10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 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)
|
|
(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.
|
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|
Large accelerated filer þ |
|
Accelerated filer o |
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|
|
Non-accelerated filer (Do not check if a smaller reporting company) o |
|
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 October 31, 2008:
3,732,357,534
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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Nine months ended |
(in millions, except per share, headcount and ratio data) |
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September 30, |
As of or for the period ended, |
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3Q08 |
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2Q08 |
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1Q08 |
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4Q07 |
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3Q07 |
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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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$ |
5,743 |
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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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$ |
25,079 |
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$ |
34,805 |
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Net interest income |
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|
8,994 |
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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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24,947 |
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19,183 |
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Total net revenue |
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14,737 |
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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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50,026 |
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53,988 |
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Provision for credit losses |
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3,811 |
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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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11,690 |
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4,322 |
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Provision for credit losses accounting
conformity(a) |
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1,976 |
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1,976 |
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Noninterest expense |
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11,137 |
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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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32,245 |
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30,983 |
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Income (loss) before income tax
expense and extraordinary gain |
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(2,187 |
) |
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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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4,115 |
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18,683 |
|
Income tax expense (benefit)(b) |
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|
(2,133 |
) |
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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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|
(207 |
) |
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6,289 |
|
Income (loss) before extraordinary
gain |
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(54 |
) |
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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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4,322 |
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12,394 |
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Extraordinary gain(c) |
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581 |
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581 |
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Net income |
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$ |
527 |
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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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$ |
4,903 |
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$ |
12,394 |
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Per common share |
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Basic earnings |
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Income (loss) before extraordinary gain |
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$ |
(0.06 |
) |
|
$ |
0.56 |
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$ |
0.70 |
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$ |
0.88 |
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$ |
1.00 |
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$ |
1.19 |
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$ |
3.63 |
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Net income |
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0.11 |
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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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1.36 |
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3.63 |
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Diluted earnings |
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Income (loss) before extraordinary gain |
|
$ |
(0.06 |
) |
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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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$ |
1.15 |
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$ |
3.52 |
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Net income |
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0.11 |
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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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1.32 |
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3.52 |
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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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1.14 |
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1.10 |
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Book value per share |
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36.95 |
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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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Common shares outstanding |
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Average: Basic |
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3,445 |
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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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3,422 |
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3,416 |
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Diluted |
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|
3,445 |
(h) |
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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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|
3,525 |
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3,520 |
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Common shares at period end |
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|
3,727 |
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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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Share price(d) |
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High |
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$ |
49.00 |
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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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$ |
49.95 |
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$ |
53.25 |
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Low |
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29.24 |
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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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29.24 |
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42.16 |
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Close |
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46.70 |
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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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Market capitalization |
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174,048 |
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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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Financial ratios |
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Return on common equity (ROE) |
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Income (loss) before extraordinary gain |
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(1 |
)% |
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|
6 |
% |
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|
8 |
% |
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|
10 |
% |
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|
11 |
% |
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|
4 |
% |
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|
14 |
% |
Net income |
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|
1 |
|
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|
6 |
|
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|
8 |
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|
10 |
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|
11 |
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5 |
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|
14 |
|
Return on assets (ROA) |
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Income (loss) before extraordinary gain |
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|
(0.01 |
) |
|
|
0.48 |
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|
|
0.61 |
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|
0.77 |
|
|
|
0.91 |
|
|
|
0.35 |
|
|
|
1.16 |
|
Net income |
|
|
0.12 |
|
|
|
0.48 |
|
|
|
0.61 |
|
|
|
0.77 |
|
|
|
0.91 |
|
|
|
0.39 |
|
|
|
1.16 |
|
Overhead ratio |
|
|
76 |
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|
66 |
|
|
|
53 |
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|
62 |
|
|
|
58 |
|
|
|
64 |
|
|
|
57 |
|
Tier 1 capital ratio |
|
|
8.9 |
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|
|
9.2 |
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|
8.3 |
|
|
|
8.4 |
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|
8.4 |
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|
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|
Total capital ratio |
|
|
12.7 |
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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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Tier 1 leverage ratio |
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|
7.2 |
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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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Selected balance sheet data
(period-end) |
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Trading assets |
|
$ |
520,257 |
|
|
|
$531,997 |
|
|
$ |
485,280 |
|
|
$ |
491,409 |
|
|
$ |
453,711 |
|
|
|
|
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|
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|
Securities |
|
|
150,779 |
|
|
|
119,173 |
|
|
|
101,647 |
|
|
|
85,450 |
|
|
|
97,706 |
|
|
|
|
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|
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|
Loans |
|
|
761,381 |
|
|
|
538,029 |
|
|
|
537,056 |
|
|
|
519,374 |
|
|
|
486,320 |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
2,251,469 |
|
|
|
1,775,670 |
|
|
|
1,642,862 |
|
|
|
1,562,147 |
|
|
|
1,479,575 |
|
|
|
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|
Deposits |
|
|
969,783 |
|
|
|
722,905 |
|
|
|
761,626 |
|
|
|
740,728 |
|
|
|
678,091 |
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|
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|
|
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|
Long-term debt |
|
|
238,034 |
|
|
|
260,192 |
|
|
|
189,995 |
|
|
|
183,862 |
|
|
|
173,696 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
137,691 |
|
|
|
127,176 |
|
|
|
125,627 |
|
|
|
123,221 |
|
|
|
119,978 |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
145,843 |
|
|
|
133,176 |
|
|
|
125,627 |
|
|
|
123,221 |
|
|
|
119,978 |
|
|
|
|
|
|
|
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|
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|
|
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|
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|
Headcount |
|
|
228,452 |
|
|
|
195,594 |
|
|
|
182,166 |
|
|
|
180,667 |
|
|
|
179,847 |
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
(in millions, except per share, headcount and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
As of or for the period ended, |
|
3Q08 |
|
|
2Q08 |
|
|
1Q08 |
|
|
4Q07 |
|
|
3Q07 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
Credit quality metrics |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
19,765 |
|
|
$ |
13,932 |
|
|
$ |
12,601 |
|
|
$ |
10,084 |
|
|
$ |
8,971 |
|
|
|
|
|
|
|
|
|
Nonperforming assets(e) |
|
|
9,520 |
|
|
|
6,233 |
|
|
|
5,143 |
|
|
|
3,933 |
|
|
|
3,009 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to loans(f) |
|
|
2.86 |
% |
|
|
2.57 |
% |
|
|
2.29 |
% |
|
|
1.88 |
% |
|
|
1.76 |
% |
|
|
|
|
|
|
|
|
Net
charge-offs |
|
$ |
2,484 |
|
|
$ |
2,130 |
|
|
$ |
1,906 |
|
|
$ |
1,429 |
|
|
$ |
1,221 |
|
|
$ |
6,520 |
|
|
$ |
3,109 |
|
Net charge-off rate(g) |
|
|
1.91 |
% |
|
|
1.67 |
% |
|
|
1.53 |
% |
|
|
1.19 |
% |
|
|
1.07 |
% |
|
|
1.70 |
% |
|
|
0.94 |
% |
Wholesale net charge-off rate(g) |
|
|
0.10 |
|
|
|
0.08 |
|
|
|
0.18 |
|
|
|
0.05 |
|
|
|
0.19 |
|
|
|
0.12 |
|
|
|
0.04 |
|
Consumer net charge-off rate(g) |
|
|
3.13 |
|
|
|
2.77 |
|
|
|
2.43 |
|
|
|
1.93 |
|
|
|
1.62 |
|
|
|
2.78 |
|
|
|
1.50 |
|
Managed Card net charge-off rate |
|
|
5.00 |
|
|
|
4.98 |
|
|
|
4.37 |
|
|
|
3.89 |
|
|
|
3.64 |
|
|
|
4.79 |
|
|
|
3.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutual Banks banking operations. |
(b) |
|
The income tax benefit in the third quarter and year-to-date 2008 is predominantly the result
of reduced deferred tax liabilities on overseas earnings, as well as the tax benefit
associated with the conforming loan loss reserve provision related to the acquisition of
Washington Mutual Banks banking operations. |
(c) |
|
JPMorgan Chase acquired
the banking operations of Washington Mutual Bank for
$1.9 billion. The fair value of the net assets acquired exceeded the purchase price which resulted in negative goodwill. In accordance
with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that
negative goodwill. The negative goodwill that remained after writing down nonfinancial assets
was recognized as an extraordinary gain. |
(d) |
|
JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London
Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan
Chases common stock are from the New York Stock Exchange Composite Transaction Tape. |
(e) |
|
Excludes purchased
held-for-sale loans and approximately $6.4 billion of consumer loans acquired
as part of the Washington Mutual Bank transaction that were nonperforming
prior to the transaction closing. The loans acquired
from Washington Mutual Bank are considered to be credit impaired and, therefore, are accounted for under SOP 03-3. For
additional information, see Note 13 on pages 120122 of this
Form 10-Q. |
(f) |
|
Loans accounted for at fair value, purchased credit impaired loans accounted for under SOP
03-3 and loans held-for-sale were excluded when calculating this metric. |
(g) |
|
Loans accounted for at
fair value and loans held-for-sale were excluded when calculating
these metrics. |
(h) |
|
Common equivalent shares have been excluded from the computation of diluted earnings per
share for the third quarter of 2008, as the effect on income (loss) before extraordinary gain
would be antidilutive. |
4
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides managements discussion and analysis (MD&A) of the
financial condition and results of operations for JPMorgan Chase. See the Glossary of Terms on
pages 156159 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 actual results to differ materially from those set
forth in such forward-looking statements. Certain of such risks and uncertainties are described
herein (see Forward-looking Statements on page 162 and Item 1A: Risk Factors on page 165 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 reports, on Forms 10-Q for the quarters ended June 30, 2008, and 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 $2.3 trillion in assets, $145.8
billion in total stockholders equity and operations in more than 60 countries as of September 30,
2008. 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 24 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. The Firm merged J.P. Morgan Securities Inc. with and into Bear Stearns & Co. and changed the name
of the surviving corporation to J.P. Morgan Securities Inc.
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. The description of the Firms
business segments below does not give effect to the acquisition of
the banking operations of Washington Mutual Bank (Washington Mutual), which was consummated on September 25, 2008. For a
discussion of the Washington Mutual transaction, see pages 6 and 4950 of this Form 10-Q.
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, 9,300 ATMs 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 14,200 auto dealerships and 3,500 schools and universities nationwide.
Card Services
With more than 156 million cards in circulation and more than $159 billion in managed
loans, Card Services (CS) is one of the nations largest credit card issuers. Customers used
Chase cards to meet more than $272 billion worth of their spending needs in the nine months ended
September 30, 2008.
5
With hundreds of partnerships, Chase has a market leadership position in building loyalty programs
with many of the worlds most respected brands.
Chase Paymentech Solutions, LLC, a joint venture between JPMorgan Chase and First Data Corporation,
is a processor of MasterCard and Visa payments and handled more than 16 billion transactions in the
nine months ended September 30, 2008. On May 27, 2008, the Firm announced the termination of Chase
Paymentech Solutions. For further information, see Other Business
Events on page 7 of this Form
10-Q.
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 approximately $10 million to approximately $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 as of September 30, 2008, 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
Acquisition
of the banking operations of Washington Mutual Bank
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual from the Federal Deposit Insurance
Corporation (FDIC) for $1.9 billion through a
purchase of substantially all of the assets and assumption of
specified liabilities of Washington Mutual.
Washington Mutuals banking operations consisted of a retail bank network of 2,244 branches, a
nationwide credit card lending business, a multi-family and commercial real estate lending
business, and nationwide mortgage banking activities. The transaction
expands the Firms consumer branch network into California, Florida, Washington, Georgia, Idaho, Nevada and Oregon. The
transaction created the nations second-largest branch network. The transaction also extends the
reach of the Firms business banking, commercial banking, credit card, consumer lending and wealth
management businesses. The transaction was accounted for under the purchase method of accounting in
accordance with SFAS 141. The results of operations of Washington Mutuals banking operations for
the period September 26, 2008, through September 30, 2008, did not have a material effect on the
results of the quarter ended September 30, 2008, except with
respect to the charge to conform Washington Mutuals
loan loss reserves and the extraordinary gain related to the
transaction, both of which are reflected for
JPMorgan Chase in the Corporate/Private Equity segment. Beginning October 1, 2008, the results of
operations of Washington Mutuals banking operations will be included in the Firms business
segments. For further discussion of the transaction, see Note 2 on pages 9398 of this Form 10-Q.
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, with Bear Stearns becoming 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 was 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.
6
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. 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 its 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 were recorded in other income and accumulated other comprehensive income. Commencing
May 31, 2008, Bear Stearns was reflected in JPMorgan Chases consolidated results of operations.
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 upon 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 loan from JPMorgan Chase. The JPMorgan Chase loan 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 loan and the expense of the LLC, will be for the account of the FRBNY.
For further discussion of the Merger, see Note 2 on pages 9398 of this Form 10-Q.
Termination of Chase Paymentech Solutions joint venture
The dissolution of Chase Paymentech Solutions, a global payments and merchant acquiring joint
venture between JPMorgan Chase and First Data Corporation, was completed on November 1, 2008 and
JPMorgan Chase retained approximately 51% of the business under the Chase Paymentech name.
The dissolution of Chase Paymentech Solutions is being accounted for as a step acquisition in
accordance with SFAS 141, and the Firm anticipates recognizing an after-tax gain of approximately $600
million in the fourth quarter of 2008 as a result of the dissolution. The gain will represent the amount by which the fair value of the net assets acquired (predominantly intangible
assets and goodwill) exceeded JPMorgan Chases book basis in the net assets transferred to First
Data Corporation.
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 currently owns 77.5% of Highbridge. The Firm
acquired a majority interest in Highbridge in 2004.
RECENT MARKET DEVELOPMENTS
The liquidity crisis has evolved into a global credit and liquidity issue involving a number of
financial institutions, including the failures of some, in the U.S. and Europe. In response to
these circumstances, the United States government, particularly the U.S. Department of the Treasury
(the U.S. Treasury), the Board of Governors of the
Federal Reserve System (the Federal Reserve)
and the FDIC, working in cooperation with foreign governments and
other central banks, including the Bank of England, the European Central Bank and the Swiss
National Bank, have taken a variety of extraordinary measures designed to restore confidence in the
financial markets and to strengthen financial institutions, including capital injections,
guarantees of bank liabilities and the acquisition of illiquid assets from banks.
In particular, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA)
was signed into law. Pursuant to the EESA, the U.S. Treasury has the authority to take a range of
actions for the purpose of stabilizing and providing liquidity to the U.S. financial markets and
has proposed several programs, including the purchase by the U.S. Treasury of certain troubled
assets from financial institutions (the Troubled Asset Relief Program) and the direct purchase
by the U.S. Treasury of equity of financial institutions (the Capital Purchase Program).
Other programs and actions taken by U.S. regulatory agencies include (i) the U.S. Treasurys
Temporary Guarantee Program for Money Market Funds, (ii) the FRBNYs Money Market Investor Funding
Facility (the MMIF Facility), which is designed to provide liquidity to U.S. money market
investors, (iii) the Federal Reserves Commercial Paper
7
Funding Facility, which is designed to provide liquidity to term funding markets by providing a
liquidity backstop to U.S. issuers of commercial paper, (iv) the
Federal Reserves Asset Backed
Commercial Paper Money Market Mutual Fund Liquidity Facility (the AML Facility), which is
designed to provide liquidity to money market mutual funds under
certain conditions by providing funding to U.S. depository institutions and bank
holding companies secured by high-quality asset-backed commercial
paper they purchased from those money market mutual funds, (v) the FDICs
Temporary Liquidity Guarantee Program, which enables the FDIC to temporarily provide a 100%
guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well
as deposits in noninterest-bearing transaction deposit accounts, (vi) the Federal Reserves Primary Dealer Credit Facility,
which is designed to foster the financial markets generally, was
modified to expand the eligible collateral to include any collateral
eligible for tri-party repurchase agreements, (vii) the Federal
Reserves Term Securities Lending Facility, which is designed to
promote liquidity in the financial markets for
treasuries and other
collateral, was expanded to (a) include all investment-grade debt
securities as eligible collateral for schedule 2 auctions and (b) increase the frequency of schedule 2 auctions,
(viii) the Federal
Reserves adoption of an interim rule that provides an
exemption, until January 30, 2009, to the Federal Reserve Act to allow
insured depository institutions to provide liquidity to their
affiliates for assets typically funded in the tri-party repurchase
agreement market,
and (ix) the Federal Reserves Term Auction Facility, which is designed to allow financial institutions
to borrow funds at a rate that is below the discount rate.
Capital Purchase Program
Under the Capital Purchase Program, the U.S. Treasury will make $250 billion of capital available
to U.S. financial institutions in the form of preferred stock and a warrant to acquire common stock.
Pursuant to the Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S.
Treasury, in exchange for aggregate consideration of
$25.0 billion, (i) 2.5 million shares of the
Firms Fixed Rate Cumulative Perpetual Preferred Stock, Series K, par value $1 and liquidation
preference $10,000 per share (and $25.0 billion liquidation preference in the aggregate) (the Series
K Preferred Stock), and (ii) a warrant (the Warrant) to purchase up to 88,401,697 shares of the
Firms common stock, at an exercise price of $42.42 per share.
The number of shares of common stock to be issued pursuant to the
Warrant and the exercise price of the Warrant is subject to
adjustment from time to time following, among other things, stock
splits, subdivisions or combinations, certain issuances of common
stock or convertible securities and certain repurchases of common
stock. The Series K Preferred Stock is nonvoting, qualifies as Tier 1 capital and ranks on parity
with the Firms other series of preferred stock. For a discussion of the Firms preferred stock,
see page 56 of this Form 10-Q and Note 22 on pages 141142 of this Form 10-Q.
The letter agreement between the U.S. Treasury and the Firm, dated October 26, 2008, including the
securities purchase agreement (the Purchase Agreement) concerning the issuance and sale of the
Series K Preferred Stock to the U.S. Treasury grants the holders of the Series K Preferred Stock,
the Warrant and JPMorgan Chase common stock to be issued under the Warrant certain registration
rights and imposes restrictions on dividend and stock repurchases. For a discussion of the dividend
and stock repurchase restrictions, see Capital Purchase Program
on page 55 and Note 22 on pages 141-142 of this Form 10-Q. In addition, the Purchase
Agreement subjects the Firm to the executive compensation limitations as set forth in Section
111(b) of the EESA.
MMIF Facility
The MMIF, authorized by the FRBNY, will support a private-sector initiative designed to
provide liquidity to U.S. money market investors. Under the MMIF Facility, the FRBNY will provide
senior secured funding to a series of special purpose vehicles to finance the purchase of eligible
assets such as commercial paper, bank note and certificates of
deposit from eligible investors. The Firm has been selected by the FRBNY to advise the
U.S. Treasury regarding the MMIF Facility.
AML Facility
On September 19, 2008, the Federal Reserve established a special lending facility, the AML
Facility, to provide liquidity to eligible U.S. money market mutual funds (MMMFs). Under the AML
Facility, participating banking
organizations purchase eligible high-quality asset-backed commercial
paper (ABCP) investments from MMMFs, which are then pledged
to secure nonrecourse advances from the Federal Reserve Bank of
Boston (FRBB); participating banking organizations do not bear any credit or
market risk related to the ABCP investments they hold under this facility and, therefore, the ABCP
investments held are not assessed any regulatory risk-based capital.
The AML Facility will be in effect
until January 30, 2009. The Firm is currently participating in the AML Facility.
8
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 September 30, |
|
Nine months ended September 30, |
(in millions, except per share and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
14,737 |
|
|
$ |
16,112 |
|
|
|
(9 |
)% |
|
$ |
50,026 |
|
|
$ |
53,988 |
|
|
|
(7 |
)% |
Provision for credit losses |
|
|
3,811 |
|
|
|
1,785 |
|
|
|
114 |
|
|
|
11,690 |
|
|
|
4,322 |
|
|
|
170 |
|
Provision for credit losses accounting
conformity(a) |
|
|
1,976 |
|
|
|
|
|
|
|
NM |
|
|
|
1,976 |
|
|
|
|
|
|
|
NM |
|
Total noninterest expense |
|
|
11,137 |
|
|
|
9,327 |
|
|
|
19 |
|
|
|
32,245 |
|
|
|
30,983 |
|
|
|
4 |
|
Income (loss) before extraordinary gain |
|
|
(54 |
) |
|
|
3,373 |
|
|
|
NM |
|
|
|
4,322 |
|
|
|
12,394 |
|
|
|
(65 |
) |
Extraordinary gain(b) |
|
|
581 |
|
|
|
|
|
|
|
NM |
|
|
|
581 |
|
|
|
|
|
|
|
NM |
|
Net income |
|
|
527 |
|
|
|
3,373 |
|
|
|
(84 |
) |
|
|
4,903 |
|
|
|
12,394 |
|
|
|
(60 |
) |
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
$ |
(0.06 |
) |
|
$ |
0.97 |
|
|
NM% |
|
$ |
1.15 |
|
|
$ |
3.52 |
|
|
|
(67 |
)% |
Net income |
|
|
0.11 |
|
|
|
0.97 |
|
|
|
(89 |
) |
|
|
1.32 |
|
|
|
3.52 |
|
|
|
(63 |
) |
Return on common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
|
(1 |
)% |
|
|
11 |
% |
|
|
|
|
|
|
4 |
% |
|
|
14 |
% |
|
|
|
|
Net income |
|
|
1 |
|
|
|
11 |
|
|
|
|
|
|
|
5 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
(a) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
(b) |
|
JPMorgan Chase acquired Washington Mutuals banking operations from the FDIC for $1.9
billion. The fair value of Washington Mutual net assets acquired exceeded the purchase price
which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are
not held-for-sale were written down against that negative goodwill. The negative goodwill that
remained after writing down nonfinancial assets was recognized as an extraordinary gain. |
Business overview
JPMorgan Chase reported 2008 third-quarter net income of $527 million, or $0.11 per share, compared
with net income of $3.4 billion, or $0.97 per share, for the third quarter of 2007. Return on
common equity for the quarter was 1%, compared with 11% in the prior year. On September 25, 2008,
JPMorgan Chase acquired Washington Mutuals banking operations, significantly strengthening its
consumer franchise, with the addition of more than 2,200 branches. Results in the third quarter
included an after-tax charge of $1.2 billion to conform loan loss reserves and an extraordinary
gain of $581 million related to this transaction. Excluding the conforming adjustment
for the Washington Mutual transaction, the decline in net income from the third quarter of 2007 was
driven by a significant increase in the provision for credit losses, higher noninterest expense and
lower net revenue. Lower net revenue reflected markdowns related to mortgage-related positions and
leveraged lending exposures in the Investment Bank, partially offset by increased net interest
income. The provision for credit losses rose predominantly due to increases in the allowance for
loan losses related to home equity, subprime and prime mortgage and credit card loans, as well as
higher net charge-offs. The increase in noninterest expense was driven by higher compensation
expense and additional operating costs relating to the Bear Stearns merger.
Net income for the first nine months of 2008 was $4.9 billion, or $1.32 per share, compared with
net income of $12.4 billion, or $3.52 per share, for the first nine months of 2007. Return on
common equity for the period was 5%, compared with 14% in the prior year. The lower results in the
first nine months of 2008 were due to the same drivers highlighted for the third quarter a
significantly higher provision for credit losses, markdowns related to mortgage-related positions
and leveraged lending exposures, and higher total noninterest expense, partially offset by
increased net interest income.
The financial crisis that has plagued the U.S. markets and economy for over a year intensified in
the third quarter of 2008, as did the global economic slowdown, resulting in sharp declines across
most equity markets that are expected to continue into the fourth quarter of 2008. Credit
volatility and the stress in financial markets resulted in
the occurrence of significant events during
the quarter: the U.S. federal government placed the Federal Home Loan Mortgage Corporation
(Freddie Mac) and Federal National Mortgage Association (Fannie Mae) under its direct control;
Lehman Brothers Holdings Inc. declared bankruptcy; the Bank of America Corporation agreed to
acquire Merrill Lynch & Co., Inc.; the government provided a loan to American International Group,
Inc. (AIG) in exchange for an equity interest in AIG to prevent the insurers failure; and
Morgan Stanley and The Goldman Sachs Group, Inc. received approval from the Federal Reserve to become federal bank holding companies. The crisis of confidence was most
9
visible in the
liquidity pressures affecting the short-term funding markets, as evidenced by the LIBOR-Fed Funds rate disparity (i.e., 3-month
LIBOR rates surged over the expected Fed Funds rate). The rate disparity placed additional stress
on global banking systems and economies, as LIBOR represents a key benchmark that is used to set
other borrowing costs, including short-term business funding costs and rates on many types of mortgage
contracts. The Federal Reserve and other global central banking authorities have responded
with a series of initiatives to deal with the financial crisis and to make liquidity available to
the markets, as discussed on pages 7-8 of this Form 10-Q. Labor markets continued to struggle, with
the unemployment rate rising to 6.1% in September, reaching the highest level in the last five
years. Economic growth contracted in the third quarter due to a decline in real consumer spending,
as economic uncertainty weighed on the minds of consumers, as did high energy bills which continued to
squeeze budgets, and the benefits from the tax rebates provided by the Economic Stimulus Act of
2008 came to an end.
During the third quarter of 2008, the Firms performance was negatively affected by the weak
economic conditions and volatile financial markets. Markdowns on mortgage-related positions and
leveraged lending exposures reduced net revenue in the Investment Bank. Unprecedented challenges
facing the housing market resulted in a higher provision for credit losses and lower income in
Retail Financial Services. A higher provision for credit losses also lowered income in Card
Services. Asset Managements net income decreased due to lower performance fees and the effect of
lower markets. However, the Firm continued to show underlying business momentum, with four of its
six principal lines of business delivering double-digit revenue growth. The IB maintained its #1
rankings for Global Investment Banking Fees and Global Debt, Equity and Equity-related volumes for
the third quarter and first nine months of 2008; RFS increased branch production; and Commercial
Banking and Treasury & Securities Services delivered double-digit net income growth.
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 the Washington Mutual transaction, and its effects on current
quarter performance, see pages 9398 of this Form 10-Q. For more information about managed basis,
see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on pages 1720
of this Form 10-Q .
Investment
Bank net income increased compared with the third quarter of 2007, reflecting an
increase in net revenue and the benefit of reduced deferred tax liabilities offset largely by
increased noninterest expense. Higher net revenue was driven by record Equity Markets revenue,
higher investment banking fees and increased Fixed Income Markets revenue. Fixed Income Markets
revenue reflected record results in rates and currencies, and strong performance in credit trading,
emerging markets, and commodities, largely offset by markdowns on mortgage-related positions and
leveraged lending funded and unfunded commitments. The provision for credit losses increased
slightly compared with the prior year, reflecting a weakening credit environment. The increase in
noninterest expense was largely driven by higher compensation expense and additional operating
costs relating to the Bear Stearns merger.
Retail
Financial Services net income declined, reflecting a significant increase in the provision
for credit losses in Regional Banking and higher noninterest expense in Mortgage Banking, offset
partially by revenue growth in all businesses. Net revenue benefited from increased net interest
income as a result of increased loan and deposit balances combined with wider deposit spreads, as
well as higher net mortgage servicing revenue and higher deposit-related fees. The provision for
credit losses increased 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, and loans
in specific geographic areas that have been most heavily impacted by housing price declines.
Noninterest expense rose from the prior year, reflecting higher mortgage reinsurance losses and
increased servicing expense.
Card
Services net income declined, driven by a higher provision for credit losses partially offset
by lower noninterest expense. Managed net revenue increased slightly, as higher average managed
loan balances, wider loan spreads and increased interchange income were offset predominantly by the
effect of higher revenue reversals associated with higher charge-offs, increased rewards expense
and higher volume-driven payments to partners. 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. Noninterest expense declined due to lower marketing expense.
Commercial
Banking net income increased, driven by record net revenue, partially offset by an
increase in the provision for credit losses and higher noninterest expense. The increase in revenue
resulted from double-digit growth in loan and liability balances and higher deposit-related and
investment banking fees, predominantly offset by spread compression in the liability and loan
portfolios. The increase in the provision for credit losses reflected a weakening credit
environment and growth in loan balances. Noninterest expense increased due to higher
performance-based compensation expense.
10
Treasury & Securities Services net income rose, driven by higher net revenue and the benefit of
reduced deferred tax liabilities, predominantly offset by higher noninterest expense. Worldwide
Securities Services revenue increased, driven by wider spreads on liability products and in
securities lending and foreign exchange, combined with increased product usage by new and existing
clients. Market depreciation partially offset these benefits. Treasury Services posted record
revenue, reflecting higher liability balances as well as volume growth in electronic funds transfer
products and trade loans. Noninterest expense increased, reflecting higher expense related to
business and volume growth as well as continued investment in new product platforms.
Asset
Management net income decreased, driven largely by lower net revenue. The decline in net
revenue was due to lower performance fees and the effect of lower markets, including the impact of
lower market valuations of seed capital investments. Partially offsetting these net revenue
declines were the benefit of the Bear Stearns merger, higher loan and deposit balances, and wider
deposit spreads. The provision for credit losses rose from the prior year, reflecting an increase
in loan balances and a lower level of recoveries. Noninterest expense was flat compared with the
prior year due to the effect of the Bear Stearns merger and increased headcount, offset by lower
performance-based compensation.
Corporate/Private Equity reported a net loss for the quarter. The net loss included a conforming
loan loss reserve provision and an extraordinary gain related to the acquisition of Washington
Mutuals banking operations. Excluding these items, the balance of the net loss resulted from
significantly lower net revenue and an increase in the provision for credit losses, offset
partially by a decrease in noninterest expense. The decline in net revenue was driven by a higher
level of trading losses, predominantly on preferred securities of Fannie Mae and Freddie Mac;
private equity losses in the current quarter compared with gains in the prior-year quarter; and a
charge related to the offer to repurchase auction-rate securities
from certain customers. These declines were partially
offset by higher securities gains. The increase in the provision for credit losses was
predominantly related to an increase in the allowance for loan losses for prime mortgage. The
decrease in noninterest expense was driven by lower litigation expense.
The Firms managed provision for credit losses was $6.7 billion in the third quarter, including the
$2.0 billion charge to conform Washington Mutuals loan loss allowance. For the purposes of the
following analysis, this charge is excluded. The managed provision for credit losses was $4.7
billion, up $2.3 billion, or 98%, from the prior year. The total consumer-managed provision for
credit losses was $4.3 billion, compared with $2.0 billion in the prior year, reflecting increases
in the allowance for credit losses related to home equity, subprime and prime mortgage and credit
card loans, as well as higher net charge-offs. Consumer-managed net charge-offs were $3.3 billion,
compared with $1.7 billion in the prior year, resulting in managed net charge-off rates of 3.39%
and 1.96%, respectively. The wholesale provision for credit losses was $398 million, compared with
$351 million in the prior year, due to an increase in the allowance for credit losses reflecting
the effect of a weakening credit environment and loan growth. Wholesale net charge-offs were $52
million, compared with net charge-offs of $82 million, resulting in net charge-off rates of 0.10%
and 0.19%, respectively. The Firm had total nonperforming assets of $9.5 billion at September 30,
2008, up from the prior-year level of $3.0 billion. Substantially all of the loans acquired from
Washington Mutual that were nonperforming prior to the transaction closing are now considered to be
performing based upon the provisions of SOP 03-3. For additional information, see Note 13 on pages
120122 of this Form 10-Q.
Total stockholders equity at September 30, 2008, was $145.8 billion, and the Tier 1 capital ratio
was 8.9%, compared with 8.4% at September 30, 2007. During the quarter, the Firm raised $11.5
billion of common equity and $1.8 billion of preferred equity.
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 actual results to differ materially from those set forth
in such forward-looking statements.
JPMorgan Chases outlook for the fourth 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 weaken further and potentially faster, 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 costs, overall
business volumes and earnings.
11
The consumer provision for credit losses could increase substantially as a result of a higher level
of losses. Given the potential stress on the consumer from rising unemployment, the continued
downward pressure on housing prices and the elevated national inventory of unsold homes, management
remains extremely cautious with respect to the credit outlook for 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 in the fourth quarter of 2008. Housing price declines in specific geographic regions and
slowing economic growth could continue to drive higher estimated losses and nonperforming
assets for the home equity and subprime mortgage portfolios and to increasingly affect 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 lending portfolio, including home equity, prime, and subprime mortgages,
are expected to increase in the fourth quarter of 2008 and into 2009. Management expects the managed
net charge-off rate for Card Services to be 5% or above in the fourth quarter of 2008, and to
increase further in 2009; potentially, the Card Services net charge-off rate could be 6% in the
early part of 2009 and possibly reach 7% by the end of the year
(excluding the impact resulting from the acquisition of Washington
Mutuals banking operations). These charge-off rates could
increase even further if the economic environment continues to deteriorate more than current
management expectations. The wholesale provision for credit losses, nonperforming assets, and
charge-offs are expected to increase over time as a result of the deterioration in underlying
credit conditions. The wholesale provision may also increase due to loan growth.
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 $12.9 billion (gross notional) of legacy leveraged loans and
unfunded commitments as held-for-sale as of September 30, 2008. Markdowns averaging 29% of the
gross notional value have been taken on these legacy positions as of September 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 September 30, 2008, an aggregate $8.1 billion of prime and Alt-A mortgage exposure, which
is also difficult to hedge effectively, and $1.2 billion of
subprime mortgage exposure. In addition, the Investment Bank had $9.3 billion of commercial
mortgage-backed securities (CMBS) exposure. During the quarter,
mortgage exposure of $4.3 billion,
primarily consisting of prime loans and securities, was transferred to the Firms corporate investment portfolio. Even with respect to mortgage exposure that is
being actively hedged, such mortgage exposures could be adversely affected by worsening market
conditions, further deterioration in the housing market and market activity.
Funding markets have remained challenging, with a wide differential between prime and LIBOR rates.
Management expects that if there is a continuation of this rate dislocation, Card Services net
income could be significantly reduced in the fourth quarter of 2008. Earnings in Treasury &
Securities Services and Asset Management will likely deteriorate if business volumes or assets
under custody, management or supervision decline, volatility in certain products decreases, or
spreads narrow. Given recent equity market declines, management expects that fourth quarter
earnings for these market-sensitive businesses will be lower. Management also continues to believe
that the net quarterly loss in Corporate could average approximately $50 million to $100 million,
excluding trading results related to the Firms investment portfolio (which could be volatile) and
credit costs related to prime mortgage exposures (which are expected to increase from third quarter
levels, as discussed within the consumer outlook section above). Private Equity results, which are
dependent upon the capital markets, are likely to remain depressed and continue to be negative in
the fourth quarter.
Management believes the net income impact of the acquisition of Washington Mutuals banking
operations could be approximately $0.50 per share in 2009, with a pro rata portion expected in the
fourth quarter of 2008. Management also believes the Firm will incur merger costs related to this
transaction of approximately $500 million (after tax), with approximately $100 million (after tax)
of expense recognized in the fourth quarter and the remainder incurred through 2011. Also, the Firm
anticipates recognizing an after-tax gain of approximately $600 million in the fourth quarter of
2008, related to the dissolution of the Chase Paymentech Solutions, LLC joint venture on November 1,
2008.
12
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chases Consolidated Results of
Operations on a reported basis. Factors that related primarily to a single business segment are
discussed in more detail within that business segment. For a discussion of the Critical Accounting
Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 8587 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 September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,316 |
|
|
$ |
1,336 |
|
|
|
(1 |
)% |
|
$ |
4,144 |
|
|
$ |
4,973 |
|
|
|
(17 |
)% |
Principal transactions |
|
|
(2,763 |
) |
|
|
650 |
|
|
|
NM |
|
|
|
(2,814 |
) |
|
|
8,850 |
|
|
|
NM |
|
Lending & deposit-related fees |
|
|
1,168 |
|
|
|
1,026 |
|
|
|
14 |
|
|
|
3,312 |
|
|
|
2,872 |
|
|
|
15 |
|
Asset management,
administration and commissions |
|
|
3,485 |
|
|
|
3,663 |
|
|
|
(5 |
) |
|
|
10,709 |
|
|
|
10,460 |
|
|
|
2 |
|
Securities gains |
|
|
424 |
|
|
|
237 |
|
|
|
79 |
|
|
|
1,104 |
|
|
|
16 |
|
|
|
NM |
|
Mortgage fees and related income |
|
|
457 |
|
|
|
221 |
|
|
|
107 |
|
|
|
1,678 |
|
|
|
1,220 |
|
|
|
38 |
|
Credit card income |
|
|
1,771 |
|
|
|
1,777 |
|
|
|
|
|
|
|
5,370 |
|
|
|
5,054 |
|
|
|
6 |
|
Other income |
|
|
(115 |
) |
|
|
289 |
|
|
|
NM |
|
|
|
1,576 |
|
|
|
1,360 |
|
|
|
16 |
|
|
|
|
|
Noninterest revenue |
|
|
5,743 |
|
|
|
9,199 |
|
|
|
(38 |
) |
|
|
25,079 |
|
|
|
34,805 |
|
|
|
(28 |
) |
Net interest income |
|
|
8,994 |
|
|
|
6,913 |
|
|
|
30 |
|
|
|
24,947 |
|
|
|
19,183 |
|
|
|
30 |
|
|
|
|
|
Total net revenue |
|
$ |
14,737 |
|
|
$ |
16,112 |
|
|
|
(9 |
) |
|
$ |
50,026 |
|
|
$ |
53,988 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue for the third quarter of 2008 was $14.7 billion, down $1.4 billion, or 9%,
from the prior year. The decrease was due to a significant decline in principal transactions
revenue, which included net markdowns on mortgage-related positions and leveraged lending funded
and unfunded commitments, losses on preferred securities of Fannie Mae and Freddie Mac, and losses
on private equity investments; higher net interest income predominantly offset the decline. For the
first nine months of 2008, total net revenue was $50.0 billion, down $4.0 billion, or 7%, from the
prior year, largely reflecting the same drivers as the quarter, although the Firm had private
equity gains in the first nine months of 2008 versus losses in the third quarter of 2008. However,
these gains were lower than the gains in the first nine months of 2007. Also contributing to the
decline in total net revenue were lower investment banking fees and the Firms share of Bear
Stearns losses from April 8 to May 30, 2008. These were largely offset by the proceeds from the
sale of Visa shares in its initial public offering and higher securities gains from the sale of
MasterCard shares.
Investment banking fees were down slightly in the third quarter of 2008 compared with the third
quarter of 2007. For the first nine months of 2008, fees declined from the record level of the
comparable period last year due to lower debt underwriting fees and advisory fees, which were both
at record levels in the first nine months of 2007. For a further discussion of investment banking
fees, which are primarily recorded in IB, see the IB segment results on pages 2225 of this Form
10-Q.
Principal transactions revenue consists of trading revenue and private equity gains. The Firms
trading activities in the third quarter and first nine months of 2008 decreased significantly from
the comparable periods of 2007. The decrease in the third quarter was largely driven by
mortgage-related net markdowns of $2.6 billion and net markdowns on leveraged lending funded and
unfunded commitments of $1.0 billion, as well as losses of $1.0 billion on preferred securities of
Fannie Mae and Freddie Mac. Partially offsetting the decline in trading revenue were record results
in rates and currencies, strong performance in credit trading, emerging markets and commodities,
strong equity trading and client revenue, and total gains of
$956 million from the widening of
the Firms credit spread on certain structured liabilities and
derivatives compared with $582
million for the third quarter of 2007. The decline in trading revenue for the first nine months of
2008 was due to the aforementioned significant markdowns, including
$4.7 billion on
mortgage-related positions as well as $2.8 billion on leveraged lending funded and unfunded
commitments. These markdowns were offset partially by strong performances in the aforementioned
trading products, as well as total gains of $2.8 billion from the widening of the Firms
credit spread on certain structured liabilities and derivatives
compared with $955 million for the
first nine months of 2007. Private equity gains also declined compared with the third quarter and
first nine months of 2007, driven by a net loss in the third quarter of 2008, and lower net gains
for the first nine months. In addition, the first quarter of 2007 included a fair value adjustment
related to the adoption of SFAS 157. For a further discussion of principal transactions revenue,
see the IB and Corporate/Private Equity segment results on pages
2225 and 4749, respectively,
and Note 5 on pages 111113 of this Form 10-Q.
13
Lending & deposit-related fees rose from the third quarter and first nine 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 2632 the TSS segment results on pages 4042, and the CB segment results on pages 3739 of
this Form 10-Q.
The decrease in asset management, administration and commissions revenue compared with the third
quarter of 2007 was largely due to lower asset management fees in AM as a result of lower
performance fees and the effect of lower markets. This decline was partially offset by higher
commissions revenue driven by higher brokerage transaction volume (primarily included within equity
markets revenue of IB). For the first nine months of 2008, asset management, administration and
commissions revenue increased due predominantly to higher commissions revenue and the absence of a
charge in RFS in the first quarter of 2007 associated with the accelerated surrenders of customer
annuity contracts. TSS also contributed to the increase in asset management, administration and
commissions, driven by the benefit of short-term interest rates in securities lending and increased
product usage by new and existing clients (largely in custody, funds services and depositary
receipts). These results were partially offset by lower asset management fees in AM as a result of
lower performance fees and the effect of lower markets. For additional information on these fees
and commissions, see the segment discussions for IB on pages 2225, RFS on pages 2632, TSS on
pages 4042, and AM on pages 4346, of this Form 10-Q.
The increase in securities gains for the third quarter of 2008, compared with the same period in
2007, was due to the repositioning of the Corporate investment securities portfolio, partially
offset by gains of $115 million recognized in 2007 from the sale of MasterCard shares and
marketable securities received from loan workouts in IB. In the first nine months of 2008,
securities gains increased due to the repositioning of the Corporate investment securities
portfolio and higher gains from the sale of MasterCard shares. 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 4749 of this Form 10-Q.
Mortgage fees and related income increased from the third quarter and first nine months of 2007,
driven by higher net mortgage servicing revenue, which benefited from increased loan servicing
revenue and an improvement in mortgage servicing rights (MSR) risk management results, and higher
production revenue, which reflected lower markdowns on the mortgage warehouse and pipeline. These
increases were offset partially by increased reserves related to the repurchase of previously sold
loans. For the first nine months of 2008, production revenue was also positively impacted by higher
loan originations. 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 3031 of
this Form 10-Q.
Credit card income decreased slightly from the third quarter of 2007, driven primarily by lower
servicing fees earned in connection with CS securitization activities, which were negatively
affected by higher credit losses on securitized credit card loans. Also contributing to the
decrease in credit card income were increased expense related to rewards programs and higher
volume-driven payments to partners. Partially offsetting the declines was higher interchange income
as a result of an increase in customer charge volume. Credit card income rose in the first nine
months of 2008 due to increased servicing fees, which reflected the impact of a higher level of
securitized receivables, and an increase in interchange income. Higher customer charge volume in CS
and higher debit card transaction volume in RFS drove the increase in interchange income. These
results were partially offset by the increases in volume-driven payments to partners and expense
related to rewards programs. For a further discussion of credit card income, see CS segment
results on pages 3336 of this Form 10-Q.
The decline in other income from the third quarter of 2007 was predominantly due to a $375 million
charge related to the offer to repurchase auction-rate securities at par, markdowns on certain
investments, including seed capital in AM, lower gains on education loan sales and higher losses on
other real estate owned, partially offset by higher gains on sales of certain assets. For the first
nine months of 2008, other income increased due predominantly to the proceeds from the sale of Visa
shares in its initial public offering ($1.5 billion pretax), higher automobile operating lease
revenue and credit card net securitization gains. The increase in other income was partially offset
by losses of $423 million (after-tax) reflecting the Firms 49.4% ownership in Bear Stearns losses
from April 8 to May 30, 2008, and the net negative impact of the aforementioned drivers of the
decline in other income in the third quarter of 2008.
Net interest income rose from the third quarter and first nine months of 2007, due predominantly to
the following: higher trading-related net interest income, higher wholesale and consumer loan
balances, growth in liability and deposit balances in the wholesale and consumer businesses, wider
spreads on credit card balances and deposit balances in RFS and AM, and a wider net interest spread
in the Corporate business. These benefits were offset partially by spread compression on deposit
and liability products in CB. The Firms total average interest-earning assets for the third
quarter of 2008 were $1.3 trillion, up 16% from the third quarter of 2007. The increase was
predominantly driven by higher loans, securities borrowed, other assets, federal funds sold and
securities purchased under resale agreements and available-for-sale (AFS) securities,
14
predominantly offset by lower trading assets debt instruments. The net interest yield on these
assets, on a fully taxable equivalent basis, was 2.73%, an increase of 30 basis points from the
third quarter of 2007. The Firms total average interest earning assets for the first nine months
of 2008 were $1.3 trillion, up 15% from the first nine months of
2007, driven by the same factors as drove the 2008 third quarter
results, as well as by higher trading assets debt instruments
and higher deposits with banks.
The net interest yield on these assets, on a fully taxable equivalent basis, was 2.68%, an increase
of 31 basis points from the first nine months of 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
$ |
398 |
|
|
$ |
351 |
|
|
|
13 |
% |
|
$ |
1,650 |
|
|
$ |
626 |
|
|
|
164 |
% |
Provision for credit losses
accounting conformity(a) |
|
|
564 |
|
|
|
|
|
|
|
NM |
|
|
|
564 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
Total wholesale provision for
credit losses |
|
|
962 |
|
|
|
351 |
|
|
|
174 |
|
|
|
2,214 |
|
|
|
626 |
|
|
|
254 |
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
3,413 |
|
|
|
1,434 |
|
|
|
138 |
|
|
|
10,040 |
|
|
|
3,696 |
|
|
|
172 |
|
Provision for credit losses
accounting conformity(a) |
|
|
1,412 |
|
|
|
|
|
|
|
NM |
|
|
|
1,412 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
Total consumer provision for
credit losses |
|
|
4,825 |
|
|
|
1,434 |
|
|
|
236 |
|
|
|
11,452 |
|
|
|
3,696 |
|
|
|
210 |
|
|
|
|
|
Total provision for credit losses |
|
$ |
5,787 |
|
|
$ |
1,785 |
|
|
|
224 |
|
|
$ |
13,666 |
|
|
$ |
4,322 |
|
|
|
216 |
|
|
|
|
|
(a) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
Provision for credit losses
The provision for credit losses in the third quarter and first nine months of 2008 rose
significantly when compared with the prior-year periods due to increases in both the consumer and
wholesale provisions. Affecting both the consumer and wholesale provisions was a $2.0 billion
charge to conform Washington Mutuals loan loss allowance. In addition, the consumer provision
reflected higher estimated losses for the home equity, subprime mortgage, prime mortgage and credit
card loan portfolios. The additional increase in the wholesale provision was driven by the effect
of a weakening credit environment and loan growth. The wholesale provision for the first nine
months 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 2632,
CS on pages 3336, IB on pages 2225, CB on pages 3739 and Credit Risk Management on pages
6480 of this Form 10-Q.
Noninterest expense
The following table presents the components of noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Compensation expense |
|
$ |
5,858 |
|
|
$ |
4,677 |
|
|
|
25 |
% |
|
$ |
17,722 |
|
|
$ |
17,220 |
|
|
|
3 |
% |
Occupancy expense |
|
|
766 |
|
|
|
657 |
|
|
|
17 |
|
|
|
2,083 |
|
|
|
1,949 |
|
|
|
7 |
|
Technology, communications and equipment
expense |
|
|
1,112 |
|
|
|
950 |
|
|
|
17 |
|
|
|
3,108 |
|
|
|
2,793 |
|
|
|
11 |
|
Professional & outside services |
|
|
1,451 |
|
|
|
1,260 |
|
|
|
15 |
|
|
|
4,234 |
|
|
|
3,719 |
|
|
|
14 |
|
Marketing |
|
|
453 |
|
|
|
561 |
|
|
|
(19 |
) |
|
|
1,412 |
|
|
|
1,500 |
|
|
|
(6 |
) |
Other expense |
|
|
1,096 |
|
|
|
812 |
|
|
|
35 |
|
|
|
2,498 |
|
|
|
2,560 |
|
|
|
(2 |
) |
Amortization of intangibles |
|
|
305 |
|
|
|
349 |
|
|
|
(13 |
) |
|
|
937 |
|
|
|
1,055 |
|
|
|
(11 |
) |
Merger costs |
|
|
96 |
|
|
|
61 |
|
|
|
57 |
|
|
|
251 |
|
|
|
187 |
|
|
|
34 |
|
|
|
|
|
Total noninterest expense |
|
$ |
11,137 |
|
|
$ |
9,327 |
|
|
|
19 |
|
|
$ |
32,245 |
|
|
$ |
30,983 |
|
|
|
4 |
|
|
15
Total noninterest expense for the third quarter of 2008 was $11.1 billion, up $1.8 billion, or
19%, from the third quarter of 2007. For the first nine months of 2008, total noninterest expense
was $32.2 billion, up $1.3 billion, or 4%, from the prior year. The increase in both periods was
driven by higher compensation expense and additional operating costs relating to the Bear Stearns
merger, partially offset in the first nine months of 2008 by lower performance-based incentives.
The increase in Compensation expense for the third quarter and first nine months of 2008 was
predominantly driven by the merger with Bear Stearns and additional headcount due to investments in
the businesses. The increase in compensation expense for the first nine months of 2008 was
partially offset by lower performance-based incentives.
The increase in occupancy expense from the third quarter and first nine months of 2007 was driven
by the merger with Bear Stearns.
Technology, communications and equipment expense increased compared with the third quarter and
first nine months of 2007, due to additional operating costs related to the Bear Stearns merger,
the impact of business and volume growth and increased depreciation expense on owned automobiles
subject to operating leases in the Auto Finance business.
Professional & outside services rose from the third quarter and first nine months of 2007,
reflecting higher expense related to business and volume growth, including higher brokerage
expense in IB, partly from the Bear Stearns merger, and continued investment
in new product platforms in TSS.
Marketing expense declined compared with the third quarter and first nine months of 2007,
reflecting lower credit card and retail marketing expense.
The increase in other expense from the third quarter of 2007 was due to higher mortgage reinsurance
losses, increased mortgage servicing expense and the effect of the Bear Stearns merger, partially
offset by a net reduction in litigation expense. For the first nine months of 2008, other expense
declined due largely to a net reduction of litigation expense, offset partially by the
aforementioned items.
For a discussion of amortization of intangibles and merger costs, refer to Note 18 and Note 10 on
pages 135137 and 117, respectively, of this Form 10-Q.
Income tax expense
The Firms income (loss) before income tax expense and extraordinary gain, income tax expense
(benefit) and effective tax rate were as follows for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except rate) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense and
extraordinary gain |
|
$ |
(2,187 |
) |
|
$ |
5,000 |
|
|
$ |
4,115 |
|
|
$ |
18,683 |
|
Income tax expense (benefit) |
|
|
(2,133 |
) |
|
|
1,627 |
|
|
|
(207 |
) |
|
|
6,289 |
|
Effective tax rate |
|
|
97.5 |
% |
|
|
32.5 |
% |
|
|
(5.0 |
) |
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in the effective tax rate for the third quarter and first nine 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, increased
tax credits, and the realization of a $927 million benefit from the release of deferred tax
liabilities associated with the undistributed earnings of certain non-U.S. subsidiaries that were
deemed to be reinvested indefinitely, which is discussed further in Note 26 on page 144 of this
Form 10-Q.
Extraordinary gain
The Firm recorded an extraordinary gain of $581 million in the third quarter of 2008
associated with the acquisition of the banking operations of
Washington Mutual. The transaction is
being accounted for under the purchase method of accounting in accordance with SFAS 141. The
adjusted net asset value of the banking operations after purchase accounting adjustments was higher
than the consideration paid by JPMorgan Chase, resulting in an extraordinary gain. There were no
extraordinary gains recorded in any other period in 2007 or 2008.
16
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
8992 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 3336 of this Form 10-Q. For information regarding the
securitization process, and loans and residual interests sold and securitized, see Note 16 on pages
124130 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.
17
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
Reported |
|
Credit |
|
tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,316 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,316 |
|
Principal transactions |
|
|
(2,763 |
) |
|
|
|
|
|
|
|
|
|
|
(2,763 |
) |
Lending & deposit-related fees |
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
1,168 |
|
Asset management, administration and commissions |
|
|
3,485 |
|
|
|
|
|
|
|
|
|
|
|
3,485 |
|
Securities gains |
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
424 |
|
Mortgage fees and related income |
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
457 |
|
Credit card income |
|
|
1,771 |
|
|
|
(843 |
) |
|
|
|
|
|
|
928 |
|
Other income |
|
|
(115 |
) |
|
|
|
|
|
|
323 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
5,743 |
|
|
|
(843 |
) |
|
|
323 |
|
|
|
5,223 |
|
Net interest income |
|
|
8,994 |
|
|
|
1,716 |
|
|
|
155 |
|
|
|
10,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
14,737 |
|
|
|
873 |
|
|
|
478 |
|
|
|
16,088 |
|
Provision for credit losses |
|
|
3,811 |
|
|
|
873 |
|
|
|
|
|
|
|
4,684 |
|
Provision for credit losses accounting conformity(a) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
1,976 |
|
Noninterest expense |
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax expense (benefit) and extraordinary gain |
|
|
(2,187 |
) |
|
|
|
|
|
|
478 |
|
|
|
(1,709 |
) |
Income tax expense (benefit) |
|
|
(2,133 |
) |
|
|
|
|
|
|
478 |
|
|
|
(1,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Extraordinary gain |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
527 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share(b) |
|
$ |
(0.06 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity(b) |
|
|
(1 |
)% |
|
|
|
% |
|
|
|
% |
|
|
(1 |
)% |
Return on equity less goodwill(b) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Return on assets(b) |
|
|
(0.01 |
) |
|
|
NM |
|
|
|
NM |
|
|
|
(0.01 |
) |
Overhead ratio |
|
|
76 |
|
|
|
NM |
|
|
|
NM |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
Reported |
|
Credit |
|
tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,336 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,336 |
|
Principal transactions |
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
Lending & deposit-related fees |
|
|
1,026 |
|
|
|
|
|
|
|
|
|
|
|
1,026 |
|
Asset management, administration and commissions |
|
|
3,663 |
|
|
|
|
|
|
|
|
|
|
|
3,663 |
|
Securities gains |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
Mortgage fees and related income |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
221 |
|
Credit card income |
|
|
1,777 |
|
|
|
(836 |
) |
|
|
|
|
|
|
941 |
|
Other income |
|
|
289 |
|
|
|
|
|
|
|
192 |
|
|
|
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
9,199 |
|
|
|
(836 |
) |
|
|
192 |
|
|
|
8,555 |
|
Net interest income |
|
|
6,913 |
|
|
|
1,414 |
|
|
|
95 |
|
|
|
8,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
16,112 |
|
|
|
578 |
|
|
|
287 |
|
|
|
16,977 |
|
Provision for credit losses |
|
|
1,785 |
|
|
|
578 |
|
|
|
|
|
|
|
2,363 |
|
Noninterest expense |
|
|
9,327 |
|
|
|
|
|
|
|
|
|
|
|
9,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and extraordinary gain |
|
|
5,000 |
|
|
|
|
|
|
|
287 |
|
|
|
5,287 |
|
Income tax expense |
|
|
1,627 |
|
|
|
|
|
|
|
287 |
|
|
|
1,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
|
3,373 |
|
|
|
|
|
|
|
|
|
|
|
3,373 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,373 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(b) |
|
$ |
0.97 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity(b) |
|
|
11 |
% |
|
|
|
% |
|
|
|
% |
|
|
11 |
% |
Return on equity less goodwill(b) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Return on assets(b) |
|
|
0.91 |
|
|
|
NM |
|
|
|
NM |
|
|
|
0.87 |
|
Overhead ratio |
|
|
58 |
|
|
|
NM |
|
|
|
NM |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
Reported |
|
Credit |
|
tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
4,144 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,144 |
|
Principal transactions |
|
|
(2,814 |
) |
|
|
|
|
|
|
|
|
|
|
(2,814 |
) |
Lending & deposit-related fees |
|
|
3,312 |
|
|
|
|
|
|
|
|
|
|
|
3,312 |
|
Asset management, administration and commissions |
|
|
10,709 |
|
|
|
|
|
|
|
|
|
|
|
10,709 |
|
Securities gains |
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
Mortgage fees and related income |
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
1,678 |
|
Credit card income |
|
|
5,370 |
|
|
|
(2,623 |
) |
|
|
|
|
|
|
2,747 |
|
Other income |
|
|
1,576 |
|
|
|
|
|
|
|
773 |
|
|
|
2,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
25,079 |
|
|
|
(2,623 |
) |
|
|
773 |
|
|
|
23,229 |
|
Net interest income |
|
|
24,947 |
|
|
|
5,007 |
|
|
|
481 |
|
|
|
30,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
50,026 |
|
|
|
2,384 |
|
|
|
1,254 |
|
|
|
53,664 |
|
Provision for credit losses |
|
|
11,690 |
|
|
|
2,384 |
|
|
|
|
|
|
|
14,074 |
|
Provision for credit losses accounting conformity(a) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
1,976 |
|
Noninterest expense |
|
|
32,245 |
|
|
|
|
|
|
|
|
|
|
|
32,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit) and
extraordinary gain |
|
|
4,115 |
|
|
|
|
|
|
|
1,254 |
|
|
|
5,369 |
|
Income tax expense (benefit) |
|
|
(207 |
) |
|
|
|
|
|
|
1,254 |
|
|
|
1,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
|
4,322 |
|
|
|
|
|
|
|
|
|
|
|
4,322 |
|
Extraordinary gain |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,903 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(b) |
|
$ |
1.15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity(b) |
|
|
4 |
% |
|
|
|
% |
|
|
|
% |
|
|
4 |
% |
Return on equity less goodwill(b) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Return on assets(b) |
|
|
0.35 |
|
|
|
NM |
|
|
|
NM |
|
|
|
0.33 |
|
Overhead ratio |
|
|
64 |
|
|
|
NM |
|
|
|
NM |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
Fully |
|
|
|
|
|
Reported |
|
Credit |
|
tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
4,973 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,973 |
|
Principal transactions |
|
|
8,850 |
|
|
|
|
|
|
|
|
|
|
|
8,850 |
|
Lending & deposit-related fees |
|
|
2,872 |
|
|
|
|
|
|
|
|
|
|
|
2,872 |
|
Asset management, administration and commissions |
|
|
10,460 |
|
|
|
|
|
|
|
|
|
|
|
10,460 |
|
Securities gains |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Mortgage fees and related income |
|
|
1,220 |
|
|
|
|
|
|
|
|
|
|
|
1,220 |
|
Credit card income |
|
|
5,054 |
|
|
|
(2,370 |
) |
|
|
|
|
|
|
2,684 |
|
Other income |
|
|
1,360 |
|
|
|
|
|
|
|
501 |
|
|
|
1,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
34,805 |
|
|
|
(2,370 |
) |
|
|
501 |
|
|
|
32,936 |
|
Net interest income |
|
|
19,183 |
|
|
|
4,131 |
|
|
|
287 |
|
|
|
23,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
53,988 |
|
|
|
1,761 |
|
|
|
788 |
|
|
|
56,537 |
|
Provision for credit losses |
|
|
4,322 |
|
|
|
1,761 |
|
|
|
|
|
|
|
6,083 |
|
Noninterest expense |
|
|
30,983 |
|
|
|
|
|
|
|
|
|
|
|
30,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and extraordinary gain |
|
|
18,683 |
|
|
|
|
|
|
|
788 |
|
|
|
19,471 |
|
Income tax expense |
|
|
6,289 |
|
|
|
|
|
|
|
788 |
|
|
|
7,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before extraordinary gain |
|
|
12,394 |
|
|
|
|
|
|
|
|
|
|
|
12,394 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,394 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(b) |
|
$ |
3.52 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity(b) |
|
|
14 |
% |
|
|
|
% |
|
|
|
% |
|
|
14 |
% |
Return on equity less goodwill(b) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Return on assets(b) |
|
|
1.16 |
|
|
|
NM |
|
|
|
NM |
|
|
|
1.11 |
|
Overhead ratio |
|
|
57 |
|
|
|
NM |
|
|
|
NM |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2008 |
|
2007 |
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Period-end |
|
$ |
761,381 |
|
|
$ |
93,664 |
(d) |
|
$ |
855,045 |
|
|
$ |
486,320 |
|
|
$ |
69,643 |
|
|
$ |
555,963 |
|
Total assets average |
|
|
1,756,359 |
|
|
|
75,712 |
|
|
|
1,832,071 |
|
|
|
1,477,334 |
|
|
|
66,100 |
|
|
|
1,543,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2008 |
|
2007 |
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Period-end |
|
$ |
761,381 |
|
|
$ |
93,664 |
(d) |
|
$ |
855,045 |
|
|
$ |
486,320 |
|
|
$ |
69,643 |
|
|
$ |
555,963 |
|
Total assets average |
|
|
1,665,285 |
|
|
|
73,966 |
|
|
|
1,739,251 |
|
|
|
1,429,772 |
|
|
|
65,715 |
|
|
|
1,495,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
(b) |
|
Based upon income (loss) before extraordinary gain. |
(c) |
|
Credit card securitizations affect CS. See pages 3336 of this Form 10-Q for further
information. |
(d) |
|
Included securitized loans acquired in the Washington Mutual transaction of $11.9 billion at
September 30, 2008. |
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 3839 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.
Capital allocation
Line of business equity increased during the second quarter of 2008 in IB and AM due to the Bear
Stearns merger, and for AM, the purchase of the additional equity
interest in Highbridge. At the end of the third quarter of 2008, equity was increased for each line of
business with a view toward the future implementation of the new
Basel II capital rules. For further details
on these rules, see Basel II on page 57 of this Form 10-Q. In addition, capital allocated to RFS, CS,
and CB was increased as a result of the acquisition of Washington Mutuals banking operations.
20
Effect of Washington Mutual on business segment presentation
The effects of Washington Mutuals banking operations are not included in the following business
segment results as such operations did not have a material effect on the results of the quarter
ended September 30, 2008, except with respect to the charge to conform Washington Mutuals loan loss reserves and
the extraordinary gain related to the transaction, both of which are reflected for JPMorgan Chase in the
Corporate/Private Equity segment. Information regarding Washington Mutuals banking operations is
presented in this section on pages 4950 of this Form 10-Q.
Segment Results Managed Basis(a)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
September 30, |
|
Total net revenue |
|
Noninterest expense |
|
Net income (loss) |
|
on equity |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Bank |
|
$ |
4,035 |
|
|
$ |
2,946 |
|
|
|
37 |
% |
|
$ |
3,816 |
|
|
$ |
2,378 |
|
|
|
60 |
% |
|
$ |
882 |
|
|
$ |
296 |
|
|
|
198 |
% |
|
|
13 |
% |
|
|
6 |
% |
Retail Financial Services |
|
|
4,875 |
|
|
|
4,201 |
|
|
|
16 |
|
|
|
2,772 |
|
|
|
2,469 |
|
|
|
12 |
|
|
|
247 |
|
|
|
639 |
|
|
|
(61 |
) |
|
|
6 |
|
|
|
16 |
|
Card Services |
|
|
3,887 |
|
|
|
3,867 |
|
|
|
1 |
|
|
|
1,194 |
|
|
|
1,262 |
|
|
|
(5 |
) |
|
|
292 |
|
|
|
786 |
|
|
|
(63 |
) |
|
|
8 |
|
|
|
22 |
|
Commercial Banking |
|
|
1,125 |
|
|
|
1,009 |
|
|
|
11 |
|
|
|
486 |
|
|
|
473 |
|
|
|
3 |
|
|
|
312 |
|
|
|
258 |
|
|
|
21 |
|
|
|
18 |
|
|
|
15 |
|
Treasury & Securities Services |
|
|
1,953 |
|
|
|
1,748 |
|
|
|
12 |
|
|
|
1,339 |
|
|
|
1,134 |
|
|
|
18 |
|
|
|
406 |
|
|
|
360 |
|
|
|
13 |
|
|
|
46 |
|
|
|
48 |
|
Asset Management |
|
|
1,961 |
|
|
|
2,205 |
|
|
|
(11 |
) |
|
|
1,362 |
|
|
|
1,366 |
|
|
|
|
|
|
|
351 |
|
|
|
521 |
|
|
|
(33 |
) |
|
|
25 |
|
|
|
52 |
|
Corporate/Private Equity(b) |
|
|
(1,748 |
) |
|
|
1,001 |
|
|
|
NM |
|
|
|
168 |
|
|
|
245 |
|
|
|
(31 |
) |
|
|
(1,963 |
) |
|
|
513 |
|
|
|
NM |
|
|
|
NM |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,088 |
|
|
$ |
16,977 |
|
|
|
(5 |
)% |
|
$ |
11,137 |
|
|
$ |
9,327 |
|
|
|
19 |
% |
|
$ |
527 |
|
|
$ |
3,373 |
|
|
|
(84 |
)% |
|
|
1 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
September 30, |
|
Total net revenue |
|
Noninterest expense |
|
Net income (loss) |
|
on equity |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Bank |
|
$ |
12,516 |
|
|
$ |
14,998 |
|
|
|
(17 |
)% |
|
$ |
11,103 |
|
|
$ |
10,063 |
|
|
|
10 |
% |
|
$ |
1,189 |
|
|
$ |
3,015 |
|
|
|
(61 |
)% |
|
|
7 |
% |
|
|
19 |
% |
Retail Financial Services |
|
|
14,592 |
|
|
|
12,664 |
|
|
|
15 |
|
|
|
8,012 |
|
|
|
7,360 |
|
|
|
9 |
|
|
|
626 |
|
|
|
2,283 |
|
|
|
(73 |
) |
|
|
5 |
|
|
|
19 |
|
Card Services |
|
|
11,566 |
|
|
|
11,264 |
|
|
|
3 |
|
|
|
3,651 |
|
|
|
3,691 |
|
|
|
(1 |
) |
|
|
1,151 |
|
|
|
2,310 |
|
|
|
(50 |
) |
|
|
11 |
|
|
|
22 |
|
Commercial Banking |
|
|
3,298 |
|
|
|
3,019 |
|
|
|
9 |
|
|
|
1,447 |
|
|
|
1,454 |
|
|
|
|
|
|
|
959 |
|
|
|
846 |
|
|
|
13 |
|
|
|
18 |
|
|
|
18 |
|
Treasury & Securities Services |
|
|
5,885 |
|
|
|
5,015 |
|
|
|
17 |
|
|
|
3,884 |
|
|
|
3,358 |
|
|
|
16 |
|
|
|
1,234 |
|
|
|
975 |
|
|
|
27 |
|
|
|
47 |
|
|
|
43 |
|
Asset Management |
|
|
5,926 |
|
|
|
6,246 |
|
|
|
(5 |
) |
|
|
4,085 |
|
|
|
3,956 |
|
|
|
3 |
|
|
|
1,102 |
|
|
|
1,439 |
|
|
|
(23 |
) |
|
|
28 |
|
|
|
50 |
|
Corporate/Private Equity(b) |
|
|
(119 |
) |
|
|
3,331 |
|
|
|
NM |
|
|
|
63 |
|
|
|
1,101 |
|
|
|
(94 |
) |
|
|
(1,358 |
) |
|
|
1,526 |
|
|
|
NM |
|
|
|
NM |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
53,664 |
|
|
$ |
56,537 |
|
|
|
(5 |
)% |
|
$ |
32,245 |
|
|
$ |
30,983 |
|
|
|
4 |
% |
|
$ |
4,903 |
|
|
$ |
12,394 |
|
|
|
(60 |
)% |
|
|
5 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit
card securitizations. |
(b) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision of
$1.2 billion (after-tax) and an extraordinary gain of $581 million related to the
Washington Mutual transaction, as well as losses on preferred equity interests in Fannie Mae
and Freddie Mac. |
21
INVESTMENT BANK
For a discussion of the business profile of the IB, see pages 4042 of JPMorgan Chases 2007
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,593 |
|
|
$ |
1,330 |
|
|
|
20 |
% |
|
$ |
4,534 |
|
|
$ |
4,959 |
|
|
|
(9 |
)% |
Principal transactions |
|
|
(922 |
) |
|
|
(435 |
) |
|
|
(112 |
) |
|
|
(882 |
) |
|
|
5,032 |
|
|
|
NM |
|
Lending & deposit-related fees |
|
|
118 |
|
|
|
118 |
|
|
|
|
|
|
|
325 |
|
|
|
304 |
|
|
|
7 |
|
Asset management, administration
and commissions |
|
|
847 |
|
|
|
712 |
|
|
|
19 |
|
|
|
2,300 |
|
|
|
1,996 |
|
|
|
15 |
|
All other income |
|
|
(279 |
) |
|
|
(76 |
) |
|
|
(267 |
) |
|
|
(571 |
) |
|
|
88 |
|
|
|
NM |
|
|
|
|
|
Noninterest revenue |
|
|
1,357 |
|
|
|
1,649 |
|
|
|
(18 |
) |
|
|
5,706 |
|
|
|
12,379 |
|
|
|
(54 |
) |
Net interest income |
|
|
2,678 |
|
|
|
1,297 |
|
|
|
106 |
|
|
|
6,810 |
|
|
|
2,619 |
|
|
|
160 |
|
|
|
|
|
Total net revenue(a) |
|
|
4,035 |
|
|
|
2,946 |
|
|
|
37 |
|
|
|
12,516 |
|
|
|
14,998 |
|
|
|
(17 |
) |
Provision for credit losses |
|
|
234 |
|
|
|
227 |
|
|
|
3 |
|
|
|
1,250 |
|
|
|
454 |
|
|
|
175 |
|
Credit reimbursement from TSS(b) |
|
|
31 |
|
|
|
31 |
|
|
|
|
|
|
|
91 |
|
|
|
91 |
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,162 |
|
|
|
1,178 |
|
|
|
84 |
|
|
|
6,535 |
|
|
|
6,404 |
|
|
|
2 |
|
Noncompensation expense |
|
|
1,654 |
|
|
|
1,200 |
|
|
|
38 |
|
|
|
4,568 |
|
|
|
3,659 |
|
|
|
25 |
|
|
|
|
|
Total noninterest expense |
|
|
3,816 |
|
|
|
2,378 |
|
|
|
60 |
|
|
|
11,103 |
|
|
|
10,063 |
|
|
|
10 |
|
|
|
|
|
Income (loss) before income tax
expense |
|
|
16 |
|
|
|
372 |
|
|
|
(96 |
) |
|
|
254 |
|
|
|
4,572 |
|
|
|
(94 |
) |
Income tax expense (benefit)(c) |
|
|
(866 |
) |
|
|
76 |
|
|
|
NM |
|
|
|
(935 |
) |
|
|
1,557 |
|
|
|
NM |
|
|
|
|
|
Net income (loss) |
|
$ |
882 |
|
|
$ |
296 |
|
|
|
198 |
|
|
$ |
1,189 |
|
|
$ |
3,015 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
13 |
% |
|
|
6 |
% |
|
|
|
|
|
|
7 |
% |
|
|
19 |
% |
|
|
|
|
ROA |
|
|
0.39 |
|
|
|
0.17 |
|
|
|
|
|
|
|
0.19 |
|
|
|
0.59 |
|
|
|
|
|
Overhead ratio |
|
|
95 |
|
|
|
81 |
|
|
|
|
|
|
|
89 |
|
|
|
67 |
|
|
|
|
|
Compensation expense as a % of total
net revenue |
|
|
54 |
|
|
|
40 |
|
|
|
|
|
|
|
52 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
576 |
|
|
$ |
595 |
|
|
|
(3 |
) |
|
$ |
1,429 |
|
|
$ |
1,627 |
|
|
|
(12 |
) |
Equity underwriting |
|
|
518 |
|
|
|
267 |
|
|
|
94 |
|
|
|
1,419 |
|
|
|
1,169 |
|
|
|
21 |
|
Debt underwriting |
|
|
499 |
|
|
|
468 |
|
|
|
7 |
|
|
|
1,686 |
|
|
|
2,163 |
|
|
|
(22 |
) |
|
|
|
|
Total investment banking fees |
|
|
1,593 |
|
|
|
1,330 |
|
|
|
20 |
|
|
|
4,534 |
|
|
|
4,959 |
|
|
|
(9 |
) |
Fixed income markets |
|
|
815 |
|
|
|
687 |
|
|
|
19 |
|
|
|
3,628 |
|
|
|
5,724 |
|
|
|
(37 |
) |
Equity markets |
|
|
1,650 |
|
|
|
537 |
|
|
|
207 |
|
|
|
3,705 |
|
|
|
3,325 |
|
|
|
11 |
|
Credit portfolio |
|
|
(23 |
) |
|
|
392 |
|
|
|
NM |
|
|
|
649 |
|
|
|
990 |
|
|
|
(34 |
) |
|
|
|
|
Total net revenue |
|
$ |
4,035 |
|
|
$ |
2,946 |
|
|
|
37 |
|
|
$ |
12,516 |
|
|
$ |
14,998 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
1,052 |
|
|
$ |
1,016 |
|
|
|
4 |
|
|
$ |
4,753 |
|
|
$ |
7,037 |
|
|
|
(32 |
) |
Europe/Middle East/Africa |
|
|
2,509 |
|
|
|
1,389 |
|
|
|
81 |
|
|
|
5,662 |
|
|
|
5,967 |
|
|
|
(5 |
) |
Asia/Pacific |
|
|
474 |
|
|
|
541 |
|
|
|
(12 |
) |
|
|
2,101 |
|
|
|
1,994 |
|
|
|
5 |
|
|
|
|
|
Total net revenue |
|
$ |
4,035 |
|
|
$ |
2,946 |
|
|
|
37 |
|
|
$ |
12,516 |
|
|
$ |
14,998 |
|
|
|
(17 |
) |
|
|
|
|
(a) |
|
Total net revenue included tax-equivalent adjustments, predominantly due to income tax
credits related to affordable housing investments and tax-exempt income from municipal bond
investments of $427 million and $255 million for the quarters ended September 30, 2008 and
2007, respectively, and $1.1 billion and $697 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. |
(c) |
|
The income tax benefit in the third quarter and year-to-date 2008 is predominantly the
result of reduced deferred tax liabilities on overseas earnings. |
22
Quarterly results
Net income was $882 million, an increase of $586 million from the prior year. The improved results
reflected an increase in net revenue and the benefit of reduced deferred tax liabilities offset
largely by increased noninterest expense.
Net revenue was $4.0 billion, an increase of $1.1 billion, or 37%, from the prior year. Investment
banking fees were $1.6 billion, up 20% from the prior year. Advisory fees were $576 million, down
3% from the prior year, reflecting decreased levels of activity. Debt underwriting fees were $499
million, up 7%. Equity underwriting fees were $518 million, up 94% from the prior year. Fixed
Income Markets revenue was $815 million, up 19% from the prior year. The increase was driven by
record results in rates and currencies, and strong performance in credit trading, emerging markets,
and commodities, as well as gains of $343 million from the widening of the Firms credit spread on
certain structured liabilities. Largely offsetting these results were mortgage-related net
markdowns of $2.6 billion, as well as $1.0 billion of net markdowns on leveraged lending funded and
unfunded commitments. Equity Markets revenue was a record $1.7 billion, up $1.1 billion from the
prior year, driven by strong trading results and client revenue, as well as a gain of $429 million
from the widening of the Firms credit spread on certain structured liabilities. Credit Portfolio
revenue was a loss of $23 million, down $415 million from the prior year, reflecting net markdowns
due to wider counterparty credit spreads and fewer gains from loan workouts, largely offset by
higher net interest income and increased revenue from risk management activities.
The provision for credit losses was $234 million, compared with $227 million in the prior year,
reflecting a weakening credit environment. Net charge-offs were $13 million, compared with $67
million in the prior year. The allowance for loan losses to total average loans retained was 3.85%
for the current quarter, an increase from 1.80% in the prior year.
Average loans retained were $69.0 billion, an increase of $7.1 billion, or 11%, from the prior
year, largely driven by growth in acquisition finance activity, including leveraged lending.
Average fair value and held-for-sale loans were $17.6 billion, up $297 million, or 2%, from the
prior year.
Noninterest expense was $3.8 billion, an increase of $1.4 billion, or 60%, from the prior year,
largely driven by higher compensation expense and additional operating costs relating to the Bear
Stearns merger.
Year-to-date results
Net income was $1.2 billion, down 61%, or $1.8 billion, from the prior year. The lower results
reflected a decline in total net revenue and higher noninterest expense and provision for credit
losses, partially offset by the benefit of reduced deferred tax liabilities.
Total net revenue was $12.5 billion, a decrease of $2.5 billion, or 17%, from the prior year.
Investment banking fees were $4.5 billion, down 9% from the prior year, predominantly reflecting
lower debt underwriting and advisory fees. Debt underwriting fees of $1.7 billion were down 22%,
driven by lower loan syndication and bond underwriting fees, reflecting market conditions. Advisory
fees of $1.4 billion were down 12% from the prior year reflecting decreased levels of activity.
Equity underwriting fees were $1.4 billion, an increase of 21% from the prior year. Fixed Income
Markets revenue was $3.6 billion, down $2.1 billion, or 37%, from the prior year driven largely by
mortgage-related net markdowns of approximately $4.7 billion and net markdowns of $2.8 billion on
leveraged lending funded and unfunded commitments. These markdowns were partially offset by strong
performance in credit trading, commodities, rates, and emerging markets as well as gains of $1.2
billion from the widening of the Firms credit spread on certain structured liabilities. Equity
Markets revenue was $3.7 billion, up $380 million, or 11% from the prior year, driven by strong
trading results and client revenue, as well as a gain of $865 million from the widening of the
Firms credit spread on certain structured liabilities. Credit Portfolio revenue was $649 million,
down $341 million, or 34% from the prior year, reflecting net markdowns due to wider counterparty
credit spreads and fewer gains from loan workouts, largely offset by higher net interest income and
increased revenue from risk management activities.
The provision for credit losses was $1.3 billion, compared with $454 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
average loans retained was 3.63% compared with 1.85% in the prior year.
Total average loans retained were $73.1 billion, an increase of $13.1 billion, or 22%, from the
prior year, principally driven by growth in acquisition finance activity, including leveraged
lending, as well as liquidity financing. Average fair value and held-for-sale loans were $19.2
billion, up $3.9 billion, or 26%, from the prior year.
Noninterest expense was $11.1 billion, an increase of $1.0 billion, or 10%, from the prior year,
driven by higher noncompensation expense and the Bear Stearns merger.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
33,000 |
|
|
$ |
21,000 |
|
|
|
57 |
% |
|
$ |
33,000 |
|
|
$ |
21,000 |
|
|
|
57 |
% |
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
890,040 |
|
|
$ |
710,665 |
|
|
|
25 |
|
|
$ |
820,497 |
|
|
$ |
688,730 |
|
|
|
19 |
|
Trading assetsdebt and equity instruments |
|
|
360,821 |
|
|
|
372,212 |
|
|
|
(3 |
) |
|
|
365,802 |
|
|
|
355,708 |
|
|
|
3 |
|
Trading assetsderivatives receivables |
|
|
105,462 |
|
|
|
63,017 |
|
|
|
67 |
|
|
|
98,390 |
|
|
|
59,336 |
|
|
|
66 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
69,022 |
|
|
|
61,919 |
|
|
|
11 |
|
|
|
73,107 |
|
|
|
59,996 |
|
|
|
22 |
|
Loans held-for-sale and loans at fair value |
|
|
17,612 |
|
|
|
17,315 |
|
|
|
2 |
|
|
|
19,215 |
|
|
|
15,278 |
|
|
|
26 |
|
|
|
|
|
Total loans |
|
|
86,634 |
|
|
|
79,234 |
|
|
|
9 |
|
|
|
92,322 |
|
|
|
75,274 |
|
|
|
23 |
|
Adjusted assets(b) |
|
|
694,459 |
|
|
|
625,619 |
|
|
|
11 |
|
|
|
677,945 |
|
|
|
600,688 |
|
|
|
13 |
|
Equity |
|
|
26,000 |
|
|
|
21,000 |
|
|
|
24 |
|
|
|
23,781 |
|
|
|
21,000 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
30,989 |
|
|
|
25,691 |
|
|
|
21 |
|
|
|
30,989 |
|
|
|
25,691 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
13 |
|
|
$ |
67 |
|
|
|
(81 |
) |
|
$ |
18 |
|
|
$ |
45 |
|
|
|
(60 |
) |
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans(c) |
|
|
436 |
|
|
|
265 |
|
|
|
65 |
|
|
|
436 |
|
|
|
265 |
|
|
|
65 |
|
Other nonperforming assets |
|
|
147 |
|
|
|
60 |
|
|
|
145 |
|
|
|
147 |
|
|
|
60 |
|
|
|
145 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
2,654 |
|
|
|
1,112 |
|
|
|
139 |
|
|
|
2,654 |
|
|
|
1,112 |
|
|
|
139 |
|
Allowance for lending-related
commitments |
|
|
463 |
|
|
|
568 |
|
|
|
(18 |
) |
|
|
463 |
|
|
|
568 |
|
|
|
(18 |
) |
|
|
|
|
Total allowance for credit losses |
|
|
3,117 |
|
|
|
1,680 |
|
|
|
86 |
|
|
|
3,117 |
|
|
|
1,680 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate(c)(d) |
|
|
0.07 |
% |
|
|
0.43 |
% |
|
|
|
|
|
|
0.03 |
% |
|
|
0.10 |
% |
|
|
|
|
Allowance for loan losses to average
loans(c)(d) |
|
|
3.85 |
|
|
|
1.80 |
|
|
|
|
|
|
|
3.63 |
(i) |
|
|
1.85 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans(c) |
|
|
657 |
|
|
|
585 |
|
|
|
|
|
|
|
657 |
|
|
|
585 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.50 |
|
|
|
0.33 |
|
|
|
|
|
|
|
0.47 |
|
|
|
0.35 |
|
|
|
|
|
Market riskaverage trading
and credit portfolio VaR(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
183 |
|
|
$ |
98 |
|
|
|
87 |
|
|
$ |
150 |
|
|
$ |
72 |
|
|
|
108 |
|
Foreign exchange |
|
|
20 |
|
|
|
23 |
|
|
|
(13 |
) |
|
|
27 |
|
|
|
21 |
|
|
|
29 |
|
Equities |
|
|
80 |
|
|
|
35 |
|
|
|
129 |
|
|
|
47 |
|
|
|
43 |
|
|
|
9 |
|
Commodities and other |
|
|
41 |
|
|
|
28 |
|
|
|
46 |
|
|
|
33 |
|
|
|
34 |
|
|
|
(3 |
) |
Diversification(f) |
|
|
(104 |
) |
|
|
(72 |
) |
|
|
(44 |
) |
|
|
(95 |
) |
|
|
(68 |
) |
|
|
(40 |
) |
|
|
|
|
Total trading VaR(g) |
|
|
220 |
|
|
|
112 |
|
|
|
96 |
|
|
|
162 |
|
|
|
102 |
|
|
|
59 |
|
Credit portfolio VaR(h) |
|
|
47 |
|
|
|
17 |
|
|
|
176 |
|
|
|
38 |
|
|
|
14 |
|
|
|
171 |
|
Diversification(f) |
|
|
(49 |
) |
|
|
(22 |
) |
|
|
(123 |
) |
|
|
(39 |
) |
|
|
(16 |
) |
|
|
(144 |
) |
|
|
|
|
Total trading and credit portfolio VaR |
|
$ |
218 |
|
|
$ |
107 |
|
|
|
104 |
|
|
$ |
161 |
|
|
$ |
100 |
|
|
|
61 |
|
|
|
|
|
(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. The IB believes an adjusted asset amount that excludes the assets discussed above,
which were considered to have a low risk profile, provides a more meaningful measure of
balance sheet leverage in the securities industry. |
(c) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $32 million and
$75 million at September 30, 2008 and 2007, respectively, which were excluded from the
allowance coverage ratios. Nonperforming loans excluded distressed loans held-for-sale that
were purchased as part of IBs proprietary activities. |
(d) |
|
Loans held-for-sale and loans at fair value were excluded when calculating the allowance
coverage ratio and net charge-off (recovery) rate. |
(e) |
|
Results for year-to-date 2008 include four months of the combined Firms (JPMorgan Chases
and Bear Stearns) results and five 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 8084 of this Form 10-Q. |
24
|
|
|
(f) |
|
Average VaRs were less than the sum of the VaRs of their market risk components, which was
due to risk offsets resulting from portfolio diversification. The diversification effect
reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks of the positions themselves. |
(g) |
|
Trading VaR includes predominantly all trading activities in IB; however, particular risk
parameters of certain products are not fully captured, for example, correlation risk 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 83 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. This VaR does not include the retained loan
portfolio. |
(i) |
|
Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio
would be 3.76% for year-to-date 2008. The average balance of the loan extended to Bear Stearns
was $2.6 billion for year-to-date 2008. The allowance for loan losses to period-end loans was
3.70% at September 30, 2008. |
According to Thomson Reuters, for the first nine 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
Full Year 2007 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global debt, equity and equity-related |
|
|
10 |
% |
|
|
#1 |
|
|
|
8 |
% |
|
|
#2 |
|
Global syndicated loans |
|
|
12 |
|
|
|
#1 |
|
|
|
13 |
|
|
|
#1 |
|
Global long-term debt(b) |
|
|
9 |
|
|
|
#1 |
|
|
|
7 |
|
|
|
#3 |
|
Global equity and equity-related(c) |
|
|
12 |
|
|
|
#1 |
|
|
|
9 |
|
|
|
#2 |
|
Global announced M&A(d) |
|
|
24 |
|
|
|
#3 |
|
|
|
27 |
|
|
|
#4 |
|
U.S. debt, equity and equity-related |
|
|
15 |
|
|
|
#1 |
|
|
|
10 |
|
|
|
#2 |
|
U.S. syndicated loans |
|
|
27 |
|
|
|
#1 |
|
|
|
24 |
|
|
|
#1 |
|
U.S. long-term debt(b) |
|
|
15 |
|
|
|
#1 |
|
|
|
10 |
|
|
|
#2 |
|
U.S. equity and equity-related(c) |
|
|
17 |
|
|
|
#1 |
|
|
|
11 |
|
|
|
#5 |
|
U.S. announced M&A(d) |
|
|
33 |
|
|
|
#3 |
|
|
|
28 |
|
|
|
#3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Source: Thomson Reuters. The results for the nine months ended September 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. |
25
RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 4348 of JPMorgan Chases 2007
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
538 |
|
|
$ |
492 |
|
|
|
9 |
% |
|
$ |
1,496 |
|
|
$ |
1,385 |
|
|
|
8 |
% |
Asset management, administration and
commissions |
|
|
346 |
|
|
|
336 |
|
|
|
3 |
|
|
|
1,098 |
|
|
|
943 |
|
|
|
16 |
|
Mortgage fees and related income |
|
|
437 |
|
|
|
229 |
|
|
|
91 |
|
|
|
1,658 |
|
|
|
1,206 |
|
|
|
37 |
|
Credit card income |
|
|
204 |
|
|
|
167 |
|
|
|
22 |
|
|
|
572 |
|
|
|
472 |
|
|
|
21 |
|
Other income |
|
|
206 |
|
|
|
296 |
|
|
|
(30 |
) |
|
|
558 |
|
|
|
687 |
|
|
|
(19 |
) |
|
|
|
|
Noninterest revenue |
|
|
1,731 |
|
|
|
1,520 |
|
|
|
14 |
|
|
|
5,382 |
|
|
|
4,693 |
|
|
|
15 |
|
Net interest income |
|
|
3,144 |
|
|
|
2,681 |
|
|
|
17 |
|
|
|
9,210 |
|
|
|
7,971 |
|
|
|
16 |
|
|
|
|
|
Total net revenue |
|
|
4,875 |
|
|
|
4,201 |
|
|
|
16 |
|
|
|
14,592 |
|
|
|
12,664 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,678 |
|
|
|
680 |
|
|
|
147 |
|
|
|
5,502 |
|
|
|
1,559 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,120 |
|
|
|
1,087 |
|
|
|
3 |
|
|
|
3,464 |
|
|
|
3,256 |
|
|
|
6 |
|
Noncompensation expense |
|
|
1,552 |
|
|
|
1,265 |
|
|
|
23 |
|
|
|
4,248 |
|
|
|
3,753 |
|
|
|
13 |
|
Amortization of intangibles |
|
|
100 |
|
|
|
117 |
|
|
|
(15 |
) |
|
|
300 |
|
|
|
351 |
|
|
|
(15 |
) |
|
|
|
|
Total noninterest expense |
|
|
2,772 |
|
|
|
2,469 |
|
|
|
12 |
|
|
|
8,012 |
|
|
|
7,360 |
|
|
|
9 |
|
|
|
|
|
Income before income tax expense |
|
|
425 |
|
|
|
1,052 |
|
|
|
(60 |
) |
|
|
1,078 |
|
|
|
3,745 |
|
|
|
(71 |
) |
Income tax expense |
|
|
178 |
|
|
|
413 |
|
|
|
(57 |
) |
|
|
452 |
|
|
|
1,462 |
|
|
|
(69 |
) |
|
|
|
|
Net income |
|
$ |
247 |
|
|
$ |
639 |
|
|
|
(61 |
) |
|
$ |
626 |
|
|
$ |
2,283 |
|
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
6 |
% |
|
|
16 |
% |
|
|
|
|
|
|
5 |
% |
|
|
19 |
% |
|
|
|
|
Overhead ratio |
|
|
57 |
|
|
|
59 |
|
|
|
|
|
|
|
55 |
|
|
|
58 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a) |
|
|
55 |
|
|
|
56 |
|
|
|
|
|
|
|
53 |
|
|
|
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 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 $116
million for the quarters ended September 30, 2008 and 2007, respectively, and $297 million and
$347 million for year-to-date September 30, 2008 and 2007, respectively. |
Quarterly results
Net income was $247 million, a decrease of $392 million, or 61%, reflecting a significant increase
in the provision for credit losses in Regional Banking and higher noninterest expense in Mortgage
Banking. These factors were offset partially by revenue growth in all businesses.
Net revenue was $4.9 billion, an increase of $674 million, or 16%, from the prior year. Net
interest income was $3.1 billion, up $463 million, or 17%, due to higher loan and deposit balances
and wider deposit spreads. Noninterest revenue was $1.7 billion, up $211 million, or 14%, as higher
net mortgage servicing revenue and increased deposit-related fees were offset partially by declines
in education loan sales.
The provision for credit losses was $1.7 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 $663 million (2.78% net charge-off
rate), compared with $150 million (0.65% net charge-off rate) in the prior year. Subprime mortgage
net charge-offs were $273 million (7.65% net charge-off rate), compared with $40 million (1.62% net
charge-off rate) in the prior year. Prime mortgage net charge-offs (including net charge-offs
reflected in the Corporate segment) were $177 million (1.51% net charge-off rate), compared with $9
million (0.11% net charge-off rate) in the prior year. The current-quarter provision includes an
increase in the allowance for loan losses of $450 million due to increases in estimated losses in
the subprime and home equity mortgage portfolios. An additional $250 million increase in the
allowance for loan losses for prime mortgage loans has been reflected in the Corporate segment.
26
Noninterest expense was $2.8 billion, an increase of $303 million, or 12%, from the prior year,
reflecting higher mortgage reinsurance losses and increased servicing expense.
Year-to-date results
Net income was $626 million, a decrease of $1.7 billion, or 73%, reflecting a significant increase
in the provision for credit losses in Regional Banking and higher noninterest expense in Mortgage
Banking. These factors were offset partially by revenue growth in all businesses.
Net revenue was $14.6 billion, an increase of $1.9 billion, or 15%, from the prior year. Net
interest income was $9.2 billion, up $1.2 billion, or 16%, due to higher loan and deposit balances
and wider loan and deposit spreads. Noninterest revenue was $5.4 billion, up $689 million, or 15%,
as higher mortgage banking revenue and increased deposit-related fees were offset partially by
declines in education loan sales.
The provision for credit losses was $5.5 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 $1.6 billion (2.28% net charge-off
rate), compared with $316 million (0.47% net charge-off rate) in the prior year. Subprime mortgage
net charge-offs were $614 million (5.43% net charge-off rate), compared with $86 million (1.28% net
charge-off rate) in the prior year. Prime mortgage net charge-offs (including net charge-offs
reflected in the Corporate segment) were $331 million (0.98% net charge-off rate), compared with
$16 million (0.07% net charge-off rate) in the prior year. The year-to-date provision includes
increases in the allowance for loan losses of $1.2 billion for home equity loans and $1.3 billion
for prime and subprime mortgage loans due to increases in estimated losses for these portfolios. An
additional $580 million increase in the allowance for loan losses for prime mortgage loans has been
reflected in the Corporate segment.
Noninterest expense was $8.0 billion, an increase of $652 million, or 9%, from the prior year,
reflecting higher mortgage reinsurance losses, increased servicing expense and investment in the
retail distribution network.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
228,982 |
|
|
$ |
216,754 |
|
|
|
6 |
% |
|
$ |
228,982 |
|
|
$ |
216,754 |
|
|
|
6 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
187,548 |
|
|
|
172,498 |
|
|
|
9 |
|
|
|
187,548 |
|
|
|
172,498 |
|
|
|
9 |
|
Loans held-for-sale and loans at
fair value(a) |
|
|
9,655 |
|
|
|
18,274 |
|
|
|
(47 |
) |
|
|
9,655 |
|
|
|
18,274 |
|
|
|
(47 |
) |
|
|
|
|
Total loans |
|
|
197,203 |
|
|
|
190,772 |
|
|
|
3 |
|
|
|
197,203 |
|
|
|
190,772 |
|
|
|
3 |
|
Deposits |
|
|
222,574 |
|
|
|
216,135 |
|
|
|
3 |
|
|
|
222,574 |
|
|
|
216,135 |
|
|
|
3 |
|
Equity |
|
|
25,000 |
|
|
|
16,000 |
|
|
|
56 |
|
|
|
25,000 |
|
|
|
16,000 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
230,428 |
|
|
$ |
214,852 |
|
|
|
7 |
|
|
$ |
230,239 |
|
|
$ |
216,218 |
|
|
|
6 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
187,429 |
|
|
|
168,495 |
|
|
|
11 |
|
|
|
185,222 |
|
|
|
165,479 |
|
|
|
12 |
|
Loans held-for-sale and loans at
fair value(a) |
|
|
16,037 |
|
|
|
19,560 |
|
|
|
(18 |
) |
|
|
18,116 |
|
|
|
24,289 |
|
|
|
(25 |
) |
|
|
|
|
Total loans |
|
|
203,466 |
|
|
|
188,055 |
|
|
|
8 |
|
|
|
203,338 |
|
|
|
189,768 |
|
|
|
7 |
|
Deposits |
|
|
222,180 |
|
|
|
216,904 |
|
|
|
2 |
|
|
|
224,731 |
|
|
|
217,669 |
|
|
|
3 |
|
Equity |
|
|
17,000 |
|
|
|
16,000 |
|
|
|
6 |
|
|
|
17,000 |
|
|
|
16,000 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
67,265 |
|
|
|
68,528 |
|
|
|
(2 |
) |
|
|
67,265 |
|
|
|
68,528 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,196 |
|
|
$ |
350 |
|
|
|
242 |
|
|
$ |
2,926 |
|
|
$ |
805 |
|
|
|
263 |
|
Nonperforming loans(b)(c)(d) |
|
|
4,443 |
|
|
|
1,820 |
|
|
|
144 |
|
|
|
4,443 |
|
|
|
1,820 |
|
|
|
144 |
|
Nonperforming assets(b)(c)(d) |
|
|
5,131 |
|
|
|
2,232 |
|
|
|
130 |
|
|
|
5,131 |
|
|
|
2,232 |
|
|
|
130 |
|
Allowance for loan losses |
|
|
4,957 |
|
|
|
2,105 |
|
|
|
135 |
|
|
|
4,957 |
|
|
|
2,105 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(e)(f) |
|
|
2.44 |
% |
|
|
0.82 |
% |
|
|
|
|
|
|
2.05 |
% |
|
|
0.65 |
% |
|
|
|
|
Allowance for loan losses to ending
loans(e) |
|
|
2.64 |
|
|
|
1.22 |
|
|
|
|
|
|
|
2.64 |
|
|
|
1.22 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(e) |
|
|
117 |
|
|
|
117 |
|
|
|
|
|
|
|
117 |
|
|
|
117 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
2.25 |
|
|
|
0.95 |
|
|
|
|
|
|
|
2.25 |
|
|
|
0.95 |
|
|
|
|
|
|
27
|
|
|
(a) |
|
Loans held-for-sale and loans at fair value 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 $8.1 billion and $14.4 billion at
September 30, 2008 and 2007, respectively. Average loans included prime mortgage loans,
classified as trading assets on the Consolidated Balance Sheets, of $14.5 billion and $14.1
billion for the three months ended September 30, 2008 and 2007, respectively, and $14.9
billion and $11.4 billion for the nine months ended September 30, 2008 and 2007,
respectively. |
(b) |
|
Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair
value of $207 million and $17 million at September 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 Government National Mortgage Association (GNMA) pools that are insured by
U.S. government agencies of $1.8 billion and $1.3 billion at September 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
$405 million and $241 million at September 30, 2008 and 2007, respectively. These amounts
were excluded, as reimbursement is proceeding normally. |
(d) |
|
During the second quarter of 2008, the policy for classifying subprime mortgage and home
equity loans as nonperforming was changed to conform to all other home lending products.
Prior period nonperforming assets have been revised to conform to 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 nine months ended September 30, 2008, excluded
$45 million and $78 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 September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
$ |
1,049 |
|
|
$ |
1,013 |
|
|
|
4 |
% |
|
$ |
2,949 |
|
|
$ |
2,783 |
|
|
|
6 |
% |
Net interest income |
|
|
2,652 |
|
|
|
2,325 |
|
|
|
14 |
|
|
|
7,766 |
|
|
|
6,920 |
|
|
|
12 |
|
|
|
|
|
Total net revenue |
|
|
3,701 |
|
|
|
3,338 |
|
|
|
11 |
|
|
|
10,715 |
|
|
|
9,703 |
|
|
|
10 |
|
Provision for credit losses |
|
|
1,552 |
|
|
|
574 |
|
|
|
170 |
|
|
|
5,089 |
|
|
|
1,301 |
|
|
|
291 |
|
Noninterest expense |
|
|
1,773 |
|
|
|
1,760 |
|
|
|
1 |
|
|
|
5,345 |
|
|
|
5,238 |
|
|
|
2 |
|
|
|
|
|
Income before income tax expense |
|
|
376 |
|
|
|
1,004 |
|
|
|
(63 |
) |
|
|
281 |
|
|
|
3,164 |
|
|
|
(91 |
) |
Net income |
|
$ |
218 |
|
|
$ |
611 |
|
|
|
(64 |
) |
|
$ |
139 |
|
|
$ |
1,930 |
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
7 |
% |
|
|
21 |
% |
|
|
|
|
|
|
1 |
% |
|
|
22 |
% |
|
|
|
|
Overhead ratio |
|
|
48 |
|
|
|
53 |
|
|
|
|
|
|
|
50 |
|
|
|
54 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a) |
|
|
45 |
|
|
|
49 |
|
|
|
|
|
|
|
47 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
(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 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 $116
million for the quarters ended September 30, 2008 and 2007, respectively, and $297 million and
$347 million for year-to-date 2008 and 2007, respectively. |
Quarterly results
Regional Banking net income was $218 million, down $393 million, or 64%, from the prior year. Net
revenue was $3.7 billion, up $363 million, or 11%, as the benefits of higher loan and deposit
balances, wider deposit spreads and higher deposit-related fees were offset partially by declines
in education loan sales. The provision for credit losses was $1.6 billion, compared with $574
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 $13 million, or 1%, from the prior year.
Year-to-date results
Regional Banking net income was $139 million, down $1.8 billion, or 93%, from the prior year. Net
revenue was $10.7 billion, up $1.0 billion, or 10%, as the benefits of higher loan and deposit
balances, wider loan and deposit spreads and higher deposit-related fees were offset partially by
declines in education loan sales. The provision for credit losses was $5.1 billion, compared with
$1.3 billion in the prior year. The provision reflected weakness in the home equity and mortgage
portfolios (see Retail Financial Services discussion of the provision for credit losses for further
detail). Noninterest expense was $5.3 billion, up $107 million, or 2%, from the prior year, due to
investment in the retail distribution network.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in billions, except ratios and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity origination volume |
|
$ |
2.6 |
|
|
$ |
11.2 |
|
|
|
(77 |
)% |
|
$ |
14.6 |
|
|
$ |
38.5 |
|
|
|
(62 |
)% |
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
94.6 |
|
|
$ |
93.0 |
|
|
|
2 |
|
|
$ |
94.6 |
|
|
$ |
93.0 |
|
|
|
2 |
|
Mortgage(a) |
|
|
13.6 |
|
|
|
12.3 |
|
|
|
11 |
|
|
|
13.6 |
|
|
|
12.3 |
|
|
|
11 |
|
Business banking |
|
|
16.5 |
|
|
|
14.9 |
|
|
|
11 |
|
|
|
16.5 |
|
|
|
14.9 |
|
|
|
11 |
|
Education |
|
|
15.3 |
|
|
|
10.2 |
|
|
|
50 |
|
|
|
15.3 |
|
|
|
10.2 |
|
|
|
50 |
|
Other loans(b) |
|
|
1.0 |
|
|
|
2.4 |
|
|
|
(58 |
) |
|
|
1.0 |
|
|
|
2.4 |
|
|
|
(58 |
) |
|
|
|
|
Total end of period loans |
|
|
141.0 |
|
|
|
132.8 |
|
|
|
6 |
|
|
|
141.0 |
|
|
|
132.8 |
|
|
|
6 |
|
End-of-period deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
69.0 |
|
|
$ |
64.5 |
|
|
|
7 |
|
|
$ |
69.0 |
|
|
$ |
64.5 |
|
|
|
7 |
|
Savings |
|
|
105.0 |
|
|
|
95.7 |
|
|
|
10 |
|
|
|
105.0 |
|
|
|
95.7 |
|
|
|
10 |
|
Time and other |
|
|
37.5 |
|
|
|
46.5 |
|
|
|
(19 |
) |
|
|
37.5 |
|
|
|
46.5 |
|
|
|
(19 |
) |
|
|
|
|
Total end of period deposits |
|
|
211.5 |
|
|
|
206.7 |
|
|
|
2 |
|
|
|
211.5 |
|
|
|
206.7 |
|
|
|
2 |
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
94.8 |
|
|
$ |
91.8 |
|
|
|
3 |
|
|
$ |
95.0 |
|
|
$ |
89.1 |
|
|
|
7 |
|
Mortgage(a) |
|
|
14.3 |
|
|
|
9.9 |
|
|
|
44 |
|
|
|
15.2 |
|
|
|
9.2 |
|
|
|
65 |
|
Business banking |
|
|
16.4 |
|
|
|
14.8 |
|
|
|
11 |
|
|
|
16.1 |
|
|
|
14.5 |
|
|
|
11 |
|
Education |
|
|
14.1 |
|
|
|
9.8 |
|
|
|
44 |
|
|
|
12.9 |
|
|
|
10.4 |
|
|
|
24 |
|
Other loans(b) |
|
|
1.0 |
|
|
|
2.4 |
|
|
|
(58 |
) |
|
|
1.2 |
|
|
|
2.6 |
|
|
|
(54 |
) |
|
|
|
|
Total average loans(c) |
|
|
140.6 |
|
|
|
128.7 |
|
|
|
9 |
|
|
|
140.4 |
|
|
|
125.8 |
|
|
|
12 |
|
Average deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
68.0 |
|
|
$ |
64.9 |
|
|
|
5 |
|
|
$ |
63.4 |
|
|
$ |
66.5 |
|
|
|
(5 |
) |
Savings |
|
|
105.5 |
|
|
|
97.1 |
|
|
|
9 |
|
|
|
103.9 |
|
|
|
97.4 |
|
|
|
7 |
|
Time and other |
|
|
36.7 |
|
|
|
43.3 |
|
|
|
(15 |
) |
|
|
45.5 |
|
|
|
42.5 |
|
|
|
7 |
|
|
|
|
|
Total average deposits |
|
|
210.2 |
|
|
|
205.3 |
|
|
|
2 |
|
|
|
212.8 |
|
|
|
206.4 |
|
|
|
3 |
|
Average assets |
|
|
148.7 |
|
|
|
140.6 |
|
|
|
6 |
|
|
|
149.3 |
|
|
|
138.1 |
|
|
|
8 |
|
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) |
|
|
4.18 |
% |
|
|
2.39 |
% |
|
|
|
|
|
|
4.18 |
% |
|
|
2.39 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
663 |
|
|
$ |
150 |
|
|
|
342 |
|
|
$ |
1,621 |
|
|
$ |
316 |
|
|
|
413 |
|
Mortgage |
|
|
318 |
|
|
|
40 |
|
|
|
NM |
|
|
|
692 |
|
|
|
86 |
|
|
|
NM |
|
Business banking |
|
|
55 |
|
|
|
33 |
|
|
|
67 |
|
|
|
146 |
|
|
|
88 |
|
|
|
66 |
|
Other loans |
|
|
34 |
|
|
|
23 |
|
|
|
48 |
|
|
|
103 |
|
|
|
88 |
|
|
|
17 |
|
|
|
|
|
Total net charge-offs |
|
|
1,070 |
|
|
|
246 |
|
|
|
335 |
|
|
|
2,562 |
|
|
|
578 |
|
|
|
343 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
2.78 |
% |
|
|
0.65 |
% |
|
|
|
|
|
|
2.28 |
% |
|
|
0.47 |
% |
|
|
|
|
Mortgage(f) |
|
|
7.59 |
|
|
|
1.60 |
|
|
|
|
|
|
|
5.40 |
|
|
|
1.25 |
|
|
|
|
|
Business banking |
|
|
1.33 |
|
|
|
0.88 |
|
|
|
|
|
|
|
1.21 |
|
|
|
0.81 |
|
|
|
|
|
Other loans |
|
|
0.97 |
|
|
|
1.01 |
|
|
|
|
|
|
|
1.21 |
|
|
|
1.28 |
|
|
|
|
|
Total net charge-off rate(c)(f) |
|
|
2.92 |
|
|
|
0.78 |
|
|
|
|
|
|
|
2.41 |
|
|
|
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets(g)(h) |
|
$ |
4,310 |
|
|
$ |
2,034 |
|
|
|
112 |
|
|
$ |
4,310 |
|
|
$ |
2,034 |
|
|
|
112 |
|
|
|
|
|
(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 $1.2 billion and $3.2 billion for the quarters
ended September 30, 2008 and 2007, respectively, and $2.8 billion and $3.8 billion for the
nine months ended September 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 $2.0 billion and $979 million at September 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 $787 million and $590
million at September 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 nine months ended September 30,
2008, excluded $45 million and $78 million, respectively, of charge-offs related to prime
mortgage loans held by the Corporate/Private Equity segment. |
29
|
|
|
(g) |
|
Excluded (1) loans eligible for repurchase as well as loans repurchased from GNMA pools that
are insured by U.S. government agencies of $1.8 billion and $1.3 billion at September 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 $405 million and $241 million at September 30, 2008 and 2007, respectively. These amounts
for GNMA and education loans are excluded, as reimbursement is proceeding normally. |
(h) |
|
During the second quarter of 2008, the policy for classifying subprime mortgage and home
equity loans as nonperforming was changed to conform to all other home lending products. Prior
period nonperforming assets have been revised to conform to this change. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Investment sales volume |
|
$ |
4,389 |
|
|
$ |
4,346 |
|
|
|
1 |
% |
|
$ |
13,684 |
|
|
$ |
14,246 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
3,179 |
|
|
|
3,096 |
|
|
|
3 |
|
|
|
3,179 |
|
|
|
3,096 |
|
|
|
3 |
|
ATMs |
|
|
9,308 |
|
|
|
8,943 |
|
|
|
4 |
|
|
|
9,308 |
|
|
|
8,943 |
|
|
|
4 |
|
Personal bankers |
|
|
10,201 |
|
|
|
9,503 |
|
|
|
7 |
|
|
|
10,201 |
|
|
|
9,503 |
|
|
|
7 |
|
Sales specialists |
|
|
3,959 |
|
|
|
4,025 |
|
|
|
(2 |
) |
|
|
3,959 |
|
|
|
4,025 |
|
|
|
(2 |
) |
Active online customers (in thousands) |
|
|
7,315 |
|
|
|
5,706 |
|
|
|
28 |
|
|
|
7,315 |
|
|
|
5,706 |
|
|
|
28 |
|
Checking accounts (in thousands) |
|
|
11,672 |
|
|
|
10,644 |
|
|
|
10 |
|
|
|
11,672 |
|
|
|
10,644 |
|
|
|
10 |
|
|
MORTGAGE BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios and where |
|
Three months ended September 30, |
|
Nine months ended September 30, |
otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Production revenue |
|
$ |
254 |
|
|
$ |
176 |
|
|
|
44 |
% |
|
$ |
1,427 |
|
|
$ |
1,039 |
|
|
|
37 |
% |
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
|
695 |
|
|
|
629 |
|
|
|
10 |
|
|
|
2,007 |
|
|
|
1,845 |
|
|
|
9 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
(786 |
) |
|
|
(810 |
) |
|
|
3 |
|
|
|
101 |
|
|
|
250 |
|
|
|
(60 |
) |
Other changes in fair value |
|
|
(390 |
) |
|
|
(377 |
) |
|
|
(3 |
) |
|
|
(1,209 |
) |
|
|
(1,138 |
) |
|
|
(6 |
) |
|
|
|
|
Total changes in MSR asset fair value |
|
|
(1,176 |
) |
|
|
(1,187 |
) |
|
|
1 |
|
|
|
(1,108 |
) |
|
|
(888 |
) |
|
|
(25 |
) |
Derivative valuation adjustments and other |
|
|
893 |
|
|
|
788 |
|
|
|
13 |
|
|
|
13 |
|
|
|
(353 |
) |
|
|
NM |
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
412 |
|
|
|
230 |
|
|
|
79 |
|
|
|
912 |
|
|
|
604 |
|
|
|
51 |
|
|
|
|
|
Total net revenue |
|
|
666 |
|
|
|
406 |
|
|
|
64 |
|
|
|
2,339 |
|
|
|
1,643 |
|
|
|
42 |
|
Noninterest expense |
|
|
747 |
|
|
|
485 |
|
|
|
54 |
|
|
|
1,932 |
|
|
|
1,469 |
|
|
|
32 |
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(81 |
) |
|
|
(79 |
) |
|
|
(3 |
) |
|
|
407 |
|
|
|
174 |
|
|
|
134 |
|
Net income (loss) |
|
$ |
(50 |
) |
|
$ |
(48 |
) |
|
|
(4 |
) |
|
$ |
251 |
|
|
$ |
107 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
(8 |
)% |
|
|
(10 |
)% |
|
|
|
|
|
|
14 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party mortgage loans serviced
(ending) |
|
$ |
681.8 |
|
|
$ |
600.0 |
|
|
|
14 |
|
|
$ |
681.8 |
|
|
$ |
600.0 |
|
|
|
14 |
|
MSR net carrying value (ending) |
|
|
10.6 |
|
|
|
9.1 |
|
|
|
16 |
|
|
|
10.6 |
|
|
|
9.1 |
|
|
|
16 |
|
Average mortgage loans held-for-sale(a) |
|
|
14.9 |
|
|
|
16.4 |
|
|
|
(9 |
) |
|
|
15.4 |
|
|
|
20.4 |
|
|
|
(25 |
) |
Average assets |
|
|
35.4 |
|
|
|
31.4 |
|
|
|
13 |
|
|
|
34.6 |
|
|
|
35.0 |
|
|
|
(1 |
) |
Average equity |
|
|
2.4 |
|
|
|
2.0 |
|
|
|
20 |
|
|
|
2.4 |
|
|
|
2.0 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel
(in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
8.4 |
|
|
$ |
11.1 |
|
|
|
(24 |
) |
|
$ |
33.5 |
|
|
$ |
35.6 |
|
|
|
(6 |
) |
Wholesale |
|
|
5.9 |
|
|
|
9.8 |
|
|
|
(40 |
) |
|
|
25.6 |
|
|
|
32.5 |
|
|
|
(21 |
) |
Correspondent |
|
|
13.2 |
|
|
|
7.2 |
|
|
|
83 |
|
|
|
42.2 |
|
|
|
18.4 |
|
|
|
129 |
|
CNT (Negotiated transactions) |
|
|
10.2 |
|
|
|
11.1 |
|
|
|
(8 |
) |
|
|
39.6 |
|
|
|
32.9 |
|
|
|
20 |
|
|
|
|
|
Total |
|
$ |
37.7 |
|
|
$ |
39.2 |
|
|
|
(4 |
) |
|
$ |
140.9 |
|
|
$ |
119.4 |
|
|
|
18 |
|
|
|
|
|
(a) |
|
Included $14.5 billion and $14.1 billion of prime mortgage loans at fair value for the
three months ended September 30, 2008 and 2007, respectively, and $14.9 billion and
$11.4 billion for the nine months ended September 30, 2008 and 2007. These loans are
classified as trading assets on the Consolidated Balance Sheets. |
30
Quarterly results
Mortgage Banking reported a net loss of $50 million, compared with a net loss of $48 million in the
prior year. Net revenue was $666 million, up $260 million, or 64%. Net revenue comprises production
revenue and net mortgage servicing revenue. Production revenue was $254 million, up $78 million,
reflecting lower markdowns of $91 million on the mortgage warehouse and pipeline as compared with
markdowns of $186 million in the prior year. The current-year result was also affected by an
increase in reserves related to the repurchase of previously sold loans. Net mortgage servicing
revenue which includes loan servicing revenue, MSR risk management results and other changes in
fair value was $412 million, an increase of $182 million, or 79%, from the prior year. Loan
servicing revenue was $695 million, an increase of $66 million on growth of 14% in third-party
loans serviced. MSR risk management results were $107 million, compared with negative $22 million
in the prior year. Other changes in fair value of the MSR asset were negative $390 million compared
with negative $377 million in the prior year. Noninterest expense was $747 million, an increase of
$262 million, or 54%. The increase reflected higher mortgage reinsurance losses and higher
servicing costs due to increased delinquencies and defaults.
Year-to-date results
Mortgage Banking net income was $251 million, compared with $107 million in the prior year. Net
revenue was $2.3 billion, up $696 million, or 42%. Net revenue comprises production revenue and net
mortgage servicing revenue. Production revenue was $1.4 billion, up $388 million, benefiting from
higher loan originations and lower markdowns on the mortgage warehouse and pipeline as compared
with the prior year. The current-year result was also affected by an increase in reserves related
to the repurchase of previously sold loans. Net mortgage servicing revenue which includes loan
servicing revenue, MSR risk management results and other changes in fair value was $912 million,
an increase of $308 million, or 51%, from the prior year. Loan servicing revenue was $2.0 billion,
an increase of $162 million on growth of 14% in third-party loans serviced. MSR risk management
results were $114 million, compared with negative $103 million in the prior year. Other changes in
fair value of the MSR asset were negative $1.2 billion compared with negative $1.1 billion in the
prior year. Noninterest expense was $1.9 billion, an increase of $463 million, or 32%. The increase
reflected higher mortgage reinsurance losses and higher servicing costs due to increased
delinquencies and defaults.
31
AUTO FINANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios and where |
|
Three months ended September 30, |
|
Nine months ended September 30, |
otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Noninterest revenue |
|
$ |
157 |
|
|
$ |
140 |
|
|
|
12 |
% |
|
$ |
463 |
|
|
$ |
409 |
|
|
|
13 |
% |
Net interest income |
|
|
349 |
|
|
|
307 |
|
|
|
14 |
|
|
|
1,071 |
|
|
|
898 |
|
|
|
19 |
|
|
|
|
|
Total net revenue |
|
|
506 |
|
|
|
447 |
|
|
|
13 |
|
|
|
1,534 |
|
|
|
1,307 |
|
|
|
17 |
|
Provision for credit losses |
|
|
124 |
|
|
|
96 |
|
|
|
29 |
|
|
|
409 |
|
|
|
247 |
|
|
|
66 |
|
Noninterest expense |
|
|
252 |
|
|
|
224 |
|
|
|
13 |
|
|
|
735 |
|
|
|
653 |
|
|
|
13 |
|
|
|
|
|
Income before income tax expense |
|
|
130 |
|
|
|
127 |
|
|
|
2 |
|
|
|
390 |
|
|
|
407 |
|
|
|
(4 |
) |
Net income |
|
$ |
79 |
|
|
$ |
76 |
|
|
|
4 |
|
|
$ |
236 |
|
|
$ |
246 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
ROE |
|
|
14 |
% |
|
|
14 |
% |
|
|
|
|
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
ROA |
|
|
0.68 |
|
|
|
0.70 |
|
|
|
|
|
|
|
0.68 |
|
|
|
0.76 |
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto origination volume |
|
$ |
3.8 |
|
|
$ |
5.2 |
|
|
|
(27 |
) |
|
$ |
16.6 |
|
|
$ |
15.7 |
|
|
|
6 |
|
End-of-period loans and lease-related
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding |
|
$ |
43.2 |
|
|
$ |
40.3 |
|
|
|
7 |
|
|
$ |
43.2 |
|
|
$ |
40.3 |
|
|
|
7 |
|
Lease financing receivables |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
(83 |
) |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
(83 |
) |
Operating lease assets |
|
|
2.2 |
|
|
|
1.8 |
|
|
|
22 |
|
|
|
2.2 |
|
|
|
1.8 |
|
|
|
22 |
|
|
|
|
|
Total end-of-period loans and
lease-related assets |
|
|
45.5 |
|
|
|
42.7 |
|
|
|
7 |
|
|
|
45.5 |
|
|
|
42.7 |
|
|
|
7 |
|
Average loans and lease-related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding |
|
$ |
43.8 |
|
|
$ |
39.9 |
|
|
|
10 |
|
|
$ |
43.8 |
|
|
$ |
39.8 |
|
|
|
10 |
|
Lease financing receivables |
|
|
0.1 |
|
|
|
0.7 |
|
|
|
(86 |
) |
|
|
0.2 |
|
|
|
1.1 |
|
|
|
(82 |
) |
Operating lease assets |
|
|
2.2 |
|
|
|
1.8 |
|
|
|
22 |
|
|
|
2.1 |
|
|
|
1.7 |
|
|
|
24 |
|
|
|
|
|
Total average loans and
lease-related assets |
|
|
46.1 |
|
|
|
42.4 |
|
|
|
9 |
|
|
|
46.1 |
|
|
|
42.6 |
|
|
|
8 |
|
Average assets |
|
|
46.4 |
|
|
|
42.9 |
|
|
|
8 |
|
|
|
46.4 |
|
|
|
43.1 |
|
|
|
8 |
|
Average equity |
|
|
2.3 |
|
|
|
2.2 |
|
|
|
5 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate |
|
|
1.82 |
% |
|
|
1.65 |
% |
|
|
|
|
|
|
1.82 |
% |
|
|
1.65 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
123 |
|
|
$ |
98 |
|
|
|
26 |
|
|
$ |
358 |
|
|
$ |
218 |
|
|
|
64 |
|
Lease receivables |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
124 |
|
|
|
99 |
|
|
|
25 |
|
|
|
361 |
|
|
|
221 |
|
|
|
63 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1.12 |
% |
|
|
0.97 |
% |
|
|
|
|
|
|
1.09 |
% |
|
|
0.73 |
% |
|
|
|
|
Lease receivables |
|
|
3.98 |
|
|
|
0.57 |
|
|
|
|
|
|
|
2.00 |
|
|
|
0.36 |
|
|
|
|
|
Total net charge-off rate |
|
|
1.12 |
|
|
|
0.97 |
|
|
|
|
|
|
|
1.10 |
|
|
|
0.72 |
|
|
|
|
|
Nonperforming assets |
|
$ |
239 |
|
|
$ |
156 |
|
|
|
53 |
|
|
$ |
239 |
|
|
$ |
156 |
|
|
|
53 |
|
|
Quarterly results
Auto Finance net income was $79 million, an increase of $3 million, or 4%, from the prior year. Net
revenue was $506 million, up $59 million, or 13%, driven by higher loan balances and increased
automobile operating lease revenue. The provision for credit losses was $124 million, up $28
million, reflecting higher estimated losses. The net charge-off rate was 1.12%, compared with 0.97%
in the prior year. Noninterest expense was $252 million, an increase of $28 million, or 13%, driven
by increased depreciation expense on owned automobiles subject to operating leases.
Year-to-date results
Auto Finance net income was $236 million, a decrease of $10 million, or 4%, from the prior year.
Net revenue was $1.5 billion, up $227 million, or 17%, driven by increased automobile operating
lease revenue, higher loan balances, and a reduction in residual value reserves for direct finance
leases. The provision for credit losses was $409 million, up $162 million, reflecting higher
estimated losses. The net charge-off rate was 1.10%, compared with 0.72% in the prior year.
Noninterest expense was $735 million, an increase of $82 million, or 13%, driven by increased
depreciation expense on owned automobiles subject to operating leases.
32
CARD SERVICES
For a discussion of the business profile of CS, see pages 4951 of JPMorgan Chases 2007
Annual Report and pages 56 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 1720 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 September 30, |
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
633 |
|
|
$ |
692 |
|
|
|
(9 |
)% |
|
$ |
1,906 |
|
|
$ |
1,973 |
|
|
|
(3 |
)% |
All other income |
|
|
13 |
|
|
|
67 |
|
|
|
(81 |
) |
|
|
223 |
|
|
|
239 |
|
|
|
(7 |
) |
|
|
|
|
Noninterest revenue |
|
|
646 |
|
|
|
759 |
|
|
|
(15 |
) |
|
|
2,129 |
|
|
|
2,212 |
|
|
|
(4 |
) |
Net interest income |
|
|
3,241 |
|
|
|
3,108 |
|
|
|
4 |
|
|
|
9,437 |
|
|
|
9,052 |
|
|
|
4 |
|
|
|
|
|
Total net revenue |
|
|
3,887 |
|
|
|
3,867 |
|
|
|
1 |
|
|
|
11,566 |
|
|
|
11,264 |
|
|
|
3 |
|
|
|
|
|
Provision for credit losses |
|
|
2,229 |
|
|
|
1,363 |
|
|
|
64 |
|
|
|
6,093 |
|
|
|
3,923 |
|
|
|
55 |
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
267 |
|
|
|
256 |
|
|
|
4 |
|
|
|
792 |
|
|
|
761 |
|
|
|
4 |
|
Noncompensation expense |
|
|
773 |
|
|
|
827 |
|
|
|
(7 |
) |
|
|
2,377 |
|
|
|
2,383 |
|
|
|
|
|
Amortization of intangibles |
|
|
154 |
|
|
|
179 |
|
|
|
(14 |
) |
|
|
482 |
|
|
|
547 |
|
|
|
(12 |
) |
|
|
|
|
Total noninterest expense |
|
|
1,194 |
|
|
|
1,262 |
|
|
|
(5 |
) |
|
|
3,651 |
|
|
|
3,691 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
464 |
|
|
|
1,242 |
|
|
|
(63 |
) |
|
|
1,822 |
|
|
|
3,650 |
|
|
|
(50 |
) |
Income tax expense |
|
|
172 |
|
|
|
456 |
|
|
|
(62 |
) |
|
|
671 |
|
|
|
1,340 |
|
|
|
(50 |
) |
|
|
|
|
Net income |
|
$ |
292 |
|
|
$ |
786 |
|
|
|
(63 |
) |
|
$ |
1,151 |
|
|
$ |
2,310 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
Memo: Net securitization gains
(amortization) |
|
$ |
(28 |
) |
|
$ |
|
|
|
|
NM |
|
|
$ |
78 |
|
|
$ |
39 |
|
|
|
100 |
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
8 |
% |
|
|
22 |
% |
|
|
|
|
|
|
11 |
% |
|
|
22 |
% |
|
|
|
|
Overhead ratio |
|
|
31 |
|
|
|
33 |
|
|
|
|
|
|
|
32 |
|
|
|
33 |
|
|
|
|
|
|
Quarterly results
Net income was $292 million, a decline of $494 million, or 63%, from the prior year. The decrease
was driven by a higher provision for credit losses, partially offset by lower noninterest expense.
End-of-period managed loans were $159.3 billion, an increase of $10.3 billion, or 7%, from the
prior year. Average managed loans were $157.6 billion, an increase of $8.9 billion, or 6%, from the
prior year. The increase in both end-of-period and average managed loans reflects organic portfolio
growth.
Managed total net revenue was $3.9 billion, an increase of $20 million, or 1%, from the prior year.
Net interest income was $3.2 billion, up $133 million, or 4%, from the prior year, driven by higher
average managed loan balances and wider loan spreads. These benefits were offset partially by the
effect of higher revenue reversals associated with higher charge-offs. Noninterest revenue was $646
million, a decrease of $113 million, or 15%, from the prior year. Interchange income increased,
benefiting from a 5% increase in charge volume, but was more than offset by increased rewards
expense and higher volume-driven payments to partners (both of which are netted against interchange
income), as well as a decrease in securitization income.
The managed provision for credit losses was $2.2 billion, an increase of $866 million, or 64%, from
the prior year, due to a higher level of charge-offs and an increase of $250 million in the
allowance for loan losses, reflecting higher estimated losses. The managed net charge-off rate for
the quarter was 5.00%, up from 3.64% in the prior year. The 30-day managed delinquency rate was
3.69%, up from 3.25% in the prior year.
Noninterest expense was $1.2 billion, a decrease of $68 million, or 5%, from the prior year due to
lower marketing expense.
33
Year-to-date results
Net income was $1.2 billion, a decline of $1.2 billion, or 50%, from the prior year. The decrease
was driven by a higher provision for credit losses, partially offset by higher net revenue.
Average managed loans were $154.7 billion, an increase of $6.2 billion, or 4%, from the prior year,
reflecting organic portfolio growth.
Managed total net revenue was $11.6 billion, an increase of $302 million, or 3%, from the prior
year. Net interest income was $9.4 billion, up $385 million, or 4%, from the prior year, driven by
higher average managed loan balances, wider loan spreads and an increased level of fees. These
benefits were offset partially by the effect of higher revenue reversals associated with higher
charge-offs. Noninterest revenue was $2.1 billion, a decrease of $83 million, or 4%, from the prior
year. Interchange income increased, benefiting from a 5% increase in charge volume, but was more
than offset 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 $6.1 billion, an increase of $2.2 billion, or 55%, from
the prior year, due to a higher level of charge-offs and an increase in the allowance for loan
losses (an increase of $550 million compared with a prior year release of $85 million), reflecting
higher estimated losses. The managed net charge-off rate increased to 4.79%, up from 3.61% in the
prior year.
Noninterest expense was $3.7 billion, a decrease of $40 million, or 1%, from the prior year.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ratios |
|
Three months ended September 30, |
|
Nine months ended September 30, |
and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8.18 |
% |
|
|
8.29 |
% |
|
|
|
|
|
|
8.15 |
% |
|
|
8.15 |
% |
|
|
|
|
Provision for credit losses |
|
|
5.63 |
|
|
|
3.64 |
|
|
|
|
|
|
|
5.26 |
|
|
|
3.53 |
|
|
|
|
|
Noninterest revenue |
|
|
1.63 |
|
|
|
2.03 |
|
|
|
|
|
|
|
1.84 |
|
|
|
1.99 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
4.19 |
|
|
|
6.68 |
|
|
|
|
|
|
|
4.73 |
|
|
|
6.61 |
|
|
|
|
|
Noninterest expense |
|
|
3.01 |
|
|
|
3.37 |
|
|
|
|
|
|
|
3.15 |
|
|
|
3.32 |
|
|
|
|
|
Pretax income (ROO)(b) |
|
|
1.17 |
|
|
|
3.31 |
|
|
|
|
|
|
|
1.57 |
|
|
|
3.29 |
|
|
|
|
|
Net income |
|
|
0.74 |
|
|
|
2.10 |
|
|
|
|
|
|
|
0.99 |
|
|
|
2.08 |
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
93.9 |
|
|
$ |
89.8 |
|
|
|
5 |
% |
|
$ |
272.9 |
|
|
$ |
259.1 |
|
|
|
5 |
% |
Net accounts opened (in millions) |
|
|
3.6 |
|
|
|
4.0 |
|
|
|
(10 |
) |
|
|
10.6 |
|
|
|
11.1 |
|
|
|
(5 |
) |
Credit cards issued (in millions) |
|
|
156.9 |
|
|
|
153.6 |
|
|
|
2 |
|
|
|
156.9 |
|
|
|
153.6 |
|
|
|
2 |
|
Number of registered internet customers
(in millions) |
|
|
27.5 |
|
|
|
26.4 |
|
|
|
4 |
|
|
|
27.5 |
|
|
|
26.4 |
|
|
|
4 |
|
Merchant acquiring business(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
197.1 |
|
|
$ |
181.4 |
|
|
|
9 |
|
|
$ |
578.8 |
|
|
$ |
524.7 |
|
|
|
10 |
|
Total transactions (in billions) |
|
|
5.7 |
|
|
|
5.0 |
|
|
|
14 |
|
|
|
16.5 |
|
|
|
14.3 |
|
|
|
15 |
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
77,565 |
|
|
$ |
79,409 |
|
|
|
(2 |
) |
|
$ |
77,565 |
|
|
$ |
79,409 |
|
|
|
(2 |
) |
Securitized loans |
|
|
81,745 |
|
|
|
69,643 |
|
|
|
17 |
|
|
|
81,745 |
|
|
|
69,643 |
|
|
|
17 |
|
|
|
|
|
Managed loans |
|
$ |
159,310 |
|
|
$ |
149,052 |
|
|
|
7 |
|
|
$ |
159,310 |
|
|
$ |
149,052 |
|
|
|
7 |
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
169,413 |
|
|
$ |
154,956 |
|
|
|
9 |
|
|
$ |
163,560 |
|
|
$ |
155,206 |
|
|
|
5 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
79,183 |
|
|
$ |
79,993 |
|
|
|
(1 |
) |
|
$ |
78,090 |
|
|
$ |
80,301 |
|
|
|
(3 |
) |
Securitized loans |
|
|
78,371 |
|
|
|
68,673 |
|
|
|
14 |
|
|
|
76,564 |
|
|
|
68,200 |
|
|
|
12 |
|
|
|
|
|
Managed average loans |
|
$ |
157,554 |
|
|
$ |
148,666 |
|
|
|
6 |
|
|
$ |
154,654 |
|
|
$ |
148,501 |
|
|
|
4 |
|
|
|
|
|
Equity |
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
|
|
|
Headcount |
|
|
19,722 |
|
|
|
18,887 |
|
|
|
4 |
|
|
|
19,722 |
|
|
|
18,887 |
|
|
|
4 |
|
|
|
|
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,979 |
|
|
$ |
1,363 |
|
|
|
45 |
|
|
$ |
5,543 |
|
|
$ |
4,008 |
|
|
|
38 |
|
Net charge-off rate |
|
|
5.00 |
% |
|
|
3.64 |
% |
|
|
|
|
|
|
4.79 |
% |
|
|
3.61 |
% |
|
|
|
|
Managed delinquency ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ days |
|
|
3.69 |
% |
|
|
3.25 |
% |
|
|
|
|
|
|
3.69 |
% |
|
|
3.25 |
% |
|
|
|
|
90+ days |
|
|
1.74 |
|
|
|
1.50 |
|
|
|
|
|
|
|
1.74 |
|
|
|
1.50 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses(d) |
|
$ |
3,951 |
|
|
$ |
3,107 |
|
|
|
27 |
|
|
$ |
3,951 |
|
|
$ |
3,107 |
|
|
|
27 |
|
Allowance for loan losses to period-end
loans(d) |
|
|
5.09 |
% |
|
|
3.91 |
% |
|
|
|
|
|
|
5.09 |
% |
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
(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. |
35
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to
disclose the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,476 |
|
|
$ |
1,528 |
|
|
|
(3 |
)% |
|
$ |
4,529 |
|
|
$ |
4,343 |
|
|
|
4 |
% |
Securitization adjustments |
|
|
(843 |
) |
|
|
(836 |
) |
|
|
(1 |
) |
|
|
(2,623 |
) |
|
|
(2,370 |
) |
|
|
(11 |
) |
|
|
|
|
Managed credit card income |
|
$ |
633 |
|
|
$ |
692 |
|
|
|
(9 |
) |
|
$ |
1,906 |
|
|
$ |
1,973 |
|
|
|
(3 |
) |
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,525 |
|
|
$ |
1,694 |
|
|
|
(10 |
) |
|
$ |
4,430 |
|
|
$ |
4,921 |
|
|
|
(10 |
) |
Securitization adjustments |
|
|
1,716 |
|
|
|
1,414 |
|
|
|
21 |
|
|
|
5,007 |
|
|
|
4,131 |
|
|
|
21 |
|
|
|
|
|
Managed net interest income |
|
$ |
3,241 |
|
|
$ |
3,108 |
|
|
|
4 |
|
|
$ |
9,437 |
|
|
$ |
9,052 |
|
|
|
4 |
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,014 |
|
|
$ |
3,289 |
|
|
|
(8 |
) |
|
$ |
9,182 |
|
|
$ |
9,503 |
|
|
|
(3 |
) |
Securitization adjustments |
|
|
873 |
|
|
|
578 |
|
|
|
51 |
|
|
|
2,384 |
|
|
|
1,761 |
|
|
|
35 |
|
|
|
|
|
Managed total net revenue |
|
$ |
3,887 |
|
|
$ |
3,867 |
|
|
|
1 |
|
|
$ |
11,566 |
|
|
$ |
11,264 |
|
|
|
3 |
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,356 |
|
|
$ |
785 |
|
|
|
73 |
|
|
$ |
3,709 |
|
|
$ |
2,162 |
|
|
|
72 |
|
Securitization adjustments |
|
|
873 |
|
|
|
578 |
|
|
|
51 |
|
|
|
2,384 |
|
|
|
1,761 |
|
|
|
35 |
|
|
|
|
|
Managed provision for credit losses |
|
$ |
2,229 |
|
|
$ |
1,363 |
|
|
|
64 |
|
|
$ |
6,093 |
|
|
$ |
3,923 |
|
|
|
55 |
|
|
|
|
|
Balance sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
93,701 |
|
|
$ |
88,856 |
|
|
|
5 |
|
|
$ |
89,594 |
|
|
$ |
89,491 |
|
|
|
|
|
Securitization adjustments |
|
|
75,712 |
|
|
|
66,100 |
|
|
|
15 |
|
|
|
73,966 |
|
|
|
65,715 |
|
|
|
13 |
|
|
|
|
|
Managed average assets |
|
$ |
169,413 |
|
|
$ |
154,956 |
|
|
|
9 |
|
|
$ |
163,560 |
|
|
$ |
155,206 |
|
|
|
5 |
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,106 |
|
|
$ |
785 |
|
|
|
41 |
|
|
$ |
3,159 |
|
|
$ |
2,247 |
|
|
|
41 |
|
Securitization adjustments |
|
|
873 |
|
|
|
578 |
|
|
|
51 |
|
|
|
2,384 |
|
|
|
1,761 |
|
|
|
35 |
|
|
|
|
|
Managed net charge-offs |
|
$ |
1,979 |
|
|
$ |
1,363 |
|
|
|
45 |
|
|
$ |
5,543 |
|
|
$ |
4,008 |
|
|
|
38 |
|
|
|
|
|
(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
1720 of this Form 10-Q. |
36
COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 5253 of JPMorgan Chases 2007
Annual Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
212 |
|
|
$ |
159 |
|
|
|
33 |
% |
|
$ |
612 |
|
|
$ |
475 |
|
|
|
29 |
% |
Asset management, administration
and
commissions |
|
|
29 |
|
|
|
24 |
|
|
|
21 |
|
|
|
81 |
|
|
|
68 |
|
|
|
19 |
|
All other income(a) |
|
|
147 |
|
|
|
107 |
|
|
|
37 |
|
|
|
412 |
|
|
|
394 |
|
|
|
5 |
|
|
|
|
|
Noninterest revenue |
|
|
388 |
|
|
|
290 |
|
|
|
34 |
|
|
|
1,105 |
|
|
|
937 |
|
|
|
18 |
|
Net interest income |
|
|
737 |
|
|
|
719 |
|
|
|
3 |
|
|
|
2,193 |
|
|
|
2,082 |
|
|
|
5 |
|
|
|
|
|
Total net revenue |
|
|
1,125 |
|
|
|
1,009 |
|
|
|
11 |
|
|
|
3,298 |
|
|
|
3,019 |
|
|
|
9 |
|
|
|
|
|
Provision for credit losses |
|
|
126 |
|
|
|
112 |
|
|
|
13 |
|
|
|
274 |
|
|
|
174 |
|
|
|
57 |
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
177 |
|
|
|
160 |
|
|
|
11 |
|
|
|
528 |
|
|
|
522 |
|
|
|
1 |
|
Noncompensation expense |
|
|
298 |
|
|
|
300 |
|
|
|
(1 |
) |
|
|
882 |
|
|
|
890 |
|
|
|
(1 |
) |
Amortization of intangibles |
|
|
11 |
|
|
|
13 |
|
|
|
(15 |
) |
|
|
37 |
|
|
|
42 |
|
|
|
(12 |
) |
|
|
|
|
Total noninterest expense |
|
|
486 |
|
|
|
473 |
|
|
|
3 |
|
|
|
1,447 |
|
|
|
1,454 |
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
513 |
|
|
|
424 |
|
|
|
21 |
|
|
|
1,577 |
|
|
|
1,391 |
|
|
|
13 |
|
Income tax expense |
|
|
201 |
|
|
|
166 |
|
|
|
21 |
|
|
|
618 |
|
|
|
545 |
|
|
|
13 |
|
|
|
|
|
Net income |
|
$ |
312 |
|
|
$ |
258 |
|
|
|
21 |
|
|
$ |
959 |
|
|
$ |
846 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
377 |
|
|
$ |
343 |
|
|
|
10 |
|
|
$ |
1,132 |
|
|
$ |
1,039 |
|
|
|
9 |
|
Treasury services |
|
|
643 |
|
|
|
594 |
|
|
|
8 |
|
|
|
1,889 |
|
|
|
1,719 |
|
|
|
10 |
|
Investment banking |
|
|
87 |
|
|
|
64 |
|
|
|
36 |
|
|
|
246 |
|
|
|
222 |
|
|
|
11 |
|
Other |
|
|
18 |
|
|
|
8 |
|
|
|
125 |
|
|
|
31 |
|
|
|
39 |
|
|
|
(21 |
) |
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,125 |
|
|
$ |
1,009 |
|
|
|
11 |
|
|
$ |
3,298 |
|
|
$ |
3,019 |
|
|
|
9 |
|
|
|
|
|
IB revenue, gross(b) |
|
$ |
252 |
|
|
$ |
194 |
|
|
|
30 |
|
|
$ |
725 |
|
|
$ |
661 |
|
|
|
10 |
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
729 |
|
|
$ |
680 |
|
|
|
7 |
|
|
$ |
2,143 |
|
|
$ |
1,994 |
|
|
|
7 |
|
Mid-Corporate Banking |
|
|
236 |
|
|
|
167 |
|
|
|
41 |
|
|
|
678 |
|
|
|
576 |
|
|
|
18 |
|
Real Estate Banking |
|
|
91 |
|
|
|
108 |
|
|
|
(16 |
) |
|
|
282 |
|
|
|
319 |
|
|
|
(12 |
) |
Other |
|
|
69 |
|
|
|
54 |
|
|
|
28 |
|
|
|
195 |
|
|
|
130 |
|
|
|
50 |
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,125 |
|
|
$ |
1,009 |
|
|
|
11 |
|
|
$ |
3,298 |
|
|
$ |
3,019 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
18 |
% |
|
|
15 |
% |
|
|
|
|
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
Overhead ratio |
|
|
43 |
|
|
|
47 |
|
|
|
|
|
|
|
44 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
(a) |
|
IB-related and commercial card revenue is included in all other income. |
(b) |
|
Represents the total revenue related to investment banking products sold to CB clients. |
37
Quarterly results
Net income was $312 million, an increase of $54 million, or 21%, from the prior year, driven by
record net revenue, partially offset by an increase in the provision for credit losses and higher
noninterest expense.
Net revenue was $1.1 billion, an increase of $116 million, or 11%, from the prior year. Net
interest income was $737 million, up $18 million, or 3%, driven by double-digit growth in loan and
liability balances, predominantly offset by spread compression in the liability and loan
portfolios. Noninterest revenue was $388 million, an increase of $98 million, or 34%, from the
prior year, reflecting higher deposit-related fees, investment banking fees, and other income.
Middle Market Banking revenue was $729 million, an increase of $49 million, or 7%, from the prior
year. Mid-Corporate Banking revenue was $236 million, an increase of $69 million, or 41%. Real
Estate Banking revenue was $91 million, a decline of $17 million, or 16%.
The provision for credit losses was $126 million, an increase of $14 million, or 13%, compared with
the prior year. The current-quarter provision reflects a weakening credit environment and growth in
loan balances. The allowance for loan losses to average loans retained was 2.65% for the current
quarter, in line with the prior year. Nonperforming loans were $572 million, up $438 million from
the prior year, reflecting increases across all businesses and the effect of a weakening credit
environment. Net charge-offs were $40 million (0.22% net charge-off rate), compared with $20
million (0.13% net charge-off rate) in the prior year.
Noninterest expense was $486 million, an increase of $13 million, or 3%, from the prior year, due
to higher performance-based compensation expense.
Year-to-date results
Net income was $959 million, an increase of $113 million, or 13%, from the prior year driven by
growth in total net revenue partially offset by a higher provision for credit losses.
Total net revenue was $3.3 billion, an increase of $279 million, or 9%, from the prior year. Net
interest income was $2.2 billion, an increase of $111 million, or 5%, driven by double-digit growth
in liability balances and loans, largely offset by spread compression in the liability and loan
portfolios and a shift to narrower-spread liability products. Noninterest revenue was $1.1 billion,
up $168 million, or 18%, 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 $2.1 billion, an increase of $149 million, or 7%. Mid-Corporate
Banking revenue was $678 million, an increase of $102 million, or 18%. Real Estate Banking revenue
was $282 million, a decline of $37 million, or 12%.
The provision for credit losses was $274 million, compared with $174 million in the prior year,
reflecting growth in loan balances and a weakening credit environment. The allowance for loan
losses to average loans retained was 2.72%, down from 2.75% in the prior year. Net charge-offs were
$170 million (0.32% net charge-off rate), compared with net charge-offs of $11 million (0.02% net
charge-off rate) in the prior year.
Noninterest expense was $1.4 billion, in line with the prior year.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratio and headcount data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Selected balance sheet data
(period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
8,000 |
|
|
$ |
6,700 |
|
|
|
19 |
% |
|
$ |
8,000 |
|
|
$ |
6,700 |
|
|
|
19 |
% |
Selected balance sheet data
(average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
101,681 |
|
|
$ |
86,652 |
|
|
|
17 |
|
|
$ |
102,374 |
|
|
$ |
84,643 |
|
|
|
21 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
71,901 |
|
|
|
60,839 |
|
|
|
18 |
|
|
|
70,038 |
|
|
|
59,045 |
|
|
|
19 |
|
Loans held-for-sale and loans at
fair value |
|
|
397 |
|
|
|
433 |
|
|
|
(8 |
) |
|
|
432 |
|
|
|
550 |
|
|
|
(21 |
) |
|
|
|
|
Total loans |
|
|
72,298 |
|
|
|
61,272 |
|
|
|
18 |
|
|
|
70,470 |
|
|
|
59,595 |
|
|
|
18 |
|
Liability balances(a) |
|
|
99,410 |
|
|
|
88,081 |
|
|
|
13 |
|
|
|
99,430 |
|
|
|
84,697 |
|
|
|
17 |
|
Equity |
|
|
7,000 |
|
|
|
6,700 |
|
|
|
4 |
|
|
|
7,000 |
|
|
|
6,435 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
43,155 |
|
|
$ |
37,617 |
|
|
|
15 |
|
|
$ |
42,052 |
|
|
$ |
37,016 |
|
|
|
14 |
|
Mid-Corporate Banking |
|
|
16,491 |
|
|
|
12,076 |
|
|
|
37 |
|
|
|
15,669 |
|
|
|
11,484 |
|
|
|
36 |
|
Real Estate Banking |
|
|
7,513 |
|
|
|
7,144 |
|
|
|
5 |
|
|
|
7,490 |
|
|
|
7,038 |
|
|
|
6 |
|
Other |
|
|
5,139 |
|
|
|
4,435 |
|
|
|
16 |
|
|
|
5,259 |
|
|
|
4,057 |
|
|
|
30 |
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
72,298 |
|
|
$ |
61,272 |
|
|
|
18 |
|
|
$ |
70,470 |
|
|
$ |
59,595 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
3,965 |
|
|
|
4,158 |
|
|
|
(5 |
) |
|
|
3,965 |
|
|
|
4,158 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
40 |
|
|
$ |
20 |
|
|
|
100 |
|
|
$ |
170 |
|
|
$ |
11 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans |
|
|
572 |
|
|
|
134 |
|
|
|
327 |
|
|
|
572 |
|
|
|
134 |
|
|
|
327 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,905 |
|
|
|
1,623 |
|
|
|
17 |
|
|
|
1,905 |
|
|
|
1,623 |
|
|
|
17 |
|
Allowance for lending-related
commitments |
|
|
191 |
|
|
|
236 |
|
|
|
(19 |
) |
|
|
191 |
|
|
|
236 |
|
|
|
(19 |
) |
|
|
|
|
Total allowance for credit losses |
|
|
2,096 |
|
|
|
1,859 |
|
|
|
13 |
|
|
|
2,096 |
|
|
|
1,859 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(b) |
|
|
0.22 |
% |
|
|
0.13 |
% |
|
|
|
|
|
|
0.32 |
% |
|
|
0.02 |
% |
|
|
|
|
Allowance for loan losses to average
loans(b) |
|
|
2.65 |
|
|
|
2.67 |
|
|
|
|
|
|
|
2.72 |
|
|
|
2.75 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans |
|
|
333 |
|
|
|
1,211 |
|
|
|
|
|
|
|
333 |
|
|
|
1,211 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.79 |
|
|
|
0.22 |
|
|
|
|
|
|
|
0.81 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
(a) |
|
Liability balances include deposits and deposits swept to onbalance sheet liabilities
such as commercial paper, federal funds purchased and securities loaned or sold under
repurchase agreements. |
(b) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and net charge-off rate. |
39
TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 5455 of JPMorgan Chases 2007
Annual Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratio data) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
290 |
|
|
$ |
244 |
|
|
|
19 |
% |
|
$ |
842 |
|
|
$ |
676 |
|
|
|
25 |
% |
Asset management, administration and
commissions |
|
|
719 |
|
|
|
730 |
|
|
|
(2 |
) |
|
|
2,385 |
|
|
|
2,244 |
|
|
|
6 |
|
All other income |
|
|
221 |
|
|
|
171 |
|
|
|
29 |
|
|
|
649 |
|
|
|
480 |
|
|
|
35 |
|
|
|
|
|
Noninterest revenue |
|
|
1,230 |
|
|
|
1,145 |
|
|
|
7 |
|
|
|
3,876 |
|
|
|
3,400 |
|
|
|
14 |
|
Net interest income |
|
|
723 |
|
|
|
603 |
|
|
|
20 |
|
|
|
2,009 |
|
|
|
1,615 |
|
|
|
24 |
|
|
|
|
|
Total net revenue |
|
|
1,953 |
|
|
|
1,748 |
|
|
|
12 |
|
|
|
5,885 |
|
|
|
5,015 |
|
|
|
17 |
|
|
|
|
|
Provision for credit losses |
|
|
18 |
|
|
|
9 |
|
|
|
100 |
|
|
|
37 |
|
|
|
15 |
|
|
|
147 |
|
Credit reimbursement to IB(a) |
|
|
(31 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
(91 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
664 |
|
|
|
579 |
|
|
|
15 |
|
|
|
1,974 |
|
|
|
1,746 |
|
|
|
13 |
|
Noncompensation expense |
|
|
661 |
|
|
|
538 |
|
|
|
23 |
|
|
|
1,864 |
|
|
|
1,563 |
|
|
|
19 |
|
Amortization of intangibles |
|
|
14 |
|
|
|
17 |
|
|
|
(18 |
) |
|
|
46 |
|
|
|
49 |
|
|
|
(6 |
) |
|
|
|
|
Total noninterest expense |
|
|
1,339 |
|
|
|
1,134 |
|
|
|
18 |
|
|
|
3,884 |
|
|
|
3,358 |
|
|
|
16 |
|
|
|
|
|
Income before income tax expense |
|
|
565 |
|
|
|
574 |
|
|
|
(2 |
) |
|
|
1,873 |
|
|
|
1,551 |
|
|
|
21 |
|
Income tax expense |
|
|
159 |
|
|
|
214 |
|
|
|
(26 |
) |
|
|
639 |
|
|
|
576 |
|
|
|
11 |
|
|
|
|
|
Net income |
|
$ |
406 |
|
|
$ |
360 |
|
|
|
13 |
|
|
$ |
1,234 |
|
|
$ |
975 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services |
|
$ |
897 |
|
|
$ |
780 |
|
|
|
15 |
|
|
$ |
2,562 |
|
|
$ |
2,189 |
|
|
|
17 |
|
Worldwide Securities Services |
|
|
1,056 |
|
|
|
968 |
|
|
|
9 |
|
|
|
3,323 |
|
|
|
2,826 |
|
|
|
18 |
|
|
|
|
|
Total net revenue |
|
$ |
1,953 |
|
|
$ |
1,748 |
|
|
|
12 |
|
|
$ |
5,885 |
|
|
$ |
5,015 |
|
|
|
17 |
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
46 |
% |
|
|
48 |
% |
|
|
|
|
|
|
47 |
% |
|
|
43 |
% |
|
|
|
|
Overhead ratio |
|
|
69 |
|
|
|
65 |
|
|
|
|
|
|
|
66 |
|
|
|
67 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
29 |
|
|
|
33 |
|
|
|
|
|
|
|
32 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
Selected balance sheet data
(period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
4,500 |
|
|
$ |
3,000 |
|
|
|
50 |
|
|
$ |
4,500 |
|
|
$ |
3,000 |
|
|
|
50 |
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
49,386 |
|
|
$ |
55,688 |
|
|
|
(11 |
) |
|
$ |
54,243 |
|
|
$ |
50,829 |
|
|
|
7 |
|
Loans(c) |
|
|
26,650 |
|
|
|
20,602 |
|
|
|
29 |
|
|
|
24,527 |
|
|
|
19,921 |
|
|
|
23 |
|
Liability balances(d) |
|
|
259,992 |
|
|
|
236,381 |
|
|
|
10 |
|
|
|
260,882 |
|
|
|
221,606 |
|
|
|
18 |
|
Equity |
|
|
3,500 |
|
|
|
3,000 |
|
|
|
17 |
|
|
|
3,500 |
|
|
|
3,000 |
|
|
|
17 |
|
|
|
|
|
Headcount |
|
|
27,592 |
|
|
|
25,209 |
|
|
|
9 |
|
|
|
27,592 |
|
|
|
25,209 |
|
|
|
9 |
|
|
|
|
|
(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 onbalance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
40
Quarterly results
Net income was $406 million, an increase of $46 million, or 13%, from the prior year, driven by
higher net revenue and the benefit of reduced deferred tax liabilities. This increase was
predominantly offset by higher noninterest expense.
Net revenue was $2.0 billion, an increase of $205 million, or 12%, from the prior year. Worldwide
Securities Services net revenue was $1.1 billion, an increase of $88 million, or 9%, from the prior
year. The growth was driven by wider spreads on liability products and in securities lending and
foreign exchange, combined with increased product usage by new and existing clients (largely in
custody, fund services and alternative investment services). These benefits were offset partially
by market depreciation. Treasury Services net revenue was a record $897 million, an increase of
$117 million, or 15%, reflecting higher liability balances as well as volume growth in electronic
funds transfer products and trade loans. TSS firmwide net revenue, which includes Treasury Services
net revenue recorded in other lines of business, grew to $2.7 billion, an increase of $260 million,
or 11%. Treasury Services firmwide net revenue grew to $1.6 billion, an increase of $172 million,
or 12%.
Noninterest expense was $1.3 billion, an increase of $205 million, or 18%, 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 $1.2 billion, an increase of $259 million, or 27%, from the prior year, driven by
higher net revenue. This increase was predominantly offset by higher noninterest expense.
Net revenue was $5.9 billion, an increase of $870 million, or 17%, from the prior year. Worldwide
Securities Services net revenue was $3.3 billion, an increase of $497 million, or 18%, from the
prior year. The growth was driven by wider spreads in securities lending, foreign exchange and
liability products, combined with increased product usage by new and existing clients (largely in
custody, fund services, alternative investment services and depositary receipts). These benefits
were offset partially by market depreciation. Treasury Services net revenue was $2.6 billion, an
increase of $373 million, or 17%, reflecting higher liability balances and volume growth in
electronic funds transfer products and trade loans as well as market-driven spreads. TSS firmwide
net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew
to $8.0 billion, an increase of $1.1 billion, or 15%. Treasury Services firmwide net revenue grew
to $4.7 billion, an increase of $565 million, or 14%.
Noninterest expense was $3.9 billion, an increase of $526 million, or 16%, from the prior year,
reflecting higher expense related to business and volume growth as well as continued investment in
new product platforms.
41
TSS firmwide metrics
TSS firmwide metrics include revenue recorded in the CB, Regional Banking and AM lines of business
and excludes foreign exchange (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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratio data and |
|
Three months ended September 30, |
|
Nine months ended September 30, |
where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue reported |
|
$ |
897 |
|
|
$ |
780 |
|
|
|
15 |
% |
|
$ |
2,562 |
|
|
$ |
2,189 |
|
|
|
17 |
% |
Treasury Services revenue reported in
Commercial Banking |
|
|
643 |
|
|
|
594 |
|
|
|
8 |
|
|
|
1,889 |
|
|
|
1,719 |
|
|
|
10 |
|
Treasury Services revenue reported in
other lines of business |
|
|
76 |
|
|
|
70 |
|
|
|
9 |
|
|
|
217 |
|
|
|
195 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
revenue(a) |
|
|
1,616 |
|
|
|
1,444 |
|
|
|
12 |
|
|
|
4,668 |
|
|
|
4,103 |
|
|
|
14 |
|
Worldwide Securities Services revenue |
|
|
1,056 |
|
|
|
968 |
|
|
|
9 |
|
|
|
3,323 |
|
|
|
2,826 |
|
|
|
18 |
|
|
|
|
|
Treasury & Securities Services
firmwide revenue(a) |
|
$ |
2,672 |
|
|
$ |
2,412 |
|
|
|
11 |
|
|
$ |
7,991 |
|
|
$ |
6,929 |
|
|
|
15 |
|
|
|
|
|
Treasury Services firmwide liability
balances (average)(b) |
|
$ |
227,760 |
|
|
$ |
201,671 |
|
|
|
13 |
|
|
$ |
226,725 |
|
|
$ |
192,560 |
|
|
|
18 |
|
Treasury & Securities Services firmwide
liability balances (average)(b) |
|
|
359,401 |
|
|
|
324,462 |
|
|
|
11 |
|
|
|
360,302 |
|
|
|
306,302 |
|
|
|
18 |
|
|
|
|
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead
ratio(c) |
|
|
52 |
% |
|
|
54 |
% |
|
|
|
|
|
|
54 |
% |
|
|
57 |
% |
|
|
|
|
Treasury & Securities Services overhead
ratio(c) |
|
|
60 |
|
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
14,417 |
|
|
$ |
15,614 |
|
|
|
(8 |
) |
|
$ |
14,417 |
|
|
$ |
15,614 |
|
|
|
(8 |
) |
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.$ ACH transactions originated
(in millions) |
|
|
997 |
|
|
|
943 |
|
|
|
6 |
|
|
|
2,994 |
|
|
|
2,886 |
|
|
|
4 |
|
Total U.S.$ clearing volume
(in thousands) |
|
|
29,277 |
|
|
|
28,031 |
|
|
|
4 |
|
|
|
86,396 |
|
|
|
82,650 |
|
|
|
5 |
|
International electronic funds transfer
volume (in thousands)(d) |
|
|
41,831 |
|
|
|
41,415 |
|
|
|
1 |
|
|
|
123,302 |
|
|
|
125,882 |
|
|
|
(2 |
) |
Wholesale check volume (in millions) |
|
|
595 |
|
|
|
731 |
|
|
|
(19 |
) |
|
|
1,836 |
|
|
|
2,269 |
|
|
|
(19 |
) |
Wholesale cards issued
(in thousands)(e) |
|
|
21,858 |
|
|
|
18,108 |
|
|
|
21 |
|
|
|
21,858 |
|
|
|
18,108 |
|
|
|
21 |
|
|
|
|
|
(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 $196 million and $144
million for the quarters ended September 30, 2008 and 2007, respectively, and $609 million
and $395 million for year-to-date 2008 and 2007, respectively. This is not included in the
TS and TSS firmwide revenue. |
(b) |
|
Firmwide liability balances include TSs liability balances recorded in the CB 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-U.S. dollar ACH and clearing volume. |
(e) |
|
Wholesale cards issued include domestic commercial card, stored value card, prepaid card and
government electronic benefit card products. |
42
ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 5658 of JPMorgan Chases 2007
Annual Report and on page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration
and commissions |
|
$ |
1,538 |
|
|
$ |
1,760 |
|
|
|
(13 |
)% |
|
$ |
4,642 |
|
|
$ |
4,920 |
|
|
|
(6 |
)% |
All other income |
|
|
43 |
|
|
|
152 |
|
|
|
(72 |
) |
|
|
232 |
|
|
|
495 |
|
|
|
(53 |
) |
|
|
|
|
Noninterest revenue |
|
|
1,581 |
|
|
|
1,912 |
|
|
|
(17 |
) |
|
|
4,874 |
|
|
|
5,415 |
|
|
|
(10 |
) |
Net interest income |
|
|
380 |
|
|
|
293 |
|
|
|
30 |
|
|
|
1,052 |
|
|
|
831 |
|
|
|
27 |
|
|
|
|
|
Total net revenue |
|
|
1,961 |
|
|
|
2,205 |
|
|
|
(11 |
) |
|
|
5,926 |
|
|
|
6,246 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
20 |
|
|
|
3 |
|
|
|
NM |
|
|
|
53 |
|
|
|
(17 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
816 |
|
|
|
848 |
|
|
|
(4 |
) |
|
|
2,527 |
|
|
|
2,491 |
|
|
|
1 |
|
Noncompensation expense |
|
|
525 |
|
|
|
498 |
|
|
|
5 |
|
|
|
1,496 |
|
|
|
1,405 |
|
|
|
6 |
|
Amortization of intangibles |
|
|
21 |
|
|
|
20 |
|
|
|
5 |
|
|
|
62 |
|
|
|
60 |
|
|
|
3 |
|
|
|
|
|
Total noninterest expense |
|
|
1,362 |
|
|
|
1,366 |
|
|
|
|
|
|
|
4,085 |
|
|
|
3,956 |
|
|
|
3 |
|
|
|
|
|
Income
before income tax expense |
|
|
579 |
|
|
|
836 |
|
|
|
(31 |
) |
|
|
1,788 |
|
|
|
2,307 |
|
|
|
(22 |
) |
Income tax expense |
|
|
228 |
|
|
|
315 |
|
|
|
(28 |
) |
|
|
686 |
|
|
|
868 |
|
|
|
(21 |
) |
|
|
|
|
Net income |
|
$ |
351 |
|
|
$ |
521 |
|
|
|
(33 |
) |
|
$ |
1,102 |
|
|
$ |
1,439 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Bank(a) |
|
$ |
631 |
|
|
$ |
624 |
|
|
|
1 |
|
|
$ |
1,935 |
|
|
$ |
1,712 |
|
|
|
13 |
|
Institutional |
|
|
486 |
|
|
|
603 |
|
|
|
(19 |
) |
|
|
1,448 |
|
|
|
1,771 |
|
|
|
(18 |
) |
Retail |
|
|
399 |
|
|
|
639 |
|
|
|
(38 |
) |
|
|
1,355 |
|
|
|
1,768 |
|
|
|
(23 |
) |
Private Wealth Management(a) |
|
|
352 |
|
|
|
339 |
|
|
|
4 |
|
|
|
1,057 |
|
|
|
995 |
|
|
|
6 |
|
Bear Stearns Brokerage |
|
|
93 |
|
|
|
|
|
|
|
NM |
|
|
|
131 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
Total net revenue |
|
$ |
1,961 |
|
|
$ |
2,205 |
|
|
|
(11 |
) |
|
$ |
5,926 |
|
|
$ |
6,246 |
|
|
|
(5 |
) |
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
25 |
% |
|
|
52 |
% |
|
|
|
|
|
|
28 |
% |
|
|
50 |
% |
|
|
|
|
Overhead ratio |
|
|
69 |
|
|
|
62 |
|
|
|
|
|
|
|
69 |
|
|
|
63 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
30 |
|
|
|
38 |
|
|
|
|
|
|
|
30 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
(a) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to
Private Wealth Management. Prior periods have been revised to conform to this change. |
(b) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was $351 million, a decline of $170 million, or 33%, from the prior year, driven largely
by lower net revenue.
Net revenue was $2.0 billion, a decrease of $244 million, or 11%, from the prior year. Noninterest
revenue was $1.6 billion, a decline of $331 million, or 17%, due to lower performance fees and the
effect of lower markets, including the impact of lower market valuations of seed capital
investments; these effects were offset partially by the benefit of the Bear Stearns merger and
increased revenue from net asset inflows. Net interest income was $380 million, up $87 million, or
30%, from the prior year, predominantly due to higher loan and deposit balances and wider deposit
spreads.
Private Bank revenue was $631 million, relatively flat compared with the prior year, as increased
loan and deposit balances and higher assets under management largely offset the effect of lower
markets and lower performance fees. Institutional revenue declined 19% to $486 million due to lower
performance fees, partially offset by growth in assets under management. Retail revenue decreased
38% to $399 million due to the effect of lower markets, including the impact of lower market
valuations of seed capital investments and net equity outflows. Private Wealth Management revenue
grew 4% to $352 million due to higher loan and deposit balances and growth in assets under
management from net asset inflows. Bear Stearns Brokerage contributed $93 million to revenue.
The provision for credit losses was $20 million, compared with $3 million in the prior year,
reflecting an increase in loan balances and a lower level of recoveries.
43
Noninterest expense of $1.4 billion was flat compared with the prior year as the effect of the Bear
Stearns merger and increased headcount were offset by lower performance-based compensation.
Year-to-date results
Net income was $1.1 billion, a decline of $337 million, or 23%, from the prior year, driven by
lower net revenue and higher noninterest expense.
Net revenue was $5.9 billion, a decrease of $320 million, or 5%, from the prior year. Noninterest
revenue was $4.9 billion, a decline of $541 million, or 10%, from the prior year due to lower
performance fees and the effect of lower markets, including the impact of lower market valuations
of seed capital investments. The lower results were offset partially by the benefit of the Bear
Stearns merger and increased revenue from net asset inflows. Net interest income was $1.1 billion,
up $221 million, or 27%, from the prior year, predominantly due to higher deposit and loan balances
and wider deposit spreads.
Private Bank revenue grew 13% to $1.9 billion, due to higher assets under management and increased
loan and deposit balances, partially offset by the effect of lower markets and lower performance
fees. Institutional revenue declined 18% to $1.4 billion due to lower performance fees, partially
offset by growth in assets under management. Retail revenue declined 23% to $1.4 billion due to the
effect of lower markets, including the impact of lower market valuations of seed capital
investments and net equity outflows. Private Wealth Management revenue grew 6% to $1.1 billion due
to higher deposit and loan balances and growth in assets under management from net asset inflows.
Bear Stearns Brokerage contributed $131 million to revenue.
The provision for credit losses was $53 million, compared with a benefit of $17 million in the
prior year, reflecting an increase in loan balances and a lower level of recoveries.
Noninterest expense was $4.1 billion, up $129 million, or 3%, compared with the prior year as the
effect of the Bear Stearns merger and increased headcount were offset by lower performance-based
compensation.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ratios
and ranking data, |
|
Three months ended September 30, |
|
Nine months ended September 30, |
and where otherwise noted) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,684 |
|
|
|
1,680 |
|
|
|
|
% |
|
|
1,684 |
|
|
|
1,680 |
|
|
|
|
% |
Retirement planning services participants |
|
|
1,492,000 |
|
|
|
1,495,000 |
|
|
|
|
|
|
|
1,492,000 |
|
|
|
1,495,000 |
|
|
|
|
|
Bear Stearns brokers |
|
|
323 |
|
|
|
|
|
|
|
NM |
|
|
|
323 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5 Star Funds(a) |
|
|
39 |
% |
|
|
55 |
% |
|
|
(29 |
) |
|
|
39 |
% |
|
|
55 |
% |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of AUM in 1st and 2nd quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
49 |
% |
|
|
47 |
% |
|
|
4 |
|
|
|
49 |
% |
|
|
47 |
% |
|
|
4 |
|
3 years |
|
|
67 |
% |
|
|
73 |
% |
|
|
(8 |
) |
|
|
67 |
% |
|
|
73 |
% |
|
|
(8 |
) |
5 years |
|
|
77 |
% |
|
|
76 |
% |
|
|
1 |
|
|
|
77 |
% |
|
|
76 |
% |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
7,000 |
|
|
$ |
4,000 |
|
|
|
75 |
|
|
$ |
7,000 |
|
|
$ |
4,000 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
71,189 |
|
|
$ |
53,879 |
|
|
|
32 |
|
|
$ |
65,518 |
|
|
$ |
50,498 |
|
|
|
30 |
|
Loans(c) |
|
|
39,750 |
|
|
|
30,928 |
|
|
|
29 |
|
|
|
38,552 |
|
|
|
28,440 |
|
|
|
36 |
|
Deposits |
|
|
65,621 |
|
|
|
59,907 |
|
|
|
10 |
|
|
|
67,918 |
|
|
|
56,920 |
|
|
|
19 |
|
Equity |
|
|
5,500 |
|
|
|
4,000 |
|
|
|
38 |
|
|
|
5,190 |
|
|
|
3,834 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
15,493 |
|
|
|
14,510 |
|
|
|
7 |
|
|
|
15,493 |
|
|
|
14,510 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(1 |
) |
|
$ |
(5 |
) |
|
|
80 |
|
|
$ |
(1 |
) |
|
$ |
(10 |
) |
|
|
90 |
|
Nonperforming loans |
|
|
121 |
|
|
|
28 |
|
|
|
332 |
|
|
|
121 |
|
|
|
28 |
|
|
|
332 |
|
Allowance for loan losses |
|
|
170 |
|
|
|
115 |
|
|
|
48 |
|
|
|
170 |
|
|
|
115 |
|
|
|
48 |
|
Allowance for lending-related commitments |
|
|
5 |
|
|
|
6 |
|
|
|
(17 |
) |
|
|
5 |
|
|
|
6 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
(0.01 |
)% |
|
|
(0.06 |
)% |
|
|
|
|
|
|
|
% |
|
|
(0.05 |
)% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.43 |
|
|
|
0.37 |
|
|
|
|
|
|
|
0.44 |
|
|
|
0.40 |
|
|
|
|
|
Allowance
for loan losses to nonperforming loans |
|
|
140 |
|
|
|
411 |
|
|
|
|
|
|
|
140 |
|
|
|
411 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.30 |
|
|
|
0.09 |
|
|
|
|
|
|
|
0.31 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
(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 $23 billion, or 1%, from the prior
year. Assets under management were $1.2 trillion, down $10 billion, or 1%, from the prior year. The
decrease in assets under management was predominantly due to lower equity markets and equity
product outflows, partially offset by liquidity product inflows across all segments and the
addition of Bear Stearns assets under management. Custody, brokerage, administration and deposit
balances were $409 billion, up $33 billion, driven by the addition of Bear Stearns Brokerage.
45
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
|
|
As of September 30, |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
524 |
|
|
$ |
368 |
|
Fixed income |
|
|
189 |
|
|
|
195 |
|
Equities & balanced |
|
|
308 |
|
|
|
481 |
|
Alternatives |
|
|
132 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
Total assets under management |
|
|
1,153 |
|
|
|
1,163 |
|
Custody/brokerage/administration/deposits |
|
|
409 |
|
|
|
376 |
|
|
|
|
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,562 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
Institutional |
|
$ |
653 |
|
|
$ |
603 |
|
Private Bank(b) |
|
|
194 |
|
|
|
179 |
|
Retail |
|
|
223 |
|
|
|
304 |
|
Private Wealth Management(b) |
|
|
75 |
|
|
|
77 |
|
Bear Stearns Brokerage |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under management |
|
$ |
1,153 |
|
|
$ |
1,163 |
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
653 |
|
|
$ |
604 |
|
Private Bank(b) |
|
|
417 |
|
|
|
395 |
|
Retail |
|
|
303 |
|
|
|
399 |
|
Private Wealth Management(b) |
|
|
134 |
|
|
|
141 |
|
Bear Stearns Brokerage |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,562 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
785 |
|
|
$ |
745 |
|
International |
|
|
368 |
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
Total assets under management |
|
$ |
1,153 |
|
|
$ |
1,163 |
|
|
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
1,100 |
|
|
$ |
1,022 |
|
International |
|
|
462 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,562 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
470 |
|
|
$ |
308 |
|
Fixed income |
|
|
44 |
|
|
|
46 |
|
Equity |
|
|
134 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
Total mutual fund assets |
|
$ |
648 |
|
|
$ |
589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm
has 43% ownership. |
(b) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to Private
Wealth Management. Prior periods have been revised to conform to this change. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
Assets under management rollforward |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,185 |
|
|
$ |
1,109 |
|
|
$ |
1,193 |
|
|
$ |
1,013 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
55 |
|
|
|
33 |
|
|
|
124 |
|
|
|
52 |
|
Fixed income |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
6 |
|
Equities, balanced and alternative |
|
|
(5 |
) |
|
|
2 |
|
|
|
(29 |
) |
|
|
24 |
|
Market/performance/other impacts(a) |
|
|
(78 |
) |
|
|
21 |
|
|
|
(130 |
) |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under management |
|
$ |
1,153 |
|
|
$ |
1,163 |
|
|
$ |
1,153 |
|
|
$ |
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,611 |
|
|
$ |
1,472 |
|
|
$ |
1,572 |
|
|
$ |
1,347 |
|
Net asset flows |
|
|
61 |
|
|
|
41 |
|
|
|
108 |
|
|
|
106 |
|
Market/performance/other impacts(a) |
|
|
(110 |
) |
|
|
26 |
|
|
|
(118 |
) |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets under supervision |
|
$ |
1,562 |
|
|
$ |
1,539 |
|
|
$ |
1,562 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $15 billion for assets under management and $68 billion for assets under
supervision from the Bear Stearns merger in the second quarter of 2008. |
46
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 September 30, |
|
Nine months ended September 30, |
(in millions, except headcount) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions(a) |
|
$ |
(1,876 |
) |
|
$ |
1,082 |
|
|
NM% |
|
$ |
(1,968 |
) |
|
$ |
3,779 |
|
|
NM% |
Securities gains (losses)(b) |
|
|
440 |
|
|
|
128 |
|
|
|
244 |
|
|
|
1,138 |
|
|
|
(107 |
) |
|
|
NM |
|
All other income(c) |
|
|
(274 |
) |
|
|
70 |
|
|
|
NM |
|
|
|
987 |
|
|
|
228 |
|
|
|
333 |
|
|
|
|
|
Noninterest revenue |
|
|
(1,710 |
) |
|
|
1,280 |
|
|
|
NM |
|
|
|
157 |
|
|
|
3,900 |
|
|
|
(96 |
) |
Net interest income (expense) |
|
|
(38 |
) |
|
|
(279 |
) |
|
|
86 |
|
|
|
(276 |
) |
|
|
(569 |
) |
|
|
51 |
|
|
|
|
|
Total net revenue |
|
|
(1,748 |
) |
|
|
1,001 |
|
|
|
NM |
|
|
|
(119 |
) |
|
|
3,331 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses(d) |
|
|
2,355 |
|
|
|
(31 |
) |
|
|
NM |
|
|
|
2,841 |
|
|
|
(25 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
652 |
|
|
|
569 |
|
|
|
15 |
|
|
|
1,902 |
|
|
|
2,040 |
|
|
|
(7 |
) |
Noncompensation expense(e) |
|
|
570 |
|
|
|
674 |
|
|
|
(15 |
) |
|
|
1,187 |
|
|
|
2,048 |
|
|
|
(42 |
) |
Merger costs |
|
|
96 |
|
|
|
61 |
|
|
|
57 |
|
|
|
251 |
|
|
|
187 |
|
|
|
34 |
|
|
|
|
|
Subtotal |
|
|
1,318 |
|
|
|
1,304 |
|
|
|
1 |
|
|
|
3,340 |
|
|
|
4,275 |
|
|
|
(22 |
) |
Net expense allocated to other
businesses |
|
|
(1,150 |
) |
|
|
(1,059 |
) |
|
|
(9 |
) |
|
|
(3,277 |
) |
|
|
(3,174 |
) |
|
|
(3 |
) |
|
|
|
|
Total noninterest expense |
|
|
168 |
|
|
|
245 |
|
|
|
(31 |
) |
|
|
63 |
|
|
|
1,101 |
|
|
|
(94 |
) |
|
|
|
|
Income (loss) before income tax
expense and extraordinary gain |
|
|
(4,271 |
) |
|
|
787 |
|
|
|
NM |
|
|
|
(3,023 |
) |
|
|
2,255 |
|
|
|
NM |
|
Income tax expense (benefit) |
|
|
(1,727 |
) |
|
|
274 |
|
|
|
NM |
|
|
|
(1,084 |
) |
|
|
729 |
|
|
|
NM |
|
|
|
|
|
Income (loss) before extraordinary
gain |
|
|
(2,544 |
) |
|
|
513 |
|
|
|
NM |
|
|
|
(1,939 |
) |
|
|
1,526 |
|
|
|
NM |
|
Extraordinary gain(f) |
|
|
581 |
|
|
|
|
|
|
|
NM |
|
|
|
581 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
Net income (loss) |
|
$ |
(1,963 |
) |
|
$ |
513 |
|
|
|
NM |
|
|
$ |
(1,358 |
) |
|
$ |
1,526 |
|
|
|
NM |
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(216 |
) |
|
$ |
733 |
|
|
|
NM |
|
|
$ |
144 |
|
|
$ |
3,279 |
|
|
|
(96 |
) |
Corporate |
|
|
(1,532 |
) |
|
|
268 |
|
|
|
NM |
|
|
|
(263 |
) |
|
|
52 |
|
|
|
NM |
|
|
|
|
|
Total net revenue |
|
$ |
(1,748 |
) |
|
$ |
1,001 |
|
|
|
NM |
|
|
$ |
(119 |
) |
|
$ |
3,331 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(164 |
) |
|
$ |
409 |
|
|
|
NM |
|
|
$ |
(8 |
) |
|
$ |
1,809 |
|
|
|
NM |
|
Corporate |
|
|
(1,064 |
) |
|
|
142 |
|
|
|
NM |
|
|
|
(75 |
) |
|
|
(167 |
) |
|
|
55 |
|
Merger-related items(g) |
|
|
(735 |
) |
|
|
(38 |
) |
|
|
NM |
|
|
|
(1,275 |
) |
|
|
(116 |
) |
|
|
NM |
|
|
|
|
|
Total net income (loss) |
|
$ |
(1,963 |
) |
|
$ |
513 |
|
|
|
NM |
|
|
$ |
(1,358 |
) |
|
$ |
1,526 |
|
|
|
NM |
|
|
|
|
|
Headcount |
|
|
21,641 |
|
|
|
22,864 |
|
|
|
(5 |
) |
|
|
21,641 |
|
|
|
22,864 |
|
|
|
(5 |
) |
|
|
|
|
(a) |
|
Included losses on preferred equity interest in Fannie Mae and Freddie Mac in the third
quarter of 2008. |
(b) |
|
Included gains on the sale of MasterCard shares in the second quarter of 2008. |
(c) |
|
Included proceeds from the sale of Visa shares in its initial public offering in the first
quarter of 2008. |
(d) |
|
Included a $2.0 billion charge to conform Washington Mutuals loan loss reserves to JPMorgan
Chases accounting policy in the third quarter of 2008. |
(e) |
|
Included a release of credit card litigation reserves in the first quarter of 2008. |
(f) |
|
Effective September 25, 2008, JPMorgan Chase acquired Washington Mutuals banking operations
from the FDIC for $1.9 billion. The fair value of the Washington Mutual net assets acquired
exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141,
nonfinancial assets that are not held-for-sale were written down against that negative
goodwill. The negative goodwill that remained after writing down nonfinancial assets was
recognized as an extraordinary gain. |
(g) |
|
Included an accounting conformity loan loss reserve provision and an extraordinary gain
related to the Washington Mutual transaction in the third quarter of 2008. The three and nine
month periods of 2008 reflect items related to the Bear Stearns merger, which included Bear
Stearns equity earnings, merger costs, Bear Stearns asset management liquidation costs and
Bear Stearns private client services broker retention expense. Prior periods represent costs
related to the 2004 Bank One and 2006 Bank of New York transactions. |
47
Quarterly results
Net loss for Corporate/Private Equity was $2.0 billion, compared with net income of $513 million in
the prior year.
Net loss included a charge of $1.2 billion (after-tax) to conform loan loss reserves and an
extraordinary gain of $581 million related to the acquisition of Washington Mutuals
banking operations, which closed on September 25, 2008. Net loss also included $95 million
(after-tax) of continuing Bear Stearns merger-related items.
Net loss for Private Equity was $164 million, compared with net income of $409 million in the prior
year. Net revenue was negative $216 million, a decrease of $949 million, reflecting Private Equity
losses of $206 million, compared with gains of $766 million in the prior year. Noninterest expense
was $41 million, a decline of $54 million from the prior year, reflecting lower compensation
expense.
Excluding the above merger-related items, the net loss for Corporate was $1.1 billion, compared
with net income of $142 million in the prior year. Net revenue was negative $1.5 billion, compared
with revenue of $268 million in the prior year. This decrease reflects a higher level of trading
losses, including losses of $1.0 billion on preferred securities of Fannie Mae and Freddie Mac, a
$375 million charge related to the offer to repurchase the Firm and its affiliates auction-rate
securities at par for certain customers, and the absence of a $115 million gain from the sale of MasterCard shares in the
prior year. These losses were offset partially by securities gains of $440 million. Excluding the
provision related to Washington Mutual, the current-quarter provision for credit losses of $378
million includes an increase in the allowance for loan losses of $250 million for prime mortgage
(see Retail Financial Services discussion of the provision for loan losses for further detail).
Noninterest expense was $127 million, a decrease of $23 million from the prior year, driven by
lower litigation expense.
Year-to-date results
Net loss for Corporate/Private Equity was $1.4 billion, compared with net income of $1.5 billion in
the prior year.
Results included a $1.2 billion (after-tax) conforming loan loss reserve provision and an
extraordinary gain of $581 million related to the acquisition of Washington Mutuals
banking operations, the after-tax effect from the sale of Visa shares in its initial public
offering ($1.5 billion pretax and $955 million after-tax) and the impact of Bear Stearns
merger-related items, netting to a loss of $635 million.
Net loss for Private Equity was $8 million, compared with net income of $1.8 billion in the prior
year. Net revenue was $144 million, a decrease of $3.1 billion, reflecting Private Equity gains of
$203 million, compared with gains of $3.4 billion in the prior year. Noninterest expense was $161
million, a decline of $296 million from the prior year, reflecting lower compensation expense.
Excluding the above merger-related items and the impact of the Visa initial public offering, the net loss for Corporate
was $1.0 billion, compared with a net loss of $167 million in the prior year. Net revenue was
negative $1.4 billion, compared with revenue of $52 million in the prior year. This decrease was
due to a higher level of trading losses, including losses of $1.0 billion on preferred securities
of Fannie Mae and Freddie Mac, a $375 million charge related to the offer to repurchase
auction-rate securities at par, and the absence of a $115 million gain from the sale of MasterCard
shares in the prior year. Trading losses were offset partially by securities gains of $1.1 billion,
which included a pretax gain of $668 million from the sale of MasterCard shares. Excluding the
provision related to the Washington Mutual transaction, there were credit losses of $865 million
compared with a benefit of $25 million in the prior year, predominantly reflecting an increase in
the allowance for loan losses and higher net charge-offs for prime mortgages. Excluding the above
merger-related items, noninterest expense was negative $435 million compared with $645 million in
the prior year, reflecting a reduction of credit card-related litigation expense and the absence of
prior-year Bank One merger expense.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance
sheet data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2008 |
|
|
2007 |
|
|
Change |
|
2008 |
|
|
2007 |
|
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses)(a) |
|
$ |
442 |
|
|
$ |
126 |
|
|
|
251 |
% |
|
$ |
1,140 |
|
|
$ |
(109 |
) |
|
|
NM |
% |
Investment securities portfolio (average) |
|
|
105,984 |
|
|
|
85,470 |
|
|
|
24 |
|
|
|
94,592 |
|
|
|
86,552 |
|
|
|
9 |
|
Investment securities portfolio (ending) |
|
|
115,703 |
|
|
|
86,495 |
|
|
|
34 |
|
|
|
115,703 |
|
|
|
86,495 |
|
|
|
34 |
|
Mortgage loans (average)(b) |
|
|
42,432 |
|
|
|
29,854 |
|
|
|
42 |
|
|
|
41,228 |
|
|
|
27,326 |
|
|
|
51 |
|
Mortgage loans (ending)(b) |
|
|
41,976 |
|
|
|
32,804 |
|
|
|
28 |
|
|
|
41,976 |
|
|
|
32,804 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
40 |
|
|
$ |
504 |
|
|
|
(92 |
) |
|
$ |
1,693 |
|
|
$ |
2,212 |
|
|
|
(23 |
) |
Unrealized gains (losses)(c) |
|
|
(273 |
) |
|
|
227 |
|
|
|
NM |
|
|
|
(1,480 |
) |
|
|
1,038 |
|
|
|
NM |
|
|
|
|
|
Total direct investments |
|
|
(233 |
) |
|
|
731 |
|
|
|
NM |
|
|
|
213 |
|
|
|
3,250 |
|
|
|
(93 |
) |
Third-party fund investments |
|
|
27 |
|
|
|
35 |
|
|
|
(23 |
) |
|
|
(10 |
) |
|
|
122 |
|
|
|
NM |
|
|
|
|
|
Total private equity gains (losses)(d) |
|
$ |
(206 |
) |
|
$ |
766 |
|
|
|
NM |
|
|
$ |
203 |
|
|
$ |
3,372 |
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e) |
|
|
|
|
|
|
|
|
|
Direct investments |
|
September 30, 2008 |
|
|
December 31, 2007 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publicly held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
600 |
|
|
$ |
390 |
|
|
|
54 |
% |
Cost |
|
|
705 |
|
|
|
288 |
|
|
|
145 |
|
Quoted public value |
|
|
657 |
|
|
|
536 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
6,038 |
|
|
|
5,914 |
|
|
|
2 |
|
Cost |
|
|
6,058 |
|
|
|
4,867 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
889 |
|
|
|
849 |
|
|
|
5 |
|
Cost |
|
|
1,121 |
|
|
|
1,076 |
|
|
|
4 |
|
|
|
|
|
|
Total private equity portfolio Carrying value |
|
$ |
7,527 |
|
|
$ |
7,153 |
|
|
|
5 |
|
Total private equity portfolio Cost |
|
$ |
7,884 |
|
|
$ |
6,231 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Year-to-date 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 5 on pages 98102 of this Form 10-Q. |
(f) |
|
Unfunded commitments to third-party private equity funds were $931 million and $881 million
at September 30, 2008, and December 31, 2007, respectively. |
The carrying value of the private equity portfolio at September 30, 2008, was $7.5 billion, up
from $7.2 billion at December 31, 2007. The portfolio represented 7.5% of the Firms stockholders
equity less goodwill at September 30, 2008, down from 9.2% at December 31, 2007.
WASHINGTON MUTUAL
The effects of the acquisition of Washington Mutuals banking operations on September 25,
2008, were not included in the preceding business segment results as such operations did not have a
material effect on the results of the quarter ended September 30, 2008, except the charge to
conform Washington Mutuals loan loss reserves and the extraordinary gain related to the
transaction which are reflected for JPMorgan Chase in the Corporate/Private Equity segment. The
following table presents the September 30, 2008 allocated value of assets and liabilities, and
other selected metrics related to the Washington Mutual transaction.
49
|
|
|
|
|
Selected balance sheet data (in millions) |
|
September 30, 2008 |
|
|
|
|
|
|
Assets |
|
|
|
|
Cash and due from banks |
|
$ |
3,680 |
|
Deposits with banks |
|
|
3,517 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
1,700 |
|
Trading assets |
|
|
5,691 |
|
Securities |
|
|
17,240 |
|
Loans (net of allowance for loan losses) (a) |
|
|
204,213 |
|
Accrued interest and accounts receivable |
|
|
3,332 |
|
Mortgage servicing rights |
|
|
5,845 |
|
Other assets |
|
|
15,044 |
|
|
|
|
|
|
Total assets |
|
$ |
260,262 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
$ |
159,824 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
4,549 |
|
Other borrowed funds |
|
|
81,759 |
|
Trading liabilities derivative payables |
|
|
585 |
|
Accounts payable, accrued expense and other liabilities |
|
|
6,092 |
|
Long-term debt |
|
|
6,910 |
|
|
|
|
|
|
Total liabilities |
|
$ |
259,719 |
|
|
|
|
|
|
|
|
|
|
|
Loan balances |
|
|
|
|
Consumer loans excluding purchased credit impaired: |
|
|
|
|
Home equity |
|
$ |
22,217 |
|
Prime mortgage |
|
|
23,442 |
|
Subprime mortgage |
|
|
4,725 |
|
Option ARMs |
|
|
18,989 |
|
Credit card |
|
|
15,158 |
|
Other loans |
|
|
1,858 |
|
|
|
|
|
|
Consumer loans excluding purchased credit impaired |
|
|
86,389 |
|
Consumer loans purchased credit impaired |
|
|
77,853 |
|
|
|
|
|
|
Total consumer loans |
|
|
164,242 |
|
|
|
|
|
|
Wholesale loans(b) |
|
|
44,482 |
|
|
|
|
|
|
Total loans |
|
|
208,724 |
|
Allowance for loan losses(a) (c) |
|
|
(4,511 |
) |
|
|
|
|
|
Total net loans |
|
$ |
204,213 |
|
|
|
|
|
|
Total managed loans |
|
$ |
220,643 |
|
|
|
|
|
|
|
|
|
|
|
Credit data and credit quality statistics |
|
|
|
|
30+ day delinquency rate |
|
|
8.18 |
% |
Allowance for loan losses |
|
$ |
4,511 |
|
Allowance for loan losses to ending loans(c) |
|
|
3.45 |
% |
|
|
|
|
|
Deposits |
|
|
|
|
Checking |
|
$ |
45,494 |
|
Savings |
|
|
19,580 |
|
Time and other |
|
|
94,750 |
|
|
|
|
|
|
Total deposits |
|
$ |
159,824 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking metrics (in billions) |
|
|
|
|
Third-party mortgage loans serviced (ending) |
|
$ |
433.0 |
|
MSR net carrying value (ending) |
|
|
5.8 |
|
|
|
|
|
|
Other metrics |
|
|
|
|
Branches |
|
|
2,244 |
|
ATMs |
|
|
5,081 |
|
Headcount |
|
|
41,798 |
|
Checking accounts (in thousands) |
|
|
12,818 |
|
Net accounts
opened (in millions)(d) |
|
|
13 |
|
|
|
|
|
|
|
|
|
(a) |
|
Includes an adjustment of $2.0 billion to conform Washington Mutuals loan loss allowance to
JPMorgan Chases policy. |
(b) |
|
Included $272 million of purchased credit impaired loans. |
(c) |
|
Purchased credit impaired
loans of $78.1 billion were excluded when calculating the ratio
of the allowance for loan losses to ending loans. These loans were recorded at fair value on
the transaction date, including an adjustment for credit impairment. Accordingly, no allowance
for loan losses has been recorded for these assets as of September 30, 2008. |
(d) |
|
Represents credit card
accounts acquired by JPMorgan Chase in the Washington Mutual
transaction. |
50
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
September 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
54,350 |
|
|
$ |
40,144 |
|
Deposits with banks |
|
|
34,372 |
|
|
|
11,466 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
233,668 |
|
|
|
170,897 |
|
Securities borrowed |
|
|
152,050 |
|
|
|
84,184 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
401,609 |
|
|
|
414,273 |
|
Derivative receivables |
|
|
118,648 |
|
|
|
77,136 |
|
Securities |
|
|
150,779 |
|
|
|
85,450 |
|
Loans |
|
|
761,381 |
|
|
|
519,374 |
|
Allowance for loan losses |
|
|
(19,052 |
) |
|
|
(9,234 |
) |
|
|
|
|
|
|
|
|
|
Loans, net of allowance for loan losses |
|
|
742,329 |
|
|
|
510,140 |
|
Accrued interest and accounts receivable |
|
|
104,232 |
|
|
|
24,823 |
|
Goodwill |
|
|
46,121 |
|
|
|
45,270 |
|
Other intangible assets |
|
|
22,528 |
|
|
|
14,731 |
|
Other assets |
|
|
190,783 |
|
|
|
83,633 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,251,469 |
|
|
$ |
1,562,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
969,783 |
|
|
$ |
740,728 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
224,075 |
|
|
|
154,398 |
|
Commercial paper and other borrowed funds |
|
|
222,307 |
|
|
|
78,431 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
76,213 |
|
|
|
89,162 |
|
Derivative payables |
|
|
85,816 |
|
|
|
68,705 |
|
Accounts payable, accrued expense and other liabilities |
|
|
260,563 |
|
|
|
94,476 |
|
Beneficial interests issued by consolidated VIEs |
|
|
11,437 |
|
|
|
14,016 |
|
Long-term debt and trust preferred capital debt securities |
|
|
255,432 |
|
|
|
199,010 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,105,626 |
|
|
|
1,438,926 |
|
Stockholders equity |
|
|
<