portfolio. For the six months ended June 30,
2008, net cash of $54.1 billion was used in investing activities, primarily for purchases of
investment securities in Corporates AFS portfolio to manage the Firms exposure to interest rates;
net additions to the wholesale loan portfolio, primarily from increased lending activities across
all the wholesale businesses; additions to the consumer prime mortgage portfolio as a result of
the decision to retain, rather than sell, new originations of
nonconforming prime mortgage loans; and an increase in securities
purchased under resale agreements reflecting growth in demand from
clients for liquidity. Partially offsetting these uses of cash were proceeds from sales and maturities of AFS securities;
credit card securitization activities; the seasonal decline in consumer credit card receivables and cash received from the sale of an
investment net of cash used for acquisitions. Additionally, in
June 2008, in connection with the merger with Bear Stearns, the
Firm sold assets acquired from Bear Stearns to the FRBNY and received cash proceeds of
$28.85 billion.
For the six months ended June 30, 2007, net cash of $28.3 billion was used in investing activities,
primarily for purchases of investment securities in Corporates AFS portfolio to manage the Firms
exposure to interest rates; net additions to the retained wholesale and consumer (primarily home
equity) loans portfolios; and to increase deposits with banks as a result of the availability of
excess cash for short-term investment opportunities. Partially offsetting these uses
of cash were cash proceeds received from sales and maturities of AFS securities; credit card,
residential mortgage, auto and wholesale loan sales and
54
securitization activities; a decrease in securities purchased under
resale agreements; and the seasonal
decline in consumer credit card receivables.
Cash Flows from Financing Activities
The Firms financing activities primarily include the receipt of customer
deposits and issuance of long-term debt and trust preferred capital
debt securities. In addition, JPMorgan Chase pays quarterly dividends on its common stock and has a stock repurchase
program. In the first six months of 2008, net cash provided by
financing activities was $22.0 billion due to increases in federal funds purchased and securities loaned or sold under repurchase
agreements in connection with higher short-term requirements to fulfill clients demand for
liquidity and to finance the Firms AFS securities inventory levels; net new issuances of long-term
debt and trust preferred capital debt securities; and the issuance of noncumulative perpetual preferred stock. Partially offsetting these cash
proceeds was a decline in commercial paper and other borrowed funds due to lower short-term
requirements to fund trading positions partially offset by growth in the volume of liability
balances in sweep accounts; a decrease in U.S. interest-bearing
deposits in Corporate, partially offset by an
increase in non-U.S. interest-bearing deposits in TSS from growth in business volume and the
payment of cash dividends. There were no stock repurchases during the first six months of 2008.
In the first half of 2007, net cash provided by financing activities was $89.6 billion due to a
higher level of securities loaned or sold under repurchase agreements in connection with the
funding of trading and AFS securities positions; net issuances of long-term debt and trust
preferred capital debt securities and a net increase in wholesale deposits from growth in business
volumes, in particular, interest-bearing deposits in TSS. Cash was used to repurchase common stock
and the payment of cash dividends on common stock (including a 12% increase in the quarterly
dividend in the second quarter of 2007).
Credit ratings
The credit ratings of the parent holding company and each of the Firms significant banking
subsidiaries as of June 30, 2008, 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- |
|
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 would not be material.
Currently, the Firm believes a downgrade in the near-term is unlikely. 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 51 and Ratings profile
of derivative receivables marked-to-market (MTM) on page 61 of this Form 10-Q.
The following discussion of JPMorgan Chases credit portfolio as of June 30, 2008, highlights
developments since December 31, 2007. This section should be read in conjunction with pages 7389
and pages 9697 and Notes 14, 15, 31, and 32 of JPMorgan Chases 2007 Annual Report.
The Firm assesses its consumer credit exposure on a managed basis, which includes credit card
receivables that have been securitized. For a reconciliation of the provision for credit losses on
a reported basis to managed basis, see pages 1517 of this Form 10-Q.
The following table presents JPMorgan Chases credit portfolio as of June 30, 2008, and December
31, 2007. Total credit exposure at June 30, 2008, increased $91.8 billion from December 31, 2007,
reflecting increases of $71.5 billion and $20.3 billion in the wholesale and consumer portfolios,
respectively. Derivative receivables increased $45.3 billion, receivables from customers increased
$26.0 billion (due to the merger with Bear Stearns) and managed loans increased $25.1 billion
($16.3 billion and $8.8 billion in the wholesale and consumer portfolios, respectively). Partially
offsetting
55
these increases was a decrease in lending-related commitments of $5.1 billion (a decrease of $16.6
billion in the wholesale portfolio offset by an $11.5 billion increase in the consumer portfolio).
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 held-for-sale loans and loans accounted for at fair value
are excluded from the average loan balances used for the net charge-off rate calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure |
|
|
Nonperforming
assets(i)(j) |
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
December 31, |
|
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
$ |
515,828 |
|
|
$ |
491,736 |
|
|
$ |
5,222 |
(i) |
|
$ |
3,232 |
(i) |
Loans held-for-sale |
|
|
10,822 |
|
|
|
18,899 |
|
|
|
46 |
|
|
|
45 |
|
Loans at fair value |
|
|
11,379 |
|
|
|
8,739 |
|
|
|
5 |
|
|
|
5 |
|
|
Loans reported(a) |
|
$ |
538,029 |
|
|
$ |
519,374 |
|
|
$ |
5,273 |
|
|
$ |
3,282 |
|
Loans securitized(b) |
|
|
79,120 |
|
|
|
72,701 |
|
|
|
|
|
|
|
|
|
|
Total managed loans(c) |
|
|
617,149 |
|
|
|
592,075 |
|
|
$ |
5,273 |
|
|
$ |
3,282 |
|
Derivative receivables |
|
|
122,389 |
|
|
|
77,136 |
|
|
|
80 |
|
|
|
29 |
|
Receivables from customers(d) |
|
|
26,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed credit-related assets |
|
|
766,110 |
|
|
|
669,211 |
|
|
$ |
5,353 |
|
|
$ |
3,311 |
|
Lending-related commitments(e)(f) |
|
|
1,257,457 |
|
|
|
1,262,588 |
|
|
|
NA |
|
|
|
NA |
|
Assets acquired in loan satisfactions |
|
|
NA |
|
|
|
NA |
|
|
|
880 |
|
|
|
622 |
|
|
Total credit portfolio |
|
$ |
2,023,567 |
|
|
$ |
1,931,799 |
|
|
$ |
6,233 |
|
|
$ |
3,933 |
|
|
Net credit derivative hedges notional(g) |
|
$ |
(86,051 |
) |
|
$ |
(67,999 |
) |
|
$ |
(3 |
) |
|
$ |
(3 |
) |
Collateral held against derivatives(h) |
|
|
(12,952 |
) |
|
|
(9,824 |
) |
|
|
NA |
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
(in millions, except ratios) |
|
Net charge-offs |
|
|
net charge-off rate |
|
|
Net charge-offs |
|
|
net charge-off rate |
|
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
2,130 |
|
|
$ |
985 |
|
|
|
1.67 |
% |
|
|
0.90 |
% |
|
$ |
4,036 |
|
|
$ |
1,888 |
|
|
|
1.60 |
% |
|
|
0.88 |
% |
Loans securitized(b) |
|
|
830 |
|
|
|
590 |
|
|
|
4.32 |
|
|
|
3.46 |
|
|
|
1,511 |
|
|
|
1,183 |
|
|
|
4.02 |
|
|
|
3.51 |
|
|
Total managed loans |
|
$ |
2,960 |
|
|
$ |
1,575 |
|
|
|
2.02 |
% |
|
|
1.25 |
% |
|
$ |
5,547 |
|
|
$ |
3,071 |
|
|
|
1.91 |
% |
|
|
1.23 |
% |
|
|
|
|
(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 $702 million and $1.0 billion
at June 30, 2008, and December 31, 2007, respectively. |
|
(b) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Card Services on pages 3033 of this Form 10-Q. |
|
(c) |
|
Loans past-due 90 days and over and accruing include: credit card receivables reported of
$1.5 billion at both June 30, 2008, and December 31, 2007, respectively, and credit card
securitizations of $1.2 billion and $1.1 billion at June 30, 2008, and December 31, 2007,
respectively; and wholesale loans of $90 million and $75 million at June 30, 2008, and December
31, 2007, respectively. |
|
(d) |
|
Primarily represents margin loans to prime and retail brokerage customers included in accrued
interest and accounts receivable on the Consolidated Balance Sheets. |
|
(e) |
|
Included credit card and home equity lending-related commitments of $736.4 billion and $66.7
billion, respectively, at June 30, 2008; and $714.8 billion and $74.2 billion, respectively,
at December 31, 2007. These amounts for credit card and home equity lending-related
commitments represent the total available credit for these products. The Firm has not
experienced, and does not anticipate, that all available lines of credit for these products
will be utilized at the same time. For credit card commitments and if certain conditions are
met for home equity commitments, the Firm can reduce or cancel these lines of credit by
providing the borrower prior notice or, in some cases, without notice as permitted by law. |
|
(f) |
|
Included unused advised lines of credit totaling $34.0 billion and $38.4 billion at June 30,
2008, and December 31, 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve Board, unused advised lines are not reportable. See the
Glossary of Terms on page 130 of this form 10-Q for the Firms definition of advised lines of
credit. |
|
(g) |
|
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 $34.4 billion and $31.1 billion at June
30, 2008, and December 31, 2007, respectively, which represent the notional amount of
structured portfolio protection; the Firm retains a minimal first risk of loss on this
portfolio. |
|
(h) |
|
Represents other liquid securities collateral held by the Firm as of June 30, 2008, and
December 31, 2007, respectively. |
|
(i) |
|
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 $1.9 billion and
$1.5 billion at June 30, 2008, and December 31, 2007, 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 $371 million and $279 million at June 30,
2008, and December 31, 2007, respectively. These amounts for GNMA and education loans are
excluded, as reimbursement is proceeding normally. |
|
(j) |
|
For the second quarter of
2008, the policy for classifying subprime mortgage and home equity
loans as nonperforming was changed to conform with all other home
lending products. Prior period nonperforming assets have been revised
to conform with this change. |
56
WHOLESALE CREDIT PORTFOLIO
As of June 30, 2008, wholesale exposure (IB, CB, TSS and AM) increased $71.5 billion from December
31, 2007, primarily due to $54.3 billion of wholesale exposure acquired in connection with the
merger with Bear Stearns, including $26.0 billion of receivables from customers, $18.9 billion of
derivative receivables, $5.0 billion of lending-related commitments and $4.4 billion of loans. The
remaining increase of $17.2 billion was largely driven by $26.3 billion of derivative receivables
and $11.9 billion of loans, partially offset by a decrease of $21.6 billion in lending-related
commitments. The increase in derivative receivables was due to the increase in commodity
receivables reflecting sharply higher energy prices and the effect of the weakening U.S. dollar on
interest rate and foreign exchange derivative receivables. The increase in loans was primarily due
to lending activity across most wholesale businesses and other portfolio growth. The decrease in
lending-related commitments was mainly due to the cancellation of primarily investment-grade
commitments as well as other portfolio activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure |
|
|
Nonperforming assets |
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
December 31, |
|
(in millions) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Loans retained(a) |
|
$ |
209,354 |
|
|
$ |
189,427 |
|
|
$ |
819 |
|
|
$ |
464 |
|
Loans held-for-sale |
|
|
8,626 |
|
|
|
14,910 |
|
|
|
46 |
|
|
|
45 |
|
Loans at fair value |
|
|
11,379 |
|
|
|
8,739 |
|
|
|
5 |
|
|
|
5 |
|
|
Loans
reported(a) |
|
$ |
229,359 |
|
|
$ |
213,076 |
|
|
$ |
870 |
|
|
$ |
514 |
|
Derivative receivables |
|
|
122,389 |
|
|
|
77,136 |
|
|
|
80 |
|
|
|
29 |
|
Receivables from customers(b) |
|
|
26,572 |
|
|
|
|
|
|
|
NA |
|
|
|
|
|
|
Total
wholesale credit-related assets |
|
|
378,320 |
|
|
|
290,212 |
|
|
|
950 |
|
|
|
543 |
|
Lending-related commitments(c) |
|
|
430,028 |
|
|
|
446,652 |
|
|
|
NA |
|
|
|
NA |
|
Assets acquired in loan satisfactions |
|
|
NA |
|
|
|
NA |
|
|
|
121 |
|
|
|
73 |
|
|
Total wholesale credit exposure |
|
$ |
808,348 |
|
|
$ |
736,864 |
|
|
$ |
1,071 |
|
|
$ |
616 |
|
|
Net credit derivative hedges notional(d) |
|
$ |
(86,051 |
) |
|
$ |
(67,999 |
) |
|
$ |
(3 |
) |
|
$ |
(3 |
) |
Collateral held against derivatives(e) |
|
|
(12,952 |
) |
|
|
(9,824 |
) |
|
|
NA |
|
|
|
NA |
|
|
|
|
|
(a) |
|
Includes loans greater than or equal to 90 days past due that continue to accrue interest.
The principal balance of these loans totaled $90 million and $75 million at June 30, 2008, and
December 31, 2007, respectively. Also, see Note 4 on pages
9092 and Note 13 on pages 99101
of this Form 10-Q. |
|
(b) |
|
Primarily represents margin loans to prime and retail brokerage customers which are included
in accrued interest and accounts receivable on the Consolidated Balance Sheets. |
|
(c) |
|
Included unused advised lines of credit totaling $34.0 billion and $38.4 billion at June 30,
2008, and December 31, 2007, respectively, which are not legally binding. In regulatory
filings with the Federal Reserve Board, unused advised lines are not reportable. |
|
(d) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. Includes $34.4 billion and $31.1 billion at June
30, 2008, and December 31, 2007, respectively, which represents the notional amount of
structured portfolio protection; the Firm retains a minimal first risk of loss on this
portfolio. |
|