e10vq
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
|
|
|
For the Quarterly Period Ended June 30, 2009
|
|
Commission file number 1-5805 |
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
13-2624428 |
|
|
|
(State or other jurisdiction of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
|
|
|
270 Park Avenue, New York, New York
|
|
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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
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 the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Number of shares of common stock outstanding as of July 31, 2009: 3,932,572,941
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share, headcount and ratios) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
As of or for the period ended, |
|
2Q09 |
|
1Q09 |
|
4Q08 |
|
3Q08 |
|
2Q08 |
|
2009 |
|
2008 |
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
$ |
12,953 |
|
|
$ |
11,658 |
|
|
$ |
3,394 |
|
|
$ |
5,743 |
|
|
$ |
10,105 |
|
|
$ |
24,611 |
|
|
$ |
19,336 |
|
Net interest income |
|
|
12,670 |
|
|
|
13,367 |
|
|
|
13,832 |
|
|
|
8,994 |
|
|
|
8,294 |
|
|
|
26,037 |
|
|
|
15,953 |
|
|
Total net revenue |
|
|
25,623 |
|
|
|
25,025 |
|
|
|
17,226 |
|
|
|
14,737 |
|
|
|
18,399 |
|
|
|
50,648 |
|
|
|
35,289 |
|
Noninterest expense |
|
|
13,520 |
|
|
|
13,373 |
|
|
|
11,255 |
|
|
|
11,137 |
|
|
|
12,177 |
|
|
|
26,893 |
|
|
|
21,108 |
|
|
Pre-provision profit |
|
|
12,103 |
|
|
|
11,652 |
|
|
|
5,971 |
|
|
|
3,600 |
|
|
|
6,222 |
|
|
|
23,755 |
|
|
|
14,181 |
|
Provision for credit losses |
|
|
8,031 |
|
|
|
8,596 |
|
|
|
7,755 |
|
|
|
3,811 |
|
|
|
3,455 |
|
|
|
16,627 |
|
|
|
7,879 |
|
Provision for credit losses accounting
conformity(a) |
|
|
|
|
|
|
|
|
|
|
(442 |
) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
expense and extraordinary gain |
|
|
4,072 |
|
|
|
3,056 |
|
|
|
(1,342 |
) |
|
|
(2,187 |
) |
|
|
2,767 |
|
|
|
7,128 |
|
|
|
6,302 |
|
Income tax expense (benefit)(b) |
|
|
1,351 |
|
|
|
915 |
|
|
|
(719 |
) |
|
|
(2,133 |
) |
|
|
764 |
|
|
|
2,266 |
|
|
|
1,926 |
|
|
Income (loss) before extraordinary gain |
|
|
2,721 |
|
|
|
2,141 |
|
|
|
(623 |
) |
|
|
(54 |
) |
|
|
2,003 |
|
|
|
4,862 |
|
|
|
4,376 |
|
Extraordinary gain(c) |
|
|
|
|
|
|
|
|
|
|
1,325 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
2,141 |
|
|
$ |
702 |
|
|
$ |
527 |
|
|
$ |
2,003 |
|
|
$ |
4,862 |
|
|
$ |
4,376 |
|
|
Per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
$ |
0.28 |
|
|
$ |
0.40 |
|
|
$ |
(0.29 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.54 |
|
|
$ |
0.68 |
|
|
$ |
1.21 |
|
Net income |
|
|
0.28 |
|
|
|
0.40 |
|
|
|
0.06 |
|
|
|
0.09 |
|
|
|
0.54 |
|
|
|
0.68 |
|
|
|
1.21 |
|
Diluted earnings(d)(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
$ |
0.28 |
|
|
$ |
0.40 |
|
|
$ |
(0.29 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.53 |
|
|
$ |
0.68 |
|
|
$ |
1.20 |
|
Net income |
|
|
0.28 |
|
|
|
0.40 |
|
|
|
0.06 |
|
|
|
0.09 |
|
|
|
0.53 |
|
|
|
0.68 |
|
|
|
1.20 |
|
Cash dividends declared per share |
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.38 |
|
|
|
0.38 |
|
|
|
0.38 |
|
|
|
0.10 |
|
|
|
0.76 |
|
Book value per share |
|
|
37.36 |
|
|
|
36.78 |
|
|
|
36.15 |
|
|
|
36.95 |
|
|
|
37.02 |
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average: Basic |
|
|
3,811.5 |
|
|
|
3,755.7 |
|
|
|
3,737.5 |
|
|
|
3,444.6 |
|
|
|
3,426.2 |
|
|
|
3,783.6 |
|
|
|
3,411.1 |
|
Diluted(d) |
|
|
3,824.1 |
|
|
|
3,758.7 |
|
|
|
3,737.5 |
(k) |
|
|
3,444.6 |
(k) |
|
|
3,453.1 |
|
|
|
3,791.4 |
|
|
|
3,438.2 |
|
Common shares at period end(f) |
|
|
3,924.1 |
|
|
|
3,757.7 |
|
|
|
3,732.8 |
|
|
|
3,726.9 |
|
|
|
3,435.7 |
|
|
|
|
|
|
|
|
|
Share price(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
38.94 |
|
|
$ |
31.64 |
|
|
$ |
50.63 |
|
|
$ |
49.00 |
|
|
$ |
49.95 |
|
|
$ |
38.94 |
|
|
$ |
49.95 |
|
Low |
|
|
25.29 |
|
|
|
14.96 |
|
|
|
19.69 |
|
|
|
29.24 |
|
|
|
33.96 |
|
|
|
14.96 |
|
|
|
33.96 |
|
Close |
|
|
34.11 |
|
|
|
26.58 |
|
|
|
31.53 |
|
|
|
46.70 |
|
|
|
34.31 |
|
|
|
|
|
|
|
|
|
Market capitalization |
|
|
133,852 |
|
|
|
99,881 |
|
|
|
117,695 |
|
|
|
174,048 |
|
|
|
117,881 |
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on common equity
(ROE)(h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
extraordinary gain |
|
|
3 |
% |
|
|
5 |
% |
|
|
(3 |
)% |
|
|
(1 |
)% |
|
|
6 |
% |
|
|
4 |
% |
|
|
7 |
% |
Net income |
|
|
3 |
|
|
|
5 |
|
|
|
1 |
|
|
|
1 |
|
|
|
6 |
|
|
|
4 |
|
|
|
7 |
|
Return on assets (ROA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary gain |
|
|
0.54 |
|
|
|
0.42 |
|
|
|
(0.11 |
) |
|
|
(0.01 |
) |
|
|
0.48 |
|
|
|
0.48 |
|
|
|
0.54 |
|
Net income |
|
|
0.54 |
|
|
|
0.42 |
|
|
|
0.13 |
|
|
|
0.12 |
|
|
|
0.48 |
|
|
|
0.48 |
|
|
|
0.54 |
|
Overhead ratio |
|
|
53 |
|
|
|
53 |
|
|
|
65 |
|
|
|
76 |
|
|
|
66 |
|
|
|
53 |
|
|
|
60 |
|
Tier 1 common capital ratio |
|
|
7.7 |
|
|
|
7.3 |
|
|
|
7.0 |
|
|
|
6.8 |
|
|
|
7.1 |
|
|
|
|
|
|
|
|
|
Tier 1 capital ratio |
|
|
9.7 |
|
|
|
11.4 |
|
|
|
10.9 |
|
|
|
8.9 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
Total capital ratio |
|
|
13.3 |
|
|
|
15.2 |
|
|
|
14.8 |
|
|
|
12.6 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio |
|
|
6.2 |
|
|
|
7.1 |
|
|
|
6.9 |
|
|
|
7.2 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets |
|
$ |
395,626 |
|
|
$ |
429,700 |
|
|
$ |
509,983 |
|
|
$ |
520,257 |
|
|
$ |
531,997 |
|
|
|
|
|
|
|
|
|
Securities |
|
|
345,563 |
|
|
|
333,861 |
|
|
|
205,943 |
|
|
|
150,779 |
|
|
|
119,173 |
|
|
|
|
|
|
|
|
|
Loans |
|
|
680,601 |
|
|
|
708,243 |
|
|
|
744,898 |
|
|
|
761,381 |
|
|
|
538,029 |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
2,026,642 |
|
|
|
2,079,188 |
|
|
|
2,175,052 |
|
|
|
2,251,469 |
|
|
|
1,775,670 |
|
|
|
|
|
|
|
|
|
Deposits |
|
|
866,477 |
|
|
|
906,969 |
|
|
|
1,009,277 |
|
|
|
969,783 |
|
|
|
722,905 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
254,226 |
|
|
|
243,569 |
|
|
|
252,094 |
|
|
|
238,034 |
|
|
|
260,192 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
146,614 |
|
|
|
138,201 |
|
|
|
134,945 |
|
|
|
137,691 |
|
|
|
127,176 |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
154,766 |
|
|
|
170,194 |
|
|
|
166,884 |
|
|
|
145,843 |
|
|
|
133,176 |
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
220,255 |
|
|
|
219,569 |
|
|
|
224,961 |
|
|
|
228,452 |
|
|
|
195,594 |
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
As of or for the period ended, |
|
2Q09 |
|
1Q09 |
|
4Q08 |
|
3Q08 |
|
2Q08 |
|
2009 |
|
2008 |
|
Credit quality metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
29,818 |
|
|
$ |
28,019 |
|
|
$ |
23,823 |
|
|
$ |
19,765 |
|
|
$ |
13,932 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
ending loans(i) |
|
|
5.01 |
% |
|
|
4.53 |
% |
|
|
3.62 |
% |
|
|
2.87 |
% |
|
|
2.57 |
% |
|
|
|
|
|
|
|
|
Nonperforming assets |
|
$ |
17,517 |
|
|
$ |
14,654 |
|
|
$ |
12,714 |
|
|
$ |
9,520 |
|
|
$ |
6,233 |
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
6,019 |
|
|
|
4,396 |
|
|
|
3,315 |
|
|
|
2,484 |
|
|
|
2,130 |
|
|
$ |
10,415 |
|
|
$ |
4,036 |
|
Net charge-off rate |
|
|
3.52 |
% |
|
|
2.51 |
% |
|
|
1.80 |
% |
|
|
1.91 |
% |
|
|
1.67 |
% |
|
|
3.01 |
% |
|
|
1.60 |
% |
Wholesale net charge-off rate |
|
|
1.19 |
|
|
|
0.32 |
|
|
|
0.33 |
|
|
|
0.10 |
|
|
|
0.08 |
|
|
|
0.75 |
|
|
|
0.13 |
|
Consumer net charge-off rate |
|
|
4.69 |
|
|
|
3.61 |
|
|
|
2.59 |
|
|
|
3.13 |
|
|
|
2.77 |
|
|
|
4.15 |
|
|
|
2.60 |
|
Managed Card net charge-off
rate(j) |
|
|
10.03 |
|
|
|
7.72 |
|
|
|
5.56 |
|
|
|
5.00 |
|
|
|
4.98 |
|
|
|
8.85 |
|
|
|
4.68 |
|
|
|
|
|
(a) |
|
The third and fourth quarters of 2008 included an accounting conformity loan loss reserve
provision related to the acquisition of Washington Mutual Banks banking operations. |
|
(b) |
|
The income tax benefit in the third quarter of 2008 includes the realization of a benefit
from the release of deferred tax liabilities associated with the undistributed earnings of
certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely. |
|
(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) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period
amounts have been revised as required. For further discussion of FSP EITF 03-6-1, see Note 21
on page 158 of this Form 10-Q. |
|
(e) |
|
The calculation of second quarter 2009 earnings per share includes a one-time, noncash
reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred
capital. For further discussion, see Impact on diluted earnings per share of redemption of
TARP preferred stock issued to the U.S. Treasury on page 18 of this Form 10-Q. |
|
(f) |
|
On June 5, 2009, the Firm issued 163 million shares of its common stock at $35.25 per share;
and on September 30, 2008, the Firm issued 284 million shares of its common stock at $40.50
per share. |
|
(g) |
|
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. |
|
(h) |
|
The calculation of second quarter 2009 net income applicable to common
equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP
preferred capital. Excluding this reduction the adjusted ROE was 6% for the second quarter
2009. For further discussion of adjusted ROE, see Explanation and
reconciliation of the Firms use of non-GAAP financial measures on pages 15-18 of this Form
10-Q. |
|
(i) |
|
Excludes the impact of home lending purchased credit-impaired loans, loans from Washington
Mutual Master Trust, loans held-for-sale and loans at fair value. For additional information,
refer to Allowance for credit losses on pages 78-80 of this Form 10-Q. |
|
(j) |
|
Beginning in the fourth quarter of 2008, Managed Card net charge-offs reflect the impact of
purchase accounting adjustments related to the acquisition of Washington Mutual Banks banking
operations and the consolidation of the Washington Mutual Master Trust. |
|
(k) |
|
Common equivalent shares have been excluded from the computation of diluted earnings per
share for the third and fourth quarters of 2008, as the effect on income (loss) before
extraordinary gain would be antidilutive. |
4
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides managements discussion and analysis (MD&A) of the
financial condition and results of operations for JPMorgan Chase. See the Glossary of Terms on
pages 169-173 for definitions of terms used throughout this Form 10-Q. The MD&A included in this
Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases actual results to differ materially from those set forth
in such forward-looking statements. For a discussion of some of these risks and uncertainties, see
Forward-looking Statements on pages 176-177 and Part II, Item 1A: Risk Factors on page 179 of this
Form 10-Q, and JPMorgan Chases Annual Report on Form 10-K for the year ended December 31, 2008, as
filed with the U.S. Securities and Exchange Commission (2008 Annual Report or 2008 Form 10-K),
including Part I, Item 1A: Risk factors.
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 $2.0 trillion in assets, $154.8
billion in stockholders equity and operations in more than 60 countries as of June 30, 2009. The
Firm is a leader in investment banking, financial services for consumers and businesses, financial
transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm
serves millions of customers in the U.S. and many of the worlds most prominent corporate,
institutional and government clients.
JPMorgan Chases principal bank subsidiaries are JPMorgan Chase Bank, National Association
(JPMorgan Chase Bank, N.A.), a U.S. national banking association with branches in 23 states; and
Chase Bank USA, National Association (Chase Bank USA, N.A.), a national bank that is the Firms
credit card-issuing bank. JPMorgan Chases principal nonbank subsidiary is J.P. Morgan Securities
Inc., the Firms U.S. investment banking firm.
JPMorgan Chases activities are organized, for management reporting purposes, into six business
segments, as well as Corporate/Private Equity. The Firms wholesale businesses comprise the
Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments.
The Firms consumer businesses comprise the Retail Financial Services and Card Services segments. A
description of the Firms business segments, and the products and services they provide to their
respective client bases, follows.
Investment Bank
J.P. Morgan is one of the worlds leading investment banks, with deep client relationships and
broad product capabilities. The Investment Banks (IB) 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. IB also
selectively commits the Firms own capital to principal investing and trading activities.
Retail Financial Services
Retail Financial Services (RFS), which includes the Retail Banking and Consumer Lending reporting
segments, serves consumers and businesses through personal service at bank branches and through
ATMs, online banking and telephone banking, as well as through auto dealerships and school
financial-aid offices. Customers can use more than 5,200 bank branches (third-largest nationally)
and 14,100 ATMs (second-largest nationally), as well as online and mobile banking around the clock.
More than 21,400 branch salespeople assist customers with checking and savings accounts, mortgages,
home equity and business loans, and investments across the 23-state footprint from New York and
Florida to California. Consumers also can obtain loans through more than 16,100 auto dealerships
and 4,800 schools and universities nationwide.
Card Services
Chase Card Services (CS) is one of the nations largest credit card issuers, with more than 151
million cards in circulation and more than $171 billion in managed loans. In the six months ended
June 30, 2009, customers used Chase cards to meet more than $158 billion worth of their spending
needs. Chase has a market leadership position in building loyalty and rewards programs with many of
the worlds most respected brands and through its proprietary products, which include the Chase
Freedom program.
Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one of the leading
processors of MasterCard and Visa payments.
5
Commercial Banking
Commercial Banking (CB) serves more than 26,000 clients nationally, including corporations,
municipalities, financial institutions and not-for-profit entities with annual revenue generally
ranging from $10 million to $2 billion, and nearly 30,000 real estate investors/owners. Delivering
extensive industry knowledge, local expertise and dedicated service, CB partners with the Firms
other businesses to provide comprehensive solutions, including lending, treasury services,
investment banking and asset management to meet its clients domestic and international financial
needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in transaction, investment and
information services. TSS is one of the worlds largest cash management providers and a leading
global custodian. Treasury Services (TS) provides cash management, trade, wholesale card and
liquidity products and services to small and mid-sized companies, multinational corporations,
financial institutions and government entities. TS partners with the Commercial Banking, Retail
Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain
TS revenue is included in other segments results. Worldwide Securities Services holds, values,
clears and services securities, cash and alternative investments for investors and broker-dealers,
and it manages depositary receipt programs globally.
Asset Management
Asset Management (AM), with assets under supervision of $1.5 trillion, is a global leader in
investment and wealth management. AM clients include institutions, retail investors and
high-net-worth individuals in every major market throughout the world. AM offers global investment
management in equities, fixed income, real estate, hedge funds, private equity and liquidity,
including money-market instruments and bank deposits. AM also provides trust and estate, banking
and brokerage services to high-net-worth clients, and retirement services for corporations and
individuals. The majority of AMs client assets are in actively managed portfolios.
OTHER BUSINESS EVENTS
FDIC Special Assessment
On May 22, 2009, the Federal Deposit Insurance Corporation (FDIC) announced a five basis point
special assessment on each insured depository institutions assets minus Tier 1 capital as of June
30, 2009. The maximum amount of the special assessment for any institution is 10 basis points times
such institutions average U.S. deposits for the second quarter. The FDIC announced that the
special assessment will be collected on September 30, 2009. As of June 30, 2009, the Firm had
accrued $675 million for the special assessment, which is reported in the Corporate/Private Equity
segment.
Issuance of common stock
On June 5, 2009, the Firm issued $5.8 billion, or 163 million shares, of common stock. The common
stock was issued to satisfy a regulatory supervisory condition requiring the Firm to demonstrate it
could access the equity capital markets in order to be eligible to redeem Series K preferred stock
issued to the U.S. Treasury under the Troubled Asset Relief Program (TARP). Proceeds from this
issuance were used for general corporate purposes.
TARP Repayment / EPS Impact
On June 17, 2009, the Firm redeemed all of the outstanding shares of Series K preferred stock
issued to the U.S. Treasury pursuant to TARP and repaid the full $25.0 billion principal amount. As
a result of this redemption, the Firm incurred a one-time, noncash reduction of approximately $1.1
billion in the calculation of earnings per share (EPS) (i.e., a reduction in net income
applicable to common stockholders), reflecting the accelerated amortization of issuance discount on
the Series K preferred stock. The effect of this adjustment was to reduce reported diluted earnings
per common share for the second quarter of 2009 by $0.27 per share. Following discussions with the
U.S. Treasury regarding the warrant issued in connection with its purchase of the Series K
preferred stock, on July 7, 2009, JPMorgan Chase notified the U.S. Treasury that it had revoked its
warrant repurchase notice. JPMorgan Chase understands, based on the U.S. Treasurys public
statements, that the U.S. Treasury intends to pursue a public auction of the warrant. The U.S.
Treasury has advised JPMorgan Chase that the Firm will be permitted to participate in any such
auction.
6
EXECUTIVE OVERVIEW
This overview of managements discussion and analysis highlights selected information and may not
contain all of the information that is important to readers of this Form 10-Q. For a complete
description of events, trends and uncertainties, as well as the capital, liquidity, credit and
market risks, and the critical accounting estimates affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except per share data and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
25,623 |
|
|
$ |
18,399 |
|
|
|
39 |
% |
|
$ |
50,648 |
|
|
$ |
35,289 |
|
|
|
44 |
% |
Total noninterest expense |
|
|
13,520 |
|
|
|
12,177 |
|
|
|
11 |
|
|
|
26,893 |
|
|
|
21,108 |
|
|
|
27 |
|
Pre-provision profit |
|
|
12,103 |
|
|
|
6,222 |
|
|
|
95 |
|
|
|
23,755 |
|
|
|
14,181 |
|
|
|
68 |
|
Provision for credit losses |
|
|
8,031 |
|
|
|
3,455 |
|
|
|
132 |
|
|
|
16,627 |
|
|
|
7,879 |
|
|
|
111 |
|
Net income |
|
|
2,721 |
|
|
|
2,003 |
|
|
|
36 |
|
|
|
4,862 |
|
|
|
4,376 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.28 |
|
|
$ |
0.53 |
|
|
|
(47 |
) |
|
$ |
0.68 |
|
|
$ |
1.20 |
|
|
|
(43 |
) |
Return on common equity(c) |
|
|
3 |
% |
|
|
6 |
% |
|
|
|
|
|
|
4 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period
amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158
of this Form 10-Q. |
|
(b) |
|
The calculation of second quarter 2009 earnings per share includes a one-time, noncash
reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred
capital. For further discussion, see Impact on diluted earnings
per share of redemption of TARP preferred stock issued to the U.S.
Treasury on page 18 of this Form 10-Q. |
|
(c) |
|
The calculation of second quarter 2009 net income applicable to common
equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP
preferred capital. Excluding this reduction, the adjusted ROE was 6% for the second quarter of
2009. For further discussion of adjusted ROE, see Explanation and
reconciliation of the Firms use of non-GAAP financial measures on pages 15-18 of this Form
10-Q. |
Business overview
JPMorgan Chase reported second-quarter 2009 net income of $2.7 billion, or $0.28 per share,
compared with net income of $2.0 billion, or $0.53 per share, in the second quarter of 2008.
Current-quarter earnings per share reflected a one-time, noncash reduction in net income applicable
to common stockholders of $1.1 billion, or $0.27 per share, resulting from repayment of TARP
preferred capital. Return on common equity for the quarter was 3%, compared with 6% in the prior
year.
The increase in earnings from the second quarter of 2008 was driven by record net revenue,
predominantly offset by a higher provision for credit losses and increased noninterest expense.
Both revenue and expense were higher due to the impact of the acquisition of the banking operations
of Washington Mutual Bank (Washington Mutual) on September 25, 2008. In addition, record Fixed
Income Markets revenue and investment banking fees in the Investment Bank contributed to revenue
growth. Growth in noninterest expense predominantly reflected an accrual for the FDIC special
assessment and higher ongoing FDIC insurance premiums. High levels of credit costs in Retail
Financial Services and Card Services drove the increase in the provision for credit losses, as weak
economic conditions and housing price declines continued to negatively affect these businesses.
Net income for the first six months of 2009 was $4.9 billion, or $0.68 per share, compared with
$4.4 billion, or $1.20 per share, in the first half of 2008. Earnings per share for the first six
months reflected the reduction in net income resulting from repayment of TARP preferred capital.
The increase in earnings from the comparable 2008 six-month period was due to the same drivers as
for the 2009 second quarter: the Washington Mutual acquisition and higher Fixed Income revenue and
investment banking fees. The first half of 2009 also reflected higher net revenue from mortgage
servicing rights (MSR) risk management results in Retail Financial Services, higher noninterest
expense resulting from higher compensation expense in both the Investment Bank and Retail Financial
Services, and higher FDIC insurance premiums and increased credit costs.
The global economy began to stabilize in the second quarter of 2009, with developing economies
rebounding significantly and contraction in developed economies slowing. Credit conditions improved
in the quarter, with most credit spreads falling from previous wide levels. The credit and
asset-purchase programs implemented by the Board of Governors of the Federal Reserve System
(Federal Reserve), which were modified and in some cases extended in the quarter, helped
measurably. The Federal Reserve has announced it intends to have purchased up to $1,750 billion of
Treasury, mortgage-backed and agency-debt securities by the spring of
2010; this and the results of the stress tests conducted
as part of the Supervisory Capital Assessment Program (SCAP), which showed
that most of the largest U.S. financial institutions had strong
capital cushions, reinforced market
confidence. Following release of the SCAP results, those banks that
participated in the Capital Purchase Program (CPP) and met the
requirements established by their primary federal banking supervisors for the repayment of funds
provided by the TARP, were permitted to repay such funds; many, including JPMorgan Chase, did so.
The narrowing of credit spreads enabled businesses to refinance outstanding debt and raise new
capital, resulting in
7
strong
activity in capital markets that aided bank earnings, and recoveries in many stock markets
bolstered consumer and business sentiment. Notwithstanding these favorable market developments,
conditions remain fragile and are dependent on the approximately $2 trillion of credit provided by
the Federal Reserve through its various market-supporting initiatives. In addition, economic
activity was too slow to prevent deterioration in the labor markets: the U.S. unemployment rate
rose to 9.5% in the second quarter, the highest level reached since the peak of the 1982 recession.
The improving sentiment amid a continued challenging economic environment was also reflected in
JPMorgan Chases line-of-business results in the second quarter of 2009. Four of the Firms six
main lines of business reported double-digit growth in net revenue, resulting in record firmwide
net revenue. The Investment Bank reported record fees and Fixed Income Markets revenue and
maintained its leadership positions across products; Commercial Banking continued to grow revenue
and earnings; Asset Management maintained good global investment performance; Retail Financial
Services reported favorable retail branch production metrics, and Treasury & Securities Services
delivered another quarter of solid performance. Although each of the lines of business was
negatively affected to some degree by the challenging environment, Card Services and Consumer
Lending, a business segment in Retail Financial Services, were hit hardest, with continued high
levels of credit costs contributing to a net loss in each business.
JPMorgan Chase maintained a strong balance sheet in the quarter. Even after the repayment in full
of $25 billion of TARP preferred capital and the addition of $2 billion to credit reserves, the
Firm ended the quarter with a Tier 1 capital ratio of 9.7% and a Tier 1 common capital ratio of
7.7%. The total allowance for credit losses at June 30, 2009, was $29.8 billion, and the firmwide
loan loss coverage ratio was 5.0%. Management believes these strong capital and reserve levels,
combined with the Firms significant earnings power, will allow the Firm to continue to reinvest in
its businesses over the long term.
The Firm remains committed to helping bring stability to the communities in which it operates and
to the financial system overall. During the quarter, JPMorgan Chase extended approximately $150
billion in new credit to consumer and corporate customers and approved 138,000 trial mortgage
modifications, bringing total foreclosures
prevented since 2007 to 565,000.
The discussion that follows highlights the current-quarter performance of each business segment,
compared with the prior-year quarter, and discusses results on a managed basis unless otherwise
noted. For more information about managed basis, see Explanation and Reconciliation of the Firms
Use of Non-GAAP Financial Measures on pages 15-18 of this Form 10-Q .
Investment Bank net income increased, reflecting higher net revenue and lower noninterest expense,
partially offset by a higher provision for credit losses. Record investment banking fees were
driven by record equity underwriting fees. Fixed Income Markets revenue was also a record, driven
by strong results across all products, as well as the absence of markdowns related to leveraged
lending funded and unfunded commitments and mortgage-related exposure. The provision for credit
losses increased due to higher charge-offs as well as a higher allowance, reflecting continued
deterioration in the credit environment.
Retail Financial Services net income declined, as a higher provision for credit losses and higher
noninterest expense were partially offset by higher net revenue, reflecting the impact of the
Washington Mutual transaction, wider loan and deposit spreads, and higher deposit balances. The
provision for credit losses included a significant addition to the allowance for loan losses, as
weak economic conditions and housing price declines drove higher estimated losses for the home
equity and mortgage loan portfolios. The increase in noninterest expense reflected the impact of
the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.
Card Services reported a net loss, compared with net income in the prior year. The decrease was
driven by a higher provision for credit losses, partially offset by higher net revenue. The
increase in managed net revenue was driven by the impact of the Washington Mutual transaction,
wider loan spreads and higher merchant servicing revenue related to the dissolution of the Chase
Paymentech Solutions joint venture. These benefits were offset partially by the impact of the
credit enhancement provided by the Firm for certain of its securitization trusts, lower
securitization income, higher revenue reversals associated with higher charge-offs, and a decreased
level of fees. The provision for credit losses reflected a higher level of charge-offs due to
continued deterioration in the credit environment. Noninterest expense increased due to the
dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington Mutual
transaction.
8
Commercial Banking net income increased, driven by higher net revenue reflecting the impact of the
Washington Mutual transaction, predominantly offset by a higher provision for credit losses and
higher noninterest expense. Revenue increased due to wider loan spreads, record levels of lending-
and deposit-related fees, a shift to higher-spread liability products and overall growth in
liability balances. These benefits were offset predominantly by spread compression on liability
products and lower loan balances. The increase in the provision for credit losses reflected
continued deterioration in the credit environment. Noninterest expense rose due to the impact of
the Washington Mutual transaction and higher FDIC insurance premiums, partially offset by lower
headcount-related expense.
Treasury & Securities Services net income decreased, driven by lower net revenue offset partially
by lower noninterest expense. Worldwide Securities Services revenue declined, driven by the effect
of market depreciation on assets under custody and lower securities lending balances, primarily as
a result of declines in asset valuations and demand. Revenue in Treasury Services increased,
reflecting growth across cash management products and higher trade revenue driven by wider spreads,
partially offset by spread compression on deposit products. Noninterest expense decreased,
reflecting lower headcount-related expense offset partially by higher FDIC insurance premiums.
Asset Management net income declined, due to lower net revenue and a higher provision for credit
losses offset partially by lower noninterest expense. The decline in net revenue was due to the
effect of lower market levels and lower placement fees; these effects were offset partially by
higher valuations of seed capital investments, wider loan and deposit spreads and higher deposit
balances. The increase in the provision for credit losses reflected continued deterioration in the
credit environment. Noninterest expense decreased due to lower performance-based compensation and
lower headcount-related expense, largely offset by the impact of the Bear Stearns merger and higher
FDIC insurance premiums.
Corporate/Private Equity reported net income, compared with a net loss in the prior year,
reflecting higher levels of trading and investment income in the investment securities portfolio
and a gain from the sale of MasterCard shares, partially offset by an accrual for the FDIC special
assessment.
Firmwide, the managed provision for credit losses was $9.7 billion, up by $5.4 billion. The total
consumer-managed provision for credit losses was $8.5 billion, compared with $3.8 billion in the
prior year, reflecting higher net charge-offs and an increase in the allowance for credit losses,
largely related to home lending. Consumer-managed net charge-offs were $7.0 billion (6.18% net
charge-off rate), compared with $2.9 billion in the prior year (3.08% net charge-off rate). The
wholesale provision for credit losses was $1.2 billion, compared with $505 million in the prior
year, reflecting an increase in the allowance for credit losses, largely in the Investment Bank.
Wholesale net charge-offs were $679 million (1.19% net charge-off rate), compared with net
charge-offs of $41 million in the prior year (0.08% net charge-off rate). The Firms nonperforming
assets totaled $17.5 billion at June 30, 2009, up from the prior-year level of $6.2 billion. The
allowance for credit losses increased by $1.8 billion during the quarter; this resulted in a loan
loss coverage ratio at June 30, 2009 of 5.01%, compared with 4.53% at March 31, 2009. The above net
charge-off rates and loan loss coverage ratio exclude purchased credit-impaired loans accounted for
under SOP 03-3, loans held-for-sale and loans at fair value. Furthermore, the loan loss coverage
ratio also excludes loans from the Washington Mutual Master Trust, which were consolidated on the
Firms balance sheet at fair value during the second quarter of 2009.
Business outlook
The following forward-looking statements are based on the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases actual results to differ materially from those set forth
in such forward-looking statements.
JPMorgan Chases outlook for the second half of 2009 should be viewed against the backdrop of the
global and U.S. economies, financial markets activity, the geopolitical environment, the
competitive environment and client activity levels. Each of these linked factors will affect the
performance of the Firm and its lines of business. The Firm continues to monitor the global and
U.S. economic environments. The outlook for capital markets remains uncertain and there continues
to be a potential for further declines in U.S. housing prices and an increase in the unemployment
rate. In addition, as a result of recent market conditions, the U.S. Congress and regulators have
increased their focus on regulation of financial institutions; any legislation or regulations that
may be adopted as a result could limit or restrict the Firms operations, or impose additional
costs upon the Firm in order to comply with such new laws or rules.
Given the potential stress on the consumer from rising unemployment and continued downward pressure
on housing prices, management is still cautious with respect to the credit outlook for the consumer
loan portfolios. Possible continued deterioration in credit trends could require additions to the
consumer allowance for credit losses. Based on managements current economic outlook, quarterly net
charge-offs could, over the next several quarters, reach $1.4
9
billion for the home equity portfolio, $600 million for the prime mortgage portfolio and $500
million for the subprime mortgage portfolio. The managed net charge-off rate for Card Services
(excluding the Washington Mutual credit card portfolio) could approach 10% in the third quarter of
2009, and thereafter will remain highly dependent on unemployment levels; the managed net
charge-off rate for the Washington Mutual credit card portfolio is expected to approach 24% by the
end of 2009. These charge-off rates could increase if the economic environment deteriorates even
further than managements current expectations. Similarly, the wholesale provision for credit
losses, nonperforming assets and charge-offs are likely to increase over the remainder of the year
as a result of continued deterioration in the credit environment.
The Investment Bank is operating in an uncertain environment. Trading results could be volatile,
particularly if there is further disruption in the credit or mortgage markets, or a significant
decline in overall liquidity levels. In addition, if the Firms own credit spreads tighten, as was
the case in the second quarter of 2009, the change in the fair value of certain trading liabilities
would also negatively affect trading results. Finally, the Investment Banks results will be
affected by the credit environment, as noted above.
Although management expects underlying growth in Retail Banking, results will be under pressure
from the credit environment and ongoing lower consumer spending levels. In addition, there could be
a decline in average retail deposits in the second half of the year due to anticipated downward
repricing of certain legacy Washington Mutual deposits.
In Card Services, management expects, in addition to rising credit costs as noted above, continued
pressure on both charge volumes and credit card receivables growth, reflecting continued lower
levels of consumer spending.
Commercial Bank results could be negatively impacted by rising net charge-offs on real
estate-related exposure, a decline in loan demand and reduced liability balances.
Earnings in Treasury & Securities Services and Asset Management will be affected by the impact of
market levels on assets under management, supervision and custody. Additionally, earnings in
Treasury & Securities Services could be affected by declines in liability balances.
Net interest income levels will be largely related to the size of the investment portfolio in
Corporate, although the high level of trading gains in the second quarter of 2009 is not likely to
be repeated. Private Equity results will depend on capital market activity and market levels, as
well as the performance of the broader economy and investment-specific issues. Due to current
economic conditions, there is the possibility of modest write-downs in Private Equity over the near
term.
10
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chases Consolidated Results of
Operations on a reported basis. Factors that related primarily to a single business segment are
discussed in more detail within that business segment. For a discussion of the Critical Accounting
Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 86-89 of
this Form 10-Q and pages 107-111 of JPMorgan Chases 2008 Annual Report.
Total net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Investment banking fees |
|
$ |
2,106 |
|
|
$ |
1,612 |
|
|
|
31 |
% |
|
$ |
3,492 |
|
|
$ |
2,828 |
|
|
|
23 |
% |
Principal transactions |
|
|
3,097 |
|
|
|
752 |
|
|
|
312 |
|
|
|
5,098 |
|
|
|
(51 |
) |
|
NM |
Lending & deposit-related fees |
|
|
1,766 |
|
|
|
1,105 |
|
|
|
60 |
|
|
|
3,454 |
|
|
|
2,144 |
|
|
|
61 |
|
Asset management, administration and
commissions |
|
|
3,124 |
|
|
|
3,628 |
|
|
|
(14 |
) |
|
|
6,021 |
|
|
|
7,224 |
|
|
|
(17 |
) |
Securities gains |
|
|
347 |
|
|
|
647 |
|
|
|
(46 |
) |
|
|
545 |
|
|
|
680 |
|
|
|
(20 |
) |
Mortgage fees and related income |
|
|
784 |
|
|
|
696 |
|
|
|
13 |
|
|
|
2,385 |
|
|
|
1,221 |
|
|
|
95 |
|
Credit card income |
|
|
1,719 |
|
|
|
1,803 |
|
|
|
(5 |
) |
|
|
3,556 |
|
|
|
3,599 |
|
|
|
(1 |
) |
Other income |
|
|
10 |
|
|
|
(138 |
) |
|
NM |
|
|
60 |
|
|
|
1,691 |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
12,953 |
|
|
|
10,105 |
|
|
|
28 |
|
|
|
24,611 |
|
|
|
19,336 |
|
|
|
27 |
|
Net interest income |
|
|
12,670 |
|
|
|
8,294 |
|
|
|
53 |
|
|
|
26,037 |
|
|
|
15,953 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
25,623 |
|
|
$ |
18,399 |
|
|
|
39 |
|
|
$ |
50,648 |
|
|
$ |
35,289 |
|
|
|
44 |
|
|
Total net revenue for the second quarter of 2009 was $25.6 billion, up by $7.2 billion, or 39%,
from the second quarter of 2008, partially reflecting the impact of the Washington Mutual
transaction. Revenue growth was also driven by record trading revenue, higher net interest income
and record investment banking fees. These benefits were offset partially by reduced fees and
commissions resulting from lower market levels. Total net revenue for the first six months of 2009
was $50.6 billion, up $15.4 billion, or 44%, from the prior year, largely reflecting the same
drivers noted for the second quarter, and higher mortgage fees and related income resulting from
positive MSR risk management results. The growth in revenue for the six months was offset partially
by the absence of proceeds from the sale of Visa shares in its initial public offering in the first
quarter of 2008, and by reduced fees and commissions resulting from lower market levels.
Investment banking fees increased to a record $2.1 billion in the quarter, reflecting record equity
underwriting fees, and higher debt underwriting fees and advisory fees. Investment banking fees for
the first six months of 2009 also increased from the comparable prior-year period, reflecting the
same drivers noted for the second quarter of 2009. For a further discussion of investment banking
fees, which are primarily recorded in IB, see IB segment results on pages 20-23 of this Form 10-Q.
Principal transactions revenue, which consists of revenue from the Firms trading and private
equity investing activities, rose from the second quarter and first six months of 2008. Trading
revenue increased to a record level in the second quarter of 2009, driven by gains on trading
positions in the Corporate/Private equity segment and strong results across all fixed-income
products, as well as the absence of markdowns related to leveraged lending funded and unfunded
commitments and mortgage-related exposures. The quarter also included modest gains on these
exposures, compared with losses in the second quarter of 2008 on leveraged lending funded and
unfunded commitments of $696 million and losses on mortgage-related exposures of $405 million.
These benefits were offset partially by an aggregate loss of $1.9 billion in the second quarter of
2009 from the tightening of the Firms credit spreads on certain structured liabilities and
derivatives, compared with a benefit of $414 million in the second quarter of 2008. In the first
six months of 2009, trading revenue rose due to strong results across all fixed income products and
lower markdowns related to leveraged lending funded and unfunded commitments and mortgage-related
exposures. The increase was offset by a loss of $840 million from the tightening of the Firms
credit spreads on certain structured liabilities and derivatives, compared with a benefit of $1.8
billion in the first half of 2008. Private equity revenue declined in the second quarter and first
six months of 2009, driven by investment losses compared with gains in the same periods of 2008.
For a further discussion of principal transactions revenue, see IB and Corporate/Private Equity
segment results on pages 20-23 and 46-48 respectively, and Note 3 on pages 99-114 of this Form
10-Q.
11
Lending- and deposit-related fees rose from the second quarter and first six months of 2008,
predominantly reflecting the impact of the Washington Mutual transaction and organic growth in both
lending- and deposit-related fees in RFS and CB, as well as in IB. For a further discussion of
lending- and deposit-related fees, which are mostly recorded in RFS, CB and TSS, see the RFS
segment results on pages 24-31, the CB segment results on pages 36-38, and the TSS segment results
on pages 39-42 of this Form 10-Q.
The decline in asset management, administration and commissions revenue compared with the second
quarter and first six months of 2008 reflected lower asset management fees in AM, resulting from
lower market levels; lower administration fees in TSS, driven by the effect of market depreciation
on assets under custody and lower securities lending balances; and lower brokerage commissions
revenue in IB, predominantly related to lower transaction volume. For additional information on
these fees and commissions, see the segment discussions for IB on pages 20-23, RFS on pages 24-31,
TSS on pages 39-42, and AM on pages 42-46 of this Form 10-Q.
The decrease in securities gains compared with the corresponding 2008 periods was due to lower
gains from the sale of MasterCard shares, which totaled $241 million in the second quarter of 2009,
compared with $668 million in the prior-year quarter. This was offset partially by higher gains
from the repositioning of the Corporate investment securities portfolio as a result of lower
interest rates, and in connection with managing the Firms structural interest rate risk. 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 46-48 of this Form 10-Q.
Mortgage fees and related income increased from the second quarter and first six months of 2008 as
higher net mortgage servicing revenue was offset partially by lower production revenue. Mortgage
production revenue declined as an increase in reserves for the repurchase of previously-sold loans
and markdowns on the mortgage warehouse were largely offset by wider margins on new originations.
The increase in net mortgage servicing revenue was driven by growth in third-party loans serviced,
and, for the first six months of 2008, positive MSR risk management results. For a discussion of
mortgage fees and related income, which is recorded primarily in RFS Consumer Lending business,
see the Consumer Lending discussion on pages 27-31 of this Form 10-Q.
Credit card income decreased compared with the second quarter and first six months of 2008, driven
by lower servicing fees earned in connection with CS securitization activities due to higher credit
losses, offset partially by wider loan margins on securitized credit card loans. The decrease in
credit card income was offset by higher merchant servicing revenue related to the dissolution of
the Chase Paymentech Solutions joint venture, and higher interchange income. For a further
discussion of credit card income, see the CS segment results on pages 32-35 of this Form 10-Q.
Other income increased in the second quarter of 2009 due to a $423 million loss incurred in the
second quarter of 2008, reflecting the Firms 49.4% ownership in Bear Stearns losses from April 8
to May 30, 2008, offset partially by lower securitization results at CS. For the first six months
of 2009, other income decreased due predominantly to the absence of $1.5 billion in proceeds from
the sale of Visa shares in its initial public offering in the first quarter of 2008, lower
securitization results at CS, and the dissolution of the Chase Paymentech Solutions joint venture.
These items were offset partially by the absence of the aforementioned $423 million loss and lower
markdowns on certain investments.
Net interest income rose from the second quarter and first six months of 2008, due predominantly to
the following: the impact of the Washington Mutual transaction, higher investment-related net
interest income in Corporate/Private Equity, wider spreads on consumer loans and higher
trading-related net interest income in IB. The increase in net interest income was offset partially
by narrower spreads on liability and deposit balances in the wholesale businesses. The Firms total
average interest-earning assets for the second quarter of 2009 were $1.7 trillion, up 32% from the
second quarter of 2008, driven by an increase in available-for-sale (AFS) securities and loans
from the Washington Mutual transaction, and organic growth. The Firms total average
interest-bearing liabilities for the second quarter of 2009 were $1.5 trillion, up 22% from the
second quarter of 2008, driven by higher federal funds purchased and securities loaned or sold
under repurchase agreements, as well as the impact of the Washington Mutual transaction and Bear
Stearns merger. The net interest yield on the Firms interest-earning assets, on a fully
taxable-equivalent basis, was 3.07%, an increase of 36 basis points from the second quarter of
2008, driven predominantly by an increase in higher-yielding assets associated with the Washington
Mutual transaction and trading-related net interest income in IB. The Firms total average
interest-earning assets for the first six months of 2009 were $1.7 trillion, up 35% from the first
six months of 2008, and total average interest-bearing liabilities for the first six months of 2009
were $1.5 trillion, up 26% from the first half of 2008. The net interest yield on the Firms
interest-earning assets, on a fully taxable-equivalent basis, was 3.18%, an increase of 53 basis
points from the first six months of 2008. The drivers of the year-to-date increases were similar to
the drivers of the quarterly increases.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Wholesale |
|
$ |
1,244 |
|
|
$ |
505 |
|
|
|
146 |
% |
|
$ |
2,774 |
|
|
$ |
1,252 |
|
|
|
122 |
% |
Consumer |
|
|
6,787 |
|
|
|
2,950 |
|
|
|
130 |
|
|
|
13,853 |
|
|
|
6,627 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for credit losses |
|
$ |
8,031 |
|
|
$ |
3,455 |
|
|
|
132 |
|
|
$ |
16,627 |
|
|
$ |
7,879 |
|
|
|
111 |
|
|
|
Provision for credit losses |
The provision for credit losses in the second quarter and first six months of 2009 rose compared
with the equivalent periods of 2008 due to increases in both the consumer and wholesale provisions.
The consumer provision reflected additions to the allowance for loan losses for the home equity,
mortgage and credit card portfolios, as weak economic conditions and housing price declines
continued to drive higher estimated losses for these portfolios. The increase in the wholesale
provision was driven by a higher allowance for loan losses, reflecting continued deterioration in
the credit environment. For a more detailed discussion of the loan portfolio and the allowance for
loan losses, see the segment discussions for RFS on pages 24-31, CS on pages 32-35, IB on pages
20-23 and CB on pages 36-38, and the Credit Risk Management section on pages 62-80 of this Form
10-Q.
|
|
Noninterest expense
|
|
The following table presents the components of noninterest expense.
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Compensation expense |
|
$ |
6,917 |
|
|
$ |
6,913 |
|
|
|
|
% |
|
$ |
14,505 |
|
|
$ |
11,864 |
|
|
|
22 |
% |
Noncompensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy expense |
|
|
914 |
|
|
|
669 |
|
|
|
37 |
|
|
|
1,799 |
|
|
|
1,317 |
|
|
|
37 |
|
Technology, communications and
equipment expense |
|
|
1,156 |
|
|
|
1,028 |
|
|
|
12 |
|
|
|
2,302 |
|
|
|
1,996 |
|
|
|
15 |
|
Professional & outside services |
|
|
1,518 |
|
|
|
1,450 |
|
|
|
5 |
|
|
|
3,033 |
|
|
|
2,783 |
|
|
|
9 |
|
Marketing |
|
|
417 |
|
|
|
413 |
|
|
|
1 |
|
|
|
801 |
|
|
|
959 |
|
|
|
(16 |
) |
Other expense(a) |
|
|
2,190 |
|
|
|
1,233 |
|
|
|
78 |
|
|
|
3,565 |
|
|
|
1,402 |
|
|
|
154 |
|
Amortization of intangibles |
|
|
265 |
|
|
|
316 |
|
|
|
(16 |
) |
|
|
540 |
|
|
|
632 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noncompensation expense |
|
|
6,460 |
|
|
|
5,109 |
|
|
|
26 |
|
|
|
12,040 |
|
|
|
9,089 |
|
|
|
32 |
|
Merger costs |
|
|
143 |
|
|
|
155 |
|
|
|
(8 |
) |
|
|
348 |
|
|
|
155 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
13,520 |
|
|
$ |
12,177 |
|
|
|
11 |
|
|
$ |
26,893 |
|
|
$ |
21,108 |
|
|
|
27 |
|
|
|
|
|
(a) |
|
Includes $675 million accrued for an FDIC special assessment. |
Total noninterest expense for the second quarter of 2009 was $13.5 billion, up $1.3 billion, or
11%, from the second quarter of 2008. The increase was driven by the impact of the Washington
Mutual transaction, the accrual of $0.7 billion for the FDIC special assessment, higher FDIC
insurance premiums and increased mortgage-related servicing expense. For the first six months of
2009, total noninterest expense was $26.9 billion, up $5.8 billion, or 27% from the prior year due
primarily to the aforementioned items, and higher performance-based compensation expense.
Compensation expense in the second quarter of 2009 was relatively flat compared with the second
quarter of 2008 as the impact of the Washington Mutual transaction was offset by lower
performance-based compensation expense in the Investment Bank. Compensation expense increased for
the first six months of 2009 due to higher performance-based compensation expense in the Investment
Bank, in addition to the impact of the Washington Mutual transaction.
Noncompensation expense increased from the second quarter of 2008 due predominantly to the accrual
of $0.7 billion for the FDIC special assessment and higher FDIC insurance premiums, as well as the
impact of the Washington Mutual transaction. Also contributing to the increase was higher mortgage
servicing-related expense due to increased delinquencies and defaults, which included an increase
in foreclosed property expense of $0.3 billion partially offset by lower litigation-related expense
and the impact of the dissolution of the Chase Paymentech Solutions joint venture. Noncompensation
expense increased from the first six months of 2008 primarily due to the drivers discussed for the
quarter, along with an increase in other expense reflecting a lower level of benefits from
litigation-related items in the current year compared with the prior year. This was partially
offset by lower credit card marketing expense.
For information on merger costs, refer to Note 10 on page 128 of this Form 10-Q.
13
Income tax expense
The following table presents the Firms income before income tax expense, income tax expense and
effective tax rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except rate) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Income before income tax expense |
|
$ |
4,072 |
|
|
$ |
2,767 |
|
|
$ |
7,128 |
|
|
$ |
6,302 |
|
Income tax expense |
|
|
1,351 |
|
|
|
764 |
|
|
|
2,266 |
|
|
|
1,926 |
|
Effective tax rate |
|
|
33.2 |
% |
|
|
27.6 |
% |
|
|
31.8 |
% |
|
|
30.6 |
% |
|
The increase in the effective tax rate compared with the second quarter and first six months of
2008 was primarily the result of higher reported pretax income and changes in the proportion of
income subject to federal, state and local taxes, partially offset by increased business tax
credits. In addition, the second quarter of 2008 reflected a benefit from the release of deferred
tax liabilities associated with earnings of certain non-U.S. subsidiaries that were deemed to be
reinvested indefinitely, offset by losses representing the Firms 49.4% ownership in Bear Stearns
losses from April 8 to May 30, 2008, for which no income tax benefit was recorded. For a further
discussion of income taxes, see Critical Accounting Estimates used by the Firm on pages 86-89 of
this Form 10-Q.
14
EXPLANATION AND RECONCILIATION OF THE FIRMS USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using accounting principles generally
accepted in the United States of America (U.S. GAAP); these financial statements appear on pages
92-95 of this Form 10-Q. That presentation, which is referred to as reported basis, provides the
reader with an understanding of the Firms results that can be tracked consistently from year to
year and enables a comparison of the Firms performance with other companies U.S. GAAP financial
statements.
In addition to analyzing the Firms results on a reported basis, management reviews the Firms
results and the results of the lines of business on a managed basis, which is a non-GAAP
financial measure. The Firms definition of managed basis starts with the reported U.S. GAAP
results and includes certain reclassifications that assume credit card loans securitized by CS
remain on the balance sheet, and it presents revenue on a fully taxable-equivalent (FTE) basis.
These adjustments do not have any impact on net income as reported by the lines of business or by
the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with SFAS 140 remain on the Consolidated Balance Sheets, and
that the earnings on the securitized loans are classified in the same manner as the earnings on
retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of
managed basis to evaluate the credit performance and overall financial performance of the entire
managed credit card portfolio. Operations are funded and decisions are made about allocating
resources, such as employees and capital, based on managed financial information. In addition, the
same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated
Balance Sheets and securitized loans. Although securitizations result in the sale of credit card
receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers
may continue to use their credit cards; accordingly, the customers credit performance will affect
both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan
Chase believes managed basis information is useful to investors, enabling them to understand both
the credit risks associated with the loans reported on the Consolidated Balance Sheets and the
Firms retained interests in securitized loans. For a reconciliation of reported to managed basis
results for CS, see CS segment results on pages 32-35 of this Form 10-Q. For information regarding
the securitization process, and loans and residual interests sold and securitized, see Note 15 on
pages 139-147 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on a FTE basis.
Accordingly, revenue from tax-exempt securities and investments that receive tax credits is
presented in the managed results on a basis comparable to taxable securities and investments. This
non-GAAP financial measure allows management to assess the comparability of revenue arising from
both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within income tax expense.
Management also uses certain non-GAAP financial measures at the business-segment level, because it
believes these other non-GAAP financial measures provide information to investors about the
underlying operational performance and trends of the particular business segment and, therefore,
facilitate a comparison of the business segment with the performance of its competitors.
15
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,106 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,106 |
|
Principal transactions |
|
|
3,097 |
|
|
|
|
|
|
|
|
|
|
|
3,097 |
|
Lending & depositrelated fees |
|
|
1,766 |
|
|
|
|
|
|
|
|
|
|
|
1,766 |
|
Asset management, administration and commissions |
|
|
3,124 |
|
|
|
|
|
|
|
|
|
|
|
3,124 |
|
Securities gains |
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
347 |
|
Mortgage fees and related income |
|
|
784 |
|
|
|
|
|
|
|
|
|
|
|
784 |
|
Credit card income |
|
|
1,719 |
|
|
|
(294 |
) |
|
|
|
|
|
|
1,425 |
|
Other income |
|
|
10 |
|
|
|
|
|
|
|
335 |
|
|
|
345 |
|
|
Noninterest revenue |
|
|
12,953 |
|
|
|
(294 |
) |
|
|
335 |
|
|
|
12,994 |
|
Net interest income |
|
|
12,670 |
|
|
|
1,958 |
|
|
|
87 |
|
|
|
14,715 |
|
|
Total net revenue |
|
|
25,623 |
|
|
|
1,664 |
|
|
|
422 |
|
|
|
27,709 |
|
Noninterest expense |
|
|
13,520 |
|
|
|
|
|
|
|
|
|
|
|
13,520 |
|
|
Pre-provision profit |
|
|
12,103 |
|
|
|
1,664 |
|
|
|
422 |
|
|
|
14,189 |
|
Provision for credit losses |
|
|
8,031 |
|
|
|
1,664 |
|
|
|
|
|
|
|
9,695 |
|
|
Income before income tax expense |
|
|
4,072 |
|
|
|
|
|
|
|
422 |
|
|
|
4,494 |
|
Income tax expense |
|
|
1,351 |
|
|
|
|
|
|
|
422 |
|
|
|
1,773 |
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,721 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.28 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.28 |
|
Return on assets |
|
|
0.54 |
% |
|
NM |
|
|
NM |
|
|
|
0.51 |
% |
Overhead ratio |
|
|
53 |
|
|
NM |
|
|
NM |
|
|
|
49 |
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,612 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,612 |
|
Principal transactions |
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
752 |
|
Lending & depositrelated fees |
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
1,105 |
|
Asset management, administration and commissions |
|
|
3,628 |
|
|
|
|
|
|
|
|
|
|
|
3,628 |
|
Securities gains |
|
|
647 |
|
|
|
|
|
|
|
|
|
|
|
647 |
|
Mortgage fees and related income |
|
|
696 |
|
|
|
|
|
|
|
|
|
|
|
696 |
|
Credit card income |
|
|
1,803 |
|
|
|
(843 |
) |
|
|
|
|
|
|
960 |
|
Other income |
|
|
(138 |
) |
|
|
|
|
|
|
247 |
|
|
|
109 |
|
|
Noninterest revenue |
|
|
10,105 |
|
|
|
(843 |
) |
|
|
247 |
|
|
|
9,509 |
|
Net interest income |
|
|
8,294 |
|
|
|
1,673 |
|
|
|
202 |
|
|
|
10,169 |
|
|
Total net revenue |
|
|
18,399 |
|
|
|
830 |
|
|
|
449 |
|
|
|
19,678 |
|
Noninterest expense |
|
|
12,177 |
|
|
|
|
|
|
|
|
|
|
|
12,177 |
|
|
Pre-provision profit |
|
|
6,222 |
|
|
|
830 |
|
|
|
449 |
|
|
|
7,501 |
|
Provision for credit losses |
|
|
3,455 |
|
|
|
830 |
|
|
|
|
|
|
|
4,285 |
|
|
Income before income tax expense |
|
|
2,767 |
|
|
|
|
|
|
|
449 |
|
|
|
3,216 |
|
Income tax expense |
|
|
764 |
|
|
|
|
|
|
|
449 |
|
|
|
1,213 |
|
|
Net income |
|
$ |
2,003 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,003 |
|
|
Diluted earnings per share(a) |
|
$ |
0.53 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.53 |
|
Return on assets |
|
|
0.48 |
% |
|
NM |
|
|
NM |
|
|
|
0.46 |
% |
Overhead ratio |
|
|
66 |
|
|
NM |
|
|
NM |
|
|
|
62 |
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
3,492 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,492 |
|
Principal transactions |
|
|
5,098 |
|
|
|
|
|
|
|
|
|
|
|
5,098 |
|
Lending & depositrelated fees |
|
|
3,454 |
|
|
|
|
|
|
|
|
|
|
|
3,454 |
|
Asset management, administration and commissions |
|
|
6,021 |
|
|
|
|
|
|
|
|
|
|
|
6,021 |
|
Securities gains |
|
|
545 |
|
|
|
|
|
|
|
|
|
|
|
545 |
|
Mortgage fees and related income |
|
|
2,385 |
|
|
|
|
|
|
|
|
|
|
|
2,385 |
|
Credit card income |
|
|
3,556 |
|
|
|
(834 |
) |
|
|
|
|
|
|
2,722 |
|
Other income |
|
|
60 |
|
|
|
|
|
|
|
672 |
|
|
|
732 |
|
|
Noninterest revenue |
|
|
24,611 |
|
|
|
(834 |
) |
|
|
672 |
|
|
|
24,449 |
|
Net interest income |
|
|
26,037 |
|
|
|
3,962 |
|
|
|
183 |
|
|
|
30,182 |
|
|
Total net revenue |
|
|
50,648 |
|
|
|
3,128 |
|
|
|
855 |
|
|
|
54,631 |
|
Noninterest expense |
|
|
26,893 |
|
|
|
|
|
|
|
|
|
|
|
26,893 |
|
|
Pre-provision profit |
|
|
23,755 |
|
|
|
3,128 |
|
|
|
855 |
|
|
|
27,738 |
|
Provision for credit losses |
|
|
16,627 |
|
|
|
3,128 |
|
|
|
|
|
|
|
19,755 |
|
|
Income before income tax expense |
|
|
7,128 |
|
|
|
|
|
|
|
855 |
|
|
|
7,983 |
|
Income tax expense |
|
|
2,266 |
|
|
|
|
|
|
|
855 |
|
|
|
3,121 |
|
|
Net income |
|
$ |
4,862 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,862 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.68 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.68 |
|
Return on assets |
|
|
0.48 |
% |
|
NM |
|
|
NM |
|
|
|
0.46 |
% |
Overhead ratio |
|
|
53 |
|
|
NM |
|
|
NM |
|
|
|
49 |
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,828 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,828 |
|
Principal transactions |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Lending & depositrelated fees |
|
|
2,144 |
|
|
|
|
|
|
|
|
|
|
|
2,144 |
|
Asset management, administration and commissions |
|
|
7,224 |
|
|
|
|
|
|
|
|
|
|
|
7,224 |
|
Securities gains |
|
|
680 |
|
|
|
|
|
|
|
|
|
|
|
680 |
|
Mortgage fees and related income |
|
|
1,221 |
|
|
|
|
|
|
|
|
|
|
|
1,221 |
|
Credit card income |
|
|
3,599 |
|
|
|
(1,780 |
) |
|
|
|
|
|
|
1,819 |
|
Other income |
|
|
1,691 |
|
|
|
|
|
|
|
450 |
|
|
|
2,141 |
|
|
Noninterest revenue |
|
|
19,336 |
|
|
|
(1,780 |
) |
|
|
450 |
|
|
|
18,006 |
|
Net interest income |
|
|
15,953 |
|
|
|
3,291 |
|
|
|
326 |
|
|
|
19,570 |
|
|
Total net revenue |
|
|
35,289 |
|
|
|
1,511 |
|
|
|
776 |
|
|
|
37,576 |
|
Noninterest expense |
|
|
21,108 |
|
|
|
|
|
|
|
|
|
|
|
21,108 |
|
|
Pre-provision profit |
|
|
14,181 |
|
|
|
1,511 |
|
|
|
776 |
|
|
|
16,468 |
|
Provision for credit losses |
|
|
7,879 |
|
|
|
1,511 |
|
|
|
|
|
|
|
9,390 |
|
|
Income before income tax expense |
|
|
6,302 |
|
|
|
|
|
|
|
776 |
|
|
|
7,078 |
|
Income tax expense |
|
|
1,926 |
|
|
|
|
|
|
|
776 |
|
|
|
2,702 |
|
|
Net income |
|
$ |
4,376 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,376 |
|
|
Diluted earnings per share(a) |
|
$ |
1.20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.20 |
|
Return on assets |
|
|
0.54 |
% |
|
NM |
|
|
NM |
|
|
|
0.52 |
% |
Overhead ratio |
|
|
60 |
|
|
NM |
|
|
NM |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2009 |
|
2008 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
680,601 |
|
|
$ |
85,790 |
|
|
$ |
766,391 |
|
|
$ |
538,029 |
|
|
$ |
79,120 |
|
|
$ |
617,149 |
|
Total assets average |
|
|
2,038,372 |
|
|
|
81,588 |
|
|
|
2,119,960 |
|
|
|
1,668,699 |
|
|
|
74,580 |
|
|
|
1,743,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2009 |
|
2008 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
680,601 |
|
|
$ |
85,790 |
|
|
$ |
766,391 |
|
|
$ |
538,029 |
|
|
$ |
79,120 |
|
|
$ |
617,149 |
|
Total assets average |
|
|
2,052,666 |
|
|
|
82,182 |
|
|
|
2,134,848 |
|
|
|
1,619,248 |
|
|
|
73,084 |
|
|
|
1,692,332 |
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period
amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158
of this Form 10-Q. |
|
(b) |
|
The calculation of second quarter 2009 earnings per share includes a one-time, noncash
reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred
capital (see the table below). |
|
(c) |
|
Credit card securitizations affect CS. See pages 32-35 of this Form 10-Q for further
information. |
17
Impact on ROE of redemption of TARP preferred stock issued to the U.S.
Treasury
The
calculation of second quarter 2009 net income applicable to common
equity includes a one-time, non-cash reduction of $1.1 billion
resulting from the repayment of TARP preferred capital. Excluding
this reduction ROE would have been 6% for the second quarter of 2009 as
disclosed in the table below. The Firm views the adjusted ROE, a
non-GAAP financial measure, as meaningful because it increases the
comparability to prior periods.
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
|
|
|
Excluding the TARP |
(in millions, except ratios) |
|
As reported |
|
redemption |
|
Return on equity |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
2,721 |
|
Less: Preferred stock dividends |
|
|
473 |
|
|
|
473 |
|
Less: Accelerated
amortization from redemption of
preferred
stock issued to the U.S. Treasury |
|
|
1,112 |
|
|
|
|
|
|
Net income applicable to common equity |
|
$ |
1,136 |
|
|
$ |
2,248 |
|
|
Average common stockholders equity |
|
$ |
140,865 |
|
|
$ |
140,865 |
|
|
ROE |
|
|
3 |
% |
|
|
6 |
% |
|
Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S.
Treasury
Net income
applicable to common equity for the second quarter of 2009 includes a
one-time, noncash reduction of approximately $1.1 billion resulting
from the repayment of TARP preferred capital. The following table
presents the calculations of the effect on net income applicable to
common stockholders and the $0.27 reduction to diluted earnings per
share which resulted from this repayment.
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
|
|
|
|
|
Effect of TARP |
(in millions, except per share) |
|
As reported |
|
redemption |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
|
|
Less: Preferred stock dividends |
|
|
473 |
|
|
|
|
|
Less: Accelerated amortization from redemption of preferred stock issued to
the U.S. Treasury |
|
|
1,112 |
|
|
|
1,112 |
|
|
Net income applicable to common equity |
|
$ |
1,136 |
|
|
$ |
(1,112 |
) |
Less: Dividends and undistributed earnings allocated to participating
securities |
|
|
64 |
|
|
|
(64 |
) |
|
Net income applicable to common stockholders |
|
$ |
1,072 |
|
|
$ |
(1,048 |
) |
|
|
Total weighted average diluted shares outstanding |
|
|
3,824.1 |
|
|
|
3,824.1 |
|
|
Net income per share |
|
$ |
0.28 |
|
|
$ |
(0.27 |
) |
|
BUSINESS SEGMENT RESULTS
The Firm is managed on a line-of-business basis. The business segment financial results presented
reflect the current organization of JPMorgan Chase. There are six major reportable business
segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking,
Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment.
The business segments are determined based on the products and services provided, or the type of
customer served, and reflect the manner in which financial information is currently evaluated by
management. Results of these lines of business are presented on a managed basis.
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 pages 40-41 of JPMorgan Chases 2008 Annual Report. The Firm continues to assess
the assumptions, methodologies and reporting classifications used for segment reporting, and
further refinements may be implemented in future periods.
18
Segment Results Managed Basis(a)(b)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
June 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
|
Investment Bank(c) |
|
$ |
7,301 |
|
|
$ |
5,500 |
|
|
|
33 |
% |
|
$ |
4,067 |
|
|
$ |
4,734 |
|
|
|
(14 |
)% |
|
$ |
1,471 |
|
|
$ |
394 |
|
|
|
273 |
% |
|
|
18 |
% |
|
|
7 |
% |
Retail Financial Services |
|
|
7,970 |
|
|
|
5,110 |
|
|
|
56 |
|
|
|
4,079 |
|
|
|
2,680 |
|
|
|
52 |
|
|
|
15 |
|
|
|
503 |
|
|
|
(97 |
) |
|
|
|
|
|
|
12 |
|
Card Services |
|
|
4,868 |
|
|
|
3,775 |
|
|
|
29 |
|
|
|
1,333 |
|
|
|
1,185 |
|
|
|
12 |
|
|
|
(672 |
) |
|
|
250 |
|
|
NM |
|
|
|
(18 |
) |
|
|
7 |
|
Commercial Banking |
|
|
1,453 |
|
|
|
1,106 |
|
|
|
31 |
|
|
|
535 |
|
|
|
476 |
|
|
|
12 |
|
|
|
368 |
|
|
|
355 |
|
|
|
4 |
|
|
|
18 |
|
|
|
20 |
|
Treasury & Securities Services |
|
|
1,900 |
|
|
|
2,019 |
|
|
|
(6 |
) |
|
|
1,288 |
|
|
|
1,317 |
|
|
|
(2 |
) |
|
|
379 |
|
|
|
425 |
|
|
|
(11 |
) |
|
|
30 |
|
|
|
49 |
|
Asset Management |
|
|
1,982 |
|
|
|
2,064 |
|
|
|
(4 |
) |
|
|
1,354 |
|
|
|
1,400 |
|
|
|
(3 |
) |
|
|
352 |
|
|
|
395 |
|
|
|
(11 |
) |
|
|
20 |
|
|
|
31 |
|
Corporate/Private Equity(c) |
|
|
2,235 |
|
|
|
104 |
|
|
NM |
|
|
|
864 |
|
|
|
385 |
|
|
|
124 |
|
|
|
808 |
|
|
|
(319 |
) |
|
NM |
|
|
NM |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,709 |
|
|
$ |
19,678 |
|
|
|
41 |
% |
|
$ |
13,520 |
|
|
$ |
12,177 |
|
|
|
11 |
% |
|
$ |
2,721 |
|
|
$ |
2,003 |
|
|
|
36 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
June 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
Change |
|
|
2009 |
|
2008 |
|
|
Investment Bank(c) |
|
$ |
15,672 |
|
|
$ |
8,541 |
|
|
|
83 |
% |
|
$ |
8,841 |
|
|
$ |
7,287 |
|
|
|
21 |
% |
|
$ |
3,077 |
|
|
$ |
307 |
|
|
NM |
|
|
|
19 |
% |
|
|
3 |
% |
Retail Financial Services |
|
|
16,805 |
|
|
|
9,873 |
|
|
|
70 |
|
|
|
8,250 |
|
|
|
5,252 |
|
|
|
57 |
|
|
|
489 |
|
|
|
192 |
|
|
|
155 |
% |
|
|
4 |
|
|
|
2 |
|
Card Services |
|
|
9,997 |
|
|
|
7,679 |
|
|
|
30 |
|
|
|
2,679 |
|
|
|
2,457 |
|
|
|
9 |
|
|
|
(1,219 |
) |
|
|
859 |
|
|
NM |
|
|
|
(16 |
) |
|
|
12 |
|
Commercial Banking |
|
|
2,855 |
|
|
|
2,173 |
|
|
|
31 |
|
|
|
1,088 |
|
|
|
961 |
|
|
|
13 |
|
|
|
706 |
|
|
|
647 |
|
|
|
9 |
|
|
|
18 |
|
|
|
19 |
|
Treasury & Securities Services |
|
|
3,721 |
|
|
|
3,932 |
|
|
|
(5 |
) |
|
|
2,607 |
|
|
|
2,545 |
|
|
|
2 |
|
|
|
687 |
|
|
|
828 |
|
|
|
(17 |
) |
|
|
28 |
|
|
|
48 |
|
Asset Management |
|
|
3,685 |
|
|
|
3,965 |
|
|
|
(7 |
) |
|
|
2,652 |
|
|
|
2,723 |
|
|
|
(3 |
) |
|
|
576 |
|
|
|
751 |
|
|
|
(23 |
) |
|
|
17 |
|
|
|
30 |
|
Corporate/Private Equity(c) |
|
|
1,896 |
|
|
|
1,413 |
|
|
|
34 |
|
|
|
776 |
|
|
|
(117 |
) |
|
NM |
|
|
|
546 |
|
|
|
792 |
|
|
|
(31 |
) |
|
NM |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,631 |
|
|
$ |
37,576 |
|
|
|
45 |
% |
|
$ |
26,893 |
|
|
$ |
21,108 |
|
|
|
27 |
% |
|
$ |
4,862 |
|
|
$ |
4,376 |
|
|
|
11 |
% |
|
|
4 |
% |
|
|
7 |
% |
|
|
|
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit card
securitizations. |
|
(b) |
|
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual
Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was
accounted for as a purchase, and their respective results of operations are included in the
Firms results from each respective transaction date. For additional information on these
transactions, see Note 2 on pages 123-127 of JPMorgan Chases 2008 Annual Report and Note 2
on pages 96-99 of this Form 10-Q. |
|
(c) |
|
In the second quarter of 2009, IB began reporting credit reimbursement from TSS as a
component of total net revenue, whereas TSS continues to report its credit reimbursement to IB
as a separate line item on its income statement (not part of total net revenue).
Corporate/Private Equity includes an adjustment to offset IBs inclusion of the credit
reimbursement in total net revenue. Prior periods have been revised for IB and
Corporate/Private Equity to reflect this presentation. |
19
INVESTMENT BANK
For a discussion of the business profile of IB, see pages 42-44 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,239 |
|
|
$ |
1,735 |
|
|
|
29 |
% |
|
$ |
3,619 |
|
|
$ |
2,941 |
|
|
|
23 |
% |
Principal transactions |
|
|
1,841 |
|
|
|
838 |
|
|
|
120 |
|
|
|
5,356 |
|
|
|
40 |
|
|
NM |
Lending & depositrelated fees |
|
|
167 |
|
|
|
105 |
|
|
|
59 |
|
|
|
305 |
|
|
|
207 |
|
|
|
47 |
|
Asset management, administration
and commissions |
|
|
717 |
|
|
|
709 |
|
|
|
1 |
|
|
|
1,409 |
|
|
|
1,453 |
|
|
|
(3 |
) |
All other income(a) |
|
|
(108 |
) |
|
|
(196 |
) |
|
|
45 |
|
|
|
(164 |
) |
|
|
(232 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
4,856 |
|
|
|
3,191 |
|
|
|
52 |
|
|
|
10,525 |
|
|
|
4,409 |
|
|
|
139 |
|
Net interest income(b) |
|
|
2,445 |
|
|
|
2,309 |
|
|
|
6 |
|
|
|
5,147 |
|
|
|
4,132 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(c) |
|
|
7,301 |
|
|
|
5,500 |
|
|
|
33 |
|
|
|
15,672 |
|
|
|
8,541 |
|
|
|
83 |
|
|
Provision for credit losses |
|
|
871 |
|
|
|
398 |
|
|
|
119 |
|
|
|
2,081 |
|
|
|
1,016 |
|
|
|
105 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,677 |
|
|
|
3,132 |
|
|
|
(15 |
) |
|
|
6,007 |
|
|
|
4,373 |
|
|
|
37 |
|
Noncompensation expense |
|
|
1,390 |
|
|
|
1,602 |
|
|
|
(13 |
) |
|
|
2,834 |
|
|
|
2,914 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4,067 |
|
|
|
4,734 |
|
|
|
(14 |
) |
|
|
8,841 |
|
|
|
7,287 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
expense (benefit) |
|
|
2,363 |
|
|
|
368 |
|
|
NM |
|
|
4,750 |
|
|
|
238 |
|
|
NM |
Income tax expense (benefit) |
|
|
892 |
|
|
|
(26 |
) |
|
NM |
|
|
1,673 |
|
|
|
(69 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,471 |
|
|
$ |
394 |
|
|
|
273 |
|
|
$ |
3,077 |
|
|
$ |
307 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
18 |
% |
|
|
7 |
% |
|
|
|
|
|
|
19 |
% |
|
|
3 |
% |
|
|
|
|
ROA |
|
|
0.83 |
|
|
|
0.19 |
|
|
|
|
|
|
|
0.86 |
|
|
|
0.08 |
|
|
|
|
|
Overhead ratio |
|
|
56 |
|
|
|
86 |
|
|
|
|
|
|
|
56 |
|
|
|
85 |
|
|
|
|
|
Compensation expense as a % of
total net revenue |
|
|
37 |
|
|
|
57 |
|
|
|
|
|
|
|
38 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
393 |
|
|
$ |
370 |
|
|
|
6 |
|
|
$ |
872 |
|
|
$ |
853 |
|
|
|
2 |
|
Equity underwriting |
|
|
1,103 |
|
|
|
542 |
|
|
|
104 |
|
|
|
1,411 |
|
|
|
901 |
|
|
|
57 |
|
Debt underwriting |
|
|
743 |
|
|
|
823 |
|
|
|
(10 |
) |
|
|
1,336 |
|
|
|
1,187 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
2,239 |
|
|
|
1,735 |
|
|
|
29 |
|
|
|
3,619 |
|
|
|
2,941 |
|
|
|
23 |
|
Fixed income markets |
|
|
4,929 |
|
|
|
2,347 |
|
|
|
110 |
|
|
|
9,818 |
|
|
|
2,813 |
|
|
|
249 |
|
Equity markets |
|
|
708 |
|
|
|
1,079 |
|
|
|
(34 |
) |
|
|
2,481 |
|
|
|
2,055 |
|
|
|
21 |
|
Credit portfolio |
|
|
(575 |
) |
|
|
339 |
|
|
NM |
|
|
(246 |
) |
|
|
732 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
7,301 |
|
|
$ |
5,500 |
|
|
|
33 |
|
|
$ |
15,672 |
|
|
$ |
8,541 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
4,177 |
|
|
$ |
3,185 |
|
|
|
31 |
|
|
$ |
8,977 |
|
|
$ |
3,741 |
|
|
|
140 |
|
Europe/Middle East/Africa |
|
|
2,235 |
|
|
|
1,519 |
|
|
|
47 |
|
|
|
4,830 |
|
|
|
3,167 |
|
|
|
53 |
|
Asia/Pacific |
|
|
889 |
|
|
|
796 |
|
|
|
12 |
|
|
|
1,865 |
|
|
|
1,633 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
7,301 |
|
|
$ |
5,500 |
|
|
|
33 |
|
|
$ |
15,672 |
|
|
$ |
8,541 |
|
|
|
83 |
|
|
|
|
|
(a) |
|
TSS was charged a credit reimbursement related to certain exposures managed within IB credit
portfolio on behalf of clients shared with TSS. IB recognizes this credit reimbursement in its
credit portfolio business in All other income. Prior periods have been revised to conform with
the current presentation. |
|
(b) |
|
The increase in net interest income is due primarily to higher spreads across several fixed
income trading businesses as well as the addition of the Bear Stearns Prime Services business. |
|
(c) |
|
Total net revenue included tax-equivalent adjustments, predominantly due to income tax
credits related to affordable housing and alternative energy investments, as well as
tax-exempt income from municipal bond investments of $334 million and $404 million for the
quarters ended June 30, 2009 and 2008, respectively, and $699 million and $693 million for
year-to-date 2009 and 2008, respectively. |
20
Quarterly results
Net income was $1.5 billion, an increase of $1.1 billion from the prior year. The results reflected
higher net revenue and lower noninterest expense, partially offset by a higher provision for credit
losses.
Net revenue was $7.3 billion, an increase of $1.8 billion from the prior year. Investment banking
fees were up 29% to a record $2.2 billion and comprised the following: advisory fees, up 6% to $393
million; equity underwriting fees, up by $561 million to a record $1.1 billion; and debt
underwriting fees, down 10% to $743 million. Fixed Income Markets revenue was a record $4.9
billion, up by $2.6 billion from the prior year, driven by strong results across all products, as
well as the absence of net markdowns related to leveraged lending funded and unfunded commitments
and mortgage-related exposures. The current period had modest gains on those exposures, compared
with losses totaling $1.1 billion in the prior year. Fixed Income Markets revenue was offset
partially by losses of $773 million from the tightening of the Firms credit spread on certain
structured liabilities. Equity Markets revenue was $708 million, down by $371 million, or 34%,
reflecting weak trading results and losses of $326 million from the tightening of the Firms credit
spread on certain structured liabilities, offset by strong client revenue, particularly in prime
services. Credit Portfolio revenue was a loss of $575 million, down by $914 million, reflecting
mark-to-market losses on hedges of retained loans, partially offset by the net impact of credit
spreads on derivative assets and liabilities and net interest income on loans.
The provision for credit losses was $871 million, compared with $398 million in the prior year, due
to higher charge-offs, as well as a higher allowance reflecting continued deterioration in the
credit environment. Net charge-offs were $433 million, while the increase to the allowance for loan
losses was $438 million. The resulting allowance for loan losses to end-of-period loans retained
was 7.91%, compared with 3.44% in the prior year. Nonperforming loans were $3.5 billion, up by $3.2
billion from the prior year and $1.7 billion from the prior quarter.
Noninterest expense was $4.1 billion, compared with $4.7 billion in the prior year.
Return on equity was 18% on $33.0 billion of average allocated capital, compared with 7% on $23.3
billion of average allocated capital in the prior year.
Year-to-date results
Net income was a record $3.1 billion, an increase of $2.8 billion from the prior year. The results
reflected higher net revenue, partially offset by a higher noninterest expense and a higher
provision for credit losses.
Net revenue was a record $15.7 billion, an increase of $7.1 billion from the prior year. Investment
banking fees were up 23% to $3.6 billion and comprised the following: advisory fees, up 2% to $872
million; equity underwriting fees, up 57% to a record $1.4 billion; and debt underwriting fees, up
13% to $1.3 billion. Fixed Income Markets revenue was a record $9.8 billion, up by $7.0 billion
from the prior year, driven by strong results across all products, as well as lower net markdowns
related to leveraged lending funded and unfunded commitments and
mortgage-related exposures. Fixed Income Markets revenue was offset partially by losses of $351
million from the tightening of the Firms credit spread on certain structured liabilities. Equity
Markets revenue was $2.5 billion, up by $426 million, or 21%, reflecting strong trading results and
client revenue, particularly in prime services, partially offset by losses of $110 million from the
tightening of the Firms credit spread on certain structured liabilities. Credit Portfolio revenue
was a loss of $246 million, down by $978 million, reflecting mark-to-market losses on hedges of
retained loans, partially offset by the net impact of credit spreads on derivative assets and
liabilities and net interest income on loans.
The provision for credit losses was $2.1 billion, compared with $1.0 billion in the prior year, due
primarily to a higher allowance reflecting continued deterioration in the credit environment. Net
charge-offs were $469 million, compared with net charge-offs of $5 million in the prior year while
the increase to the allowance for loan losses was $1.6 billion, compared with $1.0 billion in the
prior year.
Noninterest expense was $8.8 billion, compared with $7.3 billion in the prior year driven by higher
performance-based compensation expense.
Return on Equity was 19% on $33.0 billion of average allocated capital, compared with 3% on $22.7
billion of average allocated capital in the prior year.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
$ |
64,500 |
|
|
$ |
70,690 |
|
|
|
(9 |
)% |
|
$ |
64,500 |
|
|
$ |
70,690 |
|
|
|
(9 |
)% |
Loans held-for-sale and loans at fair value |
|
|
6,814 |
|
|
|
19,699 |
|
|
|
(65 |
) |
|
|
6,814 |
|
|
|
19,699 |
|
|
|
(65 |
) |
|
Total loans |
|
|
71,314 |
|
|
|
90,389 |
|
|
|
(21 |
) |
|
|
71,314 |
|
|
|
90,389 |
|
|
|
(21 |
) |
Equity |
|
|
33,000 |
|
|
|
26,000 |
|
|
|
27 |
|
|
|
33,000 |
|
|
|
26,000 |
|
|
|
27 |
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
710,825 |
|
|
$ |
814,860 |
|
|
|
(13 |
) |
|
$ |
721,934 |
|
|
$ |
785,344 |
|
|
|
(8 |
) |
Trading assets-debt and equity instruments |
|
|
265,336 |
|
|
|
367,184 |
|
|
|
(28 |
) |
|
|
269,146 |
|
|
|
368,320 |
|
|
|
(27 |
) |
Trading assets-derivative receivables |
|
|
100,536 |
|
|
|
99,395 |
|
|
|
1 |
|
|
|
112,711 |
|
|
|
94,814 |
|
|
|
19 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
68,224 |
|
|
|
76,239 |
|
|
|
(11 |
) |
|
|
69,128 |
|
|
|
75,173 |
|
|
|
(8 |
) |
Loans held-for-sale and loans at fair value |
|
|
8,934 |
|
|
|
20,440 |
|
|
|
(56 |
) |
|
|
10,658 |
|
|
|
20,026 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
77,158 |
|
|
|
96,679 |
|
|
|
(20 |
) |
|
|
79,786 |
|
|
|
95,199 |
|
|
|
(16 |
) |
Adjusted assets(b) |
|
|
531,632 |
|
|
|
676,777 |
|
|
|
(21 |
) |
|
|
560,239 |
|
|
|
669,598 |
|
|
|
(16 |
) |
Equity |
|
|
33,000 |
|
|
|
23,319 |
|
|
|
42 |
|
|
|
33,000 |
|
|
|
22,659 |
|
|
|
46 |
|
|
Headcount |
|
|
25,783 |
|
|
|
37,057 |
|
|
|
(30 |
) |
|
|
25,783 |
|
|
|
37,057 |
|
|
|
(30 |
) |
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
433 |
|
|
$ |
(8 |
) |
|
NM |
|
$ |
469 |
|
|
$ |
5 |
|
|
NM |
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(c) |
|
|
3,519 |
|
|
|
313 |
|
|
NM |
|
|
3,519 |
|
|
|
313 |
|
|
NM |
Derivative receivables |
|
|
704 |
|
|
|
76 |
|
|
NM |
|
|
704 |
|
|
|
76 |
|
|
NM |
Assets acquired in loan satisfactions |
|
|
311 |
|
|
|
101 |
|
|
|
208 |
|
|
|
311 |
|
|
|
101 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
|
4,534 |
|
|
|
490 |
|
|
NM |
|
|
4,534 |
|
|
|
490 |
|
|
NM |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
5,101 |
|
|
|
2,429 |
|
|
|
110 |
|
|
|
5,101 |
|
|
|
2,429 |
|
|
|
110 |
|
Allowance for lending-related commitments |
|
|
351 |
|
|
|
469 |
|
|
|
(25 |
) |
|
|
351 |
|
|
|
469 |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
5,452 |
|
|
|
2,898 |
|
|
|
88 |
|
|
|
5,452 |
|
|
|
2,898 |
|
|
|
88 |
|
|
Net charge-off (recovery) rate(a)(d) |
|
|
2.55 |
% |
|
|
(0.04 |
)% |
|
|
|
|
|
|
1.37 |
% |
|
|
0.01 |
% |
|
|
|
|
Allowance for loan losses to period-end
loans(a)(d) |
|
|
7.91 |
|
|
|
3.44 |
|
|
|
|
|
|
|
7.91 |
|
|
|
3.44 |
|
|
|
|
|
Allowance for loan losses to average
loans(a)(d) |
|
|
7.48 |
|
|
|
3.19 |
(i) |
|
|
|
|
|
|
7.38 |
|
|
|
3.23 |
(i) |
|
|
|
|
Allowance for loan losses to nonperforming
loans(c) |
|
|
150 |
|
|
|
843 |
|
|
|
|
|
|
|
150 |
|
|
|
843 |
|
|
|
|
|
Nonperforming loans to period-end loans |
|
|
4.93 |
|
|
|
0.35 |
|
|
|
|
|
|
|
4.93 |
|
|
|
0.35 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
4.56 |
|
|
|
0.32 |
|
|
|
|
|
|
|
4.41 |
|
|
|
0.33 |
|
|
|
|
|
Market risk-average trading and credit
portfolio VaR - 99% confidence
level(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
249 |
|
|
$ |
155 |
|
|
|
61 |
% |
|
$ |
234 |
|
|
$ |
137 |
|
|
|
71 |
% |
Foreign exchange |
|
|
26 |
|
|
|
26 |
|
|
|
|
|
|
|
33 |
|
|
|
30 |
|
|
|
10 |
|
Equities |
|
|
77 |
|
|
|
30 |
|
|
|
157 |
|
|
|
119 |
|
|
|
31 |
|
|
|
284 |
|
Commodities and other |
|
|
34 |
|
|
|
31 |
|
|
|
10 |
|
|
|
31 |
|
|
|
29 |
|
|
|
7 |
|
Diversification(f) |
|
|
(136 |
) |
|
|
(92 |
) |
|
|
(48 |
) |
|
|
(148 |
) |
|
|
(91 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading VaR(g) |
|
|
250 |
|
|
|
150 |
|
|
|
67 |
|
|
|
269 |
|
|
|
136 |
|
|
|
98 |
|
Credit portfolio VaR(h) |
|
|
133 |
|
|
|
35 |
|
|
|
280 |
|
|
|
157 |
|
|
|
33 |
|
|
|
376 |
|
Diversification(f) |
|
|
(116 |
) |
|
|
(36 |
) |
|
|
(222 |
) |
|
|
(125 |
) |
|
|
(34 |
) |
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit portfolio VaR |
|
$ |
267 |
|
|
$ |
149 |
|
|
|
79 |
|
|
$ |
301 |
|
|
$ |
135 |
|
|
|
123 |
|
|
|
|
|
(a) |
|
Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and
excluded loans held-for-sale and loans accounted for at fair value. |
|
(b) |
|
Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities
purchased under resale agreements and securities borrowed less securities sold, not yet
purchased; (2) assets of variable interest entities (VIEs) consolidated under FIN 46R; (3)
cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill
and intangibles; (5) securities received as collateral; and (6) investments purchased under
the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The amount of
adjusted assets is presented to assist the reader in comparing IBs asset and capital levels
to other investment banks in the securities industry. Asset-to-equity leverage ratios are
commonly used as one measure to assess a companys capital adequacy. IB believes an adjusted
asset amount that excludes the assets discussed above, which were considered to have a low
risk profile, provides a more meaningful measure of balance sheet leverage in the securities
industry. |
22
|
|
|
(c) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $112 million and
$25 million at June 30, 2009 and 2008, respectively, which were excluded from the allowance
coverage ratios. Nonperforming loans excluded distressed loans held-for-sale that were
purchased as part of IBs proprietary activities. Allowance for loan losses of $1.6 billion
and $71 million was held against these nonperforming loans at June 30, 2009 and 2008,
respectively. |
|
(d) |
|
Loans held-for-sale and loans at fair value were excluded when calculating the allowance
coverage ratio and net charge-off (recovery) rate. |
|
(e) |
|
Results for second quarter of 2008 include one month of the combined Firms results and two
months of heritage JPMorgan Chase & Co. results. For a more complete description of
value-at-risk, see pages 80-86 of this Form 10-Q. |
|
(f) |
|
Average VaRs were less than the sum of the VaRs of their market risk components, which was
due to risk offsets resulting from portfolio diversification. The diversification effect
reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks of the positions themselves. |
|
(g) |
|
Trading VaR includes predominantly all trading activities in IB. 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 85 of this Form 10-Q for further
details. Trading VaR also does not include the MSR portfolio or VaR related to other corporate
functions, such as Corporate/Private Equity. Beginning in the fourth quarter of 2008, trading
VaR includes the estimated credit spread sensitivity of certain mortgage products. |
|
(h) |
|
Included VaR on derivative credit valuation adjustments (CVA), hedges of the CVA and
mark-to-market hedges of the retained loan portfolio, which were all reported in principal
transactions revenue. This VaR does not include the retained loan portfolio. |
|
(i) |
|
Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio
would be 3.46% and 3.40% for the quarter ended June 30, 2008, and the six months ended June
30, 2008, respectively. The average balance of the loan extended to Bear Stearns was $6.0
billion for the quarter ended June 30, 2008, and $3.8 billion for year-to-date 2008. |
According to Thomson Reuters, for the first six months of 2009, 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 on volume.
According to Dealogic, the Firm was ranked #1 in Investment Banking fees generated for the first
six months of 2009, based upon revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
Full Year 2008 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related
|
|
|
11 |
% |
|
#1
|
|
|
10 |
% |
|
#1 |
Global syndicated loans
|
|
|
10 |
|
|
#1
|
|
|
12 |
|
|
#1 |
Global long-term debt(b)
|
|
|
9 |
|
|
#1
|
|
|
9 |
|
|
#3 |
Global equity and equity-related(c)
|
|
|
16 |
|
|
#1
|
|
|
10 |
|
|
#1 |
Global announced M&A(d)
|
|
|
32 |
|
|
#3
|
|
|
27 |
|
|
#2 |
U.S. debt, equity and equity-related
|
|
|
15 |
|
|
#1
|
|
|
15 |
|
|
#2 |
U.S. syndicated loans
|
|
|
25 |
|
|
#1
|
|
|
25 |
|
|
#1 |
U.S. long-term debt(b)
|
|
|
15 |
|
|
#1
|
|
|
15 |
|
|
#2 |
U.S. equity and equity-related(c)
|
|
|
17 |
|
|
#1
|
|
|
11 |
|
|
#1 |
U.S. announced M&A(d)
|
|
|
48 |
|
|
#3
|
|
|
33 |
|
|
#2 |
|
|
|
|
(a) |
|
Source: Thomson Reuters. Full-year 2008 results are pro forma for the Bear Stearns merger. |
|
(b) |
|
Includes asset-backed securities, mortgage-backed securities and municipal securities. |
|
(c) |
|
Includes rights offerings; U.S.-domiciled equity and equity-related transactions. |
|
(d) |
|
Global announced M&A is based on rank value; all other rankings are based on proceeds, with
full credit to each book manager/equal if joint. Because of joint assignments, market share of
all participants will add up to more than 100%. Global and U.S. announced M&A market share and
rankings for 2008 include transactions withdrawn since December 31, 2008. U.S. announced M&A
represents any U.S. involvement ranking. |
23
RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 45-50 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
1,003 |
|
|
$ |
497 |
|
|
|
102 |
% |
|
$ |
1,951 |
|
|
$ |
958 |
|
|
|
104 |
% |
Asset management, administration and
commissions |
|
|
425 |
|
|
|
375 |
|
|
|
13 |
|
|
|
860 |
|
|
|
752 |
|
|
|
14 |
|
Mortgage fees and related income |
|
|
807 |
|
|
|
696 |
|
|
|
16 |
|
|
|
2,440 |
|
|
|
1,221 |
|
|
|
100 |
|
Credit card income |
|
|
411 |
|
|
|
194 |
|
|
|
112 |
|
|
|
778 |
|
|
|
368 |
|
|
|
111 |
|
Other income |
|
|
294 |
|
|
|
198 |
|
|
|
48 |
|
|
|
508 |
|
|
|
350 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
2,940 |
|
|
|
1,960 |
|
|
|
50 |
|
|
|
6,537 |
|
|
|
3,649 |
|
|
|
79 |
|
Net interest income |
|
|
5,030 |
|
|
|
3,150 |
|
|
|
60 |
|
|
|
10,268 |
|
|
|
6,224 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
7,970 |
|
|
|
5,110 |
|
|
|
56 |
|
|
|
16,805 |
|
|
|
9,873 |
|
|
|
70 |
|
|
Provision for credit losses |
|
|
3,846 |
|
|
|
1,585 |
|
|
|
143 |
|
|
|
7,723 |
|
|
|
4,273 |
|
|
|
81 |
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,631 |
|
|
|
1,184 |
|
|
|
38 |
|
|
|
3,262 |
|
|
|
2,344 |
|
|
|
39 |
|
Noncompensation expense |
|
|
2,365 |
|
|
|
1,396 |
|
|
|
69 |
|
|
|
4,822 |
|
|
|
2,708 |
|
|
|
78 |
|
Amortization of intangibles |
|
|
83 |
|
|
|
100 |
|
|
|
(17 |
) |
|
|
166 |
|
|
|
200 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4,079 |
|
|
|
2,680 |
|
|
|
52 |
|
|
|
8,250 |
|
|
|
5,252 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
45 |
|
|
|
845 |
|
|
|
(95 |
) |
|
|
832 |
|
|
|
348 |
|
|
|
139 |
|
Income tax expense (benefit) |
|
|
30 |
|
|
|
342 |
|
|
|
(91 |
) |
|
|
343 |
|
|
|
156 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
15 |
|
|
$ |
503 |
|
|
|
(97 |
) |
|
$ |
489 |
|
|
$ |
192 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
|
% |
|
|
12 |
% |
|
|
|
|
|
|
4 |
% |
|
|
2 |
% |
|
|
|
|
Overhead ratio |
|
|
51 |
|
|
|
52 |
|
|
|
|
|
|
|
49 |
|
|
|
53 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a) |
|
|
50 |
|
|
|
51 |
|
|
|
|
|
|
|
48 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
(a) |
|
Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit
intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in the earlier years and a lower overhead ratio in later years;
this method would result in an improving overhead ratio over time, all things remaining equal.
This non-GAAP ratio excludes Retail Bankings core deposit intangible amortization expense,
related to the 2006 Bank of New York transaction and the 2004 Bank One merger, of $82 million
and $99 million for the quarters ended June 30, 2009 and 2008, respectively, and $165 million
and $198 million for year-to-date June 30, 2009 and 2008, respectively. |
Quarterly results
Net income was $15 million, a decrease of $488 million, or 97%, from the prior year. A higher
provision for credit losses and higher noninterest expense were offset partially by higher net
revenue, reflecting the impact of the Washington Mutual transaction.
Net revenue was $8.0 billion, an increase of $2.9 billion, or 56%, from the prior year. Net
interest income was $5.0 billion, up by $1.9 billion, or 60%, reflecting the impact of the
Washington Mutual transaction, wider loan spreads, wider deposit spreads and higher deposit
balances offset partially by lower loan balances in the heritage Chase portfolio. Noninterest
revenue was $2.9 billion, up by $980 million, or 50%, driven by the impact of the Washington Mutual
transaction and higher deposit-related fees.
The provision for credit losses was $3.8 billion, an increase of $2.3 billion from the prior year.
Weak economic conditions and housing price declines continued to drive higher estimated losses for
the home equity and mortgage loan portfolios. The provision included a $1.2 billion addition to the
allowance for loan losses, compared with an addition of $600 million in the prior year. Home equity
net charge-offs were $1.3 billion (3.67% net charge-off rate; 4.61% excluding purchased
credit-impaired loans), compared with $511 million (2.16% net charge-off rate) in the prior year.
Subprime mortgage net charge-offs were $410 million (7.91% net charge-off rate; 11.50% excluding
purchased credit-impaired loans), compared with $192 million (4.98% net charge-off rate) in the
prior year. Prime mortgage net charge-offs were $481 million (2.30% net charge-off rate; 3.07%
excluding purchased credit-impaired loans), compared with $104 million (1.08% net charge-off rate)
in the prior year.
24
Noninterest expense was $4.1 billion, an increase of $1.4 billion, or 52%, reflecting the impact of
the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.
Year-to-date results
Net income was $489 million, an increase of $297 million, or 155%, from the prior year, as the
impact of the Washington Mutual transaction was offset partially by a higher provision for credit
losses and higher noninterest expense.
Net revenue was $16.8 billion, an increase of $6.9 billion, or 70%, from the prior year. Net
interest income was $10.3 billion, up by $4.0 billion, or 65%, due to the impact of the Washington
Mutual transaction, wider deposit spreads, wider loan spreads, and higher deposit balances.
Noninterest revenue was $6.5 billion, up by $2.9 billion, or 79%, driven by the impact of the
Washington Mutual transaction, higher mortgage fees and related income and higher deposit-related
fees.
The provision for credit losses was $7.7 billion, an increase of $3.5 billion from the prior year.
Weak economic conditions and housing price declines continued to drive higher estimated losses for
the home equity and mortgage loan portfolios. The provision included $2.9 billion in additions to
the allowance for loan losses, compared with additions of $2.4 billion in the prior year. Home
equity net charge-offs were $2.4 billion (3.41% net charge-off rate; 4.27% excluding purchased
credit-impaired loans), compared with $958 million (2.03% net charge-off rate) in the prior year.
Subprime mortgage net charge-offs were $774 million (7.36% net charge-off rate; 10.69% excluding
purchased credit-impaired loans), compared with $341 million (4.40% net charge-off rate) in the
prior year. Prime mortgage net charge-offs were $793 million (1.88% net charge-off rate; 2.50%
excluding purchased credit-impaired loans), compared with $154 million (0.83% net charge-off rate)
in the prior year.
Noninterest expense was $8.3 billion, an increase of $3.0 billion, or 57%, from the prior year,
reflecting the impact of the Washington Mutual transaction, higher servicing expense and higher
FDIC insurance premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
399,916 |
|
|
$ |
265,845 |
|
|
|
50 |
% |
|
$ |
399,916 |
|
|
$ |
265,845 |
|
|
|
50 |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
353,934 |
|
|
|
223,047 |
|
|
|
59 |
|
|
|
353,934 |
|
|
|
223,047 |
|
|
|
59 |
|
Loans held-for-sale and loans at fair value(a) |
|
|
13,192 |
|
|
|
16,282 |
|
|
|
(19 |
) |
|
|
13,192 |
|
|
|
16,282 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
367,126 |
|
|
|
239,329 |
|
|
|
53 |
|
|
|
367,126 |
|
|
|
239,329 |
|
|
|
53 |
|
Deposits |
|
|
371,241 |
|
|
|
223,121 |
|
|
|
66 |
|
|
|
371,241 |
|
|
|
223,121 |
|
|
|
66 |
|
Equity |
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
410,228 |
|
|
$ |
267,808 |
|
|
|
53 |
|
|
$ |
416,813 |
|
|
$ |
263,911 |
|
|
|
58 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
359,372 |
|
|
|
221,132 |
|
|
|
63 |
|
|
|
363,127 |
|
|
|
217,859 |
|
|
|
67 |
|
Loans held-for-sale and loans at fair value(a) |
|
|
19,043 |
|
|
|
20,492 |
|
|
|
(7 |
) |
|
|
17,792 |
|
|
|
19,167 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
378,415 |
|
|
|
241,624 |
|
|
|
57 |
|
|
|
380,919 |
|
|
|
237,026 |
|
|
|
61 |
|
Deposits |
|
|
377,259 |
|
|
|
226,487 |
|
|
|
67 |
|
|
|
373,788 |
|
|
|
226,021 |
|
|
|
65 |
|
Equity |
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
Headcount |
|
|
103,733 |
|
|
|
69,550 |
|
|
|
49 |
|
|
|
103,733 |
|
|
|
69,550 |
|
|
|
49 |
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
2,649 |
|
|
$ |
1,025 |
|
|
|
158 |
|
|
$ |
4,825 |
|
|
$ |
1,850 |
|
|
|
161 |
|
Nonperforming loans(b)(c)(d) |
|
|
8,995 |
|
|
|
4,574 |
|
|
|
97 |
|
|
|
8,995 |
|
|
|
4,574 |
|
|
|
97 |
|
Nonperforming assets(b)(c)(d) |
|
|
10,554 |
|
|
|
5,333 |
|
|
|
98 |
|
|
|
10,554 |
|
|
|
5,333 |
|
|
|
98 |
|
Allowance for loan losses |
|
|
11,832 |
|
|
|
5,062 |
|
|
|
134 |
|
|
|
11,832 |
|
|
|
5,062 |
|
|
|
134 |
|
|
Net charge-off rate(e) |
|
|
2.96 |
% |
|
|
1.86 |
% |
|
|
|
|
|
|
2.68 |
% |
|
|
1.71 |
% |
|
|
|
|
Net charge-off rate excluding purchased
credit-impaired loans(e)(f) |
|
|
3.89 |
|
|
|
1.86 |
|
|
|
|
|
|
|
3.53 |
|
|
|
1.71 |
|
|
|
|
|
Allowance for loan losses to ending loans(e) |
|
|
3.34 |
|
|
|
2.27 |
|
|
|
|
|
|
|
3.34 |
|
|
|
2.27 |
|
|
|
|
|
Allowance for loan losses to ending loans
excluding purchased credit-impaired
loans(e)(f) |
|
|
4.41 |
|
|
|
2.27 |
|
|
|
|
|
|
|
4.41 |
|
|
|
2.27 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans(b)(e) |
|
|
135 |
|
|
|
115 |
|
|
|
|
|
|
|
135 |
|
|
|
115 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
2.45 |
|
|
|
1.91 |
|
|
|
|
|
|
|
2.45 |
|
|
|
1.91 |
|
|
|
|
|
Nonperforming loans to total loans excluding purchased
credit-impaired loans(b) |
|
|
3.19 |
|
|
|
1.91 |
|
|
|
|
|
|
|
3.19 |
|
|
|
1.91 |
|
|
|
|
|
|
25
|
|
|
(a) |
|
Loans at fair value consist of prime mortgages originated with the intent to sell that are
accounted for at fair value and classified as trading assets on the Consolidated Balance
Sheets. These loans totaled $11.3 billion and $14.1 billion at June 30, 2009 and 2008,
respectively. Average balances of these loans totaled $16.2 billion and $16.9 billion for the
quarters ended June 30, 2009 and 2008, respectively, and $14.9 billion and $15.2 billion for
year-to-date June 30, 2009 and 2008, respectively. |
|
(b) |
|
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as
part of the Washington Mutual transaction. These loans are accounted for on a pool basis and
the pools are considered to be performing under SOP 03-3. |
|
(c) |
|
Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair
value of $203 million and $180 million at June 30, 2009 and 2008, respectively. Certain of
these loans are classified as trading assets on the Consolidated Balance Sheets. |
|
(d) |
|
Nonperforming loans and assets excluded: (1) loans eligible for repurchase, as well as loans
repurchased from Government National Mortgage Association (GNMA) pools that are insured by
U.S. government agencies, of $4.7 billion and $1.9 billion at June 30, 2009 and 2008,
respectively; and (2) student loans that are 90 days past due and still accruing, which are
insured by U.S. government agencies under the Federal Family Education Loan Program, of $473
million and $394 million at June 30, 2009 and 2008, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally. |
|
(e) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratio and the net charge-off rate. |
|
(f) |
|
Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that
were acquired as part of the Washington Mutual transaction. These loans were accounted for at
fair value on the acquisition date, which incorporated managements estimate, as of that
date, of credit losses over the remaining life of the portfolio. No allowance for loan losses
has been recorded for these loans. |
RETAIL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Noninterest revenue |
|
$ |
1,803 |
|
|
$ |
1,062 |
|
|
|
70 |
% |
|
$ |
3,521 |
|
|
$ |
2,028 |
|
|
|
74 |
% |
Net interest income |
|
|
2,719 |
|
|
|
1,671 |
|
|
|
63 |
|
|
|
5,333 |
|
|
|
3,216 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,522 |
|
|
|
2,733 |
|
|
|
65 |
|
|
|
8,854 |
|
|
|
5,244 |
|
|
|
69 |
|
Provision for credit losses |
|
|
361 |
|
|
|
62 |
|
|
|
482 |
|
|
|
686 |
|
|
|
111 |
|
|
NM |
Noninterest expense |
|
|
2,557 |
|
|
|
1,557 |
|
|
|
64 |
|
|
|
5,137 |
|
|
|
3,119 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,604 |
|
|
|
1,114 |
|
|
|
44 |
|
|
|
3,031 |
|
|
|
2,014 |
|
|
|
50 |
|
Net income |
|
$ |
970 |
|
|
$ |
674 |
|
|
|
44 |
|
|
$ |
1,833 |
|
|
$ |
1,219 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
Overhead ratio |
|
|
57 |
% |
|
|
57 |
% |
|
|
|
|
|
|
58 |
% |
|
|
59 |
% |
|
|
|
|
Overhead ratio excluding core
deposit
intangibles(a) |
|
|
55 |
|
|
|
53 |
|
|
|
|
|
|
|
56 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
(a) |
|
Retail Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP
financial measure, to evaluate the underlying expense trends of the business. Including CDI
amortization expense in the overhead ratio calculation results in a higher overhead ratio in
the earlier years and a lower overhead ratio in later years; this method would result in an
improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes
Retail Bankings CDI amortization expense related to the 2006 Bank of New York transaction and
the 2004 Bank One merger of $82 million and $99 million for the quarters ended June 30, 2009
and 2008, respectively, and $165 million and $198 million for year-to-date 2009 and 2008,
respectively. |
Quarterly results
Retail Banking reported net income of $970 million, up by $296 million, or 44%, from the prior
year.
Net revenue was $4.5 billion, up by $1.8 billion, or 65%, reflecting the impact of the Washington
Mutual transaction, wider deposit spreads, higher deposit balances and higher deposit-related fees.
The provision for credit losses was $361 million, compared with $62 million in the prior year,
reflecting higher estimated losses and an increase in the allowance for loan losses for Business
Banking loans.
Noninterest expense was $2.6 billion, up by $1.0 billion, or 64%, due to the impact of the
Washington Mutual transaction and higher FDIC insurance premiums.
Year-to-date results
Retail Banking reported net income of $1.8 billion, up by $614 million, or 50%, from the prior
year.
Net revenue was $8.9 billion, up by $3.6 billion, or 69%, from the prior year, reflecting the
impact of the Washington Mutual transaction, wider deposit spreads, higher deposit balances and
higher deposit-related fees.
The provision for credit losses was $686 million, compared with $111 million in the prior year,
reflecting higher estimated losses and an increase in the allowance for loan losses for Business
Banking loans.
Noninterest expense was $5.1 billion, up by $2.0 billion, or 65%, from the prior year, due to the
impact of the Washington Mutual transaction and higher FDIC insurance premiums.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in billions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Business metrics
|
|
Selected ending balances
|
|
|
Business banking origination volume |
|
$ |
0.6 |
|
|
$ |
1.7 |
|
|
|
(65 |
)% |
|
$ |
1.1 |
|
|
$ |
3.5 |
|
|
|
(69 |
)% |
End-of-period loans owned |
|
|
17.8 |
|
|
|
16.5 |
|
|
|
8 |
|
|
|
17.8 |
|
|
|
16.5 |
|
|
|
8 |
|
End-of-period deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
114.1 |
|
|
$ |
69.1 |
|
|
|
65 |
|
|
$ |
114.1 |
|
|
$ |
69.1 |
|
|
|
65 |
|
Savings |
|
|
150.4 |
|
|
|
105.8 |
|
|
|
42 |
|
|
|
150.4 |
|
|
|
105.8 |
|
|
|
42 |
|
Time and other |
|
|
78.9 |
|
|
|
37.0 |
|
|
|
113 |
|
|
|
78.9 |
|
|
|
37.0 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period deposits |
|
|
343.4 |
|
|
|
211.9 |
|
|
|
62 |
|
|
|
343.4 |
|
|
|
211.9 |
|
|
|
62 |
|
Average loans owned |
|
$ |
18.0 |
|
|
$ |
16.2 |
|
|
|
11 |
|
|
$ |
18.2 |
|
|
$ |
16.0 |
|
|
|
14 |
|
Average deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
114.2 |
|
|
$ |
68.4 |
|
|
|
67 |
|
|
$ |
111.8 |
|
|
$ |
67.3 |
|
|
|
66 |
|
Savings |
|
|
151.2 |
|
|
|
105.9 |
|
|
|
43 |
|
|
|
149.6 |
|
|
|
103.1 |
|
|
|
45 |
|
Time and other |
|
|
82.7 |
|
|
|
39.6 |
|
|
|
109 |
|
|
|
85.6 |
|
|
|
43.6 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
348.1 |
|
|
|
213.9 |
|
|
|
63 |
|
|
|
347.0 |
|
|
|
214.0 |
|
|
|
62 |
|
Deposit margin |
|
|
2.92 |
% |
|
|
2.88 |
% |
|
|
|
|
|
|
2.89 |
% |
|
|
2.76 |
% |
|
|
|
|
Average assets |
|
$ |
29.1 |
|
|
$ |
25.7 |
|
|
|
13 |
|
|
$ |
29.6 |
|
|
$ |
25.5 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics
(in millions, except ratio) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
211 |
|
|
$ |
61 |
|
|
|
246 |
|
|
$ |
386 |
|
|
$ |
110 |
|
|
|
251 |
|
Net charge-off rate |
|
|
4.70 |
% |
|
|
1.51 |
% |
|
|
|
|
|
|
4.28 |
% |
|
|
1.38 |
% |
|
|
|
|
Nonperforming assets |
|
$ |
686 |
|
|
$ |
337 |
|
|
|
104 |
|
|
$ |
686 |
|
|
$ |
337 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
Retail branch business metrics |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Investment sales volume (in millions) |
|
$ |
5,292 |
|
|
$ |
5,211 |
|
|
|
2 |
% |
|
$ |
9,690 |
|
|
$ |
9,295 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
5,203 |
|
|
|
3,157 |
|
|
|
65 |
|
|
|
5,203 |
|
|
|
3,157 |
|
|
|
65 |
|
ATMs |
|
|
14,144 |
|
|
|
9,310 |
|
|
|
52 |
|
|
|
14,144 |
|
|
|
9,310 |
|
|
|
52 |
|
Personal bankers |
|
|
15,959 |
|
|
|
9,995 |
|
|
|
60 |
|
|
|
15,959 |
|
|
|
9,995 |
|
|
|
60 |
|
Sales specialists |
|
|
5,485 |
|
|
|
4,116 |
|
|
|
33 |
|
|
|
5,485 |
|
|
|
4,116 |
|
|
|
33 |
|
Active online customers (in thousands) |
|
|
13,930 |
|
|
|
7,180 |
|
|
|
94 |
|
|
|
13,930 |
|
|
|
7,180 |
|
|
|
94 |
|
Checking accounts (in thousands) |
|
|
25,252 |
|
|
|
11,336 |
|
|
|
123 |
|
|
|
25,252 |
|
|
|
11,336 |
|
|
|
123 |
|
|
CONSUMER LENDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratio) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Noninterest revenue |
|
$ |
1,137 |
|
|
$ |
898 |
|
|
|
27 |
% |
|
$ |
3,016 |
|
|
$ |
1,621 |
|
|
|
86 |
% |
Net interest income |
|
|
2,311 |
|
|
|
1,479 |
|
|
|
56 |
|
|
|
4,935 |
|
|
|
3,008 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,448 |
|
|
|
2,377 |
|
|
|
45 |
|
|
|
7,951 |
|
|
|
4,629 |
|
|
|
72 |
|
Provision for credit losses |
|
|
3,485 |
|
|
|
1,523 |
|
|
|
129 |
|
|
|
7,037 |
|
|
|
4,162 |
|
|
|
69 |
|
Noninterest expense |
|
|
1,522 |
|
|
|
1,123 |
|
|
|
36 |
|
|
|
3,113 |
|
|
|
2,133 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(1,559 |
) |
|
|
(269 |
) |
|
|
(480 |
) |
|
|
(2,199 |
) |
|
|
(1,666 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(955 |
) |
|
$ |
(171 |
) |
|
|
(458 |
) |
|
$ |
(1,344 |
) |
|
$ |
(1,027 |
) |
|
|
(31 |
) |
Overhead ratio |
|
|
44 |
% |
|
|
47 |
% |
|
|
|
|
|
|
39 |
% |
|
|
46 |
% |
|
|
|
|
|
27
Quarterly results
Consumer Lending reported a net loss of $955 million, compared with a net loss of $171 million in
the prior year.
Net revenue was $3.4 billion, up by $1.1 billion, or 45%, from the prior year. The increase was
driven by the impact of the Washington Mutual transaction and wider loan spreads, largely offset by
lower loan balances in the heritage Chase portfolio. Mortgage fees and related income increased due
to higher net mortgage servicing revenue, partially offset by a decline in mortgage production
revenue. Mortgage production revenue was $284 million, down $110 million from the prior year, as an
increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage
warehouse were offset partially by wider margins on new originations. Net mortgage servicing
revenue (which includes loan servicing revenue, other changes in fair value and MSR risk management
results) was $523 million, an increase of $221 million from the prior year. Loan servicing revenue,
net of other changes in fair value of the MSR asset, was up $191 million, reflecting a 70% growth
in third-party loans serviced. MSR risk management results were $81 million, compared with $51
million in the prior year.
The provision for credit losses was $3.5 billion, compared with $1.5 billion in the prior year,
reflecting weakness in the home equity, mortgage and student loan portfolios (see Retail Financial
Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $1.5 billion, up by $399 million, or 36%, from the prior year, reflecting
higher servicing expense due to increased delinquencies and defaults and the impact of the
Washington Mutual transaction.
Year-to-date results
Consumer Lending reported a net loss of $1.3 billion, compared with a net loss of $1.0 billion in
the prior year.
Net revenue was $8.0 billion, up by $3.3 billion, or 72%, from the prior year. The increase was
driven by the impact of the Washington Mutual transaction, higher mortgage fees and related income,
and wider loan spreads offset partially by lower loan balances in the heritage Chase portfolio.
Mortgage fees and related income increased due to higher net mortgage servicing revenue. Mortgage
production revenue was $765 million, down $5 million from the prior year, as an increase in
reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were
largely offset by wider margins on new originations. Net mortgage servicing revenue (which includes
loan servicing revenue, other changes in fair value and MSR risk management results) was $1.7
billion, an increase of $1.2 billion from the prior year. Loan servicing revenue, net of other
changes in fair value of the MSR, was up $172 million, reflecting a 70% growth in third-party loans
serviced. MSR risk management results were $1.1 billion, compared with $32 million in the prior
year, reflecting the positive impact of a decrease in estimated future mortgage prepayments and
positive hedging results.
The provision for credit losses was $7.0 billion, compared with $4.2 billion in the prior year,
reflecting weakness in the home equity, mortgage and student loan portfolios (see Retail Financial
Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $3.1 billion, up by $980 million, or 46%, from the prior year, reflecting
higher servicing expense due to increased delinquencies and defaults and the impact of the
Washington Mutual transaction.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in billions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans excluding purchased credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
108.2 |
|
|
$ |
95.1 |
|
|
|
14 |
% |
|
$ |
108.2 |
|
|
$ |
95.1 |
|
|
|
14 |
% |
Prime mortgage |
|
|
62.1 |
|
|
|
40.1 |
|
|
|
55 |
|
|
|
62.1 |
|
|
|
40.1 |
|
|
|
55 |
|
Subprime mortgage |
|
|
13.8 |
|
|
|
14.8 |
|
|
|
(7 |
) |
|
|
13.8 |
|
|
|
14.8 |
|
|
|
(7 |
) |
Option ARMs |
|
|
9.0 |
|
|
|
|
|
|
NM |
|
|
9.0 |
|
|
|
|
|
|
NM |
Student loans |
|
|
15.6 |
|
|
|
13.0 |
|
|
|
20 |
|
|
|
15.6 |
|
|
|
13.0 |
|
|
|
20 |
|
Auto loans |
|
|
42.9 |
|
|
|
44.9 |
|
|
|
(4 |
) |
|
|
42.9 |
|
|
|
44.9 |
|
|
|
(4 |
) |
Other |
|
|
1.0 |
|
|
|
0.9 |
|
|
|
11 |
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
252.6 |
|
|
$ |
208.8 |
|
|
|
21 |
|
|
$ |
252.6 |
|
|
$ |
208.8 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
110.1 |
|
|
$ |
95.1 |
|
|
|
16 |
|
|
$ |
111.7 |
|
|
$ |
95.0 |
|
|
|
18 |
|
Prime mortgage |
|
|
63.3 |
|
|
|
39.3 |
|
|
|
61 |
|
|
|
64.4 |
|
|
|
37.7 |
|
|
|
71 |
|
Subprime mortgage |
|
|
14.3 |
|
|
|
15.5 |
|
|
|
(8 |
) |
|
|
14.6 |
|
|
|
15.6 |
|
|
|
(6 |
) |
Option ARMs |
|
|
9.1 |
|
|
|
|
|
|
NM |
|
|
9.0 |
|
|
|
|
|
|
NM |
Student loans |
|
|
16.7 |
|
|
|
12.7 |
|
|
|
31 |
|
|
|
16.8 |
|
|
|
12.4 |
|
|
|
35 |
|
Auto loans |
|
|
43.1 |
|
|
|
44.9 |
|
|
|
(4 |
) |
|
|
42.8 |
|
|
|
44.1 |
|
|
|
(3 |
) |
Other |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans |
|
$ |
257.6 |
|
|
$ |
208.5 |
|
|
|
24 |
|
|
$ |
260.6 |
|
|
$ |
205.9 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
27.7 |
|
|
$ |
|
|
|
NM |
|
$ |
27.7 |
|
|
$ |
|
|
|
NM |
Prime mortgage |
|
|
20.8 |
|
|
|
|
|
|
NM |
|
|
20.8 |
|
|
|
|
|
|
NM |
Subprime mortgage |
|
|
6.4 |
|
|
|
|
|
|
NM |
|
|
6.4 |
|
|
|
|
|
|
NM |
Option ARMs |
|
|
30.5 |
|
|
|
|
|
|
NM |
|
|
30.5 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
85.4 |
|
|
$ |
|
|
|
NM |
|
$ |
85.4 |
|
|
$ |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
28.0 |
|
|
$ |
|
|
|
NM |
|
$ |
28.2 |
|
|
$ |
|
|
|
NM |
Prime mortgage |
|
|
21.0 |
|
|
|
|
|
|
NM |
|
|
21.3 |
|
|
|
|
|
|
NM |
Subprime mortgage |
|
|
6.5 |
|
|
|
|
|
|
NM |
|
|
6.6 |
|
|
|
|
|
|
NM |
Option ARMs |
|
|
31.0 |
|
|
|
|
|
|
NM |
|
|
31.2 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total average loans |
|
$ |
86.5 |
|
|
$ |
|
|
|
NM |
|
$ |
87.3 |
|
|
$ |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total consumer lending portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
135.9 |
|
|
$ |
95.1 |
|
|
|
43 |
|
|
$ |
135.9 |
|
|
$ |
95.1 |
|
|
|
43 |
|
Prime mortgage |
|
|
82.9 |
|
|
|
40.1 |
|
|
|
107 |
|
|
|
82.9 |
|
|
|
40.1 |
|
|
|
107 |
|
Subprime mortgage |
|
|
20.2 |
|
|
|
14.8 |
|
|
|
36 |
|
|
|
20.2 |
|
|
|
14.8 |
|
|
|
36 |
|
Option ARMs |
|
|
39.5 |
|
|
|
|
|
|
NM |
|
|
39.5 |
|
|
|
|
|
|
NM |
Student loans |
|
|
15.6 |
|
|
|
13.0 |
|
|
|
20 |
|
|
|
15.6 |
|
|
|
13.0 |
|
|
|
20 |
|
Auto loans |
|
|
42.9 |
|
|
|
44.9 |
|
|
|
(4 |
) |
|
|
42.9 |
|
|
|
44.9 |
|
|
|
(4 |
) |
Other |
|
|
1.0 |
|
|
|
0.9 |
|
|
|
11 |
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
338.0 |
|
|
$ |
208.8 |
|
|
|
62 |
|
|
$ |
338.0 |
|
|
$ |
208.8 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
138.1 |
|
|
$ |
95.1 |
|
|
|
45 |
|
|
$ |
139.9 |
|
|
$ |
95.0 |
|
|
|
47 |
|
Prime mortgage |
|
|
84.3 |
|
|
|
39.3 |
|
|
|
115 |
|
|
|
85.7 |
|
|
|
37.7 |
|
|
|
127 |
|
Subprime mortgage |
|
|
20.8 |
|
|
|
15.5 |
|
|
|
34 |
|
|
|
21.2 |
|
|
|
15.6 |
|
|
|
36 |
|
Option ARMs |
|
|
40.1 |
|
|
|
|
|
|
NM |
|
|
40.2 |
|
|
|
|
|
|
NM |
Student loans |
|
|
16.7 |
|
|
|
12.7 |
|
|
|
31 |
|
|
|
16.8 |
|
|
|
12.4 |
|
|
|
35 |
|
Auto loans |
|
|
43.1 |
|
|
|
44.9 |
|
|
|
(4 |
) |
|
|
42.8 |
|
|
|
44.1 |
|
|
|
(3 |
) |
Other |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans owned(b) |
|
$ |
344.1 |
|
|
$ |
208.5 |
|
|
|
65 |
|
|
$ |
347.9 |
|
|
$ |
205.9 |
|
|
|
69 |
|
|
|
|
|
(a) |
|
Purchased credit-impaired loans accounted for under SOP 03-3 represent loans acquired in the
Washington Mutual transaction for which a deterioration in credit quality occurred between the
origination date and JPMorgan Chases acquisition date. Under SOP 03-3, these loans were
initially recorded at fair value and accrete interest income over the estimated life of the
loan when cash flows are reasonably estimable, even if the underlying loans are contractually
past due. |
|
(b) |
|
Total average loans owned include loans held-for-sale of $2.8 billion and $3.6 billion for
the quarters ended June 30, 2009 and 2008, respectively, and $2.9 billion and $4.0 billion for
year-to-date 2009 and 2008, respectively. |
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Net charge-offs excluding purchased
credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
1,265 |
|
|
$ |
511 |
|
|
|
148 |
% |
|
$ |
2,363 |
|
|
$ |
958 |
|
|
|
147 |
% |
Prime mortgage |
|
|
481 |
|
|
|
104 |
|
|
|
363 |
|
|
|
793 |
|
|
|
154 |
|
|
|
415 |
|
Subprime mortgage |
|
|
410 |
|
|
|
192 |
|
|
|
114 |
|
|
|
774 |
|
|
|
341 |
|
|
|
127 |
|
Option ARMs |
|
|
15 |
|
|
|
|
|
|
NM |
|
|
19 |
|
|
|
|
|
|
NM |
Auto loans |
|
|
146 |
|
|
|
119 |
|
|
|
23 |
|
|
|
320 |
|
|
|
237 |
|
|
|
35 |
|
Other |
|
|
121 |
|
|
|
38 |
|
|
|
218 |
|
|
|
170 |
|
|
|
50 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
2,438 |
|
|
$ |
964 |
|
|
|
153 |
|
|
$ |
4,439 |
|
|
$ |
1,740 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate excluding purchased
credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
4.61 |
% |
|
|
2.16 |
% |
|
|
|
|
|
|
4.27 |
% |
|
|
2.03 |
% |
|
|
|
|
Prime mortgage |
|
|
3.07 |
|
|
|
1.08 |
|
|
|
|
|
|
|
2.50 |
|
|
|
0.83 |
|
|
|
|
|
Subprime mortgage |
|
|
11.50 |
|
|
|
4.98 |
|
|
|
|
|
|
|
10.69 |
|
|
|
4.40 |
|
|
|
|
|
Option ARMs |
|
|
0.66 |
|
|
|
|
|
|
|
|
|
|
|
0.43 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.36 |
|
|
|
1.07 |
|
|
|
|
|
|
|
1.51 |
|
|
|
1.08 |
|
|
|
|
|
Other |
|
|
3.15 |
|
|
|
1.44 |
|
|
|
|
|
|
|
2.18 |
|
|
|
1.01 |
|
|
|
|
|
Total net charge-off rate excluding purchased
credit-impaired loans(b) |
|
|
3.84 |
|
|
|
1.89 |
|
|
|
|
|
|
|
3.47 |
|
|
|
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
3.67 |
% |
|
|
2.16 |
% |
|
|
|
|
|
|
3.41 |
% |
|
|
2.03 |
% |
|
|
|
|
Prime mortgage |
|
|
2.30 |
|
|
|
1.08 |
|
|
|
|
|
|
|
1.88 |
|
|
|
0.83 |
|
|
|
|
|
Subprime mortgage |
|
|
7.91 |
|
|
|
4.98 |
|
|
|
|
|
|
|
7.36 |
|
|
|
4.40 |
|
|
|
|
|
Option ARMs |
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.36 |
|
|
|
1.07 |
|
|
|
|
|
|
|
1.51 |
|
|
|
1.08 |
|
|
|
|
|
Other |
|
|
3.15 |
|
|
|
1.44 |
|
|
|
|
|
|
|
2.18 |
|
|
|
1.01 |
|
|
|
|
|
Total net charge-off rate reported(b) |
|
|
2.87 |
|
|
|
1.89 |
|
|
|
|
|
|
|
2.59 |
|
|
|
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate excluding purchased
credit-impaired loans(c)(d)(e) |
|
|
5.22 |
% |
|
|
3.88 |
% |
|
|
|
|
|
|
5.22 |
% |
|
|
3.88 |
% |
|
|
|
|
Nonperforming assets(f)(g) |
|
$ |
9,868 |
|
|
$ |
4,996 |
|
|
|
98 |
|
|
$ |
9,868 |
|
|
$ |
4,996 |
|
|
|
98 |
|
Allowance for loan losses to ending loans |
|
|
3.23 |
% |
|
|
2.33 |
% |
|
|
|
|
|
|
3.23 |
% |
|
|
2.33 |
% |
|
|
|
|
Allowance for loan losses to ending loans
excluding purchased credit-impaired
loans(a) |
|
|
4.34 |
|
|
|
2.33 |
|
|
|
|
|
|
|
4.34 |
|
|
|
2.33 |
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that
were acquired as part of the Washington Mutual transaction. These loans were accounted for at
fair value on the acquisition date, which incorporated managements estimate, as of that
date, of credit losses over the remaining life of the portfolio. No allowance for loan losses
and no charge-offs have been recorded for these loans. |
|
(b) |
|
Average loans held-for-sale of $2.8 billion and $3.6 billion for the quarters ended June 30,
2009 and 2008, respectively, and $2.9 billion and $4.0 billion for year-to-date 2009 and
2008, respectively, were excluded when calculating the net charge-off rate. |
|
(c) |
|
Excluded loans eligible for repurchase, as well as loans repurchased from GNMA pools that
are insured by U.S. government agencies, of $4.6 billion and $1.5 billion at June 30, 2009
and 2008, respectively. These amounts are excluded, as reimbursement is proceeding normally. |
|
(d) |
|
Excluded loans that are 30 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $854 million and $735
million at June 30, 2009 and 2008, respectively. These amounts are excluded, as reimbursement
is proceeding normally. |
|
(e) |
|
The delinquency rate for purchased credit-impaired loans accounted for under SOP 03-3 was
23.37% at June 30, 2009. There were no purchased credit-impaired loans at June 30, 2008. |
|
(f) |
|
Nonperforming assets excluded: (1) loans eligible for repurchase, as well as loans
repurchased from GNMA pools that are insured by U.S. government agencies, of $4.7 billion and
$1.9 billion at June 30, 2009 and 2008, respectively; and (2) student loans that are 90 days
past due and still accruing, which are insured by U.S. government agencies under the Federal
Family Education Loan Program, of $473 million and $394 million at June 30, 2009 and 2008,
respectively. These amounts for GNMA and student loans are excluded, as reimbursement is
proceeding normally. |
|
(g) |
|
Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as
part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and
the pools are considered to be performing under SOP 03-3. |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Lending (continued) |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in billions, except where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Origination volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
14.7 |
|
|
$ |
12.5 |
|
|
|
18 |
% |
|
$ |
28.3 |
|
|
$ |
25.1 |
|
|
|
13 |
% |
Wholesale |
|
|
2.4 |
|
|
|
9.1 |
|
|
|
(74 |
) |
|
|
5.0 |
|
|
|
19.7 |
|
|
|
(75 |
) |
Correspondent |
|
|
20.2 |
|
|
|
17.0 |
|
|
|
19 |
|
|
|
37.2 |
|
|
|
29.0 |
|
|
|
28 |
|
CNT (negotiated transactions) |
|
|
3.8 |
|
|
|
17.5 |
|
|
|
(78 |
) |
|
|
8.3 |
|
|
|
29.4 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total mortgage origination volume |
|
|
41.1 |
|
|
|
56.1 |
|
|
|
(27 |
) |
|
|
78.8 |
|
|
|
103.2 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
0.6 |
|
|
|
5.3 |
|
|
|
(89 |
) |
|
|
1.5 |
|
|
|
12.0 |
|
|
|
(88 |
) |
Student loans |
|
|
0.4 |
|
|
|
1.3 |
|
|
|
(69 |
) |
|
|
2.1 |
|
|
|
3.3 |
|
|
|
(36 |
) |
Auto loans |
|
|
5.3 |
|
|
|
5.6 |
|
|
|
(5 |
) |
|
|
10.9 |
|
|
|
12.8 |
|
|
|
(15 |
) |
Average mortgage loans held-for-sale and
loans at fair value(a) |
|
|
16.7 |
|
|
|
17.4 |
|
|
|
(4 |
) |
|
|
15.3 |
|
|
|
15.6 |
|
|
|
(2 |
) |
Average assets |
|
|
381.1 |
|
|
|
242.1 |
|
|
|
57 |
|
|
|
387.2 |
|
|
|
238.4 |
|
|
|
62 |
|
Third-party mortgage loans serviced (ending) |
|
|
1,117.5 |
|
|
|
659.1 |
|
|
|
70 |
|
|
|
1,117.5 |
|
|
|
659.1 |
|
|
|
70 |
|
MSR net carrying value (ending) |
|
|
14.6 |
|
|
|
10.9 |
|
|
|
34 |
|
|
|
14.6 |
|
|
|
10.9 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental mortgage fees and related
income details
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
284 |
|
|
$ |
394 |
|
|
|
(28 |
) |
|
$ |
765 |
|
|
$ |
770 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
1,279 |
|
|
|
645 |
|
|
|
98 |
|
|
|
2,501 |
|
|
|
1,238 |
|
|
|
102 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
3,831 |
|
|
|
1,519 |
|
|
|
152 |
|
|
|
5,141 |
|
|
|
887 |
|
|
|
480 |
|
Other changes in fair value |
|
|
(837 |
) |
|
|
(394 |
) |
|
|
(112 |
) |
|
|
(1,910 |
) |
|
|
(819 |
) |
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total changes in MSR asset fair value |
|
|
2,994 |
|
|
|
1,125 |
|
|
|
166 |
|
|
|
3,231 |
|
|
|
68 |
|
|
NM |
Derivative valuation adjustments and other |
|
|
(3,750 |
) |
|
|
(1,468 |
) |
|
|
(155 |
) |
|
|
(4,057 |
) |
|
|
(855 |
) |
|
|
(375 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
523 |
|
|
|
302 |
|
|
|
73 |
|
|
|
1,675 |
|
|
|
451 |
|
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage fees and related income |
|
|
807 |
|
|
|
696 |
|
|
|
16 |
|
|
|
2,440 |
|
|
|
1,221 |
|
|
|
100 |
|
|
|
|
|
(a) |
|
Loans at fair value consist of prime mortgages originated with the intent to sell that are
accounted for at fair value and classified as trading assets on the Consolidated Balance
Sheets. Average balances of these loans totaled $16.2 billion and $16.9 billion for the
quarters ended June 30, 2009 and 2008, respectively, and $14.9 billion and $15.2 billion for
year-to-date 2009 and 2008, respectively. |
31
CARD SERVICES
For a discussion of the business profile of CS, see pages 51-53 of JPMorgan Chases 2008 Annual
Report and page 5 of this Form 10-Q.
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance of its credit
card loans, both loans on the balance sheet and loans that have been securitized. For further
information, see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on
pages 1518 of this Form 10-Q. Managed results exclude the impact of credit card securitizations on
total net revenue, the provision for credit losses, net charge-offs and loan receivables.
Securitization does not change reported net income; however, it does affect the classification of
items on the Consolidated Statements of Income and Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data managed basis |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
921 |
|
|
$ |
673 |
|
|
|
37 |
% |
|
$ |
1,765 |
|
|
$ |
1,273 |
|
|
|
39 |
% |
All other income |
|
|
(364 |
) |
|
|
91 |
|
|
NM |
|
|
(561 |
) |
|
|
210 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
557 |
|
|
|
764 |
|
|
|
(27 |
) |
|
|
1,204 |
|
|
|
1,483 |
|
|
|
(19 |
) |
Net interest income |
|
|
4,311 |
|
|
|
3,011 |
|
|
|
43 |
|
|
|
8,793 |
|
|
|
6,196 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,868 |
|
|
|
3,775 |
|
|
|
29 |
|
|
|
9,997 |
|
|
|
7,679 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
4,603 |
|
|
|
2,194 |
|
|
|
110 |
|
|
|
9,256 |
|
|
|
3,864 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
329 |
|
|
|
258 |
|
|
|
28 |
|
|
|
686 |
|
|
|
525 |
|
|
|
31 |
|
Noncompensation expense |
|
|
873 |
|
|
|
763 |
|
|
|
14 |
|
|
|
1,723 |
|
|
|
1,604 |
|
|
|
7 |
|
Amortization of intangibles |
|
|
131 |
|
|
|
164 |
|
|
|
(20 |
) |
|
|
270 |
|
|
|
328 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,333 |
|
|
|
1,185 |
|
|
|
12 |
|
|
|
2,679 |
|
|
|
2,457 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(1,068 |
) |
|
|
396 |
|
|
NM |
|
|
(1,938 |
) |
|
|
1,358 |
|
|
NM |
Income tax expense (benefit) |
|
|
(396 |
) |
|
|
146 |
|
|
NM |
|
|
(719 |
) |
|
|
499 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(672 |
) |
|
$ |
250 |
|
|
NM |
|
$ |
(1,219 |
) |
|
$ |
859 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization income (loss) |
|
$ |
(268 |
) |
|
$ |
36 |
|
|
NM |
|
$ |
(448 |
) |
|
$ |
106 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
(18 |
)% |
|
|
7 |
% |
|
|
|
|
|
|
(16 |
)% |
|
|
12 |
% |
|
|
|
|
Overhead ratio |
|
|
27 |
|
|
|
31 |
|
|
|
|
|
|
|
27 |
|
|
|
32 |
|
|
|
|
|
|
Quarterly results
Net loss was $672 million, a decline of $922 million from the prior year. The decrease was driven
by a higher provision for credit losses, partially offset by higher net revenue.
End-of-period managed loans were $171.5 billion, an increase of $16.1 billion, or 10%, from the
prior year. Average managed loans were $174.1 billion, an increase of $21.3 billion, or 14%, from
the prior year. The increases from the prior year in both end-of-period and average managed loans
were predominantly due to the impact of the Washington Mutual transaction, partially offset by
lower charge volume and a higher level of charge-offs. Excluding the impact of the Washington
Mutual transaction, end-of-period and average managed loans were $148.4 billion and $149.7 billion,
respectively.
Managed net revenue was $4.9 billion, an increase of $1.1 billion, or 29%, from the prior year. Net
interest income was $4.3 billion, up by $1.3 billion, or 43%, from the prior year, driven by the
impact of the Washington Mutual transaction and wider loan spreads. These benefits were offset
partially by higher revenue reversals associated with higher charge-offs and a decreased level of
fees. Noninterest revenue was $557 million, a decrease of $207 million, or 27%, from the prior
year. The decline was driven by an increase in the credit enhancement for securitization trusts
combined with lower securitization income, partially offset by higher merchant servicing revenue
related to the dissolution of the Chase Paymentech Solutions joint venture.
The managed provision for credit losses was $4.6 billion, an increase of $2.4 billion from the
prior year, reflecting a higher level of charge-offs due to continued deterioration in the credit
environment. The managed net charge-off rate for the quarter was 10.03%, up from 4.98% in the prior
year. The 30-day managed delinquency rate was 5.86%, up from 3.46% in the prior year. Excluding
Washington Mutual, the managed net charge-off rate for the second quarter was 8.97% and the 30-day
delinquency rate was 5.27%.
32
Noninterest expense was $1.3 billion, an increase of $148 million, or 12%, from the prior year, due
to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington
Mutual transaction.
Year-to-date results
Net loss was $1.2 billion, a decline of $2.1 billion 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 $178.7 billion, an increase of $25.5 billion, or 17%, from the prior
year. The increase from the prior year was predominantly due to the impact of the Washington Mutual
transaction. Excluding the impact of the Washington Mutual transaction, average managed loans were
$152.7 billion.
Managed net revenue was $10.0 billion, an increase of $2.3 billion, or 30%, from the prior year.
Net interest income was $8.8 billion, up by $2.6 billion, or 42%, from the prior year, driven by
the impact of the Washington Mutual transaction and wider loan spreads. These benefits were offset
partially by higher revenue reversals associated with higher charge-offs and a decreased level of
fees. Noninterest revenue was $1.2 billion, a decrease of $279 million, or 19%, from the prior
year. The decline was driven by lower securitization income combined with an increase in the credit
enhancement for securitization trusts, partially offset by higher merchant servicing revenue
related to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the
Washington Mutual transaction.
The managed provision for credit losses was $9.3 billion, an increase of $5.4 billion from the
prior year. The provision reflected a higher level of charge-offs, due to continued deterioration
in the credit environment, and an increase of $1.1 billion in the allowance for loan losses. The
managed net charge-off rate was 8.85%, up from 4.68% in the prior year. Excluding Washington
Mutual, the managed net charge-off rate was 7.90%.
Noninterest expense was $2.7 billion, an increase of $222 million, or 9%, from the prior year, due
to the impact of the Washington Mutual transaction and the dissolution of the Chase Paymentech
Solutions joint venture, partially offset by lower marketing expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount, ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9.93 |
% |
|
|
7.92 |
% |
|
|
|
|
|
|
9.92 |
% |
|
|
8.13 |
% |
|
|
|
|
Provision for credit losses |
|
|
10.60 |
|
|
|
5.77 |
|
|
|
|
|
|
|
10.44 |
|
|
|
5.07 |
|
|
|
|
|
Noninterest revenue |
|
|
1.28 |
|
|
|
2.01 |
|
|
|
|
|
|
|
1.36 |
|
|
|
1.95 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
0.61 |
|
|
|
4.16 |
|
|
|
|
|
|
|
0.84 |
|
|
|
5.01 |
|
|
|
|
|
Noninterest expense |
|
|
3.07 |
|
|
|
3.12 |
|
|
|
|
|
|
|
3.02 |
|
|
|
3.23 |
|
|
|
|
|
Pretax income (loss) (ROO)(b) |
|
|
(2.46 |
) |
|
|
1.04 |
|
|
|
|
|
|
|
(2.19 |
) |
|
|
1.78 |
|
|
|
|
|
Net income (loss) |
|
|
(1.55 |
) |
|
|
0.66 |
|
|
|
|
|
|
|
(1.38 |
) |
|
|
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
82.8 |
|
|
$ |
93.6 |
|
|
|
(12 |
)% |
|
$ |
158.8 |
|
|
$ |
179.0 |
|
|
|
(11 |
)% |
Net accounts opened (in millions) |
|
|
2.4 |
|
|
|
3.6 |
|
|
|
(33 |
) |
|
|
4.6 |
|
|
|
7.0 |
|
|
|
(34 |
) |
Credit cards issued (in millions) |
|
|
151.9 |
|
|
|
157.6 |
|
|
|
(4 |
) |
|
|
151.9 |
|
|
|
157.6 |
|
|
|
(4 |
) |
Number of registered internet customers
(in millions) |
|
|
30.5 |
|
|
|
28.0 |
|
|
|
9 |
|
|
|
30.5 |
|
|
|
28.0 |
|
|
|
9 |
|
Merchant acquiring business(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
101.4 |
|
|
$ |
199.3 |
|
|
|
(49 |
) |
|
$ |
195.8 |
|
|
$ |
381.7 |
|
|
|
(49 |
) |
Total transactions (in billions) |
|
|
4.5 |
|
|
|
5.6 |
|
|
|
(20 |
) |
|
|
8.6 |
|
|
|
10.8 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
85,736 |
|
|
$ |
76,278 |
|
|
|
12 |
|
|
$ |
85,736 |
|
|
$ |
76,278 |
|
|
|
12 |
|
Securitized loans |
|
|
85,790 |
|
|
|
79,120 |
|
|
|
8 |
|
|
|
85,790 |
|
|
|
79,120 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
171,526 |
|
|
$ |
155,398 |
|
|
|
10 |
|
|
$ |
171,526 |
|
|
$ |
155,398 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
193,310 |
|
|
$ |
161,601 |
|
|
|
20 |
|
|
$ |
197,234 |
|
|
$ |
160,601 |
|
|
|
23 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
89,692 |
|
|
$ |
75,630 |
|
|
|
19 |
|
|
$ |
93,715 |
|
|
$ |
77,537 |
|
|
|
21 |
|
Securitized loans |
|
|
84,417 |
|
|
|
77,195 |
|
|
|
9 |
|
|
|
85,015 |
|
|
|
75,652 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average loans |
|
$ |
174,109 |
|
|
$ |
152,825 |
|
|
|
14 |
|
|
$ |
178,730 |
|
|
$ |
153,189 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
Headcount |
|
|
22,897 |
|
|
|
19,570 |
|
|
|
17 |
|
|
|
22,897 |
|
|
|
19,570 |
|
|
|
17 |
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
4,353 |
|
|
$ |
1,894 |
|
|
|
130 |
% |
|
$ |
7,846 |
|
|
$ |
3,564 |
|
|
|
120 |
% |
Net charge-off rate(d) |
|
|
10.03 |
% |
|
|
4.98 |
% |
|
|
|
|
|
|
8.85 |
% |
|
|
4.68 |
% |
|
|
|
|
Managed delinquency rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day(d) |
|
|
5.86 |
% |
|
|
3.46 |
% |
|
|
|
|
|
|
5.86 |
% |
|
|
3.46 |
% |
|
|
|
|
90+ day(d) |
|
|
3.25 |
|
|
|
1.76 |
|
|
|
|
|
|
|
3.25 |
|
|
|
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(e) |
|
$ |
8,839 |
|
|
$ |
3,705 |
|
|
|
139 |
|
|
$ |
8,839 |
|
|
$ |
3,705 |
|
|
|
139 |
|
Allowance for loan losses to period-end loans(e)(f) |
|
|
10.31 |
% |
|
|
4.86 |
% |
|
|
|
|
|
|
10.31 |
% |
|
|
4.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats Washington Mutual only(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
23,093 |
|
|
|
|
|
|
|
|
|
|
$ |
23,093 |
|
|
|
|
|
|
|
|
|
Managed average loans |
|
|
24,418 |
|
|
|
|
|
|
|
|
|
|
|
25,990 |
|
|
|
|
|
|
|
|
|
Net interest income(h) |
|
|
17.90 |
% |
|
|
|
|
|
|
|
|
|
|
17.14 |
% |
|
|
|
|
|
|
|
|
Risk adjusted margin(a)(h) |
|
|
(3.89 |
) |
|
|
|
|
|
|
|
|
|
|
0.49 |
|
|
|
|
|
|
|
|
|
Net charge-off rate(i) |
|
|
19.17 |
|
|
|
|
|
|
|
|
|
|
|
16.75 |
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(i) |
|
|
11.98 |
|
|
|
|
|
|
|
|
|
|
|
11.98 |
|
|
|
|
|
|
|
|
|
90+ day delinquency rate(i) |
|
|
6.85 |
|
|
|
|
|
|
|
|
|
|
|
6.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats excluding Washington Mutual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
148,433 |
|
|
$ |
155,398 |
|
|
|
(4 |
) |
|
$ |
148,433 |
|
|
$ |
155,398 |
|
|
|
(4 |
) |
Managed average loans |
|
|
149,691 |
|
|
|
152,825 |
|
|
|
(2 |
) |
|
|
152,740 |
|
|
|
153,189 |
|
|
|
|
|
Net interest income(h) |
|
|
8.63 |
% |
|
|
7.92 |
% |
|
|
|
|
|
|
8.69 |
% |
|
|
8.13 |
% |
|
|
|
|
Risk adjusted margin(a)(h) |
|
|
1.34 |
|
|
|
4.16 |
|
|
|
|
|
|
|
0.89 |
|
|
|
5.01 |
|
|
|
|
|
Net charge-off rate |
|
|
8.97 |
|
|
|
4.98 |
|
|
|
|
|
|
|
7.90 |
|
|
|
4.68 |
|
|
|
|
|
30+ day delinquency rate |
|
|
5.27 |
|
|
|
3.46 |
|
|
|
|
|
|
|
5.27 |
|
|
|
3.46 |
|
|
|
|
|
90+ day delinquency rate |
|
|
2.90 |
|
|
|
1.76 |
|
|
|
|
|
|
|
2.90 |
|
|
|
1.76 |
|
|
|
|
|
|
|
|
|
(a) |
|
Represents total net revenue less provision for credit losses. |
|
(b) |
|
Pretax return on average managed outstandings. |
|
(c) |
|
The Chase Paymentech Solutions joint venture was dissolved effective November 1, 2008.
JPMorgan Chase retained approximately 51% of the business and operates the business under the
name Chase Paymentech Solutions. For the three and six months ended June 30, 2008, the data
presented represents activity for the Chase Paymentech Solutions joint venture, and for the
three and six months ended June 30, 2009, the data presented represents activity for Chase
Paymentech Solutions. |
|
(d) |
|
Results for 2009 reflect the impact of purchase accounting adjustments related to the
Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust. |
|
(e) |
|
Based on loans on balance sheets (reported basis). |
|
(f) |
|
Includes $5.0 billion of loans at June 30, 2009, from the Washington Mutual Master Trust,
which were consolidated onto the Card Services balance sheet at fair value during the second
quarter of 2009. No allowance for loan losses was recorded for these loans as of June 30,
2009. Excluding these loans, the allowance for loan losses to period-end loans was 10.95%. |
|
(g) |
|
Statistics are only presented for periods after September 25, 2008, the date of the
Washington Mutual transaction. |
|
(h) |
|
As a percentage of average managed outstandings. |
|
(i) |
|
Excludes the impact of purchase accounting adjustments related to the Washington Mutual
transaction and the consolidation of the Washington Mutual Master Trust. |
34
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to
disclose the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,215 |
|
|
$ |
1,516 |
|
|
|
(20 |
)% |
|
$ |
2,599 |
|
|
$ |
3,053 |
|
|
|
(15 |
)% |
Securitization adjustments |
|
|
(294 |
) |
|
|
(843 |
) |
|
|
65 |
|
|
|
(834 |
) |
|
|
(1,780 |
) |
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
921 |
|
|
$ |
673 |
|
|
|
37 |
|
|
$ |
1,765 |
|
|
$ |
1,273 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,353 |
|
|
$ |
1,338 |
|
|
|
76 |
|
|
$ |
4,831 |
|
|
$ |
2,905 |
|
|
|
66 |
|
Securitization adjustments |
|
|
1,958 |
|
|
|
1,673 |
|
|
|
17 |
|
|
|
3,962 |
|
|
|
3,291 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
4,311 |
|
|
$ |
3,011 |
|
|
|
43 |
|
|
$ |
8,793 |
|
|
$ |
6,196 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,204 |
|
|
$ |
2,945 |
|
|
|
9 |
|
|
$ |
6,869 |
|
|
$ |
6,168 |
|
|
|
11 |
|
Securitization adjustments |
|
|
1,664 |
|
|
|
830 |
|
|
|
100 |
|
|
|
3,128 |
|
|
|
1,511 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
4,868 |
|
|
$ |
3,775 |
|
|
|
29 |
|
|
$ |
9,997 |
|
|
$ |
7,679 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,939 |
|
|
$ |
1,364 |
|
|
|
115 |
|
|
$ |
6,128 |
|
|
$ |
2,353 |
|
|
|
160 |
|
Securitization adjustments |
|
|
1,664 |
|
|
|
830 |
|
|
|
100 |
|
|
|
3,128 |
|
|
|
1,511 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit losses |
|
$ |
4,603 |
|
|
$ |
2,194 |
|
|
|
110 |
|
|
$ |
9,256 |
|
|
$ |
3,864 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
111,722 |
|
|
$ |
87,021 |
|
|
|
28 |
|
|
$ |
115,052 |
|
|
$ |
87,517 |
|
|
|
31 |
|
Securitization adjustments |
|
|
81,588 |
|
|
|
74,580 |
|
|
|
9 |
|
|
|
82,182 |
|
|
|
73,084 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
193,310 |
|
|
$ |
161,601 |
|
|
|
20 |
|
|
$ |
197,234 |
|
|
$ |
160,601 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,689 |
|
|
$ |
1,064 |
|
|
|
153 |
|
|
$ |
4,718 |
|
|
$ |
2,053 |
|
|
|
130 |
|
Securitization adjustments |
|
|
1,664 |
|
|
|
830 |
|
|
|
100 |
|
|
|
3,128 |
|
|
|
1,511 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
4,353 |
|
|
$ |
1,894 |
|
|
|
130 |
|
|
$ |
7,846 |
|
|
$ |
3,564 |
|
|
|
120 |
|
|
|
|
|
(a) |
|
JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and
overall performance of the underlying credit card loans, both sold and not sold; as the same
borrower is continuing to use the credit card for ongoing charges, a borrowers credit
performance will affect both the receivables sold under SFAS 140 and those not sold. Thus,
in its disclosures regarding managed receivables, JPMorgan Chase treats the sold receivables
as if they were still on the balance sheet in order to disclose the credit performance (such
as net charge-off rates) of the entire managed credit card portfolio. Managed results
exclude the impact of credit card securitizations on total net revenue, the provision for
credit losses, net charge-offs and loan receivables. Securitization does not change reported
net income versus managed earnings; however, it does affect the classification of items on
the Consolidated Statements of Income and Consolidated Balance Sheets. For further
information, see Explanation and Reconciliation of the Firms Use of Non-GAAP Financial
Measures on pages 1518 of this Form 10-Q. |
35
COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 5455 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & depositrelated fees |
|
$ |
270 |
|
|
$ |
207 |
|
|
|
30 |
% |
|
$ |
533 |
|
|
$ |
400 |
|
|
|
33 |
% |
Asset management, administration and
commissions |
|
|
36 |
|
|
|
26 |
|
|
|
38 |
|
|
|
70 |
|
|
|
52 |
|
|
|
35 |
|
All other income(a) |
|
|
152 |
|
|
|
150 |
|
|
|
1 |
|
|
|
277 |
|
|
|
265 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
458 |
|
|
|
383 |
|
|
|
20 |
|
|
|
880 |
|
|
|
717 |
|
|
|
23 |
|
Net interest income |
|
|
995 |
|
|
|
723 |
|
|
|
38 |
|
|
|
1,975 |
|
|
|
1,456 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,453 |
|
|
|
1,106 |
|
|
|
31 |
|
|
|
2,855 |
|
|
|
2,173 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
312 |
|
|
|
47 |
|
|
NM |
|
|
605 |
|
|
|
148 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
197 |
|
|
|
173 |
|
|
|
14 |
|
|
|
397 |
|
|
|
351 |
|
|
|
13 |
|
Noncompensation expense |
|
|
327 |
|
|
|
290 |
|
|
|
13 |
|
|
|
669 |
|
|
|
584 |
|
|
|
15 |
|
Amortization of intangibles |
|
|
11 |
|
|
|
13 |
|
|
|
(15 |
) |
|
|
22 |
|
|
|
26 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
535 |
|
|
|
476 |
|
|
|
12 |
|
|
|
1,088 |
|
|
|
961 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
606 |
|
|
|
583 |
|
|
|
4 |
|
|
|
1,162 |
|
|
|
1,064 |
|
|
|
9 |
|
Income tax expense |
|
|
238 |
|
|
|
228 |
|
|
|
4 |
|
|
|
456 |
|
|
|
417 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
368 |
|
|
$ |
355 |
|
|
|
4 |
|
|
$ |
706 |
|
|
$ |
647 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
684 |
|
|
$ |
376 |
|
|
|
82 |
|
|
$ |
1,349 |
|
|
$ |
755 |
|
|
|
79 |
|
Treasury services |
|
|
679 |
|
|
|
630 |
|
|
|
8 |
|
|
|
1,325 |
|
|
|
1,246 |
|
|
|
6 |
|
Investment banking |
|
|
114 |
|
|
|
91 |
|
|
|
25 |
|
|
|
187 |
|
|
|
159 |
|
|
|
18 |
|
Other |
|
|
(24 |
) |
|
|
9 |
|
|
NM |
|
|
(6 |
) |
|
|
13 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,453 |
|
|
$ |
1,106 |
|
|
|
31 |
|
|
$ |
2,855 |
|
|
$ |
2,173 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenue, gross(b) |
|
$ |
328 |
|
|
$ |
270 |
|
|
|
21 |
|
|
$ |
534 |
|
|
$ |
473 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
772 |
|
|
$ |
708 |
|
|
|
9 |
|
|
$ |
1,524 |
|
|
$ |
1,414 |
|
|
|
8 |
|
Commercial Term Lending(c) |
|
|
224 |
|
|
|
|
|
|
NM |
|
|
452 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
305 |
|
|
|
235 |
|
|
|
30 |
|
|
|
547 |
|
|
|
442 |
|
|
|
24 |
|
Real Estate Banking(c) |
|
|
120 |
|
|
|
94 |
|
|
|
28 |
|
|
|
240 |
|
|
|
191 |
|
|
|
26 |
|
Other(c) |
|
|
32 |
|
|
|
69 |
|
|
|
(54 |
) |
|
|
92 |
|
|
|
126 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,453 |
|
|
$ |
1,106 |
|
|
|
31 |
|
|
$ |
2,855 |
|
|
$ |
2,173 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
18 |
% |
|
|
20 |
% |
|
|
|
|
|
|
18 |
% |
|
|
19 |
% |
|
|
|
|
Overhead ratio |
|
|
37 |
|
|
|
43 |
|
|
|
|
|
|
|
38 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
(a) |
|
Revenue from investment banking products sold to CB clients and commercial card revenue is
included in all other income. |
|
(b) |
|
Represents the total revenue related to investment banking products sold to CB clients. |
|
(c) |
|
Results for 2009 include total net revenue on net assets acquired in the Washington Mutual
transaction. |
36
Quarterly results
Net income was $368 million, an increase of $13 million, or 4%, from the prior year. Higher net
revenue, reflecting the impact of the Washington Mutual transaction, was predominantly offset by a
higher provision for credit losses and higher noninterest expense.
Net revenue was $1.5 billion, an increase of $347 million, or 31%, from the prior year. Net
interest income was $995 million, up by $272 million, or 38%, driven by the impact of the
Washington Mutual transaction. Excluding Washington Mutual, net interest income was flat compared
with the prior year, as wider loan spreads, a shift to higher-spread liability products and overall
growth in liability balances were offset predominantly by spread compression on liability products
and lower loan balances. Noninterest revenue was $458 million, an increase of $75 million, or 20%,
reflecting the second straight quarter of record levels of lending- and deposit-related fees.
Revenue from Middle Market Banking was $772 million, an increase of $64 million, or 9%, from the
prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington
Mutual transaction) was $224 million. Record revenue from Mid-Corporate Banking was $305 million,
an increase of $70 million, or 30%, from the prior year. Revenue from Real Estate Banking was $120
million, an increase of $26 million, or 28%, from the prior year, due to the impact of the
Washington Mutual transaction.
The provision for credit losses was $312 million, compared with $47 million in the prior year,
reflecting continued deterioration in the credit environment. The allowance for loan losses to
end-of-period loans retained was 2.87%, up from 2.59% in the prior year. Nonperforming loans were
$2.1 billion, up by $1.6 billion from the prior year, reflecting the impact of the Washington
Mutual transaction and higher levels of such loans in each business segment. Net charge-offs were
$181 million (0.67% net charge-off rate), compared with $49 million (0.28% net charge-off rate) in
the prior year.
Noninterest expense was $535 million, an increase of $59 million, or 12%, from the prior year, due
to the impact of the Washington Mutual transaction and higher FDIC insurance premiums offset
partially by lower headcount-related expense.
Year-to-date results
Net income was $706 million, an increase of $59 million, or 9%, from the prior year, as higher net
revenue, reflecting the impact of the Washington Mutual transaction, was predominantly offset by a
higher provision for credit losses and higher noninterest expense.
Net revenue was $2.9 billion, an increase of $682 million, or 31%, from the prior year. Net
interest income of $2.0 billion increased by $519 million, or 36%, driven by the impact of the
Washington Mutual transaction. Noninterest revenue was $880 million, an increase of $163 million,
or 23%, from the prior year, reflecting the second straight quarter of record lending- and
deposit-related fees and higher investment banking fees.
Revenue from Middle Market Banking was $1.5 billion, an increase of $110 million, or 8%, from the
prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington
Mutual transaction) was $452 million. Mid-Corporate Banking revenue was $547 million, an increase
of $105 million, or 24%. Real Estate Banking revenue was $240 million, an increase of $49 million,
or 26%, due to the impact of the Washington Mutual transaction.
The provision for credit losses was $605 million, compared with $148 million in the prior year,
reflecting deterioration in the credit environment. The allowance for loan losses to end-of-period
loans retained was 2.87%, up from 2.59% in the prior year. Nonperforming loans were $2.1 billion,
an increase of $1.6 billion from the prior year reflecting the impact of the Washington Mutual
transaction and continuing credit deterioration across all business segments. Net charge-offs were
$315 million (0.57% net charge-off rate), compared with $130 million (0.38% net charge-off rate) in
the prior year.
Noninterest expense was $1.1 billion, an increase of $127 million, or 13%, from the prior year, due
to the impact of the Washington Mutual transaction and higher FDIC insurance premiums, offset
partially by lower headcount-related expense.
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data (period-end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
$ |
105,556 |
|
|
$ |
71,105 |
|
|
|
48 |
% |
|
$ |
105,556 |
|
|
$ |
71,105 |
|
|
|
48 |
% |
Loans held-for-sale and loans at
fair value |
|
|
296 |
|
|
|
306 |
|
|
|
(3 |
) |
|
|
296 |
|
|
|
306 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
105,852 |
|
|
|
71,411 |
|
|
|
48 |
|
|
|
105,852 |
|
|
|
71,411 |
|
|
|
48 |
|
Equity |
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data
(average): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
137,283 |
|
|
$ |
103,469 |
|
|
|
33 |
|
|
$ |
140,771 |
|
|
$ |
102,724 |
|
|
|
37 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
108,750 |
|
|
|
70,682 |
|
|
|
54 |
|
|
|
111,146 |
|
|
|
69,096 |
|
|
|
61 |
|
Loans held-for-sale and loans at
fair value |
|
|
288 |
|
|
|
379 |
|
|
|
(24 |
) |
|
|
292 |
|
|
|
450 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
109,038 |
|
|
|
71,061 |
|
|
|
53 |
|
|
|
111,438 |
|
|
|
69,546 |
|
|
|
60 |
|
Liability balances(a) |
|
|
105,829 |
|
|
|
99,404 |
|
|
|
6 |
|
|
|
110,377 |
|
|
|
99,441 |
|
|
|
11 |
|
Equity |
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
38,193 |
|
|
$ |
42,879 |
|
|
|
(11 |
) |
|
$ |
39,453 |
|
|
$ |
41,495 |
|
|
|
(5 |
) |
Commercial Term Lending(b) |
|
|
36,963 |
|
|
|
|
|
|
NM |
|
|
36,889 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
17,012 |
|
|
|
15,357 |
|
|
|
11 |
|
|
|
17,710 |
|
|
|
15,253 |
|
|
|
16 |
|
Real Estate Banking(b) |
|
|
12,347 |
|
|
|
7,500 |
|
|
|
65 |
|
|
|
12,803 |
|
|
|
7,479 |
|
|
|
71 |
|
Other(b) |
|
|
4,523 |
|
|
|
5,325 |
|
|
|
(15 |
) |
|
|
4,583 |
|
|
|
5,319 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
109,038 |
|
|
$ |
71,061 |
|
|
|
53 |
|
|
$ |
111,438 |
|
|
$ |
69,546 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,228 |
|
|
|
4,028 |
|
|
|
5 |
|
|
|
4,228 |
|
|
|
4,028 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
181 |
|
|
$ |
49 |
|
|
|
269 |
|
|
$ |
315 |
|
|
$ |
130 |
|
|
|
142 |
|
Nonperforming loans(c) |
|
|
2,111 |
|
|
|
486 |
|
|
|
334 |
|
|
|
2,111 |
|
|
|
486 |
|
|
|
334 |
|
Nonperforming assets |
|
|
2,255 |
|
|
|
510 |
|
|
|
342 |
|
|
|
2,255 |
|
|
|
510 |
|
|
|
342 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
3,034 |
|
|
|
1,843 |
|
|
|
65 |
|
|
|
3,034 |
|
|
|
1,843 |
|
|
|
65 |
|
Allowance for lending-related
commitments |
|
|
272 |
|
|
|
170 |
|
|
|
60 |
|
|
|
272 |
|
|
|
170 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
3,306 |
|
|
|
2,013 |
|
|
|
64 |
|
|
|
3,306 |
|
|
|
2,013 |
|
|
|
64 |
|
Net charge-off rate(d) |
|
|
0.67 |
% |
|
|
0.28 |
% |
|
|
|
|
|
|
0.57 |
% |
|
|
0.38 |
% |
|
|
|
|
Allowance for loan losses to
period-end loans(d) |
|
|
2.87 |
|
|
|
2.59 |
|
|
|
|
|
|
|
2.87 |
|
|
|
2.59 |
|
|
|
|
|
Allowance for loan losses to average
loans(d) |
|
|
2.79 |
|
|
|
2.61 |
|
|
|
|
|
|
|
2.73 |
|
|
|
2.67 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(c) |
|
|
145 |
|
|
|
401 |
|
|
|
|
|
|
|
145 |
|
|
|
401 |
|
|
|
|
|
Nonperforming loans to period-end
loans |
|
|
1.99 |
|
|
|
0.68 |
|
|
|
|
|
|
|
1.99 |
|
|
|
0.68 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
1.94 |
|
|
|
0.68 |
|
|
|
|
|
|
|
1.89 |
|
|
|
0.70 |
|
|
|
|
|
|
|
|
|
(a) |
|
Liability balances include deposits and deposits swept to on-balance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
|
(b) |
|
Results for 2009 include loans acquired in the Washington Mutual transaction. |
|
(c) |
|
Nonperforming loans included loans held-for-sale and loans at fair value of $21 million and
$26 million at June 30, 2009 and 2008, respectively. These amounts are excluded when
calculating the allowance for loan losses to nonperforming loans ratio. Allowance for loan
losses of $460 million and $85 million were held against nonperforming loans at June 30, 2009
and 2008, respectively. |
|
(d) |
|
Loans held-for-sale and loans accounted for at fair value were excluded when calculating the
allowance coverage ratios and the net charge-off rate. |
38
TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 5657 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit-related fees |
|
$ |
314 |
|
|
$ |
283 |
|
|
|
11 |
% |
|
$ |
639 |
|
|
$ |
552 |
|
|
|
16 |
% |
Asset management, administration and
commissions |
|
|
710 |
|
|
|
846 |
|
|
|
(16 |
) |
|
|
1,336 |
|
|
|
1,666 |
|
|
|
(20 |
) |
All other income |
|
|
221 |
|
|
|
228 |
|
|
|
(3 |
) |
|
|
418 |
|
|
|
428 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,245 |
|
|
|
1,357 |
|
|
|
(8 |
) |
|
|
2,393 |
|
|
|
2,646 |
|
|
|
(10 |
) |
Net interest income |
|
|
655 |
|
|
|
662 |
|
|
|
(1 |
) |
|
|
1,328 |
|
|
|
1,286 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,900 |
|
|
|
2,019 |
|
|
|
(6 |
) |
|
|
3,721 |
|
|
|
3,932 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(5 |
) |
|
|
7 |
|
|
NM |
|
|
(11 |
) |
|
|
19 |
|
|
NM |
Credit reimbursement to IB(a) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
618 |
|
|
|
669 |
|
|
|
(8 |
) |
|
|
1,247 |
|
|
|
1,310 |
|
|
|
(5 |
) |
Noncompensation expense |
|
|
650 |
|
|
|
632 |
|
|
|
3 |
|
|
|
1,321 |
|
|
|
1,203 |
|
|
|
10 |
|
Amortization of intangibles |
|
|
20 |
|
|
|
16 |
|
|
|
25 |
|
|
|
39 |
|
|
|
32 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,288 |
|
|
|
1,317 |
|
|
|
(2 |
) |
|
|
2,607 |
|
|
|
2,545 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
587 |
|
|
|
665 |
|
|
|
(12 |
) |
|
|
1,065 |
|
|
|
1,308 |
|
|
|
(19 |
) |
Income tax expense |
|
|
208 |
|
|
|
240 |
|
|
|
(13 |
) |
|
|
378 |
|
|
|
480 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
379 |
|
|
$ |
425 |
|
|
|
(11 |
) |
|
$ |
687 |
|
|
$ |
828 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services(b) |
|
$ |
934 |
|
|
$ |
905 |
|
|
|
3 |
|
|
$ |
1,865 |
|
|
$ |
1,765 |
|
|
|
6 |
|
Worldwide Securities Services(b) |
|
|
966 |
|
|
|
1,114 |
|
|
|
(13 |
) |
|
|
1,856 |
|
|
|
2,167 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,900 |
|
|
$ |
2,019 |
|
|
|
(6 |
) |
|
$ |
3,721 |
|
|
$ |
3,932 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
30 |
% |
|
|
49 |
% |
|
|
|
|
|
|
28 |
% |
|
|
48 |
% |
|
|
|
|
Overhead ratio |
|
|
68 |
|
|
|
65 |
|
|
|
|
|
|
|
70 |
|
|
|
65 |
|
|
|
|
|
Pretax margin ratio(c) |
|
|
31 |
|
|
|
33 |
|
|
|
|
|
|
|
29 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
17,929 |
|
|
$ |
26,348 |
|
|
|
(32 |
) |
|
$ |
17,929 |
|
|
$ |
26,348 |
|
|
|
(32 |
) |
Equity |
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
35,520 |
|
|
$ |
56,192 |
|
|
|
(37 |
) |
|
$ |
37,092 |
|
|
$ |
56,698 |
|
|
|
(35 |
) |
Loans(d) |
|
|
17,524 |
|
|
|
23,822 |
|
|
|
(26 |
) |
|
|
18,825 |
|
|
|
23,454 |
|
|
|
(20 |
) |
Liability balances(e) |
|
|
234,163 |
|
|
|
268,293 |
|
|
|
(13 |
) |
|
|
255,208 |
|
|
|
261,331 |
|
|
|
(2 |
) |
Equity |
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
27,252 |
|
|
|
27,232 |
|
|
|
|
|
|
|
27,252 |
|
|
|
27,232 |
|
|
|
|
|
|
|
|
|
(a) |
|
The Investment Bank credit portfolio group manages certain exposures on behalf of clients
shared with TSS. TSS reimburses IB for a portion of the total cost of managing the credit
portfolio. IB recognizes this credit reimbursement as a component of noninterest revenue. |
|
(b) |
|
Reflects an internal reorganization for escrow products from Worldwide Securities Services to
Treasury Services revenue of $46 million and $52 million for the three months ended June 30,
2009 and 2008, respectively, and $91 million and $99 million for the six months ended June 30,
2009 and 2008, respectively. |
|
(c) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
|
(d) |
|
Loan balances include wholesale overdrafts, commercial card and trade finance loans. |
|
(e) |
|
Liability balances include deposits and deposits swept to onbalance sheet liabilities such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
39
Quarterly results
Net income was $379 million, a decrease of $46 million, or 11%, from the prior year, driven by
lower net revenue offset partially by lower noninterest expense.
Net revenue was $1.9 billion, a decrease of $119 million, or 6%, from the prior year. Worldwide
Securities Services net revenue was $966 million, a decrease of $148 million, or 13%, from the
prior year. The decrease was driven by the effect of market depreciation on assets under custody
and lower securities lending balances, primarily as a result of declines in asset valuations and
demand. Treasury Services net revenue was $934 million, an increase of $29 million, or 3%,
reflecting growth across cash management products and higher trade revenue driven by wider spreads,
partially offset by spread compression on deposit products. TSS firmwide net revenue, which
includes net revenue recorded in other lines of business, was $2.6 billion, a decrease of $79
million, or 3%, compared with the prior year, primarily due to declines in Worldwide Securities
Services. Treasury Services firmwide net revenue grew to $1.7 billion, an increase of $69 million,
or 4%, from the prior year.
The provision for credit losses was a benefit of $5 million, compared with an expense of $7 million
in the prior year.
Noninterest expense was $1.3 billion, a decrease of $29 million, reflecting lower headcount-related
expense, partially offset by higher FDIC insurance premiums.
Year-to-date results
Net income was $687 million, a decrease of $141 million, or 17%, from the prior year, driven by
lower net revenue offset partially by lower noninterest expense.
Net revenue was $3.7 billion, a decrease of $211 million, or 5%, from the prior year. Worldwide
Securities Services net revenue was $1.9 billion, a decrease of $311 million, or 14%, from the
prior year. The decrease was driven by the effect of market depreciation on assets under custody
and lower securities lending balances, primarily as a result of declines in asset valuations and
demand. Treasury Services net revenue was $1.9 billion, an increase of $100 million, or 6%,
reflecting growth across cash management products and higher trade revenue driven by wider spreads,
partially offset by spread compression on deposit products. TSS firmwide net revenue, which
includes net revenue recorded in other lines of business, was $5.2 billion, a decrease of $148
million, or 3%, compared with the prior year; primarily due to declines in Worldwide Securities
Services. Treasury Services firmwide net revenue grew to $3.3 billion, an increase of $163 million,
or 5%, from the prior year.
The provision for credit losses was a benefit of $11 million, compared with an expense of $19
million in the prior year.
Noninterest expense was $2.6 billion, an increase of $62 million, reflecting higher FDIC insurance
premiums, partially offset by lower headcount-related expense.
TSS firmwide metrics
TSS firmwide metrics include revenue recorded in the CB, Retail Banking and AM lines of business
and excludes foreign exchange (FX) revenue recorded in IB for TSS-related FX activity. In order
to capture the firmwide impact of TS and TSS products and revenue, management reviews firmwide
metrics such as liability balances, revenue and overhead ratios in assessing financial
performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS
business.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue
reported(a) |
|
$ |
934 |
|
|
$ |
905 |
|
|
|
3 |
% |
|
$ |
1,865 |
|
|
$ |
1,765 |
|
|
|
6 |
% |
Treasury Services revenue reported
in Commercial Banking |
|
|
679 |
|
|
|
630 |
|
|
|
8 |
|
|
|
1,325 |
|
|
|
1,246 |
|
|
|
6 |
|
Treasury Services revenue reported
in other lines of business |
|
|
63 |
|
|
|
72 |
|
|
|
(13 |
) |
|
|
125 |
|
|
|
141 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
revenue(a)(b) |
|
|
1,676 |
|
|
|
1,607 |
|
|
|
4 |
|
|
|
3,315 |
|
|
|
3,152 |
|
|
|
5 |
|
Worldwide Securities Services
revenue(a) |
|
|
966 |
|
|
|
1,114 |
|
|
|
(13 |
) |
|
|
1,856 |
|
|
|
2,167 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Treasury & Securities Services
firmwide revenue(b) |
|
$ |
2,642 |
|
|
$ |
2,721 |
|
|
|
(3 |
) |
|
$ |
5,171 |
|
|
$ |
5,319 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
liability balances
(average)(c)(d) |
|
$ |
258,312 |
|
|
$ |
252,625 |
|
|
|
2 |
|
|
$ |
273,892 |
|
|
$ |
247,897 |
|
|
|
10 |
|
Treasury & Securities Services
firmwide liability balances
(average)(c) |
|
|
339,992 |
|
|
|
367,670 |
|
|
|
(8 |
) |
|
|
365,584 |
|
|
|
360,758 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead
ratio(e) |
|
|
51 |
% |
|
|
53 |
% |
|
|
|
|
|
|
52 |
% |
|
|
53 |
% |
|
|
|
|
Treasury & Securities Services
firmwide overhead
ratio(e) |
|
|
59 |
|
|
|
58 |
|
|
|
|
|
|
|
61 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
13,748 |
|
|
$ |
15,476 |
|
|
|
(11 |
) |
|
$ |
13,748 |
|
|
$ |
15,476 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.$ ACH transactions originated
(in millions) |
|
|
978 |
|
|
|
993 |
|
|
|
(2 |
) |
|
|
1,956 |
|
|
|
1,997 |
|
|
|
(2 |
) |
Total U.S.$ clearing volume
(in thousands) |
|
|
28,193 |
|
|
|
29,063 |
|
|
|
(3 |
) |
|
|
55,379 |
|
|
|
57,119 |
|
|
|
(3 |
) |
International electronic funds
transfer volume (in
thousands)(f) |
|
|
47,096 |
|
|
|
41,432 |
|
|
|
14 |
|
|
|
91,461 |
|
|
|
81,471 |
|
|
|
12 |
|
Wholesale check volume (in millions) |
|
|
572 |
|
|
|
618 |
|
|
|
(7 |
) |
|
|
1,140 |
|
|
|
1,241 |
|
|
|
(8 |
) |
Wholesale cards issued (in
thousands)(g) |
|
|
23,744 |
|
|
|
19,917 |
|
|
|
19 |
|
|
|
23,744 |
|
|
|
19,917 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
17 |
|
|
$ |
(2 |
) |
|
NM |
|
|
$ |
19 |
|
|
$ |
(2 |
) |
|
NM |
|
Nonperforming loans |
|
|
14 |
|
|
|
|
|
|
NM |
|
|
|
14 |
|
|
|
|
|
|
NM |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
15 |
|
|
|
40 |
|
|
|
(63 |
) |
|
|
15 |
|
|
|
40 |
|
|
|
(63 |
) |
Allowance for lending-related
commitments |
|
|
92 |
|
|
|
33 |
|
|
|
179 |
|
|
|
92 |
|
|
|
33 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
107 |
|
|
|
73 |
|
|
|
47 |
|
|
|
107 |
|
|
|
73 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
0.39 |
% |
|
|
(0.03 |
)% |
|
|
|
|
|
|
0.20 |
% |
|
|
(0.02 |
)% |
|
|
|
|
Allowance for loan losses to
period-end loans |
|
|
0.08 |
|
|
|
0.15 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.15 |
|
|
|
|
|
Allowance for loan losses to
average loans |
|
|
0.09 |
|
|
|
0.17 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.17 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans |
|
|
107 |
|
|
NM |
|
|
|
|
|
|
|
107 |
|
|
NM |
|
|
|
|
|
Nonperforming loans to period-end
loans |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to Treasury Services revenue, of $46 million and $52 million for the three months ended June
30, 2009 and 2008, respectively, and $91 million and $99 million for the six months ended June
30, 2009 and 2008, respectively. |
|
(b) |
|
TSS firmwide FX revenue includes FX revenue recorded in TSS and FX revenue associated with
TSS customers who are FX customers of IB. However, some of the FX revenue associated with TSS
customers who are FX customers of IB is not included in TS and TSS firmwide revenue. These
amounts were $191 million and $222 million, for the three months ended June 30, 2009 and 2008,
respectively, and $345 million and $413 million for the six months ended June 30, 2009 and
2008, respectively. |
41
|
|
|
(c) |
|
Firmwide liability balances include liability balances recorded in Commercial Banking. |
|
(d) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to Treasury Services liability balances, of $14.9 billion and $21.9 billion for the three
months ended June 30, 2009 and 2008, respectively, and $16.5 billion and $21.7 billion for the
six months ended June 30, 2009 and 2008, respectively. |
|
(e) |
|
Overhead ratios have been calculated based on firmwide revenue and TSS and TS expense,
respectively, including those allocated to certain other lines of business. FX revenue and
expense recorded in IB for TSS-related FX activity are not included in this ratio. |
|
(f) |
|
International electronic funds transfer includes non-U.S. dollar ACH and clearing volume. |
|
(g) |
|
Wholesale cards issued include domestic commercial, stored value, prepaid and government
electronic benefit card products. |
ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 58-60 of JPMorgan Chases 2008 Annual
Report and on page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration and
commissions |
|
$ |
1,315 |
|
|
$ |
1,573 |
|
|
|
(16 |
)% |
|
$ |
2,546 |
|
|
$ |
3,104 |
|
|
|
(18 |
)% |
All other income |
|
|
253 |
|
|
|
130 |
|
|
|
95 |
|
|
|
322 |
|
|
|
189 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,568 |
|
|
|
1,703 |
|
|
|
(8 |
) |
|
|
2,868 |
|
|
|
3,293 |
|
|
|
(13 |
) |
Net interest income |
|
|
414 |
|
|
|
361 |
|
|
|
15 |
|
|
|
817 |
|
|
|
672 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,982 |
|
|
|
2,064 |
|
|
|
(4 |
) |
|
|
3,685 |
|
|
|
3,965 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
59 |
|
|
|
17 |
|
|
|
247 |
|
|
|
92 |
|
|
|
33 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
810 |
|
|
|
886 |
|
|
|
(9 |
) |
|
|
1,610 |
|
|
|
1,711 |
|
|
|
(6 |
) |
Noncompensation expense |
|
|
525 |
|
|
|
494 |
|
|
|
6 |
|
|
|
1,004 |
|
|
|
971 |
|
|
|
3 |
|
Amortization of intangibles |
|
|
19 |
|
|
|
20 |
|
|
|
(5 |
) |
|
|
38 |
|
|
|
41 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,354 |
|
|
|
1,400 |
|
|
|
(3 |
) |
|
|
2,652 |
|
|
|
2,723 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
569 |
|
|
|
647 |
|
|
|
(12 |
) |
|
|
941 |
|
|
|
1,209 |
|
|
|
(22 |
) |
Income tax expense |
|
|
217 |
|
|
|
252 |
|
|
|
(14 |
) |
|
|
365 |
|
|
|
458 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
352 |
|
|
$ |
395 |
|
|
|
(11 |
) |
|
$ |
576 |
|
|
$ |
751 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Bank(a) |
|
$ |
640 |
|
|
$ |
708 |
|
|
|
(10 |
) |
|
$ |
1,223 |
|
|
$ |
1,304 |
|
|
|
(6 |
) |
Institutional |
|
|
487 |
|
|
|
472 |
|
|
|
3 |
|
|
|
947 |
|
|
|
962 |
|
|
|
(2 |
) |
Retail |
|
|
411 |
|
|
|
490 |
|
|
|
(16 |
) |
|
|
664 |
|
|
|
956 |
|
|
|
(31 |
) |
Private Wealth Management(a) |
|
|
334 |
|
|
|
356 |
|
|
|
(6 |
) |
|
|
646 |
|
|
|
705 |
|
|
|
(8 |
) |
Bear Stearns Private Client Services |
|
|
110 |
|
|
|
38 |
|
|
|
189 |
|
|
|
205 |
|
|
|
38 |
|
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,982 |
|
|
$ |
2,064 |
|
|
|
(4 |
) |
|
$ |
3,685 |
|
|
$ |
3,965 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
31 |
% |
|
|
|
|
|
|
17 |
% |
|
|
30 |
% |
|
|
|
|
Overhead ratio |
|
|
68 |
|
|
|
68 |
|
|
|
|
|
|
|
72 |
|
|
|
69 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
29 |
|
|
|
31 |
|
|
|
|
|
|
|
26 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
(a) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to Private
Wealth Management. Prior periods have been revised to conform to this change. |
|
(b) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
42
Quarterly results
Net income was $352 million, a decrease of $43 million, or 11%, from the prior year, due to lower
net revenue and higher provision for credit losses offset partially by lower noninterest expense
Net revenue was $2.0 billion, a decrease of $82 million, or 4%, from the prior year. Noninterest
revenue was $1.6 billion, a decrease of $135 million, or 8%, due to the effect of lower market
levels and lower placement fees; these effects were offset partially by higher valuations of seed
capital investments. Net interest income was $414 million, up by $53 million, or 15%, from the
prior year, predominantly due to wider loan and deposit spreads and higher deposit balances.
Private Bank revenue decreased by 10% to $640 million due to the effect of lower market levels and
lower placement fees, largely offset by wider loan and deposit spreads. Institutional revenue
increased by 3% to $487 million, due to higher valuations of seed capital investments, largely
offset by the effect of lower market levels. Retail revenue decreased by 16% to $411 million, due
to the effect of lower market levels and net equity outflows, partially offset by higher valuations
of seed capital investments. Private Wealth Management revenue decreased by 6% to $334 million, due
to the effect of lower market levels and narrower deposit spreads. Bear Stearns Private Client
Services contributed $110 million to revenue.
The provision for credit losses was $59 million, an increase of $42 million from the prior year,
reflecting continued deterioration in the credit environment.
Noninterest expense was $1.4 billion, a decrease of $46 million, or 3%, from the prior year, due to
lower performance-based compensation and lower headcount-related expense, largely offset by the
impact of the Bear Stearns merger and higher FDIC insurance premiums.
Year-to-date results
Net income was $576 million, a decrease of $175 million, or 23%, from the prior year, due to lower
net revenue and higher provision for credit losses offset partially by lower noninterest expense.
Net revenue was $3.7 billion, a decrease of $280 million, or 7%, from the prior year. Noninterest
revenue was $2.9 billion, a decrease of $425 million, or 13%, due to the effect of lower market
levels, lower performance fees and lower placement fees; these effects were offset partially by
higher valuations of seed capital investments. Net interest income was $817 million, up by $145
million, or 22%, from the prior year, predominantly due to wider deposit and loan spreads and
higher deposit balances.
Private Bank revenue decreased 6% to $1.2 billion due to the effect of lower market levels and
lower placement fees, predominantly offset by wider deposit and loan spreads. Institutional revenue
decreased 2% to $947 million due to the effect of lower market levels offset by higher valuations
of seed capital investments. Retail revenue decreased by 31% to $664 million due to the effect of
lower market levels and net equity outflows, partially offset by higher valuations of seed capital
investments. Private Wealth Management revenue decreased 8% to $646 million due to the effect of
lower market levels and net equity outflows. Bear Stearns Private Client Services contributed $205
million to revenue.
The provision for credit losses was $92 million, an increase of $59 million from the prior year,
reflecting continued deterioration in the credit environment.
Noninterest expense was $2.7 billion, a decrease of $71 million, or 3%, from the prior year due to
lower performance-based compensation and lower headcount-related expense, largely offset by the
impact of the Bear Stearns merger and higher FDIC insurance premiums.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
(in millions, except headcount, ratios and |
|
Three months ended June 30, |
|
Six months ended June 30, |
ranking data, and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors(a) |
|
|
1,785 |
|
|
|
1,801 |
|
|
|
(1 |
)% |
|
|
1,785 |
|
|
|
1,801 |
|
|
|
(1 |
)% |
Retirement planning services participants |
|
|
1,595,000 |
|
|
|
1,505,000 |
|
|
|
6 |
|
|
|
1,595,000 |
|
|
|
1,505,000 |
|
|
|
6 |
|
Bear Stearns brokers |
|
|
362 |
|
|
|
326 |
|
|
|
11 |
|
|
|
362 |
|
|
|
326 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5 Star Funds(b) |
|
|
45 |
% |
|
|
40 |
% |
|
|
13 |
|
|
|
45 |
% |
|
|
40 |
% |
|
|
13 |
|
% of AUM in 1st and 2nd quartiles:(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
62 |
% |
|
|
51 |
% |
|
|
22 |
|
|
|
62 |
% |
|
|
51 |
% |
|
|
22 |
|
3 years |
|
|
69 |
% |
|
|
70 |
% |
|
|
(1 |
) |
|
|
69 |
% |
|
|
70 |
% |
|
|
(1 |
) |
5 years |
|
|
80 |
% |
|
|
76 |
% |
|
|
5 |
|
|
|
80 |
% |
|
|
76 |
% |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
35,474 |
|
|
$ |
41,536 |
|
|
|
(15 |
) |
|
$ |
35,474 |
|
|
$ |
41,536 |
|
|
|
(15 |
) |
Equity |
|
|
7,000 |
|
|
|
5,200 |
|
|
|
35 |
|
|
|
7,000 |
|
|
|
5,200 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
59,334 |
|
|
$ |
65,015 |
|
|
|
(9 |
) |
|
$ |
58,783 |
|
|
$ |
62,651 |
|
|
|
(6 |
) |
Loans |
|
|
34,292 |
|
|
|
39,264 |
|
|
|
(13 |
) |
|
|
34,438 |
|
|
|
37,946 |
|
|
|
(9 |
) |
Deposits |
|
|
75,355 |
|
|
|
69,975 |
|
|
|
8 |
|
|
|
78,534 |
|
|
|
69,079 |
|
|
|
14 |
|
Equity |
|
|
7,000 |
|
|
|
5,066 |
|
|
|
38 |
|
|
|
7,000 |
|
|
|
5,033 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
14,840 |
|
|
|
15,840 |
|
|
|
(6 |
) |
|
|
14,840 |
|
|
|
15,840 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
46 |
|
|
$ |
2 |
|
|
NM |
|
$ |
65 |
|
|
$ |
|
|
|
NM |
Nonperforming loans |
|
|
313 |
|
|
|
68 |
|
|
|
360 |
|
|
|
313 |
|
|
|
68 |
|
|
|
360 |
|
Allowance for loan losses |
|
|
226 |
|
|
|
147 |
|
|
|
54 |
|
|
|
226 |
|
|
|
147 |
|
|
|
54 |
|
Allowance for lending-related commitments |
|
|
4 |
|
|
|
5 |
|
|
|
(20 |
) |
|
|
4 |
|
|
|
5 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
0.54 |
% |
|
|
0.02 |
% |
|
|
|
|
|
|
0.38 |
% |
|
|
|
% |
|
|
|
|
Allowance for loan losses to period-end loans |
|
|
0.64 |
|
|
|
0.35 |
|
|
|
|
|
|
|
0.64 |
|
|
|
0.35 |
|
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.66 |
|
|
|
0.37 |
|
|
|
|
|
|
|
0.66 |
|
|
|
0.39 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
72 |
|
|
|
216 |
|
|
|
|
|
|
|
72 |
|
|
|
216 |
|
|
|
|
|
Nonperforming loans to period-end loans |
|
|
0.88 |
|
|
|
0.16 |
|
|
|
|
|
|
|
0.88 |
|
|
|
0.16 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.91 |
|
|
|
0.17 |
|
|
|
|
|
|
|
0.91 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
(a) |
|
Prior periods have been restated to conform with current methodologies. |
|
(b) |
|
Derived from the following rating services: Morningstar for the United States; Micropal for
the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
|
(c) |
|
Derived from the following rating services: Lipper for the United States and Taiwan;
Micropal for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. |
44
Assets under supervision
Assets under supervision were $1.5 trillion, a decrease of $68 billion, or 4%, from the prior year.
Assets under management were $1.2 trillion, a decrease of $14 billion, or 1%, from the prior year.
The decreases were due to the effect of lower market levels and outflows from non-liquidity
products, predominantly offset by liquidity product inflows. Custody, brokerage, administration and
deposit balances were $372 billion, down $54 billion, due to the effect of lower market levels on
brokerage and custody balances, partially offset by brokerage inflows in the Private Bank.
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
As of June 30, |
|
2009 |
|
2008 |
|
Assets by asset class |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
617 |
|
|
$ |
478 |
|
Fixed income |
|
|
194 |
|
|
|
199 |
|
Equities & balanced |
|
|
264 |
|
|
|
378 |
|
Alternatives |
|
|
96 |
|
|
|
130 |
|
|
Total assets under management |
|
|
1,171 |
|
|
|
1,185 |
|
Custody/brokerage/administration/deposits |
|
|
372 |
|
|
|
426 |
|
|
Total assets under supervision |
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
697 |
|
|
$ |
645 |
|
Private Bank(b) |
|
|
179 |
|
|
|
181 |
|
Retail |
|
|
216 |
|
|
|
276 |
|
Private Wealth Management(b) |
|
|
67 |
|
|
|
75 |
|
Bear Stearns Private Client Services |
|
|
12 |
|
|
|
8 |
|
|
Total assets under management |
|
$ |
1,171 |
|
|
$ |
1,185 |
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
697 |
|
|
$ |
646 |
|
Private Bank(b) |
|
|
390 |
|
|
|
415 |
|
Retail |
|
|
289 |
|
|
|
357 |
|
Private Wealth Management(b) |
|
|
123 |
|
|
|
133 |
|
Bear Stearns Private Client Services |
|
|
44 |
|
|
|
60 |
|
|
Total assets under supervision |
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
814 |
|
|
$ |
771 |
|
International |
|
|
357 |
|
|
|
414 |
|
|
Total assets under management |
|
$ |
1,171 |
|
|
$ |
1,185 |
|
|
U.S./Canada |
|
$ |
1,103 |
|
|
$ |
1,093 |
|
International |
|
|
440 |
|
|
|
518 |
|
|
Total assets under supervision |
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
569 |
|
|
$ |
416 |
|
Fixed income |
|
|
48 |
|
|
|
47 |
|
Equities |
|
|
111 |
|
|
|
171 |
|
Alternatives |
|
|
9 |
|
|
|
8 |
|
|
Total mutual fund assets |
|
$ |
737 |
|
|
$ |
642 |
|
|
|
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm had a
42% and 43% ownership at June 30, 2009 and 2008, respectively. |
|
(b) |
|
In the third quarter of 2008, certain clients were transferred from Private Bank to Private
Wealth Management. Prior periods have been revised to conform to this change. |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Assets under management rollforward |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,115 |
|
|
$ |
1,187 |
|
|
$ |
1,133 |
|
|
$ |
1,193 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
(7 |
) |
|
|
1 |
|
|
|
12 |
|
|
|
69 |
|
Fixed income |
|
|
8 |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
(1 |
) |
Equities, balanced and alternatives |
|
|
2 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(24 |
) |
Market/performance/other impacts(a) |
|
|
53 |
|
|
|
1 |
|
|
|
20 |
|
|
|
(52 |
) |
|
Total assets under management |
|
$ |
1,171 |
|
|
$ |
1,185 |
|
|
$ |
1,171 |
|
|
$ |
1,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,464 |
|
|
$ |
1,569 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
Net asset flows |
|
|
(9 |
) |
|
|
(5 |
) |
|
|
16 |
|
|
|
47 |
|
Market/performance/other impacts(a) |
|
|
88 |
|
|
|
47 |
|
|
|
31 |
|
|
|
(8 |
) |
|
Total assets under supervision |
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
|
|
|
(a) |
|
Second quarter 2008 reflects $15 billion for assets under management and $68 billion for
assets under supervision from the Bear Stearns merger on May 30, 2008. |
CORPORATE / PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 61-63 of JPMorgan
Chases 2008 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except headcount) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions |
|
$ |
1,243 |
|
|
$ |
(97 |
) |
|
NM |
|
$ |
(250 |
) |
|
$ |
(92 |
) |
|
|
(172 |
)% |
Securities gains |
|
|
366 |
|
|
|
656 |
|
|
|
(44 |
)% |
|
|
580 |
|
|
|
698 |
|
|
|
(17 |
) |
All other income(a) |
|
|
(209 |
) |
|
|
(378 |
) |
|
|
45 |
|
|
|
(228 |
) |
|
|
1,263 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,400 |
|
|
|
181 |
|
|
NM |
|
|
102 |
|
|
|
1,869 |
|
|
|
(95 |
) |
Net interest income (expense) |
|
|
865 |
|
|
|
(47 |
) |
|
NM |
|
|
1,854 |
|
|
|
(396 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,265 |
|
|
|
134 |
|
|
NM |
|
|
1,956 |
|
|
|
1,473 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
9 |
|
|
|
37 |
|
|
|
(76 |
) |
|
|
9 |
|
|
|
37 |
|
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
655 |
|
|
|
611 |
|
|
|
7 |
|
|
|
1,296 |
|
|
|
1,250 |
|
|
|
4 |
|
Noncompensation expense(b) |
|
|
1,319 |
|
|
|
689 |
|
|
|
91 |
|
|
|
1,664 |
|
|
|
605 |
|
|
|
175 |
|
Merger costs |
|
|
143 |
|
|
|
155 |
|
|
|
(8 |
) |
|
|
348 |
|
|
|
155 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
2,117 |
|
|
|
1,455 |
|
|
|
45 |
|
|
|
3,308 |
|
|
|
2,010 |
|
|
|
65 |
|
Net expense allocated to other
businesses |
|
|
(1,253 |
) |
|
|
(1,070 |
) |
|
|
(17 |
) |
|
|
(2,532 |
) |
|
|
(2,127 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
864 |
|
|
|
385 |
|
|
|
124 |
|
|
|
776 |
|
|
|
(117 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
expense |
|
|
1,392 |
|
|
|
(288 |
) |
|
|
NM |
|
|
|
1,171 |
|
|
|
1,553 |
|
|
|
(25 |
) |
Income tax expense |
|
|
584 |
|
|
|
31 |
|
|
NM |
|
|
625 |
|
|
|
761 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
808 |
|
|
$ |
(319 |
) |
|
NM |
|
$ |
546 |
|
|
$ |
792 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(1 |
) |
|
$ |
197 |
|
|
NM |
|
$ |
(450 |
) |
|
$ |
360 |
|
|
NM |
Corporate |
|
|
2,266 |
|
|
|
(63 |
) |
|
NM |
|
|
2,406 |
|
|
|
1,113 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,265 |
|
|
$ |
134 |
|
|
NM |
|
$ |
1,956 |
|
|
$ |
1,473 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
(27 |
) |
|
$ |
99 |
|
|
NM |
|
$ |
(307 |
) |
|
$ |
156 |
|
|
NM |
Corporate |
|
|
993 |
|
|
|
122 |
|
|
NM |
|
|
1,245 |
|
|
|
1,176 |
|
|
|
6 |
|
Merger-related items(c) |
|
|
(158 |
) |
|
|
(540 |
) |
|
|
71 |
|
|
|
(392 |
) |
|
|
(540 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) |
|
$ |
808 |
|
|
$ |
(319 |
) |
|
NM |
|
$ |
546 |
|
|
$ |
792 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
21,522 |
|
|
|
22,317 |
|
|
|
(4 |
) |
|
|
21,522 |
|
|
|
22,317 |
|
|
|
(4 |
) |
|
|
|
|
(a) |
|
Included $423 million representing the Firms share of Bear Stearns losses from April 8, to
May 30, 2008, in the second quarter of 2008, and proceeds of $1.5 billion from the sale of
Visa shares in its initial public offering in the first quarter of 2008. |
|
(b) |
|
Second quarter of 2009 included an accrual of $675 million for the FDIC special assessment.
First quarter of 2008 included a release of credit card litigation reserves. |
|
(c) |
|
Included merger costs related to the Washington Mutual transaction, as well as items related
to the Bear Stearns merger. |
46
Quarterly results
Net income was $808 million, compared with a net loss of $319 million in the prior year.
Private Equity reported a net loss of $27 million, compared with net income of $99 million in the
prior year. Net revenue was negative $1 million, a decrease of $198 million, reflecting Private
Equity losses of $20 million, compared with gains of $220 million in the prior year. Noninterest
expense was $42 million, a decrease of $2 million.
Net income for Corporate was $993 million, compared with net income of $122 million in the prior
year. These results reflect higher levels of trading gains and investment securities income and a
gain of $150 million (after tax) from the sale of MasterCard shares, partially offset by an accrual
of $419 million (after tax) for the FDIC special assessment.
Year-to-date results
Net income was $546 million, compared with $792 million in the prior year.
Net loss for Private Equity was $307 million, compared with net income of $156 million in the prior
year. Net revenue was negative $450 million, a decrease of $810 million, reflecting Private Equity
losses of $482 million, compared with gains of $409 million. Noninterest expense was $31 million, a
decrease of $88 million.
Net income for Corporate was $1.2 billion, unchanged from the prior year. Current year results
reflect higher levels of trading gains and investment securities income and a gain of $150 million
(after tax) from the sale of MasterCard shares, partially offset by an accrual of $419 million
(after tax) for the FDIC special assessment. Prior year results included proceeds from the sale of
Visa shares in its initial public offering.
Merger-related items were a net loss of $392 million, compared with a net loss of $540 million in
the prior year. Bear Stearns net merger-related costs were $178 million, compared with $540
million. The prior year included a net loss of $423 million, which represented JPMorgan Chases
49.4% ownership in Bear Stearns losses from April 8 to May 30, 2008. Washington Mutual net
merger-related costs were $214 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains(a) |
|
$ |
374 |
|
|
$ |
656 |
|
|
|
(43 |
)% |
|
$ |
588 |
|
|
$ |
698 |
|
|
|
(16 |
)% |
Investment securities portfolio
(average)(b) |
|
|
336,263 |
|
|
|
100,481 |
|
|
|
235 |
|
|
|
301,219 |
|
|
|
91,821 |
|
|
|
228 |
|
Investment securities portfolio (ending)(b) |
|
|
326,414 |
|
|
|
106,604 |
|
|
|
206 |
|
|
|
326,414 |
|
|
|
106,604 |
|
|
|
206 |
|
Mortgage loans (average) |
|
|
7,228 |
|
|
|
7,004 |
|
|
|
3 |
|
|
|
7,219 |
|
|
|
6,867 |
|
|
|
5 |
|
Mortgage loans (ending) |
|
|
7,368 |
|
|
|
7,150 |
|
|
|
3 |
|
|
|
7,368 |
|
|
|
7,150 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
25 |
|
|
$ |
540 |
|
|
|
(95 |
) |
|
$ |
40 |
|
|
$ |
1,653 |
|
|
|
(98 |
) |
Unrealized gains (losses)(c) |
|
|
16 |
|
|
|
(326 |
) |
|
NM |
|
|
(393 |
) |
|
|
(1,207 |
) |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct investments |
|
|
41 |
|
|
|
214 |
|
|
|
(81 |
) |
|
|
(353 |
) |
|
|
446 |
|
|
NM |
Third-party fund investments |
|
|
(61 |
) |
|
|
6 |
|
|
NM |
|
|
(129 |
) |
|
|
(37 |
) |
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains (losses)(d) |
|
$ |
(20 |
) |
|
$ |
220 |
|
|
NM |
|
$ |
(482 |
) |
|
$ |
409 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e) |
|
|
|
|
|
|
Direct investments |
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Change |
|
Publicly held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
431 |
|
|
$ |
483 |
|
|
|
(11 |
)% |
Cost |
|
|
778 |
|
|
|
792 |
|
|
|
(2 |
) |
Quoted public value |
|
|
477 |
|
|
|
543 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
4,709 |
|
|
|
5,564 |
|
|
|
(15 |
) |
Cost |
|
|
5,627 |
|
|
|
6,296 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
1,420 |
|
|
|
805 |
|
|
|
76 |
|
Cost |
|
|
2,055 |
|
|
|
1,169 |
|
|
|
76 |
|
|
|
|
|
|
Total
private equity portfolio Carrying value |
|
$ |
6,560 |
|
|
$ |
6,852 |
|
|
|
(4 |
) |
Total
private equity portfolio Cost |
|
$ |
8,460 |
|
|
$ |
8,257 |
|
|
|
2 |
|
|
|
|
|
(a) |
|
Included a $668 million gain on the sale of MasterCard shares in the second quarter of
2008. All periods reflect repositioning of the Corporate investment securities portfolio, and
exclude gains/losses on securities used to manage risk associated with MSRs. |
47
|
|
|
(b) |
|
For further discussion, see Securities on page 49 of this Form 10-Q. |
|
(c) |
|
Unrealized gains (losses) contain reversals of unrealized gains and losses that were
recognized in prior periods and have now been realized. |
|
(d) |
|
Included in principal transactions revenue in the Consolidated Statements of Income. |
|
(e) |
|
For more information on the Firms policies regarding the valuation of the private equity
portfolio, see Note 3 on pages 99114 of this Form 10-Q. |
|
(f) |
|
Unfunded commitments to third-party private equity funds were $1.5 billion and $1.4 billion
at June 30, 2009, and December 31, 2008, respectively. |
The carrying value of the private equity portfolio at June 30, 2009, was $6.6 billion, down
from $6.9 billion at December 31, 2008. The portfolio represented 6.2% of the Firms stockholders
equity less goodwill at June 30, 2009, up from 5.8% at December 31, 2008.
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
25,133 |
|
|
$ |
26,895 |
|
Deposits with banks |
|
|
61,882 |
|
|
|
138,139 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
159,170 |
|
|
|
203,115 |
|
Securities borrowed |
|
|
129,263 |
|
|
|
124,000 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
298,135 |
|
|
|
347,357 |
|
Derivative receivables |
|
|
97,491 |
|
|
|
162,626 |
|
Securities |
|
|
345,563 |
|
|
|
205,943 |
|
Loans |
|
|
680,601 |
|
|
|
744,898 |
|
Allowance for loan losses |
|
|
(29,072 |
) |
|
|
(23,164 |
) |
|
Loans, net of allowance for loan losses |
|
|
651,529 |
|
|
|
721,734 |
|
Accrued interest and accounts receivable |
|
|
61,302 |
|
|
|
60,987 |
|
Goodwill |
|
|
48,288 |
|
|
|
48,027 |
|
Other intangible assets |
|
|
19,682 |
|
|
|
14,984 |
|
Other assets |
|
|
129,204 |
|
|
|
121,245 |
|
|
Total assets |
|
$ |
2,026,642 |
|
|
$ |
2,175,052 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
866,477 |
|
|
$ |
1,009,277 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
300,931 |
|
|
|
192,546 |
|
Commercial paper and other borrowed funds |
|
|
116,681 |
|
|
|
170,245 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
56,021 |
|
|
|
45,274 |
|
Derivative payables |
|
|
67,197 |
|
|
|
121,604 |
|
Accounts payable and other liabilities |
|
|
171,685 |
|
|
|
187,978 |
|
Beneficial interests issued by consolidated VIEs |
|
|
20,945 |
|
|
|
10,561 |
|
Long-term debt and trust preferred capital debt securities |
|
|
271,939 |
|
|
|
270,683 |
|
|
Total liabilities |
|
|
1,871,876 |
|
|
|
2,008,168 |
|
Stockholders equity |
|
|
154,766 |
|
|
|
166,884 |
|
|
Total liabilities and stockholders equity |
|
$ |
2,026,642 |
|
|
$ |
2,175,052 |
|
|
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the Consolidated Balance Sheets from
December 31, 2008.
Deposits with banks; federal funds sold and securities purchased under resale agreements;
securities borrowed; federal funds purchased and securities loaned or sold under repurchase
agreements
The Firm utilizes deposits with banks, federal funds sold and securities purchased under resale
agreements, securities borrowed, and federal funds purchased and securities loaned or sold under
repurchase agreements as part of its liquidity management activities to manage the Firms cash
positions and risk-based capital requirements and to support the Firms trading and risk management
activities. In particular, the Firm uses securities purchased under resale agreements and
securities borrowed to provide funding or liquidity to clients by purchasing and borrowing clients
securities for the short-term. Federal funds purchased and securities loaned or sold under
repurchase agreements are used as short-term funding sources for the Firm and to make securities
available to clients for their short-term purposes. The decrease in deposits with banks primarily
reflected lower demand for interbank lending and lower deposits with the Federal Reserve Bank
relative to the elevated levels at the end of 2008. The decrease in securities purchased under
resale agreements was largely due to a lower volume of excess funds available for short-term
investments. The increase in securities sold under
48
repurchase agreements was partly attributable to favorable pricing and the financing of the
increase in the AFS securities portfolio. For additional information on the Firms Liquidity Risk
Management, see pages 58-62 of this Form 10-Q.
Trading assets and liabilities debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary
risk-taking activities. These instruments consist predominantly of fixed-income securities,
including government and corporate debt; equity securities, including convertible securities;
loans, including prime mortgage and other loans warehoused by RFS and IB for sale or securitization
purposes and accounted for at fair value under SFAS 159; and physical commodities inventories. The
decrease in trading assets - debt and equity instruments reflected continued balance sheet
management during the period as well as the effect of the challenging capital markets environment.
For additional information, refer to Note 3 and Note 5 on pages 99-114 and 116-124, respectively,
of this Form 10-Q.
Trading assets and liabilities derivative receivables and payables
Derivative instruments enable end-users to transform or mitigate exposure to credit or market
risks. The value of a derivative is derived from its reference to an underlying variable or
combination of variables such as interest rate, credit, foreign exchange, equity or commodity
prices or indices. JPMorgan Chase makes markets in derivatives for customers and also uses
derivatives to hedge or manage risks of market exposures and to make investments. The majority of
the Firms derivatives are entered into for market-making purposes. The decrease in derivative
receivables and payables was primarily related to tightening credit spreads, the increase in
interest rates, and volatile FX rates reflected in credit, interest rate, and foreign exchange
derivatives, respectively. For additional information, refer to derivative contracts, on pages
68-70, Note 3 and Note 5 on pages 99-114 and 116-124, respectively, of this Form 10-Q.
Securities
Almost all of the securities portfolio is classified as AFS and is used predominantly to manage the
Firms exposure to interest rate movements, as well as to make strategic longer-term investments.
The Firm purchased a significant amount of residential mortgage-backed securities, a majority of
which are guaranteed by the U.S. Federal Government, to position the Firm for the declining
interest rate environment. The increase in securities was partially offset by sales of higher
coupon instruments as part of this positioning as well as prepayments and maturities. For
additional information related to securities, refer to the Corporate/Private Equity segment on
pages 46-48, Note 3 and Note 11 on pages 99-114 and 129-134, respectively, of this Form 10-Q.
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large corporate and institutional clients
to individual consumers. Loans decreased largely as a result of declines across all the lines of
business, reflecting lower customer demand in the wholesale businesses, the seasonal decline in
credit card receivables, credit card securitization activities, and paydowns and charge-offs across
all major loan portfolios.
Both the consumer and wholesale components of the allowance for loan losses increased, as weak
economic conditions and housing price declines continued to drive an increase in estimated losses
for most of the Firms loan portfolios. For a more detailed discussion of the loan portfolio and
the allowance for loan losses, refer to Credit Risk Management on pages 62-80, and Notes 3, 4, 13
and 14 on pages 99-114, 114-116, 135-138 and 139, respectively, of this Form 10-Q.
Accrued interest and accounts receivable; accounts payable and other liabilities
The Firms accrued interest and accounts receivable consist of accrued interest receivables from
interest-earning assets; receivables from customers (primarily from activities related to IBs
Prime Services business); receivables from brokers, dealers and clearing organizations; and
receivables from failed securities sales. The Firms accounts payable and other liabilities consist
of accounts payable to customers (primarily from activities related to IBs Prime Services
business), payables to brokers, dealers and clearing organizations; payables from failed securities
purchases; accrued expense, including for interest-bearing liabilities; and all other liabilities,
including obligations to return securities received as collateral. The decrease in accounts payable
and other liabilities partly reflected lower customer payables in IBs Prime Services business and
slight declines in accounts payable and payables related to unsettled trades.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired
entity over the net fair value amounts assigned to assets acquired and liabilities assumed. The
increase in goodwill was largely due to purchase accounting adjustments related to the Bear Stearns
merger as well as an acquisition of a commodities business by IB. For additional information, see
Note 17 on pages 153-156 of this Form 10-Q.
49
Other intangible assets
The Firms other intangible assets consist of MSRs, purchased credit card relationships, other
credit card-related intangibles, core deposit intangibles, and other intangibles. MSRs increased
due to markups in the fair value of the MSR asset due primarily to market interest rate and other
changes impacting the Firms estimate of future prepayments, as well as sales in RFS of originated
loans for which servicing rights were retained. These increases were offset partially by servicing
portfolio run-off. The decrease in the other intangible assets primarily reflects amortization
expense associated with credit card-related intangibles, core deposit intangibles, and other
intangibles. For additional information on MSRs and other intangible assets, see Note 17 on pages
153-156 of this Form 10-Q.
Deposits
The Firms deposits represent a liability to customers, both retail and wholesale, related to
non-brokerage funds held on their behalf. Deposits are classified by location (U.S. and non-U.S.),
whether they are interest- or noninterest-bearing, and by type (i.e., demand, money market,
savings, time or negotiable order of withdrawal accounts). Deposits help provide a stable and
consistent source of funding for the Firm. Wholesale deposits declined in TSS from the elevated
levels at December 31, 2008, reflecting the continued normalization of deposit levels following the
strong inflows as a result of the heightened volatility and credit concerns affecting the markets
during the latter part of 2008. For more information on deposits, refer to the RFS, TSS and AM
segment discussions on pages 24-31, 39-42 and 42-46, respectively; the Liquidity Risk Management
discussion on pages 58-62; and Note 18 on page 156 of this Form 10-Q. For more information on
wholesale liability balances, including deposits, refer to the CB and TSS segment discussions on
pages 36-38 and 39-42, respectively, of this Form 10-Q.
Commercial paper and other borrowed funds
The Firm utilizes commercial paper and other borrowed funds as part of its liquidity management
activities to meet short-term funding needs, and in connection with a TSS liquidity management
product whereby excess client funds, are transferred into commercial paper overnight sweep
accounts. The decrease in other borrowed funds was predominantly due to the absence of borrowings
from the Federal Reserve under the Term Auction Facility program and lower advances from Federal
Home Loan Banks. For additional information on the Firms Liquidity Risk Management and other
borrowed funds, see pages 58-62, and Note 19 on page 156 of this Form 10-Q.
Beneficial interests issued by consolidated VIEs
JPMorgan Chase utilizes VIEs to assist clients in accessing the financial markets in a
cost-efficient manner and to issue guaranteed capital debt securities. The Firm consolidates the
VIEs if the Firm will absorb a majority of the expected losses of the VIEs, receive the majority of
the expected residual returns of the VIEs, or both. Included in the caption beneficial interests
issued by consolidated VIEs are the interest-bearing beneficial interest liabilities issued by the
consolidated VIEs. During the second quarter of 2009, the Firm consolidated a multi-seller conduit
and a credit card loan securitization trust (Washington Mutual Master Trust). As a result the
beneficial interests issued by consolidated VIEs increased. For additional information on the
Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements and
Contractual Cash Obligations on pages 51-53, and Note 15 and Note 16 on pages 139-147 and pages
148-153 respectively, of this Form 10-Q.
Long-term debt and trust preferred capital debt securities
The Firm utilizes long-term debt and trust preferred capital debt securities to provide
cost-effective and diversified sources of funds and as critical components of the Firms liquidity
and capital management. Long-term debt increased slightly, predominantly due to new issuances. The
Firm also issued 2.0 billion ($2.6 billion) and $5.5 billion of non-FDIC guaranteed debt in the
European and U.S. markets, respectively. Issuing non-FDIC guaranteed debt was a prerequisite to be
eligible to redeem the $25.0 billion of Series K preferred stock. For additional information on the
Firms long-term debt activities, see the Liquidity Risk Management discussion on pages 58-62 of
this Form
10-Q.
Stockholders equity
The decrease in total stockholders equity was largely due to the redemption of the $25.0 billion
Series K preferred stock issued to the U.S. Treasury pursuant to TARP and the declaration of cash
dividends on preferred and common stock. The decrease was offset partially by the $5.8 billion of
common equity raised to satisfy a supervisory condition requiring the Firm to demonstrate it could
access the equity capital markets in order to be eligible to redeem the Series K preferred stock;
net issuances under the Firms employee stock-based compensation plans; net income for the first
six months of 2009; and net unrealized gains recorded within accumulated other comprehensive income
related to AFS securities. For a further discussion, see the Capital Management section on pages
53-57, Note 20 on page 157 and Note 22 on page 159 of this Form 10-Q.
50
OFFBALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
JPMorgan Chase has several types of offbalance sheet arrangements, including arrangements
with special-purpose entities (SPEs) and the issuance of lending-related financial instruments
(e.g., commitments and guarantees). For further discussion of contractual cash obligations, see
OffBalance Sheet Arrangements and Contractual Cash Obligations on page 68 of JPMorgan Chases 2008
Annual Report.
Special-purpose entities
The basic SPE structure involves a company selling assets to the SPE. The
SPE funds the purchase of those assets by issuing securities to investors in the form of commercial
paper, short-term asset-backed notes, medium-term asset-backed notes and other forms of interest.
SPEs are generally structured to insulate investors from claims on the SPEs assets by creditors of
other entities, including the creditors of the seller of the assets.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing
financial assets, and by creating investment products for clients. The Firm is involved with SPEs
through multi-seller conduits and investor intermediation activities, and as a result of its loan
securitizations through qualifying special-purpose entities (QSPEs). For a detailed discussion of
all SPEs with which the Firm is involved, and the related accounting, see Note 1 on page 122, Note
16 on pages 168-176 and Note 17 on pages 177-186 of JPMorgan Chases 2008 Annual Report.
During the quarter ended June
30, 2009, the overall performance of the Firms credit card securitization trusts declined
primarily due to the increase in credit losses incurred on the underlying credit card
receivables. As a result, the Firm took certain actions related to both the Chase
Issuance Trust (the Trust) and the Washington Mutual Master Trust (the WMM Trust).
These actions and their impact on the Firms Consolidated Balance Sheets and results of
operations are further discussed in Note 15 on pages 139-147 of this Form 10-Q.
The Firm does not currently
expect to take any additional actions that would require it to consolidate any of the
Firms remaining nonconsolidated securitization QSPEs or SPEs through December 31, 2009.
Upon the Firms adoption of SFAS 166 and 167 effective January 1, 2010, the Firm will be
required to evaluate all sponsored securitization QSPEs and other SPEs for consolidation.
For additional information about the potential impact of SFAS 166 and 167, see Accounting
and Reporting Developments on pages 90-91 of this Form 10-Q.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related
exposures, such as derivative transactions and lending-related commitments and guarantees.
Certain mortgage loans that were sold to off-balance sheet SPEs in which the Firm continues to
service the loans are modified. These modifications have been made in conjunction with the U.S.
Treasurys Making Home Affordable Plan as well as to a lesser extent the American Securitization
Forums Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable
Rate Mortgage Loans. See Consumer Credit Portfolio on pages 72-73 for more details on the loan
modifications.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank, N.A., were downgraded below specific levels,
primarily P-1, A-1 and F1 for Moodys, Standard & Poors and Fitch, respectively. The amount
of these liquidity commitments was $44.0 billion and $61.0
billion at June 30, 2009, and December 31, 2008, respectively. Alternatively, if JPMorgan Chase
Bank, N.A., were downgraded, the Firm could be replaced by another liquidity provider in lieu of
providing funding under the liquidity commitments; or, in certain circumstances, the Firm could
facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity. The
Firms commitments to SPEs are included in other unfunded commitments to extend credit and asset
purchase agreements, as shown in the Off-balance sheet lending-related financial instruments and
guarantees table on page 53 of this Form 10-Q.
51
Special-purpose
entities revenue
The following table summarizes certain revenue information related
to consolidated and nonconsolidated VIEs and QSPEs with which the Firm has significant involvement.
The revenue reported in the table below predominantly represents contractual servicing and credit
fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does
not include mark-to-market gains and losses from changes in the fair value of trading positions
(such as derivative transactions) entered into with VIEs. Those gains and losses are recorded in
principal transactions revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from VIEs and QSPEs |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
VIEs(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
136 |
|
|
$ |
67 |
|
|
$ |
256 |
|
|
$ |
124 |
|
Investor intermediation |
|
|
20 |
|
|
|
8 |
|
|
|
40 |
|
|
|
5 |
|
|
Total VIEs |
|
|
156 |
|
|
|
75 |
|
|
|
296 |
|
|
|
129 |
|
QSPEs(b) |
|
|
587 |
|
|
|
357 |
|
|
|
1,210 |
|
|
|
682 |
|
|
Total |
|
$ |
743 |
|
|
$ |
432 |
|
|
$ |
1,506 |
|
|
$ |
811 |
|
|
|
|
|
(a) |
|
Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs. |
|
(b) |
|
Excludes servicing revenue from loans sold to and securitized by third parties. The
prior-period amount has been revised to conform to the current-period presentation. |
Offbalance sheet lending-related financial instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments) and guarantees to
meet customer financing needs. The contractual amount of these financial instruments represents the
maximum possible credit risk should the counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to
perform according to the terms of the contract. These commitments and guarantees historically
expire without being drawn, and an even higher proportion expire without a default. As a result,
the total contractual amount of these instruments is not, in the Firms view, representative of its
actual future credit exposure or funding requirements. Further, certain commitments, primarily
related to consumer financings, are cancelable, upon notice, at the option of the Firm. For further
discussion of lending-related commitments and guarantees and the Firms accounting for them, see
Note 5 and Note 24 on pages 116-124 and 160-163, respectively, of this Form 10-Q, and Credit Risk
Management on page 90 and Note 32 and Note 33 on pages 202-210 of JPMorgan Chases 2008 Annual
Report.
The following table presents the contractual amounts of off-balance sheet lending-related financial
instruments and guarantees for the periods indicated. The amounts in the table below for credit
card and home equity lending-related commitments represent the total available credit for these
products. The Firm has not experienced, and does not anticipate, that all available lines of credit
for these products will be utilized at the same time. The Firm can reduce or cancel these lines of
credit by providing the borrower prior notice or, in some cases, without notice as permitted by
law. Asset purchase agreements are agreements to the Firms administered multi-seller, asset-backed
commercial paper conduits. It includes asset purchase agreements to other third-party entities of
$95 million at June 30, 2009, and $96 million at December 31, 2008. It excludes $9.8 billion at
June 30, 2009, related to the consolidation of a multi-seller conduit in accordance with FIN 46R,
as the underlying assets are reported in the Firms consolidated balance sheet. The maturity is
based upon the weighted-average life of the underlying assets in the SPE, which are based upon the
remainder of each conduit transactions committed liquidity plus either the expected weighted
average life of the assets should the committed liquidity expire without renewal, or the expected
time to sell the underlying assets in the securitization market.
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
Dec. 31, 2008 |
|
|
|
|
|
|
Due after |
|
Due after |
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
3 years |
|
|
|
|
|
|
By remaining maturity |
|
Due in 1 |
|
through |
|
through |
|
Due after |
|
|
|
|
(in millions) |
|
year or less |
|
3 years |
|
5 years |
|
5 years |
|
Total |
|
Total |
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
607,949 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
607,949 |
|
|
$ |
623,702 |
|
Home equity |
|
|
854 |
|
|
|
3,501 |
|
|
|
11,943 |
|
|
|
54,344 |
|
|
|
70,642 |
|
|
|
95,743 |
|
Other |
|
|
19,001 |
|
|
|
475 |
|
|
|
157 |
|
|
|
1,058 |
|
|
|
20,691 |
|
|
|
22,062 |
|
|
Total consumer |
|
$ |
627,804 |
|
|
$ |
3,976 |
|
|
$ |
12,100 |
|
|
$ |
55,402 |
|
|
$ |
699,282 |
|
|
$ |
741,507 |
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend
credit(a)(b) |
|
|
62,012 |
|
|
|
82,704 |
|
|
|
34,964 |
|
|
|
5,320 |
|
|
|
185,000 |
|
|
|
189,563 |
|
Asset purchase agreements |
|
|
9,962 |
|
|
|
16,607 |
|
|
|
3,155 |
|
|
|
286 |
|
|
|
30,010 |
|
|
|
53,729 |
|
Standby letters of credit and other financial
guarantees(a)(c)(d) |
|
|
25,103 |
|
|
|
41,398 |
|
|
|
20,285 |
|
|
|
2,667 |
|
|
|
89,453 |
|
|
|
95,352 |
|
Unused advised lines of credit |
|
|
28,495 |
|
|
|
5,828 |
|
|
|
168 |
|
|
|
646 |
|
|
|
35,137 |
|
|
|
36,300 |
|
Other letters of credit(a)(c) |
|
|
3,496 |
|
|
|
575 |
|
|
|
290 |
|
|
|
30 |
|
|
|
4,391 |
|
|
|
4,927 |
|
|
Total wholesale |
|
|
129,068 |
|
|
|
147,112 |
|
|
|
58,862 |
|
|
|
8,949 |
|
|
|
343,991 |
|
|
|
379,871 |
|
|
Total lending-related |
|
$ |
756,872 |
|
|
$ |
151,088 |
|
|
$ |
70,962 |
|
|
$ |
64,351 |
|
|
$ |
1,043,273 |
|
|
$ |
1,121,378 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(e) |
|
$ |
153,940 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
153,940 |
|
|
$ |
169,281 |
|
Residual value guarantees |
|
|
|
|
|
|
670 |
|
|
|
|
|
|
|
|
|
|
|
670 |
|
|
|
670 |
|
Derivatives qualifying as guarantees(f) |
|
|
9,896 |
|
|
|
11,067 |
|
|
|
33,117 |
|
|
|
31,635 |
|
|
|
85,715 |
|
|
|
83,835 |
|
|
|
|
|
(a) |
|
Represents the contractual amount net of risk participations totaling $27.1 billion and
$28.3 billion at June 30, 2009, and December 31, 2008, respectively. In regulatory filings
with the Federal Reserve Board, these commitments are shown gross of risk participations. |
|
(b) |
|
Excludes unfunded commitments to third-party private equity funds of $1.5 billion and $1.4
billion at June 30, 2009, and December 31, 2008, respectively. Also excludes unfunded
commitments for other equity investments of $921 million and $1.0 billion at June 30, 2009,
and December 31, 2008, respectively. |
|
(c) |
|
JPMorgan Chase held collateral relating to $29.2 billion and $31.0 billion of standby letters
of credit and $1.3 billion and $1.0 billion of other letters of credit at June 30, 2009, and
December 31, 2008, respectively. |
|
(d) |
|
Includes unissued standby letters-of-credit commitments of $37.5 billion and $39.5 billion at
June 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$157.0 billion and $170.1 billion at June 30, 2009, and December 31, 2008, respectively.
Securities lending collateral is comprised primarily of cash, securities issued by governments
that are members of the Organisation for Economic Co-operation and Development (OECD) and
U.S. government agencies. |
|
(f) |
|
Represents notional amounts of derivatives qualifying as guarantees. For further discussion
of guarantees, see Note 32 and Note 33 on pages 202210 of JPMorgan Chases 2008 Annual
Report, and Note 24 on pages 160-163 of this Form 10-Q. |
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chases capital management highlights developments since
December 31, 2008, and should be read in conjunction with Capital Management on pages 7073 of
JPMorgan Chases 2008 Annual Report.
The Firms capital management framework is intended to ensure that there is capital sufficient to
support the underlying risks of the Firms business activities and to maintain well-capitalized
status under regulatory requirements. In addition, the Firm holds capital above these requirements
in amounts deemed appropriate to achieve its regulatory and debt rating objectives. The process of
assigning equity to the lines of business is integrated into the Firms capital framework and
overseen by the Asset-Liability Committee (ALCO).
Line of business equity
Equity for a line of business represents the amount the Firm believes the business would require if
it were operating independently, incorporating sufficient capital to address economic risk
measures, regulatory capital requirements and capital levels for similarly rated peers. Return on
common equity is measured and internal targets for expected returns are established as key measures
of a business segments performance.
53
In accordance with SFAS 142, the lines of business perform the required goodwill impairment
testing. For a further discussion of goodwill and impairment testing, see Critical Accounting
Estimates Used by the Firm and Note 18 on pages 110111 and 186187, respectively, of JPMorgan
Chases 2008 Annual Report, and Note 17 on pages 153156 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
Line of business equity |
|
|
|
|
(in billions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Investment Bank |
|
$ |
33.0 |
|
|
$ |
33.0 |
|
Retail Financial Services |
|
|
25.0 |
|
|
|
25.0 |
|
Card Services |
|
|
15.0 |
|
|
|
15.0 |
|
Commercial Banking |
|
|
8.0 |
|
|
|
8.0 |
|
Treasury & Securities Services |
|
|
5.0 |
|
|
|
4.5 |
|
Asset Management |
|
|
7.0 |
|
|
|
7.0 |
|
Corporate/Private Equity |
|
|
53.6 |
|
|
|
42.4 |
|
|
Total common stockholders equity |
|
$ |
146.6 |
|
|
$ |
134.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of business equity |
|
Average for the period |
|
(in billions) |
|
2Q09 |
|
|
4Q08 |
|
|
2Q08 |
|
|
|
Investment Bank |
|
$ |
33.0 |
|
|
$ |
33.0 |
|
|
$ |
23.3 |
|
Retail Financial Services |
|
|
25.0 |
|
|
|
25.0 |
|
|
|
17.0 |
|
Card Services |
|
|
15.0 |
|
|
|
15.0 |
|
|
|
14.1 |
|
Commercial Banking |
|
|
8.0 |
|
|
|
8.0 |
|
|
|
7.0 |
|
Treasury & Securities Services |
|
|
5.0 |
|
|
|
4.5 |
|
|
|
3.5 |
|
Asset Management |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
5.1 |
|
Corporate/Private Equity |
|
|
47.9 |
|
|
|
46.3 |
|
|
|
56.4 |
|
|
|
Total common stockholders equity |
|
$ |
140.9 |
|
|
$ |
138.8 |
|
|
$ |
126.4 |
|
|
|
Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying the Firms business
activities, utilizing internal risk-assessment methodologies. The Firm assigns economic capital
primarily based on four risk factors: credit, market, operational and private equity risk. In the
first half of 2009, the growth in economic risk capital was driven by higher credit risk capital,
which increased predominantly due to continued deterioration in the credit environment, partially
offset by lower derivative exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
|
(in billions) |
|
2Q09 |
|
|
4Q08 |
|
|
2Q08 |
|
|
|
Credit risk |
|
$ |
51.9 |
|
|
$ |
46.3 |
|
|
$ |
34.8 |
|
Market risk |
|
|
15.7 |
|
|
|
14.0 |
|
|
|
8.5 |
|
Operational risk |
|
|
8.4 |
|
|
|
7.5 |
|
|
|
5.8 |
|
Private equity risk |
|
|
4.5 |
|
|
|
5.6 |
|
|
|
5.0 |
|
|
|
Economic risk capital |
|
|
80.5 |
|
|
|
73.4 |
|
|
|
54.1 |
|
Goodwill |
|
|
48.3 |
|
|
|
46.8 |
|
|
|
45.8 |
|
Other(a) |
|
|
12.1 |
|
|
|
18.6 |
|
|
|
26.5 |
|
|
|
Total common stockholders equity |
|
$ |
140.9 |
|
|
$ |
138.8 |
|
|
$ |
126.4 |
|
|
|
|
|
|
(a) |
|
Reflects additional capital required, in the Firms view, to meet its regulatory and debt
rating objectives. |
Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards for the
consolidated financial holding company. The Office of the Comptroller of the Currency (OCC)
establishes similar capital requirements and standards for the Firms national banks, including
JPMorgan Chase Bank, N.A., and Chase Bank USA, N.A.
The
wellcapitalized and minimum capital and leverage ratios applicable to a bank holding
company under U.S. banking regulatory agency definitions are listed in the table below. In
connection with the U.S Governments recent Supervisory Capital Assessment Program, U.S. banking
regulators have developed a new measure of capital called Tier 1 common, which is defined as Tier
1 capital less elements of capital not in the form of common equity, including qualifying
perpetual preferred stock, qualifying minority interest in subsidiaries and qualifying trust
preferred capital debt securities.
54
The following table presents the capital ratios for JPMorgan Chase and its significant banking
subsidiaries at June 30, 2009, and December 31, 2008. The Firm and its significant banking
subsidiaries exceeded all well-capitalized regulatory thresholds for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
Tier 1 |
|
Tier 1 |
|
Total |
|
Tier 1 |
|
|
common |
|
Tier 1 |
|
|
|
|
|
Risk-weighted |
|
average |
|
common |
|
capital |
|
capital |
|
leverage |
(in mllions, except ratios) |
|
capital |
|
capital |
|
Total capital |
|
assets(f) |
|
assets(g) |
|
ratio |
|
ratio |
|
ratio |
|
ratio |
|
June 30, 2009(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
96,850 |
|
|
$ |
122,174 |
(c)(d)(e) |
|
$ |
167,767 |
|
|
$ |
1,260,237 |
|
|
$ |
1,969,339 |
|
|
|
7.7 |
% |
|
|
9.7 |
% |
|
|
13.3 |
% |
|
|
6.2 |
% |
JPMorgan Chase
Bank, N.A. |
|
|
100,643 |
|
|
|
101,598 |
|
|
|
142,825 |
|
|
|
1,091,658 |
|
|
|
1,645,827 |
|
|
|
9.2 |
|
|
|
9.3 |
|
|
|
13.1 |
|
|
|
6.2 |
|
Chase Bank USA, N.A. |
|
|
11,107 |
|
|
|
11,107 |
|
|
|
13,895 |
|
|
|
117,250 |
|
|
|
80,020 |
|
|
|
9.5 |
|
|
|
9.5 |
|
|
|
11.9 |
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
86,908 |
|
|
$ |
136,104 |
|
|
$ |
184,720 |
|
|
$ |
1,244,659 |
|
|
$ |
1,966,895 |
|
|
|
7.0 |
% |
|
|
10.9 |
% |
|
|
14.8 |
% |
|
|
6.9 |
% |
JPMorgan Chase
Bank, N.A. |
|
|
99,571 |
|
|
|
100,594 |
|
|
|
143,854 |
|
|
|
1,153,039 |
|
|
|
1,705,750 |
|
|
|
8.6 |
|
|
|
8.7 |
|
|
|
12.5 |
|
|
|
5.9 |
|
Chase Bank USA, N.A. |
|
|
11,190 |
|
|
|
11,190 |
|
|
|
12,901 |
|
|
|
101,472 |
|
|
|
87,286 |
|
|
|
11.0 |
|
|
|
11.0 |
|
|
|
12.7 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized
ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA |
|
|
6.0 |
% |
|
|
10.0 |
% |
|
|
5.0 |
%(h) |
Minimum capital
ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA |
|
|
4.0 |
|
|
|
8.0 |
|
|
|
3.0 |
(i) |
|
|
|
|
(a) |
|
Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany
transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of
intercompany transactions. |
|
(b) |
|
As defined by the regulations issued by the Federal Reserve, OCC and FDIC. |
|
(c) |
|
The Federal Reserve granted the Firm, for a period of 18 months following the Bear Stearns
merger, relief up to a certain specified amount and subject to certain conditions from the
Federal Reserves risk-based capital and leverage requirements with respect to Bear Stearns
risk-weighted assets and other exposures acquired. The OCC granted JPMorgan Chase Bank, N.A.
similar relief from its risk-based capital and leverage requirements. The relief ends
September 30, 2009. Commencing in the second quarter of 2009, the Firm no longer adjusts its
risk-based capital ratios to take into account the relief in the calculation of its risk-based
capital ratios as of June 30, 2009. |
|
(d) |
|
On May 12, 2009, the Firm increased the required enhancement level
underlying each tranche of outstanding notes issued by the Chase Issuance Trust
(the Trust). On June 1, 2009, the Firm began designating as discount receivables
a percentage of new card receivables for inclusion in the Trust, which is expected to
increase the yield in the Trust. The impact of these actions added $40 billion of
risk-weighted assets for regulatory purposes, which decreased the Tier 1 capital ratio
by approximately 40 basis points in the second quarter of 2009; this impact is included
in the table above. Therefore, the consolidation of the Trust upon the implementation of
SFAS 167 on January 1, 2010, will not have an additional impact on risk-weighted assets,
but it will have an incremental impact on Tier 1 capital due to the effect of consolidating
the assets and liabilities for GAAP at their assumed carrying values, including the
establishment of loan loss reserves, at the adoption date. This incremental impact to the
Tier 1 capital ratio expected as a result of the consolidation of the
Trust in accordance
with SFAS 166 and SFAS 167 is included in the consolidation analysis discussed in footnote
(e) below. For further discussion of the Trust, see Note 15 on pages 139147 of this
Form 10-Q. |
|
(e) |
|
The FASB issued SFAS 166 and SFAS 167, which amend both SFAS 140 and
FIN 46R and impacts the accounting for transactions that involve QSPEs and VIEs. Based
on the provisions of SFAS 166 and SFAS 167 and the Firms interpretation of the new
requirements, the Firm estimates that the impact of consolidation of the Firms QSPEs
and VIEs upon implementation in the first quarter of 2010, in accordance with those
amendments, could be up to $130.0 billion of assets and liabilities and an increase
to risk-weighted assets of up to $30 billion; the resulting decrease in the Tier 1
capital ratio could be approximately 40 basis points. The ultimate impact could differ
significantly due to ongoing interpretations of the final rules and market conditions. |
|
(f) |
|
Includes offbalance sheet risk-weighted assets at June 30, 2009, of $370.0 billion, $315.1
billion and $49.3 billion, and at December 31, 2008, of $357.5 billion, $332.2 billion and
$18.6 billion, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.,
respectively. |
|
(g) |
|
Adjusted average assets, for purposes of calculating the leverage ratio, include total
average assets adjusted for unrealized gains/losses on securities, less deductions for
disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the
total adjusted carrying value of nonfinancial equity investments that are subject to
deductions from Tier 1 capital. |
|
(h) |
|
Represents requirements for banking subsidiaries pursuant to regulations issued under the
FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a
well-capitalized bank holding company. |
|
(i) |
|
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending
on factors specified in regulations issued by the Federal Reserve and OCC. |
|
Note: |
|
Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities,
which have resulted from both nontaxable business combinations and from tax-deductible
goodwill. The Firm had deferred tax liabilities resulting from nontaxable business
combinations totaling $920 million at June 30, 2009, and $1.1 billion at December 31, 2008.
Additionally, the Firm had deferred tax liabilities resulting from tax-deductible goodwill of
$1.6 billion at both June 30, 2009, and December 31, 2008. |
55
The following table presents the components of the Firms Tier 1 common capital, Tier 1 capital and
Total capital.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
(in millions) |
|
2009 |
|
2008 |
|
Tier 1 capital |
|
|
|
|
|
|
|
|
Tier 1 common capital: |
|
|
|
|
|
|
|
|
Common stockholders equity |
|
$ |
146,614 |
|
|
$ |
134,945 |
|
Effect of certain items in accumulated other comprehensive income (loss) excluded from Tier 1
common equity |
|
|
3,332 |
|
|
|
5,084 |
|
|
Adjusted common stockholders equity |
|
|
149,946 |
|
|
|
140,029 |
|
Less: Goodwill(a) |
|
|
46,673 |
|
|
|
46,417 |
|
SFAS 157 DVA |
|
|
1,838 |
|
|
|
2,358 |
|
Investments in certain subsidiaries |
|
|
693 |
|
|
|
679 |
|
Other intangible assets |
|
|
3,892 |
|
|
|
3,667 |
|
|
Tier 1 common capital |
|
|
96,850 |
|
|
|
86,908 |
|
|
Preferred stock |
|
|
8,152 |
|
|
|
31,939 |
|
Qualifying hybrid securities and minority interest(b) |
|
|
17,172 |
|
|
|
17,257 |
|
|
Total Tier 1 capital |
|
|
122,174 |
|
|
|
136,104 |
|
|
Tier 2 capital |
|
|
|
|
|
|
|
|
Long-term debt and other instruments qualifying as Tier 2 |
|
|
29,759 |
|
|
|
31,659 |
|
Qualifying allowance for credit losses |
|
|
16,035 |
|
|
|
17,187 |
|
Adjustment for investments in certain subsidiaries and other |
|
|
(201 |
) |
|
|
(230 |
) |
|
Tier 2 capital |
|
|
45,593 |
|
|
|
48,616 |
|
|
Total qualifying capital |
|
$ |
167,767 |
|
|
$ |
184,720 |
|
|
|
|
|
(a) |
|
The goodwill balance is net of any associated deferred tax
liability. The prior period has been
revised to conform with the current presentation. |
|
(b) |
|
Primarily includes trust preferred capital debt securities of certain business trusts. |
The Firms Tier 1 common capital was $96.9 billion at June 30, 2009, compared with $86.9 billion at
December 31, 2008, an increase of $10.0 billion. The increase was due to a $5.8 billion issuance of
common stock, net income of $4.9 billion and net issuances of common stock under the Firms
employee stock-based compensation plans of $1.3 billion, partially offset by $1.4 billion of
dividends and the $1.1 billion one-time noncash adjustment to common stockholders equity related
to the redemption of the $25.0 billion of Series K preferred stock issued to the U.S. Treasury
under the Capital Purchase Program. On June 5, 2009, the Firm issued $5.8 billion, or 163 million
shares of common stock to satisfy a regulatory supervisory condition requiring the Firm to
demonstrate it could access the equity capital markets in order to be eligible to redeem the Series
K preferred stock that was issued to the U.S. Treasury. The proceeds from this issuance were used
for general corporate purposes. The Firms Tier 1 capital was $122.2 billion at June 30, 2009,
compared with $136.1 billion at December 31, 2008, a decrease of $13.9 billion. The decrease in
Tier 1 capital reflects the aforementioned redemption of the Series K preferred stock, partially
offset by the increase in Tier 1 common capital. Additional information regarding the Firms
capital ratios and the federal regulatory capital standards to which it is subject is presented in
Note 30 on pages 200-201 of JPMorgan Chases 2008 Annual Report.
Capital Purchase Program
Pursuant to the Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S.
Treasury, for total proceeds of $25.0 billion, (i) 2.5 million shares of Series K preferred stock,
and (ii) a warrant to purchase up to 88,401,697 shares of the Firms common stock, at the exercise
price of $42.42 per share, subject to certain antidilution and other adjustments. On June 17, 2009,
the Firm redeemed all of the outstanding shares of Series K preferred stock, and repaid the full
$25.0 billion principal amount together with accrued dividends. Following discussions with the U.S.
Treasury regarding the warrant, on July 7, 2009, JPMorgan Chase notified the U.S. Treasury that it
had revoked its warrant repurchase notice. JPMorgan Chase understands, based on the U.S. Treasurys
public statements, that the U.S. Treasury intends to pursue a public auction of the warrant. The
U.S. Treasury has advised JPMorgan Chase that the Firm will be permitted to participate in any such
auction.
Basel II
The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the
Capital Accord of the Basel Committee on Banking Supervision. In 2004, the Basel Committee
published a revision to the Accord (Basel II), and in December 2007, U.S. banking regulators
published a final Basel II rule. The final U.S. rule will require JPMorgan Chase to implement Basel
II at the holding company level, as well as at certain key U.S. bank subsidiaries. The U.S.
implementation timetable consists of a qualification period, starting any time between April 1,
2008, and April 1, 2010, followed by a minimum transition period of three years. During the
transition period, Basel II risk-based capital requirements cannot fall below certain floors based
on current (Basel I) regulations. JPMorgan Chase expects to be in compliance with all relevant
Basel II rules within the established timelines. In addition, the Firm has adopted, and will
continue to adopt, based on various established timelines, Basel II rules in certain non-U.S.
jurisdictions, as required. Equity requirements calculated in accordance with Basel II are expected
to be more dynamic over time than equity requirements
56
calculated under Basel I, because the drivers of such equity requirements are intended to be a more
dynamic reflection of the Firms risk profile and balance sheet composition. For additional
information, see Basel II, on page 72 of JPMorgan Chases 2008 Annual Report.
Broker-dealer regulatory capital
JPMorgan Chases principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities Inc.
(JPMorgan Securities) and J.P. Morgan Clearing Corp. JPMorgan Securities and J.P. Morgan Clearing
Corp. are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net Capital
Rule). JPMorgan Securities and J.P. Morgan Clearing Corp. are also registered as futures
commission merchants and subject to Rule 1.17 under the Commodity Futures Trading Commission
(CFTC). J.P. Morgan Clearing Corp., a subsidiary of JPMorgan Securities, provides clearing and
settlement services.
JPMorgan Securities and J.P. Morgan Clearing Corp. have elected to compute their minimum net
capital requirements in accordance with the Alternative Net Capital Requirements of the Net
Capital Rule. At June 30, 2009, JPMorgan Securities net capital, as defined by the Net Capital
Rule, of $7.3 billion exceeded the minimum requirement by $6.7 billion. In addition to its net
capital requirements, JPMorgan Securities is required to hold tentative net capital in excess of
$1.0 billion and is also required to notify the Securities and Exchange Commission (SEC) in the
event that tentative net capital is less than $5.0 billion as determined, in accordance with the
market and credit risk standards of Appendix E of the Net Capital Rule. As of June 30, 2009,
JPMorgan Securities had tentative net capital in excess of the minimum and notification
requirements. At June 30, 2009, J.P. Morgan Clearing Corp.s net capital, as defined by the Net
Capital Rule, of $4.7 billion exceeded the minimum requirement by $3.2 billion.
Dividends
On February 23, 2009, the Board of Directors reduced the Firms quarterly common stock dividend
from $0.38 to $0.05 per share, effective with the dividend paid on April 30, 2009, to shareholders
of record on April 6, 2009. The action will enable the Firm to
retain approximately $5 billion in
common equity per year and was taken in order to help ensure that the Firms balance sheet retained
the capital strength necessary should economic conditions further deteriorate. The Firm intends to
return to a more normalized dividend payout ratio as soon as feasible after the environment has
stabilized. JPMorgan Chase declared quarterly cash dividends on its common stock in the amount of
$0.38 per share for each quarter of 2008.
During the period that shares of the Series K preferred stock were outstanding, no dividends could
be declared or paid on stock ranking junior or equally with the Series K preferred stock, unless
all accrued and unpaid dividends for all past dividend periods on the Series K preferred stock were
fully paid. Also, the U.S. Treasurys consent was required until October 28, 2011, for any increase
in dividends on the Firms common stock above $0.38 per share. As a result of the redemption of the
Series K preferred stock, JPMorgan Chase is no longer subject to these restrictions. The Firms
ability to pay dividends is subject to other regulatory restrictions. For information regarding
these restrictions on the payment of dividends, see Note 29 on page 199 of JPMorgan Chases 2008
Annual Report.
Stock repurchases
The Firm has a stock repurchase program pursuant to which it is authorized to repurchase shares of
its stock. During the period that shares of the Series K preferred stock were outstanding, the Firm
could not repurchase or redeem any common stock or other equity securities of the Firm, or any
trust preferred capital debt securities issued by the Firm or any of its affiliates, without the
prior consent of the U.S. Treasury (other than (i) repurchases of the Series K preferred stock and
(ii) repurchases of junior preferred shares or common stock in connection with any employee benefit
plan in the ordinary course of business consistent with past practice) until October 28, 2011. As a
result of the redemption of the Series K preferred stock, JPMorgan Chase is no longer subject to
this restriction. During the three and six months ended June 30, 2009 and 2008, the Firm did not
repurchase any shares other than the redemption of the Series K preferred stock. As of June 30,
2009, $6.2 billion of authorized repurchase capacity remained under the current $10.0 billion stock
repurchase program. For additional information regarding repurchases of the Firms equity
securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on
pages 179-180 of this Form 10-Q.
The authorization to repurchase stock will be utilized at managements discretion, and the timing
of purchases and the exact number of shares purchased will depend on any limitations on the Firms
ability to repurchase its stock, market conditions and alternative investment opportunities. The
repurchase program does not include specific price targets or timetables; may be executed through
open market purchases, privately negotiated transactions or utilizing Rule 10b5-1 programs; and may
be suspended at any time.
57
RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chases business activities. The Firms risk management
framework and governance structure are intended to provide comprehensive controls and ongoing
management of the major risks inherent in its business activities. In addition, this framework
recognizes the diversity among the Firms core businesses, which helps reduce the impact of
volatility in any particular area on the Firms operating results as a whole. There are eight major
risk types identified in the business activities of the Firm: liquidity, credit, market, interest
rate, operational, legal and reputation, fiduciary, and private equity risk.
For further discussion of these risks, see pages 74106 of JPMorgan Chases 2008 Annual Report and
the information below.
LIQUIDITY RISK MANAGEMENT
The
following discussion of JPMorgan Chases liquidity risk management framework highlights developments
since December 31, 2008, and should be read in conjunction with pages 7680 of JPMorgan Chases
2008 Annual Report.
The ability to maintain a sufficient level of liquidity is crucial to financial services companies,
particularly their ability to maintain appropriate levels of liquidity during periods of adverse
conditions. The Firms funding strategy is to ensure liquidity and diversity of funding sources to
meet actual and contingent liabilities through both stable and adverse conditions.
JPMorgan Chase uses a centralized approach for liquidity risk management. Global funding is managed
by Corporate Treasury, using regional expertise as appropriate. Management believes that a
centralized framework maximizes liquidity access, minimizes funding costs and permits
identification and coordination of global liquidity risk.
Recent events
On February 23, 2009, JPMorgan Chase announced a reduction in the Firms quarterly common stock
dividend from $0.38 to $0.05 per share, effective with the dividend paid on April 30, 2009, to
shareholders of record on April 6, 2009. This action will enable the Firm to retain approximately
$5 billion in common equity per year. For additional information, see Capital Management
Dividends, on page 57 of this Form 10-Q.
On March 30, 2009, the Federal Reserve announced that effective April 27, 2009, it will reduce the
amount it will lend against certain loans pledged as collateral to the Federal Reserve Banks for
discount window or payment system risk purposes, to reflect recent trends in the values of those
types of loans. JPMorgan Chase maintains sufficient levels of eligible collateral to pledge to the
Federal Reserve to replace the announced reduction in collateral
value and, accordingly, this change
by the Federal Reserve did not have a material impact on the Firms aggregate funding capacity.
The Firm believes its liquidity position is strong, based on its liquidity metrics as of June 30,
2009. The Firm believes that its unsecured and secured funding capacity is sufficient to meet its
on- and off-balance sheet obligations. JPMorgan Chases long-dated funding, including core
liabilities, exceeded illiquid assets. In addition, during the first half of 2009, the Firm raised
funds at the parent holding company in excess of its minimum threshold to cover its obligations and
those of its unfunded subsidiaries maturing over the next 12 months. The redemption of the $25.0
billion of Series K preferred stock did not have a significant impact on the liquidity of the Firm,
as the Firm had previously raised excess liquidity in the capital markets in anticipation of such
redemption.
58
Funding
Sources of funds
The deposits held by the RFS, CB, TSS and AM lines of business are generally a consistent source of
funding for JPMorgan Chase Bank, N.A. As of June 30, 2009, total deposits for the Firm were $866.5
billion. During the latter half of 2008, the Firms deposits increased due in part to heightened
volatility and credit concerns in the markets. As some of those credit concerns mitigated in the
first quarter of 2009, the Firms deposit levels, predominantly its wholesale deposit levels,
continued to normalize, resulting in a decrease in deposits of $142.8 billion, from $1.0 trillion at December
31, 2008.
A significant portion of the Firms deposits are retail deposits, which are less sensitive to
interest rate changes or market volatility and therefore are considered more stable than
market-based (i.e., wholesale) liability balances. In addition, through the normal course of
business, the Firm benefits from substantial liability balances originated by RFS, CB, TSS and AM.
These franchise-generated liability balances include deposits as well as deposits that are swept to
on-balance sheet liabilities (e.g., commercial paper, federal funds purchased, and securities
loaned or sold under repurchase agreements), a significant portion of which are considered to be
stable and consistent sources of funding due to the nature of the businesses from which they are
generated. For further discussions of deposit and liability balance trends, see the discussion of
the results for the Firms business segments and the Balance
Sheet Analysis on pages 20-46 and
48-50 respectively, of this Form 10-Q.
Additional sources of funding include a variety of unsecured short- and long-term instruments,
including federal funds purchased, certificates of deposit, time deposits, bank notes, commercial
paper, long-term debt, trust preferred capital debt securities, preferred stock and common stock.
Secured sources of funding include securities loaned or sold under repurchase agreements, asset
securitizations, borrowings from the Federal Reserve (including discount window borrowings, the
Primary Dealer Credit Facility and the Term Auction Facility) and borrowings from Federal Home Loan
Banks. However, the Firm does not view borrowings from the Federal Reserve as a primary means of
funding. The Firm is evaluating how its January 1, 2010, implementation of SFAS 166 and SFAS 167,
which the Firm estimates will require it to consolidate up to $130.0 billion of assets of
Firm-sponsored QSPEs and VIEs, may affect its use of asset
securitizations as a funding source in
the future.
Issuance
During the second quarter and first half of 2009, the Firm issued approximately $5.9 billion and
$19.7 billion, respectively, of FDIC-guaranteed long-term debt for general corporate purposes under
the FDICs Temporary Liquidity Guarantee Program (the TLG Program), which became effective in
October 2008. During the second, quarter of 2009, the Firm also issued 2.0 billion ($2.6 billion) and $5.5 billion of non-FDIC
guaranteed debt in the European and U.S. markets, respectively. Issuing non-FDIC guaranteed debt
was a prerequisite to be eligible to redeem the $25.0 billion of Series K preferred stock. In
addition, during the second quarter and first half of 2009, JPMorgan Chase issued $6.3 billion and
$10.3 billion, respectively, of IB structured notes that are included within long-term debt. During
the second quarter and first half of 2009, $16.2 billion and $34.9 billion, respectively, of
long-term debt matured or was redeemed including $8.2 billion and $17.0 billion, respectively, of
IB structured notes. Furthermore, during the second quarter and first half of 2009, the Firm
securitized $12.5 billion and $16.4 billion, respectively, of credit card loans. For further
discussion of loan securitizations, see Note 15 on pages 139-147 of this Form 10-Q.
Replacement capital covenants
In connection with the issuance of certain of its trust preferred capital debt securities and its
noncumulative perpetual preferred stock, the Firm has entered into Replacement Capital Covenants
(RCCs) granting certain rights to the holders of covered debt, as defined in the RCCs, that
prohibit the repayment, redemption or purchase of such trust preferred capital debt securities and
noncumulative perpetual preferred stock except, with limited exceptions, to the extent that
JPMorgan Chase has received, in each such case, specified amounts of proceeds from the sale of
certain qualifying securities. Currently, the Firms covered debt is its 5.875% Junior Subordinated
Deferrable Interest Debentures, Series O, due in 2035. For more information regarding these
covenants, reference is made to the respective RCCs entered into by the Firm in connection with the
issuances of such trust preferred capital debt securities and noncumulative perpetual preferred
stock, which are filed with the U.S. Securities and Exchange Commission under cover of Forms 8-K.
Cash flows
Cash and due from banks was $25.1 billion and $32.3 billion at June 30, 2009 and 2008,
respectively. These balances decreased by $1.8 billion and $7.9 billion from December 31, 2008 and
2007, respectively. The following discussion highlights the major activities and transactions that
affected JPMorgan Chases cash flows during the first six months of 2009 and 2008.
59
Cash flows from operating activities
JPMorgan Chases operating assets and liabilities support the Firms capital markets and lending
activities, including the origination or purchase of loans initially designated as held-for-sale.
Operating assets and liabilities can vary significantly in the normal course of business due to the
amount and timing of cash flows, which are affected by client-driven activities, market conditions
and trading strategies. Management believes cash flows from operations, available cash balances and
the Firms ability to generate cash through short- and long-term borrowings are sufficient to fund
the Firms operating liquidity needs.
For the six months ended June 30, 2009, net cash provided by operating activities was $103.3
billion, largely due to a decline in trading assets reflecting continued balance sheet management
during the period as well as the effect of the challenging capital markets environment. In
addition, net cash generated from operating activities was higher than net income; this was
partially the result of noncash adjustments for operating items such as the provision for credit
losses, stock-based compensation, and depreciation and amortization. Proceeds from sales,
securitizations and paydowns of loans originated or purchased with an initial intent to sell were
higher than cash used to acquire such loans, but the cash flows from these loan activities remained
at a reduced level as a result of the continued volatility and stress in the markets.
For the six months ended June 30, 2008, net cash provided by operating activities was $24.0
billion. Net cash generated from operating activities was higher than net income, largely as a
result of adjustments for operating items such as the provision for credit losses, depreciation and
amortization, stock-based compensation, certain other expenses and gains or losses from sales of
investment securities. In addition, proceeds from sales of loans originated or purchased with an
initial intent to sell were slightly higher than cash used to acquire such loans, but the cash
flows from these loan sales activities were at a much lower level in the first six months of 2008,
as a result of the volatility and credit concerns in the markets since the second half of 2007.
Cash flows from investing activities
The Firms investing activities predominantly include originating loans to be held for investment,
other receivables, the AFS securities portfolio and other short-term investment vehicles. For the
six months ended June 30, 2009, net cash of $34.4 billion was provided by investing activities.
This derived primarily from a decrease in deposits with banks, as interbank lending and deposits
with the Federal Reserve Bank declined relative to the elevated level at the end of 2008; a net
decrease in the loan portfolio, reflecting declines across all businesses, including lower customer
demand in the wholesale businesses, the seasonal decline in credit card receivables, credit card
securitization activities, and paydowns; and a decrease in securities purchased under resale
agreements, reflecting a lower volume of excess cash available for short-term investments. Largely
offsetting these cash proceeds were net purchases of AFS securities to manage the Firms exposure
to a declining interest rate environment.
For the six months ended June 30, 2008, net cash of $54.1 billion was used in investing activities,
primarily for net purchases of AFS securities to manage the Firms exposure to interest rates; net
additions to the wholesale loan portfolio, primarily from increased lending activities across all
the wholesale businesses; additions to the consumer prime mortgage portfolio as a result of the
decision to retain, rather than sell, new originations of nonconforming prime mortgage loans; and
an increase in securities purchased under resale agreements; reflecting growth in demand from
clients for liquidity. Partially offsetting these uses of cash were proceeds from sales and
maturities of AFS securities; credit card securitization activities; the seasonal decline in
consumer credit card receivables; and cash received from the sale of an investment net of cash used
for acquisitions. Additionally, in June 2008, in connection with the merger with Bear Stearns, the
Firm sold assets acquired from Bear Stearns to the Federal Reserve Bank of New York and received
cash proceeds of $28.85 billion.
Cash flows from financing activities
The Firms financing activities primarily reflect cash flows related to customer deposits, issuance
of long-term debt and trust preferred capital debt securities, and issuance of preferred and common
stock. In the first six months of 2009, net cash used in financing activities was $139.4 billion;
this reflected a decline in wholesale deposits in TSS, driven by the continued normalization of
wholesale deposit levels due to mitigation of credit concerns, compared with the heightened market
volatility and credit concerns in the latter part of 2008; a decline in other borrowings due to the
absence of borrowings from the Federal Reserve under the Term Auction Facility program and net
repayments of advances from Federal Home Loan Banks; the June 17, 2009, repayment in full of the
$25.0 billion principal amount of Series K preferred stock; and the payment of cash dividends. Cash
proceeds resulted from an increase in securities loaned or sold under repurchase agreements, partly
attributable to favorable pricing and to financing the Firms increased AFS securities portfolio;
the issuance of $5.8 billion of common stock; and a slight net increase in long-term debt, as
issuances of FDIC-guaranteed debt as well as non-FDIC guaranteed debt in both the European and U.S.
markets were offset by redemptions. There were no open-market stock repurchases during the first
half of 2009.
60
In the first six months of 2008, net cash provided by financing activities was $22.0 billion, due
to increases in federal funds purchased and securities loaned or sold under repurchase agreements
in connection with higher short-term requirements to fulfill clients demand for liquidity and to
finance the Firms AFS securities inventory levels; net new issuances of long-term debt and trust
preferred capital debt securities; and the issuance of noncumulative, perpetual preferred stock.
Partially offsetting these cash proceeds was a decline in commercial paper and other borrowed
funds, due to lower short-term requirements to fund trading positions offset partially by growth in
the volume of liability balances in sweep accounts; a decrease in U.S. interest-bearing deposits in
Corporate/Private Equity, offset partially by an increase in non-U.S. interest-bearing deposits in
TSS from growth in business volume; and the payment of cash dividends. There were no open-market
stock repurchases during the first six months of 2008.
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these
ratings could have an adverse effect on the Firms access to liquidity sources, increase the cost
of funds, trigger additional collateral or funding requirements, and decrease the number of
investors and counterparties willing to lend to the Firm. Additionally, the Firms funding
requirements for VIEs and other third-party commitments may be adversely affected. For additional
information on the impact of a credit-rating downgrade on the funding requirements for VIEs, and on
derivatives and collateral agreements, see Special-purpose entities
on pages 51-52 and Ratings
profile of derivative receivables marked to market (MTM)
on page 69 and Note 5 on pages 116-124
of this Form 10-Q.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream,
strong capital ratios, strong credit quality and risk management controls, diverse funding sources,
and disciplined liquidity monitoring procedures.
The credit ratings of the parent holding company and each of the Firms significant banking
subsidiaries as of June 30, 2009, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
Senior long-term debt |
|
|
Moodys |
|
S&P |
|
Fitch |
|
Moodys |
|
S&P |
|
Fitch |
|
JPMorgan Chase & Co. |
|
P |
-1 |
|
|
|
A-1 |
|
|
|
F1+ |
|
|
Aa3 |
|
|
A+ |
|
|
AA- |
JPMorgan Chase Bank, N.A. |
|
P |
-1 |
|
|
|
A-1 |
+ |
|
|
F1+ |
|
|
Aa1 |
|
AA- |
|
AA- |
Chase Bank USA, N.A. |
|
P |
-1 |
|
|
|
A-1 |
+ |
|
|
F1+ |
|
|
Aa1 |
|
AA- |
|
AA- |
|
Ratings actions affecting the Firm
On March 4, 2009, Moodys revised the outlook on the Firm to negative from stable. This action was
the result of Moodys view that the Firms capital generation would be adversely affected by higher
credit costs due to the global recession. The rating action by Moodys in the first quarter of 2009
did not have a material impact on the cost or availability of the Firms funding.
Ratings from S&P and Fitch on JPMorgan Chase and its principal bank subsidiaries remained unchanged
at June 30, 2009, from December 31, 2008. At June 30, 2009, S&Ps current outlook remained
negative, while Fitchs outlook remained stable.
If the Firms senior long-term debt ratings were downgraded by one additional notch, the Firm
believes the incremental cost of funds or loss of funding would be manageable, within the context
of current market conditions and the Firms liquidity resources. JPMorgan Chases unsecured debt
other than, in certain cases, IB structured notes does not contain requirements that would call for
an acceleration of payments, maturities or changes in the structure of the existing debt, nor
contain collateral provisions for the creation of an additional financial obligation, based on
unfavorable changes in the Firms credit ratings, financial ratios, earnings, cash flows or stock
price. To the extent that any IB structured notes do contain such provisions, the Firm believes
that, in the event of an acceleration of payments or maturities or provision of collateral, the
securities used by the Firm to manage the risk of such structured notes, together with other
liquidity resources, would generate funds sufficient to satisfy the Firms obligations.
On February 24, 2009, S&P lowered the ratings on the trust preferred debt capital securities and
other hybrid securities of 45 U.S. financial institutions, including those of JPMorgan Chase & Co.
The Firms ratings on trust preferred capital debt and noncumulative perpetual preferred securities
were lowered from A- to BBB+. This action was the result of S&Ps general view that there is an
increased likelihood of issuers suspending interest and dividend payments in the current
environment. This action by S&P did not have a material impact on the cost or availability of the
Firms funding.
61
Ratings actions affecting Firm-sponsored securitization trusts
On April 2, 2009, S&P placed $2.8 billion of certain subordinated and mezzanine credit card
asset-backed securities of the Chase Issuance Trust and the Chase Credit Card Master Trust on
negative credit watch. The action was the result of S&Ps view that the ratings on certain
subordinated securities would come under stress as trust losses continue to accelerate in the
current economic environment. On April 20, 2009, Moodys placed $6.4 billion of subordinated credit
card asset-backed securities of the Chase Issuance Trust and the Chase Credit Card Master Trust on
review for possible downgrade. The action was the result of Moodys view that several of the
trusts collateral performance measures had deteriorated and would continue to deteriorate due to a
worsening economic environment. On May 11, 2009, Fitch placed certain credit card asset-backed
securities of certain issuers, including issuer trusts sponsored by the Firm, on negative rating
outlook and negative credit watch. The mezzanine securities for the Chase Credit Card Master Trust
and the subordinated securities for the Chase Issuance Trust were placed on negative rating
outlook. The subordinated securities for the Chase Credit Card Master Trust were placed on negative
credit watch. The action was the result of increasing levels of delinquency and losses and Fitchs
view that such increases will likely continue through 2009.
On May 12, 2009, the Firm took certain actions to increase the credit enhancement underlying
certain credit card asset-backed securities of the Chase Issuance Trust. As a result, Moodys
affirmed the ratings of, and removed from review for possible downgrade status, $6.3 billion of
subordinated credit card asset-backed securities of the Chase Issuance Trust. Additionally, on June
18, 2009, S&P affirmed the ratings of, and removed from negative credit watch status, $2.6 billion
of subordinated credit card asset-backed securities of the Chase Issuance Trust.
On July 10, 2009, Moodys downgraded $116 million of subordinated credit card asset-backed
securities of the Chase Credit Card Master Trust that Moodys had, on April 20, 2009, placed on
review for possible downgrade.
On May 21, 2009, Moodys placed $6.8 billion of credit card asset-backed securities of the
Washington Mutual Master Note Trust on review for possible upgrade. The action was the result of
Moodys view that trust collateral performance would improve following JPMorgan Chases removal on
May 19, 2009, of all remaining credit card receivables originated by Washington Mutual.
The ratings on the Firms asset-backed securities programs are independent of the Firms own
ratings. The above ratings actions with respect to the Firm-sponsored securitization trusts did not
have a material impact on the liquidity of the Firm. For additional information regarding the
actions taken by JPMorgan Chase regarding the Chase Issuance Trust and the Washington Mutual Master
Note Trust, see Note 15 on pages 139-147 of this Form 10-Q.
CREDIT RISK MANAGEMENT
The following pages include a discussion of JPMorgan Chases credit portfolio as of June 30, 2009,
highlighting developments since December 31, 2008. This section should be read in conjunction with
pages 80-99 and pages 107-108 and Notes 14, 15, 33, and 34 of JPMorgan Chases 2008 Annual
Report.
The Firm assesses its consumer credit exposure on a managed basis, which includes credit card
receivables that have been securitized. For a reconciliation of the provision for credit losses on
a reported basis to managed basis, see pages 15-18 of this Form 10-Q.
CREDIT PORTFOLIO
The following table presents JPMorgan Chases credit portfolio as of June 30, 2009, and December
31, 2008. Total credit exposure at June 30, 2009, decreased by $207.5 billion from December 31,
2008, reflecting decreases of $131.6 billion in the wholesale portfolio and $75.9 billion in the
consumer portfolio. During the first half of 2009, lending-related commitments decreased $78.1
billion, derivative receivables decreased $65.1 billion, managed loans decreased $64.1 billion and
receivables from customers decreased $3.2 billion.
While overall portfolio exposure declined, the Firm provided over $150 billion in new loans and
lines of credit to retail and wholesale clients in the second quarter of 2009, and over $300
billion for the year-to-date, including individual consumers, small businesses, large corporations,
not-for-profit organizations, states and municipalities, and other financial institutions.
62
In the table below, reported loans include loans retained; loans held-for-sale (which are carried
at the lower of cost or fair value with changes in value recorded in noninterest revenue); and
loans accounted for at fair value. These loans are presented net of unearned income and deferred
loan costs, for additional information, see Note 13 on pages 135-138 of this Form 10-Q. Average
retained loan balances are used for the net charge-off rate calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
Nonperforming |
|
90 days past due |
|
|
exposure |
|
assets(c)(d) |
|
and still accruing |
|
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
$ |
671,116 |
|
|
$ |
728,915 |
|
|
$ |
14,652 |
|
|
$ |
8,921 |
|
|
$ |
4,210 |
|
|
$ |
3,275 |
|
Loans held-for-sale |
|
|
6,412 |
|
|
|
8,287 |
|
|
|
83 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
3,073 |
|
|
|
7,696 |
|
|
|
50 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
680,601 |
|
|
$ |
744,898 |
|
|
$ |
14,785 |
|
|
$ |
8,953 |
|
|
$ |
4,210 |
|
|
$ |
3,275 |
|
Loans securitized(a) |
|
|
85,790 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
2,066 |
|
|
|
1,802 |
|
|
Total managed loans |
|
|
766,391 |
|
|
|
830,469 |
|
|
|
14,785 |
|
|
|
8,953 |
|
|
|
6,276 |
|
|
|
5,077 |
|
Derivative receivables |
|
|
97,491 |
|
|
|
162,626 |
|
|
|
704 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers |
|
|
12,977 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased receivables |
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed credit-related
assets |
|
|
879,831 |
|
|
|
1,009,236 |
|
|
|
15,489 |
|
|
|
10,032 |
|
|
|
6,276 |
|
|
|
5,077 |
|
Lending-related commitments |
|
|
1,043,273 |
|
|
|
1,121,378 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Assets acquired in loan satisfactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
NA |
|
|
NA |
|
|
|
1,899 |
|
|
|
2,533 |
|
|
NA |
|
|
NA |
|
Other |
|
NA |
|
|
NA |
|
|
|
129 |
|
|
|
149 |
|
|
NA |
|
|
NA |
|
|
Total assets acquired in loan
satisfactions |
|
NA |
|
|
NA |
|
|
|
2,028 |
|
|
|
2,682 |
|
|
NA |
|
|
NA |
|
|
Total credit portfolio |
|
$ |
1,923,104 |
|
|
$ |
2,130,614 |
|
|
$ |
17,517 |
|
|
$ |
12,714 |
|
|
$ |
6,276 |
|
|
$ |
5,077 |
|
|
Net credit derivative hedges
notional(b) |
|
$ |
(74,367 |
) |
|
$ |
(91,451 |
) |
|
$ |
(163 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
|
Liquid securities collateral held
against derivatives |
|
|
(13,796 |
) |
|
|
(19,816 |
) |
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
Net charge-offs |
|
charge-off rate |
|
Net charge-offs |
|
charge-off rate |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
6,019 |
|
|
$ |
2,130 |
|
|
|
3.52 |
% |
|
|
1.67 |
% |
|
$ |
10,415 |
|
|
$ |
4,036 |
|
|
|
3.01 |
% |
|
|
1.60 |
% |
Loans securitized(a) |
|
|
1,664 |
|
|
|
830 |
|
|
|
7.91 |
|
|
|
4.32 |
|
|
|
3,128 |
|
|
|
1,511 |
|
|
|
7.42 |
|
|
|
4.02 |
|
|
Total managed loans |
|
$ |
7,683 |
|
|
$ |
2,960 |
|
|
|
4.00 |
% |
|
|
2.02 |
% |
|
$ |
13,543 |
|
|
$ |
5,547 |
|
|
|
3.49 |
% |
|
|
1.91 |
% |
|
|
|
|
(a) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Note 15 on pages 139-147 of this Form 10-Q. |
|
(b) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage both performing and nonperforming credit
exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For
additional information, see pages 70 and 123-124 of this Form 10-Q. |
|
(c) |
|
Excludes nonperforming loans and assets related to: (1) loans eligible for repurchase, as
well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of
$4.7 billion and $3.3 billion at June 30, 2009, and December 31, 2008, respectively; and (2)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $473 million and $437
million at June 30, 2009, and December 31, 2008, respectively. These amounts for GNMA and
education loans are excluded, as reimbursement is proceeding normally. |
|
(d) |
|
Excludes home lending purchased credit-impaired loans accounted for under SOP 03-3 that were
acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool
basis, and the pools are considered to be performing under SOP 03-3. |
63
WHOLESALE CREDIT PORTFOLIO
As of June 30, 2009, wholesale exposure (IB, CB, TSS and AM) decreased by $131.6 billion from
December 31, 2008. The $131.6 billion decrease was driven by decreases of $65.1 billion of
derivative receivables, $35.9 billion of lending-related commitments, $30.4 billion of loans, and
$3.2 billion of receivables from customers. The decrease in derivative receivables primarily
related to tightening credit spreads, the increase in interest rates and volatile foreign exchange
rates, reflected in credit, interest rate and foreign exchange derivatives, respectively. Loans and
lending-related commitments decreased across all wholesale lines of business, as lower customer
demand continued to affect the level of lending activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
Nonperforming |
|
90 days past due |
|
|
exposure |
|
assets(b) |
|
and still accruing |
|
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans retained |
|
$ |
224,080 |
|
|
$ |
248,089 |
|
|
$ |
5,829 |
|
|
$ |
2,350 |
|
|
$ |
234 |
|
|
$ |
163 |
|
Loans held-for-sale |
|
|
4,472 |
|
|
|
6,259 |
|
|
|
83 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
3,073 |
|
|
|
7,696 |
|
|
|
50 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
231,625 |
|
|
$ |
262,044 |
|
|
$ |
5,962 |
|
|
$ |
2,382 |
|
|
$ |
234 |
|
|
$ |
163 |
|
Derivative receivables |
|
|
97,491 |
|
|
|
162,626 |
|
|
|
704 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers |
|
|
12,977 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased receivables |
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale credit-related assets |
|
|
345,065 |
|
|
|
440,811 |
|
|
|
6,666 |
|
|
|
3,461 |
|
|
|
234 |
|
|
|
163 |
|
Lending-related commitments |
|
|
343,991 |
|
|
|
379,871 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total wholesale credit exposure |
|
$ |
689,056 |
|
|
$ |
820,682 |
|
|
$ |
6,666 |
|
|
$ |
3,461 |
|
|
$ |
234 |
|
|
$ |
163 |
|
|
Net credit derivative hedges notional(a) |
|
$ |
(74,367 |
) |
|
$ |
(91,451 |
) |
|
$ |
(163 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
|
Liquid
securities collateral held against derivatives |
|
|
(13,796 |
) |
|
|
(19,816 |
) |
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
|
|
|
(a) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage both performing and nonperforming credit
exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For
additional information, see pages 70 and 123-124 of this Form 10-Q. |
|
(b) |
|
Excludes assets acquired in loan satisfactions. For additional information, see the wholesale
nonperforming assets by line of business segment table on page 67 of this Form 10-Q. |
64
The following table presents summaries of the maturity and ratings profiles of the wholesale
portfolio as of June 30, 2009, and December 31, 2008. The ratings scale is based on the Firms
internal risk ratings, which generally correspond to the ratings as defined by S&P and Moodys.
Wholesale credit exposure maturity and ratings profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity profile(c) |
|
Ratings profile |
|
|
|
|
Investment- |
|
Noninvestment- |
|
|
|
|
|
|
|
|
|
|
|
|
Due after 1 |
|
|
|
|
|
|
|
|
|
grade (IG) |
|
grade |
|
|
|
|
|
|
At June 30, 2009 |
|
Due in 1 |
|
year through |
|
Due after |
|
|
|
|
|
AAA/Aaa to |
|
BB+/Ba1 |
|
|
|
|
|
Total % |
(in billions, except ratios) |
|
year or less |
|
5 years |
|
5 years |
|
Total |
|
BBB-/Baa3 |
|
& below |
|
Total |
|
of IG |
|
|
|
Loans |
|
|
31 |
% |
|
|
42 |
% |
|
|
27 |
% |
|
|
100 |
% |
|
$ |
132 |
|
|
$ |
92 |
|
|
$ |
224 |
|
|
|
59 |
% |
Derivative receivables |
|
|
15 |
|
|
|
38 |
|
|
|
47 |
|
|
|
100 |
|
|
|
77 |
|
|
|
20 |
|
|
|
97 |
|
|
|
79 |
|
Lending-related
commitments |
|
|
37 |
|
|
|
60 |
|
|
|
3 |
|
|
|
100 |
|
|
|
281 |
|
|
|
63 |
|
|
|
344 |
|
|
|
82 |
|
|
|
|
Total excluding loans
held-for-sale and
loans at fair value |
|
|
32 |
% |
|
|
51 |
% |
|
|
17 |
% |
|
|
100 |
% |
|
$ |
490 |
|
|
$ |
175 |
|
|
$ |
665 |
|
|
|
74 |
% |
Loans held-for-sale and
loans at fair value(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Receivables from
customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Interests in purchased
receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
Total exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689 |
|
|
|
|
|
|
|
|
Net credit derivative
hedges notional(b) |
|
|
49 |
% |
|
|
43 |
% |
|
|
8 |
% |
|
|
100 |
% |
|
$ |
(65 |
) |
|
$ |
(9 |
) |
|
$ |
(74 |
) |
|
|
88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile |
|
|
Maturity profile(c) |
|
Investment- |
|
Noninvestment- |
|
|
|
|
|
|
|
|
|
|
|
|
Due after 1 |
|
|
|
|
|
|
|
|
|
grade (IG) |
|
grade |
|
|
|
|
|
|
At December 31, 2008 |
|
Due in 1 |
|
year through |
|
Due after |
|
|
|
|
|
AAA/Aaa to |
|
BB+/Ba1 |
|
|
|
|
|
Total % |
(in billions, except ratios) |
|
year or less |
|
5 years |
|
5 years |
|
Total |
|
BBB-/Baa3 |
|
& below |
|
Total |
|
of IG |
|
|
|
Loans |
|
|
32 |
% |
|
|
43 |
% |
|
|
25 |
% |
|
|
100 |
% |
|
$ |
161 |
|
|
$ |
87 |
|
|
$ |
248 |
|
|
|
65 |
% |
Derivative receivables |
|
|
31 |
|
|
|
36 |
|
|
|
33 |
|
|
|
100 |
|
|
|
127 |
|
|
|
36 |
|
|
|
163 |
|
|
|
78 |
|
Lending-related
commitments |
|
|
37 |
|
|
|
59 |
|
|
|
4 |
|
|
|
100 |
|
|
|
317 |
|
|
|
63 |
|
|
|
380 |
|
|
|
83 |
|
|
|
|
Total excluding loans
held-for-sale and
loans at fair value |
|
|
34 |
% |
|
|
50 |
% |
|
|
16 |
% |
|
|
100 |
% |
|
$ |
605 |
|
|
$ |
186 |
|
|
$ |
791 |
|
|
|
77 |
% |
Loans held-for-sale and
loans at fair value(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
Receivables from
customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
Total exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
821 |
|
|
|
|
|
|
|
|
Net credit derivative
hedges notional(b) |
|
|
47 |
% |
|
|
47 |
% |
|
|
6 |
% |
|
|
100 |
% |
|
$ |
(82 |
) |
|
$ |
(9 |
) |
|
$ |
(91 |
) |
|
|
90 |
% |
|
|
|
|
|
|
(a) |
|
Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans
transferred from the retained portfolio. |
|
(b) |
|
Represents the net notional amounts of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. |
|
(c) |
|
The maturity profile of loans and lending-related commitments is based on the remaining
contractual maturity. The maturity profile of derivative receivables is based on the maturity
profile of average exposure. See page 87 of JPMorgan Chases 2008 Annual Report for further
discussion of average exposure. |
65
Wholesale credit and criticized exposure selected industry concentration
The Firm focuses on the management and diversification of its industry concentrations, with
particular attention paid to industries with actual or potential credit concerns.
Exposures deemed criticized generally represent a ratings profile similar to a rating of
CCC+/Caa1 and lower, as defined by S&P and Moodys. The total criticized component of the
portfolio, excluding loans held-for-sale and loans at fair value, increased to $33.0 billion at
June 30, 2009, from $26.0 billion at year-end 2008. The increase was primarily related to
downgrades within the portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Total credit exposure |
|
Criticized exposure |
|
Total credit exposure |
|
Criticized exposure |
|
|
Credit |
|
% of |
|
Credit |
|
% of |
|
Credit |
|
% of |
|
Credit |
|
% of |
(in millions, except ratios) |
|
exposure(d) |
|
portfolio |
|
exposure(d) |
|
portfolio |
|
exposure(d) |
|
portfolio |
|
exposure(d) |
|
portfolio |
|
Exposure by industry(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
$ |
78,642 |
|
|
|
12 |
% |
|
$ |
11,479 |
|
|
|
35 |
% |
|
$ |
83,799 |
|
|
|
11 |
% |
|
$ |
7,737 |
|
|
|
30 |
% |
Banks and finance
companies |
|
|
55,326 |
|
|
|
8 |
|
|
|
2,530 |
|
|
|
8 |
|
|
|
75,577 |
|
|
|
10 |
|
|
|
2,849 |
|
|
|
11 |
|
Healthcare |
|
|
35,601 |
|
|
|
5 |
|
|
|
214 |
|
|
|
1 |
|
|
|
38,032 |
|
|
|
5 |
|
|
|
436 |
|
|
|
2 |
|
State and municipal
governments |
|
|
33,417 |
|
|
|
5 |
|
|
|
96 |
|
|
|
|
|
|
|
35,954 |
|
|
|
5 |
|
|
|
847 |
|
|
|
3 |
|
Utilities |
|
|
31,587 |
|
|
|
5 |
|
|
|
2,173 |
|
|
|
7 |
|
|
|
34,246 |
|
|
|
4 |
|
|
|
114 |
|
|
|
|
|
Retail and consumer
services |
|
|
30,336 |
|
|
|
5 |
|
|
|
996 |
|
|
|
3 |
|
|
|
32,714 |
|
|
|
4 |
|
|
|
1,311 |
|
|
|
5 |
|
Asset managers |
|
|
29,412 |
|
|
|
4 |
|
|
|
860 |
|
|
|
3 |
|
|
|
49,256 |
|
|
|
6 |
|
|
|
819 |
|
|
|
3 |
|
Consumer products |
|
|
27,222 |
|
|
|
4 |
|
|
|
483 |
|
|
|
1 |
|
|
|
29,766 |
|
|
|
4 |
|
|
|
792 |
|
|
|
3 |
|
Oil and gas |
|
|
23,709 |
|
|
|
4 |
|
|
|
460 |
|
|
|
1 |
|
|
|
24,746 |
|
|
|
3 |
|
|
|
231 |
|
|
|
1 |
|
Securities firms and
exchanges |
|
|
16,433 |
|
|
|
3 |
|
|
|
138 |
|
|
|
|
|
|
|
25,590 |
|
|
|
3 |
|
|
|
138 |
|
|
|
1 |
|
Media |
|
|
15,181 |
|
|
|
2 |
|
|
|
1,991 |
|
|
|
6 |
|
|
|
17,254 |
|
|
|
2 |
|
|
|
1,674 |
|
|
|
6 |
|
Technology |
|
|
14,851 |
|
|
|
2 |
|
|
|
1,170 |
|
|
|
4 |
|
|
|
17,555 |
|
|
|
2 |
|
|
|
230 |
|
|
|
1 |
|
Insurance |
|
|
14,555 |
|
|
|
2 |
|
|
|
556 |
|
|
|
2 |
|
|
|
17,744 |
|
|
|
2 |
|
|
|
712 |
|
|
|
3 |
|
Metals/mining |
|
|
14,428 |
|
|
|
2 |
|
|
|
640 |
|
|
|
2 |
|
|
|
14,980 |
|
|
|
2 |
|
|
|
262 |
|
|
|
1 |
|
Central government |
|
|
12,352 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
15,259 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Building materials/
construction |
|
|
11,855 |
|
|
|
2 |
|
|
|
1,710 |
|
|
|
5 |
|
|
|
12,904 |
|
|
|
2 |
|
|
|
1,363 |
|
|
|
5 |
|
Machinery and equipment
manufacturing |
|
|
11,495 |
|
|
|
2 |
|
|
|
299 |
|
|
|
1 |
|
|
|
12,504 |
|
|
|
2 |
|
|
|
82 |
|
|
|
|
|
Business services |
|
|
10,827 |
|
|
|
2 |
|
|
|
275 |
|
|
|
1 |
|
|
|
11,247 |
|
|
|
1 |
|
|
|
145 |
|
|
|
1 |
|
Holding companies |
|
|
10,823 |
|
|
|
2 |
|
|
|
376 |
|
|
|
1 |
|
|
|
14,466 |
|
|
|
2 |
|
|
|
116 |
|
|
|
|
|
Chemicals/plastics |
|
|
10,480 |
|
|
|
2 |
|
|
|
576 |
|
|
|
2 |
|
|
|
11,719 |
|
|
|
1 |
|
|
|
591 |
|
|
|
2 |
|
Automotive |
|
|
9,798 |
|
|
|
1 |
|
|
|
1,843 |
|
|
|
6 |
|
|
|
11,448 |
|
|
|
1 |
|
|
|
1,775 |
|
|
|
7 |
|
Transportation |
|
|
9,573 |
|
|
|
1 |
|
|
|
546 |
|
|
|
2 |
|
|
|
10,253 |
|
|
|
1 |
|
|
|
319 |
|
|
|
1 |
|
Telecom services |
|
|
8,827 |
|
|
|
1 |
|
|
|
76 |
|
|
|
|
|
|
|
9,160 |
|
|
|
1 |
|
|
|
130 |
|
|
|
1 |
|
Agriculture/paper manufacturing |
|
|
6,981 |
|
|
|
1 |
|
|
|
501 |
|
|
|
2 |
|
|
|
7,548 |
|
|
|
1 |
|
|
|
726 |
|
|
|
3 |
|
Aerospace/defense |
|
|
5,367 |
|
|
|
1 |
|
|
|
49 |
|
|
|
|
|
|
|
6,126 |
|
|
|
1 |
|
|
|
31 |
|
|
|
|
|
All other(b) |
|
|
136,484 |
|
|
|
20 |
|
|
|
2,949 |
|
|
|
7 |
|
|
|
170,739 |
|
|
|
22 |
|
|
|
2,567 |
|
|
|
10 |
|
|
Subtotal |
|
$ |
665,562 |
|
|
|
100 |
% |
|
|
32,986 |
|
|
|
100 |
% |
|
$ |
790,586 |
|
|
|
100 |
% |
|
$ |
25,997 |
|
|
|
100 |
% |
|
Loans held-for-sale and
loans at fair value |
|
|
7,545 |
|
|
|
|
|
|
|
1,574 |
|
|
|
|
|
|
|
13,955 |
|
|
|
|
|
|
|
2,258 |
|
|
|
|
|
Receivables from customers |
|
|
12,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased
receivables(c) |
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
689,056 |
|
|
|
|
|
|
|
34,560 |
|
|
|
|
|
|
$ |
820,682 |
|
|
|
|
|
|
$ |
28,255 |
|
|
|
|
|
|
|
|
|
(a) |
|
Rankings are based on exposure at June 30, 2009. The industries presented in the December 31,
2008, table reflect the same rankings of the exposure at June 30, 2009. |
|
(b) |
|
For more information on exposures to SPEs included in all other, see Note 16 on pages
148-153 of this Form 10-Q. |
|
(c) |
|
Represents undivided interests in pools of receivables and similar types of assets due to the
consolidation of one of the Firm-administered multi-seller conduits. |
|
(d) |
|
Credit exposure is net of risk participations and excludes the benefit of credit derivative
hedges and collateral held against derivative receivables or loans. |
66
Loans
The following table presents wholesale loans and nonperforming assets by business segment as of
June 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired in loan |
|
|
|
|
Loans |
|
Nonperforming |
|
satisfactions |
|
|
|
|
|
|
|
|
Held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
Nonperforming |
(in millions) |
|
Retained |
|
and fair value |
|
Total |
|
Loans |
|
Derivatives |
|
owned |
|
Other |
|
assets |
|
Investment Bank |
|
$ |
64,500 |
|
|
$ |
6,814 |
|
|
$ |
71,314 |
|
|
$ |
3,519 |
|
|
$ |
704 |
(b) |
|
$ |
311 |
|
|
$ |
|
|
|
$ |
4,534 |
|
Commercial Banking |
|
|
105,556 |
|
|
|
296 |
|
|
|
105,852 |
|
|
|
2,111 |
|
|
|
|
|
|
|
134 |
|
|
|
10 |
|
|
|
2,255 |
|
Treasury &
Securities Services |
|
|
17,929 |
|
|
|
|
|
|
|
17,929 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Asset Management |
|
|
35,474 |
|
|
|
|
|
|
|
35,474 |
|
|
|
313 |
|
|
|
|
|
|
|
2 |
|
|
|
11 |
|
|
|
326 |
|
Corporate/Private
Equity |
|
|
621 |
|
|
|
435 |
|
|
|
1,056 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
Total |
|
$ |
224,080 |
|
|
$ |
7,545 |
|
|
$ |
231,625 |
|
|
$ |
5,962 |
(a) |
|
$ |
704 |
|
|
$ |
447 |
|
|
$ |
21 |
|
|
$ |
7,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired in loan |
|
|
|
|
Loans |
|
Nonperforming |
|
satisfactions |
|
|
|
|
|
|
|
|
Held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
|
|
|
Nonperforming |
(in millions) |
|
Retained |
|
and fair value |
|
Total |
|
Loans |
|
Derivatives |
|
owned |
|
Other |
|
assets |
|
Investment Bank |
|
$ |
71,357 |
|
|
$ |
13,660 |
|
|
$ |
85,017 |
|
|
$ |
1,175 |
|
|
$ |
1,079 |
(b) |
|
$ |
247 |
|
|
$ |
|
|
|
$ |
2,501 |
|
Commercial Banking |
|
|
115,130 |
|
|
|
295 |
|
|
|
115,425 |
|
|
|
1,026 |
|
|
|
|
|
|
|
102 |
|
|
|
14 |
|
|
|
1,142 |
|
Treasury &
Securities Services |
|
|
24,508 |
|
|
|
|
|
|
|
24,508 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
Asset Management |
|
|
36,188 |
|
|
|
|
|
|
|
36,188 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
172 |
|
Corporate/Private
Equity |
|
|
906 |
|
|
|
|
|
|
|
906 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Total |
|
$ |
248,089 |
|
|
$ |
13,955 |
|
|
$ |
262,044 |
|
|
$ |
2,382 |
(a) |
|
$ |
1,079 |
|
|
$ |
349 |
|
|
$ |
39 |
|
|
$ |
3,849 |
|
|
|
|
|
(a) |
|
At June 30, 2009, and December 31, 2008, the Firm holds an allowance for loan losses of $2.1
billion and $712 million, respectively, related to these nonperforming loans resulting in
allowance coverage ratios of 35% and 30%, respectively. Wholesale nonperforming loans
represent 2.57% and 0.91% of total wholesale loans at June 30, 2009, and December 31, 2008,
respectively. |
|
(b) |
|
Nonperforming derivatives represent less than 1.0% of the total derivative receivables net of
cash collateral at both June 30, 2009, and December 31, 2008. |
In the normal course of business, the Firm provides loans to a variety of customers, from large
corporate and institutional clients to high-net-worth individuals. Total loans include retained
loans, lease financing receivables, bank acceptances, overdrafts, as well as loans held-for-sale
and loans carried at fair value.
Retained wholesale loans were $224.1 billion at June 30, 2009, compared with $248.1 billion at
December 31, 2008. The $24.0 billion decrease, across all wholesale lines of business, reflected
lower customer demand. Loans held-for-sale and loans at fair value relate primarily to syndicated
loans and loans transferred from the retained portfolio. Held-for-sale loans were $4.5 billion and
$6.3 billion, and loans carried at fair value were $3.0 billion and $7.7 billion, at June 30, 2009,
and December 31, 2008, respectively. The decreases in both held-for-sale loans and loans at fair
value reflect sales, reduced carrying values and lower volumes in the syndication market.
The Firm actively manages wholesale credit exposure through loan and commitment sales.
During the first six months of 2009 and 2008, the Firm sold $879 million and $2.2 billion of loans
and commitments, respectively, recognizing losses of $23 million and $17 million, respectively.
These results include gains or losses on sales of nonperforming loans, if any, as discussed on page
68 of this Form 10-Q. These activities are not related to the Firms securitization activities,
which are undertaken for liquidity and balance sheetmanagement purposes. For further discussion of
securitization activity, see Liquidity Risk Management and Note 15 on
pages 5862 and 139147
respectively, of this Form 10-Q.
A loan is considered nonperforming when it is probable that the Firm will be unable to collect all
principal and interest according to the contractual terms of the agreement. Nonperforming loans
were $6.0 billion at June 30, 2009, an increase of $3.6 billion from December 31,
2008, reflecting continued deterioration in the credit environment,
predominantly related to loans
in the real estate, bank and finance companies and automotive industries.
67
The following table presents the change in the nonperforming loan portfolio for the six months
ended June 30, 2009 and 2008.
Nonperforming loan activity
|
|
|
|
|
|
|
|
|
Wholesale |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Beginning balance at January 1 |
|
$ |
2,382 |
|
|
$ |
514 |
|
Additions |
|
|
6,063 |
|
|
|
997 |
|
|
Reductions: |
|
|
|
|
|
|
|
|
Paydowns and other |
|
|
1,510 |
|
|
|
393 |
|
Gross charge-offs |
|
|
903 |
|
|
|
212 |
|
Returned to performing |
|
|
70 |
|
|
|
22 |
|
Sales |
|
|
|
|
|
|
14 |
|
|
Total reductions |
|
|
2,483 |
|
|
|
641 |
|
|
Net additions |
|
|
3,580 |
|
|
|
356 |
|
|
Ending balance |
|
$ |
5,962 |
|
|
$ |
870 |
|
|
The following table presents net charge-offs, which are defined as gross charge-offs less
recoveries, for the three and six months ended June 30, 2009 and 2008. The amounts in the table
below do not include gains from the sales of nonperforming loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
Wholesale |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans reported |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
679 |
|
|
$ |
41 |
|
|
$ |
870 |
|
|
$ |
133 |
|
Average annual net charge-off rate(a) |
|
|
1.19 |
% |
|
|
0.08 |
% |
|
|
0.75 |
% |
|
|
0.13 |
% |
|
|
|
|
(a) |
|
Excludes average wholesale loans held-for-sale and loans at fair value of $9.7 billion and
$20.8 billion for the quarters ended June 30, 2009 and 2008 respectively, and $11.5 billion
and $20.5 billion for year-to-date 2009 and 2008, respectively. |
Derivatives
Derivative contracts
In the normal course of business, the Firm uses derivative instruments to meet the needs of
customers; to generate revenue through trading activities; to manage exposure to fluctuations in
interest rates, currencies and other markets; and to manage the Firms credit exposure. For further
discussion of these contracts (including notional amounts), see Note 5 on pages 116124 of this
Form 10-Q, and Derivative contracts on pages 8790 (including notional amounts) and Note 32 and
Note 34 on pages 202205 and 206210 of JPMorgan Chases 2008 Annual Report.
The following table summarizes the net derivative receivables MTM for the periods presented.
Derivative receivables MTM
|
|
|
|
|
|
|
|
|
|
|
Derivative receivables MTM |
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Interest rate(a) |
|
$ |
33,956 |
|
|
$ |
49,996 |
|
Credit derivatives |
|
|
25,413 |
|
|
|
44,695 |
|
Foreign exchange(a) |
|
|
18,851 |
|
|
|
38,820 |
|
Equity |
|
|
6,496 |
|
|
|
14,285 |
|
Commodity |
|
|
12,775 |
|
|
|
14,830 |
|
|
Total, net of cash collateral |
|
|
97,491 |
|
|
|
162,626 |
|
Liquid securities collateral held against derivative receivables |
|
|
(13,796 |
) |
|
|
(19,816 |
) |
|
Total, net of all collateral |
|
$ |
83,695 |
|
|
$ |
142,810 |
|
|
|
|
|
(a) |
|
In 2009, cross-currency interest rate swaps previously reported in interest rate contracts
were reclassified to foreign exchange contracts to be more consistent with industry practice.
The effect of this change resulted in a reclassification of $14.1 billion of cross-currency
interest rate swaps to foreign exchange contracts as of December 31, 2008. |
68
The following table summarizes the ratings profile of the Firms derivative receivables MTM, net of
other liquid securities collateral, for the dates indicated.
Ratings profile of derivative receivables MTM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
Rating equivalent |
|
Exposure net of |
|
% of exposure |
|
Exposure net of |
|
% of exposure |
(in millions, except ratios) |
|
all collateral |
|
net of all collateral |
|
all collateral |
|
net of all collateral |
|
AAA/Aaa to AA-/Aa3 |
|
$ |
39,996 |
|
|
|
48 |
% |
|
$ |
68,708 |
|
|
|
48 |
% |
A+/A1 to A-/A3 |
|
|
14,078 |
|
|
|
17 |
|
|
|
24,748 |
|
|
|
17 |
|
BBB+/Baa1 to BBB-/Baa3 |
|
|
10,451 |
|
|
|
12 |
|
|
|
15,747 |
|
|
|
11 |
|
BB+/Ba1 to B-/B3 |
|
|
16,551 |
|
|
|
20 |
|
|
|
28,186 |
|
|
|
20 |
|
CCC+/Caa1 and below |
|
|
2,619 |
|
|
|
3 |
|
|
|
5,421 |
|
|
|
4 |
|
|
Total |
|
$ |
83,695 |
|
|
|
100 |
% |
|
$ |
142,810 |
|
|
|
100 |
% |
|
The amount of derivative receivables reported on the Consolidated Balance Sheets of $97.5 billion
and $162.6 billion at June 30, 2009, and December 31, 2008, respectively, are the amount of the MTM
or fair value of the derivative contracts after giving effect to legally enforceable master netting
agreements, cash collateral held by the Firm and CVA. These amounts on the Consolidated Balance
Sheets represent the cost to the Firm to replace the contracts at current market rates should the
counterparty default. However, in managements view, the appropriate measure of current credit risk
should also reflect additional liquid securities held as collateral by the Firm of $13.8 billion
and $19.8 billion at June 30, 2009, and December 31, 2008, respectively, resulting in total
exposure, net of all collateral, of $83.7 billion and $142.8 billion at June 30, 2009, and December
31, 2008, respectively. The decrease of $59.1 billion in derivative receivables MTM, net of
collateral, from December 31, 2008, was primarily related to tightening credit spreads, the
increase in interest rates and volatile foreign exchange rates, reflected in credit, interest rate
and foreign exchange derivatives, respectively.
The Firm also holds additional collateral delivered by clients at the initiation of transactions.
Though this collateral does not reduce the balances noted in the table above, it is available as
security against potential exposure that could arise should the MTM of the clients derivative
transactions move in the Firms favor. As of June 30, 2009, and December 31, 2008, the Firm held
$18.5 billion and $22.2 billion of this additional collateral, respectively. The derivative
receivables MTM, net of all collateral, also do not include other credit enhancements in the form
of letters of credit.
The Firm actively pursues the use of collateral agreements to mitigate counterparty credit risk in
derivatives. The percentage of the Firms derivatives transactions subject to collateral
agreements, excluding foreign exchange spot trades which are not typically covered by collateral
agreements due to their short maturity, was 89% as of June 30, 2009, and remained largely unchanged
from 88% at December 31, 2008.
The Firm posted $67.7 billion and $99.1 billion of collateral at June 30, 2009, and December 31,
2008, respectively.
Certain derivative and collateral agreements include provisions that require the counterparty
and/or the Firm, upon specified downgrades in the respective credit ratings of their legal
entities, to post collateral for the benefit of the other party. At June 30, 2009, the impact of a
single-notch and six-notch ratings downgrade to JPMorgan Chase & Co., and its subsidiaries,
primarily JPMorgan Chase Bank, N.A., would have required $1.2 billion and $4.0 billion,
respectively, of additional collateral to be posted by the Firm. Certain derivative contracts also
provide for termination of the contract, generally upon a downgrade to a specified rating of either
the Firm or the counterparty, at the then-existing MTM value of the derivative contracts.
Credit derivatives
For further detailed discussion of credit derivatives, including the types of credit derivatives,
see Credit derivatives on pages 8990 and Note 32 on pages 202205, respectively, of JPMorgan
Chases 2008 Annual Report. The following table presents the Firms notional amounts of credit
derivatives protection purchased and sold as of June 30, 2009, and December 31, 2008.
69
Credit derivative positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
|
|
|
Dealer/client |
|
Credit portfolio |
|
|
|
|
Protection |
|
Protection |
|
Protection |
|
Protection |
|
|
(in billions) |
|
purchased(b) |
|
sold(b) |
|
purchased(b)(c) |
|
sold(b) |
|
Total |
|
June 30, 2009
|
|
$ |
3,412 |
|
|
$ |
3,325 |
|
|
$ |
75 |
|
|
$ |
1 |
|
|
$ |
6,813 |
|
December 31, 2008(a)
|
|
|
4,193 |
|
|
|
4,102 |
|
|
|
92 |
|
|
|
1 |
|
|
|
8,388 |
|
|
|
|
|
(a) |
|
The dealer/client amounts of protection purchased and protection sold have been revised for
the prior period. |
|
(b) |
|
Included $3.3 trillion and $4.0 trillion at June 30, 2009, and December 31, 2008,
respectively, of notional exposure within protection purchased and protection sold where the
underlying reference instrument is identical. For a further discussion on credit derivatives,
see Note 5 on pages 116124 of this Form 10-Q. |
|
(c) |
|
Included $24.1 billion and $34.9 billion at June 30, 2009, and December 31, 2008,
respectively, that represented the notional amount for structured portfolio protection; the
Firm retains the first risk of loss on this portfolio. |
Dealer/client
For a further discussion on dealer/client business related to credit protection, see Dealer/client
business on page 89 of JPMorgan Chases 2008 Annual Report. At June 30, 2009, the total notional
amount of protection purchased and sold in the dealer/client business decreased by $1.6 trillion
from year-end 2008, primarily as a result of industry efforts to reduce offsetting trade activity.
Credit portfolio activities
|
|
|
|
|
|
|
|
|
Use of single-name and portfolio credit derivatives |
|
Notional amount of protection purchased and sold |
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Credit derivatives used to manage: |
|
|
|
|
|
|
|
|
Loans and lending-related commitments |
|
$ |
63,277 |
|
|
$ |
81,227 |
|
Derivative receivables |
|
|
12,148 |
|
|
|
10,861 |
|
|
Total protection purchased(a) |
|
$ |
75,425 |
|
|
$ |
92,088 |
|
Total protection sold |
|
|
1,058 |
|
|
|
637 |
|
|
Credit derivatives hedges notional |
|
$ |
74,367 |
|
|
$ |
91,451 |
|
|
|
|
|
(a) |
|
Included $24.1 billion and $34.9 billion at June 30, 2009, and December 31, 2008,
respectively, that represented the notional amount for structured portfolio protection; the
Firm retains the first risk of loss on this portfolio. |
The credit derivatives used by JPMorgan Chase for credit portfolio management activities do not
qualify for hedge accounting under SFAS 133; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions revenue. In contrast, the loans and
lending-related commitments being risk-managed are accounted for on an accrual basis. This
asymmetry in accounting treatment, between loans and lending-related commitments and the credit
derivatives used in credit portfolio management activities, causes earnings volatility that is not
representative, in the Firms view, of the true changes in value of the Firms overall credit
exposure. The MTM related to the Firms credit derivatives used for managing credit exposure, as
well as the MTM related to the CVA (which reflects the credit quality of derivatives counterparty
exposure) are included in the gains and losses realized on credit derivatives disclosed in the
table below. These results can vary from year to year due to market conditions that impact specific
positions in the portfolio. For a discussion of CVA related to derivative contracts, see Derivative
receivables MTM on page 139 of JPMorgan Chases 2008 Annual Report and page 68 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Hedges of lending-related commitments(a)
|
|
$ |
(1,512 |
) |
|
$ |
(209 |
) |
|
$ |
(2,064 |
) |
|
$ |
178 |
|
CVA and hedges of CVA(a)
|
|
|
1,196 |
|
|
|
151 |
|
|
|
1,319 |
|
|
|
(583 |
) |
|
Net gains (losses)(b)
|
|
$ |
(316 |
) |
|
$ |
(58 |
) |
|
$ |
(745 |
) |
|
$ |
(405 |
) |
|
|
|
|
(a) |
|
These hedges do not qualify for hedge accounting under SFAS 133. |
|
(b) |
|
Excluded losses of $1.7 billion and gains of $237 million for the quarters ended June 30,
2009 and 2008, respectively, and losses of $806 million and gains of $1.5 billion for six
months ended 2009 and 2008, respectively, of other principal transaction revenue that are not
associated with hedging activities. |
Lending-related commitments
JPMorgan Chase utilizes lending-related financial instruments, such as commitments and guarantees,
to meet the financing needs of its customers. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterparties draw down on these
commitments or the Firm fulfills its obligation under these guarantees, and the counterparties
subsequently fail to perform according to the terms of these contracts.
70
Wholesale lending-related commitments were $344.0 billion at June 30, 2009, compared with $379.9
billion at December 31, 2008. The $35.9 billion decrease reflects lower customer demand.
In the Firms view, the total
contractual amount of these wholesale lending-related instruments is not representative of the
Firms actual credit risk exposure or funding requirements. In determining the amount of credit
risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for
allocating credit risk capital to these instruments, the Firm has established a loan-equivalent
amount for each commitment; this amount represents the portion of the unused commitment or other
contingent exposure that is expected, based on average portfolio historical experience, to become
drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firms
lending-related commitments was $181.6 billion and $204.3 billion as of June 30, 2009, and December
31, 2008, respectively.
Emerging markets country exposure
The Firm has a comprehensive internal process for measuring and managing exposures to emerging
markets countries. There is no common definition of emerging markets, but the Firm generally
includes in its definition those countries whose sovereign debt ratings are equivalent to A+ or
lower. Exposures to a country include all credit-related lending, trading and investment
activities, whether cross-border or locally funded. In addition to monitoring country exposures,
the Firm uses stress tests to measure and manage the risk of extreme loss associated with sovereign
crises.
The table below presents the Firms exposure to its top ten emerging markets countries. The
selection of countries is based solely on the Firms largest total exposures by country and not the
Firms view of any actual or potentially adverse credit conditions. Exposure is reported based on
the country where the assets of the obligor, counterparty or guarantor are located. Exposure
amounts are adjusted for collateral and for credit enhancements (e.g., guarantees and letters of
credit) provided by third parties; outstandings supported by a guarantor located outside the
country or backed by collateral held outside the country are assigned to the country of the
enhancement provider. In addition, the effect of credit derivative hedges and other short credit or
equity trading positions are reflected in the table below. Total exposure includes exposure to both
government and private-sector entities in a country.
Top 10 emerging markets country exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 |
|
Cross-border |
|
|
|
|
|
Total |
(in billions) |
|
Lending(a) |
|
Trading(b) |
|
Other(c) |
|
Total |
|
Local(d) |
|
exposure |
|
South Korea |
|
$ |
2.5 |
|
|
$ |
1.0 |
|
|
$ |
1.1 |
|
|
$ |
4.6 |
|
|
$ |
2.4 |
|
|
$ |
7.0 |
|
Brazil |
|
|
2.6 |
|
|
|
(0.4 |
) |
|
|
1.0 |
|
|
|
3.2 |
|
|
|
2.3 |
|
|
|
5.5 |
|
India |
|
|
1.1 |
|
|
|
2.0 |
|
|
|
1.0 |
|
|
|
4.1 |
|
|
|
1.1 |
|
|
|
5.2 |
|
Mexico |
|
|
1.9 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
2.9 |
|
|
|
|
|
|
|
2.9 |
|
Hong Kong |
|
|
1.1 |
|
|
|
0.4 |
|
|
|
1.1 |
|
|
|
2.6 |
|
|
|
|
|
|
|
2.6 |
|
China |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
2.3 |
|
|
|
0.2 |
|
|
|
2.5 |
|
Taiwan |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
1.0 |
|
|
|
1.4 |
|
|
|
2.4 |
|
Malaysia |
|
|
0.2 |
|
|
|
1.4 |
|
|
|
0.2 |
|
|
|
1.8 |
|
|
|
0.6 |
|
|
|
2.4 |
|
United Arab Emirates |
|
|
1.5 |
|
|
|
0.4 |
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
1.9 |
|
South Africa |
|
|
0.5 |
|
|
|
0.8 |
|
|
|
0.6 |
|
|
|
1.9 |
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
Cross-border |
|
|
|
|
|
Total |
(in billions) |
|
Lending(a) |
|
Trading(b) |
|
Other(c) |
|
Total |
|
Local(d) |
|
exposure |
|
South Korea |
|
$ |
2.9 |
|
|
$ |
1.6 |
|
|
$ |
0.9 |
|
|
$ |
5.4 |
|
|
$ |
2.3 |
|
|
$ |
7.7 |
|
India |
|
|
2.2 |
|
|
|
2.8 |
|
|
|
0.9 |
|
|
|
5.9 |
|
|
|
0.6 |
|
|
|
6.5 |
|
China |
|
|
1.8 |
|
|
|
1.6 |
|
|
|
0.3 |
|
|
|
3.7 |
|
|
|
0.8 |
|
|
|
4.5 |
|
Brazil |
|
|
1.8 |
|
|
|
|
|
|
|
0.5 |
|
|
|
2.3 |
|
|
|
1.3 |
|
|
|
3.6 |
|
Taiwan |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
2.5 |
|
|
|
3.1 |
|
Hong Kong |
|
|
1.3 |
|
|
|
0.3 |
|
|
|
1.2 |
|
|
|
2.8 |
|
|
|
|
|
|
|
2.8 |
|
United Arab Emirates |
|
|
1.8 |
|
|
|
0.7 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
Mexico |
|
|
1.9 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
South Africa |
|
|
0.9 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
Russia |
|
|
1.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
(a) |
|
Lending includes loans and accrued interest receivable, interest-bearing deposits with banks,
acceptances, other monetary assets, issued letters of credit net of participations, and
undrawn commitments to extend credit. |
|
(b) |
|
Trading includes: (1) issuer exposure on cross-border debt and equity instruments, held both
in trading and investment accounts and adjusted for the impact of issuer hedges, including
credit derivatives; and (2) counterparty exposure on derivative and foreign exchange contracts
as well as security financing trades (resale agreements and securities borrowed). |
|
(c) |
|
Other represents mainly local exposure funded cross-border including capital investments in
local entities. |
|
(d) |
|
Local exposure is defined as exposure to a country denominated in local currency, booked and
funded locally. Any exposure not meeting these criteria is defined as cross-border exposure. |
71
CONSUMER CREDIT PORTFOLIO
JPMorgan Chases consumer portfolio consists primarily of residential mortgages, home equity loans,
credit cards, auto loans, student loans and business banking loans, with a primary focus on serving
the prime consumer credit market. The consumer credit portfolio also includes certain loans
acquired in the Washington Mutual transaction, primarily mortgage, home equity and credit card
loans. The RFS portfolio includes home equity lines of credit and mortgage loans with interest-only
payment options to predominantly prime borrowers, as well as certain payment-option loans acquired
in the Washington Mutual transaction that may result in negative amortization.
A substantial portion of the consumer loans acquired in the Washington Mutual transaction were
identified as credit-impaired based on an analysis of high-risk characteristics, including product
type, loan-to-value ratios, FICO scores and delinquency status. These purchased credit-impaired
loans are accounted for under SOP 03-3 on a pool basis, and the pools are considered to be
performing under SOP 03-3. At the time of the acquisition, these loans were recorded at fair value,
including an estimate of losses that are expected to be incurred over the estimated remaining lives
of the loan pools. Therefore, no allowance for loan losses was recorded as of the transaction
date. For additional information, see Note 13 on pages 135-138 of this Form 10-Q.
The credit performance of the consumer portfolio across the entire product spectrum continues to be
negatively affected by the economic environment. Higher unemployment and weaker overall economic
conditions have led to a significant increase in the number of loans charged off, while continued
weak housing prices have driven a significant increase in the amount of loss recognized when the
loans are charged off. Delinquencies and nonperforming loans and assets continued to increase in
the second quarter of 2009, particularly for the prime mortgage
portfolio. The increases in these credit quality metrics were
due, in part, to foreclosure moratorium programs in late 2008 and early 2009. These moratoriums
halted stages of the foreclosure process while foreclosure prevention
programs were enhanced.
Losses related to these loans continued to be recognized in accordance with the Firms normal
charge-off practices, but some delinquent loans that would have otherwise been transferred to Real
Estate Owned remain in the mortgage and home equity loan portfolios.
Additional deterioration in the overall economic environment, including continued
deterioration in the labor market, could cause delinquencies and losses to increase beyond the
Firms current expectations.
Since mid-2007, the Firm has taken actions to reduce risk exposure by tightening both underwriting
and loan qualification standards for real estate lending, as well as for consumer lending for
non-real estate products. Tighter income verification, more conservative collateral valuation,
reduced loan-to-value maximums and higher FICO and custom risk score requirements are just some of
the actions taken to date to mitigate risk related to new originations. New originations of
subprime mortgage loans, and broker-originated mortgage and home equity loans have been eliminated
entirely. The Firm believes that these actions have better aligned loan pricing with the underlying
credit risk of the loan, while resulting in significant reductions in new originations of loans
with high risk characteristics.
During the first half of 2009, the Firm performed systematic reviews of its real estate portfolio
to identify homeowners most in need of assistance, opened new regional counseling centers, hired
additional loan counselors, introduced new financing alternatives, proactively reached out to
borrowers to offer prequalified modifications, and commenced a new process to independently review
each loan before moving it into the foreclosure process. In addition, during the first quarter of
2009, the U.S. Treasury introduced the Making Home Affordable Plan (MHA), which includes programs
designed to assist eligible homeowners by modifying the terms of their mortgages. The Firm is
participating in MHA while continuing to expand its other loss-mitigation efforts for financially
stressed borrowers who do not qualify for the MHA programs. MHA and the Firms other loss
mitigation programs generally represent various forms of term extensions, rate reductions and
forbearances provided to financially troubled borrowers. Under these programs, borrowers must make
three payments during a 90 day trial modification period and be successfully re-underwritten with
income verification, before their loan is officially deemed to be modified. Upon formal
modification, the loan is generally accounted for as a troubled debt
restructuring.
For purchased credit-impaired loans,
the impact of the modification is incorporated into the Firms quarterly assessment of whether a
probable and/or significant change in estimated future cash flows has occurred and the loans
continue to be reported as purchased credit-impaired loans. As of June 30, 2009, approximately
138,000 approved trial mortgage modifications were outstanding, of which approximately 26,000 loans
with an unpaid principal balance of $8.3 billion were included on the Firms balance sheet.
Approximately $4.6 billion of these loans were included in the Firms purchased credit-impaired
loan portfolio.
72
The Firms loss-mitigation programs are intended to minimize the economic loss to the Firm, while
providing alternatives to foreclosure. The success of these programs is highly dependent on
borrowers ongoing ability and willingness to repay in accordance with the modified terms, and
could be adversely affected by additional deterioration in the economic environment or shifts in
borrower behavior.
The following table presents managed consumer credit-related information (including RFS, CS and
residential mortgage loans reported in the Corporate/Private Equity segment) for the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
|
90 days past due |
|
|
Credit exposure |
|
loans(e) |
|
and still accruing |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding
purchased credit-impaired loans and
loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
108,229 |
|
|
$ |
114,335 |
|
|
$ |
1,487 |
|
|
$ |
1,394 |
|
|
$ |
|
|
|
$ |
|
|
Prime mortgage |
|
|
68,878 |
|
|
|
72,266 |
|
|
|
3,501 |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
13,825 |
|
|
|
15,330 |
|
|
|
2,773 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
9,034 |
|
|
|
9,018 |
|
|
|
182 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Auto loans(a) |
|
|
42,887 |
|
|
|
42,603 |
|
|
|
154 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
Credit card reported(b) |
|
|
85,736 |
|
|
|
104,746 |
|
|
|
4 |
|
|
|
4 |
|
|
|
3,503 |
|
|
|
2,649 |
|
All other loans |
|
|
33,041 |
|
|
|
33,715 |
|
|
|
722 |
|
|
|
430 |
|
|
|
473 |
|
|
|
463 |
|
|
Total |
|
|
361,630 |
|
|
|
392,013 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
3,976 |
|
|
|
3,112 |
|
|
Consumer loans purchased
credit-impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
27,729 |
|
|
|
28,555 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
20,807 |
|
|
|
21,855 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
6,341 |
|
|
|
6,760 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
30,529 |
|
|
|
31,643 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
Total consumer loans purchased
credit-impaired |
|
|
85,406 |
|
|
|
88,813 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
Total consumer loans retained |
|
|
447,036 |
|
|
|
480,826 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
3,976 |
|
|
|
3,112 |
|
|
Loans held-for-sale |
|
|
1,940 |
|
|
|
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans reported |
|
|
448,976 |
|
|
|
482,854 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
3,976 |
|
|
|
3,112 |
|
|
Credit card securitized(c) |
|
|
85,790 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
2,066 |
|
|
|
1,802 |
|
|
Total consumer loans managed |
|
|
534,766 |
|
|
|
568,425 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
6,042 |
|
|
|
4,914 |
|
|
Consumer lending-related
commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity(d) |
|
|
70,642 |
|
|
|
95,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
3,712 |
|
|
|
5,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
6,008 |
|
|
|
4,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card(d) |
|
|
607,949 |
|
|
|
623,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other loans |
|
|
10,971 |
|
|
|
12,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lending-related
commitments |
|
|
699,282 |
|
|
|
741,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer credit portfolio |
|
$ |
1,234,048 |
|
|
$ |
1,309,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Credit card managed |
|
$ |
171,526 |
|
|
$ |
190,317 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
5,569 |
|
|
$ |
4,451 |
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
|
|
|
|
|
|
Average annual |
|
|
Net charge-offs |
|
net charge-off rate(f) |
|
Net charge-offs |
|
net charge-off rate(f) |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding
purchased credit-impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
1,265 |
|
|
$ |
511 |
|
|
|
4.61 |
% |
|
|
2.16 |
% |
|
$ |
2,363 |
|
|
$ |
958 |
|
|
|
4.27 |
% |
|
|
2.03 |
% |
Prime mortgage |
|
|
483 |
|
|
|
104 |
|
|
|
2.76 |
|
|
|
0.91 |
|
|
|
795 |
|
|
|
154 |
|
|
|
2.26 |
|
|
|
0.70 |
|
Subprime mortgage |
|
|
410 |
|
|
|
192 |
|
|
|
11.50 |
|
|
|
4.98 |
|
|
|
774 |
|
|
|
341 |
|
|
|
10.69 |
|
|
|
4.40 |
|
Option ARMs |
|
|
15 |
|
|
|
|
|
|
|
0.66 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
0.43 |
|
|
|
|
|
Auto loans |
|
|
146 |
|
|
|
119 |
|
|
|
1.36 |
|
|
|
1.07 |
|
|
|
320 |
|
|
|
237 |
|
|
|
1.51 |
|
|
|
1.08 |
|
Credit card reported |
|
|
2,689 |
|
|
|
1,064 |
|
|
|
12.03 |
|
|
|
5.66 |
|
|
|
4,718 |
|
|
|
2,053 |
|
|
|
10.15 |
|
|
|
5.35 |
|
All other loans |
|
|
332 |
|
|
|
99 |
|
|
|
3.99 |
|
|
|
1.49 |
|
|
|
556 |
|
|
|
160 |
|
|
|
3.30 |
|
|
|
1.24 |
|
|
Total consumer loans excluding
purchased credit-impaired loans |
|
|
5,340 |
|
|
|
2,089 |
|
|
|
5.79 |
|
|
|
2.77 |
|
|
|
9,545 |
|
|
|
3,903 |
|
|
|
5.11 |
|
|
|
2.60 |
|
|
Total consumer loans reported |
|
|
5,340 |
|
|
|
2,089 |
|
|
|
4.69 |
|
|
|
2.77 |
|
|
|
9,545 |
|
|
|
3,903 |
|
|
|
4.15 |
|
|
|
2.60 |
|
|
Credit card securitized(c) |
|
|
1,664 |
|
|
|
830 |
|
|
|
7.91 |
|
|
|
4.32 |
|
|
|
3,128 |
|
|
|
1,511 |
|
|
|
7.42 |
|
|
|
4.02 |
|
|
Total consumer loans managed |
|
|
7,004 |
|
|
|
2,919 |
|
|
|
5.20 |
|
|
|
3.08 |
|
|
|
12,673 |
|
|
|
5,414 |
|
|
|
4.65 |
|
|
|
2.88 |
|
|
Total consumer loans managed
excluding purchased credit-impaired
loans |
|
|
7,004 |
|
|
|
2,919 |
|
|
|
6.18 |
|
|
|
3.08 |
|
|
|
12,673 |
|
|
|
5,414 |
|
|
|
5.53 |
|
|
|
2.88 |
|
|
Memo: Credit card managed |
|
$ |
4,353 |
|
|
$ |
1,894 |
|
|
|
10.03 |
% |
|
|
4.98 |
% |
|
$ |
7,846 |
|
|
$ |
3,564 |
|
|
|
8.85 |
% |
|
|
4.68 |
% |
|
|
|
|
(a) |
|
Excluded operating lease-related assets of $2.6 billion and $2.2 billion for June 30, 2009,
and December 31, 2008, respectively. |
|
(b) |
|
Includes $5.0 billion of loans at June 30, 2009, from the Washington Mutual Master Trust,
which were consolidated onto the Firms balance sheet at fair value during the second quarter
of 2009. |
|
(c) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see CS on pages 32-35 of this Form 10-Q. |
|
(d) |
|
The credit card and home equity lending-related commitments represent the total available
lines of credit for these products. The Firm has not experienced, and does not anticipate,
that all available lines of credit will be utilized at the same time. For credit card
commitments and home equity commitments (if certain conditions are met), the Firm can reduce
or cancel these lines of credit by providing the borrower prior notice or, in some cases,
without notice as permitted by law. |
|
(e) |
|
Nonperforming loans excluded: (1) loans eligible for repurchase, as well as loans repurchased
from GNMA pools that are insured by U.S. government agencies, of $4.2 billion and $3.0 billion
for June 30, 2009, and December 31, 2008, respectively; and (2) student loans that are 90 days
past due and still accruing, which are insured by U.S. government agencies under the Federal
Family Education Loan Program, of $473 million and $437 million as of June 30, 2009, and
December 31, 2008, respectively. These amounts for GNMA and student loans are excluded, as
reimbursement is proceeding normally . |
|
(f) |
|
Average consumer loans held-for-sale and loans at fair value were $2.8 billion and $3.6
billion for the quarters ended June 30, 2009 and 2008, respectively, and $2.9 billion and $4.0
billion for year-to-date 2009 and 2008, respectively. These amounts were excluded when
calculating the net charge-off rates. |
The following table presents consumer nonperforming assets by business segment as of June 30, 2009,
and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Assets acquired in |
|
|
|
|
|
|
|
|
|
Assets acquired in |
|
|
|
|
|
|
|
|
loan satisfactions |
|
|
|
|
|
|
|
|
|
loan satisfactions |
|
|
(in millions) |
|
Nonperforming loans |
|
Real estate owned |
|
Other |
|
Nonperforming assets |
|
Nonperforming loans |
|
Real estate owned |
|
Other |
|
Nonperforming assets |
|
Retail Financial
Services(a) |
|
$ |
8,792 |
|
|
$ |
1,451 |
|
|
$ |
108 |
|
|
$ |
10,351 |
|
|
$ |
6,548 |
|
|
$ |
2,183 |
|
|
$ |
110 |
|
|
$ |
8,841 |
|
Card Services |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Corporate/Private Equity |
|
|
27 |
|
|
|
1 |
|
|
|
|
|
|
|
28 |
|
|
|
19 |
|
|
|
1 |
|
|
|
|
|
|
|
20 |
|
|
Total |
|
$ |
8,823 |
|
|
$ |
1,452 |
|
|
$ |
108 |
|
|
$ |
10,383 |
|
|
$ |
6,571 |
|
|
$ |
2,184 |
|
|
$ |
110 |
|
|
$ |
8,865 |
|
|
|
|
|
(a) |
|
Excludes nonperforming loans and assets related to: (1) loans eligible for repurchase, as
well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of
$4.7 billion and $3.3 billion for June 30, 2009, and December 31, 2008, respectively; and (2)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $473 million and $437
million as of June 30, 2009, and December 31, 2008, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally . |
74
The following discussion relates to the specific loan and lending-related categories within the
consumer portfolio.
Home equity: Home equity loans at June 30, 2009, were $108.2 billion, excluding purchased
credit-impaired loans, a decrease of $6.1 billion from year-end 2008, primarily reflecting slower
loan origination growth coupled with loan paydowns and charge-offs. The year-to-date 2009 provision
for credit losses for the home equity portfolio includes net increases of $1.5 billion to the
allowance for loan losses, reflecting the impact of the weak economic environment noted above. The
Firm estimates that loans with effective combined loan-to-value (CLTVs) ratios in excess of 100%
represented approximately 28% of the home equity portfolio. Since mid-2007, the maximum effective
CLTVs for new originations have been reduced significantly (currently 50% to 70%, based on
Metropolitan Statistical Area) and new originations of stated income and broker-originated loans
have been eliminated entirely. Additional restrictions on new originations have been implemented in
geographic areas experiencing the greatest housing price depreciation and highest unemployment.
Loss-mitigation strategies include the reduction or closure of outstanding credit lines for
borrowers who have experienced significant increases in CLTVs or decreases in creditworthiness
(e.g. declines in FICO scores), and modifications of loan terms for borrowers experiencing
financial difficulties.
Mortgage: Mortgage loans at June 30, 2009, which include prime mortgages, subprime mortgages,
option adjustable rate mortgages (ARMs) and mortgage loans held-for-sale, were $92.3 billion,
excluding purchased credit-impaired loans, reflecting a $4.5 billion decrease from year-end 2008,
primarily reflecting lower prime mortgage loans retained in the portfolio, as well as run-off of
the subprime mortgage portfolio.
Prime mortgages of $69.5 billion decreased $3.0 billion from December 31, 2008. The year-to-date
2009 provision for credit losses includes a net increase of $760 million to the allowance for loan
losses, reflecting the impact of the weak economic environment noted above. The Firm estimates that
loans with effective loan-to-value (LTVs) ratios in excess of 100% represented approximately 30%
of the prime mortgage portfolio at June 30, 2009. Since mid-2007, the Firm has tightened
underwriting standards for nonconforming prime mortgages, including the elimination of stated
income products, reductions in LTV maximums, and elimination of broker-originations of residential
real estate products.
Subprime mortgages of $13.8 billion, excluding purchased credit-impaired loans, decreased $1.5
billion from December 31, 2008, as a result of the discontinuation of new originations, charge-offs
and foreclosures on delinquent loans. The Firm estimates that loans with effective LTVs in excess
of 100% represented approximately 38% of the subprime mortgage portfolio at June 30, 2009.
Option ARMs of $9.0 billion, excluding purchased credit-impaired loans were flat compared with
December 31, 2008. New originations of option ARMs were discontinued by Washington Mutual prior to
the date of the Washington Mutual transaction. This portfolio is primarily comprised of loans with
low LTVs and high borrower FICOs and for which the Firm currently expects substantially lower
losses in comparison with the purchased credit-impaired portfolio. The Firm has not originated, and
does not originate, option ARMs.
Auto loans: As of June 30, 2009, auto loans of $42.9 billion increased $284 million from year-end
2008. The auto loan portfolio reflects a high concentration of prime quality credits. In response
to recent increases in loan delinquencies and credit losses, particularly in Metropolitan
Statistical Areas (MSAs) experiencing the greatest housing price depreciation and highest
unemployment, credit underwriting criteria have been tightened, which has resulted in the reduction
of both extended-term and high LTV financing.
Credit card: JPMorgan Chase analyzes its credit card portfolio on a managed basis, which includes
credit card receivables on the Consolidated Balance Sheets and those receivables sold to investors
through securitization. Managed credit card receivables were $171.5 billion at June 30, 2009, a
decrease of $18.8 billion from year-end 2008, reflecting lower charge volume and a higher level of
charge-offs. Excluding the Washington Mutual portfolio, managed credit card receivables were $148.4
billion at June 30, 2009.
75
The managed credit card net charge-off rate increased to 10.03% for the second quarter of 2009,
from 4.98% in the second quarter of 2008. The year-to-date managed credit card net charge-off rate
increased to 8.85% in 2009, from 4.68% in 2008. These increases were due primarily to higher
charge-offs as a result of the credit performance of loans acquired in the Washington Mutual
transaction, as well as the result of the current economic environment, especially in MSAs experiencing the
greatest housing price depreciation and highest unemployment. Excluding the Washington Mutual
portfolio, the managed credit card net charge-off rate was 8.97% for the second quarter of 2009 and
7.90% for the year-to-date 2009. The 30-day managed delinquency rate increased to 5.86% at June 30,
2009, from 4.97% at December 31, 2008, as a result of deterioration in the current economic
environment. Excluding the Washington Mutual portfolio, the 30-day managed delinquency
rate was 5.27%, up from 4.36% at December 31, 2008. The allowance for loan losses was increased by
$1.4 billion, reflecting
continued deterioration in the credit environment. As a result of continued weakness in housing
markets, account acquisition credit criteria and account management credit practices have been
tightened, particularly in MSAs experiencing significant home-price declines. The managed credit
card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good
U.S. geographic diversification.
All other loans: All other loans primarily include business banking loans (which are highly
collateralized loans, often with personal loan guarantees), student loans, and other secured and
unsecured consumer loans. As of June 30, 2009, other loans, including loans held-for-sale, of $34.5
billion were down $1.1 billion from year-end 2008, primarily as a result of lower business banking
and student loans. The 2009 provision for credit losses included a net increase of $580 million to
the allowance for loan losses, reflecting the impact of the weak
economic environment.
Purchased credit-impaired loans: Purchased credit-impaired loans of $85.4 billion in the home
lending portfolio represent loans acquired in the Washington Mutual transaction that were recorded
at fair value at the time of acquisition under SOP 03-3. At the acquisition date, the fair value of
these loans included an estimate of losses that are expected to be incurred over the estimated
remaining lives of the loans, and therefore no allowance for loan losses was recorded for these
loans as of the acquisition date. Through the second quarter of 2009, the credit performance of
these loans has generally been consistent with the assumptions used in determining the initial fair
value of these loans, and a probable change in the amounts and timing of future cash flows related
to these loans has not occurred. A probable decrease in managements expectation of future cash
collections related to these loans could result in the need to record an allowance for credit
losses related to these loans in the future. A significant and probable increase in expected cash
flows would generally result in an increase in interest income recognized over the remaining life
of the underlying pool of loans.
Real estate owned: As part of the residential real estate foreclosure process, loans are written
down to the fair value of the underlying real estate asset, less costs to sell. In those instances
where the Firm gains title, ownership and possession of individual properties at the completion of
the foreclosure process, these Real Estate Owned (REO) assets are managed for prompt sale and
disposition at the best possible economic value. Any further gains or losses on REO assets are
recorded as part of other income. Operating expenses, such as real estate taxes and maintenance,
are charged to other expense.
76
The following tables present the geographic distribution of consumer credit outstandings by product
as of June 30, 2009, and December 31, 2008, excluding purchased credit-impaired loans acquired in
the Washington Mutual transaction.
Consumer loans by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009 (in billions) |
|
Home equity |
|
Prime mortgage |
|
Subprime mortgage |
|
Option ARMs |
|
Total home loan portfolio |
|
Auto |
|
Card reported |
|
All other loans |
|
Total consumer loans- reported |
|
Card securitized |
|
Total consumer loans-managed |
|
Excluding purchased
credit-impaired
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
22.0 |
|
|
$ |
21.3 |
|
|
$ |
1.9 |
|
|
$ |
4.0 |
|
|
$ |
49.2 |
|
|
$ |
4.5 |
|
|
$ |
12.1 |
|
|
$ |
1.9 |
|
|
$ |
67.7 |
|
|
$ |
11.9 |
|
|
$ |
79.6 |
|
New York |
|
|
16.3 |
|
|
|
9.9 |
|
|
|
1.6 |
|
|
|
0.9 |
|
|
|
28.7 |
|
|
|
3.5 |
|
|
|
6.7 |
|
|
|
4.7 |
|
|
|
43.6 |
|
|
|
6.5 |
|
|
|
50.1 |
|
Texas |
|
|
7.5 |
|
|
|
2.3 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
10.4 |
|
|
|
4.0 |
|
|
|
6.2 |
|
|
|
3.9 |
|
|
|
24.5 |
|
|
|
6.4 |
|
|
|
30.9 |
|
Florida |
|
|
5.8 |
|
|
|
6.0 |
|
|
|
2.1 |
|
|
|
0.9 |
|
|
|
14.8 |
|
|
|
1.6 |
|
|
|
5.7 |
|
|
|
1.0 |
|
|
|
23.1 |
|
|
|
5.0 |
|
|
|
28.1 |
|
Illinois |
|
|
7.0 |
|
|
|
3.2 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
11.2 |
|
|
|
2.3 |
|
|
|
4.3 |
|
|
|
2.3 |
|
|
|
20.1 |
|
|
|
4.7 |
|
|
|
24.8 |
|
Ohio |
|
|
4.5 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
5.5 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.2 |
|
|
|
15.2 |
|
|
|
3.4 |
|
|
|
18.6 |
|
New Jersey |
|
|
4.8 |
|
|
|
2.4 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
8.2 |
|
|
|
1.6 |
|
|
|
3.3 |
|
|
|
1.0 |
|
|
|
14.1 |
|
|
|
3.6 |
|
|
|
17.7 |
|
Michigan |
|
|
3.4 |
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.1 |
|
|
|
1.8 |
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
12.1 |
|
|
|
2.8 |
|
|
|
14.9 |
|
Arizona |
|
|
5.6 |
|
|
|
1.6 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
7.6 |
|
|
|
1.5 |
|
|
|
1.9 |
|
|
|
1.8 |
|
|
|
12.8 |
|
|
|
2.0 |
|
|
|
14.8 |
|
Pennsylvania |
|
|
1.5 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
2.7 |
|
|
|
1.8 |
|
|
|
3.0 |
|
|
|
0.8 |
|
|
|
8.3 |
|
|
|
3.3 |
|
|
|
11.6 |
|
Washington |
|
|
3.5 |
|
|
|
2.1 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
6.3 |
|
|
|
0.6 |
|
|
|
1.7 |
|
|
|
0.3 |
|
|
|
8.9 |
|
|
|
1.6 |
|
|
|
10.5 |
|
Colorado |
|
|
2.2 |
|
|
|
1.8 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
4.4 |
|
|
|
0.9 |
|
|
|
1.7 |
|
|
|
1.0 |
|
|
|
8.0 |
|
|
|
2.2 |
|
|
|
10.2 |
|
All other |
|
|
24.1 |
|
|
|
16.3 |
|
|
|
4.4 |
|
|
|
1.6 |
|
|
|
46.4 |
|
|
|
15.6 |
|
|
|
33.1 |
|
|
|
10.1 |
|
|
|
105.2 |
|
|
|
32.4 |
|
|
|
137.6 |
|
|
Total excluding
purchased
credit-impaired
loans |
|
$ |
108.2 |
|
|
$ |
69.5 |
|
|
$ |
13.8 |
|
|
$ |
9.0 |
|
|
$ |
200.5 |
|
|
$ |
42.9 |
|
|
$ |
85.7 |
|
|
$ |
34.5 |
|
|
$ |
363.6 |
|
|
$ |
85.8 |
|
|
$ |
449.4 |
|
|
|
December
31, 2008 (in billions) |
|
Home equity |
|
Prime mortgage |
|
Subprime mortgage |
|
Option ARMs |
|
Total home loan portfolio |
|
Auto |
|
Card reported |
|
All other loans |
|
Total consumer loans- reported |
|
Card securitized |
|
Total consumer loans-managed |
|
Excluding purchased
credit-impaired
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
23.2 |
|
|
$ |
22.8 |
|
|
$ |
2.2 |
|
|
$ |
3.8 |
|
|
$ |
52.0 |
|
|
$ |
4.7 |
|
|
$ |
14.8 |
|
|
$ |
2.0 |
|
|
$ |
73.5 |
|
|
$ |
12.5 |
|
|
$ |
86.0 |
|
New York |
|
|
16.3 |
|
|
|
10.4 |
|
|
|
1.7 |
|
|
|
0.9 |
|
|
|
29.3 |
|
|
|
3.7 |
|
|
|
8.3 |
|
|
|
4.7 |
|
|
|
46.0 |
|
|
|
6.6 |
|
|
|
52.6 |
|
Texas |
|
|
8.1 |
|
|
|
2.7 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
11.4 |
|
|
|
3.8 |
|
|
|
7.4 |
|
|
|
4.1 |
|
|
|
26.7 |
|
|
|
6.1 |
|
|
|
32.8 |
|
Florida |
|
|
6.3 |
|
|
|
6.0 |
|
|
|
2.3 |
|
|
|
0.9 |
|
|
|
15.5 |
|
|
|
1.5 |
|
|
|
6.8 |
|
|
|
0.9 |
|
|
|
24.7 |
|
|
|
5.2 |
|
|
|
29.9 |
|
Illinois |
|
|
7.2 |
|
|
|
3.3 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
11.5 |
|
|
|
2.2 |
|
|
|
5.3 |
|
|
|
2.5 |
|
|
|
21.5 |
|
|
|
4.6 |
|
|
|
26.1 |
|
Ohio |
|
|
4.6 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.7 |
|
|
|
3.3 |
|
|
|
4.1 |
|
|
|
3.3 |
|
|
|
16.4 |
|
|
|
3.4 |
|
|
|
19.8 |
|
New Jersey |
|
|
5.0 |
|
|
|
2.5 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
8.6 |
|
|
|
1.6 |
|
|
|
4.2 |
|
|
|
0.9 |
|
|
|
15.3 |
|
|
|
3.6 |
|
|
|
18.9 |
|
Michigan |
|
|
3.6 |
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.3 |
|
|
|
1.5 |
|
|
|
3.4 |
|
|
|
2.8 |
|
|
|
13.0 |
|
|
|
2.8 |
|
|
|
15.8 |
|
Arizona |
|
|
5.9 |
|
|
|
1.6 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
8.1 |
|
|
|
1.6 |
|
|
|
2.3 |
|
|
|
1.9 |
|
|
|
13.9 |
|
|
|
1.8 |
|
|
|
15.7 |
|
Pennsylvania |
|
|
1.6 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
2.9 |
|
|
|
1.7 |
|
|
|
3.9 |
|
|
|
0.7 |
|
|
|
9.2 |
|
|
|
3.2 |
|
|
|
12.4 |
|
Washington |
|
|
3.8 |
|
|
|
2.3 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
6.9 |
|
|
|
0.6 |
|
|
|
2.0 |
|
|
|
0.4 |
|
|
|
9.9 |
|
|
|
1.6 |
|
|
|
11.5 |
|
Colorado |
|
|
2.4 |
|
|
|
1.9 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
4.9 |
|
|
|
0.9 |
|
|
|
2.1 |
|
|
|
0.9 |
|
|
|
8.8 |
|
|
|
2.1 |
|
|
|
10.9 |
|
All other |
|
|
26.3 |
|
|
|
16.3 |
|
|
|
4.9 |
|
|
|
1.5 |
|
|
|
49.0 |
|
|
|
15.5 |
|
|
|
40.1 |
|
|
|
10.5 |
|
|
|
115.1 |
|
|
|
32.1 |
|
|
|
147.2 |
|
|
Total excluding
purchased
credit-impaired
loans |
|
$ |
114.3 |
|
|
$ |
72.5 |
|
|
$ |
15.3 |
|
|
$ |
9.0 |
|
|
$ |
211.1 |
|
|
$ |
42.6 |
|
|
$ |
104.7 |
|
|
$ |
35.6 |
|
|
$ |
394.0 |
|
|
$ |
85.6 |
|
|
$ |
479.6 |
|
|
77
ALLOWANCE FOR CREDIT LOSSES
For a further discussion of the components of the allowance for credit losses, see Critical
Accounting Estimates Used by the Firm on page 87 and Note 14 on page 139 of this Form 10-Q, and
pages 107-108 and Note 15 on pages 166-168 of JPMorgan Chases 2008 Annual Report. At June 30,
2009, management deemed the allowance for credit losses to be appropriate (i.e., sufficient to
absorb losses that are inherent in the portfolio, including losses that are not specifically
identified or for which the size of the loss has not yet been fully determined).
The credit ratios in the table below are based on retained loan balances, which exclude loans
held-for-sale and loans at fair value.
Wholesale retained loans for the periods ended June 30, 2009 and 2008,
were $224.1 billion and $209.4 billion, respectively; and consumer
retained loans for the periods ended June 30, 2009 and 2008, were $447.0
billion and $306.5 billion, respectively.
Average
wholesale retained loans for the six months ended June 30, 2009 and 2008, were $233.9 billion and
$205.5 billion, respectively; and average consumer retained loans for the six months ended June 30,
2009 and 2008 were $464.1 billion and $302.3 billion,
respectively. Also provided are credit ratios
excluding both home lending purchased credit-impaired loans acquired in the Washington Mutual
transaction and credit card loans from the Washington Mutual Master Trust.
For more information on home lending purchased credit-impaired loans, see page 76 of this
Form 10-Q.
For more information on the consolidation of assets from the
Washington Mutual Master Trust see Note 15 on pages 139-147 of this
Form 10-Q.
Summary of changes in the allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
2009 |
|
2008 |
(in millions) |
|
Wholesale |
|
Consumer |
|
Total |
|
Wholesale |
|
Consumer |
|
Total |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, |
|
$ |
6,545 |
|
|
$ |
16,619 |
|
|
$ |
23,164 |
|
|
$ |
3,154 |
|
|
$ |
6,080 |
|
|
$ |
9,234 |
|
Gross charge-offs |
|
|
903 |
|
|
|
10,034 |
|
|
|
10,937 |
|
|
|
212 |
|
|
|
4,312 |
|
|
|
4,524 |
|
Gross recoveries |
|
|
(33 |
) |
|
|
(489 |
) |
|
|
(522 |
) |
|
|
(79 |
) |
|
|
(409 |
) |
|
|
(488 |
) |
|
Net charge-offs |
|
|
870 |
|
|
|
9,545 |
|
|
|
10,415 |
|
|
|
133 |
|
|
|
3,903 |
|
|
|
4,036 |
|
Provision for loan losses |
|
|
2,692 |
|
|
|
13,848 |
|
|
|
16,540 |
|
|
|
1,417 |
|
|
|
6,626 |
|
|
|
8,043 |
|
Other(a) |
|
|
25 |
|
|
|
(242 |
) |
|
|
(217 |
) |
|
|
31 |
|
|
|
(26 |
) |
|
|
5 |
|
|
Ending balance at June 30 |
|
$ |
8,392 |
|
|
$ |
20,680 |
|
|
$ |
29,072 |
|
|
$ |
4,469 |
|
|
$ |
8,777 |
|
|
$ |
13,246 |
|
|
Components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
2,108 |
|
|
$ |
132 |
|
|
$ |
2,240 |
|
|
$ |
174 |
|
|
$ |
61 |
|
|
$ |
235 |
|
Formula-based |
|
|
6,284 |
|
|
|
20,548 |
|
|
|
26,832 |
|
|
|
4,295 |
|
|
|
8,716 |
|
|
|
13,011 |
|
|
Total allowance for loan losses |
|
$ |
8,392 |
|
|
$ |
20,680 |
|
|
$ |
29,072 |
|
|
$ |
4,469 |
|
|
$ |
8,777 |
|
|
$ |
13,246 |
|
|
Allowance for lending-related
commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, |
|
$ |
634 |
|
|
$ |
25 |
|
|
$ |
659 |
|
|
$ |
835 |
|
|
$ |
15 |
|
|
$ |
850 |
|
Provision for lending-related
commitments |
|
|
82 |
|
|
|
5 |
|
|
|
87 |
|
|
|
(165 |
) |
|
|
1 |
|
|
|
(164 |
) |
Other(a) |
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
7 |
|
|
|
(7 |
) |
|
|
|
|
|
Ending balance at June 30 |
|
$ |
719 |
|
|
$ |
27 |
|
|
$ |
746 |
|
|
$ |
677 |
|
|
$ |
9 |
|
|
$ |
686 |
|
|
Components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
111 |
|
|
$ |
|
|
|
$ |
111 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
16 |
|
Formula-based |
|
|
608 |
|
|
|
27 |
|
|
|
635 |
|
|
|
661 |
|
|
|
9 |
|
|
|
670 |
|
|
Total allowance for lending-related commitments |
|
$ |
719 |
|
|
$ |
27 |
|
|
$ |
746 |
|
|
$ |
677 |
|
|
$ |
9 |
|
|
$ |
686 |
|
|
Total allowance for credit losses |
|
$ |
9,111 |
|
|
$ |
20,707 |
|
|
$ |
29,818 |
|
|
$ |
5,146 |
|
|
$ |
8,786 |
|
|
$ |
13,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to loans |
|
|
3.75 |
% |
|
|
4.63 |
% |
|
|
4.33 |
% |
|
|
2.13 |
% |
|
|
2.86 |
% |
|
|
2.57 |
% |
Net charge-off rates |
|
|
0.75 |
|
|
|
4.15 |
|
|
|
3.01 |
|
|
|
0.13 |
|
|
|
2.60 |
|
|
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
ratios excluding home
lending purchased credit-impaired
loans and loans from the
Washington Mutual Master Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to loans
(b)(c) |
|
|
3.75 |
|
|
|
5.80 |
|
|
|
5.01 |
|
|
|
2.13 |
|
|
|
2.86 |
|
|
|
2.57 |
|
|
|
|
|
(a) |
|
Other predominantly includes a reclassification in 2009 related to the issuance and retention
of securities from the Chase Issuance Trust as well as reclassifications of allowance balances
related to business transfers between wholesale and consumer businesses in the first quarter
of 2008. |
|
(b) |
|
Excludes the impact of purchased credit-impaired loans
accounted for under SOP 03-3 that were acquired as part of the
Washington Mutual transaction. These loans were accounted for at fair
value on the acquisition date, which incorporated managements
estimate, as of that date, of credit losses over the remaining life
of the portfolio. No allowance for loan losses has been recorded for
these loans as of June 30, 2009.
|
|
(c) |
|
Excludes loans from the Washington Mutual Master Trust,
which were consolidated onto the Firms balance sheet at fair
value during the second quarter of 2009. No allowance for loan
losses was recorded for these loans as of June 30, 2009.
|
78
The allowance for credit losses increased by $6.0 billion from December 31, 2008, to $29.8 billion,
reflecting increases of $4.1 billion and $1.9 billion in the consumer and wholesale portfolios,
respectively. Excluding held-for-sale loans, loans carried at fair
value, purchased
credit-impaired loans and loans from the Washington Mutual Master
Trust, the allowance for loan losses represented 5.01% of loans at June 30, 2009,
compared with 3.62% at December 31, 2008. The consumer allowance increased $2.9 billion for the
consumer lending and business banking portfolios, as weak economic conditions and housing price
declines continued to drive higher estimated losses for these portfolios. The consumer allowance
for loan losses also increased $1.1 billion for Card Services due to the weakening credit
environment. The increase in wholesale allowance for loan losses reflected the effect of the
continued deterioration in the credit environment.
The allowance for lending-related commitments, which is reported in other liabilities, was $746
million and $659 million at June 30, 2009, and December 31, 2008, respectively. The increase
reflects the continued deterioration in the credit environment.
The following table presents the allowance for loan losses and net charge-offs (recoveries) by
business segment at June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
|
Allowance for loan losses |
|
|
six months ended |
|
June 30, (in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Investment Bank |
|
$ |
5,101 |
|
|
$ |
2,429 |
|
|
$ |
469 |
|
|
$ |
5 |
|
Commercial Banking |
|
|
3,034 |
|
|
|
1,843 |
|
|
|
315 |
|
|
|
130 |
|
Treasury & Securities Services |
|
|
15 |
|
|
|
40 |
|
|
|
19 |
|
|
|
(2 |
) |
Asset Management |
|
|
226 |
|
|
|
147 |
|
|
|
65 |
|
|
|
|
|
Corporate/Private Equity |
|
|
16 |
|
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
Total Wholesale |
|
|
8,392 |
|
|
|
4,469 |
|
|
|
870 |
|
|
|
133 |
|
|
Retail Financial Services |
|
|
11,832 |
|
|
|
5,062 |
|
|
|
4,825 |
|
|
|
1,850 |
|
Card Services reported |
|
|
8,839 |
|
|
|
3,705 |
|
|
|
4,718 |
|
|
|
2,053 |
|
Corporate/Private Equity |
|
|
9 |
|
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
Total Consumer reported |
|
|
20,680 |
|
|
|
8,777 |
|
|
|
9,545 |
|
|
|
3,903 |
|
Credit card securitized |
|
|
|
|
|
|
|
|
|
|
3,128 |
|
|
|
1,511 |
|
|
Total Consumer managed |
|
|
20,680 |
|
|
|
8,777 |
|
|
|
12,673 |
|
|
|
5,414 |
|
|
Total |
|
$ |
29,072 |
|
|
$ |
13,246 |
|
|
$ |
13,543 |
|
|
$ |
5,547 |
|
|
Provision for credit losses
For a discussion of the reported provision for credit losses, see Provision for credit losses on
page 13 of this Form 10-Q. The managed provision for credit losses was $9.7 billion for the three
months ended June 30, 2009, up by $5.4 billion, or 126%, from the prior year. The total consumer
managed provision for credit losses was $8.5 billion in the current quarter, compared with $3.8
billion in the prior year. The increase in the consumer provision reflected increases in estimated
losses across most of the portfolios. The wholesale provision for credit losses was $1.2 billion
for the second quarter of 2009, compared with a provision of $505 million in the prior year,
predominantly reflecting the continued deterioration in the credit environment. The year-to-date
increase from the prior period in both the consumer and wholesale provision for credit losses
reflect the continued deterioration in the credit environment.
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
lending-related |
| |
Total provision |
|
|
|
Provision for loan losses |
|
|
commitments |
|
|
for credit losses |
|
Three months ended June 30, (in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank |
|
$ |
815 |
|
|
$ |
538 |
|
|
$ |
56 |
|
|
$ |
(140 |
) |
|
$ |
871 |
|
|
$ |
398 |
|
Commercial Banking |
|
|
280 |
|
|
|
77 |
|
|
|
32 |
|
|
|
(30 |
) |
|
|
312 |
|
|
|
47 |
|
Treasury & Securities Services |
|
|
(20 |
) |
|
|
7 |
|
|
|
15 |
|
|
|
|
|
|
|
(5 |
) |
|
|
7 |
|
Asset Management |
|
|
59 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
17 |
|
Corporate/Private Equity |
|
|
7 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
36 |
|
|
Total wholesale |
|
|
1,141 |
|
|
|
675 |
|
|
|
103 |
|
|
|
(170 |
) |
|
|
1,244 |
|
|
|
505 |
|
Retail Financial Services |
|
|
3,841 |
|
|
|
1,584 |
|
|
|
5 |
|
|
|
1 |
|
|
|
3,846 |
|
|
|
1,585 |
|
Card Services reported |
|
|
2,939 |
|
|
|
1,364 |
|
|
|
|
|
|
|
|
|
|
|
2,939 |
|
|
|
1,364 |
|
Corporate/Private Equity |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
Total consumer |
|
|
6,782 |
|
|
|
2,949 |
|
|
|
5 |
|
|
|
1 |
|
|
|
6,787 |
|
|
|
2,950 |
|
|
Total provision for credit losses reported |
|
|
7,923 |
|
|
|
3,624 |
|
|
|
108 |
|
|
|
(169 |
) |
|
|
8,031 |
|
|
|
3,455 |
|
Credit card securitized |
|
|
1,664 |
|
|
|
830 |
|
|
|
|
|
|
|
|
|
|
|
1,664 |
|
|
|
830 |
|
|
Total provision for credit losses managed |
|
$ |
9,587 |
|
|
$ |
4,454 |
|
|
$ |
108 |
|
|
$ |
(169 |
) |
|
$ |
9,695 |
|
|
$ |
4,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
lending-related |
|
|
Total provision |
|
|
|
Provision for loan losses |
|
|
commitments |
|
|
for credit losses |
|
Six months ended June 30, (in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank |
|
$ |
2,089 |
|
|
$ |
1,109 |
|
|
$ |
(8 |
) |
|
$ |
(93 |
) |
|
$ |
2,081 |
|
|
$ |
1,016 |
|
Commercial Banking |
|
|
543 |
|
|
|
220 |
|
|
|
62 |
|
|
|
(72 |
) |
|
|
605 |
|
|
|
148 |
|
Treasury & Securities Services |
|
|
(40 |
) |
|
|
18 |
|
|
|
29 |
|
|
|
1 |
|
|
|
(11 |
) |
|
|
19 |
|
Asset Management |
|
|
93 |
|
|
|
34 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
92 |
|
|
|
33 |
|
Corporate/Private Equity |
|
|
7 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
36 |
|
|
Total wholesale |
|
|
2,692 |
|
|
|
1,417 |
|
|
|
82 |
|
|
|
(165 |
) |
|
|
2,774 |
|
|
|
1,252 |
|
Retail Financial Services |
|
|
7,718 |
|
|
|
4,272 |
|
|
|
5 |
|
|
|
1 |
|
|
|
7,723 |
|
|
|
4,273 |
|
Card Services reported |
|
|
6,128 |
|
|
|
2,353 |
|
|
|
|
|
|
|
|
|
|
|
6,128 |
|
|
|
2,353 |
|
Corporate/Private Equity |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
Total consumer |
|
|
13,848 |
|
|
|
6,626 |
|
|
|
5 |
|
|
|
1 |
|
|
|
13,853 |
|
|
|
6,627 |
|
|
Total provision for credit losses reported |
|
|
16,540 |
|
|
|
8,043 |
|
|
|
87 |
|
|
|
(164 |
) |
|
|
16,627 |
|
|
|
7,879 |
|
Credit card securitized |
|
|
3,128 |
|
|
|
1,511 |
|
|
|
|
|
|
|
|
|
|
|
3,128 |
|
|
|
1,511 |
|
|
Total provision for credit losses managed |
|
$ |
19,668 |
|
|
$ |
9,554 |
|
|
$ |
87 |
|
|
$ |
(164 |
) |
|
$ |
19,755 |
|
|
$ |
9,390 |
|
|
MARKET RISK MANAGEMENT
For discussion of the Firms market risk management organization, see pages 99-104 of JPMorgan
Chases 2008 Annual Report.
Value-at-risk (VaR)
JPMorgan Chases primary statistical risk measure, VaR, estimates the potential loss from adverse
market moves in an ordinary market environment and provides a consistent cross-business measure of
risk profiles and levels of diversification. VaR is used for comparing risks across businesses,
monitoring limits, and as an input to economic capital calculations. Each business day the Firm
undertakes a comprehensive VaR calculation that includes both its trading and its nontrading risks.
VaR for nontrading risk measures the amount of potential change in the fair values of the exposures
related to these risks; however, for such risks, VaR is not a measure of reported revenue, since
nontrading activities are generally not marked to market through net income. Hedges of nontrading
activities may be included in trading VaR, since they are marked to market. Credit portfolio VaR
includes VaR on derivative credit valuation adjustments, hedges of the credit valuation adjustment
and mark-to-market hedges of the retained loan portfolio, which are all reported in principal
transactions revenue. For a discussion of credit valuation adjustments, see Note 4 on pages 129-143
of JPMorgan Chases 2008 Annual Report and Note 3 on pages 99-114 of this Form 10-Q. Credit
portfolio VaR does not include the retained loan portfolio, which is not marked to market.
To calculate VaR, the Firm uses historical simulation, based on a one-day time horizon and an
expected tail-loss methodology, which measures risk across instruments and portfolios in a
consistent and comparable way. The simulation is based on data for the previous 12 months. This
approach assumes that historical changes in market values are representative of future changes;
this is an assumption that may not always be accurate, particularly given the volatility in the
current market environment. For certain products, such as lending facilities and some
mortgage-related securities for which price-based time series are not readily available,
market-based data are used in conjunction with sensitivity factors to estimate the
80
risk. It is likely that using an actual price time series for these products, if available, would
impact the VaR results presented. In addition, certain risk parameters, such as correlation risk
among certain IB trading instruments, are not fully captured in VaR.
In the third quarter of 2008, the Firm revised its VaR measurement to include additional risk
positions previously excluded from VaR, thus creating, in the Firms view, a more comprehensive
view of its market risks. In addition, the Firm moved to calculating VaR using a 95% confidence
level to provide a more stable measure of the VaR for day-to-day risk management. The following
sections describe JPMorgan Chases VaR measures under both the legacy 99% confidence level as well
as the new 95% confidence level. The Firm intends to solely present VaR at the 95% confidence level
once information for two complete year-to-date periods is available. For a further discussion of
the Firms VaR methodology, see Market Risk Management Value-at-risk, on pages 100-103 of
JPMorgan Chases 2008 Annual Report.
99% Confidence Level VaR
IB trading VaR by risk type and credit portfolio VaR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|
|
|
June 30,(c) |
|
|
|
2009 |
|
|
2008(c) |
|
|
At June 30, |
|
|
Average |
|
(in millions) |
|
Avg. |
|
|
Min |
|
|
Max |
|
|
Avg. |
|
|
Min |
|
|
Max |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
249 |
|
|
$ |
211 |
|
|
$ |
281 |
|
|
$ |
155 |
|
|
$ |
110 |
|
|
$ |
210 |
|
|
$ |
255 |
|
|
$ |
168 |
|
|
$ |
234 |
|
|
$ |
137 |
|
Foreign exchange |
|
|
26 |
|
|
|
17 |
|
|
|
49 |
|
|
|
26 |
|
|
|
14 |
|
|
|
45 |
|
|
|
20 |
|
|
|
17 |
|
|
|
33 |
|
|
|
30 |
|
Equities |
|
|
77 |
|
|
|
19 |
|
|
|
222 |
|
|
|
30 |
|
|
|
19 |
|
|
|
48 |
|
|
|
49 |
|
|
|
27 |
|
|
|
119 |
|
|
|
31 |
|
Commodities and other |
|
|
34 |
|
|
|
23 |
|
|
|
47 |
|
|
|
31 |
|
|
|
25 |
|
|
|
37 |
|
|
|
29 |
|
|
|
34 |
|
|
|
31 |
|
|
|
29 |
|
Diversification |
|
|
(136 |
)(a) |
|
|
NM |
(b) |
|
|
NM |
(b) |
|
|
(92 |
)(a) |
|
|
NM |
(b) |
|
|
NM |
(b) |
|
|
(120 |
)(a) |
|
|
(84 |
)(a) |
|
|
(148 |
)(a) |
|
|
(91 |
)(a) |
|
|
|
|
|
|
|
Trading VaR |
|
$ |
250 |
|
|
$ |
213 |
|
|
$ |
335 |
|
|
$ |
150 |
|
|
$ |
98 |
|
|
$ |
187 |
|
|
$ |
233 |
|
|
$ |
162 |
|
|
$ |
269 |
|
|
$ |
136 |
|
Credit portfolio VaR |
|
|
133 |
|
|
|
60 |
|
|
|
199 |
|
|
|
35 |
|
|
|
29 |
|
|
|
42 |
|
|
|
61 |
|
|
|
41 |
|
|
|
157 |
|
|
|
33 |
|
Diversification |
|
|
(116 |
)(a) |
|
|
NM |
(b) |
|
|
NM |
(b) |
|
|
(36 |
)(a) |
|
|
NM |
(b) |
|
|
NM |
(b) |
|
|
(63 |
)(a) |
|
|
(43 |
)(a) |
|
|
(125 |
)(a) |
|
|
(34 |
)(a) |
|
|
|
|
|
|
|
Total trading and credit
portfolio VaR |
|
$ |
267 |
|
|
$ |
198 |
|
|
$ |
339 |
|
|
$ |
149 |
|
|
$ |
101 |
|
|
$ |
193 |
|
|
$ |
231 |
|
|
$ |
160 |
|
|
$ |
301 |
|
|
$ |
135 |
|
|
|
|
|
(a) |
|
Average and period-end VaRs were less than the sum of the VaRs of their market risk
components, which is due to risk offsets resulting from portfolio diversification. The
diversification effect reflects the fact that the risks were not perfectly correlated. The
risk of a portfolio of positions is therefore usually less than the sum of the risks of the
positions themselves. |
|
(b) |
|
Designated as not meaningful (NM), because the minimum and maximum may occur on different
days for different risk components, and hence it is not meaningful to compute a portfolio
diversification effect. |
|
(c) |
|
The results for the three months ended June 30, 2008 include two months of heritage JPMorgan
Chase & Co. results and one month of results for the combined JPMorgan Chase & Co. and Bear
Stearns. The results for the six months ended June 30, 2008 includes five months of heritage
JPMorgan Chase & Co. only results and one month of combined JPMorgan Chase & Co. and Bear
Stearns. |
The 99% confidence level trading VaR includes substantially all trading activities in IB. Trading
VaR does not include: held-for-sale funded loan and unfunded commitments positions (however, it
does include hedges of those positions); the DVA taken on derivative and structured liabilities to
reflect the credit quality of the Firm; the MSR portfolio; and securities and instruments held by
corporate functions, such as Corporate/Private Equity. See the DVA Sensitivity table on page 85 of
this Form 10-Q for further details. For a discussion of MSRs and the corporate functions, see Note
3 on pages 99-114, Note 17 on pages 153-156 and Corporate/Private Equity on pages 46-48 of this
Form 10-Q, and Note 4 on pages 129-143, Note 18 on pages 186-189 and Corporate/ Private Equity on
pages 61-63 of JPMorgan Chases 2008 Annual Report.
Second quarter 2009 VaR results (99% Confidence Level VaR)
IBs average total trading and credit portfolio VaR for the second quarter and first half of 2009
was $267 million and $301 million, respectively, compared with $149 million in the second quarter
and $135 million in the first half of 2008, and includes the positions from the Bear Stearns merger
as of May 31, 2008. The increase in VaR in the year-over-year quarters and six-month period was
primarily due to the increased volatility throughout 2008 across virtually all asset classes. The
increase in the VaR measure also reflected increased hedges of positions: for example, macro hedge
strategies that have been deployed to mitigate the consequences of systemic risk events that are
not specifically captured in VaR. It also reflects the Firms increased counterparty exposure
profile, reflecting the significant market moves over the course of the year as well as positions
acquired from the Bear Stearns merger.
81
For the second quarter and first half of 2009, average trading VaR diversification increased to
$136 million from $92 million and to $148 million from $91 million, respectively, reflecting the
increase in VaR for both fixed income and equities risks. In general, over the course of the year,
VaR exposures can vary significantly as positions change, market volatility fluctuates and
diversification benefits change.
VaR backtesting (99% Confidence Level VaR)
To evaluate the soundness of its VaR model, the Firm conducts daily backtesting of VaR against
daily IB market risk-related revenue, which is defined as the change in value of principal
transactions revenue (less Private Equity gains/losses) plus any IB trading-related net interest
income, IB brokerage commissions, underwriting fees or other revenue. The daily IB market
risk-related revenue excludes gains and losses on held-for-sale funded loans and unfunded
commitments and from DVA. The following histogram illustrates the daily market risk-related gains
and losses for IB trading businesses for the first half of 2009. The chart shows that IB posted
market risk-related gains on 99 out of 129 days in this period, with 41 days exceeding $160
million. The inset graph looks at those days on which IB experienced losses and depicts the amount
by which 99% confidence level VaR exceeded the actual loss on each of those days. Losses were
sustained on 30 days during the six months ended June 30, 2009, and with no loss exceeding the VaR
measure. For the first half of 2008, losses had exceeded the VaR measure on two days, both in the
first quarter of 2008, due to high market volatility experienced during that period. The Firm would
expect to incur losses greater than those predicted by the 99% confidence level VaR estimates once
in every 100 trading days, or about two to three times a year.
82
95% Confidence Level VaR
The table below shows the results of the Firms VaR measure using a 95% confidence level.
Total IB trading VaR by risk type, credit portfolio VaR and other VaR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended |
|
|
Three months ended June 30,(a) |
|
|
|
|
|
|
June 30,(a) |
|
|
2009 |
|
|
At June 30, |
|
Average |
(in millions) |
|
Avg. |
|
|
Min |
|
|
Max |
|
|
2009 |
|
2009 |
|
IB VaR by risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
179 |
|
|
$ |
144 |
|
|
$ |
207 |
|
|
$ |
186 |
|
|
$ |
168 |
|
Foreign exchange |
|
|
16 |
|
|
|
10 |
|
|
|
27 |
|
|
|
12 |
|
|
|
19 |
|
Equities |
|
|
50 |
|
|
|
13 |
|
|
|
132 |
|
|
|
36 |
|
|
|
73 |
|
Commodities and other |
|
|
22 |
|
|
|
15 |
|
|
|
30 |
|
|
|
17 |
|
|
|
21 |
|
Diversification benefit to IB trading VaR |
|
|
(97 |
)(b) |
|
|
NM |
(c) |
|
|
NM |
(c) |
|
|
(87 |
)(b) |
|
|
(101 |
)(b) |
|
|
|
|
|
|
|
IB Trading VaR |
|
$ |
170 |
|
|
$ |
149 |
|
|
$ |
213 |
|
|
$ |
164 |
|
|
$ |
180 |
|
Credit portfolio VaR |
|
|
68 |
|
|
|
36 |
|
|
|
99 |
|
|
|
38 |
|
|
|
77 |
|
Diversification benefit to IB trading and credit
portfolio VaR |
|
|
(60 |
)(b) |
|
|
NM |
(c) |
|
|
NM |
(c) |
|
|
(44 |
)(b) |
|
|
(62 |
)(b) |
|
Total IB trading and credit portfolio VaR |
|
$ |
178 |
|
|
$ |
139 |
|
|
$ |
231 |
|
|
$ |
158 |
|
|
$ |
195 |
|
|
Consumer Lending VaR |
|
|
43 |
|
|
|
31 |
|
|
|
66 |
|
|
|
40 |
|
|
|
75 |
|
Corporate Risk Management VaR |
|
|
111 |
|
|
|
98 |
|
|
|
125 |
|
|
|
102 |
|
|
|
116 |
|
Diversification benefit to total other VaR |
|
|
(29 |
)(b) |
|
|
NM |
(c) |
|
|
NM |
(c) |
|
|
(26 |
)(b) |
|
|
(45 |
)(b) |
|
|
|
|
|
|
|
Total other VaR |
|
$ |
125 |
|
|
$ |
110 |
|
|
$ |
144 |
|
|
$ |
116 |
|
|
$ |
146 |
|
|
Diversification benefit to total IB and other VaR |
|
|
(89 |
)(b) |
|
|
NM |
(c) |
|
|
NM |
(c) |
|
|
(92 |
)(b) |
|
|
(91 |
)(b) |
|
Total IB and other VaR |
|
$ |
214 |
|
|
$ |
172 |
|
|
$ |
263 |
|
|
$ |
182 |
|
|
$ |
250 |
|
|
|
|
|
(a) |
|
Results for the three and six months ended June 30, 2008, are not available. |
|
(b) |
|
Average and period-end VaRs were less than the sum of the VaRs of its market risk components,
which is due to risk offsets resulting from portfolio diversification. The diversification
effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio
of positions is therefore usually less than the sum of the risks of the positions themselves. |
|
(c) |
|
Designated as not meaningful (NM), because the minimum and maximum may occur on different
days for different risk components, and hence it is not meaningful to compute a portfolio
diversification effect. |
VaR Measurement
The Firms new 95% VaR measure includes all of the risk positions taken into account under the 99%
confidence level VaR measure, as well as syndicated lending facilities that the Firm intends to
distribute. In addition, the new VaR measure includes certain actively managed positions utilized
as part of the Firms risk management function within Corporate Risk Management and in the Consumer
Lending businesses to provide a Total IB and other VaR measure. Corporate Risk Management VaR
includes trading positions primarily in debt securities and credit products, used to manage
structural risk and to take opportunistic views based on economic and market conditions. The
Consumer Lending VaR includes the Firms mortgage pipeline and warehouse loans, MSRs and all
related hedges. In the Firms view, including these items in VaR produces a more complete
perspective of the Firms risk profile for items with market risk that can impact the income
statement.
The revised VaR measure continues to exclude the DVA taken on derivative and structured liabilities
to reflect the credit quality of the Firm. It also excludes certain nontrading activity such as
Private Equity, principal investing (e.g., mezzanine financing, tax-oriented investments, etc.),
and Corporate balance sheet and capital management positions as well as longer-term corporate
investments. These Corporate investments are managed through the Firms earnings-at-risk and other
cash flow-monitoring processes rather than by using a VaR measure. Nontrading principal investing
activities and Private Equity positions are managed using stress and scenario analyses.
Changing to the 95% confidence interval caused the average VaR to drop by $85 million in the third
quarter of 2008 when the new measure was implemented. Under the 95% confidence interval, the Firm
would expect to incur daily losses greater than those predicted by VaR estimates about 12 times a
year.
Second quarter 2009 VaR results (95% Confidence Level VaR)
Total IB and other VaR was $182 million at June 30, 2009, compared with $286 million at December
31, 2008. The decrease in spot VaR was driven primarily by a decrease in both IB trading and credit
portfolio VaR, and Consumer Lending VaR. IB trading and credit portfolio VaR was $158 million at
June 30, 2009, compared with $194 million at December 31, 2008. The decrease was driven primarily
by lower exposures in the credit portfolio as well as reduced foreign exchange VaR. Consumer
Lending VaR was $40 million at June 30, 2009, compared with $112 million at December 31, 2008. The
decrease was driven primarily by reduced volatility in the mortgage markets as well as
83
refinements to the MSR VaR methodology to more accurately reflect current market conditions. For
further details on the 95% confidence level VaR measure reported at December 31, 2008, see Market
Risk Management, on page 102 of JPMorgan Chases 2008 Annual Report.
VaR backtesting (95% Confidence Level VaR)
To evaluate the soundness of its VaR model, the Firm conducts daily backtesting of VaR against the
Firms daily market risk-related revenue, which is defined as follows: change in value of principal
transactions revenue for IB and Corporate Risk Management (less gains/losses for Private Equity and
trading-related revenue from longer-term corporate investments); trading-related net interest
income for IB, RFS and Corporate Risk Management (excludes longer-term corporate investments); IB
brokerage commissions, underwriting fees or other revenue, and revenue from syndicated lending
facilities that the Firm intends to distribute; and mortgage fees and related income for the Firms
mortgage pipeline and warehouse loans, MSRs and all related hedges. The daily firmwide market
risk-related revenue excludes gains and losses from DVA.
The following histogram illustrates the daily market risk-related gains and losses for IB and
Consumer/Corporate Risk Management positions for the first half of 2009. The chart shows that the
Firm posted market risk-related gains on 104 out of 129 days in this period, with 45 days exceeding
$160 million. The inset graph looks at those days on which the Firm experienced losses and depicts
the amount by which the 95% confidence level VaR exceeded the actual loss on each of those days.
Losses were sustained on 25 days during the six months ended June 30, 2009, and exceeded the VaR
measure on one day, in the first quarter of 2009, due to high market volatility.
84
The following table provides information about the gross sensitivity of DVA to a one basis-point
increase in JPMorgan Chases credit spreads. The sensitivity represents the impact from a one
basis-point parallel shift in JPMorgan Chases entire credit curve. As credit curves do not
typically move in a parallel fashion, the sensitivity multiplied by the change in spreads at a
single point along the curve may not be representative of the actual revenue recognized.
Debit valuation adjustment sensitivity
|
|
|
|
|
(in millions) |
|
1 basis-point increase in JPMorgan Chase credit spread |
|
June 30, 2009 |
|
$ |
36 |
|
December 31, 2008 |
|
|
37 |
|
|
Economic value stress testing
While VaR reflects the risk of loss due to adverse changes in normal markets, stress testing
captures the Firms exposure to unlikely but plausible events in abnormal markets. The Firm
conducts economic value stress tests for both its trading and certain nontrading activities using
multiple scenarios that assume credit spreads widen significantly, equity prices decline and
interest rates rise in the major currencies. Scenarios are updated regularly. Additional scenarios
focus on the risks predominant in individual business segments and include scenarios that focus on
the potential for adverse moves in complex portfolios. Periodically, scenarios are reviewed and
updated to reflect changes in the Firms risk profile and economic events. Along with VaR, stress
testing is important in measuring and controlling risk. Stress testing enhances the understanding
of the Firms risk profile and loss potential, and stress losses are monitored against limits.
Stress testing is also utilized in one-off approvals and cross-business risk measurement, as well
as an input to economic capital allocation. Stress-test results, trends and explanations based on
current market risk positions are reported to the Firms senior management and to the lines of
business to help them better measure and manage risks and to understand event risk-sensitive
positions.
Earnings-at-risk stress testing
The VaR and stress-test measures described above illustrate the total economic sensitivity of the
Firms balance sheet to changes in market variables. The effect of interest rate exposure on
reported net income is also important. Interest rate risk exposure in the Firms core nontrading
business activities (i.e., asset/liability management positions) results from on- and off-balance
sheet positions and can occur due to a variety of factors, including:
|
|
Differences in the timing among the maturity or repricing of assets, liabilities and
off-balance sheet instruments. For example, if liabilities reprice quicker than assets and
funding interest rates are declining, earnings will increase initially. |
|
|
Differences in the amounts of assets, liabilities and off-balance sheet instruments that
are repricing at the same time. For example, if more deposit liabilities are repricing than
assets when general interest rates are declining, earnings will increase initially. |
|
|
Differences in the amounts by which short-term and long-term market interest rates change
(for example, changes in the slope of the yield curve because the Firm has the ability to lend
at long-term fixed rates and borrow at variable or short-term fixed rates). Based on these
scenarios, the Firms earnings would be affected negatively by a sudden and unanticipated
increase in short-term rates paid on its liabilities (e.g., deposits) without a corresponding
increase in long-term rates received on its assets (e.g., loans). Conversely, higher long-term
rates received on assets generally are beneficial to earnings, particularly when the increase
is not accompanied by rising short-term rates paid on liabilities. |
|
|
The impact of changes in the maturity of various assets, liabilities or off-balance sheet
instruments as interest rates change. For example, if more borrowers than forecasted pay down
higher rate loan balances when general interest rates are declining, earnings may decrease
initially. |
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated,
corporate-wide basis. Business units transfer their interest rate risk to Treasury through a
transfer-pricing system, which takes into account the elements of interest rate exposure that can
be risk managed in financial markets. These elements include asset and liability balances and
contractual rates of interest, contractual principal payment schedules, expected prepayment
experience, interest rate reset dates and maturities, rate indices used for re-pricing, and any
interest rate ceilings or floors for adjustable rate products. All transfer pricing assumptions are
dynamically reviewed.
The Firm conducts simulations of changes in net interest income from its nontrading activities
under a variety of interest rate scenarios. Earnings-at-risk tests measure the potential change in
the Firms net interest income and the corresponding impact to pretax earnings over the following
12 months. These tests highlight exposures to various rate-sensitive factors, such as the rates
themselves (e.g., the prime lending rate), pricing strategies on deposits, optionality and changes
in product mix. The tests include forecasted balance sheet changes, such as asset sales and
securitizations, as well as prepayment and reinvestment behavior.
85
Immediate changes in interest rates present a limited view of risk, and so a number of alternative
scenarios are also reviewed. These scenarios include the implied forward curve, nonparallel rate
shifts and severe interest rate shocks on selected key rates. These scenarios are intended to
provide a comprehensive view of JPMorgan Chases earnings at risk over a wide range of outcomes.
JPMorgan Chases 12-month pretax earnings sensitivity profiles as of June 30, 2009, and December
31, 2008, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate change in rates |
(in millions) |
|
+200bp |
|
+100bp |
|
-100bp |
|
-200bp |
|
June 30, 2009 |
|
$ |
(2,520 |
) |
|
$ |
(892 |
) |
|
$NM(a) |
|
$NM(a) |
December 31, 2008 |
|
$ |
336 |
|
|
$ |
672 |
|
|
$NM(a) |
|
$NM(a) |
|
|
|
|
(a) |
|
Down 100 and 200 basis-point parallel shocks result in a Fed Funds target rate of zero and
negative three- and six-month treasury rates. The earnings-at-risk results of such a
low-probability scenario are not meaningful (NM). |
The change in earnings at risk from December 31, 2008, results from a higher level of AFS
securities and an updated baseline scenario that uses higher short-term interest rates. The Firms
risk to rising rates is largely the result of increased funding costs on assets, partially offset
by widening deposit margins, which are currently compressed due to very low short-term interest
rates.
Additionally, another interest rate scenario involving a steeper yield curve, with long-term rates
rising 100 basis points and short-term rates staying at current levels, results in a 12-month
pretax earnings benefit of $575 million. The increase in earnings is due to reinvestment of
maturing assets at the higher long-term rates with funding costs remaining unchanged.
PRIVATE EQUITY RISK MANAGEMENT
For a discussion of Private Equity Risk Management, see page 105 of JPMorgan Chases 2008 Annual
Report. At June 30, 2009, and December 31, 2008, the carrying value of the Private Equity portfolio
was $6.6 billion and $6.9 billion, respectively, of which $431 million and $483 million,
respectively, represented positions traded in the public markets.
OPERATIONAL RISK MANAGEMENT
For a discussion of JPMorgan Chases Operational Risk Management, refer to pages 105-106 of
JPMorgan Chases 2008 Annual Report.
REPUTATION AND FIDUCIARY RISK MANAGEMENT
For a discussion of the Firms Reputation and Fiduciary Risk Management, see page 106 of JPMorgan
Chases 2008 Annual Report.
SUPERVISION AND REGULATION
The following discussion should be read in conjunction with the Supervision and Regulation section
on pages 1-4 of JPMorgan Chases 2008 Form 10-K.
Dividends
At June 30, 2009, JPMorgan Chases bank subsidiaries could pay, in the aggregate, $16.8 billion in
dividends to their respective bank holding companies without prior approval of their relevant
banking regulators.
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chases accounting policies and use of estimates are integral to understanding its
reported results. The Firms most complex accounting estimates require managements judgment to
ascertain the value of assets and liabilities. The Firm has established detailed policies and
control procedures intended to ensure that valuation methods, including any judgments made as part
of such methods, are well-controlled, independently reviewed and applied consistently from period
to period. In addition, the policies and procedures are intended to ensure that the process for
changing methodologies occurs in an appropriate manner. The Firm believes its estimates for
determining the value of its assets and liabilities are appropriate. The following is a brief
description of the Firms critical accounting estimates involving significant valuation judgments.
86
Allowance for credit losses
JPMorgan Chases allowance for credit losses covers the retained wholesale and consumer loan
portfolios, as well as the Firms portfolio of wholesale and consumer lending-related commitments.
The allowance for loan losses is intended to adjust the value of the Firms loan assets to reflect
probable credit losses as of the balance sheet date. For a further discussion of the methodologies
used in establishing the Firms allowance for credit losses, see Note 14 on page 139 of JPMorgan
Chases 2008 Annual Report. The methodology for calculating the allowance for loan losses and the
allowance for lending-related commitments involves significant judgment. For a further description
of these judgments, see Allowance for Credit Losses on pages 107-108 of JPMorgan Chases 2008
Annual Report; for amounts recorded as of June 30, 2009 and 2008, see Allowance for Credit Losses
on page 78 and Note 14 on page 139 of this Form 10-Q.
As noted on page 107 of JPMorgan Chases 2008 Annual Report, many factors can affect estimates of
loss, including volatility of loss given default, probability of default and rating migrations. The
Firm uses a risk-rating system to determine the credit quality of its wholesale loans. The Firms
wholesale allowance is sensitive to the risk rating assigned to a loan. Assuming a one-notch
downgrade in the Firms internal risk ratings for its entire wholesale portfolio, the allowance for
loan losses for the wholesale portfolio would increase by approximately $1.9 billion as of June 30,
2009. This sensitivity analysis is hypothetical. In the Firms view, the likelihood of a one-notch
downgrade for all wholesale loans within a short timeframe is remote. The purpose of this analysis
is to provide an indication of the impact of risk ratings on the estimate of the allowance for loan
losses for wholesale loans. It is not intended to imply managements expectation of future
deterioration in risk ratings. Given the process the Firm follows in determining the risk ratings
of its loans, management believes the risk ratings currently assigned to wholesale loans are
appropriate.
The allowance for credit losses for the consumer portfolio is sensitive to changes in the economic
environment, delinquency status, credit bureau scores, the realizable value of collateral, borrower
behavior and other risk factors, and is intended to represent managements best estimate of
incurred losses as of the balance sheet date. The credit performance of the consumer portfolio
across the entire consumer credit product spectrum continues to be negatively affected by the
economic environment, as the weak labor market and overall economic conditions have resulted in
increased delinquencies, while continued weak housing prices have driven a significant increase in
loss severity. Significant judgment is required to estimate the duration and severity of the
current economic downturn, as well as its potential impact on housing prices and the labor market.
While the allowance for credit losses is highly sensitive to both home prices and unemployment
rates, in the current market it is difficult to estimate how potential changes in one or both of
these factors might impact the allowance for credit losses. For example, while both factors are
important determinants of overall allowance levels, changes in one factor or the other may not
occur at the same rate, or changes may be directionally inconsistent such that improvement in one
factor may offset deterioration in the other. In addition, changes in these factors would not
necessarily be consistent across geographies or product types. Finally, it is difficult to predict
the extent to which changes in both or either of these factors will ultimately impact the frequency
of losses, the severity of losses, or both; and overall loss rates are a function of both the
frequency and severity of individual loan losses.
Fair value of financial instruments, MSRs and commodities inventory
JPMorgan Chase carries a portion of its assets and liabilities at fair value. The majority of such
assets and liabilities are carried at fair value on a recurring basis. In addition, certain assets
are carried at fair value on a nonrecurring basis, including loans accounted for at the lower of
cost or fair value that are only subject to fair value adjustments under certain circumstances.
87
Assets carried at fair value
The following table includes the Firms assets carried at fair value and the portion of such assets
that are classified within level 3 of the valuation hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Total at |
|
|
|
|
|
Total at |
|
|
(in billions) |
|
fair value |
|
Level 3 total |
|
fair value |
|
Level 3 total |
|
Trading debt and equity securities(a) |
|
$ |
298.1 |
|
|
$ |
39.2 |
|
|
$ |
347.4 |
|
|
$ |
41.4 |
|
Derivative receivables gross |
|
|
1,797.5 |
|
|
|
57.9 |
|
|
|
2,741.7 |
|
|
|
53.0 |
|
Netting adjustment |
|
|
(1,700.0 |
) |
|
|
|
|
|
|
(2,579.1 |
) |
|
|
|
|
- |
Derivative receivables net |
|
|
97.5 |
|
|
|
57.9 |
(d) |
|
|
162.6 |
|
|
|
53.0 |
(d) |
AFS securities |
|
|
345.5 |
|
|
|
13.6 |
|
|
|
205.9 |
|
|
|
12.4 |
|
Loans |
|
|
3.1 |
|
|
|
1.8 |
|
|
|
7.7 |
|
|
|
2.7 |
|
MSRs |
|
|
14.6 |
|
|
|
14.6 |
|
|
|
9.4 |
|
|
|
9.4 |
|
Private equity investments |
|
|
6.6 |
|
|
|
6.1 |
|
|
|
6.9 |
|
|
|
6.4 |
|
Other(b) |
|
|
48.0 |
|
|
|
4.5 |
|
|
|
46.5 |
|
|
|
5.0 |
|
|
Total assets carried at fair value on a recurring basis |
|
|
813.4 |
|
|
|
137.7 |
|
|
|
786.4 |
|
|
|
130.3 |
|
Total assets carried at fair value on a nonrecurring basis(c) |
|
|
8.8 |
|
|
|
4.0 |
|
|
|
11.0 |
|
|
|
4.3 |
|
|
Total assets carried at fair value |
|
$ |
822.2 |
|
|
$ |
141.7 |
(e) |
|
$ |
797.4 |
|
|
$ |
134.6 |
(e) |
Less: level 3 assets for which the Firm does not bear economic exposure |
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total level 3 assets for which the Firm bears economic exposure |
|
|
|
|
|
$ |
139.2 |
|
|
|
|
|
|
$ |
113.4 |
|
|
Total Firm assets |
|
$ |
2,026.6 |
|
|
|
|
|
|
$ |
2,175.1 |
|
|
|
|
|
|
Level 3 assets as a percentage of total Firm assets |
|
|
|
|
|
|
7 |
% |
|
|
|
|
|
|
6 |
% |
Level 3 assets for which the Firm bears economic exposure as a
percentage of total Firm assets |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
5 |
|
Level 3 assets as a percentage of total Firm assets at fair value |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
17 |
|
Level 3 assets for which the Firm bears economic exposure as a
percentage of total assets at fair value |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
(a) |
|
Includes physical commodities carried at the lower of cost or fair value. |
|
(b) |
|
Includes certain securities purchased under resale agreements, securities borrowed and other
investments. |
|
(c) |
|
Predominantly consists of debt financing and other loan warehouses held-for-sale and other
assets. |
|
(d) |
|
The Firm does not reduce derivative receivables and derivative payables balances for the FIN
39 netting adjustment, either within or across the levels of the fair
value hierarchy, as such an adjustment
is not relevant to a presentation that is based on the transparency of inputs to the valuation
of an asset or liability. Therefore, the derivative balances reported in the fair value
hierarchy levels are gross of any netting adjustments. However, if the Firm were to net such
balances, the reduction in the level 3 derivative receivables and derivative payables balances
would be $20.2 billion at June 30, 2009. |
|
(e) |
|
Included in the table above are $96.5 billion and $95.1 billion of level 3 assets, consisting
of recurring and nonrecurring assets, carried by IB at June 30, 2009, and December 31, 2008,
respectively. This includes $2.5 billion and $21.2 billion, respectively, of assets for which
the Firm serves as an intermediary between two parties and does not bear economic exposure. |
Valuation
For instruments classified within level 3 of the hierarchy, judgments used to estimate fair value
may be significant. In arriving at an estimate of fair value for an instrument within level 3,
management must first determine the appropriate model to use. Second, due to the lack of
observability of significant inputs, management must assess all relevant empirical data in deriving
valuation inputs including, but not limited to, yield curves, interest rates, volatilities, equity
or debt prices, foreign exchange rates and credit curves. In addition to market information, models
also incorporate transaction details, such as maturity. Finally, management judgment must be
applied to assess the appropriate level of valuation adjustments to reflect counterparty credit
quality, the Firms creditworthiness, constraints on liquidity and unobservable parameters, where
relevant. The judgments made are typically affected by the type of product and its specific
contractual terms, and the level of liquidity for the product or within the market as a whole.
For further discussion of changes in level 3 assets, see Note 3 on
pages 99-114 of this Form
10-Q.
88
Imprecision in estimating unobservable market inputs can impact the amount of revenue or loss
recorded for a particular position. Furthermore, while the Firm believes its valuation methods are
appropriate and consistent with those of other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date. For a detailed discussion of
the determination of fair value for individual financial instruments, see Note 4 on pages 129-133
of JPMorgan Chases 2008 Annual Report. In addition, for a further discussion of the significant
judgments and estimates involved in the determination of the Firms mortgage-related exposures, see
Mortgage-related exposures carried at fair value in Note 4 on pages 139-141 of JPMorgan Chases
2008 Annual Report.
Purchased credit-impaired loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain loans with
evidence of deterioration of credit quality since origination and for which it was probable, at
acquisition, that the Firm would be unable to collect all contractually required payments
receivable. These purchased credit-impaired loans are accounted for in accordance with SOP 03-3.
Many of the assumptions and estimates underlying the estimation of the initial fair value and the
ongoing updates to managements expectation of future cash flows are both significant and
judgmental, particularly considering the current economic environment. The level of future home
price declines, the duration and severity of the current economic downturn, and the lack of market
liquidity and transparency are factors that have influenced and may continue to affect these
assumptions and estimates.
Under SOP 03-3, decreases in expected future cash payments may result in an impairment that would
be recognized in the current period, while increases in expected future cash payments would
typically result in increased interest income over the remaining lives of the loans. As of June 30,
2009, a 1% decrease in expected future principal cash payments for these loans would result in the
recognition of an allowance for loan losses for these loans of approximately $900 million. For
additional information on purchased credit-impaired loans, see page 110 of JPMorgan Chases 2008
Annual Report.
Goodwill impairment
Management applies significant judgment when testing goodwill for impairment. For a description of
the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on
pages 110-111 of JPMorgan Chases 2008 Annual Report. During the second quarter, the Firm reviewed
its most recent reporting unit valuations and updated discounted cash flow models for certain of
its reporting units. The Firm concluded that goodwill allocated to all of its reporting units was
not impaired at June 30, 2009.
Income taxes
For a description of the significant assumptions, judgments and interpretations associated with the
accounting for income taxes, see Income taxes on page 111 of JPMorgan Chases 2008 Annual Report.
89
ACCOUNTING AND REPORTING DEVELOPMENTS
Business combinations/noncontrolling interests in consolidated financial statements
In December 2007, the FASB issued SFAS 141R and SFAS 160, which amend the accounting and reporting
of business combinations, as well as noncontrolling (i.e., minority) interests. For JPMorgan Chase,
SFAS 141R became effective for business combinations that close on or after January 1, 2009. SFAS
160 became effective for JPMorgan Chase for fiscal periods beginning January 1, 2009. In April
2009, the FASB issued FSP FAS 141(R)-1, which amends the accounting for contingencies acquired in a
business combination.
SFAS 141R, as amended, will generally only impact the accounting for future business combinations
and will impact certain aspects of business combination accounting, such as transaction costs and
certain merger-related restructuring reserves, as well as the accounting for partial acquisitions
where control is obtained by JPMorgan Chase. One exception to the prospective application of SFAS
141R relates to accounting for income taxes associated with business combinations that closed prior
to January 1, 2009. Once the purchase accounting measurement period closes for these acquisitions,
any further adjustments to income taxes recorded as part of these business combinations will impact
income tax expense. Previously, further adjustments were predominantly recorded as adjustments to
goodwill.
SFAS 160 requires that noncontrolling interests be accounted for and presented as equity if
material, rather than as a liability or mezzanine equity. SFAS 160s presentation and disclosure
requirements are to be applied retrospectively. The adoption of the reporting requirements of this
pronouncement was not material to the Firms Consolidated Balance Sheets or results of operations.
Accounting for transfers of financial assets and repurchase financing transactions
In February 2008, the FASB issued FSP FAS 140-3, which requires an initial transfer of a financial
asset and a repurchase financing that was entered into contemporaneously with, or in contemplation
of, the initial transfer to be evaluated together as a linked transaction under SFAS 140, unless
certain criteria are met. The Firm adopted FSP FAS 140-3 on January 1, 2009, for new transactions
entered into after the date of adoption. The adoption of FSP FAS 140-3 did not have a material
impact on the Consolidated Balance Sheets or results of operations.
Disclosures about derivative instruments and hedging activities FASB Statement No. 161
In March 2008, the FASB issued SFAS 161, which amends the disclosure requirements of SFAS 133. SFAS
161 requires increased disclosures about derivative instruments and hedging activities and their
effects on an entitys financial position, financial performance and cash flows. SFAS 161 is
effective for fiscal years beginning after November 15, 2008. The Firm adopted SFAS 161 on January
1, 2009. SFAS 161 only affected JPMorgan Chases disclosures of derivative instruments and related
hedging activities, and not its Consolidated Balance Sheets, results of operations or Consolidated
Statements of Cash Flows.
Determining whether instruments granted in share-based payment transactions are participating
securities
In June 2008, the FASB issued FSP EITF 03-6-1, which clarifies that unvested stock-based
compensation awards containing nonforfeitable rights to dividends or dividend equivalents
(collectively, dividends), are considered participating securities and therefore are included in
the two-class method calculation of EPS. Under this method, all earnings (distributed and
undistributed) are allocated to common shares and participating securities based on their
respective rights to receive dividends. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those years. The Firm
adopted the FSP retrospectively effective January 1, 2009, and EPS data for all prior periods has
been revised. Adoption of the FSP did not affect the Firms results of operations, but basic and
diluted EPS were reduced as disclosed in Note 21 on page 158 of this Form 10-Q.
Determining whether an instrument (or embedded feature) is indexed to an entitys own stock
In September 2008, the EITF issued EITF 07-5, which establishes a two-step process for evaluating
whether equity-linked financial instruments and embedded features are indexed to a companys own
stock for purposes of determining whether the derivative scope exception in SFAS 133 should be
applied. EITF 07-5 is effective for fiscal years beginning after December 2008. The adoption of
this EITF on January 1, 2009, did not have an impact on the Firms Consolidated Balance Sheets or
results of operations.
90
The recognition and presentation of other-than-temporary impairment
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which amends the other-than-temporary
impairment model for debt securities. Under the FSP, an other-than-temporary-impairment must be
recognized if an investor has the intent to sell the debt security or if it is more likely than not
that it will be required to sell the debt security before recovery of its amortized cost basis. In
addition, the FSP changes the amount of impairment to be recognized in current-period earnings when
an investor does not have the intent to sell or if it is more likely than not that it will not be
required to sell the debt security, as in these cases only the amount of the impairment associated
with credit losses is recognized in income. The FSP also requires additional disclosures regarding
the calculation of credit losses, as well as factors considered in reaching a conclusion that an
investment is not other-than-temporarily impaired. The FSP is effective for interim and annual
reporting periods ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Firm elected to early adopt the FSP as of January 1, 2009. For additional
information regarding the impact on the Firm of the adoption of the FSP, see Note 11 on pages
129134 of this Form 10-Q.
Determining fair value when the volume and level of activity for the asset or liability have
significantly decreased, and identifying transactions that are not orderly
In April 2009, the FASB issued FSP FAS 157-4. The FSP provides additional guidance for estimating
fair value in accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly declined. The FSP also includes guidance on identifying circumstances
that indicate a transaction is not orderly. The FSP is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted. The Firm elected to early adopt
the FSP in the first quarter of 2009. The application of the FSP did not have an impact on the
Firms Consolidated Balance Sheets or results of operations.
Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. The FSP requires the SFAS 107
disclosures about the fair value of financial instruments to be presented in interim financial
statements in addition to annual financial statements. The FSP is effective for interim reporting
periods ending after June 15, 2009, with early adoption permitted for periods ending after March
15, 2009. The Firm adopted the additional disclosure requirements for second quarter reporting.
Employers disclosures about postretirement benefit plan assets
In December 2008, the FASB issued FSP FAS 132(R)-1, which requires more detailed disclosures about
employers plan assets, including investment strategies, major categories of plan assets,
concentrations of risk within plan assets, and valuation techniques used to measure the fair value
of plan assets. This FSP is effective for fiscal years ending after December 15, 2009. The Firm
intends to adopt these additional disclosure requirements on the effective date.
Accounting for transfers of financial assets and consolidation of variable interest entities
In June 2009, the FASB issued two new standards (SFAS 166 and SFAS 167), which amend the guidance
of accounting for the transfers of financial assets and the consolidation of variable interest
entities. SFAS 166 eliminates the concept of QSPEs and provides additional guidance with regard to
accounting for transfers of financial assets. SFAS 167 changes the approach for determining the
primary beneficiary of a VIE from a quantitative risk and reward model to a qualitative model,
based on control and economics. Both standards are effective for annual reporting periods beginning
after November 15, 2009, including all interim periods within the first annual reporting period.
Upon adoption, all existing QSPEs must be evaluated for consolidation. Entities expected to be
impacted include revolving securitization entities, bank-administered asset-backed commercial paper
conduits and certain mortgage securitization entities. Based on the provisions of SFAS 166, SFAS
167 and the Firms interpretation of the new requirements, the Firm estimates that the impact of
consolidation of Firm-sponsored QSPEs and VIEs, upon the implementation for SFAS 166 and SFAS 167
on January 1, 2010, could be up to $130.0 billion of assets; the resulting decrease in the Tier 1
capital ratio could be approximately 40 basis points. The ultimate impact could differ
significantly, due to ongoing interpretations of the final rules and market conditions. Based on
the current beliefs and expectations of JPMorgan Chases management, the Firm does not expect to
take additional actions in the third and fourth quarters of 2009 that would result in the consolidation of these vehicles
prior to the implementation date of the new standards. Refer to Note 15 of this Form 10-Q for
additional information about the Firms consolidation of the Washington Mutual Master Trust.
Subsequent events
In May 2009, the FASB issued SFAS 165, which establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The statement is effective for interim or annual financial
periods ending after June 15, 2009. The Firm adopted the statement in the second quarter of 2009.
The application of the statement did not have any impact on the Firms Consolidated Balance Sheets
or results of operations.
91
JPMORGAN
CHASE & CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except per share data) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,106 |
|
|
$ |
1,612 |
|
|
$ |
3,492 |
|
|
$ |
2,828 |
|
Principal transactions |
|
|
3,097 |
|
|
|
752 |
|
|
|
5,098 |
|
|
|
(51 |
) |
Lending & deposit-related fees |
|
|
1,766 |
|
|
|
1,105 |
|
|
|
3,454 |
|
|
|
2,144 |
|
Asset management, administration and commissions |
|
|
3,124 |
|
|
|
3,628 |
|
|
|
6,021 |
|
|
|
7,224 |
|
Securities
gains(a) |
|
|
347 |
|
|
|
647 |
|
|
|
545 |
|
|
|
680 |
|
Mortgage fees and related income |
|
|
784 |
|
|
|
696 |
|
|
|
2,385 |
|
|
|
1,221 |
|
Credit card income |
|
|
1,719 |
|
|
|
1,803 |
|
|
|
3,556 |
|
|
|
3,599 |
|
Other income |
|
|
10 |
|
|
|
(138 |
) |
|
|
60 |
|
|
|
1,691 |
|
|
Noninterest revenue |
|
|
12,953 |
|
|
|
10,105 |
|
|
|
24,611 |
|
|
|
19,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
16,549 |
|
|
|
16,529 |
|
|
|
34,475 |
|
|
|
34,061 |
|
Interest expense |
|
|
3,879 |
|
|
|
8,235 |
|
|
|
8,438 |
|
|
|
18,108 |
|
|
Net interest income |
|
|
12,670 |
|
|
|
8,294 |
|
|
|
26,037 |
|
|
|
15,953 |
|
|
Total net revenue |
|
|
25,623 |
|
|
|
18,399 |
|
|
|
50,648 |
|
|
|
35,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
8,031 |
|
|
|
3,455 |
|
|
|
16,627 |
|
|
|
7,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
6,917 |
|
|
|
6,913 |
|
|
|
14,505 |
|
|
|
11,864 |
|
Occupancy expense |
|
|
914 |
|
|
|
669 |
|
|
|
1,799 |
|
|
|
1,317 |
|
Technology, communications and equipment expense |
|
|
1,156 |
|
|
|
1,028 |
|
|
|
2,302 |
|
|
|
1,996 |
|
Professional & outside services |
|
|
1,518 |
|
|
|
1,450 |
|
|
|
3,033 |
|
|
|
2,783 |
|
Marketing |
|
|
417 |
|
|
|
413 |
|
|
|
801 |
|
|
|
959 |
|
Other expense |
|
|
2,190 |
|
|
|
1,233 |
|
|
|
3,565 |
|
|
|
1,402 |
|
Amortization of intangibles |
|
|
265 |
|
|
|
316 |
|
|
|
540 |
|
|
|
632 |
|
Merger costs |
|
|
143 |
|
|
|
155 |
|
|
|
348 |
|
|
|
155 |
|
|
Total noninterest expense |
|
|
13,520 |
|
|
|
12,177 |
|
|
|
26,893 |
|
|
|
21,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
4,072 |
|
|
|
2,767 |
|
|
|
7,128 |
|
|
|
6,302 |
|
Income tax expense |
|
|
1,351 |
|
|
|
764 |
|
|
|
2,266 |
|
|
|
1,926 |
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
2,003 |
|
|
$ |
4,862 |
|
|
$ |
4,376 |
|
|
Net income applicable to common stockholders |
|
$ |
1,072 |
|
|
$ |
1,843 |
|
|
$ |
2,591 |
|
|
$ |
4,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.28 |
|
|
$ |
0.54 |
|
|
$ |
0.68 |
|
|
$ |
1.21 |
|
Diluted earnings per share |
|
|
0.28 |
|
|
|
0.53 |
|
|
|
0.68 |
|
|
|
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares |
|
|
3,811.5 |
|
|
|
3,426.2 |
|
|
|
3,783.6 |
|
|
|
3,411.1 |
|
Weighted-average diluted shares |
|
|
3,824.1 |
|
|
|
3,453.1 |
|
|
|
3,791.4 |
|
|
|
3,438.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
0.05 |
|
|
$ |
0.38 |
|
|
$ |
0.10 |
|
|
$ |
0.76 |
|
|
(a) Securities gains for the three and six months
ended June 30, 2009, respectively, included
credit losses of $186 million and $191 million, consisting of $882
million and $887 million of gross unrealized
losses, net of $696 million and $696 million
recognized in other comprehensive income.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
92
JPMORGAN
CHASE & CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(in millions, except share data) |
|
2009 |
|
|
2008 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
25,133 |
|
|
$ |
26,895 |
|
Deposits with banks |
|
|
61,882 |
|
|
|
138,139 |
|
Federal funds sold and securities purchased under resale agreements (included $18,996 and $20,843 at fair value at
June 30, 2009, and December 31, 2008, respectively) |
|
|
159,170 |
|
|
|
203,115 |
|
Securities borrowed (included $3,360 and $3,381 at fair value at June 30, 2009, and December 31, 2008,
respectively) |
|
|
129,263 |
|
|
|
124,000 |
|
Trading assets (included assets pledged of $82,702 and $75,063 at June 30, 2009, and December 31, 2008,
respectively) |
|
|
395,626 |
|
|
|
509,983 |
|
Securities (included $345,534 and $205,909 at fair value at June 30, 2009, and December 31, 2008,
respectively, and assets pledged of $95,932 and $25,942 at June 30, 2009, and December 31, 2008,
respectively) |
|
|
345,563 |
|
|
|
205,943 |
|
Loans (included $3,073 and $7,696 at fair value at June 30, 2009, and December 31, 2008, respectively) |
|
|
680,601 |
|
|
|
744,898 |
|
Allowance for loan losses |
|
|
(29,072 |
) |
|
|
(23,164 |
) |
|
Loans, net of allowance for loan losses |
|
|
651,529 |
|
|
|
721,734 |
|
|
|
|
|
|
|
|
|
|
Accrued interest and accounts receivable |
|
|
61,302 |
|
|
|
60,987 |
|
Premises and equipment |
|
|
10,668 |
|
|
|
10,045 |
|
Goodwill |
|
|
48,288 |
|
|
|
48,027 |
|
Other intangible assets: |
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
14,600 |
|
|
|
9,403 |
|
Purchased credit card relationships |
|
|
1,431 |
|
|
|
1,649 |
|
All other intangibles |
|
|
3,651 |
|
|
|
3,932 |
|
Other assets (included $32,225 and $29,199 at fair value at June 30, 2009, and December 31, 2008,
respectively) |
|
|
118,536 |
|
|
|
111,200 |
|
|
Total assets |
|
$ |
2,026,642 |
|
|
$ |
2,175,052 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits (included $3,787 and $5,605 at fair value at June 30, 2009, and December 31, 2008, respectively) |
|
$ |
866,477 |
|
|
$ |
1,009,277 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,977 and $2,993 at
fair value at June 30, 2009, and December 31, 2008, respectively) |
|
|
300,931 |
|
|
|
192,546 |
|
Commercial paper |
|
|
42,713 |
|
|
|
37,845 |
|
Other borrowed funds (included $16,264 and $14,713 at fair value at June 30, 2009, and December 31, 2008,
respectively) |
|
|
73,968 |
|
|
|
132,400 |
|
Trading liabilities |
|
|
123,218 |
|
|
|
166,878 |
|
Accounts payable and other liabilities (included the allowance for lending-related commitments
of $746 and $659 at June 30, 2009, and December 31, 2008, respectively, and $441 and zero at fair value at
June 30, 2009, and December 31, 2008, respectively) |
|
|
171,685 |
|
|
|
187,978 |
|
Beneficial interests issued by consolidated variable interest entities (included $1,763 and $1,735 at fair value at
June 30, 2009, and December 31, 2008, respectively) |
|
|
20,945 |
|
|
|
10,561 |
|
Long-term debt (included $53,442 and $58,214 at fair value at June 30, 2009, and December 31, 2008,
respectively) |
|
|
254,226 |
|
|
|
252,094 |
|
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities |
|
|
17,713 |
|
|
|
18,589 |
|
|
Total liabilities |
|
|
1,871,876 |
|
|
|
2,008,168 |
|
|
Commitments and contingencies (see Note 23 of this Form 10-Q) |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock ($1 par value; authorized 200,000,000 shares at June 30, 2009, and December 31, 2008;
issued 2,538,107 and 5,038,107 shares at June 30, 2009, and December 31, 2008, respectively) |
|
|
8,152 |
|
|
|
31,939 |
|
Common stock ($1 par value; authorized 9,000,000,000 shares at June 30, 2009, and December 31, 2008; issued
4,104,933,895 and 3,941,633,895 shares at June 30, 2009, and December 31, 2008, respectively) |
|
|
4,105 |
|
|
|
3,942 |
|
Capital surplus |
|
|
97,662 |
|
|
|
92,143 |
|
Retained earnings |
|
|
56,355 |
|
|
|
54,013 |
|
Accumulated other comprehensive income (loss) |
|
|
(3,438 |
) |
|
|
(5,687 |
) |
Shares held in RSU Trust, at cost (1,926,714 and 4,794,723 shares at June 30, 2009, and December 31, 2008,
respectively) |
|
|
(86 |
) |
|
|
(217 |
) |
Treasury stock, at cost (180,799,067 and 208,833,260 shares at June 30, 2009, and December 31, 2008, respectively) |
|
|
(7,984 |
) |
|
|
(9,249 |
) |
|
Total stockholders equity |
|
|
154,766 |
|
|
|
166,884 |
|
|
Total liabilities and stockholders equity |
|
$ |
2,026,642 |
|
|
$ |
2,175,052 |
|
|
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
93
JPMORGAN
CHASE & CO.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
(in millions, except per share data) |
|
2009 |
|
|
2008 |
|
|
Preferred stock |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
$ |
31,939 |
|
|
$ |
|
|
Issuance of preferred stock |
|
|
|
|
|
|
6,000 |
|
Accretion of preferred stock discount on issuance to the U.S. Treasury |
|
|
1,213 |
|
|
|
|
|
Redemption of preferred stock issued to the U.S. Treasury |
|
|
(25,000 |
) |
|
|
|
|
|
Balance at June 30 |
|
|
8,152 |
|
|
|
6,000 |
|
|
Common stock |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
3,942 |
|
|
|
3,658 |
|
Issuance of common stock |
|
|
163 |
|
|
|
|
|
|
Balance at June 30 |
|
|
4,105 |
|
|
|
3,658 |
|
|
Capital surplus |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
92,143 |
|
|
|
78,597 |
|
Issuance of common stock |
|
|
5,589 |
|
|
|
|
|
Shares issued and commitments to issue common stock for employee
stock-based compensation awards and related tax effects |
|
|
(70 |
) |
|
|
(46 |
) |
Net change from the Bear Stearns merger: |
|
|
|
|
|
|
|
|
Reissuance of treasury stock and the Share Exchange agreement |
|
|
|
|
|
|
48 |
|
Employee
stock awards |
|
|
|
|
|
|
271 |
|
|
Balance at June 30 |
|
|
97,662 |
|
|
|
78,870 |
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
54,013 |
|
|
|
54,715 |
|
Net income |
|
|
4,862 |
|
|
|
4,376 |
|
Dividend declared: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
(1,003 |
) |
|
|
(90 |
) |
Accelerated amortization from redemption of preferred stock issued
to the U.S. Treasury |
|
|
(1,112 |
) |
|
|
|
|
Common stock ($0.10 and $0.76 per share for the six months ended
June 30, 2009 and 2008, respectively) |
|
|
(405 |
) |
|
|
(2,688 |
) |
|
Balance at June 30 |
|
|
56,355 |
|
|
|
56,313 |
|
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(5,687 |
) |
|
|
(917 |
) |
Other comprehensive income (loss) |
|
|
2,249 |
|
|
|
(649 |
) |
|
Balance at June 30 |
|
|
(3,438 |
) |
|
|
(1,566 |
) |
|
Shares held in RSU Trust |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(217 |
) |
|
|
|
|
Resulting from the Bear Stearns merger |
|
|
|
|
|
|
(269 |
) |
Reissuance from RSU Trust |
|
|
131 |
|
|
|
|
|
|
Balance at June 30 |
|
|
(86 |
) |
|
|
(269 |
) |
|
Treasury stock, at cost |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(9,249 |
) |
|
|
(12,832 |
) |
Reissuance from treasury stock |
|
|
1,284 |
|
|
|
1,852 |
|
Share repurchases related to employee stock-based compensation awards |
|
|
(19 |
) |
|
|
|
|
Net change from the Bear Stearns merger as a result of the reissuance of treasury stock and the Share
Exchange agreement |
|
|
|
|
|
|
1,150 |
|
|
Balance at June 30 |
|
|
(7,984 |
) |
|
|
(9,830 |
) |
|
Total stockholders equity |
|
$ |
154,766 |
|
|
$ |
133,176 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,862 |
|
|
$ |
4,376 |
|
Other comprehensive income (loss) |
|
|
2,249 |
|
|
|
(649 |
) |
|
Comprehensive income |
|
$ |
7,111 |
|
|
$ |
3,727 |
|
|
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
94
JPMORGAN
CHASE & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,862 |
|
|
$ |
4,376 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
16,627 |
|
|
|
7,879 |
|
Depreciation and amortization |
|
|
1,209 |
|
|
|
1,503 |
|
Amortization of intangibles |
|
|
540 |
|
|
|
632 |
|
Deferred tax benefit |
|
|
(2,276 |
) |
|
|
(1,139 |
) |
Investment securities gains |
|
|
(545 |
) |
|
|
(680 |
) |
Proceeds on sale of investment |
|
|
|
|
|
|
(1,540 |
) |
Stock-based compensation |
|
|
1,672 |
|
|
|
1,388 |
|
Originations and purchases of loans held-for-sale |
|
|
(9,850 |
) |
|
|
(21,289 |
) |
Proceeds from sales, securitizations and paydowns of loans held-for-sale |
|
|
16,212 |
|
|
|
22,660 |
|
Net change in: |
|
|
|
|
|
|
|
|
Trading assets |
|
|
140,934 |
|
|
|
1,494 |
|
Securities borrowed |
|
|
(5,282 |
) |
|
|
(3,396 |
) |
Accrued interest and accounts receivable |
|
|
(441 |
) |
|
|
3,031 |
|
Other assets |
|
|
17,722 |
|
|
|
(8,122 |
) |
Trading liabilities |
|
|
(61,751 |
) |
|
|
13,383 |
|
Accounts payable and other liabilities |
|
|
(14,854 |
) |
|
|
(1,669 |
) |
Other operating adjustments |
|
|
(1,520 |
) |
|
|
5,462 |
|
|
Net cash provided by operating activities |
|
|
103,259 |
|
|
|
23,973 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits with banks |
|
|
76,177 |
|
|
|
(1,457 |
) |
Federal funds sold and securities purchased under resale agreements |
|
|
43,374 |
|
|
|
(20,457 |
) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
Proceeds |
|
|
5 |
|
|
|
5 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Proceeds from maturities |
|
|
47,129 |
|
|
|
21,219 |
|
Proceeds from sales |
|
|
67,472 |
|
|
|
32,438 |
|
Purchases |
|
|
(249,770 |
) |
|
|
(88,119 |
) |
Proceeds from sales and securitization of loans held-for-investment |
|
|
17,897 |
|
|
|
18,021 |
|
Other changes in loans, net |
|
|
37,593 |
|
|
|
(41,648 |
) |
Net cash (used) received in business acquisitions or dispositions |
|
|
(18 |
) |
|
|
444 |
|
Proceeds from asset sale to the FRBNY |
|
|
|
|
|
|
28,850 |
|
Net purchases of asset-backed commercial paper guaranteed by the FRBB |
|
|
(3,257 |
) |
|
|
|
|
All other investing activities, net |
|
|
(2,172 |
) |
|
|
(3,378 |
) |
|
Net cash provided by (used in) investing activities |
|
|
34,430 |
|
|
|
(54,082 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits |
|
|
(173,304 |
) |
|
|
(2,564 |
) |
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
107,281 |
|
|
|
22,107 |
|
Commercial paper and other borrowed funds |
|
|
(53,690 |
) |
|
|
(10,023 |
) |
Proceeds from the issuance of long-term debt and trust preferred capital debt securities |
|
|
38,079 |
|
|
|
38,184 |
|
Repayments of long-term debt and trust preferred capital debt securities |
|
|
(34,924 |
) |
|
|
(29,973 |
) |
Excess tax benefits related to stock-based compensation |
|
|
1 |
|
|
|
121 |
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
6,000 |
|
Redemption of preferred stock issued to the U.S. Treasury |
|
|
(25,000 |
) |
|
|
|
|
Proceeds from issuance of common stock |
|
|
5,756 |
|
|
|
|
|
Cash dividends paid |
|
|
(2,681 |
) |
|
|
(2,663 |
) |
All other financing activities, net |
|
|
(931 |
) |
|
|
765 |
|
|
Net cash (used in) provided by financing activities |
|
|
(139,413 |
) |
|
|
21,954 |
|
|
Effect of exchange rate changes on cash and due from banks |
|
|
(38 |
) |
|
|
266 |
|
|
Net (decrease) in cash and due from banks |
|
|
(1,762 |
) |
|
|
(7,889 |
) |
Cash and due from banks at the beginning of the year |
|
|
26,895 |
|
|
|
40,144 |
|
|
Cash and due from banks at the end of the period |
|
$ |
25,133 |
|
|
$ |
32,255 |
|
|
Cash interest paid |
|
$ |
8,463 |
|
|
$ |
19,462 |
|
Cash income taxes paid |
|
|
3,837 |
|
|
|
2,264 |
|
|
|
|
|
Note: |
|
In 2008, the fair value of noncash assets acquired and liabilities assumed in the merger
with Bear Stearns were $288.2 billion and $287.7 billion, respectively; approximately 26
million shares of common stock, valued at approximately $1.2 billion, were issued in
connection with this merger. |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
95
See Glossary of Terms on pages 169173 of this Form 10-Q for definitions of terms used
throughout the Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE
1 BASIS OF PRESENTATION
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 operations worldwide. The Firm
is a leader in investment banking, financial services for consumers and businesses, financial
transaction processing and asset management. For a discussion of the Firms business segments
information, see Note 25 on pages 163166 of this Form 10-Q.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to
accounting principles generally accepted in the United States of America (U.S. GAAP).
Additionally, where applicable, the policies conform to the accounting and reporting guidelines
prescribed by bank regulatory authorities. The unaudited consolidated financial statements prepared
in conformity with U.S. GAAP require management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent
assets and liabilities. Actual results could be different from these estimates. In the opinion of
management, all normal recurring adjustments have been included for a fair statement of this
interim financial information. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes thereto included
in JPMorgan Chases Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the U.S. Securities and Exchange Commission (the 2008 Annual Report).
Certain amounts in prior periods have been reclassified to conform to the current presentation.
NOTE
2 BUSINESS CHANGES AND DEVELOPMENTS
Decrease in common stock dividend
On February 23, 2009, the Board of Directors reduced the Firms
quarterly common stock dividend from $0.38 to $0.05 per share, effective with the dividend paid
on April 30, 2009, to shareholders of record on April 6, 2009.
Acquisition of the banking operations of Washington Mutual Bank
Refer to Note 2 on pages 123124 and 127 of JPMorgan Chases 2008 Annual Report for a discussion of
JPMorgan Chases acquisition of the banking operations of Washington Mutual Bank (Washington
Mutual) on September 25, 2008, including its purchase price and the allocation of the purchase
price to net assets acquired and the resulting extraordinary gain. The acquisition is being
accounted for under the purchase method of accounting in accordance with SFAS 141. The total
purchase price to complete the acquisition was $1.9 billion, which was allocated to the Washington
Mutual assets acquired and liabilities assumed using their fair values as of September 25, 2008.
The allocation of the purchase price may be modified through September 25, 2009, as more
information is obtained about the fair value of assets acquired and liabilities assumed.
Merger with The Bear Stearns Companies Inc.
Refer to Note 2 on pages 125127 of JPMorgan Chases 2008 Annual Report for a discussion of the
merger on May 30, 2008, of a wholly-owned subsidiary of JPMorgan Chase with The Bear Stearns
Companies Inc. (Bear Stearns). The merger is being accounted for under the purchase method of
accounting in accordance with SFAS 141. The total purchase price to complete the merger was $1.5
billion, which was allocated to the Bear Stearns assets acquired and liabilities assumed using
their fair values as of April 8, 2008, and May 30, 2008. The updated summary computation of the
purchase price and the allocation of the purchase price to the net assets of Bear Stearns are
presented below.
96
|
|
|
|
|
|
|
|
|
(in millions, except for shares (in thousands), per share amounts |
|
|
|
|
|
|
|
|
and where otherwise noted) |
|
|
|
|
|
|
|
|
|
Purchase price |
|
|
|
|
|
|
|
|
Shares exchanged in the Share Exchange transaction (April 8, 2008) |
|
|
95,000 |
|
|
|
|
|
Other Bear Stearns shares outstanding |
|
|
145,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Bear Stearns stock outstanding |
|
|
240,759 |
|
|
|
|
|
Cancellation of shares issued in the Share Exchange transaction |
|
|
(95,000 |
) |
|
|
|
|
Cancellation of shares acquired by JPMorgan Chase for cash in the open market |
|
|
(24,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Bear Stearns common stock exchanged as of May 30, 2008 |
|
|
121,698 |
|
|
|
|
|
Exchange ratio |
|
|
0.21753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase common stock issued |
|
|
26,473 |
|
|
|
|
|
Average purchase price per JPMorgan Chase common share(a) |
|
$ |
45.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of JPMorgan Chase common stock issued |
|
|
|
|
|
$ |
1,198 |
|
Bear Stearns common stock acquired for cash in the open market (24 million
shares at an average share price of $12.37 per share) |
|
|
|
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
Fair value of employee stock awards (largely to be settled by shares held in
the RSU Trust(b)) |
|
|
|
|
|
|
242 |
|
Direct acquisition costs |
|
|
|
|
|
|
27 |
|
Less: Fair value of Bear Stearns common stock held in the RSU Trust and
included in the exchange of common stock |
|
|
|
|
|
|
(269 |
)(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
|
1,496 |
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bear Stearns common stockholders equity |
|
$ |
6,052 |
|
|
|
|
|
Adjustments to reflect assets acquired at fair value: |
|
|
|
|
|
|
|
|
Trading assets |
|
|
(3,877 |
) |
|
|
|
|
Premises and equipment |
|
|
509 |
|
|
|
|
|
Other assets |
|
|
(288 |
) |
|
|
|
|
Adjustments to reflect liabilities assumed at fair value: |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
504 |
|
|
|
|
|
Other liabilities |
|
|
(2,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired excluding goodwill |
|
|
|
|
|
|
611 |
|
|
|
|
|
|
|
|
|
Goodwill resulting from the merger(c) |
|
|
|
|
|
$ |
885 |
|
|
|
|
|
(a) |
|
The value of JPMorgan Chase common stock was determined by averaging the closing prices of
JPMorgan Chases common stock for the four trading days during the period March 19, 2008,
through March 25, 2008. |
|
(b) |
|
Represents shares of Bear Stearns common stock held in an irrevocable grantor trust (the RSU
Trust), to be used to settle stock awards granted to selected employees and certain key
executives under certain heritage Bear Stearns employee stock plans. Shares in the RSU Trust
were exchanged for 6 million shares of JPMorgan Chase common stock at the merger exchange
ratio of 0.21753. For further discussion of the RSU Trust, see Note 10 on pages 155157 of
JPMorgan Chases 2008 Annual Report. |
|
(c) |
|
The goodwill was recorded in the Investment Bank and is not tax-deductible. |
97
Condensed statement of net assets acquired
The following reflects the value assigned to Bear Stearns net assets as of the merger date.
|
|
|
|
|
(in millions) |
|
May 30, 2008 |
|
|
Assets |
|
|
|
|
Cash and due from banks |
|
$ |
534 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
21,204 |
|
Securities borrowed |
|
|
55,195 |
|
Trading assets |
|
|
136,489 |
|
Loans |
|
|
4,407 |
|
Accrued interest and accounts receivable |
|
|
34,677 |
|
Goodwill |
|
|
885 |
|
All other assets |
|
|
35,377 |
|
|
Total assets |
|
$ |
288,768 |
|
|
Liabilities |
|
|
|
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
$ |
54,643 |
|
Other borrowings |
|
|
16,166 |
|
Trading liabilities |
|
|
24,267 |
|
Beneficial interests issued by consolidated VIEs |
|
|
47,042 |
|
Long-term debt |
|
|
67,015 |
|
Accounts payable and other liabilities |
|
|
78,569 |
|
|
Total liabilities |
|
|
287,702 |
|
|
Bear Stearns net assets(a) |
|
$ |
1,066 |
|
|
|
|
|
(a) |
|
Reflects the fair value assigned to 49.4% of the Bear Stearns net assets acquired on April
8, 2008 (net of related amortization), and the fair value assigned to the remaining 50.6% of
the Bear Stearns net assets acquired on May 30, 2008. The difference between the Bear Stearns
net assets acquired, as presented above, and the fair value of the net assets acquired
(including goodwill), presented in the previous table, represents JPMorgan Chases net losses
recorded under the equity method of accounting. |
Unaudited pro forma condensed combined financial information reflecting the Bear Stearns merger and Washington Mutual transaction
The following unaudited pro forma condensed combined financial information presents the results of
operations of the Firm as they may have appeared for the three and six months ended June 30, 2008,
if the Bear Stearns merger and the Washington Mutual transaction had been completed on January 1,
2008.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
(in millions, except per share data) |
|
June 30, 2008 |
|
|
June 30, 2008 |
|
|
Total net revenue |
|
$ |
14,181 |
|
|
$ |
33,961 |
|
Net loss |
|
|
(8,293 |
) |
|
|
(9,176 |
) |
Net loss per common share data(a): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(2.43 |
) |
|
$ |
(2.71 |
) |
Diluted(b) |
|
|
(2.43 |
) |
|
|
(2.71 |
) |
Weighted-average common shares issued and
outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
3,435.1 |
|
|
|
3,427.0 |
|
Diluted(b) |
|
|
3,435.1 |
|
|
|
3,427.0 |
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior period
amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158
of this Form 10-Q. |
|
(b) |
|
Common equivalent shares have been excluded from the pro forma computation of diluted loss
per share for the three and six months ended June 30, 2008, as the effect would be
antidilutive. |
98
The unaudited pro forma combined financial information is presented for illustrative purposes
only, and it does not indicate the financial results of the combined company had the companies
actually been combined as of January 1, 2008; nor is it indicative of the results of operations in
future periods. Included in the unaudited pro forma combined financial information for the three
and six months ended June 30, 2008, were pro forma adjustments to reflect the results of operations
of Bear Stearns, and Washington Mutuals banking operations, considering the purchase accounting,
valuation and accounting conformity adjustments related to each transaction. For the Washington
Mutual transaction, the amortization of purchase accounting adjustments to report interest-earnings
assets acquired and interest-bearing liabilities assumed at current interest rates is reflected.
Valuation adjustments and the adjustment to conform allowance methodologies in the Washington
Mutual transaction, and valuation and accounting conformity adjustments related to the Bear Stearns
merger, are reflected in the results for the three and six months ended June 30, 2008.
Purchase of remaining interest in Highbridge Capital Management
On July 1, 2009, JPMorgan Chase completed its purchase of the remaining interest in Highbridge
Capital Management, LLC.
Issuance of common stock
On June 2, 2009, the Firm issued $5.8 billion, or 163 million shares, of common stock. The common
stock was issued to satisfy a regulatory supervisory condition requiring the Firm to demonstrate it
could access the equity capital markets in order to be eligible to redeem the Series K preferred
stock held by the U.S. Treasury. The proceeds from this issuance were used for general corporate
purposes.
Subsequent events
The Firm has performed an evaluation of events that have occurred subsequent to June 30, 2009, and
through August 10, 2009 (the date of the filing of this Form 10-Q). There have been no subsequent
events that occurred during such period that would require disclosure in this Form 10-Q or would be
required to be recognized in the Consolidated Financial Statements as of or for the three- and
six-month periods ending June 30, 2009.
NOTE
3 FAIR VALUE MEASUREMENT
For a further discussion of JPMorgan Chases valuation methodologies for assets, liabilities and lending-related commitments
measured at fair value and the SFAS 157 valuation hierarchy, see Note 4 on pages 129143 of
JPMorgan Chases 2008 Annual Report.
During the first half of 2009, there were no material changes made to the Firms valuation
models.
For a further discussion of the accounting for trading assets and liabilities, and private equity
investments, see Note 6 on pages 146148 of JPMorgan Chases 2008 Annual Report.
99
The following table presents the financial instruments carried at fair value as of June 30, 2009,
and December 31, 2008, by major product category and by the SFAS 157 valuation hierarchy.
Assets and liabilities measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 39 |
|
Total |
June 30, 2009 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
netting(g) |
|
fair value |
|
Federal funds sold and securities purchased under
resale agreements |
|
$ |
|
|
|
$ |
18,996 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,996 |
|
Securities borrowed |
|
|
|
|
|
|
3,360 |
|
|
|
|
|
|
|
|
|
|
|
3,360 |
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
41,928 |
|
|
|
6,485 |
|
|
|
257 |
|
|
|
|
|
|
|
48,670 |
|
Residentialnonagency(b) |
|
|
|
|
|
|
1,027 |
|
|
|
2,832 |
|
|
|
|
|
|
|
3,859 |
|
Commercialnonagency(b) |
|
|
|
|
|
|
263 |
|
|
|
1,850 |
|
|
|
|
|
|
|
2,113 |
|
|
Total mortgage-backed securities |
|
|
41,928 |
|
|
|
7,775 |
|
|
|
4,939 |
|
|
|
|
|
|
|
54,642 |
|
U.S. Treasury and government agencies(a) |
|
|
24,302 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
24,350 |
|
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
7,211 |
|
|
|
2,416 |
|
|
|
|
|
|
|
9,627 |
|
Certificates of deposit, bankers acceptances and
commercial paper |
|
|
|
|
|
|
3,276 |
|
|
|
|
|
|
|
|
|
|
|
3,276 |
|
Non-U.S. government debt securities |
|
|
28,546 |
|
|
|
27,562 |
|
|
|
726 |
|
|
|
|
|
|
|
56,834 |
|
Corporate debt securities |
|
|
|
|
|
|
40,617 |
|
|
|
5,482 |
|
|
|
|
|
|
|
46,099 |
|
Loans |
|
|
|
|
|
|
15,949 |
|
|
|
15,208 |
|
|
|
|
|
|
|
31,157 |
|
Asset-backed securities |
|
|
|
|
|
|
1,919 |
|
|
|
7,683 |
|
|
|
|
|
|
|
9,602 |
|
|
Total debt instruments |
|
|
94,776 |
|
|
|
104,357 |
|
|
|
36,454 |
|
|
|
|
|
|
|
235,587 |
|
Equity securities |
|
|
50,712 |
|
|
|
3,994 |
|
|
|
1,509 |
|
|
|
|
|
|
|
56,215 |
|
Physical commodities(c) |
|
|
984 |
|
|
|
2,498 |
|
|
|
|
|
|
|
|
|
|
|
3,482 |
|
Other |
|
|
|
|
|
|
1,582 |
|
|
|
1,269 |
|
|
|
|
|
|
|
2,851 |
|
|
Total debt and equity instruments |
|
|
146,472 |
|
|
|
112,431 |
|
|
|
39,232 |
|
|
|
|
|
|
|
298,135 |
|
Derivative receivables(d) |
|
|
2,998 |
|
|
|
1,736,643 |
|
|
|
57,896 |
|
|
|
(1,700,046 |
) |
|
|
97,491 |
|
|
Total trading assets |
|
|
149,470 |
|
|
|
1,849,074 |
|
|
|
97,128 |
|
|
|
(1,700,046 |
) |
|
|
395,626 |
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
176,701 |
|
|
|
3,738 |
|
|
|
|
|
|
|
|
|
|
|
180,439 |
|
Residentialnonagency(b) |
|
|
|
|
|
|
11,273 |
|
|
|
1,090 |
|
|
|
|
|
|
|
12,363 |
|
Commercialnonagency(b) |
|
|
|
|
|
|
4,235 |
|
|
|
|
|
|
|
|
|
|
|
4,235 |
|
|
Total mortgage-backed securities |
|
|
176,701 |
|
|
|
19,246 |
|
|
|
1,090 |
|
|
|
|
|
|
|
197,037 |
|
U.S. Treasury and government agencies(a) |
|
|
695 |
|
|
|
33,983 |
|
|
|
|
|
|
|
|
|
|
|
34,678 |
|
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
5,532 |
|
|
|
474 |
|
|
|
|
|
|
|
6,006 |
|
Certificates of deposit |
|
|
|
|
|
|
5,603 |
|
|
|
|
|
|
|
|
|
|
|
5,603 |
|
Non-U.S. government debt securities |
|
|
5,034 |
|
|
|
11,317 |
|
|
|
|
|
|
|
|
|
|
|
16,351 |
|
Corporate debt securities |
|
|
3,714 |
|
|
|
44,510 |
|
|
|
52 |
|
|
|
|
|
|
|
48,276 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
|
|
|
|
22,243 |
|
|
|
|
|
|
|
|
|
|
|
22,243 |
|
Collateralized debt and loan obligations |
|
|
|
|
|
|
10 |
|
|
|
11,489 |
|
|
|
|
|
|
|
11,499 |
|
Other |
|
|
|
|
|
|
1,428 |
|
|
|
445 |
|
|
|
|
|
|
|
1,873 |
|
Equity securities |
|
|
1,818 |
|
|
|
89 |
|
|
|
61 |
|
|
|
|
|
|
|
1,968 |
|
|
Total available-for-sale securities |
|
|
187,962 |
|
|
|
143,961 |
|
|
|
13,611 |
|
|
|
|
|
|
|
345,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
1,317 |
|
|
|
1,756 |
|
|
|
|
|
|
|
3,073 |
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
14,600 |
|
|
|
|
|
|
|
14,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(e) |
|
|
139 |
|
|
|
292 |
|
|
|
6,129 |
|
|
|
|
|
|
|
6,560 |
|
All other |
|
|
6,655 |
|
|
|
14,521 |
|
|
|
4,489 |
|
|
|
|
|
|
|
25,665 |
|
|
Total other assets |
|
|
6,794 |
|
|
|
14,813 |
|
|
|
10,618 |
|
|
|
|
|
|
|
32,225 |
|
|
Total assets measured at fair value on a recurring
basis |
|
$ |
344,226 |
|
|
$ |
2,031,521 |
|
|
$ |
137,713 |
|
|
$ |
(1,700,046 |
) |
|
|
813,414 |
|
Less: Level 3 assets for which the Firm does not
bear economic exposure(f) |
|
|
|
|
|
|
|
|
|
|
2,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring level 3 assets for which the Firm
bears economic exposure |
|
|
|
|
|
|
|
|
|
$ |
135,187 |
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 39 |
|
Total |
June 30, 2009 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
netting(g) |
|
fair value |
|
Deposits |
|
$ |
|
|
|
$ |
3,160 |
|
|
$ |
627 |
|
|
$ |
|
|
|
$ |
3,787 |
|
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
|
|
|
|
2,977 |
|
|
|
|
|
|
|
|
|
|
|
2,977 |
|
Other borrowed funds |
|
|
|
|
|
|
16,130 |
|
|
|
134 |
|
|
|
|
|
|
|
16,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
44,044 |
|
|
|
11,924 |
|
|
|
53 |
|
|
|
|
|
|
|
56,021 |
|
Derivative payables(d) |
|
|
2,882 |
|
|
|
1,706,874 |
|
|
|
39,548 |
|
|
|
(1,682,107 |
) |
|
|
67,197 |
|
|
Total trading liabilities |
|
|
46,926 |
|
|
|
1,718,798 |
|
|
|
39,601 |
|
|
|
(1,682,107 |
) |
|
|
123,218 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
4 |
|
|
|
437 |
|
|
|
|
|
|
|
441 |
|
Beneficial interests issued by consolidated VIEs |
|
|
|
|
|
|
703 |
|
|
|
1,060 |
|
|
|
|
|
|
|
1,763 |
|
Long-term debt |
|
|
|
|
|
|
35,969 |
|
|
|
17,473 |
|
|
|
|
|
|
|
53,442 |
|
|
Total liabilities measured at fair value on a
recurring basis |
|
$ |
46,926 |
|
|
$ |
1,777,741 |
|
|
$ |
59,332 |
|
|
$ |
(1,682,107 |
) |
|
$ |
201,892 |
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 39 |
|
Total |
December 31, 2008 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
netting(g) |
|
fair value |
|
Federal funds sold and securities purchased under resale
agreements |
|
$ |
|
|
|
$ |
20,843 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,843 |
|
Securities borrowed |
|
|
|
|
|
|
3,381 |
|
|
|
|
|
|
|
|
|
|
|
3,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets(h): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
48,761 |
|
|
|
9,984 |
|
|
|
163 |
|
|
|
|
|
|
|
58,908 |
|
Residentialnonagency(b) |
|
|
|
|
|
|
658 |
|
|
|
3,339 |
|
|
|
|
|
|
|
3,997 |
|
Commercialnonagency(b) |
|
|
|
|
|
|
329 |
|
|
|
2,487 |
|
|
|
|
|
|
|
2,816 |
|
|
Total mortgage-backed securities |
|
|
48,761 |
|
|
|
10,971 |
|
|
|
5,989 |
|
|
|
|
|
|
|
65,721 |
|
U.S. Treasury and government agencies(a) |
|
|
29,646 |
|
|
|
1,659 |
|
|
|
|
|
|
|
|
|
|
|
31,305 |
|
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
10,361 |
|
|
|
2,641 |
|
|
|
|
|
|
|
13,002 |
|
Certificates of deposit, bankers acceptances and commercial
paper |
|
|
1,180 |
|
|
|
6,312 |
|
|
|
|
|
|
|
|
|
|
|
7,492 |
|
Non-U.S. government debt securities |
|
|
19,986 |
|
|
|
17,954 |
|
|
|
707 |
|
|
|
|
|
|
|
38,647 |
|
Corporate debt securities |
|
|
1 |
|
|
|
55,042 |
|
|
|
5,280 |
|
|
|
|
|
|
|
60,323 |
|
Loans |
|
|
|
|
|
|
14,711 |
|
|
|
17,091 |
|
|
|
|
|
|
|
31,802 |
|
Asset-backed securities |
|
|
|
|
|
|
2,414 |
|
|
|
7,106 |
|
|
|
|
|
|
|
9,520 |
|
|
Total debt instruments |
|
|
99,574 |
|
|
|
119,424 |
|
|
|
38,814 |
|
|
|
|
|
|
|
257,812 |
|
Equity securities |
|
|
73,174 |
|
|
|
3,992 |
|
|
|
1,380 |
|
|
|
|
|
|
|
78,546 |
|
Physical
commodities(c) |
|
|
|
|
|
|
3,581 |
|
|
|
|
|
|
|
|
|
|
|
3,581 |
|
Other |
|
|
4 |
|
|
|
6,188 |
|
|
|
1,226 |
|
|
|
|
|
|
|
7,418 |
|
|
Total debt and equity instruments |
|
|
172,752 |
|
|
|
133,185 |
|
|
|
41,420 |
|
|
|
|
|
|
|
347,357 |
|
Derivative receivables(d) |
|
|
3,630 |
|
|
|
2,685,101 |
|
|
|
52,991 |
|
|
|
(2,579,096 |
) |
|
|
162,626 |
|
|
Total trading assets |
|
|
176,382 |
|
|
|
2,818,286 |
|
|
|
94,411 |
|
|
|
(2,579,096 |
) |
|
|
509,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities(h): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
109,009 |
|
|
|
8,376 |
|
|
|
|
|
|
|
|
|
|
|
117,385 |
|
Residentialnonagency(b) |
|
|
|
|
|
|
9,115 |
|
|
|
49 |
|
|
|
|
|
|
|
9,164 |
|
Commercialnonagency(b) |
|
|
|
|
|
|
3,939 |
|
|
|
|
|
|
|
|
|
|
|
3,939 |
|
|
Total mortgage-backed securities |
|
|
109,009 |
|
|
|
21,430 |
|
|
|
49 |
|
|
|
|
|
|
|
130,488 |
|
U.S. Treasury and government agencies(a) |
|
|
615 |
|
|
|
9,742 |
|
|
|
|
|
|
|
|
|
|
|
10,357 |
|
Obligations of U.S. states and municipalities |
|
|
34 |
|
|
|
2,463 |
|
|
|
838 |
|
|
|
|
|
|
|
3,335 |
|
Certificates of deposit |
|
|
|
|
|
|
17,282 |
|
|
|
|
|
|
|
|
|
|
|
17,282 |
|
Non-U.S. government debt securities |
|
|
6,112 |
|
|
|
2,232 |
|
|
|
|
|
|
|
|
|
|
|
8,344 |
|
Corporate debt securities |
|
|
|
|
|
|
9,497 |
|
|
|
57 |
|
|
|
|
|
|
|
9,554 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
|
|
|
|
11,391 |
|
|
|
|
|
|
|
|
|
|
|
11,391 |
|
Collateralized debt and loan obligations |
|
|
|
|
|
|
|
|
|
|
11,195 |
|
|
|
|
|
|
|
11,195 |
|
Other |
|
|
|
|
|
|
643 |
|
|
|
252 |
|
|
|
|
|
|
|
895 |
|
Equity securities |
|
|
3,053 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
3,068 |
|
|
Total available-for-sale securities |
|
|
118,823 |
|
|
|
74,695 |
|
|
|
12,391 |
|
|
|
|
|
|
|
205,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
5,029 |
|
|
|
2,667 |
|
|
|
|
|
|
|
7,696 |
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
9,403 |
|
|
|
|
|
|
|
9,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(e) |
|
|
151 |
|
|
|
332 |
|
|
|
6,369 |
|
|
|
|
|
|
|
6,852 |
|
All other |
|
|
5,977 |
|
|
|
11,355 |
|
|
|
5,015 |
|
|
|
|
|
|
|
22,347 |
|
|
Total other assets |
|
|
6,128 |
|
|
|
11,687 |
|
|
|
11,384 |
|
|
|
|
|
|
|
29,199 |
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
301,333 |
|
|
$ |
2,933,921 |
|
|
$ |
130,256 |
|
|
$ |
(2,579,096 |
) |
|
$ |
786,414 |
|
Less: Level 3 assets for which the Firm does not bear economic
exposure(f) |
|
|
|
|
|
|
|
|
|
|
21,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring level 3 assets for which the
Firm bears economic exposure |
|
|
|
|
|
|
|
|
|
$ |
109,087 |
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 39 |
|
Total |
December 31, 2008 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
netting(g) |
|
fair value |
|
Deposits |
|
$ |
|
|
|
$ |
4,370 |
|
|
$ |
1,235 |
|
|
$ |
|
|
|
$ |
5,605 |
|
Federal funds purchased and
securities loaned or sold under
repurchase agreements |
|
|
|
|
|
|
2,993 |
|
|
|
|
|
|
|
|
|
|
|
2,993 |
|
Other borrowed funds |
|
|
|
|
|
|
14,612 |
|
|
|
101 |
|
|
|
|
|
|
|
14,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
34,568 |
|
|
|
10,418 |
|
|
|
288 |
|
|
|
|
|
|
|
45,274 |
|
Derivative payables(d) |
|
|
3,630 |
|
|
|
2,622,371 |
|
|
|
43,484 |
|
|
|
(2,547,881 |
) |
|
|
121,604 |
|
|
Total trading liabilities |
|
|
38,198 |
|
|
|
2,632,789 |
|
|
|
43,772 |
|
|
|
(2,547,881 |
) |
|
|
166,878 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interests issued by
consolidated VIEs |
|
|
|
|
|
|
1,735 |
|
|
|
|
|
|
|
|
|
|
|
1,735 |
|
Long-term debt |
|
|
|
|
|
|
41,666 |
|
|
|
16,548 |
|
|
|
|
|
|
|
58,214 |
|
|
Total liabilities measured at fair
value on a recurring basis |
|
$ |
38,198 |
|
|
$ |
2,698,165 |
|
|
$ |
61,656 |
|
|
$ |
(2,547,881 |
) |
|
$ |
250,138 |
|
|
|
|
|
(a) |
|
Includes total U.S. government-sponsored enterprise obligations of $222.9 billion and
$182.1 billion at June 30, 2009, and December 31, 2008, respectively, which were predominantly
mortgage-related. |
|
(b) |
|
For further discussion of residential and commercial mortgage-backed securities, see the
Mortgage-related exposure carried at fair value section of this Note on pages 110111. |
|
(c) |
|
Physical commodities inventories are accounted for at the lower of cost or fair value. |
|
(d) |
|
Derivative receivables and derivative payables balances are presented net on the Consolidated
Balance Sheets where there is a legally enforceable master netting agreement in place with
counterparties. For purposes of the table above, the Firm does not reduce the derivative
receivables and derivative payables balances for this netting adjustment, either within or
across the levels of the fair value hierarchy, as such netting is not relevant to a presentation that is
based on the transparency of inputs to the valuation of an asset or
liability. Therefore, the
balances reported in the fair value hierarchy table are gross of any counterparty netting
adjustments. However, if the Firm were to net such balances, the reduction in the level 3
derivative receivables and derivative payables balances would be $20.2 billion at June 30,
2009. |
|
(e) |
|
Private equity instruments represent investments within the Corporate/Private Equity line of
business. The cost of the private equity investment portfolio was $8.5 billion and $8.3
billion at June 30, 2009, and December 31, 2008, respectively. |
|
(f) |
|
Includes assets for which the Firm serves as an intermediary between two parties and does
not bear market risk. The assets are predominantly reflected within derivative receivables. |
|
(g) |
|
As permitted under FIN 39, the Firm has elected to net derivative receivables and derivative
payables and the related cash collateral received and paid when a legally enforceable master
netting agreement exists. |
|
(h) |
|
Prior periods have been revised to conform to the current
presentation. |
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the balance sheet amounts for the three and six
months ended June 30, 2009 and 2008 (including changes in fair value), for financial instruments
classified by the Firm within level 3 of the valuation hierarchy. When a determination is made to
classify a financial instrument within level 3, the determination is based on the significance of
the unobservable parameters to the overall fair value measurement. However, level 3 financial
instruments typically include, in addition to the unobservable or level 3 components, observable
components (that is, components that are actively quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include changes in fair value due in part to
observable factors that are part of the valuation methodology. Also, the Firm risk manages the
observable components of level 3 financial instruments using securities and derivative positions
that are classified within level 1 or 2 of the valuation hierarchy; as these level 1 and level 2
risk management instruments are not included below, the gains or losses in the following tables do
not reflect the effect of the Firms risk management activities related to such level 3
instruments.
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using significant unobservable inputs |
|
|
|
|
|
|
Change in unrealized |
|
|
|
|
|
|
|
|
|
|
Purchases, |
|
Transfers |
|
|
|
|
|
gains/(losses) |
Three months ended |
|
Fair value, |
|
Total |
|
issuances |
|
into and/or |
|
Fair value, |
|
related to financial |
June 30, 2009 |
|
March 31, |
|
realized/ unrealized |
|
settlements, |
|
out of |
|
June 30, |
|
instruments held |
(in millions) |
|
2009 |
|
gains/(losses) |
|
net |
|
level 3 |
|
2009 |
|
at June 30, 2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
288 |
|
|
$ |
(23 |
) |
|
$ |
(10 |
) |
|
$ |
2 |
|
|
$ |
257 |
|
|
$ |
(23 |
) |
Residential-nonagency(a) |
|
|
2,469 |
|
|
|
(183 |
) |
|
|
563 |
|
|
|
(17 |
) |
|
|
2,832 |
|
|
|
(197 |
) |
Commercial-nonagency(a) |
|
|
1,890 |
|
|
|
(11 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
1,850 |
|
|
|
(48 |
) |
|
Total mortgage-backed securities |
|
|
4,647 |
|
|
|
(217 |
) |
|
|
524 |
|
|
|
(15 |
) |
|
|
4,939 |
|
|
|
(268 |
) |
Obligations of U.S. states and
municipalities |
|
|
2,482 |
|
|
|
32 |
|
|
|
(98 |
) |
|
|
|
|
|
|
2,416 |
|
|
|
(8 |
) |
Non-U.S. government debt securities |
|
|
737 |
|
|
|
21 |
|
|
|
(32 |
) |
|
|
|
|
|
|
726 |
|
|
|
4 |
|
Corporate debt securities |
|
|
6,144 |
|
|
|
(21 |
) |
|
|
(752 |
) |
|
|
111 |
|
|
|
5,482 |
|
|
|
(44 |
) |
Loans |
|
|
16,046 |
|
|
|
362 |
|
|
|
(866 |
) |
|
|
(334 |
) |
|
|
15,208 |
|
|
|
351 |
|
Asset-backed securities |
|
|
6,488 |
|
|
|
887 |
|
|
|
490 |
|
|
|
(182 |
) |
|
|
7,683 |
|
|
|
828 |
|
|
Total debt instruments |
|
|
36,544 |
|
|
|
1,064 |
|
|
|
(734 |
) |
|
|
(420 |
) |
|
|
36,454 |
|
|
|
863 |
|
Equity securities |
|
|
963 |
|
|
|
29 |
|
|
|
(98 |
) |
|
|
615 |
|
|
|
1,509 |
|
|
|
17 |
|
Other |
|
|
1,200 |
|
|
|
(20 |
) |
|
|
47 |
|
|
|
42 |
|
|
|
1,269 |
|
|
|
(9 |
) |
|
Total debt and equity instruments |
|
|
38,707 |
|
|
|
1,073 |
(d)(e) |
|
|
(785 |
) |
|
|
237 |
|
|
|
39,232 |
|
|
|
871 |
(d)(e) |
|
Net derivative receivables |
|
|
19,148 |
|
|
|
(5,707) |
(d) |
|
|
759 |
|
|
|
4,148 |
|
|
|
18,348 |
|
|
|
(3,932) |
(d) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
11,078 |
|
|
|
767 |
|
|
|
89 |
|
|
|
|
|
|
|
11,934 |
|
|
|
767 |
|
Other |
|
|
1,385 |
|
|
|
(60 |
) |
|
|
346 |
|
|
|
6 |
|
|
|
1,677 |
|
|
|
50 |
|
|
Total available-for-sale securities |
|
|
12,463 |
|
|
|
707 |
(f) |
|
|
435 |
|
|
|
6 |
|
|
|
13,611 |
|
|
|
817 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
2,987 |
|
|
|
(73) |
(d) |
|
|
(1,112 |
) |
|
|
(46 |
) |
|
|
1,756 |
|
|
|
(116) |
(d) |
Mortgage servicing rights |
|
|
10,634 |
|
|
|
3,831 |
(e) |
|
|
135 |
|
|
|
|
|
|
|
14,600 |
|
|
|
3,831 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
6,245 |
|
|
|
(135) |
(d) |
|
|
20 |
|
|
|
(1 |
) |
|
|
6,129 |
|
|
|
(145) |
(d) |
All other |
|
|
4,419 |
|
|
|
(116) |
(g) |
|
|
189 |
|
|
|
(3 |
) |
|
|
4,489 |
|
|
|
(120) |
(g) |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
(928 |
) |
|
$ |
(9) |
(d) |
|
$ |
310 |
|
|
$ |
|
|
|
$ |
(627 |
) |
|
$ |
(9) |
(d) |
Other borrowed funds |
|
|
(47 |
) |
|
|
(9) |
(d) |
|
|
(40 |
) |
|
|
(38 |
) |
|
|
(134 |
) |
|
|
(8) |
(d) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
(257 |
) |
|
|
4 |
(d) |
|
|
200 |
|
|
|
|
|
|
|
(53 |
) |
|
|
9 |
(d) |
Accounts payable and other liabilities |
|
|
(6 |
) |
|
|
2 |
(d) |
|
|
(433 |
) |
|
|
|
|
|
|
(437 |
) |
|
|
4 |
(d) |
Beneficial interests issued by
consolidated VIEs |
|
|
(502 |
) |
|
|
(161) |
(d) |
|
|
482 |
|
|
|
(879 |
) |
|
|
(1,060 |
) |
|
|
(160) |
(d) |
Long-term debt |
|
|
(16,657 |
) |
|
|
(883) |
(d) |
|
|
1,233 |
|
|
|
(1,166 |
) |
|
|
(17,473 |
) |
|
|
(1,077) |
(d) |
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using significant unobservable inputs |
|
|
|
|
|
|
Change in unrealized |
|
|
|
|
|
|
Total |
|
|
|
|
|
Transfers |
|
|
|
|
|
gains/(losses) |
Three months ended |
|
|
|
|
|
realized/ |
|
Purchases, |
|
into and/or |
|
|
|
|
|
related to
financial |
June 30, 2008 |
|
Fair value, |
|
unrealized |
|
issuances |
|
out of |
|
Fair value, |
|
instruments held |
(in millions) |
|
March 31, 2008 |
|
gains/(losses) |
|
settlements, net |
|
level 3 |
|
June 30, 2008 |
|
at June 30, 2008 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
$ |
40,827 |
|
|
$ |
(2,053 |
)(d)(e) |
|
$ |
17,426 |
|
|
$ |
2,696 |
|
|
$ |
58,896 |
|
|
$ |
(2,261 |
)(d)(e) |
Net derivative receivables |
|
|
3,053 |
|
|
|
1,081 |
(d) |
|
|
1,576 |
|
|
|
265 |
|
|
|
5,975 |
|
|
|
(33 |
)(d) |
Available-for-sale securities |
|
|
336 |
|
|
|
(8 |
)(f) |
|
|
2 |
|
|
|
(59 |
) |
|
|
271 |
|
|
|
(8 |
)(f) |
Loans |
|
|
8,456 |
|
|
|
(122 |
)(d) |
|
|
699 |
|
|
|
(704 |
) |
|
|
8,329 |
|
|
|
(188 |
)(d) |
Mortgage servicing rights |
|
|
8,419 |
|
|
|
1,516 |
(e) |
|
|
1,682 |
|
|
|
|
|
|
|
11,617 |
|
|
|
1,516 |
(e) |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
6,002 |
|
|
|
453 |
(d) |
|
|
546 |
|
|
|
|
|
|
|
7,001 |
|
|
|
71 |
(d) |
All other |
|
|
3,267 |
|
|
|
(41 |
)(g) |
|
|
1,730 |
|
|
|
(25 |
) |
|
|
4,931 |
|
|
|
(55 |
)(g) |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
(1,208 |
) |
|
$ |
(63 |
)(d) |
|
$ |
(7 |
) |
|
$ |
(50 |
) |
|
$ |
(1,328 |
) |
|
$ |
(64 |
)(d) |
Other borrowed funds |
|
|
(139 |
) |
|
|
(97 |
)(d) |
|
|
(63 |
) |
|
|
(1 |
) |
|
|
(300 |
) |
|
|
|
(d) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
(727 |
) |
|
|
21 |
(d) |
|
|
(164 |
) |
|
|
|
|
|
|
(870 |
) |
|
|
(162 |
)(d) |
Accounts payable and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interests issued by
consolidated VIEs |
|
|
(51 |
) |
|
|
(7 |
)(d) |
|
|
(7,524 |
) |
|
|
(569 |
) |
|
|
(8,151 |
) |
|
|
(7 |
)(d) |
Long-term debt |
|
|
(21,104 |
) |
|
|
(263 |
)(d) |
|
|
(1,485 |
) |
|
|
(124 |
) |
|
|
(22,976 |
) |
|
|
(409 |
)(d) |
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using significant unobservable inputs |
|
|
|
|
|
|
Change in unrealized |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
gains/(losses) |
Six months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
related to financial |
June 30, 2009 |
|
January 1, |
|
unrealized |
|
settlements, |
|
out of |
|
June 30, |
|
instruments held |
(in millions) |
|
2009 |
|
gains/(losses) |
|
net |
|
level 3 |
|
2009 |
|
at June 30, 2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
163 |
|
|
$ |
(35 |
) |
|
$ |
56 |
|
|
$ |
73 |
|
|
$ |
257 |
|
|
$ |
(34 |
) |
Residentialnonagency(a) |
|
|
3,339 |
|
|
|
(548 |
) |
|
|
567 |
|
|
|
(526 |
) |
|
|
2,832 |
|
|
|
(590 |
) |
Commercialnonagency(a) |
|
|
2,487 |
|
|
|
(241 |
) |
|
|
(245 |
) |
|
|
(151 |
) |
|
|
1,850 |
|
|
|
(97 |
) |
|
Total mortgage-backed
securities |
|
|
5,989 |
|
|
|
(824 |
) |
|
|
378 |
|
|
|
(604 |
) |
|
|
4,939 |
|
|
|
(721 |
) |
Obligations of U.S. states and
municipalities |
|
|
2,641 |
|
|
|
53 |
|
|
|
(278 |
) |
|
|
|
|
|
|
2,416 |
|
|
|
(25 |
) |
Non-U.S. government debt
securities |
|
|
707 |
|
|
|
25 |
|
|
|
(40 |
) |
|
|
34 |
|
|
|
726 |
|
|
|
2 |
|
Corporate debt securities |
|
|
5,280 |
|
|
|
(164 |
) |
|
|
(3,102 |
) |
|
|
3,468 |
|
|
|
5,482 |
|
|
|
(88 |
) |
Loans |
|
|
17,091 |
|
|
|
(1,188 |
) |
|
|
(954 |
) |
|
|
259 |
|
|
|
15,208 |
|
|
|
(1,117 |
) |
Asset-backed securities |
|
|
7,106 |
|
|
|
669 |
|
|
|
128 |
|
|
|
(220 |
) |
|
|
7,683 |
|
|
|
574 |
|
|
Total debt instruments |
|
|
38,814 |
|
|
|
(1,429 |
) |
|
|
(3,868 |
) |
|
|
2,937 |
|
|
|
36,454 |
|
|
|
(1,375 |
) |
Equity securities |
|
|
1,380 |
|
|
|
(247 |
) |
|
|
(359 |
) |
|
|
735 |
|
|
|
1,509 |
|
|
|
(171 |
) |
Other |
|
|
1,226 |
|
|
|
(107 |
) |
|
|
94 |
|
|
|
56 |
|
|
|
1,269 |
|
|
|
80 |
|
|
Total debt and equity instruments |
|
|
41,420 |
|
|
|
(1,783) |
(d)(e) |
|
|
(4,133 |
) |
|
|
3,728 |
|
|
|
39,232 |
|
|
|
(1,466) |
(d)(e) |
|
Net derivative receivables |
|
|
9,507 |
|
|
|
(4,938) |
(d) |
|
|
(2,233 |
) |
|
|
16,012 |
|
|
|
18,348 |
|
|
|
(4,870 |
) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
11,447 |
|
|
|
(138 |
) |
|
|
450 |
|
|
|
175 |
|
|
|
11,934 |
|
|
|
(331 |
) |
Other |
|
|
944 |
|
|
|
(60 |
) |
|
|
247 |
|
|
|
546 |
|
|
|
1,677 |
|
|
|
50 |
|
|
Total available-for-sale securities |
|
|
12,391 |
|
|
|
(198) |
(f) |
|
|
697 |
|
|
|
721 |
|
|
|
13,611 |
|
|
|
(281) |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
2,667 |
|
|
|
(478) |
(d) |
|
|
(1,309 |
) |
|
|
876 |
|
|
|
1,756 |
|
|
|
(433) |
(d) |
Mortgage servicing rights |
|
|
9,403 |
|
|
|
5,141 |
(e) |
|
|
56 |
|
|
|
|
|
|
|
14,600 |
|
|
|
5,141 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
6,369 |
|
|
|
(473) |
(d) |
|
|
163 |
|
|
|
70 |
|
|
|
6,129 |
|
|
|
(459) |
(d) |
All other |
|
|
5,015 |
|
|
|
(534) |
(g) |
|
|
66 |
|
|
|
(58 |
) |
|
|
4,489 |
|
|
|
(524) |
(g) |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
(1,235 |
) |
|
$ |
(23) |
(d) |
|
$ |
693 |
|
|
$ |
(62 |
) |
|
$ |
(627 |
) |
|
$ |
(36) |
(d) |
Other borrowed funds |
|
|
(101 |
) |
|
|
86 |
(d) |
|
|
(76 |
) |
|
|
(43 |
) |
|
|
(134 |
) |
|
|
(5) |
(d) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
(288 |
) |
|
|
(58) |
(d) |
|
|
290 |
|
|
|
3 |
|
|
|
(53 |
) |
|
|
2 |
(d) |
Accounts payable and other
liabilities |
|
|
|
|
|
|
4 |
(d) |
|
|
(441 |
) |
|
|
|
|
|
|
(437 |
) |
|
|
4 |
(d) |
Beneficial interests issued by
consolidated VIEs |
|
|
|
|
|
|
(161) |
(d) |
|
|
(20 |
) |
|
|
(879 |
) |
|
|
(1,060 |
) |
|
|
(160) |
(d) |
Long-term debt |
|
|
(16,548 |
) |
|
|
(41) |
(d) |
|
|
2,551 |
|
|
|
(3,435 |
) |
|
|
(17,473 |
) |
|
|
(464) |
(d) |
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using significant unobservable inputs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
|
|
|
|
Total |
|
|
|
|
|
Transfers |
|
|
|
|
|
gains/(losses) |
Six months ended |
|
|
|
|
|
realized/ |
|
Purchases, |
|
into and/or |
|
|
|
|
|
related to financial |
June 30, 2008 |
|
Fair value, |
|
unrealized |
|
issuances |
|
out of |
|
Fair value, |
|
instruments held |
(in millions) |
|
January 1, 2008 |
|
gains/(losses) |
|
settlements, net |
|
level 3 |
|
June 30, 2008 |
|
at June 30, 2008 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
$ |
24,066 |
|
|
$ |
(3,212 |
)(d)(e) |
|
$ |
21,311 |
|
|
$ |
16,731 |
|
|
$ |
58,896 |
|
|
$ |
(2,646 |
)(d)(e) |
Net derivative receivables |
|
|
633 |
|
|
|
2,793 |
(d) |
|
|
1,839 |
|
|
|
710 |
|
|
|
5,975 |
|
|
|
1,530 |
(d) |
Available-for-sale securities |
|
|
101 |
|
|
|
(109 |
)(f) |
|
|
338 |
|
|
|
(59 |
) |
|
|
271 |
|
|
|
(8 |
)(f) |
Loans |
|
|
8,380 |
|
|
|
(321 |
)(d) |
|
|
974 |
|
|
|
(704 |
) |
|
|
8,329 |
|
|
|
(258 |
)(d) |
Mortgage servicing rights |
|
|
8,632 |
|
|
|
884 |
(e) |
|
|
2,101 |
|
|
|
|
|
|
|
11,617 |
|
|
|
884 |
(e) |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity
investments(b) |
|
|
6,763 |
|
|
|
662 |
(d) |
|
|
(424 |
) |
|
|
|
|
|
|
7,001 |
|
|
|
5 |
(d) |
All other |
|
|
3,160 |
|
|
|
(13 |
)(g) |
|
|
1,776 |
|
|
|
8 |
|
|
|
4,931 |
|
|
|
44 |
(g) |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
(1,161 |
) |
|
$ |
(77 |
)(d) |
|
$ |
(38 |
) |
|
$ |
(52 |
) |
|
$ |
(1,328 |
) |
|
$ |
(83 |
)(d) |
Other borrowed funds |
|
|
(105 |
) |
|
|
(61 |
)(d) |
|
|
(201 |
) |
|
|
67 |
|
|
|
(300 |
) |
|
|
22 |
(d) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
(480 |
) |
|
|
(72 |
)(d) |
|
|
(175 |
) |
|
|
(143 |
) |
|
|
(870 |
) |
|
|
(251 |
)(d) |
Accounts payable and other
liabilities |
|
|
(25 |
) |
|
|
25 |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interests issued
by consolidated VIEs |
|
|
(82 |
) |
|
|
24 |
(d) |
|
|
(7,524 |
) |
|
|
(569 |
) |
|
|
(8,151 |
) |
|
|
24 |
(d) |
Long-term debt |
|
|
(21,938 |
) |
|
|
(37 |
)(d) |
|
|
(396 |
) |
|
|
(605 |
) |
|
|
(22,976 |
) |
|
|
(36 |
)(d) |
|
|
|
|
(a) |
|
For further discussion of residential and commercial mortgage-backed securities, see the
Mortgage-related exposures carried at fair value section of this Note on pages 110111. |
|
(b) |
|
Private equity instruments represent investments within the Corporate/Private Equity line of
business. The cost of the private equity investment portfolio was $8.5 billion and $8.3
billion at June 30, 2009, and December 31, 2008, respectively. |
|
(c) |
|
Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value
(including liabilities carried at fair value on a nonrecurring basis) were 29% and 25% at June
30, 2009, and December 31, 2008, respectively. |
|
(d) |
|
Reported in principal transactions revenue. |
|
(e) |
|
Changes in fair value for Retail Financial Services mortgage loans originated with the intent
to sell, and mortgage servicing rights are measured at fair value and reported in mortgage
fees and related income. |
|
(f) |
|
Realized gains (losses) and credit-related unrealized losses are reported in securities gains
(losses). Unrealized gains (losses) not related to credit are reported in accumulated other
comprehensive income (loss). |
|
(g) |
|
Reported in other income. |
Assets and liabilities measured at fair value on a nonrecurring basis
Certain assets, liabilities and unfunded lending-related commitments are measured at fair value on
a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis
but are subject to fair value adjustments only in certain circumstances (for example, when there is
evidence of impairment). The following tables present assets and liabilities carried on the
Consolidated Balance Sheets as well as off balance sheet instruments by caption and level within
the SFAS 157 valuation hierarchy (as described above) as of June 30, 2009, and December 31, 2008,
for which a nonrecurring change in fair value has been recorded during the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
June 30, 2009 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total fair value |
|
Loans(a) |
|
$ |
|
|
|
$ |
4,399 |
|
|
$ |
3,537 |
|
|
$ |
7,936 |
|
|
Other real estate owned |
|
|
|
|
|
|
441 |
|
|
|
134 |
|
|
|
575 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
313 |
|
|
|
313 |
|
|
Total other assets |
|
|
|
|
|
|
441 |
|
|
|
447 |
|
|
|
888 |
|
|
Total assets at fair value on a nonrecurring basis |
|
$ |
|
|
|
$ |
4,840 |
|
|
$ |
3,984 |
|
|
$ |
8,824 |
|
|
Accounts payable and other liabilities(b) |
|
$ |
|
|
|
$ |
147 |
|
|
$ |
90 |
|
|
$ |
237 |
|
|
Total liabilities at fair value on a nonrecurring
basis |
|
$ |
|
|
|
$ |
147 |
|
|
$ |
90 |
|
|
$ |
237 |
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
December 31, 2008 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total fair value |
|
Loans(a) |
|
$ |
|
|
|
$ |
4,991 |
|
|
$ |
3,999 |
|
|
$ |
8,990 |
|
|
Other real estate owned |
|
|
|
|
|
|
706 |
|
|
|
103 |
|
|
|
809 |
|
Other assets |
|
|
|
|
|
|
1,057 |
|
|
|
188 |
|
|
|
1,245 |
|
|
Total other assets |
|
|
|
|
|
|
1,763 |
|
|
|
291 |
|
|
|
2,054 |
|
|
Total assets at fair value on a nonrecurring basis |
|
$ |
|
|
|
$ |
6,754 |
|
|
$ |
4,290 |
|
|
$ |
11,044 |
|
|
Accounts payable and other liabilities(b) |
|
$ |
|
|
|
$ |
212 |
|
|
$ |
98 |
|
|
$ |
310 |
|
|
Total liabilities at fair value on a nonrecurring
basis |
|
$ |
|
|
|
$ |
212 |
|
|
$ |
98 |
|
|
$ |
310 |
|
|
|
|
|
(a) |
|
Includes leveraged lending and other loan warehouses held-for-sale. |
|
(b) |
|
Represents the fair value adjustment associated with $887 million and $1.5 billion of
unfunded held-for-sale lending-related commitments within the leveraged lending portfolio at
June 30, 2009, and December 31, 2008, respectively. |
Nonrecurring fair value changes
The following table presents the total change in value of financial instruments for which a fair
value adjustment has been included in the Consolidated Statements of Income for the three and six
months ended June 30, 2009 and 2008, related to financial instruments held at June 30, 2009 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans |
|
$ |
(1,347 |
) |
|
$ |
(861 |
) |
|
$ |
(2,327 |
) |
|
$ |
(1,617 |
) |
Other assets |
|
|
(154 |
) |
|
|
(76 |
) |
|
|
(250 |
) |
|
|
(151 |
) |
Accounts payable and other liabilities |
|
|
16 |
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
Total nonrecurring fair value gains (losses) |
|
$ |
(1,485 |
) |
|
$ |
(937 |
) |
|
$ |
(2,530 |
) |
|
$ |
(1,768 |
) |
|
In the
above table, loans predominantly include: (1) write-downs of delinquent Retail Financial
Services (RFS) mortgage and home equity loans where impairment is based on the fair value of the
underlying collateral and (2) the change in fair value for the Investment Bank (IB) leveraged lending
and warehouse loans carried on the balance sheet at the lower of cost or fair value. Accounts
payable and other liabilities predominantly include the change in fair value for unfunded
lending-related commitments within the leveraged lending portfolio.
Level 3 analysis
Consolidated Balance Sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 7% of total
Firm assets at June 30, 2009. The following describes significant changes to level 3 assets during
the quarter.
For the three months ended June 30, 2009
Level 3 assets decreased by $7.0 billion in the second quarter of 2009, largely due to $11.5
billion decrease in derivative receivables predominantly due to changes in credit spreads. This
decrease was partially offset by a $4.0 billion increase in mortgage servicing rights (MSRs)
primarily due to market interest rate and other changes impacting the Firms estimate of future
prepayments, as well as sales in RFS of originated loans for which servicing rights were retained.
For the six months ended June 30, 2009
Level 3 assets increased by $7.2 billion in the first half of 2009
due to the following:
|
|
Transfer of structured credit derivative receivables resulting from
a decrease in transaction activity and the lack of
observable market data. At June 30, 2009, the fair value of these
receivables was approximately $32.3 billion. Offsetting these
receivables were derivative payables with a fair value of $17.5
billion at June 30, 2009. |
|
|
|
$5.2 billion increase in mortgage servicing rights (MSRs) primarily due to market
interest rate and other changes impacting the Firms estimate of future prepayments, as well
as sales in RFS of originated loans for which servicing rights were retained. |
|
|
|
$3.1 billion transfer of certain structured notes
reflecting lower
liquidity and pricing observability in the first quarter. |
108
The increase in level 3 assets described above was partially offset by:
|
|
$17.7 billion transfer of single-name CDS on ABS from level 3 to level 2, resulting from
a decline in pricing uncertainty. The fair value of these assets is generally based on
observable market data from third-party transactions, benchmarking to relevant indices such as
the Asset-Backed Securities Index (ABX), and calibration to other available market
information such as broker quotes. |
|
|
$11.2 billion of derivative receivables principally due to changes in credit spreads. |
|
|
$3.6 billion related to sales of CDS positions on CMBS and RMBS. |
|
|
$3.1 billion related to sales and unwinds of structured transactions with hedge funds. |
|
|
$2.8 billion decrease in trading assets debt and equity, primarily in residential and
commercial mortgage-backed securities and loans, principally driven by markdowns and sales,
partially offset by increases of $577 million in certain asset-backed securities. |
Gains and Losses
The Firm risk manages level 3 financial instruments using securities and derivative positions
classified within level 1 or 2 of the valuation hierarchy; the effect of these risk management
activities is not reflected in the level 3 gains and losses included in the tables above.
Three months ended June 30, 2009
Included in the tables for the three months ended June 30, 2009, were gains and losses resulting from:
|
|
$3.8 billion in gains on MSRs. |
|
|
$1.1 billion in gains on trading debt and equity instruments, primarily from
certain asset-backed securities. |
|
|
$5.7 billion of net losses on derivatives primarily related to changes in credit spreads. |
|
|
$883 million of losses related to structured note liabilities, primarily due to volatility
in the equity markets. |
Three months ended June 30, 2008
Included in the tables for the
three months ended June 30, 2008, were gains and losses resulting from:
|
|
$2.1 billion of losses on trading debt and equity instruments, principally
from mortgage-related transactions; |
|
|
$700 million of losses on leveraged loans. Leveraged loans are typically
classified as held-for-sale and measured at the lower of cost of fair value and therefore
included in the nonrecurring fair value assets; |
|
|
$1.5 billion of gains on MSRs; |
|
|
Net gains of approximately $1.1 billion, principally related to equity derivatives
transactions; and |
|
|
Gains on private equity instruments of approximately $450 million. |
Six months ended June 30, 2009
Included in the tables for the first six months of 2009 were gains and losses resulting from:
|
|
$5.1 billion of gains on MSRs. |
|
|
$4.9 billion of net losses on derivatives primarily related to changes in credit spreads
and changes in interest rates. |
|
|
$2.5 billion of losses on trading debt and equity
instruments, primarily related to residential and
commercial loans and mortgage-backed securities and principally
driven by markdowns and sales. These losses were
partially offset by $669 million in gains on certain asset-backed securities. For a further discussion of the
gains and losses on mortgage-related exposures inclusive of risk management activities, see
the Mortgage-related exposures carried at fair value discussion below. |
|
|
$850 million of losses on leveraged loans. Leveraged loans are primarily classified as
held-for-sale and measured at the lower of cost or fair value and therefore included in
nonrecurring fair value assets. |
109
Six months ended June 30, 2008
Included in the tables for the first six months of 2008 were gains and losses resulting from:
|
|
Losses on trading debt and equity instruments of approximately $3.2 billion, principally
from mortgage-related transactions and auction-rate securities; |
|
|
Losses of approximately $1.6 billion on leveraged loans. Leveraged loans are typically
classified as held-for-sale and measured at the lower of cost or fair value and therefore
included in the nonrecurring fair value assets; |
|
|
Net gains of $2.8 billion related to fixed income and equity derivatives; |
|
|
Gains of $884 million on MSRs; and |
|
|
Private equity gains of approximately $650 million. |
For further information on changes in the fair value of the MSRs see Note 17 on pages 154155 of
this Form 10-Q.
Mortgage-related exposures carried at fair value
The following table provides a summary of the Firms mortgage-related exposures, including the
impact of risk management activities. These exposures include all mortgage-related securities and
loans carried at fair value regardless of their classification within the fair value hierarchy. The
table below summarizes the Firms mortgage-related exposures that are carried at fair value through
earnings or at the lower of cost or fair value; the table excludes mortgage-related securities held
in the available-for-sale portfolio, which are reported on page 111 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure as of |
|
Exposure as of |
|
Net gains/(losses) |
|
|
June 30, 2009 |
|
December 31, 2008(e) |
|
reported in income(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Six months |
|
|
|
|
|
|
Net of risk |
|
|
|
|
|
Net of risk |
|
ended |
|
ended |
|
|
|
|
|
|
Management |
|
|
|
|
|
Management |
|
June 30, |
|
June 30, |
(in millions) |
|
Gross |
|
activities(d) |
|
Gross |
|
activities(d) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
U.S. residential
mortgage:(a)(b)(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
4,304 |
|
|
$ |
4,304 |
|
|
$ |
4,612 |
|
|
$ |
4,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
3,377 |
|
|
|
3,210 |
|
|
|
3,934 |
|
|
|
3,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,681 |
|
|
|
7,514 |
|
|
|
8,546 |
|
|
|
8,529 |
|
|
$ |
246 |
|
|
$ |
(166 |
) |
|
$ |
(191 |
) |
|
$ |
(1,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
726 |
|
|
|
388 |
|
|
|
941 |
|
|
|
(28 |
) |
|
|
(35 |
) |
|
|
(122 |
) |
|
|
(30 |
) |
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential |
|
|
1,524 |
|
|
|
1,147 |
|
|
|
1,591 |
|
|
|
951 |
|
|
|
5 |
|
|
|
(66 |
) |
|
|
(4 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
2,179 |
|
|
|
1,570 |
|
|
|
2,836 |
|
|
|
1,438 |
|
|
|
127 |
|
|
|
(106 |
) |
|
|
255 |
|
|
|
(359 |
) |
Loans |
|
|
3,505 |
|
|
|
2,399 |
|
|
|
4,338 |
|
|
|
2,179 |
|
|
|
(33 |
) |
|
|
(84 |
) |
|
|
(384 |
) |
|
|
(97 |
) |
|
|
|
|
(a) |
|
Included exposures in IB and RFS segments. |
|
(b) |
|
Excluded certain mortgages and mortgage-related assets that are carried at fair value and
recorded in trading assets, such as: (i) U.S. government agency and U.S. government-sponsored
enterprise securities that are liquid and of high credit quality of $48.7 billion and $58.9
billion at June 30, 2009, and December 31, 2008, respectively; and (ii) conforming mortgage
loans recently originated with the intent to sell to U.S. government agencies and U.S.
government sponsored enterprises of $10.0 billion and $6.2 billion at June 30, 2009, and
December 31, 2008, respectively; and (iii) reverse mortgages of $4.7 billion and $4.3 billion
at June 30, 2009, and December 31, 2008, respectively, for which the principal risk is
mortality risk. Also excluded mortgage servicing rights, which are reported in Note 17 on
pages 154-155 of this Form 10-Q. |
|
(c) |
|
Excluded certain mortgage-related financing transactions, which are collateralized by
mortgage-related assets, of $4.0 billion and $5.7 billion at June 30, 2009, and December 31,
2008, respectively. These financing transactions are excluded from the table, as they are
accounted for on an accrual basis of accounting. For certain financings deemed to be impaired;
impairment is measured and recognized based on the fair value of the collateral. Of these
financing transactions, $175 million and $1.2 billion at June 30, 2009, and December 31, 2008,
respectively, were considered impaired. |
|
(d) |
|
Amounts reflect the effects of derivatives used to manage the credit risk of the gross
exposures arising from cash-based instruments. The amounts are presented on a bond- or
loan-equivalent (notional) basis. Derivatives are excluded from the gross exposure, as they
are principally used for risk management purposes. |
|
(e) |
|
Prior periods have been revised to conform to the current presentation. |
|
(f) |
|
Net gains and losses include all revenue related to the positions (i.e., all interest income,
changes in fair value of the assets, changes in fair value of the related risk management
positions, and all interest expense related to the liabilities funding those positions). |
110
Residential mortgages
Prime mortgage Of the $4.3 billion of prime mortgage exposure at June 30, 2009, approximately
$2.1 billion relates to first-lien mortgages predominantly classified in level 3. The remaining
$2.2 billion relates to securities (including $569 million of forward purchase commitments) where
$583 million was classified in level 2, and $1.1 billion was classified in level 3; and $569
million was classified in derivative receivables in level 3. Prime mortgage securities are largely
rated BBB and below.
Alt-A mortgage Of the $3.4 billion of Alt-A mortgage exposure at June 30, 2009, approximately
$2.5 billion relates to first-lien mortgages classified in level 3. The remaining $922 million
relates to securities, which are predominantly rated BB+ and below where $110 million was
classified in level 2, and $812 million was classified in level 3.
Subprime mortgage Of the $726 million of subprime mortgage exposure at June 30, 2009, $501
million relates to securities, predominantly rated BB+ and below, where $43 million was classified
in level 2, and $458 million was classified in level 3. The remaining $225 million relates to
first-lien mortgages classified in level 3.
Non-U.S. residential mortgage
Of the $1.5 billion of non-U.S. residential mortgage exposure at June 30, 2009, $765 million
relates to first-lien mortgages classified in level 3. The remaining $759 million relates to
securities where $291 million was classified in level 2, and $468 million was classified in level
3. Securities are predominantly rated AAA.
Commercial mortgages
Of the $5.7 billion of commercial mortgage exposure at June 30, 2009, $3.5 billion relates to
first-lien mortgages, predominantly in the U.S., classified in level 3. The remaining $2.2 billion
relates to securities, which are partially rated AAA, where $263 million was classified in level
2, and $1.9 billion was classified in level 3.
The following table presents mortgage-related activities within the available-for-sale securities
portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in |
|
|
|
|
|
|
|
|
|
|
Net gains/(losses) |
|
other comprehensive |
|
|
|
|
|
|
reported in income(a) |
|
income (pretax) |
|
|
|
|
|
|
Three |
|
Six |
|
Three |
|
Six |
|
|
Exposures |
|
Exposures |
|
months |
|
months |
|
months |
|
months |
|
|
as of |
|
as of |
|
ended |
|
ended |
|
ended |
|
ended |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Available-for-sale
debt
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
agencies |
|
$ |
180,439 |
|
|
$ |
117,385 |
|
|
$ |
137 |
|
|
$ |
2 |
|
|
$ |
439 |
|
|
$ |
(3 |
) |
|
$ |
(2,044 |
) |
|
$ |
(1,521 |
) |
|
$ |
(395 |
) |
|
$ |
(1,026 |
) |
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
5,874 |
|
|
|
6,895 |
|
|
|
(88 |
) |
|
|
|
|
|
|
(235 |
) |
|
|
|
|
|
|
461 |
|
|
|
(72 |
) |
|
|
30 |
|
|
|
(179 |
) |
Subprime |
|
|
55 |
|
|
|
194 |
|
|
|
(19 |
) |
|
|
(9 |
) |
|
|
(35 |
) |
|
|
(29 |
) |
|
|
21 |
|
|
|
21 |
|
|
|
19 |
|
|
|
(2 |
) |
Non-U.S. |
|
|
6,434 |
|
|
|
2,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
37 |
|
|
|
|
|
Commercial |
|
|
4,235 |
|
|
|
3,939 |
|
|
|
(30 |
) |
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
366 |
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
Total
mortgage-backed
securities |
|
$ |
197,037 |
|
|
$ |
130,488 |
|
|
$ |
|
|
|
$ |
(7 |
) |
|
$ |
129 |
|
|
$ |
(32 |
) |
|
$ |
(1,306 |
) |
|
$ |
(1,572 |
) |
|
$ |
(168 |
) |
|
$ |
(1,207 |
) |
U.S. government
agencies |
|
|
33,879 |
|
|
|
9,657 |
|
|
|
1 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
(278 |
) |
|
|
|
|
|
|
|
|
(a) |
|
Excludes related net interest income. |
Exposures in the table above include $230.9 billion and $140.1 billion of mortgage-backed and
mortgage-related securities classified as available-for-sale on the Firms Consolidated Balance
Sheets at June 30, 2009, and December 31, 2008. These investments are used as part of the Firms
centralized risk management of structural interest rate risk (i.e., the sensitivity of the Firms
Consolidated Balance Sheets to changes in interest rates). Changes in the Firms structural
interest rate position, as well as changes in the overall interest rate environment, are
continually monitored, resulting in periodic repositioning of securities classified as
available-for-sale. Given that this portfolio is primarily used to manage the Firms structural
interest rate risk, predominantly all of these securities are either backed by U.S. government
agencies, backed by U.S. government-sponsored enterprises or largely rated AAA.
For additional information on investment securities in the available-for-sale portfolio, see Note
11 on pages 129-134 of this Form 10-Q.
111
Credit adjustments
When determining the fair value of an instrument, it may be necessary to record a valuation
adjustment to arrive at an exit price in accordance with SFAS 157. Valuation adjustments include,
but are not limited to, amounts to reflect counterparty credit quality and the Firms own
creditworthiness. The markets view of the Firms credit quality is reflected in credit spreads
observed in the credit default swap market. For a detailed discussion of the valuation adjustments
the Firm considers, see Note 4 on pages 129-143 of JPMorgan Chases 2008 Annual Report.
The following table provides the credit adjustments,
excluding the effect of any hedging activity,
as reflected within the Consolidated Balance Sheets of the Firm as of the dates indicated.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Derivative receivables balance |
|
$ |
97,491 |
|
|
$ |
162,626 |
|
Derivative CVAs(a) |
|
|
(5,167 |
) |
|
|
(9,566 |
) |
|
|
|
|
|
|
|
|
|
Derivatives payables balance |
|
|
67,197 |
|
|
|
121,604 |
|
Derivative DVAs |
|
|
(1,010 |
) |
|
|
(1,389 |
) |
|
|
|
|
|
|
|
|
|
Structured notes balance(b) |
|
|
59,020 |
|
|
|
67,340 |
|
Structured note DVAs(c) |
|
|
(1,952 |
) |
|
|
(2,413 |
) |
|
|
|
|
(a) |
|
Derivatives credit valuation adjustments (CVA), gross of hedges, includes results managed
by Credit Portfolio and other lines of business within IB. |
|
(b) |
|
Structured notes are recorded within long-term debt, other borrowed funds or deposits on the
Consolidated Balance Sheets, based on the tenor and legal form of the note. |
|
(c) |
|
Structured notes are carried at fair value based on the Firms election under SFAS 159. For
further information on these elections, see Note 4 on pages 114-116 of this Form 10-Q. |
The following table provides the impact of credit adjustments,
excluding the effect of any hedging activity,
on earnings in the respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Credit adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative CVAs(a) |
|
$ |
3,522 |
|
|
$ |
191 |
|
|
$ |
4,399 |
|
|
$ |
(1,372 |
) |
Derivative DVAs |
|
|
(793 |
) |
|
|
106 |
|
|
|
(379 |
) |
|
|
639 |
|
Structured note DVAs(b) |
|
|
(1,099 |
) |
|
|
308 |
|
|
|
(461 |
) |
|
|
1,206 |
|
|
|
|
|
(a) |
|
Derivatives CVA, gross of hedges, includes results managed by Credit Portfolio and other
lines of business within IB. |
|
(b) |
|
Structured notes are carried at fair value based on the Firms election under SFAS 159. For
further information on these elections, see Note 4 on pages 114-116 of this Form 10-Q. |
Financial disclosures required by SFAS 107
Many, but not all, of the financial instruments held
by the Firm are recorded at fair value on the Consolidated Balance Sheets. SFAS 107 requires
disclosure of the estimated fair value of certain financial instruments and the methods and
significant assumptions used to estimate their fair value. Financial instruments within the scope
of SFAS 107 are included in the following table. Additionally, certain financial instruments and
all nonfinancial instruments are excluded from the scope of SFAS 107. Accordingly, the fair value
disclosures required by SFAS 107 provide only a partial estimate of the fair value of JPMorgan
Chase. For example, the Firm has developed long-term relationships with its customers through its
deposit base and credit card accounts, commonly referred to as core deposit intangibles and credit
card relationships. In the opinion of management, these items, in the aggregate, add significant
value to JPMorgan Chase, but their fair value is not disclosed in this Note.
Financial instruments for which carrying value approximates fair value
Certain financial instruments that are not carried at fair value on the Consolidated Balance Sheets
are carried at amounts that approximate fair value, due to their short-term nature and generally
negligible credit risk. These instruments include cash and due from banks; deposits with banks,
federal funds sold and securities purchased under resale agreements; and securities borrowed with
short-dated maturities; short-term receivables and accrued interest receivable; commercial paper;
federal funds purchased, and securities loaned or sold, under repurchase agreements with
short-dated maturities; other borrowed funds (excluding advances from Federal Home Loan Banks);
accounts payable; and accrued liabilities. In addition, SFAS 107 requires that the fair value for
deposit liabilities with no stated maturity (i.e., demand, savings and certain money market
deposits) be equal to their carrying value. SFAS 107 does not allow for the recognition of the
inherent funding value of these instruments.
112
The following table presents the carrying value and estimated fair value of financial assets and
liabilities as required by SFAS 107.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Carrying |
|
Estimated |
|
Appreciation/ |
|
Carrying |
|
Estimated |
|
Appreciation/ |
(in billions) |
|
value |
|
fair value |
|
(depreciation) |
|
value |
|
fair value |
|
(depreciation) |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets for which fair value
approximates carrying value |
|
$ |
148.3 |
|
|
$ |
148.3 |
|
|
$ |
|
|
|
$ |
226.0 |
|
|
$ |
226.0 |
|
|
$ |
|
|
Federal funds sold and securities
purchased under resale agreements
(included $19.0 and $20.8 at fair
value at June 30, 2009, and December
31, 2008, respectively) |
|
|
159.2 |
|
|
|
159.2 |
|
|
|
|
|
|
|
203.1 |
|
|
|
203.1 |
|
|
|
|
|
Securities borrowed (included $3.4 and
$3.4 at fair value at June 30, 2009,
and December 31, 2008, respectively) |
|
|
129.3 |
|
|
|
129.3 |
|
|
|
|
|
|
|
124.0 |
|
|
|
124.0 |
|
|
|
|
|
Trading assets |
|
|
395.6 |
|
|
|
395.6 |
|
|
|
|
|
|
|
510.0 |
|
|
|
510.0 |
|
|
|
|
|
Securities |
|
|
345.6 |
|
|
|
345.6 |
|
|
|
|
|
|
|
205.9 |
|
|
|
205.9 |
|
|
|
|
|
Loans (included $3.1 and $7.7 at fair
value at June 30, 2009, and December
31, 2008, respectively) |
|
|
651.5 |
|
|
|
635.0 |
|
|
|
(16.5 |
) |
|
|
721.7 |
|
|
|
700.0 |
|
|
|
(21.7 |
) |
Mortgage servicing rights at fair value |
|
|
14.6 |
|
|
|
14.6 |
|
|
|
|
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
|
|
Other (included $32.2 and $29.2 at
fair value at June 30, 2009, and
December 31, 2008, respectively)(a) |
|
|
85.9 |
|
|
|
85.6 |
|
|
|
(0.3 |
) |
|
|
83.0 |
|
|
|
83.1 |
|
|
|
0.1 |
|
|
Total financial assets |
|
$ |
1,930.0 |
|
|
$ |
1,913.2 |
|
|
$ |
(16.8 |
) |
|
$ |
2,083.1 |
|
|
$ |
2,061.5 |
|
|
$ |
(21.6 |
) |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (included $3.7 and $5.6 at
fair value at June 30, 2009, and
December 31, 2008, respectively) |
|
$ |
866.5 |
|
|
$ |
867.3 |
|
|
$ |
(0.8 |
) |
|
$ |
1,009.3 |
|
|
$ |
1,010.2 |
|
|
$ |
(0.9 |
) |
Federal funds purchased and securities
loaned or sold under repurchase
agreements (included $3.0 and $3.0 at
fair value at June 30, 2009, and
December 31, 2008, respectively) |
|
|
300.9 |
|
|
|
300.9 |
|
|
|
|
|
|
|
192.5 |
|
|
|
192.5 |
|
|
|
|
|
Commercial paper |
|
|
42.7 |
|
|
|
42.7 |
|
|
|
|
|
|
|
37.8 |
|
|
|
37.8 |
|
|
|
|
|
Other borrowed funds (included $16.3
and $14.7 at fair value at June 30,
2009, and December 31, 2008,
respectively) |
|
|
74.0 |
|
|
|
74.6 |
|
|
|
(0.6 |
) |
|
|
132.4 |
|
|
|
134.1 |
|
|
|
(1.7 |
) |
Trading liabilities |
|
|
123.2 |
|
|
|
123.2 |
|
|
|
|
|
|
|
166.9 |
|
|
|
166.9 |
|
|
|
|
|
Accounts payable and other liabilities(a) |
|
|
150.1 |
|
|
|
150.1 |
|
|
|
|
|
|
|
167.2 |
|
|
|
167.2 |
|
|
|
|
|
Beneficial interests issued by
consolidated VIEs (included $1.8 and
$1.7 at fair value at June 30, 2009,
and December 31, 2008, respectively) |
|
|
20.9 |
|
|
|
20.9 |
|
|
|
|
|
|
|
10.6 |
|
|
|
10.5 |
|
|
|
0.1 |
|
Long-term debt and junior subordinated
deferrable interest debentures
(included $53.4 and $58.2 at fair
value at June 30, 2009, and December
31, 2008, respectively) |
|
|
271.9 |
|
|
|
264.2 |
|
|
|
7.7 |
|
|
|
270.7 |
|
|
|
262.1 |
|
|
|
8.6 |
|
|
Total financial liabilities |
|
$ |
1,850.2 |
|
|
$ |
1,843.9 |
|
|
$ |
6.3 |
|
|
$ |
1,987.4 |
|
|
$ |
1,981.3 |
|
|
$ |
6.1 |
|
|
Net (depreciation) appreciation |
|
|
|
|
|
|
|
|
|
$ |
(10.5 |
) |
|
|
|
|
|
|
|
|
|
$ |
(15.5 |
) |
|
|
|
|
(a) |
|
Prior periods have been revised to conform to the current
presentation. |
The
majority of the Firms unfunded lending-related commitments are
not carried at fair value on a recurring basis on the Consolidated
Balance Sheets nor are they actively traded.
The estimated fair values of the Firms wholesale lending-related commitments at June 30, 2009, and
December 31, 2008, were liabilities of $3.3 billion and $7.5 billion, respectively.
The Firm does not estimate the fair value of consumer
lending-related
commitments. In many cases, the Firm can reduce or cancel these
commitments by providing the borrower prior notice, or, in some
cases, without notice as permitted by law.
113
Trading assets and liabilities average balances
Average trading assets and liabilities were as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Trading assets debt and equity instruments |
|
$ |
308,951 |
|
|
$ |
401,578 |
|
|
$ |
311,883 |
|
|
$ |
401,687 |
|
Trading assets derivative receivables |
|
|
114,096 |
|
|
|
105,301 |
|
|
|
128,092 |
|
|
|
101,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities debt and equity instruments(a) |
|
$ |
54,587 |
|
|
$ |
81,724 |
|
|
$ |
54,726 |
|
|
$ |
85,712 |
|
Trading liabilities derivative payables |
|
|
78,155 |
|
|
|
79,780 |
|
|
|
86,503 |
|
|
|
80,437 |
|
|
|
|
|
(a) |
|
Primarily represent securities sold, not yet purchased. |
NOTE 4 FAIR VALUE OPTION
For a discussion of the primary financial instruments for which fair value elections have been
made, including the determination of instrument-specific credit risk for these items, and the basis
for those elections, see Note 5 on pages 144146 of JPMorgan Chases 2008 Annual Report.
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated Statements of
Income for the three and six months ended June 30, 2009 and 2008, for items for which the fair
value election was made. The profit and loss information presented below only includes the
financial instruments that were elected to be measured at fair value; related risk management
instruments, which are required to be measured at fair value, are not included in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
Total changes |
|
|
|
|
|
|
|
|
|
Total changes |
|
|
Principal |
|
Other |
|
in fair value |
|
Principal |
|
Other |
|
in fair value |
(in millions) |
|
transactions(b) |
|
income(b) |
|
recorded |
|
transactions(b) |
|
income(b) |
|
recorded |
|
Federal funds sold and securities purchased under resale
agreements |
|
$ |
(269 |
) |
|
$ |
|
|
|
$ |
(269 |
) |
|
$ |
(398 |
) |
|
$ |
|
|
|
$ |
(398 |
) |
Securities borrowed |
|
|
(12 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
79 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments, excluding loans |
|
|
244 |
|
|
|
22 |
(c) |
|
|
266 |
|
|
|
(65 |
) |
|
|
21 |
(c) |
|
|
(44 |
) |
Loans reported as trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
8 |
|
|
|
(115 |
)(c) |
|
|
(107 |
) |
|
|
(791 |
) |
|
|
2 |
(c) |
|
|
(789 |
) |
Other changes in fair value |
|
|
977 |
|
|
|
495 |
(c) |
|
|
1,472 |
|
|
|
91 |
|
|
|
16 |
(c) |
|
|
107 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
124 |
|
|
|
|
|
|
|
124 |
|
|
|
(239 |
) |
|
|
|
|
|
|
(239 |
) |
Other changes in fair value |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Other assets |
|
|
|
|
|
|
(187 |
)(d) |
|
|
(187 |
) |
|
|
|
|
|
|
(79 |
)(d) |
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(a) |
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
30 |
|
|
|
|
|
|
|
30 |
|
Federal funds purchased and securities loaned or
sold under repurchase agreements |
|
|
61 |
|
|
|
|
|
|
|
61 |
|
|
|
70 |
|
|
|
|
|
|
|
70 |
|
Other borrowed funds(a) |
|
|
(180 |
) |
|
|
|
|
|
|
(180 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
Trading liabilities |
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Beneficial interests issued by consolidated VIEs |
|
|
(139 |
) |
|
|
|
|
|
|
(139 |
) |
|
|
206 |
|
|
|
|
|
|
|
206 |
|
Other liabilities |
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk(a) |
|
|
(1,038 |
) |
|
|
|
|
|
|
(1,038 |
) |
|
|
303 |
|
|
|
|
|
|
|
303 |
|
Other changes in fair value |
|
|
(2,978 |
) |
|
|
|
|
|
|
(2,978 |
) |
|
|
408 |
|
|
|
|
|
|
|
408 |
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
Total changes |
|
|
|
|
|
|
|
|
|
Total changes |
|
|
Principal |
|
Other |
|
in fair value |
|
Principal |
|
Other |
|
in fair value |
(in millions) |
|
transactions(b) |
|
income(b) |
|
recorded |
|
transactions(b) |
|
income(b) |
|
recorded |
|
Federal funds sold and securities
purchased under resale
agreements |
|
$ |
(495 |
) |
|
$ |
|
|
|
$ |
(495 |
) |
|
$ |
151 |
|
|
$ |
|
|
|
$ |
151 |
|
Securities borrowed |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
79 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments, excluding loans |
|
|
304 |
|
|
|
19 |
(c) |
|
|
323 |
|
|
|
124 |
|
|
|
15 |
(c) |
|
|
139 |
|
Loans reported as trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
(472 |
) |
|
|
(165 |
)(c) |
|
|
(637 |
) |
|
|
(1,613 |
) |
|
|
(50 |
)(c) |
|
|
(1,663 |
) |
Other changes in fair value |
|
|
712 |
|
|
|
1,432 |
(c) |
|
|
2,144 |
|
|
|
5 |
|
|
|
409 |
(c) |
|
|
414 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
(329 |
) |
|
|
|
|
|
|
(329 |
) |
|
|
(500 |
) |
|
|
|
|
|
|
(500 |
) |
Other changes in fair value |
|
|
(126 |
) |
|
|
|
|
|
|
(126 |
) |
|
|
23 |
|
|
|
|
|
|
|
23 |
|
Other assets |
|
|
|
|
|
|
(588 |
)(d) |
|
|
(588 |
) |
|
|
|
|
|
|
(41 |
)(d) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(a) |
|
|
(186 |
) |
|
|
|
|
|
|
(186 |
) |
|
|
(369 |
) |
|
|
|
|
|
|
(369 |
) |
Federal funds purchased and securities loaned or
sold under repurchase agreements |
|
|
94 |
|
|
|
|
|
|
|
94 |
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Other borrowed funds(a) |
|
|
(146 |
) |
|
|
|
|
|
|
(146 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
(88 |
) |
Trading liabilities |
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Beneficial interests issued by consolidated VIEs |
|
|
(124 |
) |
|
|
|
|
|
|
(124 |
) |
|
|
31 |
|
|
|
|
|
|
|
31 |
|
Other liabilities |
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk(a) |
|
|
(394 |
) |
|
|
|
|
|
|
(394 |
) |
|
|
1,178 |
|
|
|
|
|
|
|
1,178 |
|
Other changes in fair value |
|
|
(1,771 |
) |
|
|
|
|
|
|
(1,771 |
) |
|
|
(440 |
) |
|
|
|
|
|
|
(440 |
) |
|
|
|
|
(a) |
|
Total changes in instrument-specific credit risk related to structured notes were $(1.1)
billion and $308 million for the three months ended June 30, 2009 and 2008, respectively, and
$(461) million and $1.2 billion for the six months ended June 30, 2009 and 2008, respectively.
Those totals include adjustments for structured notes classified within deposits and other
borrowed funds, as well as long-term debt. |
|
(b) |
|
Included in the amounts are gains and losses related to certain financial instruments
previously carried at fair value by the Firm, such as structured liabilities elected pursuant
to SFAS 155 and loans purchased as part of the Investment Banks trading activities. |
|
(c) |
|
Reported in mortgage fees and related income. |
|
(d) |
|
Reported in other income. |
115
Difference between aggregate fair value and aggregate remaining contractual principal balance
outstanding
The following table reflects the difference between the aggregate fair value and the aggregate
remaining contractual principal balance outstanding as of June 30, 2009, and December 31, 2008, for
loans and long-term debt for which the SFAS 159 fair value option has been elected. The loans were
classified in trading assets debt and equity instruments or in loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
over (under) |
|
|
|
|
|
|
|
|
|
over (under) |
|
|
Contractual |
|
|
|
|
|
contractual |
|
Contractual |
|
|
|
|
|
contractual |
|
|
principal |
|
|
|
|
|
principal |
|
principal |
|
|
|
|
|
principal |
(in millions) |
|
outstanding |
|
Fair value |
|
outstanding |
|
outstanding |
|
Fair value |
|
outstanding |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans 90 days or more past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported as trading assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported as trading assets(a) |
|
|
6,016 |
|
|
|
1,724 |
|
|
|
(4,292 |
) |
|
|
5,156 |
|
|
|
1,460 |
|
|
|
(3,696 |
) |
Loans |
|
|
1,277 |
|
|
|
181 |
|
|
|
(1,096 |
) |
|
|
189 |
|
|
|
51 |
|
|
|
(138 |
) |
|
Subtotal |
|
|
7,293 |
|
|
|
1,905 |
|
|
|
(5,388 |
) |
|
|
5,345 |
|
|
|
1,511 |
|
|
|
(3,834 |
) |
All other performing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported as trading assets(a) |
|
|
38,976 |
|
|
|
29,433 |
|
|
|
(9,543 |
) |
|
|
36,336 |
|
|
|
30,342 |
|
|
|
(5,994 |
) |
Loans |
|
|
4,310 |
|
|
|
2,688 |
|
|
|
(1,622 |
) |
|
|
10,206 |
|
|
|
7,441 |
|
|
|
(2,765 |
) |
|
Total loans |
|
$ |
50,579 |
|
|
$ |
34,026 |
|
|
$ |
(16,553 |
) |
|
$ |
51,887 |
|
|
$ |
39,294 |
|
|
$ |
(12,593 |
) |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal protected debt |
|
$ |
(27,355 |
)(c) |
|
$ |
(26,398 |
) |
|
$ |
(957 |
) |
|
$ |
(27,043 |
)(c) |
|
$ |
(26,241 |
) |
|
$ |
(802 |
) |
Nonprincipal protected debt(b) |
|
|
NA |
|
|
|
(27,044 |
) |
|
|
NA |
|
|
|
NA
|
|
|
|
(31,973 |
) |
|
|
NA
|
|
|
Total long-term debt |
|
|
NA |
|
|
|
(53,442 |
) |
|
|
NA |
|
|
|
NA |
|
|
$ |
(58,214 |
) |
|
|
NA |
|
|
FIN 46R long-term beneficial interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal protected debt |
|
$ |
(108 |
) |
|
$ |
(108 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Nonprincipal protected debt(b) |
|
|
NA |
|
|
|
(1,655 |
) |
|
|
NA |
|
|
|
NA |
|
|
|
(1,735 |
) |
|
|
NA |
|
|
Total FIN 46R long-term beneficial interests |
|
|
NA |
|
|
$ |
(1,763 |
) |
|
|
NA |
|
|
|
NA |
|
|
$ |
(1,735 |
) |
|
|
NA |
|
|
|
|
|
(a) |
|
Loans reported as trading assets have been revised for the prior period. |
|
(b) |
|
Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike
principal-protected notes, for which the Firm is obligated to return a stated amount of
principal at the maturity of the note, nonprincipal-protected notes do not obligate the Firm
to return a stated amount of principal at maturity, but to return an amount based on the
performance of an underlying variable or derivative feature embedded in the note. |
|
(c) |
|
Where the Firm issues principal-protected zero-coupon or discount notes, the balance
reflected as the remaining contractual principal is the final principal payment at maturity. |
NOTE 5 DERIVATIVE INSTRUMENTS
Derivative instruments enable end-users to transform or mitigate exposure to credit or market
risks. Counterparties to a derivative contract seek to obtain risks and rewards similar to those
that could be obtained from purchasing or selling a related cash instrument without having to
exchange the full purchase or sales price upfront. JPMorgan Chase makes markets in derivatives for
customers and also uses derivatives to hedge or manage risks of market exposures. The majority of
the Firms derivatives are entered into for market-making purposes.
Trading Derivatives
The Firm transacts in a variety of derivatives in its trading portfolios to meet the needs of
customers (both dealers and clients) and to generate revenue through this trading activity. The
Firm makes markets in derivatives for its customers (collectively, client derivatives) seeking to
mitigate or transform interest rate, credit, foreign exchange, equity and commodity risks. The Firm
actively manages the risks from its exposure to these derivatives by entering into other derivative
transactions or by purchasing or selling other financial instruments that partially or fully offset
the exposure from client derivatives. The Firm also seeks to earn a spread between the client
derivatives and offsetting positions, and from the remaining open risk positions. For more
information about trading derivatives, see the trading derivatives gains and losses table on page
122 of this Form 10-Q.
Risk Management Derivatives
The Firm manages its market exposures using various derivative instruments.
Interest rate contracts are used to minimize fluctuations in earnings that are caused by changes in
interest rates. Fixed-rate assets and liabilities appreciate or depreciate in market value as
interest rates change. Similarly, interest income and interest expense increase or decrease as a
result of variable-rate assets and liabilities resetting to current market rates, and as a result
of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and
116
losses on the derivative instruments that are related to such assets and liabilities are expected
to substantially offset this variability in earnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate fluctuations on earnings.
Foreign currency forward contracts are used to manage the foreign exchange risk associated with
certain foreign currencydenominated (i.e., non-U.S.) assets and liabilities and forecasted
transactions denominated in a foreign currency, as well as the Firms net investments in certain
non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result
of fluctuations in foreign currencies, the U.S. dollarequivalent values of the foreign
currencydenominated assets and liabilities or forecasted revenue or expense increase or decrease.
Gains or losses on the derivative instruments that are related to the foreign currencydenominated
assets or liabilities, or forecasted transactions, are expected to substantially offset this
variability.
Gold forward contracts are used to manage the price risk of gold inventory in the Firms
commodities portfolio. Gains or losses on the gold forwards are expected to substantially offset
the depreciation or appreciation of the gold inventory as a result of gold price changes. Also in
the commodities portfolio, electricity and natural gas futures and forwards contracts are used to
manage the price risk associated with energy-related tolling and load-serving contracts and
energy-related investments.
The Firm uses credit derivatives to manage the counterparty credit risk associated with loans and
lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced
in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation
when due. For a further discussion of credit derivatives, see the discussion in the Credit
derivatives section on pages 123124 of this Form 10-Q.
For more information about risk management derivatives, see the risk management derivatives gains
and losses table on page 122 of this Form 10-Q.
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of June
30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Notional amounts(c) |
(in billions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
Swaps(a) |
|
$ |
48,914 |
|
|
$ |
54,524 |
|
Futures and forwards |
|
|
6,172 |
|
|
|
6,277 |
|
Written options |
|
|
4,782 |
|
|
|
4,803 |
|
Purchased options |
|
|
4,736 |
|
|
|
4,656 |
|
|
Total interest rate contracts |
|
|
64,604 |
|
|
|
70,260 |
|
|
Credit derivatives(b) |
|
|
6,813 |
|
|
|
8,388 |
|
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
Cross-currency swaps(a) |
|
|
1,846 |
|
|
|
1,681 |
|
Spot, futures and forwards |
|
|
3,652 |
|
|
|
3,744 |
|
Written options |
|
|
727 |
|
|
|
972 |
|
Purchased options |
|
|
752 |
|
|
|
959 |
|
|
Total foreign exchange contracts |
|
|
6,977 |
|
|
|
7,356 |
|
|
Equity contracts |
|
|
|
|
|
|
|
|
Swaps |
|
|
80 |
|
|
|
77 |
|
Futures and forwards |
|
|
51 |
|
|
|
56 |
|
Written options |
|
|
645 |
|
|
|
628 |
|
Purchased options |
|
|
616 |
|
|
|
652 |
|
|
Total equity contracts |
|
|
1,392 |
|
|
|
1,413 |
|
|
Commodity contracts |
|
|
|
|
|
|
|
|
Swaps |
|
|
186 |
|
|
|
234 |
|
Spot, futures and forwards |
|
|
100 |
|
|
|
115 |
|
Written options |
|
|
196 |
|
|
|
206 |
|
Purchased options |
|
|
190 |
|
|
|
198 |
|
|
Total commodity contracts |
|
|
672 |
|
|
|
753 |
|
|
Total derivative notional amounts |
|
$ |
80,458 |
|
|
$ |
88,170 |
|
|
|
|
|
(a) |
|
During the first quarter of 2009, cross-currency interest rate swaps previously reported in
interest rate contracts were reclassified to foreign exchange contracts to be more consistent
with industry practice. The effect of this change resulted in a reclassification of $1.7
trillion in notional amount of cross-currency swaps from interest rate contracts to foreign
exchange contracts as of December 31, 2008. |
|
(b) |
|
For more information on volumes and types of credit derivative contracts, see the credit
derivative discussion on pages 123124 of this Form 10-Q. |
|
(c) |
|
Represents the sum of gross long and gross short third-party notional derivative contracts. |
117
While the notional amounts disclosed above indicate the volume of the Firms derivative
activity, the notional amounts significantly exceed, in the Firms view, the possible losses that
could arise from such transactions. For most derivative transactions, the notional amount does not
change hands; it is used simply as a reference to calculate payments.
Accounting for Derivatives
All free-standing derivatives are required to be recorded on the Consolidated Balance Sheets at
fair value. The accounting for changes in value of a derivative depends on whether or not the
contract has been designated and qualifies for hedge accounting. Derivatives that are not
designated as hedges are marked to market through earnings. The tabular disclosures on pages
119124 of this Form 10-Q provide additional information on the amount of and reporting for
derivative assets, liabilities, gains and losses. For further discussion of derivatives embedded in
structured notes, see Notes 4 and 5 on pages 129143 and 144146, respectively, of JPMorgan Chases
2008 Annual Report.
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives executed for risk management purposes
typically interest rate, foreign exchange and gold derivatives, as described above. JPMorgan Chase
does not seek to apply hedge accounting to all of the Firms risk management activities involving
derivatives. For example, the Firm does not apply hedge accounting to purchased credit default
swaps used to manage the credit risk of loans and commitments, because of the difficulties in
qualifying such contracts as hedges. For the same reason, the Firm does not apply hedge accounting
to certain interest rate derivatives used for risk management purposes, or to commodity derivatives
used to manage the price risk of tolling and load-serving contracts.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk
associated with the exposure being hedged. In addition, for a derivative to be designated as a
hedge, the risk management objective and strategy must be documented. Hedge documentation must
identify the derivative hedging instrument, the asset or liability and type of risk to be hedged,
and how the effectiveness of the derivative will be assessed prospectively and retrospectively. To
assess effectiveness, the Firm uses statistical methods such as regression analysis, as well as
nonstatistical methods including dollar-value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of the hedged item. The extent to which a
derivative has been, and is expected to continue to be, effective at offsetting changes in the fair
value or cash flows of the hedged item must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain or loss on the designated derivative
instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged
risk) must be reported in current-period earnings. If it is determined that a derivative is not
highly effective at hedging the designated exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net
investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term
debt, available-for-sale (AFS) securities and gold inventory. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the value of the hedged item for the risk
being hedged, are recognized in earnings. If the hedge relationship is terminated, then the fair
value adjustment to the hedged item continues to be reported as part of the basis of the hedged
item and is amortized to earnings as a yield adjustment.
JPMorgan Chase uses cash flow hedges to hedge the exposure to variability in cash flows from
floating-rate financial instruments and forecasted transactions, primarily the rollover of
short-term assets and liabilities, and foreign currencydenominated revenue and expense. For
qualifying cash flow hedges, the effective portion of the change in the fair value of the
derivative is recorded in other comprehensive income (loss) (OCI) and recognized in the
Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts
affecting earnings are recognized consistent with the classification of the hedged item primarily
interest income, interest expense, noninterest revenue and compensation expense. The ineffective
portions of cash flow hedges are immediately recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in accumulated other comprehensive income
(loss) (AOCI) is recognized in earnings when the cash flows that were hedged affect earnings. For
hedge relationships that are discontinued because a forecasted transaction is not expected to occur
according to the original hedge forecast, any related derivative values recorded in AOCI are
immediately recognized in earnings.
JPMorgan Chase uses foreign currency hedges to protect the value of the Firms net investments in
certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For
qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the
translation adjustments account within AOCI.
118
Impact of derivatives on the Consolidated Balance Sheets
The following table summarizes information on derivative fair values that are reflected on the
Firms Consolidated Balance Sheets as of June 30, 2009, by accounting designation (e.g., whether
the derivatives were designated as hedges or not) and contract type.
Free-standing derivatives(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative receivables |
|
Derivative payables |
June 30, 2009 |
|
Not designated as |
|
Designated as |
|
Total derivative |
|
Not designated |
|
Designated as |
|
Total derivative |
(in millions) |
|
hedges |
|
hedges |
|
receivables |
|
as hedges |
|
hedges(c) |
|
payables |
|
Trading assets and
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
$ |
1,242,053 |
|
|
$ |
7,110 |
|
|
$ |
1,249,163 |
|
|
$ |
1,211,804 |
|
|
$ |
437 |
|
|
$ |
1,212,241 |
|
Credit |
|
|
295,576 |
|
|
|
|
|
|
|
295,576 |
|
|
|
284,220 |
|
|
|
|
|
|
|
284,220 |
|
Foreign exchange |
|
|
151,265 |
|
|
|
2,436 |
|
|
|
153,701 |
|
|
|
152,782 |
|
|
|
1,257 |
|
|
|
154,039 |
|
Equity |
|
|
54,747 |
|
|
|
|
|
|
|
54,747 |
|
|
|
55,416 |
|
|
|
|
|
|
|
55,416 |
|
Commodity |
|
|
44,350 |
|
|
|
|
|
|
|
44,350 |
|
|
|
43,388 |
|
|
|
|
|
|
|
43,388 |
|
|
Gross fair value of trading
assets and liabilities |
|
$ |
1,787,991 |
|
|
$ |
9,546 |
|
|
$ |
1,797,537 |
|
|
$ |
1,747,610 |
|
|
$ |
1,694 |
|
|
$ |
1,749,304 |
|
FIN 39 netting(b) |
|
|
|
|
|
|
|
|
|
|
(1,700,046 |
) |
|
|
|
|
|
|
|
|
|
|
(1,682,107 |
) |
|
Carrying value of
derivative trading assets
and trading liabilities on
the
Consolidated
Balance Sheets |
|
|
|
|
|
|
|
|
|
$ |
97,491 |
|
|
|
|
|
|
|
|
|
|
$ |
67,197 |
|
|
|
|
|
(a) |
|
Excludes structured notes for which the fair value option has been elected. See Note 4 on
pages 114116 of this Form 10-Q for further information. |
|
(b) |
|
FIN 39 permits the netting of derivative receivables and derivative payables, and the related
cash collateral received and paid when a legally enforceable master netting agreement exists
between the Firm and a derivative counterparty. |
|
(c) |
|
Excludes $1.0 billion related to separated commodity derivatives used as fair value hedging
instruments that are recorded in the line item of the host contract (i.e., other borrowed
funds). |
Derivative receivables and payables mark-to-market
The following table summarizes the fair values of derivative receivables and payables by contract
type after application of FIN 39 netting as of June 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Derivative receivables: |
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
33,956 |
|
|
$ |
49,996 |
|
Credit |
|
|
25,413 |
|
|
|
44,695 |
|
Foreign exchange(a) |
|
|
18,851 |
|
|
|
38,820 |
|
Equity |
|
|
6,496 |
|
|
|
14,285 |
|
|
Commodity |
|
|
12,775 |
|
|
|
14,830 |
|
|
Total derivative receivables |
|
$ |
97,491 |
|
|
$ |
162,626 |
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities |
|
|
|
|
|
|
|
|
Derivative payables: |
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
13,583 |
|
|
$ |
27,645 |
|
Credit |
|
|
11,861 |
|
|
|
23,566 |
|
Foreign exchange(a) |
|
|
19,237 |
|
|
|
41,156 |
|
Equity |
|
|
12,871 |
|
|
|
17,316 |
|
|
Commodity |
|
|
9,645 |
|
|
|
11,921 |
|
|
Total derivative payables |
|
$ |
67,197 |
|
|
$ |
121,604 |
|
|
|
|
|
(a) |
|
During the first quarter of 2009, cross-currency interest rate swaps previously reported in
interest rate contracts were reclassified to foreign exchange contracts to be more consistent
with industry practice. The effect of this change resulted in reclassifications of $14.1
billion and $20.8 billion derivative receivables and derivative payables, respectively,
between cross-currency interest rate swaps and foreign exchange contracts, as of December 31,
2008. |
119
Impact of derivatives and hedged items on the income statement and on other comprehensive
income
The following table summarizes the total pretax impact of JPMorgan Chases derivative-related
activities on the Firms Consolidated Statements of Income and Other Comprehensive Income for the
three and six months ended June 30, 2009, by accounting designation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative-related gains/(losses) |
Consolidated Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk |
|
|
|
|
of Income |
|
Fair value |
|
Cash flow |
|
Net investment |
|
management |
|
Trading |
|
|
(in millions) |
|
hedges(a) |
|
hedges |
|
hedges |
|
activities |
|
activities(a) |
|
Total |
|
Three months ended
June 30, 2009 |
|
$ |
(1,448 |
) |
|
$ |
55 |
|
|
$ |
(21 |
) |
|
$ |
(4,624 |
) |
|
$ |
6,054 |
|
|
$ |
16 |
|
|
Six months ended
June 30, 2009 |
|
|
(2,673 |
) |
|
|
142 |
|
|
|
(30 |
) |
|
|
(5,389 |
) |
|
|
10,125 |
|
|
|
2,175 |
|
|
|
|
|
Derivative-related net changes in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk |
|
|
|
|
Other Comprehensive |
|
Fair value |
|
Cash flow |
|
Net investment |
|
management |
|
Trading |
|
|
Income (loss) |
|
hedges |
|
hedges |
|
hedges |
|
activities |
|
activities |
|
Total |
|
Three months ended
June 30, 2009 |
|
|
NA |
|
|
$ |
(82 |
) |
|
$ |
(208 |
) |
|
|
NA |
|
|
|
NA |
|
|
$ |
(290 |
) |
|
Six months ended
June 30, 2009 |
|
|
NA |
|
|
|
168 |
|
|
|
(27 |
) |
|
|
NA |
|
|
|
NA |
|
|
|
141 |
|
|
|
|
|
(a) |
|
Includes the hedge accounting impact of the hedged item for fair value hedges, and includes
cash instruments within trading activities. |
The tables that follow reflect more detailed information regarding the derivative-related
income statement impact by accounting designation for the three and six months ended June 30, 2009.
Fair value hedge gains and losses
The following table presents derivative instruments, by contract type, used in fair value hedge
accounting relationships, as well as pretax gains (losses) recorded on such derivatives and the
related hedged items for the three and six months ended June 30, 2009. The Firm includes gains
(losses) on the hedging derivative and the related hedged item in the same line item in the
Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income |
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
June 30, 2009 |
|
Derivatives |
|
|
|
|
|
Hedge |
|
excluded |
|
Total income |
(in millions) |
|
hedged risk |
|
Hedged items |
|
ineffectiveness(d) |
|
components(e) |
|
statement impact |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a)
|
|
$ |
(1,477 |
) |
|
$ |
1,287 |
|
|
$ |
(190 |
) |
|
$ |
(1,562 |
) |
|
$ |
(1,752 |
) |
Foreign exchange(b)
|
|
|
(1,217 |
) |
|
|
1,217 |
|
|
|
|
|
|
|
319 |
|
|
|
319 |
|
Commodity(c)
|
|
|
(24 |
) |
|
|
24 |
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
|
Total
|
|
$ |
(2,718 |
) |
|
$ |
2,528 |
|
|
$ |
(190 |
) |
|
$ |
(1,258 |
) |
|
$ |
(1,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income |
Six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
June 30, 2009 |
|
Derivatives |
|
|
|
|
|
Hedge |
|
excluded |
|
Total income |
(in millions) |
|
hedged risk |
|
Hedged items |
|
ineffectiveness(d) |
|
components(e) |
|
statement impact |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
(1,118 |
) |
|
$ |
634 |
|
|
$ |
(484 |
) |
|
$ |
(2,293 |
) |
|
$ |
(2,777 |
) |
Foreign exchange(b) |
|
|
(1,770 |
) |
|
|
1,770 |
|
|
|
|
|
|
|
117 |
|
|
|
117 |
|
Commodity(c) |
|
|
(182 |
) |
|
|
182 |
|
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
|
Total |
|
$ |
(3,070 |
) |
|
$ |
2,586 |
|
|
$ |
(484 |
) |
|
$ |
(2,189 |
) |
|
$ |
(2,673 |
) |
|
|
|
|
(a) |
|
Primarily consists of hedges of the benchmark (e.g., LIBOR) interest rate risk of fixed-rate
long-term debt. Gains and losses were recorded in net interest income. |
|
(b) |
|
Primarily consists of hedges of the foreign currency risk of long-term debt and AFS
securities for changes in spot foreign currency rates. Gains and losses related to the
derivatives and the hedged items, due to changes in spot foreign currency rates, were recorded
in principal transactions revenue. The excluded components were recorded in net interest
income. |
|
(c) |
|
Consists of overall fair value hedges of physical gold inventory. Gains and losses were
recorded in principal transactions revenue. |
|
(d) |
|
Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative
instrument does not exactly offset the gain or loss on the hedged item attributable to the
hedged risk. |
|
(e) |
|
Certain components of hedging derivatives are permitted to be excluded from the assessment of
hedge effectiveness, such as forward points on a futures or forwards contract. Amounts related
to excluded components are recorded in current-period income. |
120
Cash flow hedge gains and losses
The following table presents derivative instruments, by contract type, used in cash flow hedge
accounting relationships, and the pretax gains (losses) recorded on such derivatives, for the three
and six months ended June 30, 2009. The Firm includes the gain (loss) on the hedging derivative in
the same line item as the offsetting change in cash flows on the hedged item in the Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income and other comprehensive income (loss) |
|
|
Derivatives |
|
Hedge |
|
|
|
|
|
|
|
|
Three months ended |
|
effective portion |
|
ineffectiveness |
|
|
|
|
|
Derivatives |
|
Total change in |
June 30, 2009 |
|
reclassified from |
|
recorded directly |
|
Total income |
|
effective portion |
|
OCI |
(in millions) |
|
AOCI to income |
|
in income(c) |
|
statement impact |
|
recorded in OCI |
|
for period |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
(26 |
) |
|
$ |
1 |
|
|
$ |
(25 |
) |
|
$ |
(343 |
) |
|
$ |
(317 |
) |
Foreign exchange(b) |
|
|
80 |
|
|
|
|
|
|
|
80 |
|
|
|
315 |
|
|
|
235 |
|
|
Total |
|
$ |
54 |
|
|
$ |
1 |
|
|
$ |
55 |
|
|
$ |
(28 |
) |
|
$ |
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income and other comprehensive income (loss) |
|
|
Derivatives |
|
Hedge |
|
|
|
|
|
|
|
|
Six months ended |
|
effective portion |
|
ineffectiveness |
|
|
|
|
|
Derivatives |
|
Total change in |
June 30, 2009 |
|
reclassified from |
|
recorded directly |
|
Total income |
|
effective portion |
|
OCI |
(in millions) |
|
AOCI to income |
|
in income(c) |
|
statement impact |
|
recorded in OCI |
|
for period |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
(69 |
) |
|
$ |
2 |
|
|
$ |
(67 |
) |
|
$ |
(299 |
) |
|
$ |
(230 |
) |
Foreign exchange(b) |
|
|
209 |
|
|
|
|
|
|
|
209 |
|
|
|
607 |
|
|
|
398 |
|
|
Total |
|
$ |
140 |
|
|
$ |
2 |
|
|
$ |
142 |
|
|
$ |
308 |
|
|
$ |
168 |
|
|
|
|
|
(a) |
|
Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets
and floating-rate liabilities. Gains and losses were recorded in net interest income. |
|
(b) |
|
Primarily consists of hedges of the foreign currency risk of non-U.S. dollardenominated
revenue and expense. The income statement classification of gains and losses follows the
hedged item primarily net interest income, compensation expense and other expense. |
|
(c) |
|
Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated
derivative instrument exceeds the present value of the cumulative expected change in cash
flows on the hedged item attributable to the hedged risk. |
Over the next 12 months, it is expected that $62 million (after tax) of net losses recorded in
AOCI at June 30, 2009, related to cash flow hedges will be recognized in income. The maximum length
of time over which forecasted transactions are hedged is 10 years, and such transactions primarily
relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net
investment hedge accounting relationships, and the pretax gains (losses) recorded on such
derivatives for the three and six months ended June 30, 2009.
|
|
|
|
|
|
|
|
|
Three months ended |
|
Gains/(losses) recorded in income and other comprehensive income (loss) |
June 30, 2009 |
|
Derivatives excluded components recorded |
|
Derivatives effective portion |
(in millions) |
|
directly in income(a) |
|
recorded in OCI |
|
Contract type |
|
|
|
|
|
|
|
|
Foreign exchange |
|
$ |
(21 |
) |
|
$ |
(208 |
) |
|
Total |
|
$ |
(21 |
) |
|
$ |
(208 |
) |
|
|
Six months ended |
|
Gains/(losses) recorded in income and other comprehensive income (loss) |
June 30, 2009 |
|
Derivatives excluded components recorded |
|
Derivatives effective portion |
(in millions) |
|
directly in income(a) |
|
recorded in OCI |
|
Contract type |
|
|
|
|
|
|
|
|
Foreign exchange |
|
$ |
(30 |
) |
|
$ |
(27 |
) |
|
Total |
|
$ |
(30 |
) |
|
$ |
(27 |
) |
|
|
|
|
(a) |
|
Certain components of derivatives used as hedging instruments are permitted to be
excluded from the assessment of hedge effectiveness, such as forward points on a futures or
forwards contract. Amounts related to excluded components are recorded in current-period
income. There was no ineffectiveness for net investment hedge accounting relationships during
the three and six months ended June 30, 2009. |
121
Risk management derivatives gains and losses (not designated as hedging instruments)
The following table presents nontrading derivatives, by contract type, that were not designated in
hedge relationships, and the pretax gains (losses) recorded on such derivatives for the three and
six months ended June 30, 2009. These derivatives are risk management instruments used to mitigate
or transform the risk of market exposures arising from banking activities other than trading
activities, which are discussed separately below.
|
|
|
|
|
|
|
|
|
|
|
Derivatives gains/(losses)
recorded in income |
(in millions) |
|
Three months ended June 30, 2009 |
|
Six months ended June 30, 2009 |
|
Contract type |
|
|
|
|
|
|
|
|
Interest rate(a)
|
|
$ |
(3,047 |
) |
|
$ |
(3,200 |
) |
Credit(b)
|
|
|
(1,512 |
) |
|
|
(2,028 |
) |
Foreign exchange(c)
|
|
|
(82 |
) |
|
|
(151 |
) |
Equity(b)
|
|
|
|
|
|
|
|
|
Commodity(b) |
|
|
17 |
|
|
|
(10 |
) |
|
Total
|
|
$ |
(4,624 |
) |
|
$ |
(5,389 |
) |
|
|
|
|
(a) |
|
Gains and losses were recorded in principal transactions revenue, mortgage fees and related
income, and net interest income. |
|
(b) |
|
Gains and losses were recorded in principal transactions revenue. |
|
(c) |
|
Gains and losses were recorded in principal transactions revenue and net interest income. |
Trading derivative gains and losses
The Firm has elected to present derivative gains and losses related to its trading activities
together with the cash instruments with which they are risk managed. All amounts are recorded in
principal transactions revenue in the Consolidated Statements of Income for the three and six
months ended June 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in principal
transactions revenue |
(in millions) |
|
Three months ended June 30, 2009 |
|
Six months ended June 30, 2009 |
|
Type of instrument |
|
|
|
|
|
|
|
|
Interest rate |
|
$ |
1,373 |
|
|
$ |
3,758 |
|
Credit |
|
|
2,332 |
|
|
|
1,683 |
|
Foreign exchange |
|
|
2,052 |
|
|
|
3,126 |
|
Equity |
|
|
(62 |
) |
|
|
798 |
|
Commodity |
|
|
359 |
|
|
|
760 |
|
|
Total |
|
$ |
6,054 |
|
|
$ |
10,125 |
|
|
Credit risk, liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives
expose JPMorgan Chase to credit risk the risk that derivative counterparties may fail to meet
their payment obligations under the derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment obligation. The amount of derivative
receivables reported on the Consolidated Balance Sheets is the fair value of the derivative
contracts after giving effect to legally enforceable master netting agreements and cash collateral
held by the Firm. These amounts represent the cost to the Firm to replace the contracts at
then-current market rates should the counterparty default. However, in managements view, the
appropriate measure of current credit risk should take into consideration other additional liquid
securities held as collateral by the Firm, which is disclosed in the table below.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to
liquidity risk, as the derivative contracts typically require the Firm to post cash or securities
collateral with counterparties as the MTM moves in the counterparties favor, or upon specified
downgrades in the Firms and its subsidiaries respective credit ratings. At June 30, 2009, the
impact of a single-notch and six-notch ratings downgrade to JPMorgan Chase & Co., and its
subsidiaries, primarily JPMorgan Chase Bank, N.A., would have required $1.2 billion and $4.0
billion, respectively, of additional collateral to be posted by the Firm. Certain derivative
contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. At June 30, 2009, the
impact of a single-notch and six-notch ratings downgrade to JPMorgan Chase & Co., and its
subsidiaries, primarily JPMorgan Chase Bank, N.A., related to contracts with termination triggers
would have required the Firm to settle trades with a fair value of $0.3 million and $4.7 billion,
respectively. The aggregate fair value of net derivative payables that contain contingent
collateral or termination features triggered upon a downgrade was $28.7 billion at June 30, 2009,
for which the Firm has posted collateral of $21.6 billion in the normal course of business.
122
The following table shows the current credit risk of derivative receivables after FIN 39 netting
and collateral received, and current liquidity risk of derivative payables after FIN 39 netting and
collateral posted, as of June 30, 2009.
|
|
|
|
|
|
|
|
|
June 30, 2009 (in millions) |
|
Derivative receivables |
|
Derivative payables |
|
Gross derivative fair value |
|
$ |
1,797,537 |
|
|
$ |
1,749,304 |
|
Fin 39
netting offsetting receivables/payables |
|
|
(1,628,843 |
) |
|
|
(1,628,843 |
) |
Fin 39
netting cash collateral received/paid |
|
|
(71,203 |
) |
|
|
(53,264 |
) |
|
Carrying value on Consolidated Balance Sheets |
|
|
97,491 |
|
|
|
67,197 |
|
Securities collateral received/paid |
|
|
(13,796 |
) |
|
|
(8,744 |
) |
|
Derivative fair value, net of all collateral |
|
$ |
83,695 |
|
|
$ |
58,453 |
|
|
In addition to the collateral amounts reflected in the table above, the Firm receives and
delivers collateral at the initiation of derivative transactions, which is available as security
against potential exposure that could arise should the fair value of the transactions move in the
Firms or clients favor, respectively. The Firm and its counterparties also hold collateral
related to contracts that have a non-daily call frequency for collateral to be posted, and
collateral that the Firm or a counterparty has agreed to return but has not yet settled, as of the
reporting date. At June 30, 2009, the Firm received collateral of $22.3 billion and delivered
collateral of $5.7 billion of such additional collateral. These amounts were not netted against the
derivative receivables and payables in the table above, because, at an individual counterparty
level, the collateral exceeded the fair value exposure at June 30, 2009.
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated
with the debt of a third-party issuer (the reference entity) and which allow one party (the
protection purchaser) to transfer that risk to another party (the protection seller). Credit
derivatives expose the protection purchaser to the creditworthiness of the protection seller, as
the protection seller is required to make payments under the contract when the reference entity
experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a
restructuring. The seller of credit protection receives a premium for providing protection but has
the risk that the underlying instrument referenced in the contract will be subject to a credit
event.
The Firm is both a purchaser and seller of credit protection in the credit derivatives market and
uses credit derivatives for two primary purposes. First, in its capacity as a market-maker in the
dealer/client business, the Firm actively risk manages a portfolio of credit derivatives by
purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the
needs of customers. As a seller of protection, the Firms exposure to a given reference entity may
be offset partially, or entirely, with a contract to purchase protection from another counterparty
on the same or similar reference entity. Second, the Firm uses credit derivatives to mitigate
credit risk associated with its overall derivative receivables and traditional commercial credit
lending exposures (loans and unfunded commitments) as well as to manage its exposure to residential
and commercial mortgages.
For a further discussion of credit derivatives, including a description of the different types used
by the Firm, see Note 32 on pages 202205 of JPMorgan Chases 2008 Annual Report.
The following table presents a summary of the notional amounts of credit derivatives and
credit-related notes the Firm sold and purchased as of June 30, 2009, and December 31, 2008. Upon a
credit event, the Firm as seller of protection would typically pay out only a percentage of the
full notional amount of net protection sold, as the amount actually required to be paid on the
contracts takes into account the recovery value of the reference obligation at the time of
settlement. The Firm manages the credit risk on contracts to sell protection by purchasing
protection with identical or similar underlying reference entities. As such, other purchased
protection referenced in the following table includes credit derivatives bought on related, but not
identical, reference positions; these include indices, portfolio coverage and other reference
points. The Firm does not use notional as the primary measure of risk management for credit
derivatives because notional does not take into account the probability of occurrence of a credit
event, recovery value of the reference obligation, or related cash instruments and economic hedges.
123
Total credit derivatives and credit-related notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum payout/Notional amount |
June 30, 2009 |
|
|
|
|
|
Protection purchased with |
|
Net protection |
|
Other protection |
(in millions) |
|
Protection sold |
|
identical underlyings(c) |
|
(sold)/purchased(d) |
|
purchased(e) |
|
Credit derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps |
|
$ |
(3,314,803 |
) |
|
$ |
3,397,677 |
|
|
$ |
82,874 |
|
|
$ |
43,131 |
|
Other credit derivatives(a) |
|
|
(11,206 |
) |
|
|
13,707 |
|
|
|
2,501 |
|
|
|
32,712 |
|
|
Total credit derivatives |
|
|
(3,326,009 |
) |
|
|
3,411,384 |
|
|
|
85,375 |
|
|
|
75,843 |
|
Credit-related notes |
|
|
(3,272 |
) |
|
|
|
|
|
|
(3,272 |
) |
|
|
985 |
|
|
Total |
|
$ |
(3,329,281 |
) |
|
$ |
3,411,384 |
|
|
$ |
82,103 |
|
|
$ |
76,828 |
|
|
|
|
|
Maximum payout/Notional amount |
December 31, 2008 |
|
|
|
|
|
Protection purchased with |
|
Net protection |
|
Other protection |
(in millions) |
|
Protection sold |
|
identical underlyings(c) |
|
(sold)/purchased(d) |
|
purchased(e) |
|
Credit derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps(b) |
|
$ |
(4,099,141 |
) |
|
$ |
3,973,616 |
|
|
$ |
(125,525 |
) |
|
$ |
288,751 |
|
Other credit derivatives(a) |
|
|
(4,026 |
) |
|
|
|
|
|
|
(4,026 |
) |
|
|
22,344 |
(b) |
|
Total credit derivatives |
|
|
(4,103,167 |
) |
|
|
3,973,616 |
|
|
|
(129,551 |
) |
|
|
311,095 |
|
Credit-related notes(b) |
|
|
(4,080 |
) |
|
|
|
|
|
|
(4,080 |
) |
|
|
2,373 |
|
|
Total |
|
$ |
(4,107,247 |
) |
|
$ |
3,973,616 |
|
|
$ |
(133,631 |
) |
|
$ |
313,468 |
|
|
|
|
|
(a) |
|
Primarily consists of total return swaps and credit default swap options. |
|
(b) |
|
The amounts of protection sold for total credit derivatives and credit-related notes have
been revised for the prior period. |
|
(c) |
|
Represents the notional amount of purchased credit derivatives where the underlying reference
instrument is identical to the reference instrument on which the Firm has sold credit
protection. |
|
(d) |
|
Does not take into account the fair value of the reference obligation at the time of
settlement, which would generally reduce the amount the seller of protection pays to the buyer
of protection in determining settlement value. |
|
(e) |
|
Represents single-name and index CDS protection the Firm purchased. |
The following table summarizes the notional and fair value amounts of credit derivatives and
credit-related notes as of June 30, 2009, and December 31, 2008, where JPMorgan Chase is the seller
of protection. The maturity profile is based on the remaining contractual maturity of the credit
derivative contracts. The ratings profile is based on the rating of the reference entity on which
the credit derivative contract is based. The ratings and maturity profile of protection purchased
are comparable to the profile reflected below.
Protection sold credit derivatives and credit-related notes ratings/maturity profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
June 30, 2009 (in millions) |
|
<1 year |
|
15 years |
|
>5 years |
|
notional amount |
|
Fair value(c) |
|
Risk rating of reference entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade (AAA to BBB-)(a) |
|
$ |
(254,689 |
) |
|
$ |
(1,387,651 |
) |
|
$ |
(553,971 |
) |
|
$ |
(2,196,311 |
) |
|
$ |
(89,496 |
) |
Noninvestment grade (BB+ and
below)(a) |
|
|
(143,846 |
) |
|
|
(760,023 |
) |
|
|
(229,101 |
) |
|
|
(1,132,970 |
) |
|
|
(159,499 |
) |
|
Total |
|
$ |
(398,535 |
) |
|
$ |
(2,147,674 |
) |
|
$ |
(783,072 |
) |
|
$ |
(3,329,281 |
) |
|
$ |
(248,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
December 31, 2008 (in millions) |
|
<1 year |
|
15 years |
|
>5 years |
|
notional amount |
|
Fair value(c) |
|
Risk rating of reference entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade (AAA to BBB-)(a)(b) |
|
$ |
(179,379 |
) |
|
$ |
(1,743,283 |
) |
|
$ |
(701,775 |
) |
|
$ |
(2,624,437 |
) |
|
$ |
(222,318 |
) |
Noninvestment grade (BB+ and
below)(a)(b) |
|
|
(118,734 |
) |
|
|
(950,619 |
) |
|
|
(413,457 |
) |
|
|
(1,482,810 |
) |
|
|
(253,326 |
) |
|
Total |
|
$ |
(298,113 |
) |
|
$ |
(2,693,902 |
) |
|
$ |
(1,115,232 |
) |
|
$ |
(4,107,247 |
) |
|
$ |
(475,644 |
) |
|
|
|
|
(a) |
|
Ratings scale is based on the Firms internal ratings, which generally correspond to
ratings defined by S&P and Moodys. |
|
(b) |
|
The amounts of protection sold for total credit derivatives and credit-related notes have
been revised for the prior period. |
|
(c) |
|
Amounts are shown on a gross basis, before the benefit of legally enforceable master netting
agreements and cash collateral held
by the Firm. |
124
NOTE 6 OTHER NONINTEREST REVENUE
For a discussion of the components of and accounting policies for the Firms other noninterest
revenue, see Note 6 and Note 7 on pages 146149 of JPMorgan Chases 2008 Annual Report.
The following table presents the components of investment banking fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
949 |
|
|
$ |
542 |
|
|
$ |
1,257 |
|
|
$ |
901 |
|
Debt |
|
|
766 |
|
|
|
717 |
|
|
|
1,369 |
|
|
|
1,087 |
|
|
Total underwriting |
|
|
1,715 |
|
|
|
1,259 |
|
|
|
2,626 |
|
|
|
1,988 |
|
Advisory |
|
|
391 |
|
|
|
353 |
|
|
|
866 |
|
|
|
840 |
|
|
Total investment banking fees |
|
$ |
2,106 |
|
|
$ |
1,612 |
|
|
$ |
3,492 |
|
|
$ |
2,828 |
|
|
|
The following table presents principal transactions revenue. |
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Trading revenue |
|
$ |
3,155 |
|
|
$ |
538 |
|
|
$ |
5,644 |
|
|
$ |
(465 |
) |
Private equity gains (losses)(a) |
|
|
(58 |
) |
|
|
214 |
|
|
|
(546 |
) |
|
|
414 |
|
|
Principal transactions |
|
$ |
3,097 |
|
|
$ |
752 |
|
|
$ |
5,098 |
|
|
$ |
(51 |
) |
|
|
(a) Includes revenue on private equity investments held in the Private Equity business within
Corporate/Private Equity, and those held in other business segments. |
|
The following table presents components of asset management, administration and commissions. |
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Asset management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
$ |
1,172 |
|
|
$ |
1,451 |
|
|
$ |
2,255 |
|
|
$ |
2,874 |
|
All other asset management fees |
|
|
78 |
|
|
|
143 |
|
|
|
159 |
|
|
|
290 |
|
|
Total asset management fees |
|
|
1,250 |
|
|
|
1,594 |
|
|
|
2,414 |
|
|
|
3,164 |
|
Total administration fees(a) |
|
|
498 |
|
|
|
690 |
|
|
|
953 |
|
|
|
1,360 |
|
Commission and other fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage commissions |
|
|
762 |
|
|
|
730 |
|
|
|
1,449 |
|
|
|
1,508 |
|
All other commissions and fees |
|
|
614 |
|
|
|
614 |
|
|
|
1,205 |
|
|
|
1,192 |
|
|
Total commissions and fees |
|
|
1,376 |
|
|
|
1,344 |
|
|
|
2,654 |
|
|
|
2,700 |
|
|
Total asset management, administration and
commissions |
|
$ |
3,124 |
|
|
$ |
3,628 |
|
|
$ |
6,021 |
|
|
$ |
7,224 |
|
|
|
|
|
(a) |
|
Includes fees for custody, securities lending, funds services and securities clearance. |
125
NOTE 7 INTEREST INCOME AND INTEREST EXPENSE
Details of interest income and interest expense were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Interest income(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
9,825 |
|
|
$ |
8,430 |
|
|
$ |
20,333 |
|
|
$ |
17,715 |
|
Securities |
|
|
3,178 |
|
|
|
1,398 |
|
|
|
6,038 |
|
|
|
2,577 |
|
Trading assets |
|
|
2,954 |
|
|
|
4,117 |
|
|
|
6,168 |
|
|
|
8,656 |
|
Federal funds sold, securities purchased under
resale agreements and securities borrowed |
|
|
272 |
|
|
|
2,057 |
|
|
|
1,008 |
|
|
|
4,250 |
|
Deposits with banks |
|
|
246 |
|
|
|
373 |
|
|
|
689 |
|
|
|
709 |
|
Other assets(b) |
|
|
74 |
|
|
|
154 |
|
|
|
239 |
|
|
|
154 |
|
|
Total interest income |
|
|
16,549 |
|
|
|
16,529 |
|
|
|
34,475 |
|
|
|
34,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
1,165 |
|
|
|
3,592 |
|
|
|
2,851 |
|
|
|
8,200 |
|
Short-term and other liabilities(c) |
|
|
876 |
|
|
|
2,679 |
|
|
|
1,967 |
|
|
|
5,910 |
|
Long-term debt |
|
|
1,781 |
|
|
|
1,864 |
|
|
|
3,525 |
|
|
|
3,766 |
|
Beneficial interests issued by consolidated VIEs |
|
|
57 |
|
|
|
100 |
|
|
|
95 |
|
|
|
232 |
|
|
Total interest expense |
|
|
3,879 |
|
|
|
8,235 |
|
|
|
8,438 |
|
|
|
18,108 |
|
|
Net interest income |
|
|
12,670 |
|
|
|
8,294 |
|
|
|
26,037 |
|
|
|
15,953 |
|
Provision for credit losses |
|
|
8,031 |
|
|
|
3,455 |
|
|
|
16,627 |
|
|
|
7,879 |
|
|
Net interest income after provision for credit losses |
|
$ |
4,639 |
|
|
$ |
4,839 |
|
|
$ |
9,410 |
|
|
$ |
8,074 |
|
|
|
|
|
(a) |
|
Interest income and interest expense include the current-period interest accruals for
financial instruments measured at fair value, except for financial instruments containing
embedded derivatives that would be separately accounted for in accordance with SFAS 133 absent
the SFAS 159 fair value election; for those instruments, all changes in fair value, including
any interest elements, are reported in principal transactions revenue. |
|
(b) |
|
Predominantly margin loans. |
|
(c) |
|
Includes brokerage customer payables. |
NOTE
8 PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
For a discussion of JPMorgan Chases pension and other postretirement employee benefit (OPEB)
plans, see Note 9 on pages 149155 of JPMorgan Chases 2008 Annual Report.
The following table presents the components of net periodic benefit cost reported in the
Consolidated Statements of Income for the Firms U.S. and non-U.S. defined benefit pension and OPEB
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
U.S. |
|
Non-U.S. |
|
OPEB plans |
Three months ended June 30, (in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits earned during the period |
|
$ |
80 |
|
|
$ |
64 |
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost on benefit obligations |
|
|
128 |
|
|
|
122 |
|
|
|
30 |
|
|
|
38 |
|
|
|
13 |
|
|
|
18 |
|
Expected return on plan assets |
|
|
(146 |
) |
|
|
(180 |
) |
|
|
(28 |
) |
|
|
(41 |
) |
|
|
(24 |
) |
|
|
(24 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
77 |
|
|
|
|
|
|
|
11 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(4 |
) |
|
Net periodic benefit cost |
|
|
140 |
|
|
|
7 |
|
|
|
20 |
|
|
|
11 |
|
|
|
(13 |
) |
|
|
(9 |
) |
Other defined benefit pension plans(a) |
|
|
4 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
|
NA |
|
NA |
|
Total defined benefit plans |
|
|
144 |
|
|
|
10 |
|
|
|
24 |
|
|
|
16 |
|
|
|
(13 |
) |
|
|
(9 |
) |
Total defined contribution plans |
|
|
76 |
|
|
|
70 |
|
|
|
63 |
|
|
|
82 |
|
|
NA |
|
NA |
|
Total pension and OPEB cost included in compensation expense |
|
$ |
220 |
|
|
$ |
80 |
|
|
$ |
87 |
|
|
$ |
98 |
|
|
$ |
(13 |
) |
|
$ |
(9 |
) |
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
U.S. |
|
Non-U.S. |
|
OPEB plans |
Six months ended June 30, (in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits earned during the period |
|
$ |
157 |
|
|
$ |
128 |
|
|
$ |
14 |
|
|
$ |
14 |
|
|
$ |
2 |
|
|
$ |
3 |
|
Interest cost on benefit obligations |
|
|
256 |
|
|
|
244 |
|
|
|
56 |
|
|
|
76 |
|
|
|
31 |
|
|
|
37 |
|
Expected return on plan assets |
|
|
(292 |
) |
|
|
(360 |
) |
|
|
(52 |
) |
|
|
(82 |
) |
|
|
(48 |
) |
|
|
(49 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
153 |
|
|
|
|
|
|
|
21 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(8 |
) |
|
Net periodic benefit cost |
|
|
276 |
|
|
|
14 |
|
|
|
39 |
|
|
|
22 |
|
|
|
(22 |
) |
|
|
(17 |
) |
Other defined benefit pension plans(a) |
|
|
7 |
|
|
|
6 |
|
|
|
8 |
|
|
|
9 |
|
|
NA |
|
NA |
|
Total defined benefit plans |
|
|
283 |
|
|
|
20 |
|
|
|
47 |
|
|
|
31 |
|
|
|
(22 |
) |
|
|
(17 |
) |
Total defined contribution plans |
|
|
154 |
|
|
|
136 |
|
|
|
122 |
|
|
|
162 |
|
|
NA |
|
NA |
|
Total pension and OPEB cost included in compensation expense |
|
$ |
437 |
|
|
$ |
156 |
|
|
$ |
169 |
|
|
$ |
193 |
|
|
$ |
(22 |
) |
|
$ |
(17 |
) |
|
|
|
|
(a) |
|
Includes various defined benefit pension plans, which are individually immaterial. |
The fair value of plan assets for the U.S. defined benefit pension and OPEB plans and the
material non-U.S. defined benefit pension plans were $9.2 billion and $2.2 billion, respectively,
as of June 30, 2009, and $8.1 billion and $2.0 billion, respectively, as of December 31, 2008. See
Note 22 on page 159 of this Form 10-Q for further information on unrecognized amounts (i.e., net
loss and prior service costs/(credit)) reflected in accumulated other comprehensive income for the
six months ended June 30, 2009 and 2008.
On January 15, 2009, the Firm made a discretionary cash contribution to its U.S. defined benefit
pension plan of $1.3 billion, funding the plan to the maximum allowable amount under applicable tax
law. The 2009 potential contributions for the Firms U.S. non-qualified defined benefit pension
plans are $39 million. The 2009 potential contributions for the Firms non-U.S. defined benefit
pension plans (excluding the main United Kingdom (U.K.) plan) are $44 million and for OPEB plans
are $2 million. The amount of potential 2009 contributions to the Firms main U.K. defined benefit
pension plan is not reasonably estimable at this time.
On May 1, 2009, the Firm amended the employer matching contribution feature of the 401(k) Savings
Plan (the Plan) to provide that: (i) for employees earning less than $50,000, matching
contributions will be based on their contributions to the Plan, but not to exceed 5% of their
eligible compensation (e.g., base pay); and (ii) for employees earning $50,000 or more per year,
matching contributions will be made at the discretion of the Firms management, depending on the
Firms earnings for the year. Any such matching contributions will be made on an annual basis,
following the end of the calendar year, to employees who are employed by the Firm at the end of
such year.
Pursuant to a compromise and settlement agreement between JPMorgan Chase Bank, N.A. and Washington
Mutual Inc., JPMorgan Chase Bank, N.A. will become a contributing employer under the WaMu Savings
Plan effective as of September 25, 2008, and the sponsor of the WaMu Savings Plan as of August 10,
2009. As of July 28, 2009, the United States Bankruptcy Court for the District of Delaware entered an
order approving the compromise and settlement agreement, which will become final and non-appealable
on August 10, 2009.
NOTE
9 EMPLOYEE STOCK-BASED INCENTIVES
For a discussion of the accounting policies and other information relating to employee stock-based
compensation, see Note 10 on pages 155157 of JPMorgan Chases 2008 Annual Report.
The Firm recognized noncash compensation expense related to its various employee stock-based
incentive plans of $884 million and $728 million for the quarters ended June 30, 2009 and 2008,
respectively, and $1.7 billion and $1.4 billion in the first six months of 2009 and 2008,
respectively, in its Consolidated Statements of Income. These amounts included an accrual for the
estimated cost of stock awards to be granted to full-career eligible employees of $192 million and
$140 million for the quarters ended June 30, 2009 and 2008, respectively, and $332 million and $274
million for the first six months ended June 30, 2009 and 2008, respectively.
In the first quarter of 2009, the Firm granted 130 million restricted stock units (RSUs), with a
grant date fair value of $19.52 per RSU, in connection with its annual incentive grant.
127
NOTE
10 NONINTEREST EXPENSE
Merger costs
Costs associated with the Bear Stearns merger and the Washington Mutual transaction are reflected
in the merger costs caption of the Consolidated Statements of Income. For a further discussion of
the Bear Stearns merger and the Washington Mutual transaction, see Note 2 on pages 9699 of this
Form 10-Q. A summary of merger-related costs is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2009 |
|
|
(in millions) |
|
Bear Stearns |
|
Washington Mutual |
|
Total |
|
2008 |
|
Expense category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation(a) |
|
$ |
(16 |
) |
|
$ |
77 |
|
|
$ |
61 |
|
|
$ |
126 |
|
Occupancy(a) |
|
|
(3 |
) |
|
|
18 |
|
|
|
15 |
|
|
|
|
|
Technology and communications and other |
|
|
3 |
|
|
|
64 |
|
|
|
67 |
|
|
|
29 |
|
|
Total(b)(c) |
|
$ |
(16 |
) |
|
$ |
159 |
|
|
$ |
143 |
|
|
$ |
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2009 |
|
|
(in millions) |
|
Bear Stearns |
|
Washington Mutual |
|
Total |
|
2008 |
|
Expense category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation(a) |
|
$ |
(10 |
) |
|
$ |
213 |
|
|
$ |
203 |
|
|
$ |
126 |
|
Occupancy(a) |
|
|
(3 |
) |
|
|
23 |
|
|
|
20 |
|
|
|
|
|
Technology and communications and other |
|
|
17 |
|
|
|
108 |
|
|
|
125 |
|
|
|
29 |
|
|
Total(b)(c) |
|
$ |
4 |
|
|
$ |
344 |
|
|
$ |
348 |
|
|
$ |
155 |
|
|
|
|
|
(a) |
|
Represents partial reversals of merger costs accrued in prior periods. |
|
(b) |
|
With the exception of occupancy- and technology-related write-offs, all of the costs in the
table required the expenditure of cash. |
|
(c) |
|
2008 Merger Activity is related to Bear Stearns only. |
The table below shows changes in the merger reserve balance related to costs associated with
the transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2009 |
|
|
(in millions) |
|
Bear Stearns |
|
Washington Mutual |
|
Total |
|
2008 |
|
Merger reserve balance, beginning of period |
|
$ |
327 |
|
|
$ |
441 |
|
|
$ |
768 |
|
|
$ |
|
|
Recorded as merger costs |
|
|
4 |
|
|
|
344 |
|
|
|
348 |
|
|
|
155 |
|
Recorded as goodwill |
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
1,112 |
|
Utilization of merger reserve |
|
|
(257 |
) |
|
|
(583 |
) |
|
|
(840 |
) |
|
|
(174 |
) |
|
Merger reserve balance, end of period(a) |
|
$ |
69 |
|
|
$ |
202 |
|
|
$ |
271 |
|
|
$ |
1,093 |
|
|
|
|
|
(a) |
|
2008 Merger Activity is related to Bear Stearns only. |
128
NOTE
11 SECURITIES
Securities are classified as AFS, held-to-maturity (HTM) or trading. For additional information
regarding AFS and HTM securities, see Note 12 on pages 158162 of JPMorgan Chases 2008 Annual
Report. Trading securities are discussed in Note 5 on pages
116124 of this Form
10-Q.
Securities gains and losses
The following table presents realized gains and realized and unrealized losses that were recognized
in income from AFS securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Realized gains |
|
$ |
743 |
|
|
$ |
675 |
|
|
$ |
1,153 |
|
|
$ |
812 |
|
Realized losses |
|
|
(210) |
|
|
|
(28 |
) |
|
|
(417) |
|
|
|
(132 |
) |
|
Net realized gains |
|
|
533 |
|
|
|
647 |
|
|
|
736 |
|
|
|
680 |
|
Unrealized
credit losses included in securities gains |
|
|
(186) |
(b) |
|
|
|
|
|
|
(191) |
(b) |
|
|
|
|
|
Net securities gains(a) |
|
$ |
347 |
|
|
$ |
647 |
|
|
$ |
545 |
|
|
$ |
680 |
|
|
|
|
|
(a) |
|
Proceeds from securities sold were within approximately 2% of amortized cost. |
|
(b) |
|
Includes impairment losses recognized in income for the
three and six months ended June 30, 2009, on certain subprime and prime mortgage-backed
securities and obligations of U.S. states and municipalities. |
The amortized cost and estimated fair value of AFS and HTM securities were as follows for the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
unrealized |
|
unrealized |
|
Fair |
|
Amortized |
|
unrealized |
|
unrealized |
|
Fair |
(in millions) |
|
cost |
|
gains |
|
losses |
|
value |
|
cost |
|
gains |
|
losses |
|
value |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
agencies(b) |
|
$ |
179,086 |
|
|
$ |
2,219 |
|
|
$ |
866 |
|
|
$ |
180,439 |
|
|
$ |
115,198 |
|
|
$ |
2,414 |
|
|
$ |
227 |
|
|
$ |
117,385 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
7,540 |
|
|
|
45 |
|
|
|
1,711 |
|
|
|
5,874 |
|
|
|
8,826 |
|
|
|
4 |
|
|
|
1,935 |
|
|
|
6,895 |
|
Subprime |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
213 |
|
|
|
|
|
|
|
19 |
|
|
|
194 |
|
Non-U.S. |
|
|
6,555 |
|
|
|
123 |
|
|
|
244 |
|
|
|
6,434 |
|
|
|
2,233 |
|
|
|
24 |
|
|
|
182 |
|
|
|
2,075 |
|
Commercial |
|
|
4,738 |
|
|
|
7 |
|
|
|
510 |
|
|
|
4,235 |
|
|
|
4,623 |
|
|
|
|
|
|
|
684 |
|
|
|
3,939 |
|
|
Total mortgage-backed securities |
|
$ |
197,974 |
|
|
$ |
2,394 |
|
|
$ |
3,331 |
|
|
$ |
197,037 |
|
|
$ |
131,093 |
|
|
$ |
2,442 |
|
|
$ |
3,047 |
|
|
$ |
130,488 |
|
U.S. Treasury and government
agencies(b) |
|
|
34,940 |
|
|
|
108 |
|
|
|
370 |
|
|
|
34,678 |
|
|
|
10,402 |
|
|
|
52 |
|
|
|
97 |
|
|
|
10,357 |
|
Obligations of U.S. states and
municipalities |
|
|
6,043 |
|
|
|
157 |
|
|
|
194 |
|
|
|
6,006 |
|
|
|
3,479 |
|
|
|
94 |
|
|
|
238 |
|
|
|
3,335 |
|
Certificates of deposit |
|
|
5,587 |
|
|
|
16 |
|
|
|
|
|
|
|
5,603 |
|
|
|
17,226 |
|
|
|
64 |
|
|
|
8 |
|
|
|
17,282 |
|
Non-U.S. government debt securities |
|
|
16,221 |
|
|
|
162 |
|
|
|
32 |
|
|
|
16,351 |
|
|
|
8,173 |
|
|
|
173 |
|
|
|
2 |
|
|
|
8,344 |
|
Corporate debt securities |
|
|
47,826 |
|
|
|
520 |
|
|
|
70 |
|
|
|
48,276 |
|
|
|
9,358 |
|
|
|
257 |
|
|
|
61 |
|
|
|
9,554 |
|
Asset-backed securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
22,354 |
|
|
|
297 |
|
|
|
408 |
|
|
|
22,243 |
|
|
|
13,651 |
|
|
|
8 |
|
|
|
2,268 |
|
|
|
11,391 |
|
Collateralized debt and loan
obligations |
|
|
11,637 |
|
|
|
409 |
|
|
|
547 |
|
|
|
11,499 |
|
|
|
11,847 |
|
|
|
168 |
|
|
|
820 |
|
|
|
11,195 |
|
Other |
|
|
1,929 |
|
|
|
25 |
|
|
|
81 |
|
|
|
1,873 |
|
|
|
1,026 |
|
|
|
4 |
|
|
|
135 |
|
|
|
895 |
|
|
Total available-for-sale debt
securities |
|
$ |
344,511 |
|
|
$ |
4,088 |
|
|
$ |
5,033 |
|
|
$ |
343,566 |
|
|
$ |
206,255 |
|
|
$ |
3,262 |
|
|
$ |
6,676 |
|
|
$ |
202,841 |
|
Available-for-sale equity securities |
|
|
1,873 |
|
|
|
98 |
|
|
|
3 |
|
|
|
1,968 |
|
|
|
3,073 |
|
|
|
2 |
|
|
|
7 |
|
|
|
3,068 |
|
|
Total available-for-sale securities |
|
$ |
346,384 |
|
|
$ |
4,186 |
|
|
$ |
5,036 |
|
|
$ |
345,534 |
|
|
$ |
209,328 |
|
|
$ |
3,264 |
|
|
$ |
6,683 |
|
|
$ |
205,909 |
|
|
Total held-to-maturity
securities(c) |
|
$ |
29 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
31 |
|
|
$ |
34 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
35 |
|
|
|
|
|
(a) |
|
Prior periods have been revised to conform to the current presentation. |
|
(b) |
|
Includes total U.S. government-sponsored enterprise obligations with fair values of $171.6
billion and $120.1 billion at June 30, 2009, and December 31, 2008, respectively, which were
predominantly mortgage-related. |
|
(c) |
|
Consists primarily of mortgage-backed securities issued by U.S. government-sponsored
enterprises. |
129
Securities impairment
The following tables present the fair value and gross unrealized losses for AFS securities by aging
category at June 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with gross unrealized losses |
|
|
Less than 12 months |
|
12 months or more |
|
|
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
|
Total |
|
gross |
|
|
Fair |
|
unrealized |
|
Fair |
|
unrealized |
|
fair |
|
unrealized |
June 30, 2009 (in millions) |
|
value |
|
losses |
|
value |
|
losses |
|
value |
|
losses |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
90,016 |
|
|
$ |
848 |
|
|
$ |
1,243 |
|
|
$ |
18 |
|
|
$ |
91,259 |
|
|
$ |
866 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
2,626 |
|
|
|
375 |
|
|
|
2,757 |
|
|
|
1,336 |
|
|
|
5,383 |
|
|
|
1,711 |
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. |
|
|
1,964 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
1,964 |
|
|
|
244 |
|
Commercial |
|
|
3,880 |
|
|
|
510 |
|
|
|
|
|
|
|
|
|
|
|
3,880 |
|
|
|
510 |
|
|
Total mortgage-backed securities |
|
|
98,486 |
|
|
|
1,977 |
|
|
|
4,000 |
|
|
|
1,354 |
|
|
|
102,486 |
|
|
|
3,331 |
|
U.S. Treasury and government agencies |
|
|
16,359 |
|
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
16,359 |
|
|
|
370 |
|
Obligations of U.S. states and municipalities |
|
|
2,244 |
|
|
|
189 |
|
|
|
130 |
|
|
|
5 |
|
|
|
2,374 |
|
|
|
194 |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government debt securities |
|
|
2,013 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
2,013 |
|
|
|
32 |
|
Corporate debt securities |
|
|
6,741 |
|
|
|
55 |
|
|
|
1,536 |
|
|
|
15 |
|
|
|
8,277 |
|
|
|
70 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
592 |
|
|
|
29 |
|
|
|
9,532 |
|
|
|
379 |
|
|
|
10,124 |
|
|
|
408 |
|
Collateralized debt and loan obligations |
|
|
6,755 |
|
|
|
239 |
|
|
|
3,993 |
|
|
|
308 |
|
|
|
10,748 |
|
|
|
547 |
|
Other |
|
|
476 |
|
|
|
56 |
|
|
|
576 |
|
|
|
25 |
|
|
|
1,052 |
|
|
|
81 |
|
|
Total available-for-sale debt securities |
|
|
133,666 |
|
|
|
2,947 |
|
|
|
19,767 |
|
|
|
2,086 |
|
|
|
153,433 |
|
|
|
5,033 |
|
Available-for-sale equity securities |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
Total securities with gross unrealized losses |
|
$ |
133,669 |
|
|
$ |
2,950 |
|
|
$ |
19,767 |
|
|
$ |
2,086 |
|
|
$ |
153,436 |
|
|
$ |
5,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with gross unrealized losses |
|
|
Less than 12 months |
|
12 months or more |
|
|
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
|
Gross |
|
Total |
|
gross |
|
|
Fair |
|
unrealized |
|
Fair |
|
unrealized |
|
fair |
|
unrealized |
December 31, 2008 (in millions) |
|
value |
|
losses |
|
value |
|
losses |
|
value |
|
losses |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
6,016 |
|
|
$ |
224 |
|
|
$ |
469 |
|
|
$ |
3 |
|
|
$ |
6,485 |
|
|
$ |
227 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
6,254 |
|
|
|
1,838 |
|
|
|
333 |
|
|
|
97 |
|
|
|
6,587 |
|
|
|
1,935 |
|
Subprime |
|
|
|
|
|
|
|
|
|
|
151 |
|
|
|
19 |
|
|
|
151 |
|
|
|
19 |
|
Non-U.S. |
|
|
1,908 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
1,908 |
|
|
|
182 |
|
Commercial |
|
|
3,939 |
|
|
|
684 |
|
|
|
|
|
|
|
|
|
|
|
3,939 |
|
|
|
684 |
|
|
Total mortgage-backed securities |
|
|
18,117 |
|
|
|
2,928 |
|
|
|
953 |
|
|
|
119 |
|
|
|
19,070 |
|
|
|
3,047 |
|
U.S. Treasury and government agencies(a) |
|
|
7,659 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
7,659 |
|
|
|
97 |
|
Obligations of U.S. states and municipalities |
|
|
1,129 |
|
|
|
232 |
|
|
|
16 |
|
|
|
6 |
|
|
|
1,145 |
|
|
|
238 |
|
Certificates of deposit |
|
|
382 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
382 |
|
|
|
8 |
|
Non-U.S. government debt securities |
|
|
308 |
|
|
|
1 |
|
|
|
74 |
|
|
|
1 |
|
|
|
382 |
|
|
|
2 |
|
Corporate debt securities |
|
|
558 |
|
|
|
54 |
|
|
|
30 |
|
|
|
7 |
|
|
|
588 |
|
|
|
61 |
|
Asset-backed securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
10,267 |
|
|
|
1,964 |
|
|
|
472 |
|
|
|
304 |
|
|
|
10,739 |
|
|
|
2,268 |
|
Collateralized debt and loan obligations |
|
|
9,059 |
|
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
9,059 |
|
|
|
820 |
|
Other |
|
|
813 |
|
|
|
134 |
|
|
|
17 |
|
|
|
1 |
|
|
|
830 |
|
|
|
135 |
|
|
Total available-for-sale debt securities |
|
|
48,292 |
|
|
|
6,238 |
|
|
|
1,562 |
|
|
|
438 |
|
|
|
49,854 |
|
|
|
6,676 |
|
Available-for-sale equity securities |
|
|
19 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
7 |
|
|
Total securities with gross unrealized losses |
|
$ |
48,311 |
|
|
$ |
6,245 |
|
|
$ |
1,562 |
|
|
$ |
438 |
|
|
$ |
49,873 |
|
|
$ |
6,683 |
|
|
|
|
|
(a) |
|
Prior periods have been revised to conform to the current presentation. |
130
Other-than-temporary impairment
In
April 2009, the FASB amended the other-than-temporary impairment (OTTI) model for debt
securities. The impairment model for equity securities was not affected. Under the new guidance,
OTTI loss must be recognized in earnings if an investor has the intent to sell the debt security,
or if it is more likely than not, will be required to sell the debt security before recovery of its
amortized cost basis. However, even if an investor does not expect to sell a debt security, it must
evaluate expected cash flows to be received and determine if a credit loss exists. In the event of
a credit loss, only the amount of impairment associated with the credit loss is recognized in
income. Amounts relating to factors other than credit losses are recorded in OCI. The guidance also
requires additional disclosures regarding the calculation of credit losses, as well as factors
considered in reaching a conclusion that an investment is not other-than-temporarily impaired.
JPMorgan Chase early adopted the new guidance effective for the period ending March 31, 2009. The
Firm did not record a transition adjustment for securities held at March 31, 2009, which were
previously considered other-than-temporarily impaired, as the Firm intended to sell the securities
for which it had previously recognized OTTIs.
AFS securities in unrealized loss positions are analyzed as part of the Firms ongoing assessment
of OTTI. When the Firm intends to sell AFS securities, it recognizes an impairment loss equal to
the full difference between the amortized cost basis and the fair value of those securities.
When the Firm does not intend to sell AFS equity or debt securities in an unrealized loss position,
potential OTTI is considered using a variety of factors, including the length of time and extent to
which the market value has been less than cost; adverse conditions specifically related to the
industry, geographic area or financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the rating of the security by a rating
agency; the volatility of the fair value changes, and changes in fair value of the security after
the balance sheet date. For debt securities, the Firm estimates cash flows over the remaining lives
of the underlying collateral to assess whether credit losses exist, and, where applicable under
EITF Issue 99-20, to determine if any adverse changes in cash flows have occurred. The Firms cash
flow estimates take into account expectations of relevant market and economic data as of the end of
the reporting period including, for example, for securities issued in a securitization,
underlying loan-level data, and structural features of the securitization, such as subordination,
excess spread, overcollateralization or other forms of credit enhancement. The Firm compares the
losses projected for the underlying collateral (pool losses) against the level of credit
enhancement in the securitization structure to determine whether these features are sufficient to
absorb the pool losses, or whether a credit loss on the AFS debt security exists. The Firm also
performs other analyses to support its cash flow projections, such as first-loss analyses or stress
scenarios. For debt securities, the Firm considers a decline in fair value to be
other-than-temporary when the Firm does not expect to recover the entire amortized cost basis of
the security, including, as applicable under EITF Issue 99-20, when an adverse change in cash flows
has occurred. The Firm applies EITF Issue 99-20 to beneficial interests in securitizations that are
rated below AA at acquisition, or that can be contractually prepaid or otherwise settled in such
a way that the Firm would not recover substantially all of its recorded investment. For equity
securities, the Firm considers the above factors, as well as the Firms intent and ability to
retain its investment for a period of time sufficient to allow for any anticipated recovery in
market value, and whether evidence exists to support a realizable value equal to or greater than
the carrying value. The Firm considers a decline in fair value of AFS equity securities to be
other-than-temporary if it is probable that the Firm will not recover its amortized cost basis.
The
following table presents unrealized losses that are included in securities gains and losses
above.
|
|
|
|
|
|
|
|
|
June 30, 2009 (in millions) |
|
Three months ended |
|
Six months ended |
|
Debt securities the Firm does not intend to sell with credit losses |
|
|
|
|
|
|
|
|
|
Total unrealized losses |
|
$ |
(880 |
) |
|
$ |
(880 |
) |
Unrealized
losses not related to credit |
|
|
696 |
|
|
|
696 |
|
|
Unrealized credit losses recognized in income(a) |
|
|
(184 |
) |
|
|
(184 |
) |
|
Unrealized losses recognized in income on debt securities
the Firm intends to sell |
|
|
(2 |
) |
|
|
(7 |
) |
|
Total unrealized losses recognized in income |
|
$ |
(186 |
) |
|
$ |
(191 |
) |
|
|
|
|
(a) |
|
Represents the credit loss component of certain prime mortgage-backed securities and
obligations of U.S. states and municipalities that the Firm does not intend to sell.
|
131
Since the first quarter of 2008, the Firm has increased its investment securities positions.
Many of these securities were purchased at discounts to par, given the significant liquidity
constraints in the market. The timing and prices at which the Firm acquired its investments have
resulted in the majority of unrealized losses existing for less than 12 months. Based on the
analyses described above, which have been applied to these securities, the Firm believes that the
unrealized losses that it does not consider to be other-than-temporary result from liquidity
conditions in the current market environment. As of June 30, 2009, the Firm does not intend to sell
the securities with a loss position in AOCI, and it is not likely that the Firm will be required to
sell these securities before recovery of their amortized cost basis. As a result, except for the
securities reported in the table above for which credit losses have been recognized in income, the
Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily
impaired as of June 30, 2009.
Following is a description of the Firms main security investments and the key assumptions used in
its estimate of the present value of the cash flows most likely to be collected from those
investments.
Mortgage-backed securities U.S. government agencies
As of June 30, 2009, gross unrealized losses on mortgage-backed securities related to U.S. agencies
were $866 million, of which $18 million related to securities that have been in an unrealized loss
position for longer than 12 months. These mortgage-backed securities do not have any credit losses,
given the explicit and implicit guarantees provided by the U.S. federal government.
Mortgage-backed securities Prime and Alt-A non-agency
As of June 30, 2009, gross unrealized losses related to prime and Alt-A mortgage-backed securities
issued by private issuers were $1.7 billion, of which $1.3 billion related to securities that have
been in an unrealized loss position for longer than 12 months. Approximately one-third of these positions are
currently rated AAA. Approximately half of the amortized cost of the investments in prime
and Alt-A mortgage-backed securities have experienced downgrades and approximately one-third of the
amortized cost of investments in prime and Alt-A mortgage-backed securities are currently rated
below investment grade. Despite the downgrades experienced, the portfolio generally continues
to possess credit enhancement levels sufficient to support the Firms investment. However, the Firm
has recognized $66 million of OTTIs in earnings for securities that have experienced increased
delinquency rates associated with specific collateral types and origination dates. In analyzing
prime and Alt-A residential mortgage-backed securities for potential credit losses, the key inputs
to the Firms cash flow projections were estimated peak-to-trough home price declines of up to 44%
and an unemployment rate of 10.3%. The Firms cash flow projections assumed liquidation rates of
75% to 100% and loss severities of 45% to 55%, depending on the underlying collateral type and
seasoning.
Mortgage-backed securities Subprime
As of June 30, 2009, there were no gross unrealized losses related to subprime residential
mortgage-backed securities (RMBS) in an unrealized loss position. During the three and six months
ended June 30, 2009, the Firm recorded losses of $2 million and $7 million, respectively, on
subprime RMBS based on the Firms intent to sell. In addition, the Firm realized losses of $17
million and $28 million, respectively, on sales of subprime RMBS during the three and six months
ended June 30, 2009.
Mortgage-backed securities Commercial
As of June 30, 2009, gross unrealized losses related to commercial mortgage-backed securities were
$510 million; none of the losses related to securities that were in an unrealized loss position for
longer than 12 months. Substantially all of the Firms commercial mortgage-backed securities are
rated AAA and possess, on average, 27% subordination (a form of credit enhancement for the
benefit of senior securities, expressed here as the percentage of pool losses that can occur before
an asset-backed security will incur its first dollar of principal loss). In considering whether
potential credit-related losses exist, the Firm conducted a scenario analysis, using high levels of
delinquencies and losses over the near term, followed by lower levels over the long term. Specific
assumptions included: (i) all loans more than 60 days delinquent will default; (ii) additional
default rates for the remaining portfolio forecasted to be up to 8% in the near term and 2% in the
long term; and (iii) loss severity assumptions ranging from 45% in the near term to 40% in later
years.
132
Asset-backed securities Credit card receivables
As of June 30, 2009, gross unrealized losses related to credit card receivables asset-backed
securities were $408 million, of which $379 million of the losses related to securities that were
in an unrealized loss position for longer than 12 months. Of the $408 million of unrealized losses
related to credit cardrelated asset-backed securities, $375 million relates to purchased credit
cardrelated asset-backed securities, and $33 million related to retained interests in the Firms
own credit card receivable securitizations. The credit cardrelated asset-backed securities
include AAA, AA, A and BBB ratings. One of the key metrics the Firm reviews for credit
card-related asset-backed securities is each trusts excess spread which is the credit
enhancement resulting from cash that remains each month after payments are made to investors for
principal and interest, and to servicers for servicing fees, and after credit losses are allocated.
The average excess spread for the issuing trusts in which the Firm holds interests ranges from 1%
to 6%. The Firm uses internal models to project the cash flows that impact excess spread. For
retained interests, the Firm uses its own underlying loan data as well as available market
benchmarks. For purchased investments, the Firm uses available market benchmarks and trends to
support the assumptions used in the projections. In analyzing potential credit losses, the primary
assumptions are underlying charge-off rates, which range from 9% to 16% (charge-off rates consider
underlying assumptions such as unemployment rates and roll rates), payment rates of 11% to 22%, and
portfolio yields of 14% to 24%.
Asset-backed securities Collateralized debt and loan obligations
As of June 30, 2009, gross unrealized losses related to collateralized debt and loan obligations
were $547 million, of which $308 million related to securities that were in an unrealized loss
position for longer than 12 months. Substantially all of these securities are rated AAA and have
an average of 28% credit enhancement. Credit enhancement in collateralized loan obligations
(CLOs) is mainly composed of overcollateralization the excess of the par amount of collateral
over the par amount of securities. The key assumptions considered in analyzing potential credit
losses were underlying loan and debt security defaults and loss severity. Based on current default
trends, the Firm assumed collateral default rates of 15% in 2009, 12% in 2010 and 5% thereafter.
Further, loss severities were assumed to be 50% for loans and 80% for debt securities. Losses on
collateral were estimated to occur approximately 18 months after default.
133
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at June 30, 2009, of
JPMorgan Chases AFS and HTM securities by contractual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
|
|
Due after one |
|
Due after five |
|
|
|
|
By remaining maturity |
|
Due in one |
|
year through |
|
years through |
|
Due after |
|
|
(in millions) |
|
year or less |
|
five years |
|
ten years |
|
ten years(c) |
|
Total |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
29 |
|
|
$ |
1,308 |
|
|
$ |
8,467 |
|
|
$ |
188,170 |
|
|
$ |
197,974 |
|
Fair value |
|
|
30 |
|
|
|
1,333 |
|
|
|
7,998 |
|
|
|
187,676 |
|
|
|
197,037 |
|
Average yield(a) |
|
|
2.81 |
% |
|
|
2.99 |
% |
|
|
4.33 |
% |
|
|
4.76 |
% |
|
|
4.73 |
% |
U.S. Treasury and government agencies(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
541 |
|
|
$ |
26,141 |
|
|
$ |
8,028 |
|
|
$ |
230 |
|
|
$ |
34,940 |
|
Fair value |
|
|
541 |
|
|
|
26,176 |
|
|
|
7,734 |
|
|
|
227 |
|
|
|
34,678 |
|
Average yield(a) |
|
|
0.18 |
% |
|
|
2.42 |
% |
|
|
3.48 |
% |
|
|
5.95 |
% |
|
|
2.65 |
% |
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
132 |
|
|
$ |
419 |
|
|
$ |
5,492 |
|
|
$ |
6,043 |
|
Fair value |
|
|
|
|
|
|
137 |
|
|
|
422 |
|
|
|
5,447 |
|
|
|
6,006 |
|
Average yield(a) |
|
|
|
% |
|
|
4.23 |
% |
|
|
5.12 |
% |
|
|
4.43 |
% |
|
|
4.47 |
% |
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
5,587 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,587 |
|
Fair value |
|
|
5,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,603 |
|
Average yield(a) |
|
|
2.92 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
2.92 |
% |
Non-U.S. government debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
5,015 |
|
|
$ |
8,160 |
|
|
$ |
897 |
|
|
$ |
2,149 |
|
|
$ |
16,221 |
|
Fair value |
|
|
5,024 |
|
|
|
8,286 |
|
|
|
890 |
|
|
|
2,151 |
|
|
|
16,351 |
|
Average yield(a) |
|
|
1.53 |
% |
|
|
2.57 |
% |
|
|
3.73 |
% |
|
|
2.29 |
% |
|
|
2.28 |
% |
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
3,484 |
|
|
$ |
43,527 |
|
|
$ |
603 |
|
|
$ |
212 |
|
|
$ |
47,826 |
|
Fair value |
|
|
3,547 |
|
|
|
43,895 |
|
|
|
618 |
|
|
|
216 |
|
|
|
48,276 |
|
Average yield(a) |
|
|
2.41 |
% |
|
|
2.45 |
% |
|
|
6.28 |
% |
|
|
6.94 |
% |
|
|
2.52 |
% |
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
12,668 |
|
|
$ |
9,209 |
|
|
$ |
8,447 |
|
|
$ |
5,596 |
|
|
$ |
35,920 |
|
Fair value |
|
|
12,732 |
|
|
|
9,044 |
|
|
|
8,290 |
|
|
|
5,549 |
|
|
|
35,615 |
|
Average yield(a) |
|
|
2.01 |
% |
|
|
1.89 |
% |
|
|
1.87 |
% |
|
|
2.23 |
% |
|
|
1.98 |
% |
|
Total available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
27,324 |
|
|
$ |
88,477 |
|
|
$ |
26,861 |
|
|
$ |
201,849 |
|
|
$ |
344,511 |
|
Fair value |
|
|
27,477 |
|
|
|
88,871 |
|
|
|
25,952 |
|
|
|
201,266 |
|
|
|
343,566 |
|
Average yield(a) |
|
|
2.12 |
% |
|
|
2.41 |
% |
|
|
3.34 |
% |
|
|
4.66 |
% |
|
|
3.78 |
% |
|
Available-for-sale equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,873 |
|
|
$ |
1,873 |
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,968 |
|
|
|
1,968 |
|
Average yield(a) |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
0.34 |
% |
|
|
0.34 |
% |
|
Total available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
27,324 |
|
|
$ |
88,477 |
|
|
$ |
26,861 |
|
|
$ |
203,722 |
|
|
$ |
346,384 |
|
Fair value |
|
|
27,477 |
|
|
|
88,871 |
|
|
|
25,952 |
|
|
|
203,234 |
|
|
|
345,534 |
|
Average yield(a) |
|
|
2.12 |
% |
|
|
2.41 |
% |
|
|
3.34 |
% |
|
|
4.62 |
% |
|
|
3.76 |
% |
|
|
Total held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
27 |
|
|
$ |
2 |
|
|
$ |
29 |
|
Fair value |
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
2 |
|
|
|
31 |
|
Average yield(a) |
|
|
|
% |
|
|
|
% |
|
|
6.89 |
% |
|
|
6.46 |
% |
|
|
6.85 |
% |
|
|
|
|
(a) |
|
The average yield was based on amortized cost balances at the end of the period and does
not give effect to changes in fair value that are reflected in accumulated other comprehensive
income (loss). Yields are derived by dividing interest/dividend income (including the effect
of related derivatives on available-for-sale securities and the amortization of premiums and
accretion of discounts) by total amortized cost. Taxable-equivalent yields are used where
applicable. |
|
(b) |
|
U.S. government agencies and U.S. government-sponsored enterprises were the only issuers
whose securities exceeded 10% of JPMorgan Chases total stockholders equity at June 30, 2009. |
|
(c) |
|
Includes securities with no stated maturity. Substantially all of the Firms mortgage-backed
securities and collateralized mortgage obligations are due in 10 years or more, based on
contractual maturity. The estimated duration, which reflects anticipated future prepayments
based on a consensus of dealers in the market, is approximately five years for nonagency
mortgage-backed securities and three years for collateralized mortgage obligations. |
134
NOTE 12 SECURITIES FINANCING ACTIVITIES
For a discussion of accounting policies relating to securities financing activities, see Note 13 on
pages 162-163 of JPMorgan Chases 2008 Annual Report. For further information regarding securities
borrowed and securities lending agreements for which the SFAS 159 fair value option has been
elected, see Note 4 on pages 114-116 of this Form 10-Q.
The following table details the components of collateralized financings.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Securities purchased under resale agreements(a)
|
|
$ |
158,861 |
|
|
$ |
200,265 |
|
Securities borrowed(b)
|
|
|
129,263 |
|
|
|
124,000 |
|
|
Securities sold under repurchase agreements(c)
|
|
$ |
287,092 |
|
|
$ |
174,456 |
|
Securities loaned
|
|
|
6,403 |
|
|
|
6,077 |
|
|
|
|
|
(a) |
|
Includes resale agreements of $19.0 billion and $20.8 billion accounted for at fair value
at June 30, 2009, and December 31, 2008, respectively. |
|
(b) |
|
Includes securities borrowed of $3.4 billion accounted for at fair value at both June 30,
2009, and December 31, 2008. |
|
(c) |
|
Includes repurchase agreements of $3.0 billion accounted for at fair value at both June 30,
2009, and December 31, 2008. |
JPMorgan Chase pledges certain financial instruments it owns to collateralize repurchase
agreements and other securities financings. Pledged securities that can be sold or repledged by the
secured party are identified as financial instruments owned (pledged to various parties) on the
Consolidated Balance Sheets.
At June 30, 2009, the Firm received securities as collateral that could be repledged, delivered or
otherwise used with a fair value of approximately $597.5 billion. This collateral was generally
obtained under resale or securities-borrowing agreements. Of these securities, approximately $435.6
billion were repledged, delivered or otherwise used, generally as collateral under repurchase
agreements, securities lending agreements or to cover short sales.
NOTE 13 LOANS
The accounting for a loan is based on whether it is originated or purchased, and whether the loan
is used in an investing or trading strategy. The measurement framework for loans in the
Consolidated Financial Statements is one of the following:
|
|
At the principal amount outstanding, net of the allowance for loan losses, unearned income
and any net deferred loan fees or costs, for loans held-for-investment (other than purchased
credit-impaired loans); |
|
|
At the lower of cost or fair value, with valuation changes recorded in noninterest revenue,
for loans that are classified as held-for-sale; |
|
|
At fair value, with changes in fair value recorded in noninterest revenue, for loans
classified as trading assets or risk managed on a fair value basis; or |
|
|
Purchased credit-impaired loans held-for-investment are accounted for under SOP 03-3 and
initially measured at fair value, which includes estimated future credit losses. Accordingly,
an allowance for loan losses related to these loans is not recorded at the acquisition date. |
For a
detailed discussion of accounting policies relating to loans, see Note 14 on pages 163-166
of JPMorgan Chases 2008 Annual Report. See Note 4 on pages 114-116 of this Form 10-Q for further
information on the Firms elections of fair value accounting under SFAS 159. See Note 3 on pages
99-114 of this Form 10-Q for further information on loans carried at fair value and classified as
trading assets.
135
The composition of the Firms aggregate loan portfolio at each of the dates indicated was as
follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
U.S. wholesale loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
59,096 |
|
|
$ |
68,709 |
|
Real estate |
|
|
61,754 |
|
|
|
64,214 |
|
Financial institutions |
|
|
18,083 |
|
|
|
20,615 |
|
Government agencies |
|
|
5,826 |
|
|
|
5,918 |
|
Other |
|
|
24,619 |
|
|
|
22,330 |
|
Loans held-for-sale and at fair value |
|
|
2,826 |
|
|
|
4,990 |
|
|
Total U.S. wholesale loans |
|
|
172,204 |
|
|
|
186,776 |
|
|
Non-U.S. wholesale loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
24,052 |
|
|
|
27,941 |
|
Real estate |
|
|
2,871 |
|
|
|
2,667 |
|
Financial institutions |
|
|
10,173 |
|
|
|
16,381 |
|
Government agencies |
|
|
688 |
|
|
|
603 |
|
Other |
|
|
16,918 |
|
|
|
18,711 |
|
Loans held-for-sale and at fair value |
|
|
4,719 |
|
|
|
8,965 |
|
|
Total non-U.S. wholesale loans |
|
|
59,421 |
|
|
|
75,268 |
|
|
Total wholesale loans:(a) |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
83,148 |
|
|
|
96,650 |
|
Real estate(b) |
|
|
64,625 |
|
|
|
66,881 |
|
Financial institutions |
|
|
28,256 |
|
|
|
36,996 |
|
Government agencies |
|
|
6,514 |
|
|
|
6,521 |
|
Other |
|
|
41,537 |
|
|
|
41,041 |
|
Loans held-for-sale and at fair value(c) |
|
|
7,545 |
|
|
|
13,955 |
|
|
Total wholesale loans |
|
|
231,625 |
|
|
|
262,044 |
|
|
Total consumer loans:(d) |
|
|
|
|
|
|
|
|
Home equity |
|
|
108,229 |
|
|
|
114,335 |
|
Prime mortgage |
|
|
68,878 |
|
|
|
72,266 |
|
Subprime mortgage |
|
|
13,825 |
|
|
|
15,330 |
|
Option ARMs |
|
|
9,034 |
|
|
|
9,018 |
|
Auto loans |
|
|
42,887 |
|
|
|
42,603 |
|
Credit card(e)(f) |
|
|
85,736 |
|
|
|
104,746 |
|
Other |
|
|
33,041 |
|
|
|
33,715 |
|
Loans held-for-sale(g) |
|
|
1,940 |
|
|
|
2,028 |
|
|
Total consumer loans excluding purchased
credit-impaired loans |
|
|
363,570 |
|
|
|
394,041 |
|
|
Consumer loans purchased credit-impaired loans |
|
|
85,406 |
|
|
|
88,813 |
|
|
Total consumer loans |
|
|
448,976 |
|
|
|
482,854 |
|
|
Total loans(h) |
|
$ |
680,601 |
|
|
$ |
744,898 |
|
|
|
|
|
(a) |
|
Includes Investment Bank, Commercial Banking, Treasury & Securities Services and Asset
Management. |
|
(b) |
|
Represents credits extended for real estate-related purposes to borrowers who are
primarily in the real estate development or investment businesses, and which the repayment
is predominantly from the sale, lease, management, operations or refinancing of the
property. |
|
(c) |
|
Includes loans for commercial & industrial, real estate, financial institutions and other
of $5.5 billion, $334 million, $701 million and $1.0 billion, respectively, at June 30,
2009, and $11.0 billion, $428 million, $1.5 billion and $995 million, respectively, at
December 31, 2008. |
|
(d) |
|
Includes Retail Financial Services, Card Services and the Corporate/Private Equity segment. |
|
(e) |
|
Includes billed finance charges and fees net of an allowance for uncollectible amounts. |
|
(f) |
|
Includes $5.0 billion of loans at June 30, 2009, from the Washington Mutual Master Trust,
which were consolidated onto the Firms balance sheet at fair value during the second
quarter of 2009. See Note 15 on pages 139-147 of this Form 10-Q. |
|
(g) |
|
Includes loans for prime mortgage and other (largely student loans) of $589 million and
$1.4 billion, respectively, at June 30, 2009, and $206 million and $1.8 billion,
respectively, at December 31, 2008. |
|
(h) |
|
Loans (other than purchased loans and those for which the SFAS 159 fair value option has been elected) are presented net of $574 million and $694 million of unearned income and net deferred loan costs at June 30, 2009, and December 31, 2008, respectively. |
The following table reflects information about the Firms loan sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Net gains/(losses) on sales
of loans (including lower
of cost or fair value
adjustments)(a) |
|
$ |
306 |
|
|
$ |
(335 |
) |
|
$ |
13 |
|
|
$ |
(952 |
) |
|
|
|
|
(a) |
|
Excludes sales related to loans accounted for at fair value. |
136
Purchased credit-impaired loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain loans that it
deemed to be credit-impaired under SOP 03-3. For a detailed discussion of purchased credit-impaired
loans, including accounting policies, see Note 14 on pages 163-166 of JPMorgan Chases 2008 Annual
Report.
Purchased credit-impaired loans are reported in loans on the Firms Consolidated Balance Sheets.
The allowance for loan losses, if required, would be reported as a reduction of the carrying amount
of the loans. No allowance for loan losses has been recorded for these loans as of June 30, 2009.
The outstanding balance and the carrying amount of the purchased credit-impaired consumer loans
were as follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Outstanding balance(a)
|
|
$ |
110,793 |
|
|
$ |
118,180 |
|
Carrying amount
|
|
|
85,406 |
|
|
|
88,813 |
|
|
|
|
|
(a) |
|
Represents the sum of contractual principal, interest and fees earned at the reporting
date. |
The accretable yield represents the excess of cash flows expected to be collected over the
fair value of the purchased credit-impaired loans. This amount is not reported on the Firms
Consolidated Balance Sheets, but is accreted into interest income at a level rate of return over
the expected lives of the underlying loans. For variable rate loans, expected future cash flows
were initially based on the rate in effect at acquisition; expected future cash flows are
recalculated as rates change over the lives of the loans.
The table below sets forth the accretable yield activity for purchased credit-impaired consumer
loans for the three and six months ended June 30, 2009.
|
|
|
|
|
|
|
|
|
Accretable yield activity |
|
|
|
|
(in millions) |
|
Three months ended June 30, 2009 |
|
Six months ended June 30, 2009(a) |
|
Balance at the beginning of the period |
|
$ |
29,114 |
|
|
$ |
32,619 |
|
Accretion into interest income |
|
|
(1,106 |
) |
|
|
(2,365 |
) |
Changes in interest rates on variable-rate loans |
|
|
(1,045 |
) |
|
|
(3,291 |
) |
|
Balance, June 30, 2009 |
|
$ |
26,963 |
|
|
$ |
26,963 |
|
|
|
|
|
(a) |
|
During the first quarter of 2009, the Firm continued to refine its model to estimate future
cash flows for its purchased credit-impaired consumer loans, which resulted in an adjustment
of the initial estimate of cash flows expected to be collected. These refinements, which
primarily affected the amount of undiscounted-interest cash flows expected to be received over
the life of the loans, resulted in a $6.1 billion increase in cash flows expected to be
collected. However, on a discounted basis, these refinements did not have a material impact on
the fair value of the purchased credit-impaired loans as of the September 25, 2008,
acquisition date; nor did they have a material impact on the amount of interest income
recognized in the Firms Consolidated Statements of Income since that date. |
Other impaired loans
For a detailed discussion of impaired loans, including types of impaired loans, certain troubled
debt restructurings and accounting policies relating to the interest income on these loans, see
Note 14 on pages 163-166 of JPMorgan Chases 2008 Annual Report.
The tables below set forth information about JPMorgan Chases impaired loans, excluding credit
card loans, which are discussed below. The Firm primarily uses the discounted cash flow method for
valuing impaired loans.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Impaired loans with an allowance: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
5,273 |
|
|
$ |
2,026 |
|
Consumer(a) |
|
|
3,751 |
|
|
|
2,252 |
|
|
Total impaired loans with an allowance |
|
|
9,024 |
|
|
|
4,278 |
|
|
Impaired loans without an allowance:(b) |
|
|
|
|
|
|
|
|
Wholesale |
|
|
266 |
|
|
|
62 |
|
Consumer(a) |
|
|
|
|
|
|
|
|
|
Total impaired loans without an allowance |
|
|
266 |
|
|
|
62 |
|
|
Total impaired loans |
|
$ |
9,290 |
|
|
$ |
4,340 |
|
|
Allowance for impaired loans under SFAS 114: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
2,108 |
|
|
$ |
712 |
|
Consumer(a) |
|
|
801 |
|
|
|
379 |
|
|
Total allowance for impaired loans under SFAS 114(c) |
|
$ |
2,909 |
|
|
$ |
1,091 |
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Average balance of impaired loans during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
4,375 |
|
|
$ |
747 |
|
|
$ |
3,639 |
|
|
$ |
683 |
|
Consumer(a) |
|
|
3,479 |
|
|
|
962 |
|
|
|
3,042 |
|
|
|
837 |
|
|
Total impaired loans |
|
$ |
7,854 |
|
|
$ |
1,709 |
|
|
$ |
6,681 |
|
|
$ |
1,520 |
|
|
Interest income recognized on impaired loans during
the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Consumer(a) |
|
|
37 |
|
|
|
13 |
|
|
|
67 |
|
|
|
21 |
|
|
Total interest income recognized on impaired
loans during the period |
|
$ |
37 |
|
|
$ |
13 |
|
|
$ |
67 |
|
|
$ |
21 |
|
|
|
|
|
(a) |
|
Excludes credit card loans. |
|
(b) |
|
When the discounted cash flows, collateral value or market price equals or exceeds the
carrying value of the loan, then the loan does not require an allowance under SFAS 114. |
|
(c) |
|
The allowance for impaired loans under SFAS 114 is included in JPMorgan Chases allowance for
loan losses. The allowance for certain consumer-impaired loans has been categorized in the
allowance for loan losses as formula-based. |
Included in the table above are consumer loans, excluding credit card loans, that have been
modified in a troubled debt restructuring, with balances of approximately $3.1 billion and $1.8
billion as of June 30, 2009, and December 31, 2008, respectively.
For detailed discussion of modification of the terms of credit card loan agreements, see Note 14 on
pages 163-166 of JPMorgan Chases 2008 Annual Report. At June 30, 2009, and December 31, 2008, the
Firm modified $3.7 billion and $2.4 billion, respectively, of onbalance sheet credit card loans
outstanding.
During the first quarter of 2009, the U.S. Treasury introduced the Making Home Affordable Plan
(MHA), which includes programs designed to assist eligible homeowners by modifying the terms of
their mortgages. The Firm is participating in MHA while continuing to expand its other
loss-mitigation efforts for financially stressed borrowers who do not qualify for the MHA programs.
MHA and the Firms other loss mitigation programs generally represent various forms of term
extensions, rate reductions and forbearances provided to financially troubled borrowers. Under
these programs, borrowers must make three payments during a 90-day trial modification period and be
successfully re-underwritten with income verification, before their loan is officially deemed to be
modified. Upon formal modification, the loan is generally accounted for as a troubled debt
restructuring.
For purchased credit-impaired loans, the impact of the modification is incorporated into
the Firms quarterly assessment of whether a probable and/or significant change in estimated future
cash flows has occurred and the loans continue to be reported as purchased credit-impaired loans.
As of June 30, 2009, approximately 26,000 approved trial mortgage modifications
with an unpaid principal balance of $8.3 billion were included
on the Firms balance sheet. Approximately $4.6 billion of these loans were included in the Firms
purchased credit impaired loan portfolio.
138
NOTE 14 ALLOWANCE FOR CREDIT LOSSES
For further discussion of the allowance for credit losses and the related accounting policies, see
Note 15 on pages 166-168 of JPMorgan Chases 2008 Annual Report.
The table below summarizes the changes in the allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Allowance for loan losses at January 1 |
|
$ |
23,164 |
|
|
$ |
9,234 |
|
Gross charge-offs |
|
|
10,937 |
|
|
|
4,524 |
|
Gross (recoveries) |
|
|
(522 |
) |
|
|
(488 |
) |
|
Net charge-offs |
|
|
10,415 |
|
|
|
4,036 |
|
Provision for loan losses |
|
|
16,540 |
|
|
|
8,043 |
|
Other(a) |
|
|
(217 |
) |
|
|
5 |
|
|
Allowance for loan losses at June 30 |
|
$ |
29,072 |
|
|
$ |
13,246 |
|
|
Components: |
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
2,240 |
|
|
$ |
235 |
|
Formula-based |
|
|
26,832 |
|
|
|
13,011 |
|
|
Total allowance for loan losses |
|
$ |
29,072 |
|
|
$ |
13,246 |
|
|
|
|
|
(a) |
|
Other predominantly includes a reclassification in 2009 related to the issuance and
retention of securities from the Chase Issuance Trust. See Note 15 on
pages 139-147 of
this Form 10-Q. |
The table below summarizes the changes in the allowance for lending-related commitments.
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
Allowance for lending-related commitments at January 1 |
|
$ |
659 |
|
|
$ |
850 |
|
Provision for lending-related commitments |
|
|
87 |
|
|
|
(164 |
) |
|
Allowance for lending-related commitments at June 30 |
|
$ |
746 |
|
|
$ |
686 |
|
|
Components: |
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
111 |
|
|
$ |
16 |
|
Formula-based |
|
|
635 |
|
|
|
670 |
|
|
Total allowance for lending-related commitments |
|
$ |
746 |
|
|
$ |
686 |
|
|
NOTE 15 LOAN SECURITIZATIONS
For a discussion of the accounting policies relating to loan securitizations, see Note 16 on pages
168-176 of JPMorgan Chases 2008 Annual Report. JPMorgan Chase securitizes and sells a variety of
loans, including residential mortgage, credit card, automobile, student, and commercial (primarily
related to real estate) loans. JPMorgan Chasesponsored securitizations use special-purpose
entities (SPEs) as part of the securitization process. These SPEs are structured to meet the
definition of a qualifying special-purpose entity (QSPE) (for a further discussion, see Note 1 on
page 122 of JPMorgan Chases 2008 Annual Report); accordingly, the assets and liabilities of
securitization-related QSPEs are not reflected on the Firms Consolidated Balance Sheets (except
for retained interests, as described below). The primary purposes of these securitization vehicles
are to meet investor needs and to generate liquidity for the Firm through the sale of loans to the
QSPEs, which are financed through the issuance of fixed- or floating-rate asset-backed securities.
139
The following table presents the total unpaid principal amount of assets held in JPMorgan
Chasesponsored securitization entities, for which sale accounting was achieved and to which the
Firm has continuing involvement, at June 30, 2009, and December 31, 2008. Continuing involvement
includes servicing the loans, holding senior or subordinated interests, recourse or guarantee
arrangements and derivative transactions. In certain instances, the Firms only continuing
involvement is servicing the loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount outstanding |
|
JPMorgan Chase interest in securitized assets(e)(f)(g)(h) |
|
|
|
|
|
|
Assets held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in QSPEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interests |
June 30, 2009 |
|
Total assets held by |
|
with continuing |
|
Trading |
|
AFS |
|
|
|
|
|
Other |
|
held by |
(in billions) |
|
Firm-sponsored QSPEs |
|
involvement |
|
assets(i) |
|
securities(i) |
|
Loans |
|
assets(i) |
|
JPMorgan Chase |
|
Securitization-related: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
101.7 |
|
|
$ |
101.7 |
(d) |
|
$ |
0.2 |
|
|
$ |
14.3 |
|
|
$ |
10.5 |
|
|
$ |
8.2 |
|
|
$ |
33.2 |
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime(a) |
|
|
211.3 |
|
|
|
194.8 |
|
|
|
1.1 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Subprime |
|
|
55.1 |
|
|
|
48.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Option ARMs |
|
|
45.3 |
|
|
|
45.3 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Commercial and other(b) |
|
|
159.6 |
|
|
|
32.7 |
|
|
|
1.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
Student loans |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Auto |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(c) |
|
$ |
574.4 |
|
|
$ |
424.0 |
|
|
$ |
2.9 |
|
|
$ |
15.7 |
|
|
$ |
10.5 |
|
|
$ |
8.3 |
|
|
$ |
37.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount outstanding |
|
JPMorgan Chase interest in securitized assets(e)(f)(g)(h) |
|
|
|
|
|
|
Assets held |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in QSPEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interests |
December 31, 2008 |
|
Total assets held by |
|
with continuing |
|
Trading |
|
AFS |
|
|
|
|
|
Other |
|
held by |
(in billions) |
|
Firm-sponsored QSPEs |
|
involvement |
|
assets(i) |
|
securities(i) |
|
Loans |
|
assets(i) |
|
JPMorgan Chase |
|
Securitization-related: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
121.6 |
|
|
$ |
121.6 |
(d) |
|
$ |
0.5 |
|
|
$ |
5.6 |
|
|
$ |
33.3 |
|
|
$ |
5.6 |
|
|
$ |
45.0 |
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime(a) |
|
|
233.9 |
|
|
|
212.3 |
|
|
|
1.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
Subprime |
|
|
61.0 |
|
|
|
58.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Option ARMs |
|
|
48.3 |
|
|
|
48.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
Commercial and other(b) |
|
|
174.1 |
|
|
|
45.7 |
|
|
|
2.0 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
Student loans |
|
|
1.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Auto |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(c) |
|
$ |
640.8 |
|
|
$ |
488.4 |
|
|
$ |
4.3 |
|
|
$ |
7.2 |
|
|
$ |
33.3 |
|
|
$ |
5.7 |
|
|
$ |
50.5 |
|
|
|
|
|
(a) |
|
Includes Alt-A loans. |
|
(b) |
|
Consists of securities backed by commercial loans (predominantly real estate) and
non-mortgage-related consumer receivables purchased from third parties. The Firm generally
does not retain a residual interest in its sponsored commercial mortgage securitization
transactions. Includes co-sponsored commercial securitizations and, therefore, includes
nonJPMorgan Chaseoriginated commercial mortgage loans. |
|
(c) |
|
Includes securitized loans where the Firm owns less than a majority of the subordinated or
residual interests in the securitizations. |
|
(d) |
|
Includes credit card loans, accrued interest and fees, and cash amounts on deposit. |
|
(e) |
|
Excludes retained servicing (for a discussion of MSRs, see
Note 17 on pages 154-155 of this
Form 10-Q). |
|
(f) |
|
Excludes senior and subordinated securities of $1.2 billion and $974 million at June 30,
2009, and December 31, 2008, respectively, that the Firm purchased in connection with IBs
secondary market-making activities. |
|
(g) |
|
Includes investments acquired in the secondary market, but predominantly held-for-investment
purposes, of $1.5 billion and $1.8 billion as of June 30, 2009, and December 31, 2008,
respectively. This is comprised of $1.3 billion and $1.4 billion of investments classified as
available-for-sale, including $1.2 billion and $172 million in credit cards, $19 million and
$693 million of residential mortgages, and zero and $495 million of commercial and other; and
$241 million and $452 million of investments classified as trading, including $156 million and
$112 million of credit cards, $83 million and $303 million of residential mortgages, and $2
million and $37 million of commercial and other, all respectively at June 30, 2009, and
December 31, 2008. |
|
(h) |
|
Excludes interest rate and foreign exchange derivatives primarily used to manage the interest
rate and foreign exchange risks of the securitization entities. See
Note 5 on pages 116-124
of this Form 10-Q for further information on derivatives. |
|
(i) |
|
Certain of the Firms retained interests are reflected at their fair values. |
140
Securitization activity by major product type
The following discussion describes the nature of the Firms securitization activities by major
product type.
Credit card securitizations
Overview
The Card Services (CS) business securitizes originated and purchased credit card loans, primarily
through the Chase Issuance Trust (the Trust). The Firms primary continuing involvement after
securitization includes servicing the receivables, retaining an undivided sellers interest in the
receivables, retaining certain senior and subordinated securities and maintaining escrow accounts.
CS maintains servicing responsibilities for all credit card securitizations that it sponsors. As
servicer and transferor, the Firm receives contractual servicing fees based on the securitized loan
balance plus excess servicing fees, which are recorded in credit card income as discussed in Note 6
on page 125 of this Form 10-Q. The Firm acquired the sellers interest in the Washington Mutual
Master Trust (the WMM Trust) and became its sponsor in connection with the Washington Mutual
transaction. For further discussion of credit card securitizations, see Note 16 on pages 169170 of
JPMorgan Chases 2008 Annual Report.
Actions taken in the second quarter of 2009
During the quarter ended June 30, 2009, the overall
performance of the Firms credit card securitization trusts
declined primarily due to the increase in credit losses
incurred on the underlying credit card receivables.
Trust: The
Chase Issuance Trust (the Firms primary issuance trust), which
holds prime quality credit card receivables, maintained positive
excess spread, a key metric for evaluating the performance of a
credit card trust, through the first six months of 2009. However,
given market uncertainty concerning projected credit costs in the
credit card industry, and to mitigate any further deterioration in the performance of the Trust, the Firm took
certain actions, as permitted by the Trust agreements, to enhance the performance of the Trust. On
May 12, 2009, the Firm increased the required credit enhancement level for each tranche of
outstanding notes issued by the Trust by increasing the minimum required amount
of subordinated notes and the funding requirements for the Trusts cash escrow accounts.
On June 1, 2009, the Firm began designating as discount receivables a percentage of new credit
card receivables for inclusion in the Trust, thereby requiring collections of such discounted
receivables to be applied as finance charge collections in the Trust, which is expected to increase
the excess spread for the Trust. The Firm expects to discontinue designating a percentage of new
receivables as discount receivables on July 1, 2010. Also, during the second quarter of 2009, the
Firm exchanged $3.5 billion of its undivided sellers interest in the Trust for $3.5 billion of
zero-coupon subordinated securities issued by the Trust and retained by the Firm. The issuance of
the zero-coupon securities by the Trust is also expected to increase the excess spread for the
Trust. These actions resulted in the addition of approximately $40 billion of risk-weighted assets
for regulatory capital purposes, which decreased the Firms Tier 1 capital ratio by
approximately 40 basis points, but did not have a material impact
on the Firms Consolidated Balance Sheets or results of
operations.
WMM Trust: At the time of the acquisition of the Washington Mutual banking operations, the assets of the
WMM Trust were comprised of Washington Mutual subprime credit card receivables. The quality of the
assets in the WMM Trust was much lower than the quality of the credit card receivables that
JPMorgan Chase has historically securitized in the public markets.
In order to more closely conform the WMM Trust to the overall quality typical of a JPMorgan
Chase-sponsored credit card securitization master trust, during the fourth quarter of 2008 the Firm
randomly removed $6.2 billion of credit card loans from the WMM Trust and replaced them with $5.8
billion of higher-quality receivables from the Firms portfolio.
However, as a result of continued deterioration during 2009 in the credit quality of the
remaining Washington Mutual-originated assets in the WMM Trust, the performance of the portfolio
indicated that an early amortization event was likely to occur unless additional actions were
taken. On May 15, 2009, JPMorgan Chase, as seller and servicer, and the Bank of New York Mellon, as
trustee, amended the pooling and servicing agreement to permit non-random removals of credit card
accounts. On May 19, 2009, the Firm removed all remaining credit card receivables originated by
Washington Mutual. Following this removal, the WMM Trust collateral was entirely comprised of
receivables originated by JPMorgan Chase. As a result of the actions taken by the Firm, the assets
and liabilities of the WMM Trust were consolidated on the balance sheet of JPMorgan Chase. As a
result, the Firm has recorded during the second quarter of 2009, additional assets with an initial
fair value of $6.0 billion, additional liabilities with an initial fair value of $6.1 billion, and
a pre-tax loss of approximately $64 million.
Retained interests in nonconsolidated credit card securitizations
Following
is a description of the Firms retained interests in credit card
securitizations that were not consolidated at the dates presented.
Accordingly, the Firmss retained interests in the WMM Trust are
included in the amounts reported at December 31, 2008, but are no
longer included at June 30, 2009, due to the second quarter actions
noted above. For further information regarding the WMM Trust assets
and liabilities, see Note 16 on pages 148-153 of this Form 10-Q.
The agreements with the credit card securitization trusts require the Firm to maintain a
minimum undivided interest in the trusts (which generally ranges from 4% to 12%). At June 30, 2009
and December 31, 2008, the Firm had $10.5 billion and $33.3 billion, respectively, related to its
undivided interests in the trusts. The Firm maintained an average undivided interest in principal
receivables in the trusts of approximately 18% for the six months ended June 30, 2009, and 22% for
the year ended December 31, 2008. These undivided interests in the trusts represent the Firms
interests in
141
the receivables transferred to the trust that have not been securitized; these undivided interests
are not represented by security certificates, are carried at historical cost and classified within
loans.
CS retained senior and subordinated securities in its credit card securitization trusts. The
senior securities totaled $7.2 billion and $3.5 billion at June 30, 2009 and December 31, 2008,
respectively, and the subordinated securities totaled $5.8 billion and $2.3 billion at June 30,
2009 and December 31, 2008, respectively. Of the securities retained, $13.0 billion and $5.4
billion were classified as AFS securities at June 30, 2009 and December 31, 2008, respectively. The
senior AFS securities were used by the Firm as collateral for a secured financing transaction. The
retained subordinated interests that were acquired in the Washington Mutual transaction and
classified as trading assets had a carrying value of
$389 million at December 31, 2008, and were subsequently
repaid or
valued at zero before being eliminated upon the consolidation of the WMM Trust. As
discussed above, the Firm consolidated the assets and liabilities of the WMM Trust in the second
quarter of 2009.
Credit card securitizations include escrow accounts up to predetermined limits to cover
deficiencies in cash flows owed to investors. Amounts in such escrow accounts were $964 million and
$74 million as of June 30, 2009 and December 31, 2008, respectively. The increase in the balance of
these escrow accounts primarily relates to the Trust actions described above that the Firm took on May
12, 2009. Additionally, the Firm has retained subordinated interests in accrued interest and fees
on the securitized receivables totaling $3.2 billion and $3.0 billion as of June 30, 2009 and
December 31, 2008, respectively. JPMorgan Chase has also recorded $241 million representing
receivables that have been transferred to the Trust and designated as discount receivables. All
of these residual interests are reported in other assets.
Mortgage securitizations
The Firm securitizes originated and purchased residential mortgages and originated commercial
mortgages.
RFS securitizes residential mortgage loans that it originates and purchases, and it typically
retains servicing for all of its originated and purchased residential mortgage loans. Additionally,
RFS may retain servicing for certain mortgage loans purchased by IB. As servicer, the Firm receives
servicing fees based on the securitized loan balance plus ancillary fees. The Firm also retains the
right to service the residential mortgage loans it sells to Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC) in accordance with their servicing guidelines and standards. For a discussion
of MSRs, see Note 17 on pages 154155 of this Form 10-Q. In a limited number of securitizations,
RFS may retain an interest in addition to servicing rights. The amount of interest retained related
to these securitizations totaled $397 million and $939 million at June 30, 2009, and December 31,
2008, respectively. These retained interests are accounted for as trading or AFS securities; the
classification depends on whether the retained interest is represented by a security certificate or
has an embedded derivative, and when it was retained (i.e., prior to the adoption of SFAS 155).
IB securitizes residential mortgage loans (including those that it purchased and certain mortgage
loans originated by RFS) and commercial mortgage loans that it originated. These loans are often
serviced by RFS. Upon securitization, IB may engage in underwriting and trading activities of the
securities issued by the securitization trust. IB may retain unsold senior and/or subordinated
interests (including residual interests) in both residential and commercial mortgage
securitizations at the time of securitization. These retained interests are accounted for at fair
value and classified as trading assets. The amount of residual interests retained was $46 million
and $155 million at June 30, 2009, and December 31, 2008, respectively. Additionally, IB retained
$2.4 billion and $2.8 billion of senior and subordinated interests as of June 30, 2009, and
December 31, 2008, respectively; these securities were retained in connection
with the Firms underwriting activities.
In addition to the amounts reported in the securitization activity tables below, the Firm sold
residential mortgage loans totaling $40.2 billion and $39.4 billion during the three months ended
June 30, 2009 and 2008, respectively, and $78.4 billion and $69.1 billion during the six months
ended June 30, 2009 and 2008, respectively. The majority of these loan sales were for
securitization by the GNMA, FNMA and FHLMC. These sales resulted in pretax gains (losses) of $34
million and $36 million during the three months ended June 30, 2009 and 2008, respectively, and $51
million and $26 million during the six months ended June 30, 2009 and 2008, respectively.
The Firms mortgage loan sales are primarily nonrecourse, thereby effectively transferring the risk
of future credit losses to the purchaser of the loans. However, for a limited number of loan sales,
the Firm is obligated to share up to 100% of the credit risk associated with the sold loans with
the purchaser. See Note 24 on pages 162163 of this Form 10-Q for additional information on loans
sold with recourse.
142
Other securitizations
The Firm also securitizes automobile and student loans originated by RFS and purchased consumer
loans (including automobile and student loans). The Firm retains servicing responsibilities for all
originated and certain purchased student and automobile loans. It may also hold a retained interest
in these securitizations; such residual interests are classified as other assets. At June 30, 2009,
and December 31, 2008, the Firm held $20 million and $37 million, respectively, of retained
interests in securitized automobile loan securitizations, and $52 million and $52 million,
respectively, of residual interests in securitized student loans.
Securitization activity
The following tables provide information related to the Firms securitization activities for the
three and six months ended June 30, 2009, and 2008. For the periods presented, there were no cash
flows from the Firm to the QSPEs related to recourse or guarantee arrangements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
Student |
|
|
otherwise noted) |
|
Credit card |
|
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
loans |
|
Auto |
|
Principal securitized |
|
$ |
12,495 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
12,495 |
(e)(g) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
314 |
|
|
|
111 |
|
|
|
41 |
|
|
|
118 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Other cash flows received(a) |
|
|
147 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
37,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred
financial assets
(or the underlying
collateral)(b) |
|
|
|
(h) |
|
|
35 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
77 |
|
|
|
210 |
|
|
|
8 |
|
|
|
16 |
|
|
|
34 |
|
|
|
3 |
|
|
|
2 |
|
|
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
Student |
|
|
otherwise noted) |
|
Credit card |
|
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
loans |
|
Auto |
|
Principal securitized |
|
$ |
10,760 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
662 |
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
10,759 |
(e) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
632 |
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
281 |
|
|
|
37 |
|
|
|
30 |
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
Other cash flows received(a) |
|
|
1,089 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in revolving
securitizations |
|
|
39,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred financial
assets (or the underlying collateral)(b) |
|
|
|
|
|
|
100 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Cash flows received on the interests that continue
to be held by the Firm(c) |
|
|
14 |
|
|
|
113 |
|
|
|
5 |
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
11 |
|
|
Key assumptions used to measure retained
interests originated during the year (rates per
annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
19.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
Student |
|
|
otherwise noted) |
|
Credit card |
|
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
loans |
|
Auto |
|
Principal securitized |
|
$ |
16,423 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
16,423 |
(e)(g) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
634 |
|
|
|
232 |
|
|
|
85 |
|
|
|
246 |
|
|
|
8 |
|
|
|
2 |
|
|
|
3 |
|
Other cash flows received(a) |
|
|
1,109 |
|
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
77,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
|
|
|
(h) |
|
|
76 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
137 |
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
145 |
|
|
|
364 |
|
|
|
13 |
|
|
|
64 |
|
|
|
158 |
|
|
|
3 |
|
|
|
13 |
|
|
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
16.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
Student |
|
|
otherwise noted) |
|
Credit card |
|
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
loans |
|
Auto |
|
Principal securitized |
|
$ |
15,305 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
662 |
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
15,304 |
(e) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
632 |
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
551 |
|
|
|
60 |
|
|
|
56 |
|
|
|
|
|
|
|
3 |
|
|
|
2 |
|
|
|
10 |
|
Other cash flows received(a) |
|
|
2,503 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
76,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
|
|
|
|
|
|
149 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149 |
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
17 |
|
|
|
158 |
|
|
|
14 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
24 |
|
|
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
19.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes excess servicing fees and other ancillary fees received. |
|
(b) |
|
Includes cash paid by the Firm to reacquire assets from
the QSPEs for example, servicer
clean-up calls. |
|
(c) |
|
Includes cash flows received on retained interests including, for example, principal
repayments and interest payments. |
|
(d) |
|
PPR: principal payment rate. |
|
(e) |
|
Includes $3.5 billion and $7.4 billion of securities retained by the Firm for the three and
six months ended June 30, 2009, respectively. $1.2 billion of securities were retained by the
Firm for both the three and six months ended June 30, 2008. |
|
(f) |
|
Includes Alt-A loans. |
|
(g) |
|
As required under the terms of the transaction documents, $513 million of proceeds from new
securitizations were deposited to cash escrow accounts during the three and six months ended
June 30, 2009. |
|
(h) |
|
Excludes activities related to the Washington Mutual Master Trust. For a description of the
activities, see page 141 of this Note. |
144
JPMorgan Chases interest in securitized assets held at fair value
The following table summarizes the Firms securitization interests, which are carried at fair value
on the Firms Consolidated Balance Sheets at June 30, 2009, and December 31, 2008, respectively.
The risk ratings are periodically reassessed as information becomes available. As of June 30, 2009,
and December 31, 2008, 60% and 55%, respectively, of the Firms retained securitization interests,
which are carried at fair value, were risk-rated A or better.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile of interests held(c)(d)(e) |
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Investment- |
|
Noninvestment- |
|
Total |
|
Investment- |
|
Noninvestment- |
|
Total |
(in billions) |
|
grade |
|
grade |
|
interests held |
|
grade |
|
grade |
|
interests held |
|
Asset types: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card(a) |
|
$ |
14.4 |
|
|
$ |
4.6 |
|
|
$ |
19.0 |
|
|
$ |
5.8 |
|
|
$ |
3.8 |
|
|
$ |
9.6 |
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime(b) |
|
|
1.0 |
|
|
|
0.7 |
|
|
|
1.7 |
|
|
|
2.0 |
|
|
|
0.4 |
|
|
|
2.4 |
|
Subprime |
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Option ARMs |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
Commercial and other |
|
|
2.0 |
|
|
|
0.2 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
0.3 |
|
|
|
2.5 |
|
Student loans |
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17.5 |
|
|
$ |
5.7 |
|
|
$ |
23.2 |
|
|
$ |
10.4 |
|
|
$ |
4.7 |
|
|
$ |
15.1 |
|
|
|
|
|
(a) |
|
Includes retained subordinated interests carried at fair value, including CSs accrued
interests and fees, escrow accounts, and other residual interests. Excludes undivided seller
interest in the trusts of $10.5 billion and $33.3 billion and unencumbered cash amounts on
deposit of $3.7 billion and $2.1 billion at June 30, 2009, and December 31, 2008,
respectively, which are carried at historical cost. |
|
(b) |
|
Includes Alt-A loans. |
|
(c) |
|
The ratings scale is presented on an S&P-equivalent basis. |
|
(d) |
|
Includes $1.5 billion and $1.8 billion of investments acquired in the secondary market, but
predominantly held for investment purposes, as of June 30, 2009, and December 31, 2008,
respectively. Of these amounts, $1.4 billion and $1.7 billion are classified as
investment-grade as of June 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Excludes senior and subordinated securities of $1.2 billion and $974 million at June 30,
2009, and December 31, 2008, respectively, that the Firm purchased in connection with IBs
secondary market-making activities. |
The table below outlines the key economic assumptions used at June 30, 2009, and December 31,
2008, to determine the fair value of certain of the Firms retained interests, other than MSRs,
that are valued using modeling techniques. The table below also outlines the sensitivities of those
fair values to immediate 10% and 20% adverse changes in assumptions used to determine fair value.
For a discussion of residential MSRs, see Note 17 on pages 154155 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009(a) |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except rates and where |
|
|
|
|
|
Residential mortgage |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(d) |
|
Subprime |
|
Option ARMs |
|
and other |
|
Student loans |
|
Auto loans |
|
JPMorgan Chase interests in securitized assets |
|
$ |
3,571 |
(c) |
|
$ |
1,638 |
|
|
$ |
50 |
|
|
$ |
132 |
|
|
$ |
2,213 |
|
|
$ |
55 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
7.4 |
|
|
|
2.4 |
|
|
|
6.7 |
|
|
|
3.7 |
|
|
|
8.1 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average prepayment rate(b) |
|
|
16.4 |
% |
|
|
8.7 |
% |
|
|
27.0 |
% |
|
|
10.0 |
% |
|
|
0.8 |
% |
|
|
5.0 |
% |
|
|
1.4 |
% |
|
|
PPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
ABS |
|
Impact of 10% adverse change |
|
$ |
(9 |
) |
|
$ |
(29 |
) |
|
$ |
(2 |
) |
|
$ |
(1 |
) |
|
$ |
(3 |
) |
|
$ |
(1 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(19 |
) |
|
|
(59 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average loss assumption |
|
|
9.3 |
% |
|
|
2.9 |
% |
|
|
2.3 |
% |
|
|
3.3 |
% |
|
|
1.6 |
% |
|
|
|
%(e) |
|
|
1.1 |
% |
Impact of 10% adverse change |
|
$ |
(83 |
) |
|
$ |
(17 |
) |
|
$ |
(5 |
) |
|
$ |
|
|
|
$ |
(37 |
) |
|
$ |
|
|
|
$ |
|
|
Impact of 20% adverse change |
|
|
(84 |
) |
|
|
(33 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
12.0 |
% |
|
|
13.2 |
% |
|
|
23.8 |
% |
|
|
12.9 |
% |
|
|
10.8 |
% |
|
|
9.0 |
% |
|
|
3.4 |
% |
Impact of 10% adverse change |
|
$ |
(7 |
) |
|
$ |
(49 |
) |
|
$ |
(2 |
) |
|
$ |
(2 |
) |
|
$ |
(41 |
) |
|
$ |
(2 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(14 |
) |
|
|
(93 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(78 |
) |
|
|
(4 |
) |
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except rates and |
|
|
|
|
|
Residential mortgage |
|
Commercial |
|
|
|
|
where otherwise noted |
|
Credit card |
|
Prime(d) |
|
Subprime |
|
Option ARMs |
|
and other |
|
Student loans |
|
Auto loans |
|
JPMorgan Chase interests in
securitized assets |
|
$ |
3,463 |
(c) |
|
$ |
1,420 |
|
|
$ |
68 |
|
|
$ |
436 |
|
|
$ |
1,966 |
|
|
$ |
55 |
|
|
$ |
40 |
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
5.3 |
|
|
|
1.5 |
|
|
|
7.3 |
|
|
|
3.5 |
|
|
|
8.2 |
|
|
|
0.7 |
|
|
Weighted-average prepayment
rate(b) |
|
|
16.6 |
% |
|
|
17.7 |
% |
|
|
25.1 |
% |
|
|
7.6 |
% |
|
|
0.7 |
% |
|
|
5.0 |
% |
|
|
1.3 |
% |
|
|
PPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
ABS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of 10% adverse change |
|
$ |
(42 |
) |
|
$ |
(31 |
) |
|
$ |
(5 |
) |
|
$ |
(4 |
) |
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(85 |
) |
|
|
(57 |
) |
|
|
(6 |
) |
|
|
(11 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average loss assumption |
|
|
7.0 |
% |
|
|
4.4 |
% |
|
|
3.4 |
% |
|
|
0.3 |
% |
|
|
0.3 |
%(e) |
|
|
|
%(e) |
|
|
0.5 |
% |
Impact of 10% adverse change |
|
$ |
(235 |
) |
|
$ |
(25 |
) |
|
$ |
(7 |
) |
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
|
|
|
$ |
|
|
Impact of 20% adverse change |
|
|
(426 |
) |
|
|
(49 |
) |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
18.0 |
% |
|
|
14.5 |
% |
|
|
21.5 |
% |
|
|
17.3 |
% |
|
|
12.4 |
% |
|
|
9.0 |
% |
|
|
4.1 |
% |
Impact of 10% adverse change |
|
$ |
(10 |
) |
|
$ |
(52 |
) |
|
$ |
(3 |
) |
|
$ |
(16 |
) |
|
$ |
(26 |
) |
|
$ |
(2 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(20 |
) |
|
|
(102 |
) |
|
|
(5 |
) |
|
|
(28 |
) |
|
|
(49 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
(a) |
|
As of June 30, 2009, certain investments acquired in the secondary market but
predominantly held for investment purposes are included. |
|
(b) |
|
PPR: principal payment rate; ABS: absolute prepayment speed; CPR: constant prepayment
rate. |
|
(c) |
|
Excludes the Firms retained senior and subordinated AFS securities in its credit card
securitization trusts which are discussed in Note 11 on pages 129134 of this Form 10-Q. |
|
(d) |
|
Includes Alt-A loans. |
|
(e) |
|
Expected losses for student loans and certain wholesale securitizations are minimal and
are incorporated into other assumptions. |
The sensitivity analysis in the preceding table is hypothetical. Changes in fair value based
on a 10% or 20% variation in assumptions generally cannot be extrapolated easily, because the
relationship of the change in the assumptions to the change in fair value may not be linear. Also,
in the table, the effect that a change in a particular assumption may have on the fair value is
calculated without changing any other assumption. In reality, changes in one factor may result in
changes in another, which might counteract or magnify the sensitivities. The above sensitivities
also do not reflect risk management practices the Firm may undertake to mitigate such risks.
146
Loan delinquencies and net charge-offs
The table below includes information about delinquencies, net charge-offs/(recoveries) and
components of reported and securitized financial assets at June 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days past due |
|
|
|
|
|
|
|
|
|
Net loan |
|
|
Total loans |
|
and still accruing |
|
Nonaccrual assets(g) |
|
charge-offs (recoveries) |
|
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
|
June 30, |
|
Dec. 31, |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Home equity |
|
$ |
108,229 |
|
|
$ |
114,335 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,487 |
|
|
$ |
1,394 |
|
|
$ |
1,265 |
|
|
$ |
511 |
|
|
$ |
2,363 |
|
|
$ |
958 |
|
Prime mortgage(a) |
|
|
68,878 |
|
|
|
72,266 |
|
|
|
|
|
|
|
|
|
|
|
3,501 |
|
|
|
1,895 |
|
|
|
483 |
|
|
|
104 |
|
|
|
795 |
|
|
|
154 |
|
Subprime mortgage |
|
|
13,825 |
|
|
|
15,330 |
|
|
|
|
|
|
|
|
|
|
|
2,773 |
|
|
|
2,690 |
|
|
|
410 |
|
|
|
192 |
|
|
|
774 |
|
|
|
341 |
|
Option ARMs |
|
|
9,034 |
|
|
|
9,018 |
|
|
|
|
|
|
|
|
|
|
|
182 |
|
|
|
10 |
|
|
|
15 |
|
|
|
|
|
|
|
19 |
|
|
|
|
|
Auto |
|
|
42,887 |
|
|
|
42,603 |
|
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
148 |
|
|
|
146 |
|
|
|
119 |
|
|
|
320 |
|
|
|
237 |
|
Credit card |
|
|
85,736 |
|
|
|
104,746 |
|
|
|
3,503 |
|
|
|
2,649 |
|
|
|
4 |
|
|
|
4 |
|
|
|
2,689 |
|
|
|
1,064 |
|
|
|
4,718 |
|
|
|
2,053 |
|
All other |
|
|
33,041 |
|
|
|
33,715 |
|
|
|
473 |
|
|
|
463 |
|
|
|
722 |
|
|
|
430 |
|
|
|
332 |
|
|
|
99 |
|
|
|
556 |
|
|
|
160 |
|
Loans held-for-sale(b) |
|
|
1,940 |
|
|
|
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total consumer
loans excluding purchased
credit-impaired loans |
|
|
363,570 |
|
|
|
394,041 |
|
|
|
3,976 |
|
|
|
3,112 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
5,340 |
|
|
|
2,089 |
|
|
|
9,545 |
|
|
|
3,903 |
|
Consumer loans
purchased credit-impaired
loans(c) |
|
|
85,406 |
|
|
|
88,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans |
|
|
448,976 |
|
|
|
482,854 |
|
|
|
3,976 |
|
|
|
3,112 |
|
|
|
8,823 |
|
|
|
6,571 |
|
|
|
5,340 |
|
|
|
2,089 |
|
|
|
9,545 |
|
|
|
3,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale loans |
|
|
231,625 |
|
|
|
262,044 |
|
|
|
234 |
|
|
|
163 |
|
|
|
5,962 |
(h) |
|
|
2,382 |
(h) |
|
|
679 |
|
|
|
41 |
|
|
|
870 |
|
|
|
133 |
|
|
Total loans reported |
|
|
680,601 |
|
|
|
744,898 |
|
|
|
4,210 |
|
|
|
3,275 |
|
|
|
14,785 |
|
|
|
8,953 |
|
|
|
6,019 |
|
|
|
2,130 |
|
|
|
10,415 |
|
|
|
4,036 |
|
|
Securitized loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage(a) |
|
|
194,792 |
|
|
|
212,274 |
|
|
|
|
|
|
|
|
|
|
|
30,899 |
|
|
|
21,130 |
|
|
|
2,395 |
|
|
|
674 |
|
|
|
4,591 |
|
|
|
683 |
|
Subprime mortgage |
|
|
48,111 |
|
|
|
58,607 |
|
|
|
|
|
|
|
|
|
|
|
15,171 |
|
|
|
13,301 |
|
|
|
2,044 |
|
|
|
637 |
|
|
|
4,278 |
|
|
|
892 |
|
Option ARMs |
|
|
45,341 |
|
|
|
48,328 |
|
|
|
|
|
|
|
|
|
|
|
9,692 |
|
|
|
6,440 |
|
|
|
474 |
|
|
|
|
|
|
|
854 |
|
|
|
|
|
Auto |
|
|
434 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
5 |
|
Credit card |
|
|
85,790 |
|
|
|
85,571 |
|
|
|
2,066 |
|
|
|
1,802 |
|
|
|
|
|
|
|
|
|
|
|
1,664 |
|
|
|
830 |
|
|
|
3,128 |
|
|
|
1,511 |
|
Student |
|
|
1,042 |
|
|
|
1,074 |
|
|
|
61 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Commercial and other |
|
|
32,712 |
|
|
|
45,677 |
|
|
|
|
|
|
|
28 |
|
|
|
912 |
|
|
|
166 |
|
|
|
5 |
|
|
|
3 |
|
|
|
10 |
|
|
|
5 |
|
|
Total loans
securitized(d) |
|
|
408,222 |
|
|
|
452,322 |
|
|
|
2,127 |
|
|
|
1,896 |
|
|
|
56,675 |
|
|
|
41,039 |
|
|
|
6,583 |
|
|
|
2,147 |
|
|
|
12,864 |
|
|
|
3,097 |
|
|
Total loans reported and
securitized(e) |
|
$ |
1,088,823 |
(f) |
|
$ |
1,197,220 |
(f) |
|
$ |
6,337 |
|
|
$ |
5,171 |
|
|
$ |
71,460 |
|
|
$ |
49,992 |
|
|
$ |
12,602 |
|
|
$ |
4,277 |
|
|
$ |
23,279 |
|
|
$ |
7,133 |
|
|
|
|
|
(a) |
|
Includes Alt-A loans. |
|
(b) |
|
Includes loans for prime mortgage and other (largely student loans) of $589 million and $1.4
billion at June 30, 2009, respectively, and $206 million and $1.8 billion at December 31,
2008, respectively. |
|
(c) |
|
Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction
for which a deterioration in credit quality occurred between the origination date and JPMorgan
Chases acquisition date. Under SOP 03-3, these loans were initially recorded at fair value
and accrete interest income over the estimated life of the loan when cash flows are reasonably
estimable, even if the underlying loans are contractually past due. For additional
information, see Note 13 on pages 135138 of this Form 10-Q. |
|
(d) |
|
Total assets held in securitization-related SPEs were $574.4 billion and $640.8 billion at
June 30, 2009, and December 31, 2008, respectively. The $408.2 billion and $452.3 billion of
loans securitized at June 30, 2009, and December 31, 2008, respectively, excludes: $150.4
billion and $152.4 billion of securitized loans, in which the Firm has no continuing
involvement; $10.5 billion and $33.3 billion of sellers interests in credit card master
trusts; and $5.3 billion and $2.8 billion, of cash amounts on deposit and escrow accounts,
all respectively. |
|
(e) |
|
Represents both loans on the Consolidated Balance Sheets and loans that have been
securitized. |
|
(f) |
|
Includes securitized loans that were previously recorded at fair value and classified as
trading assets. |
|
(g) |
|
Excludes nonperforming loans and assets related to: (i) loans eligible for repurchase, as
well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of
$4.7 billion and $3.3 billion at June 30, 2009, and December 31, 2008, respectively; and (ii)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $473 million and $437
million at June 30, 2009, and December 31, 2008, respectively. These amounts for GNMA and
student loans are excluded, as reimbursement is proceeding normally. |
|
(h) |
|
Includes nonperforming loans held-for-sale and loans at fair value of $133 million and $32
million at June 30, 2009, and December 31, 2008, respectively. |
147
NOTE 16 VARIABLE INTEREST ENTITIES
Refer to Note 1 on page 122 and Note 17 on pages 177186 of JPMorgan Chases 2008 Annual Report for
a further description of JPMorgan Chases policies regarding consolidation of variable interest
entities (VIEs) and the Firms principal involvement with VIEs.
Multi-seller conduits
The following table summarizes the Firms involvement with Firm-administered multi-seller conduits.
On May 31, 2009, the Firm consolidated one of the Firm-administered multi-seller conduits due to
the redemption of the expected loss note (ELN). There were no consolidated Firm-administered
multi-seller conduits as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
|
(in billions) |
|
Consolidated |
|
Nonconsolidated |
|
December 31, 2008 |
|
Total assets held by conduits |
|
$ |
6.9 |
|
|
$ |
23.0 |
|
|
$ |
42.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial paper issued by conduits |
|
|
6.9 |
|
|
|
23.0 |
|
|
|
43.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
Deal-specific liquidity facilities (primarily asset purchase
agreements) |
|
|
9.8 |
|
|
|
31.6 |
(b) |
|
|
55.4 |
(b) |
Program-wide liquidity facilities |
|
|
4.0 |
|
|
|
13.0 |
|
|
|
17.0 |
|
Program-wide credit enhancements |
|
|
0.4 |
|
|
|
2.0 |
|
|
|
3.0 |
|
Maximum exposure to loss(a) |
|
|
9.8 |
|
|
|
32.3 |
|
|
|
56.9 |
|
|
|
|
|
(a) |
|
The Firms maximum exposure to loss, calculated separately for each multi-seller
conduit, includes the Firms exposure to both deal-specific liquidity facilities and
program-wide credit enhancements. For purposes of calculating the Firms maximum exposure to
loss, the Firm-provided, program-wide credit enhancement is limited to deal-specific liquidity
facilities provided by third parties. |
|
(b) |
|
The accounting for these agreements is further discussed in Note 33 on pages 206210
of JPMorgan Chases 2008 Annual Report. The carrying value related to asset purchase
agreements was $112 million and $147 million at June 30, 2009, and December 31, 2008,
respectively, of which $110 million and $138 million, respectively, represented the remaining
fair value of the guarantee under FIN 45. The Firm has recorded this guarantee in other
liabilities, with an offsetting entry recognized in other assets for the net present value of
the future premium receivable under the contracts. |
Assets funded by nonconsolidated multi-seller conduits
The following table presents information on the commitments and assets held by JPMorgan Chases
nonconsolidated Firm-administered multi-seller conduits as of June 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Unfunded |
|
Commercial |
|
Liquidity |
|
Liquidity |
|
Unfunded |
|
Commercial |
|
Liquidity |
|
Liquidity |
|
|
commitments to |
|
paperfunded |
|
provided by |
|
provided |
|
commitments to |
|
paperfunded |
|
provided by |
|
provided |
(in billions) |
|
Firms clients |
|
assets |
|
third parties |
|
by Firm |
|
Firms clients |
|
assets |
|
third parties |
|
by Firm |
|
Asset types: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
1.8 |
|
|
$ |
4.5 |
|
|
$ |
|
|
|
$ |
6.3 |
|
|
$ |
3.0 |
|
|
$ |
8.9 |
|
|
$ |
0.1 |
|
|
$ |
11.8 |
|
Vehicle loans and
leases |
|
|
1.4 |
|
|
|
7.4 |
|
|
|
|
|
|
|
8.8 |
|
|
|
1.4 |
|
|
|
10.0 |
|
|
|
|
|
|
|
11.4 |
|
Trade receivables |
|
|
3.2 |
|
|
|
2.3 |
|
|
|
|
|
|
|
5.5 |
|
|
|
3.8 |
|
|
|
5.5 |
|
|
|
|
|
|
|
9.3 |
|
Student loans |
|
|
0.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
2.7 |
|
|
|
0.7 |
|
|
|
4.6 |
|
|
|
|
|
|
|
5.3 |
|
Commercial |
|
|
0.7 |
|
|
|
2.1 |
|
|
|
|
|
|
|
2.8 |
|
|
|
1.5 |
|
|
|
4.0 |
|
|
|
0.4 |
|
|
|
5.1 |
|
Residential mortgage |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
Capital commitments |
|
|
0.5 |
|
|
|
1.7 |
|
|
|
0.6 |
|
|
|
1.6 |
|
|
|
1.3 |
|
|
|
3.9 |
|
|
|
0.6 |
|
|
|
4.6 |
|
Rental car finance |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.6 |
|
Equipment loans and
leases |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
2.3 |
|
Floorplan
vehicle |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
1.8 |
|
|
|
|
|
|
|
2.5 |
|
Floorplan
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.6 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
0.7 |
|
Other |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
1.1 |
|
|
Total |
|
$ |
9.5 |
|
|
$ |
23.0 |
|
|
$ |
0.9 |
|
|
$ |
31.6 |
|
|
$ |
14.0 |
|
|
$ |
42.9 |
|
|
$ |
1.5 |
|
|
$ |
55.4 |
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile of VIE assets of the nonconsolidated multi-seller conduits(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninvestment- |
|
Commercial |
|
Wt. avg. |
June 30, 2009 |
|
Investment-grade |
|
grade |
|
paper funded |
|
expected |
(in billions) |
|
AAA to AAA- |
|
AA+ to AA- |
|
A+ to A- |
|
BBB to BBB- |
|
BB+ and below |
|
assets |
|
life (years)(b) |
|
Asset types: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
2.9 |
|
|
$ |
1.5 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4.5 |
|
|
|
1.6 |
|
Vehicle loans and leases |
|
|
2.7 |
|
|
|
3.8 |
|
|
|
0.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
7.4 |
|
|
|
2.3 |
|
Trade receivables |
|
|
|
|
|
|
1.9 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
0.7 |
|
Student loans |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
1.3 |
|
Commercial |
|
|
0.7 |
|
|
|
0.9 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.3 |
|
|
|
2.1 |
|
|
|
2.5 |
|
Residential mortgage |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.6 |
|
|
|
3.5 |
|
Capital commitments |
|
|
|
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
2.3 |
|
Rental car finance |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
1.0 |
|
Equipment loans and leases |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
2.5 |
|
Floorplan
vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.6 |
|
Floorplan
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
2.0 |
|
Other |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
3.9 |
|
|
Total |
|
$ |
9.1 |
|
|
$ |
9.6 |
|
|
$ |
3.4 |
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
|
$ |
23.0 |
|
|
|
2.0 |
|
|
|
|
|
Ratings profile of VIE assets of the nonconsolidated multi-seller conduits (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninvestment- |
|
Commercial |
|
Wt. avg. |
December 31, 2008 |
|
Investment-grade |
|
grade |
|
paper funded |
|
Expected |
(in billions) |
|
AAA to AAA- |
|
AA+ to AA- |
|
A+ to A- |
|
BBB to BBB- |
|
BB+ and below |
|
assets |
|
life (years)(b) |
|
Asset types: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
4.8 |
|
|
$ |
3.9 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
8.9 |
|
|
|
1.5 |
|
Vehicle loans and leases |
|
|
4.1 |
|
|
|
4.1 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
|
2.5 |
|
Trade receivables |
|
|
|
|
|
|
4.0 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
5.5 |
|
|
|
1.0 |
|
Student loans |
|
|
3.6 |
|
|
|
0.9 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
4.6 |
|
|
|
1.8 |
|
Commercial |
|
|
1.1 |
|
|
|
2.0 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
|
|
|
|
4.0 |
|
|
|
2.7 |
|
Residential mortgage |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.7 |
|
|
|
4.0 |
|
Capital commitments |
|
|
|
|
|
|
3.6 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
2.4 |
|
Rental car finance |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
1.5 |
|
Equipment loans and leases |
|
|
0.4 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
2.2 |
|
Floorplan
vehicle |
|
|
0.1 |
|
|
|
1.0 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
1.1 |
|
Floorplan
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
0.1 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
1.6 |
|
Other |
|
|
0.5 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
3.7 |
|
|
Total |
|
$ |
14.7 |
|
|
$ |
22.0 |
|
|
$ |
5.6 |
|
|
$ |
0.6 |
|
|
$ |
|
|
|
$ |
42.9 |
|
|
|
2.0 |
|
|
|
|
|
(a) |
|
The ratings scale is presented on an S&P-equivalent basis. |
|
(b) |
|
Weighted-average expected life for each asset type is based on the remaining term of each
conduit transactions committed liquidity, plus either the expected weighted-average life of
the assets should the committed liquidity expire without renewal, or the expected time to sell
the underlying assets in the securitization market. |
The assets held by the multi-seller conduits are structured so that if they were rated, the
Firm believes the majority of them would receive an A rating or better by external rating
agencies. However, it is unusual for the assets held by the conduits to be explicitly rated by an
external rating agency. Instead, the Firms Credit Risk group assigns each asset purchase liquidity
facility an internal risk rating based on its assessment of the probability of default for the
transaction. The ratings provided in the above table reflect the S&P-equivalent ratings of the
internal rating grades assigned by the Firm.
The risk ratings are periodically reassessed as information becomes available. As of June 30, 2009,
and December 31, 2008, 93% and 90%, respectively, of the assets in the nonconsolidated conduits
were risk-rated A or better.
Commercial paper issued by nonconsolidated multi-seller conduits
The weighted-average life of commercial paper issued by nonconsolidated multi-seller conduits at
June 30, 2009, and December 31, 2008, was 20 days and 27 days, respectively, and the average yield
on the commercial paper at June 30, 2009, and December 31, 2008, was 0.3% and 0.6%, respectively.
In the normal course of business, JPMorgan Chase trades and invests in commercial paper, including
paper issued by the Firm-administered conduits. The percentage of commercial paper purchased by the
Firm from all Firm-administered conduits during the six months ended June 30, 2009, ranged from
less than 1% to approximately 4.7% on any given day. The largest daily amount of commercial paper
outstanding held by the Firm in any one multi-seller conduit during the quarter ended June 30,
2009, was approximately $852 million, or 12%, of the conduits commercial paper outstanding. The
Firm is not obligated under any agreement (contractual or noncontractual) to purchase the
commercial paper issued by nonconsolidated JPMorgan Chaseadministered conduits.
149
Consolidation analysis
Each nonconsolidated multi-seller conduit administered by the Firm at June 30, 2009, and December
31, 2008, had issued ELNs, the holders of which are committed to absorbing the majority of the
expected loss of each respective conduit. The total amounts of ELNs
outstanding for nonconsolidated conduits at June 30, 2009, and December 31, 2008, were $96 million
and $136 million, respectively.
The Firm could fund purchases of assets from nonconsolidated, Firm-administered multi-seller
conduits should it become necessary.
Investor intermediation
Municipal bond vehicles
Exposure to nonconsolidated municipal bond VIEs at June 30, 2009, and December 31, 2008, including
the ratings profile of the VIEs assets, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Fair value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of |
|
|
|
|
|
|
|
|
assets held |
|
Liquidity |
|
Excess/ |
|
Maximum |
|
assets held |
|
Liquidity |
|
Excess/ |
|
Maximum |
(in billions) |
|
by VIEs |
|
facilities(c) |
|
(deficit)(d) |
|
exposure |
|
by VIEs |
|
facilities(c) |
|
(deficit)(d) |
|
exposure |
|
Nonconsolidated
municipal bond
vehicles(a)(b) |
|
$ |
12.0 |
|
|
$ |
7.9 |
|
|
$ |
4.1 |
|
|
$ |
7.9 |
|
|
$ |
10.0 |
|
|
$ |
6.9 |
|
|
$ |
3.1 |
|
|
$ |
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile of VIE assets(e) |
|
|
|
|
|
Wt. avg. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninvestment- |
|
Fair value of |
|
expected |
|
|
Investment-grade |
|
grade |
|
assets held |
|
life of assets |
(in billions) |
|
AAA to AAA- |
|
AA+ to AA- |
|
A+ to A- |
|
BBB to BBB- |
|
BB+ and below |
|
by VIEs |
|
(years) |
|
Nonconsolidated
municipal bond
vehicles(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
$ |
1.4 |
|
|
$ |
10.5 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12.0 |
|
|
|
16.6 |
|
December 31, 2008 |
|
|
3.8 |
|
|
|
5.9 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
10.0 |
|
|
|
22.3 |
|
|
|
|
|
(a) |
|
Excluded $3.7 billion and $6.0 billion at June 30, 2009, and December 31, 2008, respectively,
which were consolidated due to the Firm owning the residual interests. |
|
(b) |
|
Certain of the municipal bond vehicles are structured to meet the definition of a QSPE (as
discussed in Note 1 on page 122 of JPMorgan Chases 2008 Annual Report); accordingly, the
assets and liabilities of QSPEs are not reflected in the Firms Consolidated Balance Sheets
(except for retained interests that are reported at fair value). Excluded nonconsolidated
amount of $603 million at December 31, 2008, related to QSPE municipal bond vehicles in which
the Firm owned the residual interests. The Firm did not own residual interests in QSPE
municipal bond vehicles at June 30, 2009. |
|
(c) |
|
The Firm may serve as credit enhancement provider in municipal bond vehicles in which it
serves as liquidity provider. The Firm provided insurance on underlying municipal bonds, in
the form of letters of credit, of $10 million at both June 30, 2009, and December 31, 2008. |
|
(d) |
|
Represents the excess/(deficit) of municipal bond asset fair value available to repay the
liquidity facilities, if drawn. |
|
(e) |
|
The ratings scale is based on the Firms internal risk ratings and presented on an
S&P-equivalent basis. |
In the first half of 2009, the Firm did not experience a drawdown on its liquidity facilities.
In addition, the municipal bond vehicles did not experience any bankruptcy or downgrade termination
events during the first half of 2009.
As remarketing agent, the Firm may hold putable floating-rate certificates of the municipal bond
vehicles. At both June 30, 2009, and December 31, 2008, respectively, the Firm held $293 million of
these certificates on its Consolidated Balance Sheets. The largest amount held by the Firm at any
time during the first half of 2009 was $438 million, or 1.3%, of the municipal bond vehicles
outstanding putable floating-rate certificates. The Firm did not have and continues not to have any
intent to protect any residual interest holder from potential losses on any of the municipal bond
holdings.
At June 30, 2009, and December 31, 2008, 99% and 97%, respectively, of the municipal bonds held by
vehicles to which the Firm served as liquidity provider were rated AA- or better, based upon
either the rating of the underlying municipal bond itself, or the rating including any credit
enhancement. At June 30, 2009, and December 31, 2008, $2.4 billion and $2.6 billion, respectively,
of the bonds were insured by monoline bond insurers.
Credit-linked note vehicles
Exposure to nonconsolidated credit-linked note VIEs at June 30, 2009, and December 31, 2008, was as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value of |
|
|
Derivative |
|
Trading |
|
Total |
|
collateral held |
|
Derivative |
|
Trading |
|
Total |
|
collateral held |
(in billions) |
|
receivables |
|
assets(c) |
|
exposure(d) |
|
by VIEs(e) |
|
receivables |
|
assets(c) |
|
exposure(d) |
|
by VIEs(e) |
|
Credit-linked
notes(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Static structure |
|
$ |
2.8 |
|
|
$ |
0.8 |
|
|
$ |
3.6 |
|
|
$ |
12.1 |
|
|
$ |
3.6 |
|
|
$ |
0.7 |
|
|
$ |
4.3 |
|
|
$ |
14.5 |
|
Managed structure(b) |
|
|
6.1 |
|
|
|
0.6 |
|
|
|
6.7 |
|
|
|
15.1 |
|
|
|
7.7 |
|
|
|
0.3 |
|
|
|
8.0 |
|
|
|
16.6 |
|
|
Total |
|
$ |
8.9 |
|
|
$ |
1.4 |
|
|
$ |
10.3 |
|
|
$ |
27.2 |
|
|
$ |
11.3 |
|
|
$ |
1.0 |
|
|
$ |
12.3 |
|
|
$ |
31.1 |
|
|
150
|
|
|
(a) |
|
Excluded collateral with a fair value of $2.2 billion and $2.1 billion at June 30, 2009, and
December 31, 2008, respectively, which was consolidated as the Firm, in its role as secondary
market maker, held a majority of the issued credit-linked notes of certain vehicles. |
|
(b) |
|
Included synthetic collateralized debt obligation vehicles, which have similar risk
characteristics to managed credit-linked note vehicles. At December 31, 2008, trading assets
included $7 million of transactions with subprime collateral; there were no such transactions
in trading assets at June 30, 2009. |
|
(c) |
|
Trading assets principally comprise notes issued by VIEs, which from time to time are held as
part of the termination of a deal or to support limited market-making. |
|
(d) |
|
Onbalance sheet exposure that includes derivative receivables and trading assets. |
|
(e) |
|
The Firms maximum exposure arises through the derivatives executed with the VIEs; the
exposure varies over time with changes in the fair value of the derivatives. The Firm relies
upon the collateral held by the VIEs to pay any amounts due under the derivatives; the
vehicles are structured at inception so that the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative contracts. |
Asset swap vehicles
Exposure to nonconsolidated asset swap VIEs at June 30, 2009, and December 31, 2008, was as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Derivative |
|
|
|
|
|
|
|
|
|
Par value of |
|
Derivative |
|
|
|
|
|
|
|
|
|
Par value of |
|
|
receivables |
|
Trading |
|
Total |
|
collateral held |
|
receivables |
|
Trading |
|
Total |
|
collateral held |
(in billions) |
|
(payables) |
|
assets(a) |
|
exposure(b) |
|
by VIEs(c) |
|
(payables) |
|
assets(a) |
|
exposure(b) |
|
by VIEs(c) |
|
Nonconsolidated asset
swap
vehicles(d) |
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
6.0 |
|
|
$ |
(0.2 |
) |
|
$ |
|
|
|
$ |
(0.2 |
) |
|
$ |
7.3 |
|
|
|
|
|
(a) |
|
Trading assets principally comprise notes issued by VIEs, which from time to time are held as
part of the termination of a deal or to support limited market-making. |
|
(b) |
|
Onbalance sheet exposure that includes derivative receivables and trading assets. |
|
(c) |
|
The Firms maximum exposure arises through the derivatives executed with the VIEs; the
exposure varies over time with changes in the fair value of the derivatives. The Firm relies
upon the collateral held by the VIEs to pay any amounts due under the derivatives; the
vehicles are structured at inception so that the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative contracts. |
|
(d) |
|
Excluded collateral with a fair value of $1.1 billion and $1.0 billion at June 30, 2009, and
December 31, 2008, respectively, which was consolidated as the Firm, in its role as secondary
market maker, held a majority of the issued notes of certain vehicles. |
Collateralized debt obligation vehicles
For further information on the Firms involvement with collateralized debt obligations (CDOs),
see Note 17 on pages 184185 of JPMorgan Chases 2008 Annual Report.
As of June 30, 2009, and December 31, 2008, the Firm had noninvestment-grade funded loans of $320
million and $405 million, respectively, to nonconsolidated CDO warehouse VIEs. Additionally, the Firm had unfunded commitments of $75
million and $746 million as of June 30, 2009, and
December 31, 2008, respectively to these nonconsolidated CDO
warehouse VIEs. These unfunded
commitments are typically contingent on certain asset-quality
conditions being met.
The Firms maximum exposure to loss related to the nonconsolidated CDO warehouse VIEs was
$395 million and $1.1 billion as of June 30, 2009, and December 31, 2008, respectively.
Once the CDO vehicle closes and issues securities, the Firm has no obligation to provide further
support to the vehicle. At the time of closing, the Firm may hold unsold securities that the Firm
was not able to place with third-party investors. In addition, the Firm may on occasion hold some
of the CDO vehicles securities as a secondary market-maker or as a principal investor, or it may
be a derivative counterparty to the vehicles. At June 30, 2009, and December 31, 2008, these
amounts were not significant.
VIEs sponsored by third parties
Investment in a third-party credit card securitization trust
The Firm holds a note in a third-party-sponsored VIE, which is a credit card securitization trust
that owns credit card receivables issued by a national retailer. The note is structured so that the
principal amount can float up to 47% of the principal amount of the receivables held by the trust,
not to exceed $4.2 billion. The Firm is not the primary beneficiary of the trust and accounts for
its investment at fair value within AFS investment securities. At June 30, 2009, and December 31,
2008, the amortized cost of the note was $3.6 billion and $3.6 billion, respectively, and the fair
value was $3.4 billion and $2.6 billion, respectively. For more information on AFS securities, see
Note 11 on pages 129134 of this Form 10-Q.
VIE used in FRBNY transaction
In conjunction with the Bear Stearns merger, in June 2008, the Federal Reserve Bank of New
York (FRBNY) took control, through an LLC formed for this purpose, of a portfolio of $30.0
billion in assets, based on the value of the portfolio as of March 14, 2008. The assets of the LLC
were funded by a $28.85 billion term loan from the FRBNY and a $1.15 billion subordinated 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, repayment of the JPMorgan Chase loan and the expense of the LLC will be for the
account of the
151
FRBNY. The extent to which FRBNY and JPMorgan Chase loans will be repaid will depend upon the value
of the asset portfolio and the liquidation strategy directed by the FRBNY.
Other VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other parties. These include, for
example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement
agent, trustee or custodian. These transactions are conducted at arms length, and individual
credit decisions are based on the analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where these activities do not cause JPMorgan Chase to absorb a
majority of the expected losses, or to receive a majority of the residual returns, the Firm records
and reports these positions on its Consolidated Balance Sheets similarly to the way it would record
and report positions from any other third-party transaction. These transactions are not considered
significant for disclosure purposes under FIN 46.
Consolidated VIE assets and liabilities
The following table presents information on assets, liabilities and commitments related to VIEs
that are consolidated by the Firm.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs |
|
|
Assets |
June 30, 2009 |
|
Trading assets debt |
|
|
|
|
|
|
(in billions) |
|
and equity instruments |
|
Loans |
|
Other(b) |
|
Total assets(c) |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
|
|
|
$ |
3.9 |
|
|
$ |
3.0 |
|
|
$ |
6.9 |
|
Credit card loans(a) |
|
|
|
|
|
|
8.2 |
|
|
|
0.1 |
|
|
|
8.3 |
|
Municipal bond vehicles |
|
|
3.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
3.7 |
|
Credit-linked notes |
|
|
1.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
2.2 |
|
CDO warehouses |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Student loans |
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
3.9 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy investments |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Other |
|
|
1.7 |
|
|
|
1.1 |
|
|
|
0.9 |
|
|
|
3.7 |
|
|
Total |
|
$ |
7.0 |
|
|
$ |
17.1 |
|
|
$ |
5.1 |
|
|
$ |
29.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
June 30, 2009 |
|
Beneficial interests |
|
|
|
|
(in billions) |
|
in VIE assets(d) |
|
Other(e) |
|
Total liabilities |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
6.9 |
|
|
$ |
|
|
|
$ |
6.9 |
|
Credit card loans(a) |
|
|
6.1 |
|
|
|
|
|
|
|
6.1 |
|
Municipal bond vehicles |
|
|
3.3 |
|
|
|
0.2 |
|
|
|
3.5 |
|
Credit-linked notes |
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
CDO warehouses |
|
|
|
|
|
|
|
|
|
|
|
|
Student loans |
|
|
2.7 |
|
|
|
1.1 |
|
|
|
3.8 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
|
|
Energy investments |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Other |
|
|
1.0 |
|
|
|
0.3 |
|
|
|
1.3 |
|
|
Total |
|
$ |
20.9 |
|
|
$ |
1.6 |
|
|
$ |
22.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs |
|
|
Assets |
December 31, 2008 |
|
Trading assets debt |
|
|
|
|
|
|
(in billions) |
|
and equity instruments |
|
Loans |
|
Other(b) |
|
Total assets(c) |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Credit card loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bond vehicles |
|
|
5.9 |
|
|
|
|
|
|
|
0.1 |
|
|
|
6.0 |
|
Credit-linked notes |
|
|
1.9 |
|
|
|
|
|
|
|
0.2 |
|
|
|
2.1 |
|
CDO warehouses |
|
|
0.2 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.3 |
|
Student loans |
|
|
|
|
|
|
4.0 |
|
|
|
0.1 |
|
|
|
4.1 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
Energy investments |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Other |
|
|
2.8 |
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
5.2 |
|
|
Total |
|
$ |
10.8 |
|
|
$ |
5.3 |
|
|
$ |
2.5 |
|
|
$ |
18.6 |
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
December 31, 2008 |
|
Beneficial interests |
|
|
|
|
(in billions) |
|
in VIE assets(d) |
|
Other(e) |
|
Total liabilities |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Credit card loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bond vehicles |
|
|
5.5 |
|
|
|
0.4 |
|
|
|
5.9 |
|
Credit-linked notes |
|
|
1.3 |
|
|
|
0.6 |
|
|
|
1.9 |
|
CDO warehouses |
|
|
|
|
|
|
|
|
|
|
|
|
Student loans |
|
|
2.8 |
|
|
|
1.1 |
|
|
|
3.9 |
|
Employee funds |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Energy investments |
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Other |
|
|
0.7 |
|
|
|
1.8 |
|
|
|
2.5 |
|
|
Total |
|
$ |
10.6 |
|
|
$ |
3.9 |
|
|
$ |
14.5 |
|
|
|
|
|
(a) |
|
Represents consolidated securitized credit card loans
related to the WMM Trust, as well as loans that were represented by
the Firms undivided interest and subordinated interest and
fees, which were previously recorded on the Firms balance sheet
prior to consolidation. For further
discussion, see Off-Balance Sheet Arrangements and Contractual Cash Obligations on pages
51-53 and Note 15 on pages 139-147 respectively, of this Form 10-Q. |
|
(b) |
|
Included assets classified as resale agreements and other assets within the Consolidated
Balance Sheets. |
|
(c) |
|
Assets of each consolidated VIE included in the program types above are generally used to
satisfy the liabilities to third parties. The difference between total assets and total
liabilities recognized for consolidated VIEs represents the Firms interest in the
consolidated VIEs for each program type. |
|
(d) |
|
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are
classified in the line item on the Consolidated Balance Sheets titled, Beneficial interests
issued by consolidated variable interest entities. The holders of these beneficial interests
do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests
in VIE assets are long-term beneficial interests of $9.6 billion and $10.6 billion at June 30,
2009, and December 31, 2008, respectively. |
|
(e) |
|
Included liabilities classified as other borrowed funds, long-term debt, and accounts payable
and other liabilities in the Consolidated Balance Sheets. |
NOTE 17 GOODWILL AND ALL OTHER INTANGIBLE ASSETS
For a discussion of accounting policies related to goodwill and other intangible assets, see Note
18 on pages 186-189 of JPMorgan Chases 2008 Annual Report.
Goodwill and all other intangible assets consist of the following.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Goodwill |
|
$ |
48,288 |
|
|
$ |
48,027 |
|
Mortgage servicing rights |
|
|
14,600 |
|
|
|
9,403 |
|
Purchased credit card relationships |
|
|
1,431 |
|
|
|
1,649 |
|
|
All other intangible assets: |
|
|
|
|
|
|
|
|
Other credit cardrelated intangibles |
|
$ |
710 |
|
|
$ |
743 |
|
Core deposit intangibles |
|
|
1,399 |
|
|
|
1,597 |
|
Other intangibles |
|
|
1,542 |
|
|
|
1,592 |
|
|
Total all other intangible assets |
|
$ |
3,651 |
|
|
$ |
3,932 |
|
|
153
Goodwill
The $261 million increase in goodwill from December 31, 2008, was largely due to purchase
accounting adjustments related to the Bear Stearns merger, as well as an acquisition of a
commodities business by IB. For additional information related to the Bear Stearns merger, see Note
2 on pages 96-99 of this Form 10-Q.
Goodwill was not impaired at June 30, 2009, or December 31, 2008, nor was any goodwill written off
due to impairment during either of the six month periods ended June 30, 2009 or 2008.
Goodwill attributed to the business segments was as follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Investment Bank |
|
$ |
4,955 |
|
|
$ |
4,765 |
|
Retail Financial Services |
|
|
16,839 |
|
|
|
16,840 |
|
Card Services |
|
|
14,066 |
|
|
|
13,977 |
|
Commercial Banking |
|
|
2,870 |
|
|
|
2,870 |
|
Treasury & Securities Services |
|
|
1,660 |
|
|
|
1,633 |
|
Asset Management |
|
|
7,521 |
|
|
|
7,565 |
|
Corporate/Private Equity |
|
|
377 |
|
|
|
377 |
|
|
Total goodwill |
|
$ |
48,288 |
|
|
$ |
48,027 |
|
|
Mortgage servicing rights
For a further description of the MSR asset, interest rate risk management, and the valuation
methodology of MSRs, see Notes 4 and 18 on pages 132 and 186-189, respectively, of JPMorgan
Chases 2008 Annual Report.
The fair value of MSRs is sensitive to changes in interest rates, including their effect on
prepayment speeds. JPMorgan Chase uses, or has used, combinations of derivatives and trading
instruments to manage changes in the fair value of MSRs. The intent is to offset any changes in the
fair value of MSRs with changes in the fair value of the related risk management instruments. MSRs
decrease in value when interest rates decline. Conversely, securities (such as mortgage-backed
securities), principal-only certificates and certain derivatives (when the Firm receives fixed-rate
interest payments) increase in value when interest rates decline.
The following table summarizes MSR activity for the three and six months ended June 30, 2009 and
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except where otherwise noted) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Fair value at the beginning of the period |
|
$ |
10,634 |
|
|
$ |
8,419 |
|
|
$ |
9,403 |
|
|
$ |
8,632 |
|
MSR activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations of MSRs |
|
|
984 |
|
|
|
1,185 |
|
|
|
1,978 |
|
|
|
1,922 |
|
Purchase of MSRs |
|
|
|
|
|
|
904 |
|
|
|
2 |
|
|
|
1,011 |
|
Disposition of MSRs |
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
Total net additions |
|
|
974 |
|
|
|
2,089 |
|
|
|
1,970 |
|
|
|
2,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation due to inputs and assumptions(a) |
|
|
3,831 |
|
|
|
1,516 |
|
|
|
5,141 |
|
|
|
884 |
|
Other changes in fair value(b) |
|
|
(839 |
) |
|
|
(407 |
) |
|
|
(1,914 |
) |
|
|
(832 |
) |
|
Total change in fair value of MSRs(c) |
|
|
2,992 |
|
|
|
1,109 |
|
|
|
3,227 |
|
|
|
52 |
|
|
Fair value at June 30 |
|
$ |
14,600 |
(d) |
|
$ |
11,617 |
|
|
$ |
14,600 |
(d) |
|
$ |
11,617 |
|
|
Change in unrealized gains/(losses) included in income related
to MSRs held at June 30 |
|
$ |
3,831 |
|
|
$ |
1,516 |
|
|
$ |
5,141 |
|
|
$ |
884 |
|
|
Contractual service fees, late fees and other ancillary fees
included in income |
|
$ |
1,221 |
|
|
$ |
684 |
|
|
$ |
2,428 |
|
|
$ |
1,312 |
|
|
Third-party mortgage loans serviced at June 30 (in billions) |
|
$ |
1,126.4 |
|
|
$ |
736.4 |
|
|
$ |
1,126.4 |
|
|
$ |
736.4 |
|
|
|
|
|
(a) |
|
Represents MSR asset fair value adjustments due to changes in inputs, such as interest rates
and volatility, as well as updates to assumptions used in the valuation model. Also represents
total realized and unrealized gains/(losses) included in net income per the SFAS 157
disclosure for fair value measurement using significant unobservable inputs (level 3). |
|
(b) |
|
Includes changes in the MSR value due to modeled servicing portfolio runoff (or time decay).
Represents the impact of cash settlements per the SFAS 157 disclosure for fair value
measurement using significant unobservable inputs (level 3). |
|
(c) |
|
Includes $(2) million and $(4) million related to commercial real estate for the three and
six month periods ended June 30, 2009 and 2008, respectively. |
|
(d) |
|
Includes $41 million related to commercial real estate. |
154
The table below outlines the key economic assumptions used to determine the fair value of the
Firms MSRs at June 30, 2009, and December 31, 2008; and it outlines the sensitivities of those
fair values to immediate 10% and 20% adverse changes in those assumptions.
|
|
|
|
|
|
|
|
|
(in millions, except rates and where otherwise noted) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Weighted-average prepayment speed assumption (CPR) |
|
|
13.00 |
% |
|
|
35.21 |
% |
Impact on fair value of 10% adverse change |
|
$ |
(950 |
) |
|
$ |
(1,039 |
) |
Impact on fair value of 20% adverse change |
|
|
(1,824 |
) |
|
|
(1,970 |
) |
|
Weighted-average option adjusted spread |
|
|
3.97 |
% |
|
|
3.80 |
% |
Impact on fair value of 100 basis points adverse change |
|
$ |
(595 |
) |
|
$ |
(311 |
) |
Impact on fair value of 200 basis points adverse change |
|
|
(1,142 |
) |
|
|
(606 |
) |
|
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is hypothetical and should be used with caution.
Changes in fair value based on a 10% and 20% variation in assumptions generally cannot be easily
extrapolated, because the relationship of the change in the assumptions to the change in fair value
may not be linear. Also, in this table, the effect that a change in a particular assumption may
have on the fair value is calculated without changing any other assumption. In reality, changes in
one factor may result in changes in another, which might magnify or counteract the sensitivities.
Purchased credit card relationships and all other intangible assets
For the six months ended June 30, 2009, purchased credit card relationships, other credit
card-related intangibles, core deposit intangibles and other intangible assets decreased by $499
million, primarily reflecting amortization expense.
Except for $517 million of indefinitely-lived intangibles related to asset management advisory
contracts, which are not amortized but are tested for impairment at least annually, the remainder
of the Firms other acquired intangible assets are subject to amortization.
The components of credit card relationships, core deposits and other intangible assets were as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
Net |
|
|
Gross |
|
Accumulated |
|
carrying |
|
Gross |
|
Accumulated |
|
carrying |
(in millions) |
|
amount |
|
amortization |
|
value |
|
amount |
|
amortization |
|
value |
|
Purchased credit card relationships |
|
$ |
5,771 |
|
|
$ |
4,340 |
|
|
$ |
1,431 |
|
|
$ |
5,765 |
|
|
$ |
4,116 |
|
|
$ |
1,649 |
|
All other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit cardrelated
intangibles |
|
$ |
865 |
|
|
$ |
155 |
|
|
$ |
710 |
|
|
$ |
852 |
|
|
$ |
109 |
|
|
$ |
743 |
|
Core deposit intangibles |
|
|
4,280 |
|
|
|
2,881 |
|
|
|
1,399 |
|
|
|
4,280 |
|
|
|
2,683 |
|
|
|
1,597 |
|
Other intangibles |
|
|
2,291 |
|
|
|
749 |
(a)(b) |
|
|
1,542 |
|
|
|
2,376 |
|
|
|
784 |
(a) |
|
|
1,592 |
|
|
|
|
|
(a) |
|
Includes amortization expense related to servicing assets on securitized automobile loans,
which is recorded in lending & depositrelated fees, of $1 million and $3 million for the six
months ended June 30, 2009 and 2008, respectively. |
|
(b) |
|
The decrease in other intangibles gross amount and accumulated amortization from December
2008 was primarily attributable to the removal of fully amortized assets. |
Amortization expense
The following table presents amortization expense related to credit card relationships, core
deposits and all other intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Purchased credit card relationships |
|
$ |
108 |
|
|
$ |
158 |
|
|
$ |
224 |
|
|
$ |
317 |
|
All other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit cardrelated intangibles |
|
|
23 |
|
|
|
6 |
|
|
|
46 |
|
|
|
11 |
|
Core deposit intangibles |
|
|
99 |
|
|
|
119 |
|
|
|
198 |
|
|
|
238 |
|
Other intangibles |
|
|
35 |
|
|
|
33 |
|
|
|
72 |
|
|
|
66 |
|
|
Total amortization expense |
|
$ |
265 |
|
|
$ |
316 |
|
|
$ |
540 |
|
|
$ |
632 |
|
|
155
Future amortization expense
The following table presents estimated future amortization expense related to credit card
relationships, core deposits and all other intangible assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit |
|
|
|
|
|
|
|
|
|
|
Purchased credit |
|
card-related |
|
Core deposit |
|
All other |
|
|
For the year: (in millions) |
|
card relationships |
|
intangibles |
|
intangibles |
|
intangible assets |
|
Total |
|
2009(a) |
|
$ |
420 |
|
|
$ |
93 |
|
|
$ |
387 |
|
|
$ |
169 |
|
|
$ |
1,069 |
|
2010 |
|
|
351 |
|
|
|
100 |
|
|
|
329 |
|
|
|
147 |
|
|
|
927 |
|
2011 |
|
|
288 |
|
|
|
98 |
|
|
|
284 |
|
|
|
132 |
|
|
|
802 |
|
2012 |
|
|
250 |
|
|
|
100 |
|
|
|
240 |
|
|
|
122 |
|
|
|
712 |
|
2013 |
|
|
211 |
|
|
|
99 |
|
|
|
195 |
|
|
|
112 |
|
|
|
617 |
|
|
|
|
|
(a) |
|
Includes $224 million, $46 million, $198 million and $72 million of amortization expense
related to purchased credit card relationships, other credit card-related intangibles, core
deposit intangibles and all other intangibles, respectively, recognized during the first six
months of 2009. |
NOTE 18 DEPOSITS
For further discussion of deposits, see Note 20 on page 190 in JPMorgan Chases 2008 Annual Report.
At June 30, 2009, and December 31, 2008, noninterest-bearing and interest-bearing deposits were as
follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
U.S. offices: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
192,247 |
|
|
$ |
210,899 |
|
Interest-bearing (included
$1,002 and $1,849 at fair value
at June 30, 2009, and
December 31, 2008, respectively) |
|
|
433,862 |
|
|
|
511,077 |
|
Non-U.S. offices: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
|
8,291 |
|
|
|
7,697 |
|
Interest-bearing (included
$2,785 and $3,756 at fair value
at June 30, 2009, and
December 31, 2008, respectively) |
|
|
232,077 |
|
|
|
279,604 |
|
|
Total |
|
$ |
866,477 |
|
|
$ |
1,009,277 |
|
|
On May 20, 2009, the Helping Families Save Their Homes Act of 2009 was signed into law. The
Act extends through December 31, 2013, the FDICs temporary standard maximum deposit insurance
amount, which was increased on October 3, 2008, from $100,000 to $250,000 per depositor per
institution.
NOTE 19 OTHER BORROWED FUNDS
The following table details the components of other borrowed funds.
|
|
|
|
|
|
|
|
|
(in millions) |
|
June 30, 2009 |
|
December 31, 2008 |
|
Advances from Federal Home Loan Banks(a) |
|
$ |
48,838 |
|
|
$ |
70,187 |
|
Nonrecourse advances FRBB(b) |
|
|
14,473 |
|
|
|
11,192 |
|
Other(c) |
|
|
10,657 |
|
|
|
51,021 |
|
|
Total other borrowed funds |
|
$ |
73,968 |
|
|
$ |
132,400 |
|
|
|
|
|
(a) |
|
Maturities of advances from the FHLBs were $39.6 billion, $7.6 billion, and $719 million in
each of the 12-month periods ending June 30, 2010, 2011, and 2013, respectively, and $940
million maturing after June 30, 2014. Maturities for the 12 month period ending June 30, 2012
and 2014 were not material. |
|
(b) |
|
On September 19, 2008, the Federal Reserve Board established a special lending facility, the
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), to provide
liquidity to eligible U.S. money market mutual funds (MMMFs). Under the AMLF, banking
organizations must use the loan proceeds to finance their purchases of eligible high-quality
asset-backed commercial paper (ABCP) investments from MMMFs, which are 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; therefore, the ABCP investments held are not assessed any regulatory
capital. The AMLF will be in effect until October 30, 2009. The nonrecourse advances from the
FRBB were elected under the fair value option and recorded in other borrowed funds; the
corresponding ABCP investments were also elected under the fair value option and recorded in
other assets. |
|
(c) |
|
Includes zero and $30 billion of advances from the Federal Reserve under the Federal
Reserves Term Auction Facility (TAF) at June 30, 2009, and December 31, 2008, respectively,
pursuant to which the Federal Reserve auctions term funds to depository institutions that are
eligible to borrow under the primary credit program. The TAF allows all eligible depository
institutions to place a bid for an advance from its local Federal Reserve Bank at an interest
rate set by an auction. All advances are required to be fully collateralized. The TAF is
designed to improve liquidity by making it easier for sound institutions to borrow when the
markets are not operating efficiently. |
156
NOTE 20 PREFERRED STOCK
JPMorgan Chase is authorized to issue 200 million shares of preferred stock, in one or more series,
with a par value of $1 per share. For a further discussion of preferred stock, see Note 24 on pages
193-194 of JPMorgan Chases 2008 Annual Report.
The following is a summary of preferred stock outstanding as of June 30, 2009, and December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares at |
|
Outstanding at |
|
|
|
|
|
|
|
|
Share value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
redemption |
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
Earliest |
|
rate in effect at |
(in millions) |
|
price per share(b) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
redemption date |
|
June 30, 2009 |
|
Cumulative Preferred
Stock, Series E(a) |
|
$ |
200 |
|
|
|
818,113 |
|
|
|
818,113 |
|
|
$ |
164 |
|
|
$ |
164 |
|
|
Any time |
|
|
6.15 |
% |
Cumulative Preferred
Stock, Series F(a) |
|
|
200 |
|
|
|
428,825 |
|
|
|
428,825 |
|
|
|
86 |
|
|
|
86 |
|
|
Any time |
|
|
5.72 |
|
Cumulative Preferred
Stock, Series G(a) |
|
|
200 |
|
|
|
511,169 |
|
|
|
511,169 |
|
|
|
102 |
|
|
|
102 |
|
|
Any time |
|
|
5.49 |
|
Fixed to Floating
Rate Noncumulative
Perpetual Preferred
Stock, Series I(a) |
|
|
10,000 |
|
|
|
600,000 |
|
|
|
600,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
4/30/2018 |
|
|
|
7.90 |
|
Noncumulative
Perpetual Preferred
Stock, Series J(a) |
|
|
10,000 |
|
|
|
180,000 |
|
|
|
180,000 |
|
|
|
1,800 |
|
|
|
1,800 |
|
|
|
9/1/2013 |
|
|
|
8.63 |
|
Fixed Rate Cumulative
Perpetual Preferred
Stock, Series K |
|
|
10,000 |
|
|
|
|
|
|
|
2,500,000 |
|
|
|
|
|
|
|
23,787 |
(c) |
|
|
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock |
|
|
|
|
|
|
2,538,107 |
|
|
|
5,038,107 |
|
|
$ |
8,152 |
|
|
$ |
31,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represented by depositary shares. |
|
(b) |
|
Redemption price includes amount shown in the table plus any accrued but unpaid dividends. |
|
(c) |
|
Represents the carrying value as of December 31, 2008. The redemption value was $25.0
billion. |
Redemption of Series K preferred stock
On June 17, 2009, the Firm redeemed all of the outstanding shares of Series K preferred stock
issued to the U.S. Treasury, and repaid the full $25.0 billion principal amount. Following
discussions with the U.S. Treasury regarding the warrant that was issued to the U.S. Treasury in
connection with the U.S. Treasurys purchase of the Series K preferred stock, on July 7, 2009,
JPMorgan Chase notified the U.S. Treasury that it had revoked its warrant repurchase notice.
JPMorgan Chase understands, based on the U.S. Treasurys public statements, that the U.S. Treasury
intends to pursue a public auction of the warrant. The U.S. Treasury has advised JPMorgan Chase
that the Firm will be permitted to participate in any such auction.
During the period that shares of the Series K preferred stock were outstanding, no dividends could
be declared or paid on stock ranking junior or equally with the Series K preferred stock, unless
all accrued and unpaid dividends for all past dividend periods on the Series K preferred stock were
fully paid. Also, the U.S. Treasurys consent was required until October 28, 2011, for any increase
in dividends on the Firms common stock above $0.38 per share. In addition, the Firm could not
repurchase or redeem any common stock or other equity securities of the Firm, or any trust
preferred capital debt securities issued by the Firm or any of its affiliates, without the prior
consent of the U.S. Treasury (other than (i) repurchases of the Series K preferred stock and (ii)
repurchases of junior preferred shares or common stock in connection with any employee benefit plan
in the ordinary course of business consistent with past practice) until October 28, 2011. As a
result of the redemption of the Series K preferred stock, JPMorgan Chase is no longer subject to
any of these restrictions.
157
NOTE 21 EARNINGS PER SHARE
For a discussion of the computation of basic and diluted earnings per share (EPS), see Note 26 on
page 195 of JPMorgan Chases 2008 Annual Report.
Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1, which clarifies that unvested
stock-based compensation awards containing nonforfeitable rights to dividends or dividend
equivalents (collectively, dividends) are participating securities and should be included in the
EPS calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to
certain employees under its stock-based compensation programs, which entitle the recipients to
receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends
paid to holders of common stock. These unvested awards meet the FSPs definition of participating
securities. Under the two class method, all earnings (distributed and undistributed) are allocated
to each class of common stock and participating securities, based on their respective rights to
receive dividends. EPS data for the prior periods were revised as required by the FSP.
The following table presents the calculation of basic and diluted EPS for the three and six months
ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
2,003 |
|
|
$ |
4,862 |
|
|
$ |
4,376 |
|
Less: Preferred stock dividends |
|
|
473 |
|
|
|
90 |
|
|
|
1,002 |
|
|
|
90 |
|
Less: Accelerated amortization from
redemption of preferred stock issued
to the U.S. Treasury(a) |
|
|
1,112 |
|
|
|
|
|
|
|
1,112 |
|
|
|
|
|
|
Net income applicable to common equity |
|
|
1,136 |
|
|
|
1,913 |
|
|
|
2,748 |
|
|
|
4,286 |
|
Less: Dividends and undistributed
earnings allocated to participating
securities |
|
|
64 |
|
|
|
70 |
|
|
|
157 |
|
|
|
153 |
|
|
Net income applicable to common
stockholders(b) |
|
$ |
1,072 |
|
|
$ |
1,843 |
|
|
$ |
2,591 |
|
|
$ |
4,133 |
|
Total weighted-average basic shares
outstanding |
|
|
3,811.5 |
|
|
|
3,426.2 |
|
|
|
3,783.6 |
|
|
|
3,411.1 |
|
|
Net income per share(a)(c) |
|
$ |
0.28 |
|
|
$ |
0.54 |
|
|
$ |
0.68 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common
stockholders(b) |
|
$ |
1,072 |
|
|
$ |
1,843 |
|
|
$ |
2,591 |
|
|
$ |
4,133 |
|
Total weighted-average basic shares outstanding |
|
|
3,811.5 |
|
|
|
3,426.2 |
|
|
|
3,783.6 |
|
|
|
3,411.1 |
|
Add: Employee stock options and SARs(d) |
|
|
12.6 |
|
|
|
26.9 |
|
|
|
7.8 |
|
|
|
27.1 |
|
|
Total weighted-average diluted shares
outstanding(e) |
|
|
3,824.1 |
|
|
|
3,453.1 |
|
|
|
3,791.4 |
|
|
|
3,438.2 |
|
|
Net income per share(a)(c) |
|
$ |
0.28 |
|
|
$ |
0.53 |
|
|
$ |
0.68 |
|
|
$ |
1.20 |
|
|
|
|
|
(a) |
|
The calculation of basic and diluted EPS for the three and six months ended June 30, 2009
includes a one-time noncash reduction of $1.1 billion, or $0.27 and $0.28 per share,
respectively, resulting from the redemption of Series K preferred stock issued to the U.S.
Treasury. |
|
(b) |
|
Net income applicable to common stockholders for diluted and basic EPS may differ under the
two-class method as a result of adding common stock equivalents for options, SARs and warrants
to dilutive shares outstanding, which alters the ratio used to allocate earnings to common
stockholders and participating securities for purposes of calculating diluted EPS. |
|
(c) |
|
EPS data has been revised to reflect the retrospective application of FSP EITF 03-6-1, which
resulted in a reduction of basic and diluted EPS for the three months ended June 30, 2009, of
$0.02 and $0.01, respectively; for the six months ended June 30, 2009, of $0.05 and $0.02,
respectively; for the three months ended June 30, 2008, of $0.02 and $0.01, respectively; and
for the six months ended June 30, 2008, of $0.05 and $0.02, respectively. |
|
(d) |
|
Options issued under employee benefit plans and, subsequent to October 28, 2008, the warrant
issued under the U.S. Treasurys Capital Purchase Program, to purchase an aggregate 315
million and 169 million shares of common stock were outstanding for the three months ended
June 30, 2009 and 2008, respectively, and an aggregate 339 million and 171 million for the six
months ended June 30, 2009 and 2008, respectively, but were not included in the computation of
diluted EPS because the options were antidilutive. |
|
(e) |
|
Participating securities were included in the calculation of diluted EPS using the two-class
method, as this computation was more dilutive than the calculation using the treasury-stock
method. |
158
NOTE 22 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes the after-tax change in unrealized gains and
losses on AFS securities, SFAS 52 foreign currency translation adjustments (including the impact of
related derivatives), SFAS 133 cash flow hedging activities and SFAS 158 net loss and prior service
cost (credit) related to the Firms defined benefit pension and OPEB plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service costs |
|
Accumulated |
Six months ended |
|
Unrealized gains |
|
Translation |
|
|
|
|
|
(credit) of defined |
|
other |
June 30, 2009 |
|
(losses) on AFS |
|
adjustments, |
|
|
|
|
|
benefit pension |
|
comprehensive |
(in millions) |
|
securities(a) |
|
net of hedges |
|
Cash flow hedges |
|
and OPEB plans |
|
income (loss) |
|
Balance at January 1, 2009 |
|
$ |
(2,101 |
) |
|
$ |
(598 |
) |
|
$ |
(202 |
) |
|
$ |
(2,786 |
) |
|
$ |
(5,687 |
) |
Net change |
|
|
1,576 |
(b) |
|
|
491 |
(d) |
|
|
95 |
(e) |
|
|
87 |
(f) |
|
|
2,249 |
|
|
Balance at June 30, 2009 |
|
$ |
(525) |
(c) |
|
$ |
(107 |
) |
|
$ |
(107 |
) |
|
$ |
(2,699 |
) |
|
$ |
(3,438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service costs |
|
Accumulated |
Six months ended |
|
Unrealized gains |
|
Translation |
|
|
|
|
|
(credit) of defined |
|
other |
June 30, 2008 |
|
(losses) on AFS |
|
adjustments, |
|
|
|
|
|
benefit pension |
|
comprehensive |
(in millions) |
|
securities(a) |
|
net of hedges |
|
Cash flow hedges |
|
and OPEB plans |
|
income (loss) |
|
Balance at January 1, 2008
|
|
$ |
380 |
|
|
$ |
8 |
|
|
$ |
(802 |
) |
|
$ |
(503 |
) |
|
$ |
(917 |
) |
Net change
|
|
|
(851 |
)(b) |
|
|
109 |
(d) |
|
|
35 |
(e) |
|
|
58 |
(f) |
|
|
(649 |
) |
|
Balance at June 30, 2008
|
|
$ |
(471 |
) |
|
$ |
117 |
|
|
$ |
(767 |
) |
|
$ |
(445 |
) |
|
$ |
(1,566 |
) |
|
|
|
|
(a) |
|
Represents the after-tax difference between the fair value and amortized cost of the AFS
securities portfolio and retained interests in securitizations recorded in other assets. |
|
(b) |
|
The net change for the six months ended June 30, 2009, was due primarily to the narrowing of
spreads on U.S. government agency mortgage-backed securities and credit card ABS positions as
a result of improvement in the credit environment. The net change for the six months ended
June 30, 2008, was due primarily to the net increase in interest rates on agency
mortgage-backed pass-through securities and market spreads. |
|
(c) |
|
Includes after-tax unrealized losses of $(426) million not related to credit on debt
securities for which credit losses have been recognized in income. |
|
(d) |
|
Includes $509 million and $215 million at June 30, 2009 and 2008, respectively, of after-tax
gains/(losses) on foreign currency translation from operations for which the functional
currency is other than the U.S. dollar, partially offset by $(18) million and $(106) million,
respectively, of after-tax gains/(losses) on hedges. The Firm may not hedge its entire
exposure to foreign currency translation on net investments in foreign operations. |
|
(e) |
|
The net change for the six months ended June 30, 2009, included $86 million of after-tax
gains recognized in income, and $181 million of after-tax gains, representing the net change
in derivative fair value that was reported in comprehensive income. The net change for the six
months ended June 30, 2008, included $134 million of after-tax losses recognized in income,
and $99 million of after-tax losses representing the net change in derivative fair value that
was reported in comprehensive income. |
|
(f) |
|
The net change for the six months ended June 30, 2009, was primarily due to after-tax
adjustments based on the final 2008 year-end actuarial valuations for the U.S. and non-U.S.
defined benefit pension plans and the U.S. OPEB plan, as well as the amortization of net loss
and prior service credit into net periodic benefit cost, offset by a change in the 2009 tax
rates. The net change for the six months ended June 30, 2008, was primarily due to after-tax
adjustments based on the 2007 final year-end actuarial valuations for the U.S. and non-U.S.
defined benefit pension plans and U.S. OPEB plan, as well as the amortization of net loss and
prior service credit into net periodic benefit cost. |
NOTE 23 COMMITMENTS AND CONTINGENCIES
For a discussion of the Firms commitments and contingencies, see Note 31 on page 201 of JPMorgan
Chases 2008 Annual Report.
Litigation reserve
The Firm maintains litigation reserves for certain of its outstanding litigation. In accordance
with the provisions of SFAS 5, JPMorgan Chase accrues for a litigation-related liability when it is
probable that such a liability has been incurred and the amount of the loss can be reasonably
estimated. When the Firm is named a defendant in a litigation and may be subject to joint and
several liability and a judgment sharing agreement is in place, the Firm recognizes expense and
obligations net of amounts expected to be paid by other signatories to the judgment-sharing
agreement.
While the outcome of litigation is inherently uncertain, management believes, in light of all
information known to it at June 30, 2009, the Firms litigation reserves were adequate at such
date. Management reviews litigation reserves at least quarterly, and the reserves may be increased
or decreased in the future to reflect further relevant developments. The Firm believes it has
meritorious defenses to the claims asserted against it in its currently outstanding litigation and,
with respect to such litigation, intends to continue to defend itself vigorously, litigating or
settling cases according to managements judgment as to what is in the best interests of
stockholders.
159
NOTE 24 OFF-BALANCE SHEET LENDING-RELATED FINANCIAL INSTRUMENTS AND GUARANTEES
JPMorgan Chase utilizes lending-related financial instruments, such as commitments and guarantees,
to meet the financing needs of its customers. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterparties draw down on these
commitments or the Firm fulfills its obligation under these guarantees, and the counterparties
subsequently fail to perform according to the terms of these contracts. For a discussion of
off-balance sheet lending-related financial instruments and guarantees, and the Firms related
accounting policies, see Note 33 on pages 206-210 of JPMorgan Chases 2008 Annual Report.
To provide for the risk of loss inherent in wholesale-related contracts, an allowance for credit
losses on lending-related commitments is maintained. See Note 14 on page 139 of this Form 10-Q for
further discussion regarding the allowance for credit losses on lending-related commitments. The
following table summarizes the contractual amounts of off-balance sheet lending-related financial
instruments and guarantees and the related allowance for credit losses on lending-related
commitments at June 30, 2009, and December 31, 2008. The amounts in the table below for credit card
and home equity lending-related commitments represent the total available credit for these
products. The Firm has not experienced, and does not anticipate, that all available lines of credit
for these products will be utilized at the same time. The Firm can reduce or cancel these lines of
credit by providing the borrower prior notice or, in some cases, without notice as permitted by
law.
Off-balance sheet lending-related financial instruments and guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for lending- |
|
|
Contractual amount |
|
related commitments |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card
|
|
$ |
607,949 |
|
|
$ |
623,702 |
|
|
$ |
|
|
|
$ |
|
|
Home equity
|
|
|
70,642 |
|
|
|
95,743 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
20,691 |
|
|
|
22,062 |
|
|
|
27 |
|
|
|
25 |
|
|
Total consumer
|
|
$ |
699,282 |
|
|
$ |
741,507 |
|
|
$ |
27 |
|
|
$ |
25 |
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend credit(a)(b)
|
|
|
185,000 |
|
|
|
189,563 |
|
|
|
319 |
|
|
|
349 |
|
Asset purchase agreements
|
|
|
30,010 |
|
|
|
53,729 |
|
|
|
2 |
|
|
|
9 |
|
Standby letters of credit and other financial
guarantees(a)(c)(d)
|
|
|
89,453 |
|
|
|
95,352 |
|
|
|
397 |
|
|
|
274 |
|
Unused advised lines of credit
|
|
|
35,137 |
|
|
|
36,300 |
|
|
|
|
|
|
|
|
|
Other letters of credit(a)(c)
|
|
|
4,391 |
|
|
|
4,927 |
|
|
|
1 |
|
|
|
2 |
|
|
Total wholesale
|
|
|
343,991 |
|
|
|
379,871 |
|
|
|
719 |
|
|
|
634 |
|
|
Total lending-related
|
|
$ |
1,043,273 |
|
|
$ |
1,121,378 |
|
|
$ |
746 |
|
|
$ |
659 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(e)
|
|
$ |
153,940 |
|
|
$ |
169,281 |
|
|
NA
|
|
NA
|
Residual value guarantees
|
|
|
670 |
|
|
|
670 |
|
|
NA
|
|
NA
|
Derivatives qualifying as guarantees(f)
|
|
|
85,715 |
|
|
|
83,835 |
|
|
NA
|
|
NA
|
|
|
|
|
(a) |
|
Represents the contractual amount net of risk participations totaling $27.1 billion and
$28.3 billion at June 30, 2009, and December 31, 2008, respectively. |
|
(b) |
|
Excludes unfunded commitments to third-party private equity funds of $1.5 billion and $1.4
billion at June 30, 2009, and December 31, 2008, respectively. Also excludes unfunded
commitments for other equity investments of $921 million and $1.0 billion at June 30, 2009,
and December 31, 2008, respectively. |
|
(c) |
|
JPMorgan Chase held collateral relating to $29.2 billion and $31.0 billion of standby letters
of credit and $1.3 billion and $1.0 billion of other letters of credit at June 30, 2009, and
December 31, 2008, respectively. |
|
(d) |
|
Includes unissued standby letters of credit commitments of $37.5 billion and $39.5 billion at
June 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$157.0 billion and $170.1 billion at June 30, 2009, and December 31, 2008, respectively.
Securities lending collateral comprises primarily cash, securities issued by governments that
are members of the Organisation for Economic Co-operation and Development (OECD) and U.S.
government agencies. |
|
(f) |
|
Represents notional amounts of derivatives qualifying as guarantees. |
160
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit include commitments to U.S. domestic states and
municipalities, hospitals and other not-for-profit entities to provide funding for periodic tenders
of their variable-rate demand bond obligations or commercial paper. Performance by the Firm is
required in the event that the variable-rate demand bonds or commercial paper cannot be remarketed
to new investors. The amount of commitments related to variable-rate demand bonds and commercial
paper of U.S. domestic states and municipalities, hospitals and not-for-profit entities was $23.3
billion and $23.5 billion at June 30, 2009, and December 31, 2008, respectively. Similar
commitments exist to extend credit in the form of liquidity facility agreements with
nonconsolidated municipal bond VIEs. For further information, see Note 16 on pages 148-153 of this
Form 10-Q.
Also included in other unfunded commitments to extend credit are commitments to investment- and
noninvestment-grade counterparties in connection with leveraged acquisitions. These commitments are
dependent on whether the acquisition by the borrower is successful, tend to be short-term in nature
and, in most cases, are subject to certain conditions based on the borrowers financial condition
or other factors. The amount of commitments related to leveraged acquisitions at June 30, 2009, and
December 31, 2008, was $2.9 billion and $3.6 billion, respectively. For further information, see
Note 3 and Note 4 on pages 99-114 and 114-116 respectively, of this Form 10-Q.
FIN 45 guarantees
The Firm considers the following off-balance sheet lending-related arrangements to be guarantees
under FIN 45: certain asset purchase agreements, standby letters of credit and financial
guarantees, securities lending indemnifications, certain indemnification agreements included within
third-party contractual arrangements and certain derivative contracts. For a further discussion of
the off-balance sheet lending-related arrangements the Firm considers to be guarantees under FIN
45, and the related accounting policies, see Note 33 on pages 206-210 of JPMorgan Chases 2008
Annual Report. The amount of the liability related to FIN 45 guarantees recorded at June 30, 2009,
and December 31, 2008, excluding the allowance for credit losses on lending-related commitments and
derivative contracts discussed below, was $475 million and $535 million, respectively.
Asset purchase agreements
Asset purchase agreements are principally used as a mechanism to provide liquidity to
SPEs, predominantly multi-seller conduits, as described in Note 16 on pages 148-153 of this Form
10-Q.
The carrying value of asset purchase agreements of $112 million and $147 million at June 30, 2009,
and December 31, 2008, respectively, which is classified in accounts payable and other liabilities
on the Consolidated Balance Sheets, includes $2 million and $9 million at June 30, 2009, and
December 31, 2008, respectively, for the allowance for lending-related commitments, and $110
million and $138 million at June 30, 2009, and December 31, 2008, respectively, for the fair value
of the FIN 45 guarantee liability.
Standby letters of credit
Standby letters of credit (SBLC) and financial guarantees are conditional lending commitments
issued by the Firm to guarantee the performance of a customer to a third party under certain
arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade
and similar transactions. The carrying value of standby and other letters of credit of $763 million
and $673 million at June 30, 2009, and December 31, 2008, respectively, which is classified in
accounts payable and other liabilities on the Consolidated Balance Sheets, includes $398 million
and $276 million at June 30, 2009, and December 31, 2008, respectively, for the allowance for
lending-related commitments, and $365 million and $397 million at June 30, 2009, and December 31,
2008, respectively, for the fair value of the FIN 45 guarantee.
161
The following table summarizes the types of facilities under which standby letters of credit and
other letters of credit arrangements are outstanding by the ratings profiles of the Firms
customers as of June 30, 2009, and December 31, 2008. The ratings scale is representative of the
payment or performance risk to the Firms internal risk ratings, which generally correspond to
ratings defined by S&P and Moodys.
Standby letters of credit and other financial guarantees and other letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
|
Standby letters of |
|
|
|
|
|
Standby letters of |
|
|
|
|
credit and other |
|
Other letters |
|
credit and other |
|
Other letters |
(in millions) |
|
financial guarantees |
|
of credit |
|
financial guarantees |
|
of credit(c) |
|
Investment-grade(a) |
|
$ |
66,916 |
|
|
$ |
3,212 |
|
|
$ |
73,394 |
|
|
$ |
3,772 |
|
Noninvestment-grade(a) |
|
|
22,537 |
|
|
|
1,179 |
|
|
|
21,958 |
|
|
|
1,155 |
|
|
Total contractual amount |
|
$ |
89,453 |
(b) |
|
$ |
4,391 |
|
|
$ |
95,352 |
(b) |
|
$ |
4,927 |
|
|
Allowance for lending-related commitments |
|
$ |
397 |
|
|
$ |
1 |
|
|
$ |
274 |
|
|
$ |
2 |
|
Commitments with collateral |
|
|
29,174 |
|
|
|
1,348 |
|
|
|
30,972 |
|
|
|
1,000 |
|
|
|
|
|
(a) |
|
Ratings scale is based on the Firms internal ratings, which generally correspond to
ratings defined by S&P and Moodys. |
|
(b) |
|
Represents contractual amount net of risk participations totaling $27.1 billion and $28.3
billion at June 30, 2009, and December 31, 2008, respectively. |
|
(c) |
|
The investment-grade and noninvestment-grade amounts have been revised from previous
disclosures. |
Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm transacts certain derivative contracts that
meet the characteristics of a guarantee under FIN 45. The total notional value of the derivatives
that the Firm deems to be guarantees was $85.7 billion and $83.8 billion at June 30, 2009, and
December 31, 2008, respectively. The notional value generally represents the Firms maximum
exposure to derivatives qualifying as guarantees, although exposure to certain stable value
derivatives is contractually limited to a substantially lower percentage of the notional value. The
fair value of the contracts reflects the probability of whether the Firm will be required to
perform under the contract. At June 30, 2009, and December 31, 2008, the fair value related to
derivative guarantees was a derivative receivable of $212 million and $184 million, respectively,
and a derivative payable of $3.0 billion and $5.6 billion, respectively. The Firm reduces exposures
to these contracts by entering into offsetting transactions, or by entering into contracts that
hedge the market risk related to the derivative guarantees.
In addition to derivative contracts that meet the characteristics of a guarantee under FIN 45, the
Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a
further discussion of credit derivatives, see Note 5 on pages 116-124 of this Form 10-Q, and Note
32 on pages 202-205 of JPMorgan Chases 2008 Annual Report.
Loan sale- and securitization-related indemnifications
Indemnifications for breaches of representations and warranties
As part of the Firms loan sale and securitization activities, as
described in Note 14 and Note 16 on pages 163-166 and 168-176, respectively, of JPMorgan Chases
2008 Annual Report, and Note 13 and Note 15 on pages 135-138 and 139-147,
respectively, of this Form 10-Q, the Firm generally makes representations and warranties in its loan sale and
securitization agreements that the loans sold meet certain requirements. These agreements may
require the Firm (including in its roles as a servicer) to repurchase the loans and/or indemnify
the purchaser of the loans against losses due to any breaches of such representations or
warranties. Generally, the maximum amount of future payments the Firm would be required to make for
breaches under these representations and warranties would be equal to the current amount of assets
held by such securitization-related SPEs, plus, in certain circumstances, accrued and unpaid
interest on such loans and certain expense.
During the first quarter of 2009, the Firm resolved certain current and future claims for certain
loans originated and sold by Washington Mutual. At June 30, 2009, and December 31, 2008, the Firm
had recorded a repurchase liability of $756 million and $1.1 billion, respectively.
Loans sold with recourse
The Firm provides servicing for mortgages and certain commercial lending
products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit
risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing
advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the
mortgage loans, such as the FNMA, or the FHLMC or a private investor, insurer or guarantor. Losses
on recourse servicing predominantly occur when foreclosure sales proceeds of the property
underlying a defaulted loan are less than the sum of the outstanding principal balance, plus
accrued interest on the loan and the cost of holding and disposing of the underlying property. The
Firms loan sale transactions have primarily been executed on a nonrecourse basis, thereby
effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed
securities issued by the trust. At June 30, 2009, and December 31, 2008, the unpaid principal
balance of loans sold with recourse totaled $14.1
162
billion and $15.0 billion, respectively. The carrying values of the related liability that the Firm
had recorded, which is representative of the Firms view of the likelihood it will have to perform
under this guarantee, were $258 million and $241 million at June 30, 2009, and December 31, 2008,
respectively.
NOTE 25 BUSINESS SEGMENTS
JPMorgan Chase is organized into six major reportable business segments the Investment Bank,
Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services
(TSS) and Asset Management (AM), as well as a Corporate/Private Equity segment. The segments
are based on the products and services provided or the type of customer served, and they reflect
the manner in which financial information is currently evaluated by management. Results of these
lines of business are presented on a managed basis. For a definition of managed basis, see the
footnotes to the table below. For a further discussion concerning JPMorgan Chases business
segments, see Business Segment Results on pages 18-19 of this Form 10-Q, and pages 40-41 and Note
37 on pages 214-215 of JPMorgan Chases 2008 Annual Report.
Segment results
The following tables provide a summary of the Firms segment results for the three and six months
ended June 30, 2009 and 2008, on a managed basis. The impact of credit card securitization
adjustments has been included in reconciling items so that the total Firm results are on a reported
basis. Finally, total net revenue (noninterest revenue and net interest income) for each of the
segments is presented on a tax-equivalent basis. Accordingly, revenue from tax-exempt securities
and investments that receive tax credits are presented in the managed results on a basis comparable
to taxable securities and investments. This approach 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 (benefit). The following tables
summarize the business segment results and reconciliation to reported U.S. GAAP results.
Segment results and reconciliation(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
4,856 |
|
|
$ |
2,940 |
|
|
$ |
557 |
|
|
$ |
458 |
|
Net interest income |
|
|
2,445 |
|
|
|
5,030 |
|
|
|
4,311 |
|
|
|
995 |
|
|
Total net revenue |
|
|
7,301 |
|
|
|
7,970 |
|
|
|
4,868 |
|
|
|
1,453 |
|
Provision for credit losses |
|
|
871 |
|
|
|
3,846 |
|
|
|
4,603 |
|
|
|
312 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
4,067 |
|
|
|
4,079 |
|
|
|
1,333 |
|
|
|
535 |
|
|
Income (loss) before income tax expense |
|
|
2,363 |
|
|
|
45 |
|
|
|
(1,068 |
) |
|
|
606 |
|
Income tax expense (benefit) |
|
|
892 |
|
|
|
30 |
|
|
|
(396 |
) |
|
|
238 |
|
|
Net income (loss) |
|
$ |
1,471 |
|
|
$ |
15 |
|
|
$ |
(672 |
) |
|
$ |
368 |
|
|
Average common equity |
|
$ |
33,000 |
|
|
$ |
25,000 |
|
|
$ |
15,000 |
|
|
$ |
8,000 |
|
Average assets |
|
|
710,825 |
|
|
|
410,228 |
|
|
|
193,310 |
|
|
|
137,283 |
|
Return on average common equity |
|
|
18 |
% |
|
|
|
% |
|
|
(18 |
)% |
|
|
18 |
% |
Overhead ratio |
|
|
56 |
|
|
|
51 |
|
|
|
27 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
Treasury & |
|
Asset |
|
Corporate/ |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Private Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
1,245 |
|
|
$ |
1,568 |
|
|
$ |
1,400 |
|
|
$ |
(71 |
) |
|
$ |
12,953 |
|
Net interest income |
|
|
655 |
|
|
|
414 |
|
|
|
865 |
|
|
|
(2,045 |
) |
|
|
12,670 |
|
|
Total net revenue |
|
|
1,900 |
|
|
|
1,982 |
|
|
|
2,265 |
|
|
|
(2,116 |
) |
|
|
25,623 |
|
Provision for credit losses |
|
|
(5 |
) |
|
|
59 |
|
|
|
9 |
|
|
|
(1,664 |
) |
|
|
8,031 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
Noninterest expense(c) |
|
|
1,288 |
|
|
|
1,354 |
|
|
|
864 |
|
|
|
|
|
|
|
13,520 |
|
|
Income (loss) before income tax expense |
|
|
587 |
|
|
|
569 |
|
|
|
1,392 |
|
|
|
(422 |
) |
|
|
4,072 |
|
Income tax expense (benefit) |
|
|
208 |
|
|
|
217 |
|
|
|
584 |
|
|
|
(422 |
) |
|
|
1,351 |
|
|
Net income (loss) |
|
$ |
379 |
|
|
$ |
352 |
|
|
$ |
808 |
|
|
$ |
|
|
|
$ |
2,721 |
|
|
Average common equity |
|
$ |
5,000 |
|
|
$ |
7,000 |
|
|
$ |
47,865 |
|
|
$ |
|
|
|
$ |
140,865 |
|
Average assets |
|
|
35,520 |
|
|
|
59,334 |
|
|
|
573,460 |
|
|
|
(81,588 |
) |
|
|
2,038,372 |
|
Return on average common equity |
|
|
30 |
% |
|
|
20 |
% |
|
NM |
|
|
NM |
|
|
|
3 |
% |
Overhead ratio |
|
|
68 |
|
|
|
68 |
|
|
NM |
|
|
NM |
|
|
|
53 |
|
|
163
Segment results and reconciliation(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
3,191 |
|
|
$ |
1,960 |
|
|
$ |
764 |
|
|
$ |
383 |
|
Net interest income |
|
|
2,309 |
|
|
|
3,150 |
|
|
|
3,011 |
|
|
|
723 |
|
|
Total net revenue |
|
|
5,500 |
|
|
|
5,110 |
|
|
|
3,775 |
|
|
|
1,106 |
|
Provision for credit losses |
|
|
398 |
|
|
|
1,585 |
|
|
|
2,194 |
|
|
|
47 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
4,734 |
|
|
|
2,680 |
|
|
|
1,185 |
|
|
|
476 |
|
|
Income before income tax expense |
|
|
368 |
|
|
|
845 |
|
|
|
396 |
|
|
|
583 |
|
Income tax expense (benefit) |
|
|
(26 |
) |
|
|
342 |
|
|
|
146 |
|
|
|
228 |
|
|
Net income (loss) |
|
$ |
394 |
|
|
$ |
503 |
|
|
$ |
250 |
|
|
$ |
355 |
|
|
Average common equity |
|
$ |
23,319 |
|
|
$ |
17,000 |
|
|
$ |
14,100 |
|
|
$ |
7,000 |
|
Average assets |
|
|
814,860 |
|
|
|
267,808 |
|
|
|
161,601 |
|
|
|
103,469 |
|
Return on average common equity |
|
|
7 |
% |
|
|
12 |
% |
|
|
7 |
% |
|
|
20 |
% |
Overhead ratio |
|
|
86 |
|
|
|
52 |
|
|
|
31 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 |
|
Treasury & |
|
Asset |
|
Corporate/
Private |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
1,357 |
|
|
$ |
1,703 |
|
|
$ |
181 |
|
|
$ |
566 |
|
|
$ |
10,105 |
|
Net interest income (loss) |
|
|
662 |
|
|
|
361 |
|
|
|
(47 |
) |
|
|
(1,875 |
) |
|
|
8,294 |
|
|
Total net revenue |
|
|
2,019 |
|
|
|
2,064 |
|
|
|
134 |
|
|
|
(1,309 |
) |
|
|
18,399 |
|
Provision for credit losses |
|
|
7 |
|
|
|
17 |
|
|
|
37 |
|
|
|
(830 |
) |
|
|
3,455 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
Noninterest expense(c) |
|
|
1,317 |
|
|
|
1,400 |
|
|
|
385 |
|
|
|
|
|
|
|
12,177 |
|
|
Income (loss) before income tax expense |
|
|
665 |
|
|
|
647 |
|
|
|
(288 |
) |
|
|
(449 |
) |
|
|
2,767 |
|
Income tax expense (benefit) |
|
|
240 |
|
|
|
252 |
|
|
|
31 |
|
|
|
(449 |
) |
|
|
764 |
|
|
Net income (loss) |
|
$ |
425 |
|
|
$ |
395 |
|
|
$ |
(319 |
) |
|
$ |
|
|
|
$ |
2,003 |
|
|
Average common equity |
|
$ |
3,500 |
|
|
$ |
5,066 |
|
|
$ |
56,421 |
|
|
$ |
|
|
|
$ |
126,406 |
|
Average assets |
|
|
56,192 |
|
|
|
65,015 |
|
|
|
274,334 |
|
|
|
(74,580 |
) |
|
|
1,668,699 |
|
Return on average common equity |
|
|
49 |
% |
|
|
31 |
% |
|
NM |
|
|
NM |
|
|
|
6 |
% |
Overhead ratio |
|
|
65 |
|
|
|
68 |
|
|
NM |
|
|
NM |
|
|
|
66 |
|
|
Segment results and reconciliation(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
10,525 |
|
|
$ |
6,537 |
|
|
$ |
1,204 |
|
|
$ |
880 |
|
Net interest income |
|
|
5,147 |
|
|
|
10,268 |
|
|
|
8,793 |
|
|
|
1,975 |
|
|
Total net revenue |
|
|
15,672 |
|
|
|
16,805 |
|
|
|
9,997 |
|
|
|
2,855 |
|
Provision for credit losses |
|
|
2,081 |
|
|
|
7,723 |
|
|
|
9,256 |
|
|
|
605 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
8,841 |
|
|
|
8,250 |
|
|
|
2,679 |
|
|
|
1,088 |
|
|
Income (loss) before income tax expense |
|
|
4,750 |
|
|
|
832 |
|
|
|
(1,938 |
) |
|
|
1,162 |
|
Income tax expense (benefit) |
|
|
1,673 |
|
|
|
343 |
|
|
|
(719 |
) |
|
|
456 |
|
|
Net income (loss) |
|
$ |
3,077 |
|
|
$ |
489 |
|
|
$ |
(1,219 |
) |
|
$ |
706 |
|
|
Average common equity |
|
$ |
33,000 |
|
|
$ |
25,000 |
|
|
$ |
15,000 |
|
|
$ |
8,000 |
|
Average assets |
|
|
721,934 |
|
|
|
416,813 |
|
|
|
197,234 |
|
|
|
140,771 |
|
Return on average common equity |
|
|
19 |
% |
|
|
4 |
% |
|
|
(16 |
)% |
|
|
18 |
% |
Overhead ratio |
|
|
56 |
|
|
|
49 |
|
|
|
27 |
|
|
|
38 |
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
Treasury & |
|
Asset |
|
Corporate/
Private |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
2,393 |
|
|
$ |
2,868 |
|
|
$ |
102 |
|
|
$ |
102 |
|
|
$ |
24,611 |
|
Net interest income |
|
|
1,328 |
|
|
|
817 |
|
|
|
1,854 |
|
|
|
(4,145 |
) |
|
|
26,037 |
|
|
Total net revenue |
|
|
3,721 |
|
|
|
3,685 |
|
|
|
1,956 |
|
|
|
(4,043 |
) |
|
|
50,648 |
|
Provision for credit losses |
|
|
(11 |
) |
|
|
92 |
|
|
|
9 |
|
|
|
(3,128 |
) |
|
|
16,627 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
Noninterest expense(c) |
|
|
2,607 |
|
|
|
2,652 |
|
|
|
776 |
|
|
|
|
|
|
|
26,893 |
|
|
Income (loss) before income tax expense |
|
|
1,065 |
|
|
|
941 |
|
|
|
1,171 |
|
|
|
(855 |
) |
|
|
7,128 |
|
Income tax expense (benefit) |
|
|
378 |
|
|
|
365 |
|
|
|
625 |
|
|
|
(855 |
) |
|
|
2,266 |
|
|
Net income (loss) |
|
$ |
687 |
|
|
$ |
576 |
|
|
$ |
546 |
|
|
$ |
|
|
|
$ |
4,862 |
|
|
Average common equity |
|
$ |
5,000 |
|
|
$ |
7,000 |
|
|
$ |
45,691 |
|
|
$ |
|
|
|
$ |
138,691 |
|
Average assets |
|
|
37,092 |
|
|
|
58,783 |
|
|
|
562,221 |
|
|
|
(82,182 |
) |
|
|
2,052,666 |
|
Return on average common equity |
|
|
28 |
% |
|
|
17 |
% |
|
NM |
|
|
NM |
|
|
|
4 |
% |
Overhead ratio |
|
|
70 |
|
|
|
72 |
|
|
NM |
|
|
NM |
|
|
|
53 |
|
|
Segment results and reconciliation(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
4,409 |
|
|
$ |
3,649 |
|
|
$ |
1,483 |
|
|
$ |
717 |
|
Net interest income |
|
|
4,132 |
|
|
|
6,224 |
|
|
|
6,196 |
|
|
|
1,456 |
|
|
Total net revenue |
|
|
8,541 |
|
|
|
9,873 |
|
|
|
7,679 |
|
|
|
2,173 |
|
Provision for credit losses |
|
|
1,016 |
|
|
|
4,273 |
|
|
|
3,864 |
|
|
|
148 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
7,287 |
|
|
|
5,252 |
|
|
|
2,457 |
|
|
|
961 |
|
|
Income (loss) before income tax expense |
|
|
238 |
|
|
|
348 |
|
|
|
1,358 |
|
|
|
1,064 |
|
Income tax expense (benefit) |
|
|
(69 |
) |
|
|
156 |
|
|
|
499 |
|
|
|
417 |
|
|
Net income (loss) |
|
$ |
307 |
|
|
$ |
192 |
|
|
$ |
859 |
|
|
$ |
647 |
|
|
Average common equity |
|
$ |
22,659 |
|
|
$ |
17,000 |
|
|
$ |
14,100 |
|
|
$ |
7,000 |
|
Average assets |
|
|
785,344 |
|
|
|
263,911 |
|
|
|
160,601 |
|
|
|
102,724 |
|
Return on average common equity |
|
|
3 |
% |
|
|
2 |
% |
|
|
12 |
% |
|
|
19 |
% |
Overhead ratio |
|
|
85 |
|
|
|
53 |
|
|
|
32 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 |
|
Treasury & |
|
Asset |
|
Corporate/ Private |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
2,646 |
|
|
$ |
3,293 |
|
|
$ |
1,869 |
|
|
$ |
1,270 |
|
|
$ |
19,336 |
|
Net interest income |
|
|
1,286 |
|
|
|
672 |
|
|
|
(396 |
) |
|
|
(3,617 |
) |
|
|
15,953 |
|
|
Total net revenue |
|
|
3,932 |
|
|
|
3,965 |
|
|
|
1,473 |
|
|
|
(2,347 |
) |
|
|
35,289 |
|
Provision for credit losses |
|
|
19 |
|
|
|
33 |
|
|
|
37 |
|
|
|
(1,511 |
) |
|
|
7,879 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
|
|
Noninterest expense(c) |
|
|
2,545 |
|
|
|
2,723 |
|
|
|
(117 |
) |
|
|
|
|
|
|
21,108 |
|
|
Income (loss) before income tax expense |
|
|
1,308 |
|
|
|
1,209 |
|
|
|
1,553 |
|
|
|
(776 |
) |
|
|
6,302 |
|
Income tax expense (benefit) |
|
|
480 |
|
|
|
458 |
|
|
|
761 |
|
|
|
(776 |
) |
|
|
1,926 |
|
|
Net income |
|
$ |
828 |
|
|
$ |
751 |
|
|
$ |
792 |
|
|
$ |
|
|
|
$ |
4,376 |
|
|
Average common equity |
|
$ |
3,500 |
|
|
$ |
5,033 |
|
|
$ |
56,201 |
|
|
$ |
|
|
|
$ |
125,493 |
|
Average assets |
|
|
56,698 |
|
|
|
62,651 |
|
|
|
260,403 |
|
|
|
(73,084 |
) |
|
|
1,619,248 |
|
Return on average common equity |
|
|
48 |
% |
|
|
30 |
% |
|
NM |
|
|
NM |
|
|
|
7 |
% |
Overhead ratio |
|
|
65 |
|
|
|
69 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
|
|
|
(a) |
|
In addition to analyzing the Firms results on a reported basis, management reviews the
Firms results and the results of the lines of business on a managed basis, which is a
non-GAAP financial measure. The Firms definition of managed basis starts with the reported
U.S. GAAP results and includes certain reclassifications that do not have any impact on net
income as reported by the lines of business or by the Firm as a whole. |
|
(b) |
|
In the second quarter of 2009, IB began reporting credit reimbursement from TSS as a
component of total net revenue, whereas TSS continues to report its credit reimbursement to IB
as a separate line item on its income statement (not part of net revenue). Reconciling items
include an adjustment to offset IBs inclusion of the credit reimbursement in total net
revenue. Prior periods have been revised for IB and Reconciling items to reflect this
presentation. |
|
(c) |
|
Includes merger costs, which are reported in the Corporate/Private Equity segment. Merger
costs attributed to the business segments for the three and six months ended June 30, 2009
and 2008, were as follows. |
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Investment Bank
|
|
$ |
1 |
|
|
$ |
132 |
|
|
$ |
16 |
|
|
$ |
132 |
|
Retail Financial Services
|
|
|
91 |
|
|
|
|
|
|
|
184 |
|
|
|
|
|
Card Services
|
|
|
8 |
|
|
|
|
|
|
|
36 |
|
|
|
|
|
Commercial Banking
|
|
|
2 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
Treasury & Securities Services
|
|
|
4 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
Asset Management
|
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
Corporate/Private Equity
|
|
|
35 |
|
|
|
22 |
|
|
|
97 |
|
|
|
22 |
|
|
|
|
|
(d) |
|
Managed results for credit card exclude the impact of credit card securitizations on total
net revenue, provision for credit losses and average assets, as JPMorgan Chase treats the sold
receivables as if they were still on the balance sheet in evaluating the credit performance of
the entire managed credit card portfolio as operations are funded, and decisions are made
about allocating resources, such as employees and capital, based on managed information. These
adjustments are eliminated in reconciling items to arrive at the Firms reported U.S. GAAP
results. The related securitization adjustments were as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Noninterest revenue
|
|
$ |
(294 |
) |
|
$ |
(843 |
) |
|
$ |
(834 |
) |
|
$ |
(1,780 |
) |
Net interest income
|
|
|
1,958 |
|
|
|
1,673 |
|
|
|
3,962 |
|
|
|
3,291 |
|
Provision for credit losses
|
|
|
1,664 |
|
|
|
830 |
|
|
|
3,128 |
|
|
|
1,511 |
|
Average assets
|
|
|
81,588 |
|
|
|
74,580 |
|
|
|
82,182 |
|
|
|
73,084 |
|
|
(e)
Segment managed results reflect revenue on a tax-equivalent basis, with the corresponding
income tax impact recorded within income tax expense. These adjustments are eliminated in
reconciling items to arrive at the Firms reported U.S. GAAP results. Tax-equivalent
adjustments for the three and six months ended June 30, 2009 and 2008, were as follows.
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Noninterest revenue
|
|
|
$ 335 |
|
|
|
$ 247 |
|
|
|
$ 672 |
|
|
|
$ 450 |
|
Net interest income
|
|
|
87 |
|
|
|
202 |
|
|
|
183 |
|
|
|
326 |
|
Income tax expense
|
|
|
422 |
|
|
|
449 |
|
|
|
855 |
|
|
|
776 |
|
|
166
JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
Three months ended June 30, 2008 |
|
|
Average |
|
|
|
|
|
Rate |
|
Average |
|
|
|
|
|
Rate |
|
|
balance |
|
Interest |
|
(annualized) |
|
balance |
|
Interest |
|
(annualized) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with banks |
|
$ |
68,001 |
|
|
$ |
246 |
|
|
|
1.45 |
% |
|
$ |
38,813 |
|
|
$ |
373 |
|
|
|
3.87 |
% |
Federal funds sold, securities purchased under
resale agreements and securities borrowed |
|
|
264,461 |
|
|
|
272 |
|
|
|
0.41 |
|
|
|
255,986 |
|
|
|
2,057 |
|
|
|
3.23 |
|
Trading assets debt instruments |
|
|
245,444 |
|
|
|
3,002 |
|
|
|
4.91 |
|
|
|
302,053 |
|
|
|
4,199 |
|
|
|
5.59 |
|
Securities |
|
|
354,216 |
|
|
|
3,210 |
|
|
|
3.64 |
(b) |
|
|
109,834 |
|
|
|
1,440 |
|
|
|
5.27 |
(b) |
Loans |
|
|
697,908 |
|
|
|
9,832 |
|
|
|
5.65 |
|
|
|
537,964 |
|
|
|
8,508 |
|
|
|
6.36 |
|
Other assets |
|
|
36,638 |
|
|
|
74 |
|
|
|
0.80 |
|
|
|
15,629 |
|
|
|
154 |
|
|
|
3.97 |
|
|
Total interest-earning assets |
|
|
1,666,668 |
|
|
|
16,636 |
|
|
|
4.00 |
|
|
|
1,260,279 |
|
|
|
16,731 |
|
|
|
5.34 |
|
Allowance for loan losses |
|
|
(27,384 |
) |
|
|
|
|
|
|
|
|
|
|
(11,877 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
22,816 |
|
|
|
|
|
|
|
|
|
|
|
32,179 |
|
|
|
|
|
|
|
|
|
Trading assets equity instruments |
|
|
63,507 |
|
|
|
|
|
|
|
|
|
|
|
99,525 |
|
|
|
|
|
|
|
|
|
Trading assets derivative receivables |
|
|
114,096 |
|
|
|
|
|
|
|
|
|
|
|
105,301 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
48,273 |
|
|
|
|
|
|
|
|
|
|
|
45,781 |
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
12,256 |
|
|
|
|
|
|
|
|
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
Purchased credit card relationships |
|
|
1,485 |
|
|
|
|
|
|
|
|
|
|
|
2,063 |
|
|
|
|
|
|
|
|
|
All other intangibles |
|
|
3,733 |
|
|
|
|
|
|
|
|
|
|
|
3,760 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
132,922 |
|
|
|
|
|
|
|
|
|
|
|
121,741 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,038,372 |
|
|
|
|
|
|
|
|
|
|
$ |
1,668,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
672,350 |
|
|
$ |
1,165 |
|
|
|
0.70 |
% |
|
$ |
612,305 |
|
|
$ |
3,592 |
|
|
|
2.36 |
% |
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
289,971 |
|
|
|
167 |
|
|
|
0.23 |
|
|
|
203,348 |
|
|
|
1,380 |
|
|
|
2.73 |
|
Commercial paper |
|
|
37,371 |
|
|
|
23 |
|
|
|
0.24 |
|
|
|
47,323 |
|
|
|
255 |
|
|
|
2.17 |
|
Other borrowings and liabilities(a) |
|
|
207,489 |
|
|
|
686 |
|
|
|
1.32 |
|
|
|
111,477 |
|
|
|
1,044 |
|
|
|
3.77 |
|
Beneficial interests issued by consolidated VIEs |
|
|
14,493 |
|
|
|
57 |
|
|
|
1.59 |
|
|
|
17,990 |
|
|
|
100 |
|
|
|
2.24 |
|
Long-term debt |
|
|
274,323 |
|
|
|
1,781 |
|
|
|
2.60 |
|
|
|
229,336 |
|
|
|
1,864 |
|
|
|
3.27 |
|
|
Total interest-bearing liabilities |
|
|
1,495,997 |
|
|
|
3,879 |
|
|
|
1.04 |
|
|
|
1,221,779 |
|
|
|
8,235 |
|
|
|
2.71 |
|
Noninterest-bearing deposits |
|
|
199,221 |
|
|
|
|
|
|
|
|
|
|
|
119,860 |
|
|
|
|
|
|
|
|
|
Trading liabilities derivative payables |
|
|
78,155 |
|
|
|
|
|
|
|
|
|
|
|
79,780 |
|
|
|
|
|
|
|
|
|
All other liabilities, including the allowance
for lending-related commitments |
|
|
95,796 |
|
|
|
|
|
|
|
|
|
|
|
116,325 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,869,169 |
|
|
|
|
|
|
|
|
|
|
|
1,537,744 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
28,338 |
|
|
|
|
|
|
|
|
|
|
|
4,549 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
140,865 |
|
|
|
|
|
|
|
|
|
|
|
126,406 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
169,203 |
|
|
|
|
|
|
|
|
|
|
|
130,955 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,038,372 |
|
|
|
|
|
|
|
|
|
|
$ |
1,668,699 |
|
|
|
|
|
|
|
2.63 |
% |
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and net yield on
interest-earning assets |
|
|
|
|
|
$ |
12,757 |
|
|
|
3.07 |
% |
|
|
|
|
|
$ |
8,496 |
|
|
|
2.71 |
% |
|
|
|
|
(a) |
|
Includes securities sold but not yet purchased. |
|
(b) |
|
For the quarters ended June 30, 2009 and 2008, the annualized rate for available-for-sale
securities, based on amortized cost, was 3.62% and 5.28%, respectively. |
167
JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
Six months ended June 30, 2008 |
|
|
Average |
|
|
|
|
|
Rate |
|
Average |
|
|
|
|
|
Rate |
|
|
balance |
|
Interest |
|
(annualized) |
|
balance |
|
Interest |
|
(annualized) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with banks |
|
$ |
78,237 |
|
|
$ |
689 |
|
|
|
1.78 |
% |
|
$ |
35,394 |
|
|
$ |
709 |
|
|
|
4.03 |
% |
Federal funds sold , securities purchased under
resale agreements and securities borrowed |
|
|
273,052 |
|
|
|
1,008 |
|
|
|
0.74 |
|
|
|
246,670 |
|
|
|
4,250 |
|
|
|
3.46 |
|
Trading assets debt instruments |
|
|
248,753 |
|
|
|
6,277 |
|
|
|
5.09 |
|
|
|
312,519 |
|
|
|
8,817 |
|
|
|
5.67 |
|
Securities |
|
|
318,019 |
|
|
|
6,096 |
|
|
|
3.87 |
(b) |
|
|
99,796 |
|
|
|
2,660 |
|
|
|
5.36 |
(b) |
Loans |
|
|
712,353 |
|
|
|
20,349 |
|
|
|
5.76 |
|
|
|
532,281 |
|
|
|
17,797 |
|
|
|
6.72 |
|
Other assets |
|
|
32,050 |
|
|
|
239 |
|
|
|
1.50 |
|
|
|
7,815 |
|
|
|
154 |
|
|
|
3.97 |
|
|
Total interest-earning assets |
|
|
1,662,464 |
|
|
|
34,658 |
|
|
|
4.20 |
|
|
|
1,234,475 |
|
|
|
34,387 |
|
|
|
5.60 |
|
Allowance for loan losses |
|
|
(25,407 |
) |
|
|
|
|
|
|
|
|
|
|
(10,815 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
25,003 |
|
|
|
|
|
|
|
|
|
|
|
33,344 |
|
|
|
|
|
|
|
|
|
Trading assets equity instruments |
|
|
63,130 |
|
|
|
|
|
|
|
|
|
|
|
89,168 |
|
|
|
|
|
|
|
|
|
Trading assets derivative receivables |
|
|
128,092 |
|
|
|
|
|
|
|
|
|
|
|
101,582 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
48,173 |
|
|
|
|
|
|
|
|
|
|
|
45,740 |
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
11,702 |
|
|
|
|
|
|
|
|
|
|
|
9,110 |
|
|
|
|
|
|
|
|
|
Purchased credit card relationships |
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
|
2,142 |
|
|
|
|
|
|
|
|
|
All other intangibles |
|
|
3,796 |
|
|
|
|
|
|
|
|
|
|
|
3,870 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
134,180 |
|
|
|
|
|
|
|
|
|
|
|
110,632 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,052,666 |
|
|
|
|
|
|
|
|
|
|
$ |
1,619,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
704,228 |
|
|
$ |
2,851 |
|
|
|
0.82 |
% |
|
$ |
606,218 |
|
|
$ |
8,200 |
|
|
|
2.72 |
% |
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
258,217 |
|
|
|
369 |
|
|
|
0.29 |
|
|
|
191,622 |
|
|
|
2,862 |
|
|
|
3.00 |
|
Commercial paper |
|
|
35,543 |
|
|
|
62 |
|
|
|
0.35 |
|
|
|
47,453 |
|
|
|
658 |
|
|
|
2.79 |
|
Other borrowings and liabilities(a) |
|
|
221,999 |
|
|
|
1,536 |
|
|
|
1.39 |
|
|
|
109,515 |
|
|
|
2,390 |
|
|
|
4.39 |
|
Beneficial interests issued by consolidated VIEs |
|
|
12,138 |
|
|
|
95 |
|
|
|
1.58 |
|
|
|
16,036 |
|
|
|
232 |
|
|
|
2.92 |
|
Long-term debt |
|
|
266,571 |
|
|
|
3,525 |
|
|
|
2.67 |
|
|
|
214,846 |
|
|
|
3,766 |
|
|
|
3.52 |
|
|
Total interest-bearing liabilities |
|
|
1,498,696 |
|
|
|
8,438 |
|
|
|
1.14 |
|
|
|
1,185,690 |
|
|
|
18,108 |
|
|
|
3.07 |
|
Noninterest-bearing deposits |
|
|
198,531 |
|
|
|
|
|
|
|
|
|
|
|
119,439 |
|
|
|
|
|
|
|
|
|
Trading liabilities derivative payables |
|
|
86,503 |
|
|
|
|
|
|
|
|
|
|
|
80,437 |
|
|
|
|
|
|
|
|
|
All other liabilities, including the allowance
for lending-related commitments |
|
|
100,107 |
|
|
|
|
|
|
|
|
|
|
|
105,914 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,883,837 |
|
|
|
|
|
|
|
|
|
|
|
1,491,480 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
30,138 |
|
|
|
|
|
|
|
|
|
|
|
2,275 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
138,691 |
|
|
|
|
|
|
|
|
|
|
|
125,493 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
168,829 |
|
|
|
|
|
|
|
|
|
|
|
127,768 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,052,666 |
|
|
|
|
|
|
|
|
|
|
$ |
1,619,248 |
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.06 |
% |
|
|
|
|
|
|
|
|
|
|
2.53 |
% |
Net interest income and net yield on
interest-earning assets |
|
|
|
|
|
$ |
26,220 |
|
|
|
3.18 |
% |
|
|
|
|
|
$ |
16,279 |
|
|
|
2.65 |
% |
|
|
|
|
(a) |
|
Includes securities sold but not yet purchased. |
|
(b) |
|
For the six months ended June 30, 2009 and 2008, the annualized rate for available-for-sale
securities, based on amortized cost, was 3.84% and 5.39%, respectively. |
168
GLOSSARY OF TERMS
ACH: Automated Clearing House.
Advised lines of credit: An authorization which specifies the maximum amount of a credit facility
the Firm has made available to an obligor on a revolving but nonbinding basis. The borrower
receives written or oral advice of this facility. The Firm may cancel this facility at any time.
AICPA: American Institute of Certified Public Accountants.
AICPA Statement of Position (SOP) 03-3: Accounting for Certain Loans or Debt Securities Acquired
in a Transfer.
Assets under management: Represent assets actively managed by Asset Management on behalf of
Institutional, Retail, Private Banking, Private Wealth Management and Bear Stearns Private Client
Services. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 42%
ownership interest as of June 30, 2009
Assets under supervision: Represent assets under management, as well as custody, brokerage,
administration and deposit accounts.
Average managed assets: Refer to total assets on the Firms Consolidated Balance Sheets plus credit
card receivables that have been securitized and removed from the Firms Consolidated Balance
Sheets.
Beneficial interest issued by consolidated VIEs: Represents the interest of third-party holders of
debt/equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates under
FIN 46R. The underlying obligations of the VIEs consist of short-term borrowings, commercial paper
and long-term debt. The related assets consist of trading assets, available-for-sale securities,
loans and other assets.
Benefit obligation: Refers to the projected benefit obligation for pension plans and the
accumulated postretirement benefit obligation for OPEB plans.
Combined loan-to-value ratio: For residential real estate loans, an indicator of how much equity a
borrower has in a secured borrowing based on current estimates of the value of the collateral and
considering all lien positions related to the property.
Commodities contracts: Exchange-traded futures and over-the-counter forwards are contracts to
deliver specified commodities (e.g., gold, electricity, natural gas, other precious and base
metals, oil, farm products, livestock) on an agreed-upon future settlement date in exchange for
cash. Exchange-traded commodities swaps and over-the-counter commodities swap contracts are
contracts to deliver fixed cash payments in exchange for cash payments that float based on changes
in an underlying commodities index.
Contractual credit card charge-off: In accordance with the Federal Financial Institutions
Examination Council policy, credit card loans are charged off by the end of the month in which the
account becomes 180 days past due or within 60 days from receiving notification of the filing of
bankruptcy, whichever is earlier.
Credit card securitizations: Card Services managed results excludes the impact of credit card
securitizations on total net revenue, the provision for credit losses, net charge-offs and loan
receivables. Through securitization, the Firm transforms a portion of its credit card receivables
into securities, which are sold to investors. The credit card receivables are removed from the
Consolidated Balance Sheets through the transfer of the receivables to a trust, and through the
sale of undivided interests to investors that entitle the investors to specific cash flows
generated from the credit card receivables. The Firm retains the remaining undivided interests as
sellers interests, which are recorded in loans on the Consolidated Balance Sheets. A gain or loss
on the sale of credit card receivables to investors is recorded in other income. Securitization
also affects the Firms Consolidated Statements of Income, as the aggregate amount of interest
income, certain fee revenue and recoveries that is in excess of the aggregate amount of interest
paid to investors, gross credit losses and other trust expense related to the securitized
receivables, is reclassified into credit card income in the Consolidated Statements of Income.
Credit derivatives: Contractual agreements that provide protection against a credit event on one or
more referenced credits. The nature of a credit event is established by the protection buyer and
protection seller at the inception of a transaction, and such events include bankruptcy, insolvency
or failure to meet payment obligations when due. The buyer
169
of the credit derivative pays a periodic fee in return for a payment by the protection seller upon
the occurrence, if any, of a credit event.
Deposit margin: Represents net interest income expressed as a percentage of average deposits.
EITF: Emerging Issues Task Force.
EITF Issue 07-5: Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys
Own Stock.
EITF Issue 99-20: Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets.
FASB: Financial Accounting Standards Board.
FICO: Fair Isaac Corporation.
FIN 39: FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts an
interpretation of APB Opinion No. 10 and FASB Statement No. 105.
FIN 45: FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.
FIN 46R: FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities an interpretation of ARB No. 51.
Foreign exchange contracts: Include foreign exchange forward contracts and cross-currency swaps.
Foreign exchange forward contracts are contracts to exchange the currency of one country for the
currency of another country at an agreed-upon price on an agreed-upon future settlement date.
Cross-currency swaps are contracts between two parties to exchange interest and principal payments
in one currency for the same in another currency.
Forward points: Represents the interest rate differential between two currencies, which is either
added to or subtracted from the current exchange rate (i.e., spot rate) to determine the forward
exchange rate.
FSP: FASB Staff Position.
FSP EITF 03-6-1: Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.
FSP FAS 107-1 and APB 28-1: Interim Disclosures about Fair Value of Financial Instruments.
FSP FAS 115-2 and FAS 124-2: Recognition and Presentation of Other-Than-Temporary Impairments.
FSP FAS 132(R)-1: Employers Disclosures about Postretirement Benefit Plan Assets.
FSP FAS 140-3: Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions.
FSP FAS 141(R)-1: Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies.
FSP FAS 157-4: Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
Interest rate contracts: Includes interest rate swaps, forwards and futures contracts. Interest
rate swap contracts involve the exchange of fixed- and variable-rate interest payments based on a
contracted notional amount. Interest rate forward contracts are primarily arrangements to exchange
cash in the future based on price movements of specified financial instruments. Interest rate
futures contracts are financial futures which provide for cash payments based on interest rate
changes on an underlying interest-bearing instrument or index.
Interests in purchased receivables: Represent an ownership interest in cash flows of an underlying
pool of receivables transferred by a third-party seller into a bankruptcy-remote entity, generally
a trust.
170
Investment-grade: An indication of credit quality based on JPMorgan Chases internal risk
assessment system. Investment grade generally represents a risk profile similar to a rating of a
BBB-"/Baa3 or better, as defined by independent rating agencies.
LIBOR: London Interbank Offered Rate.
Managed basis: A non-GAAP presentation of financial results that includes reclassifications related
to credit card securitizations and to present revenue on a fully taxable-equivalent basis.
Management uses this non-GAAP financial measure at the segment level because it believes this
provides information to enable investors to understand the underlying operational performance and
trends of the particular business segment and facilitates a comparison of the business segment with
the performance of competitors.
Managed credit card receivables: Refers to credit card receivables on the Firms Consolidated
Balance Sheets plus credit card receivables that have been securitized and removed from the Firms
Consolidated Balance Sheets.
Mark-to-market exposure: A measure, at a point in time, of the value of a derivative or foreign
exchange contract in the open market. When the mark-to-market value is positive, it indicates the
counterparty owes JPMorgan Chase and, therefore, creates a repayment risk for the Firm. When the
mark-to-market value is negative, JPMorgan Chase owes the counterparty; in this situation, the Firm
does not have repayment risk.
Master netting agreement: An agreement between two counterparties who have multiple derivative
contracts with each other that provides for the net settlement of all contracts, as well as cash
collateral, through a single payment, in a single currency, in the event of default on or
termination of any one contract. See FIN 39.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics
that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may
include one or more of the following: (i) limited documentation; (ii) high combined-loan-to-value
(CLTV) ratio; (iii) loans secured by non-owner occupied properties; or (iv) debt-to-income ratio
above normal limits. Perhaps the most important characteristic is limited documentation. A
substantial proportion of traditional Alt-A loans is those where a borrower does not provide
complete documentation of his or her assets or the amount or source of his or her income.
Option ARMs
The option ARM home loan product is an adjustable-rate mortgage loan that provides the borrower
with the option each month to make a fully amortizing, interest-only, or minimum payment. The
minimum payment on an option ARM loan is based on the interest rate charged during the introductory
period. This introductory rate has usually been significantly below the fully indexed rate. The
fully indexed rate is calculated using an index rate plus a margin. Once the introductory period
ends, the contractual interest rate charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to
cover interest accrued in the prior month, and will negatively amortize as any unpaid interest is
deferred and added to the principal balance of the loan. Option ARMs typically become fully
amortizing loans upon reaching a negative amortization cap or on dates specified in the borrowing
agreement, at which time the required payment generally increases substantially.
Prime
Prime mortgage loans are made to borrowers with good credit records and a monthly income that is at
least three to four times greater than their monthly housing expense (mortgage payments plus taxes
and other debt payments). These borrowers provide full documentation and generally have reliable
payment histories.
Subprime
Subprime loans are designed for customers with one or more high risk characteristics, including but
not limited to: (i) unreliable or poor payment histories; (ii) high loan-to-value (LTV) ratio of
greater than 80% (without borrower-paid mortgage insurance); (iii) high debt-to-income ratio; (iv)
the occupancy type for the loan is other than the borrowers primary residence; or (v) a history of
delinquencies or late payments on the loan.
MSAs: Metropolitan Statistical Areas.
NA: Data is not applicable or available for the period presented.
171
Net charge-off ratio: The net-charge ratio is calculated using both net charge-offs
(annualized) and average
retained loans for the reporting period.
Net yield on interest-earning assets: The average rate for interest-earning assets less the average
rate paid for all sources of funds.
NM: Not meaningful.
Nonconforming mortgage loans: Mortgage loans that do not meet the requirements for sale to U.S.
government agencies and U.S. government sponsored enterprises. These requirements include limits on
loan-to-value ratios, loan terms, loan amounts, down payments, borrower credit worthiness and other
requirements.
OPEB: Other postretirement employee benefits.
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Personal bankers: Retail branch office personnel who acquire, retain and expand new and existing
customer relationships by assessing customer needs and recommending and selling appropriate banking
products and services.
Portfolio activity: Describes changes to the risk profile of existing lending-related exposures and
their impact on the allowance for credit losses from changes in customer profiles and inputs used
to estimate the allowances.
Pre-provision profit: Total net revenue less noninterest expense.
Principal transactions: Realized and unrealized gains and losses from trading activities (including
physical commodities inventories that are accounted for at the lower of cost or fair value) and
changes in fair value associated with financial instruments held by the Investment Bank for which
the SFAS 159 fair value option was elected. Principal transactions revenue also includes private
equity gains and losses.
Purchased credit-impaired loans: Purchased loans for which the credit quality has deteriorated
since origination, but prior to purchase. These loans are accounted for at fair value as of the
purchase date, which includes the impact of estimated credit losses for the loans over the life of
loan.
Receivables from customers: Primarily represents margin loans to prime and retail brokerage
customers which are included in accrued interest and accounts receivable on the Consolidated
Balance Sheets for the wholesale lines of business.
Reported basis: Financial statements prepared under accounting principles generally accepted in the
United States of America (U.S. GAAP). The reported basis includes the impact of credit card
securitizations but excludes the impact of taxable-equivalent adjustments.
Risk layered loans: Loans with multiple high risk elements.
Sales specialists: Retail branch office personnel who specialize in the marketing of a single
product, including mortgages, investments and business banking, by partnering with the personal
bankers.
SFAS: Statement of Financial Accounting Standards.
SFAS 5: Accounting for Contingencies.
SFAS 52: Foreign Currency Translation.
SFAS 107: Disclosures about Fair Value of Financial Instruments.
SFAS 114: Accounting by Creditors for Impairment of a Loan an amendment of FASB Statements No. 5
and 15.
SFAS 133: Accounting for Derivative Instruments and Hedging Activities.
SFAS 140: Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities a replacement of FASB Statement No. 125.
SFAS 141 and SFAS 141R: Business Combinations.
SFAS 142: Goodwill and Other Intangible Assets.
SFAS 155: Accounting for Certain Hybrid Financial Instruments an amendment of FASB Statements
No. 133 and 140.
SFAS 157: Fair Value Measurements.
172
SFAS 158: Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an
amendment of FASB Statements No. 87, 88, 106 and 132(R).
SFAS 159: The Fair Value Option for Financial Assets and Financial Liabilities Including an
amendment of FASB Statement No. 115.
SFAS 160: Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No.
51.
SFAS 161: Disclosures About Derivative Instruments and Hedging Activities an amendment of FASB
Statement No. 133.
SFAS 165: Subsequent Events.
SFAS 166: Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140.
SFAS 167: Amendments to FASB Interpretation No. 46(R).
Stress testing: A scenario that measures market risk under unlikely but plausible events in
abnormal markets.
Troubled debt restructuring: Occurs when the Firm modifies the original terms of a loan agreement
by granting a concession to a borrower that is experiencing financial difficulty.
Unaudited: Financial statements and information that have not been subjected to auditing procedures
sufficient to permit an independent certified public accountant to express an opinion.
U.S. GAAP: Accounting principles generally accepted in the United States of America.
U.S. government and federal agency obligations: Obligations of the U.S. government or an
instrumentality of the U.S. government whose obligations are fully and explicitly guaranteed as to
the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. government-sponsored enterprise obligations: Obligations of agencies originally established or
chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these
obligations are not explicitly guaranteed as to the timely payment of principal and interest by the
full faith and credit of the U.S. government.
Value-at-risk (VaR): A measure of the dollar amount of potential loss from adverse market moves
in an ordinary market environment.
173
LINE OF BUSINESS METRICS
Investment Banking
IBs revenue comprises the following:
Investment banking fees include advisory, equity underwriting, bond underwriting and loan
syndication fees.
Fixed income markets include client and portfolio management revenue related to both market-making
and proprietary risk-taking across global fixed income markets, including foreign exchange,
interest rate, credit and commodities markets.
Equities markets include client and portfolio management revenue related to market-making and
proprietary risk-taking across global equity products, including cash instruments, derivatives and
convertibles.
Credit portfolio revenue includes net interest income, fees and loan sale activity, as well as
gains or losses on securities received as part of a loan restructuring, for IBs credit portfolio.
Credit portfolio revenue also includes the results of risk management related to the Firms lending
and derivative activities, and changes in the credit valuation adjustment, which is the component
of the fair value of a derivative that reflects the credit quality of the counterparty.
Retail Financial Services
Description of selected business metrics within Retail Banking:
Personal bankers Retail branch office personnel who acquire, retain and expand new and existing
customer relationships by assessing customer needs and recommending and selling appropriate banking
products and services.
Sales specialists Retail branch office personnel who specialize in the marketing of a single
product, including mortgages, investments and business banking, by partnering with the personal
bankers.
Mortgage banking revenue comprises the following:
Production revenue includes net gains or losses on originations and sales of prime and subprime
mortgage loans and other production-related fees.
Net mortgage servicing revenue includes the following components:
(a) |
|
Servicing revenue represents all gross income earned from servicing third-party mortgage
loans, including stated service fees, excess service fees, late fees and other ancillary fees. |
(b) Changes in MSR asset fair value due to:
|
market-based inputs such as interest rates and volatility, as well as updates to
assumptions used in the MSR valuation model. |
|
|
modeled servicing portfolio runoff (or time decay). |
(c) |
|
Derivative valuation adjustments and other, which represents changes in the fair value of
derivative instruments used to offset the impact of changes in the market-based inputs to the
MSR valuation model. |
MSR risk management results include changes in the MSR asset fair value due to inputs or
assumptions and derivative valuation adjustments and other.
Mortgage origination channels comprise the following:
Retail Borrowers who are buying or refinancing a home through direct contact with a mortgage
banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are
frequently referred to a mortgage banker by real estate brokers, home builders or other third
parties.
Wholesale A third-party mortgage broker refers loan applications to a mortgage banker at the
Firm. Brokers are independent loan originators that specialize in finding and counseling borrowers
but do not provide funding for loans.
Correspondent Correspondents are banks, thrifts, other mortgage banks and other financial
institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (CNT) These transactions occur when mid- to large-sized
mortgage lenders, banks and bank-owned mortgage companies sell loans in bulk to the Firm, and the
Firm resells the loans, while retaining the servicing. These transactions supplement traditional
production channels and provide growth opportunities in the servicing portfolio in stable and
rising-rate periods.
174
Card Services
Description of selected business metrics within CS:
Charge volume Represents the dollar amount of cardmember purchases, balance transfers and cash
advance activity.
Net accounts opened Includes originations, purchases and sales.
Merchant acquiring business Represents a business that processes bank card transactions for
merchants.
Bank card volume Represents the dollar amount of transactions processed for merchants.
Total transactions Represents the number of transactions and authorizations processed for
merchants.
Commercial Banking
Commercial Banking revenue comprises the following:
Lending includes a variety of financing alternatives, which are primarily provided on a basis
secured by receivables, inventory, equipment, real estate or other assets. Products include term
loans, revolving lines of credit, bridge financing, asset-based structures and leases.
Treasury services includes a broad range of products and services enabling clients to transfer,
invest and manage the receipt and disbursement of funds, while providing the related information
reporting. These products and services include U.S. dollar and multi-currency clearing, ACH,
lockbox, disbursement and reconciliation services, check deposits, other check and currency-related
services, trade finance and logistics solutions, commercial card, and deposit products, sweeps and
money market mutual funds.
Investment banking products provide clients with sophisticated capital-raising alternatives, as
well as balance sheet and risk management tools through loan syndications, investment-grade debt,
asset-backed securities, private placements, high-yield bonds, equity underwriting, advisory,
interest rate derivatives, foreign exchange hedges and securities sales.
Description of selected business metrics within CB:
Liability balances include deposits and deposits that are swept to on-balance sheet liabilities
such as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements.
IB revenue, gross Represents total revenue related to investment banking products sold to CB
clients.
Treasury & Securities Services
Treasury & Securities Services firmwide metrics include certain TSS product revenue and liability
balances reported in other lines of business related to customers who are also customers of those
other lines of business. In order to capture the firmwide impact of Treasury Services 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
managements view, in order to understand the aggregate TSS business.
Description of selected business metrics within TSS:
Liability balances include deposits and deposits that are swept to on-balance sheet liabilities
such as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements.
Asset Management
Assets under management: Represent assets actively managed by Asset Management on behalf of
Institutional, Retail, Private Banking, Private Wealth Management and Bear Stearns Private Client
Services. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 42%
ownership interest as of June 30, 2009.
Assets under supervision: Represent assets under management as well as custody, brokerage,
administration and deposit accounts.
Alternative assets: The following types of assets constitute alternative investments hedge funds,
currency, real estate and private equity.
AMs client segments comprise the following:
Institutional brings comprehensive global investment services including asset management, pension
analytics, asset/liability management and active risk budgeting strategies to corporate and
public institutions, endowments, foundations, not-for-profit organizations and governments
worldwide.
Retail provides worldwide investment management services and retirement planning and administration
through third-party and direct distribution of a full range of investment vehicles.
175
The Private Bank addresses every facet of wealth management for ultra-high-net-worth individuals
and families worldwide, including investment management, capital markets and risk management, tax
and estate planning, banking, capital raising and specialty-wealth advisory services.
Private Wealth Management offers high-net-worth individuals, families and business owners in the
U.S. comprehensive wealth management solutions, including investment management, capital markets
and risk management, tax and estate planning, banking and specialty-wealth advisory services.
Bear Stearns Private Client Services provides investment advice and wealth management services to
high-net-worth individuals, money managers and small corporations.
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make forward-looking statements. These statements can
be identified by the fact that they do not relate strictly to historical or current facts.
Forward-looking statements often use words such as anticipate, target, expect, estimate,
intend, plan, goal, believe, or other words of similar meaning. Forward-looking statements
provide JPMorgan Chases current expectations or forecasts of future events, circumstances, results
or aspirations. JPMorgan Chases disclosures in this Form 10-Q contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make
forward-looking statements in its other documents filed or furnished with the Securities and
Exchange Commission. In addition, the Firms senior management may make forward-looking statements
orally to analysts, investors, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of
which are beyond the Firms control. JPMorgan Chases actual future results may differ materially
from those set forth in its forward-looking statements. While there is no assurance that any list
of risks and uncertainties or risk factors is complete, below are certain factors which could cause
actual results to differ from those in the forward-looking statements.
|
|
local, regional and international business, economic and political conditions and
geopolitical events; |
|
|
changes in trade, monetary and fiscal policies and laws; |
|
|
securities and capital markets behavior, including changes in market liquidity and
volatility; |
|
|
changes in investor sentiment or consumer spending or saving behavior; |
|
|
the Firms ability to manage effectively its liquidity; |
|
|
credit ratings assigned to the Firm, its subsidiaries or their securities; |
|
|
the Firms ability to deal effectively with an economic slowdown or other economic or
market difficulty; |
|
|
technology changes instituted by the Firm, its counterparties or competitors; |
|
|
mergers and acquisitions, including the Firms ability to integrate acquisitions; |
|
|
the Firms ability to develop new products and services; |
|
|
acceptance of the Firms new and existing products and services by the marketplace and the
ability of the Firm to increase market share; |
|
|
the Firms ability to attract and retain employees; |
|
|
the Firms ability to control expense; |
|
|
changes in the credit quality of the Firm or its customers and counterparties; |
|
|
adequacy of the Firms risk management framework; |
|
|
changes in laws and regulatory requirements or adverse judicial proceedings; |
|
|
changes in applicable accounting policies; |
176
|
|
the Firms ability to determine accurate values of certain assets and liabilities; |
|
|
occurrence of natural or man-made disasters or calamities or conflicts, including any
effect of any such disasters, calamities or conflicts on the Firms power generation
facilities and the Firms other commodity-related activities; |
|
|
the other risks and uncertainties detailed in Part 1, Item 1A: Risk Factors in the Firms
Annual Report on Form 10-K for the year ended December 31, 2008. |
Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are
made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the
impact of circumstances or events that arise after the date the forward-looking statement was made.
The reader should, however, consult any further disclosures of a forward-looking nature the Firm
may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current
Reports on Form 8-K.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market
Risk Management section of the MD&A on pages 80-86 of this Form 10-Q.
Item 4 Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of the Firms management, including its Chairman and Chief
Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on
that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded
that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the
Certification statements issued by the Chairman and Chief Executive Officer, and Chief Financial
Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting.
Nevertheless, because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements.
Part II Other Information
Item 1 Legal Proceedings
The following information supplements and amends the disclosure set forth under Part 1, Item 3
Legal Proceedings in the Firms 2008 Annual Report on Form 10-K, and Part II, Item 1 Legal
Proceedings in the Firms Quarterly Report on Form 10-Q for the quarterly period ending March 31,
2009 (the Firms SEC filings).
Municipal Derivatives Investigation and Litigation. In the coordinated MDL antitrust proceeding in
the Southern District of New York, on June 18, 2009, plaintiffs filed a second consolidated amended
class action complaint, naming as defendants sixteen providers and brokers involved in the
municipal bond market, including JPMorgan Chase and The Bear Stearns Companies Inc. (Bear
Stearns). On July 17, 2009, the Court ordered a stay of discovery pending disposition of the
pending motions to dismiss the second consolidated amended class action complaint. Motions to
dismiss the complaint are due on September 18, 2009.
As noted previously, certain class and individual antitrust actions that are not part of the
consolidated amended class action complaint are proceeding separately in the MDL court. The Court
has ordered the plaintiffs in these actions to file amended complaints by September 15, 2009.
Separately, the Alabama Public Schools and College Authority (APSCA) brought a declaratory
judgment action in the United States District Court for the Northern District of Alabama claiming
that certain interest rate swaption transactions entered into with JPMorgan Chase Bank, N.A. are
void on the grounds that the APSCA purportedly did not have the authority to enter into
transactions or, alternatively, are voidable at the APSCAs option because of its alleged inability
to issue refunding bonds in relation to the swaption. On July 21, 2009, the Court denied JPMorgan
Chases motion to dismiss the action, and discovery is expected to commence shortly.
Enron Litigation. JPMorgan Chase finalized its settlements resolving the three actions against the
Firm by plaintiffs who were bank lenders or claim to be successors-in-interest to bank lenders who
participated in Enron credit facilities co-syndicated by the Firm. Other previously-disclosed
Enron-related litigation is continuing.
IPO Allocation Litigation. On June 9, 2009, the United States District Court for the Southern
District of New York preliminarily approved the parties Stipulation and Agreement of Settlement
(the Stipulation), certified Settlement Classes for the purposes of the Stipulation only,
approved the form and program of Class notice described in the Stipulation, and scheduled a hearing
before the Court on September 10, 2009 to determine whether the proposed Stipulation should be
finally approved. The Firms share of the settlement is approximately $62 million.
177
Mortgage-Backed Securities Litigation. On May 15, 2009, the First Amended Complaint was filed in
the purported class action pending against Bear, Stearns & Co. Inc. and certain of its subsidiaries
and former employees in the United States District Court for the Southern District of New York (the
"NJ Carpenters Action). The Amended Complaint asserts the same claims for violations of the
federal securities laws as its predecessor pleading, but has expanded the scope of the challenged
transactions to 44 separate offerings, all traceable to two separate Registration Statements filed
by the Bear depositor entities. As in the original pleading, plaintiffs seek recovery of
unspecified compensatory damages and rescission.
On July 9, 2009, another purported class action was commenced by an employee benefit plan in the
United States District Court for the Southern District of New York, which asserts claims for
violations of the federal securities laws against Bear Stearns, Bear, Stearns & Co. Inc. and
Structured Asset Mortgage Investments II Inc. (SAMI II), as well as certain former Bear, Stearns
& Co. Inc. employees that served as officers and/or directors of SAMI II, with respect to 19
offerings of Mortgage Pass-Through Securities, 11 of which are also the subject of the NJ
Carpenters Action. The plaintiff in this case likewise seeks compensatory damages in an unspecified
amount and rescission.
As previously-disclosed, other MBS-related litigation is continuing.
Auction-Rate Securities Investigations and Litigation. With respect to the regulatory
investigations, JPMorgan Chase finalized settlement agreements with the New York Attorney Generals
Office and the Office of Financial Regulation for the State of Florida on June 2, 2009 and June 4,
2009, respectively. With respect to the putative securities class action pending in the Southern
District of New York, on June 1, 2009, the Court dismissed plaintiffs putative class action
complaint without prejudice. A new putative securities class action complaint was filed on July 10,
2009 on behalf of a class of investors who purchased auction-rate securities for which the Firm
served as an auction dealer. The Firm has not yet answered or moved to dismiss this claim. With
respect to the two putative antitrust class actions pending in the Southern District of New York,
the Court ordered that limited discovery proceed pending the Courts decision on the joint motion
to dismiss both actions by the Firm and the other defendants.
City of Milan Litigation and Criminal Investigation. The previously-disclosed attachment order of
approximately Euro 92 million has since been reduced to Euro 44.9 million. On July 27, 2009, JPMCB
was served with a notice that the Prosecutor had concluded his investigation and made certain
allegations in respect of the transactions against the former and existing employees and JPMorgan
Chase Bank, National Association.
Washington Mutual Litigations. On June 11, 2009, in the action commenced by Washington Mutual, Inc.
(WMI) against the Federal Deposit Insurance Corporation (FDIC) in the United States District
Court for the District of Columbia (the District Court Action), the FDIC moved to dismiss all but
one of the claims asserted by WMI. In addition, on July 13, 2009, the FDIC filed an amended answer
and counterclaims, including counterclaims naming JPMorgan Chase as a defendant. On July 27, 2009,
WMI moved to dismiss the counterclaims and to stay the District Court Action. In JPMorgan Chases
adversary proceeding in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Case), on May 29, 2009, WMI and its wholly-owned subsidiary, WMI Investment Corp.
(together, the Debtors) answered that complaint and asserted counterclaims that largely track the
claims asserted by WMI against the FDIC in the District Court Action, as well as raise certain
intellectual property claims. On June 18, 2009, JPMorgan Chase moved to dismiss the counterclaims.
On May 19, 2009, in the Debtors separate adversary proceeding in the Bankruptcy Case against
JPMorgan Chase seeking turnover of $4 billion in purported deposit funds, Debtors moved for summary
judgment. On July 6, 2009, JPMorgan Chase answered the turnover complaint and asserted
counterclaims against Debtors and crossclaims against the FDIC. Debtors have moved to dismiss the
counterclaims. On July 27, 2009, the Debtors were granted in the Bankruptcy Case leave to take
discovery from JPMorgan Chase purportedly related to a litigation filed in the 122nd State District
Court of Galveston County, Texas (the Texas Action). The FDIC and JPMorgan Chase have both moved
to have the Texas Action dismissed or transferred to the United States District Court for the
District of Columbia.
In addition to the various cases, proceedings and investigations discussed above, JPMorgan Chase
and its subsidiaries are named as defendants or otherwise involved in a number of other legal
actions and governmental proceedings arising in connection with their businesses. Additional
actions, investigations or proceedings may be initiated from time to time in the future. In view of
the inherent difficulty of predicting the outcome of legal matters, particularly where the
claimants seek very large or indeterminate damages, or where the cases present novel legal
theories, involve a large number of parties or are in early stages of discovery, the Firm cannot
state with confidence what the eventual outcome of these pending matters will be, what the timing
of the ultimate resolution of these matters will be or what the eventual loss, fines, penalties or
impact related to each pending matter may be. JPMorgan Chase believes, based upon its current
knowledge, after consultation with counsel and after taking into account its current litigation
reserves, that the outcome of the legal actions, proceedings and investigations currently pending
against it should not have a material adverse effect
178
on the Firms consolidated financial condition. However, in light of the uncertainties involved in
such proceedings, actions and investigations, there is no assurance that the ultimate resolution of
these matters will not significantly exceed the reserves currently accrued by the Firm; as a
result, the outcome of a particular matter may be material to JPMorgan Chases operating results
for a particular period, depending on, among other factors, the size of the loss or liability
imposed and the level of JPMorgan Chases income for that period.
Item 1A Risk Factors
The following risk factor should be read in conjunction with a discussion of the other risk factors
affecting the Firm. For such information, see Part I, Item 1A: Risk Factors, on pages 4-10 of
JPMorgan Chases 2008 Annual Report on Form 10-K, and Forward-Looking Statements on pages 176-177
of this Form 10-Q.
Market reform efforts may result in our businesses becoming subject to extensive and pervasive
additional regulations around the world.
Recent economic and market conditions have led to numerous proposals in the United States and
internationally for changes in the regulation of the financial industry in an effort to prevent
future crises and reform the financial regulatory system. Some proposals have already been adopted.
For example, on May 22, 2009, Congress enacted the Credit Card Accountability Responsibility and
Disclosure Act of 2009. The Act, among other things, prescribes when and how interest rates can be
increased, requires advance notice of significant changes in terms of the cardholder agreement,
restricts the imposition of certain fees, requires a specified cutoff hour when payments must be
credited to accounts, prescribes how payments must be allocated to outstanding balances on accounts
and restricts the issuance of credit cards for persons under 21 years of age except in certain
circumstances. Complying with these legislative changes, as well as the requirements of the
amendments to Regulation Z adopted by the Board of Governors of the Federal Reserve System in
December 2008, will require us to invest significant management attention and resources to make the
necessary disclosure and system changes in our Card Services business, and there is no assurance
such changes will not have an adverse affect on that business or its results of operation.
In addition, President Obamas administration has released a comprehensive plan for regulatory
reform in the financial industry. The Administrations plan contains significant proposed
structural reforms, including heightened powers for the Federal Reserve to regulate risk across the
financial system; a new Financial Services Oversight Council chaired by the U.S. Treasury; and two
new federal agencies, a Consumer Financial Protection Agency and a new National Bank Supervisor.
The plan also calls for new substantive regulation across the financial industry, including more
heightened scrutiny and regulation for any financial firm whose combination of size, leverage, and
interconnectedness could pose a threat to financial stability if it failed; requiring that
broker-dealers who provide investment advice about securities to investors have the same fiduciary
obligations as registered investment advisers; new requirements for the securitization market,
including requiring a securitizer to retain a material economic interest in the credit risk
associated with the underlying securitization; and comprehensive regulation of large participants
in the over-the-counter derivatives markets, including the imposition on such participants of
additional capital requirements, business conduct standards, reporting requirements and more
conservative initial margin requirements relating to their counterparty exposures. The regulations
would also require certain derivatives transactions that are now conducted on the over-the-counter
derivatives markets to be traded on an exchange or cleared through a clearing house. In furtherance
of the Administrations plan, Congressman Barney Frank has introduced legislation enabling the
creation of the Consumer Financial Protection Agency. The legislation would subject federally
chartered financial institutions to state consumer protection laws that have historically been
preempted.
There are also numerous reform efforts underway internationally, including proposals by the
European Commission to amend bank capital requirements, and by the Financial Services Authority in
the U.K. on ways to enhance regulatory standards applicable to financial institutions and enhance
supervisory approaches and international cooperation among financial supervisors.
There can be no assurance as to whether or when any of the parts of the Administrations plan or
other U.S. or international proposals will be enacted into legislation, and if adopted, what the
final provisions of such legislation will be. New U.S. and international legislation and regulatory
changes could require us to change certain of our business practices, impose additional costs on
us, or otherwise adversely affect our business operations, results of operation or financial
condition, result in a significant loss of revenue, limit our ability to pursue business
opportunities we might otherwise consider engaging in, cause business disruptions or impact the
value of assets that we hold.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the second quarter of 2009, there were no shares of common stock of JPMorgan Chase & Co.
issued in transactions exempt from registration under the Securities Act of 1933, pursuant to
Section 4(2) thereof.
179
On April 17, 2007, the Board of Directors authorized the repurchase of up to $10.0 billion of the
Firms common shares. The new authorization commenced April 19, 2007, and replaced the Firms
previous $8.0 billion repurchase program. During the second quarter of 2009, under the current
$10.0 billion stock repurchase program, the Firm did not repurchase any shares. As of June 30,
2009, $6.2 billion of authorized repurchase capacity remained under the current stock repurchase
program. Following the redemption of the Series K preferred stock, the Firm is no longer subject to
the restrictions on repurchases of its capital stock that were set forth in the purchase agreement
concerning the issuance and sale of the Series K preferred stock to the U.S Treasury.
The Firm has determined that it may, from time to time, enter into written trading plans under Rule
10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of common stock in
accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase
shares during periods when it would not otherwise be repurchasing common stock, for example during
internal trading black-out periods. All purchases under a Rule 10b5-1 plan must be made according
to a predefined plan that is established when the Firm is not aware of material nonpublic
information.
Participants in the Firms stock-based incentive plans may have shares withheld to cover income
taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable
plan and not under the Firms share repurchase program. Shares repurchased pursuant to these plans
during the second quarter of 2009 were as follows:
|
|
|
|
|
|
|
|
|
For the six months ended |
|
Total shares |
|
Average price paid |
June 30, 2009 |
|
repurchased |
|
per share |
|
First quarter |
|
|
986,413 |
|
|
$ |
19.53 |
|
|
April |
|
|
316 |
|
|
|
30.90 |
|
May |
|
|
279 |
|
|
|
33.65 |
|
June |
|
|
64 |
|
|
|
34.70 |
|
|
Second quarter |
|
|
659 |
|
|
|
32.43 |
|
|
Year-to-date |
|
|
987,072 |
|
|
$ |
19.54 |
|
|
180
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of JPMorgan Chase was held on May 19, 2009. For
information regarding matters submitted to a vote of security holders at the meeting, see the
Firms Current Report on Form 8-K dated May 19, 2009, which is incorporated herein by
reference.
Item 5 Other Information
None
Item 6 Exhibits
31.1Certification
31.2Certification
32Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
* |
|
Includes the following materials from JPMorgan Chase & Co. contained in this Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009, formatted in XBRL (eXtensible
Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated
Balance Sheets, (iii) the Consolidated Statements of Changes in Stockholders Equity and
Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to
Consolidated Financial Statements, which is tagged as blocks of text. |
181
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
JPMORGAN CHASE & CO. |
|
|
|
(Registrant) |
|
|
|
|
|
|
Date: August 10, 2009 |
|
By |
/s/ Louis Rauchenberger
|
|
|
|
Louis Rauchenberger |
|
|
|
|
Managing Director and Controller
[Principal Accounting Officer]
|
|
|
182
INDEX TO EXHIBITS
|
|
|
EXHIBIT NO. |
|
EXHIBITS |
|
|
|
31.1
|
|
Certification |
|
|
|
31.2
|
|
Certification |
The following exhibit shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.
In addition, Exhibit No. 32 shall not be deemed incorporated into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
|
|
32
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
101.INS
|
|
XBRL Instance Document* |
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
183