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 September 30, 2009
Commission file number 1-5805
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
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Delaware
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13-2624428 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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270 Park Avenue, New York, New York
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10017 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant 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 definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(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 October 31, 2009:
3,940,654,134
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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Nine months ended |
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(in millions, except per share, headcount and ratios) |
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September 30, |
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As of or for the period ended, |
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3Q09 |
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2Q09 |
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1Q09 |
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4Q08 |
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3Q08 |
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2009 |
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2008 |
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Selected income statement data |
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Noninterest revenue |
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$ |
13,885 |
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$ |
12,953 |
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$ |
11,658 |
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$ |
3,394 |
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$ |
5,743 |
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$ |
38,496 |
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$ |
25,079 |
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Net interest income |
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12,737 |
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12,670 |
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13,367 |
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13,832 |
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8,994 |
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38,774 |
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24,947 |
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Total net revenue |
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26,622 |
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25,623 |
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25,025 |
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17,226 |
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14,737 |
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77,270 |
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50,026 |
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Noninterest expense |
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13,455 |
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13,520 |
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13,373 |
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11,255 |
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11,137 |
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40,348 |
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32,245 |
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Pre-provision profit(a) |
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13,167 |
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12,103 |
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11,652 |
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5,971 |
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3,600 |
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36,922 |
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17,781 |
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Provision for credit losses |
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8,104 |
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8,031 |
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8,596 |
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7,755 |
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3,811 |
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24,731 |
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11,690 |
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Provision for credit losses accounting
conformity(b) |
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(442 |
) |
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1,976 |
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1,976 |
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Income/(loss) before income tax
expense and extraordinary gain |
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5,063 |
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4,072 |
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3,056 |
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(1,342 |
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(2,187 |
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12,191 |
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4,115 |
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Income tax expense/(benefit)(c) |
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1,551 |
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1,351 |
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915 |
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(719 |
) |
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(2,133 |
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3,817 |
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(207 |
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Income/(loss) before extraordinary gain |
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3,512 |
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2,721 |
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2,141 |
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(623 |
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(54 |
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8,374 |
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4,322 |
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Extraordinary gain(d) |
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76 |
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1,325 |
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581 |
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76 |
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581 |
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Net income |
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$ |
3,588 |
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$ |
2,721 |
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$ |
2,141 |
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$ |
702 |
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$ |
527 |
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$ |
8,450 |
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$ |
4,903 |
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Per
common share data |
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Basic earnings(e) |
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Income/(loss) before extraordinary gain |
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$ |
0.80 |
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$ |
0.28 |
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$ |
0.40 |
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$ |
(0.29 |
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$ |
(0.08 |
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$ |
1.50 |
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$ |
1.14 |
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Net income |
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0.82 |
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0.28 |
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0.40 |
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0.06 |
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0.09 |
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1.52 |
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1.31 |
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Diluted earnings(e)(f) |
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Income/(loss) before extraordinary gain |
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$ |
0.80 |
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$ |
0.28 |
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$ |
0.40 |
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$ |
(0.29 |
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$ |
(0.08 |
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$ |
1.50 |
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$ |
1.13 |
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Net income |
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0.82 |
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0.28 |
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0.40 |
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0.06 |
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0.09 |
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1.51 |
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1.30 |
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Cash dividends declared per share |
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0.05 |
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0.05 |
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0.05 |
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0.38 |
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0.38 |
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0.15 |
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1.14 |
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Book value per share |
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39.12 |
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37.36 |
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36.78 |
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36.15 |
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36.95 |
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Common shares outstanding |
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Weighted average: Basic |
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3,937.9 |
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3,811.5 |
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3,755.7 |
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3,737.5 |
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3,444.6 |
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3,835.0 |
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3,422.3 |
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Diluted(e) |
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3,962.0 |
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3,824.1 |
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3,758.7 |
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3,737.5 |
(m) |
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3,444.6 |
(m) |
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3,848.3 |
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3,446.2 |
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Common shares at period end(g) |
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3,938.7 |
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3,924.1 |
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3,757.7 |
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3,732.8 |
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3,726.9 |
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Share price(h) |
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High |
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$ |
46.50 |
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$ |
38.94 |
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$ |
31.64 |
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$ |
50.63 |
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$ |
49.00 |
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$ |
46.50 |
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$ |
49.95 |
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Low |
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31.59 |
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25.29 |
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14.96 |
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19.69 |
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29.24 |
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14.96 |
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29.24 |
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Close |
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43.82 |
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34.11 |
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26.58 |
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31.53 |
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46.70 |
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Market capitalization |
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172,596 |
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133,852 |
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99,881 |
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117,695 |
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174,048 |
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Financial ratios |
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Return on common equity (ROE)(i) |
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Income/(loss) before extraordinary gain |
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9 |
% |
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3 |
% |
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5 |
% |
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(3 |
)% |
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(1 |
)% |
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6 |
% |
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4 |
% |
Net income |
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9 |
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3 |
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5 |
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1 |
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1 |
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6 |
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5 |
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Return on tangible common equity
(ROTCE)(i)(j) |
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Income/(loss) before extraordinary gain |
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13 |
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5 |
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8 |
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(5 |
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(1 |
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9 |
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7 |
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Net income |
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14 |
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5 |
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8 |
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1 |
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2 |
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9 |
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8 |
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Return on assets (ROA) |
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Income/(loss) before extraordinary gain |
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0.70 |
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0.54 |
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|
0.42 |
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(0.11 |
) |
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(0.01 |
) |
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|
0.55 |
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|
0.35 |
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Net income |
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|
0.71 |
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|
0.54 |
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|
0.42 |
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0.13 |
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0.12 |
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|
0.56 |
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|
0.39 |
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Overhead ratio |
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51 |
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53 |
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53 |
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65 |
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|
76 |
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52 |
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|
64 |
|
Tier 1 capital ratio |
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10.2 |
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9.7 |
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11.4 |
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10.9 |
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8.9 |
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Total capital ratio |
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13.9 |
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13.3 |
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|
15.2 |
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14.8 |
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12.6 |
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Tier 1 leverage ratio |
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6.5 |
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6.2 |
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7.1 |
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6.9 |
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7.2 |
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Tier 1 common capital ratio(k) |
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8.2 |
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7.7 |
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7.3 |
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7.0 |
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6.8 |
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Selected balance sheet data (period-end) |
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Trading assets |
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$ |
424,435 |
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|
$ |
395,626 |
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|
$ |
429,700 |
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$ |
509,983 |
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$ |
520,257 |
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Securities |
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|
372,867 |
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|
345,563 |
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|
333,861 |
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|
205,943 |
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150,779 |
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Loans |
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|
653,144 |
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|
680,601 |
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|
708,243 |
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|
744,898 |
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|
761,381 |
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Total assets |
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|
2,041,009 |
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|
2,026,642 |
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|
2,079,188 |
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2,175,052 |
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2,251,469 |
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Deposits |
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|
867,977 |
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|
866,477 |
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|
906,969 |
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|
1,009,277 |
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|
969,783 |
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Long-term debt |
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|
254,413 |
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|
254,226 |
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|
243,569 |
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|
252,094 |
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|
238,034 |
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Common stockholders equity |
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|
154,101 |
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|
146,614 |
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|
138,201 |
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|
|
134,945 |
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|
137,691 |
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|
Total stockholders equity |
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|
162,253 |
|
|
|
154,766 |
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|
|
170,194 |
|
|
|
166,884 |
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|
|
145,843 |
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|
|
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|
|
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Headcount |
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|
220,861 |
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|
|
220,255 |
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|
|
219,569 |
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|
|
224,961 |
|
|
|
228,452 |
|
|
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|
3
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|
(unaudited) |
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|
|
|
|
|
Nine months ended |
|
(in millions, except ratios) |
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|
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|
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|
|
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|
|
|
September 30, |
|
As of or for the period ended, |
|
3Q09 |
|
|
2Q09 |
|
|
1Q09 |
|
|
4Q08 |
|
|
3Q08 |
|
|
2009 |
|
|
2008 |
|
|
Credit quality metrics |
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|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
31,454 |
|
|
$ |
29,818 |
|
|
$ |
28,019 |
|
|
$ |
23,823 |
|
|
$ |
19,765 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total
retained
loans |
|
|
4.74 |
% |
|
|
4.33 |
% |
|
|
3.95 |
% |
|
|
3.18 |
% |
|
|
2.56 |
% |
|
|
|
|
|
|
|
|
Allowance for loan losses to retained
loans excluding purchased credit-
impaired loans(l) |
|
|
5.28 |
|
|
|
5.01 |
|
|
|
4.53 |
|
|
|
3.62 |
|
|
|
2.87 |
|
|
|
|
|
|
|
|
|
Nonperforming assets |
|
$ |
20,362 |
|
|
$ |
17,517 |
|
|
$ |
14,654 |
|
|
$ |
12,714 |
|
|
$ |
9,520 |
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
6,373 |
|
|
|
6,019 |
|
|
|
4,396 |
|
|
|
3,315 |
|
|
|
2,484 |
|
|
$ |
16,788 |
|
|
$ |
6,520 |
|
Net charge-off rate |
|
|
3.84 |
% |
|
|
3.52 |
% |
|
|
2.51 |
% |
|
|
1.80 |
% |
|
|
1.91 |
% |
|
|
3.28 |
% |
|
|
1.70 |
% |
Wholesale net charge-off rate |
|
|
1.93 |
|
|
|
1.19 |
|
|
|
0.32 |
|
|
|
0.33 |
|
|
|
0.10 |
|
|
|
1.13 |
|
|
|
0.12 |
|
Consumer net charge-off rate |
|
|
4.79 |
|
|
|
4.69 |
|
|
|
3.61 |
|
|
|
2.59 |
|
|
|
3.13 |
|
|
|
4.36 |
|
|
|
2.78 |
|
|
|
|
|
(a) |
|
Pre-provision profit is total net revenue less noninterest expense. The Firm believes
that this financial measure is useful in assessing the ability of a lending institution to
generate income in excess of its provision for credit losses. |
|
(b) |
|
The third and fourth quarters of 2008 included an accounting conformity loan loss reserve
provision related to the acquisition of Washington Mutuals banking operations. |
|
(c) |
|
The income tax benefit in the third quarter of 2008 included 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. |
|
(d) |
|
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 accounting principles generally accepted in the United
States of America (U.S. GAAP) for business combinations, nonfinancial assets that are not
held-for-sale were written down against that negative goodwill. The negative goodwill that
remained after writing down nonfinancial assets was recognized as an extraordinary gain. As a
result of the final refinement of the purchase price allocation during the third quarter of
2009, the Firm recognized a $76 million increase in the extraordinary gain. |
|
(e) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised as required. For further
discussion of the guidance, see Note 21 on pages 166-167 of this Form 10-Q. |
|
(f) |
|
The calculation of both the second-quarter and nine months ended 2009 earnings per share
includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from
repayment of U.S. Troubled Asset Relief Program (TARP) preferred capital. For further
discussion, see Impact on diluted earnings per share of redemption of TARP preferred stock
issued to the U.S. Treasury on page 19 of this Form 10-Q. |
|
(g) |
|
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. |
|
(h) |
|
The principal market for JPMorgan Chases common stock is the New York Stock Exchange.
JPMorgan Chases common stock is also listed and traded on the London Stock Exchange and the
Tokyo Stock Exchange. |
|
(i) |
|
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 and ROTCE were 6% and 10% for the second
quarter of 2009, respectively. For further discussion of adjusted ROE, see Explanation and
reconciliation of the Firms use of non-GAAP financial measures on pages 15-19 of this Form
10-Q. |
|
(j) |
|
For further discussion of ROTCE, a non-GAAP financial measure, see Explanation and
reconciliation of the Firms use of non-GAAP financial measures on pages 15-19 of this Form
10-Q. |
|
(k) |
|
Tier 1 common is calculated as Tier 1 capital less qualifying perpetual preferred stock,
qualifying trust preferred securities and qualifying minority interest in subsidiaries. The
Firm uses the Tier 1 common capital ratio, a non-GAAP financial measure, to assess and compare
the quality and composition of the Firms capital with the capital of other
financial services companies. For further discussion, see Regulatory capital on pages 55-57 of
this Form 10-Q. |
|
(l) |
|
Excludes the impact of home lending purchased credit-impaired loans and loans held by the
Washington Mutual Master Trust. For further discussion, see Allowance for credit losses on
pages 81-84 of this Form 10-Q. |
|
(m) |
|
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 178-181 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 184-185 and Part II, Item 1A: Risk Factors on page 187 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, $162.3
billion in stockholders equity and operations in more than 60 countries as of September 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 clients of the Investment Bank (IB) are corporations, financial
institutions, governments and institutional investors. The Firm offers a full range of investment
banking products and services in all major capital markets, including advising on corporate
strategy and structure, capital-raising in equity and debt markets, sophisticated risk management,
market-making in cash securities and derivative instruments, prime brokerage and research. IB also
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 5,100 bank branches (third-largest nationally)
and 15,000 ATMs (second-largest nationally), as well as online and mobile banking around the clock.
More than 22,400 branch salespeople assist customers with checking and savings accounts, mortgages,
home equity and business loans, and investments across a 23-state footprint from New York and
Florida to California. Consumers also can obtain loans through 15,900 auto dealerships and nearly
2,400 schools and universities nationwide.
Card Services
Chase Card Services (CS) is one of the nations largest credit card issuers, with more than 146
million cards in circulation and more than $165 billion in managed loans. In the nine months ended
September 30, 2009, customers used Chase cards to meet more than $241 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, including the
Chase Freedom program.
Through Chase Paymentech Solutions, its merchant acquiring business, 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 approximately 30,000 real estate investors/owners.
Delivering extensive industry knowledge, local expertise and dedicated service, CB partners with
the Firms other businesses to provide comprehensive solutions, including lending, treasury
services, investment banking and asset management to meet its clients domestic and international
financial needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in transaction, investment and
information services. TSS is one of the worlds largest cash management providers and a leading
global custodian. Treasury Services (TS) provides cash management, trade, wholesale card and
liquidity products and services to small and mid-sized companies, multinational corporations,
financial institutions and government entities. TS partners with the Commercial Banking, Retail
Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain
TS revenue is included in other segments results. Worldwide Securities Services holds, values,
clears and services securities, cash and alternative investments for investors and broker-dealers,
and it manages depositary receipt programs globally.
Asset Management
Asset Management (AM), with assets under supervision of $1.7 trillion, is a global leader in
investment and wealth management. AM clients include institutions, retail investors and
high-net-worth individuals in every major market throughout the world. AM offers global investment
management in equities, fixed income, real estate, hedge funds, private equity and liquidity
products, including money-market instruments and bank deposits. AM also provides trust and estate,
banking and brokerage services to high-net-worth clients, and retirement services for corporations
and individuals. The majority of AMs client assets are in actively managed portfolios.
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 September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except per share data and ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
26,622 |
|
|
$ |
14,737 |
|
|
|
81 |
% |
|
$ |
77,270 |
|
|
$ |
50,026 |
|
|
|
54 |
% |
Total noninterest expense |
|
|
13,455 |
|
|
|
11,137 |
|
|
|
21 |
|
|
|
40,348 |
|
|
|
32,245 |
|
|
|
25 |
|
Pre-provision profit |
|
|
13,167 |
|
|
|
3,600 |
|
|
|
266 |
|
|
|
36,922 |
|
|
|
17,781 |
|
|
|
108 |
|
Provision for credit losses(a) |
|
|
8,104 |
|
|
|
5,787 |
|
|
|
40 |
|
|
|
24,731 |
|
|
|
13,666 |
|
|
|
81 |
|
Income/(loss) before extraordinary gain |
|
|
3,512 |
|
|
|
(54 |
) |
|
NM |
|
|
|
8,374 |
|
|
|
4,322 |
|
|
|
94 |
|
Extraordinary gain(b) |
|
|
76 |
|
|
|
581 |
|
|
|
(87 |
) |
|
|
76 |
|
|
|
581 |
|
|
|
(87 |
) |
Net income |
|
|
3,588 |
|
|
|
527 |
|
|
NM |
|
|
|
8,450 |
|
|
|
4,903 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(c)(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
$ |
0.80 |
|
|
$ |
(0.08 |
) |
|
NM |
|
|
$ |
1.50 |
|
|
$ |
1.13 |
|
|
|
33 |
|
Net income |
|
|
0.82 |
|
|
|
0.09 |
|
|
NM |
|
|
|
1.51 |
|
|
|
1.30 |
|
|
|
16 |
|
Return on common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
|
9 |
% |
|
|
(1 |
)% |
|
|
|
|
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
Net income |
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
(a) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
|
(b) |
|
JPMorgan Chase acquired Washington Mutuals banking operations from the Federal Deposit
Insurance Corporation (FDIC) for $1.9 billion. The fair value of Washington Mutual net
assets acquired exceeded the purchase price, which resulted in negative goodwill. In
accordance with U.S. GAAP for business combinations, nonfinancial assets that are not
held-for-sale were written down against that negative goodwill. The negative goodwill that
remained after writing down nonfinancial assets was recognized as an extraordinary gain. As a
result of the final refinement of the purchase price allocation during the third quarter of
2009, the Firm recognized a $76 million increase in the extraordinary gain. |
|
(c) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised. For further discussion of the
guidance, see Note 21 on pages 166-167 of this Form 10-Q. |
|
(d) |
|
The calculation of EPS for the nine months ended September 30, 2009, includes a one-time
noncash reduction of $1.1 billion, or $0.27 per share, resulting from the redemption of Series
K preferred stock issued to the U.S. Treasury. |
Business overview
JPMorgan Chase reported third-quarter 2009 net income of $3.6 billion, compared with net income of
$527 million in the third quarter of 2008. Earnings per share were $0.82, compared with $0.09 in
the prior year. Return on common equity was 9%.
The increase in earnings from the third quarter of 2008 was driven by significantly higher net
revenue, partially offset by an increase in the provision for credit losses and higher 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, the
increase in net revenue was driven by strong trading results and
gains on legacy leveraged-lending
and mortgage-related positions, compared with markdowns in the prior year in IB; gains on trading positions
and higher net interest income in Corporate/Private Equity; and wider loan spreads across most businesses.
The increase to the provision for credit losses resulted from a significant increase in the
consumer provision, reflecting higher net charge-offs and an increase in the allowance for credit
losses in the home lending and credit card loan portfolios. In addition to the impact of the
Washington Mutual transaction, the increase in noninterest expense was driven by higher
performance-based compensation expense, partially offset by lower headcount-related expense.
Net income for the first nine months of 2009 was $8.5 billion, or $1.51 per share, compared with
$4.9 billion, or $1.30 per share, in the first nine months of 2008. The following factors that
drove the 2009 third-quarter results also generally drove the increase in earnings from the comparable 2008
nine-month period: strong net revenue growth, driven by the
Washington Mutual transaction; higher
principal transactions revenue; and increased net interest income; partially offset by higher credit
costs and higher noninterest expense. The first nine months of 2009 also reflected higher net
revenue from mortgage servicing rights (MSR) risk management results in RFS and higher
noninterest expense resulting from an accrual for an FDIC special assessment in the second quarter
of 2009.
7
The U.S. and most other economies grew in the third quarter of 2009, with various industry sectors
showing signs of stability. Conditions in financial markets also improved, as evidenced by the
following: credit spreads have stabilized in the interbank term funding markets and
continued to narrow for investment-grade borrowers; credit markets opened for
noninvestment-grade borrowers; and the broader equity markets rose significantly. Activity in the
housing sector increased, with new home construction picking up for the first time in three and a
half years. Consumer spending stabilized, despite losses on household balance
sheets and poor job market conditions, as the unemployment rate rose to 9.8% at the end of the
third quarter. Business capital spending leveled out, aided by a slowing in the pace of inventory
liquidation. Inflation remained low, and the Federal Reserve indicated that the federal funds rate
would likely remain low for an extended period, reiterating its intent to continue to use a wide
range of tools to promote economic recovery and maintain price stability.
JPMorgan Chases line-of-business results for the third quarter of 2009 reflected the broad-based
nature of the economic improvement. Pre-provision profit remained strong at $13.2 billion, up by
$9.6 billion from the prior year. Five of the six lines of business produced revenue growth,
and the Investment Bank, Asset Management, Commercial Banking and the Retail Banking segment within
Retail Financial Services grew net income. In contrast, Card Services and the Consumer Lending
segment within Retail Financial Services reported net losses; in spite of initial signs of
improvement, particularly in early-stage delinquencies, credit costs continued to be elevated in
these businesses. Accordingly, the Firm increased its consumer allowance for credit losses by $2.0
billion, bringing the total allowance for credit losses to $31.5 billion, or 5.28% of total loans.
This addition, combined with capital generation in the quarter, helped the Firm maintain a strong
balance sheet, with a Tier 1 Capital ratio of 10.2% and a Tier 1 Common Capital ratio of 8.2%.
The Firm continued to help consumers and communities navigate the challenging economy by announcing
a revamp of its overdraft policies to provide customers with more control over the fees they pay;
developing new, innovative products in Card Services to enhance the way customers manage their
spending and borrowing; and working with struggling mortgage customers to modify their loans.
JPMorgan Chase has approved more than 262,000 new trial modifications under the U.S. Making Home
Affordable Program and its own modification program, nearly 90% of which include a reduction in
payments for the homeowner. Since 2007, the Firm has helped families by initiating approximately
782,000 actions to prevent foreclosure.
The discussion that follows highlights the current-quarter performance of each business segment
compared with the prior-year quarter, and presents results on a managed basis unless otherwise
noted. For more information about managed basis, see Explanation and Reconciliation of the Firms
Use of Non-GAAP Financial Measures on pages 15-19 of this Form 10-Q .
Investment Bank net income increased, reflecting higher net revenue partially offset by increases
in both noninterest expense and the provision for credit losses. Fixed Income Markets drove the
revenue growth, with strong results across most products and gains on legacy leveraged-lending and
mortgage-related positions, compared with markdowns on these
positions in the prior year. The increase in the
provision for credit losses reflected deterioration in the credit environment compared with the
third quarter of 2008. Noninterest expense increased, driven by higher performance-based
compensation, partially offset by lower headcount-related expense.
Retail Financial Services net income declined, as an increase in the provision for credit losses
was largely offset by the positive impact of the Washington Mutual transaction. Growth in net
revenue was also driven by higher net mortgage servicing revenue, wider loan spreads and higher
deposit balances, offset partially by lower mortgage production revenue and lower loan balances.
The provision for credit losses rose significantly as weak economic conditions and housing price
declines continued to drive higher estimated losses for the home equity and mortgage loan
portfolios. Included in the third-quarter 2009 addition to the allowance for loan losses was an
increase related to estimated deterioration in the Washington Mutual purchased credit-impaired
portfolio. Noninterest expense increased, reflecting the impact of the Washington Mutual
transaction and higher servicing expense, partially offset by lower mortgage reinsurance losses.
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 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 higher revenue
reversals associated with higher charge-offs, lower average loan balances and a decreased level of
fees. The provision for credit losses reflected a higher level of charge-offs and an increase in
the allowance for loan losses. 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. Net revenue also increased due to wider loan spreads, a shift to
higher-spread liability products, overall growth in liability balances and higher lending- and
deposit-related fees. 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 across all business segments, particularly real
estate-related segments. Noninterest expense rose due to the impact of the Washington Mutual
transaction and higher FDIC insurance premiums.
Treasury & Securities Services net income decreased, driven by lower net revenue offset partially
by lower noninterest expense. Worldwide Securities Services revenue declined, driven by lower
securities lending balances, primarily as a result of declines in asset valuations and demand;
lower spreads and balances on liability products; and the effect of market depreciation on certain
custody assets. Treasury Services revenue declined as well, reflecting spread compression on
deposit products offset by higher trade revenue driven by wider spreads, and higher card product
volumes. Noninterest expense decreased, reflecting lower headcount-related expense, offset
partially by higher FDIC insurance premiums.
Asset Management net income increased, due to higher net revenue and lower noninterest expense,
offset partially by a higher provision for credit losses. Growth in
net revenue was driven by gains on the
Firms seed capital investments, wider loan spreads, higher deposit balances and net inflows. These
benefits were partially offset by the effect of lower market levels, narrower deposit spreads,
lower loan balances and decreased placement fees. The increase in the provision for credit losses
reflected continued deterioration in the credit environment. Noninterest expense decreased due to
lower headcount-related expense, offset by higher performance-based compensation and higher FDIC
insurance premiums.
Corporate/Private Equity reported net income, compared with a net loss in the prior year,
reflecting continued gains on trading positions, higher net interest income and private equity gains in
the third quarter of 2009, compared with losses in the third quarter of 2008.
Firmwide, the managed provision for credit losses was $9.8 billion, up by $3.1 billion, or 47%,
from the prior year. The prior-year quarter included a $2.0 billion charge to conform Washington
Mutuals allowance for loan losses, which affected both the consumer and wholesale portfolios. For
the purposes of the following analysis, this charge is excluded. The consumer-managed provision for
credit losses was $9.0 billion, compared with $4.3 billion in the prior year, reflecting an
increase in the allowance for credit losses in the home lending and credit card loan portfolios.
Consumer-managed net charge-offs were $7.0 billion, compared with $3.3 billion, resulting in
managed net charge-off rates of 6.29% and 3.39%, respectively. The wholesale provision for credit
losses was $779 million, compared with $398 million, reflecting continued deterioration in the
credit environment. Wholesale net charge-offs were $1.1 billion, compared with $52 million,
resulting in net charge-off rates of 1.93% and 0.10%, respectively. The Firms nonperforming assets
totaled $20.4 billion at September 30, 2009, up from $9.5 billion. The allowance for credit losses
increased by $1.6 billion during the quarter; this resulted in a loan loss coverage ratio at
September 30, 2009, of 5.28%, compared with 5.01% at June 30, 2009, and 2.87% at September 30,
2008. The above mentioned net charge-off rates and allowance for loan loss ratios exclude loans
accounted for at fair value and loans held-for-sale, and the impact of purchased credit-impaired
loans. The allowance for loan loss ratios also excluded the impact of loans held by the Washington
Mutual Master Trust, which were consolidated on the Firms balance sheet at fair value during the
second quarter of 2009 and the $1.1 billion of allowance related to the purchased credit-impaired
portfolio.
Business outlook
The following forward-looking statements are based on the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause the Firms actual results to differ materially from those set forth in
such forward-looking statements.
JPMorgan Chases outlook for the fourth quarter 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 the capital markets
remains uncertain, and further
declines in U.S. housing prices in certain markets and increases in
the unemployment rate, either of which could adversely affect the
Firms financial results, are
possible. In addition, as a result of recent market conditions, the U.S. Congress and regulators
have increased their focus on the regulation of financial institutions; any legislation or
regulations that may be adopted as a result could limit or restrict the Firms operations, or
impose additional costs on the Firm in order to comply with such new laws or rules.
9
Given the potential stress on the consumer from rising unemployment and continued downward pressure on housing
prices, management remains cautious with respect to the credit outlook for the consumer loan portfolios. Possible
continued deterioration in credit trends could result in higher credit costs and require additions to the consumer
allowance for credit losses. Based on managements current economic outlook, quarterly net charge-offs could reach
$1.4 billion for the home equity portfolio, $600 million for the
prime mortgage portfolio and $500 million for the
subprime mortgage portfolio over the next several quarters. The managed net charge-off rate for Card Services
(excluding the Washington Mutual credit card portfolio) could approach 10.5% by the first half of 2010, and thereafter
will remain highly dependent on unemployment levels. The managed net charge-off rate for the Washington Mutual
credit card portfolio could approach 24% over the next several quarters. These charge-off rates are likely to move even
higher if the economic environment deteriorates beyond managements current expectations. Similarly, wholesale credit costs, and net
charge-offs could increase over the next several quarters if the credit environment continues to deteriorate.
The Investment Bank continues to operate in an uncertain environment and, as noted above, results could be adversely
affected if the credit environment deteriorates further. Trading results can be volatile and recent market conditions,
which include elevated client volumes and spread levels, are not likely to continue. As such, management does not
expect recent strong results in both Fixed Income and Equity Markets segments to continue at the same levels. Finally, if
the Firms own credit spreads tighten, as was the case in the third quarter of 2009, the change in fair value of certain
trading liabilities would also negatively affect trading results.
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
further declines over the remainder of the year in average retail deposits due to anticipated
downward repricing of certain legacy Washington Mutual deposits. Finally, as a result of recent
changes in the Firms policies relating to non-sufficient funds and overdraft fees, management
expects lower Retail Banking revenue in 2010. Although management estimates are, at this point in
time, preliminary and subject to change, the impact of such changes could result in an
annualized reduction in net income of approximately $500 million.
Card Services faces rising credit costs, as noted above, as well as continued pressure on both
charge volumes and credit card receivables growth, reflecting continued lower levels of consumer
spending. In addition, as a result of the recently-enacted credit
card legislation, management estimates, which are preliminary and
subject to change, are that Card Services
annual net income may be adversely affected by approximately $500 million to $750 million. As a
result of all these factors, management currently expects Card
Services to have a net loss for the full
year 2010.
Commercial Banking results could be negatively affected by rising credit costs, a decline in loan
demand and reduced liability balances.
Earnings in Treasury & Securities Services and Asset Management will be affected by the impact of
market levels on assets under management, supervision and custody. Additionally, earnings in
Treasury & Securities Services could be affected by liability balance flows.
Private Equity results will likely be volatile and continue to be influenced by capital market
activity, market levels, the performance of the broader economy and investment-specific issues. Net
interest income levels will generally trend with the size of the investment portfolio in
Corporate; however, the high level
of trading gains in Corporate in the third quarter of 2009 is not
likely to continue. In the near-term, Corporate quarterly net income (excluding Private Equity, merger-related items
and any significant nonrecurring items) is expected to decline to
approximately $500 million and continue trending lower through
the course of 2010.
Lastly, on a Firmwide matter, the decision of the Firms Board of Directors regarding any increase
in the level of common stock dividends will be subject to their judgment that the likelihood of
another severe economic downturn has sufficiently diminished, and that overall business performance
has stabilized. When, in the Boards judgment, it is appropriate to increase the dividend, the
likely result might involve an initial increase to a $0.75 to $1.00 per share annual payout level,
followed by a subsequent return to the Firms historical dividend payout ratio of 30% to 40% of
normalized earnings over time.
10
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chases Consolidated Results of
Operations on a reported basis. Factors that relate primarily to a single business segment are
discussed in more detail within that business segment. For a discussion of the Critical Accounting
Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 92-94 of
this Form 10-Q and pages 107-111 of JPMorgan Chases 2008 Annual Report.
Total net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Investment banking fees |
|
$ |
1,679 |
|
|
$ |
1,316 |
|
|
|
28 |
% |
|
$ |
5,171 |
|
|
$ |
4,144 |
|
|
|
25 |
% |
Principal transactions |
|
|
3,860 |
|
|
|
(2,763 |
) |
|
NM |
|
|
|
8,958 |
|
|
|
(2,814 |
) |
|
NM |
|
Lending and deposit-related fees |
|
|
1,826 |
|
|
|
1,168 |
|
|
|
56 |
|
|
|
5,280 |
|
|
|
3,312 |
|
|
|
59 |
|
Asset management,
administration and commissions |
|
|
3,158 |
|
|
|
3,485 |
|
|
|
(9 |
) |
|
|
9,179 |
|
|
|
10,709 |
|
|
|
(14 |
) |
Securities gains |
|
|
184 |
|
|
|
424 |
|
|
|
(57 |
) |
|
|
729 |
|
|
|
1,104 |
|
|
|
(34 |
) |
Mortgage fees and related income |
|
|
843 |
|
|
|
457 |
|
|
|
84 |
|
|
|
3,228 |
|
|
|
1,678 |
|
|
|
92 |
|
Credit card income |
|
|
1,710 |
|
|
|
1,771 |
|
|
|
(3 |
) |
|
|
5,266 |
|
|
|
5,370 |
|
|
|
(2 |
) |
Other income |
|
|
625 |
|
|
|
(115 |
) |
|
NM |
|
|
|
685 |
|
|
|
1,576 |
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
13,885 |
|
|
|
5,743 |
|
|
|
142 |
|
|
|
38,496 |
|
|
|
25,079 |
|
|
|
53 |
|
Net interest income |
|
|
12,737 |
|
|
|
8,994 |
|
|
|
42 |
|
|
|
38,774 |
|
|
|
24,947 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
26,622 |
|
|
$ |
14,737 |
|
|
|
81 |
|
|
$ |
77,270 |
|
|
$ |
50,026 |
|
|
|
54 |
|
|
Total net revenue for the third quarter of 2009 was $26.6 billion, up by $11.9 billion, or
81%, from the third quarter of 2008. For the first nine months of 2009, total net revenue was $77.3
billion, up by $27.2 billion, or 54%, from the equivalent period of 2008. The increase from both
prior-year periods was driven by higher principal transactions revenue, primarily related to the
strong results across most fixed income and equity products and the absence of markdowns on legacy
leveraged lending and mortgage positions in IB, as well as higher levels of trading gains and
investment securities income in Corporate. The results also benefited from the impact of the
Washington Mutual transaction, which contributed to the increases in net interest income, lending-
and deposit-related fees, mortgage fees and related income. These benefits were offset partially by
reduced fees and commissions resulting from lower market levels on assets under management and
custody. For the year-to-date comparison, an additional driver of the increase in revenue was
higher net revenue from MSR risk management results, offset by the absence of proceeds from the
sale of Visa shares in its initial public offering in the first quarter of 2008.
Investment banking fees for the third quarter and first nine months of 2009 increased from the
comparable periods in 2008, reflecting higher equity and debt underwriting fees, offset partially
by lower advisory fees. For a further discussion of investment banking fees, which are primarily
recorded in IB, see IB segment results on pages 21-24 of this Form 10-Q.
Principal transactions revenue, which consists of revenue from the Firms trading and private
equity investing activities, rose from the third quarter and first nine months of 2008. Trading
revenue increased in the third quarter of 2009, driven by strong results across most fixed income
and equity products; gains of approximately $400 million on legacy leveraged lending and
mortgage-related positions, compared with markdowns of $3.6 billion in the prior year; and gains on
trading positions in Corporate, compared with losses in the prior year of $1.0 billion on markdowns
of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation
(Freddie Mac) preferred securities. These benefits were offset partially by an aggregate loss of
$1.0 billion in the quarter from the tightening of the Firms credit spread on certain structured
liabilities and derivatives, compared with gains of $956 million in the prior year from the
widening of the spread on those liabilities. For the first nine months of 2009, trading revenue
rose as a result of the same drivers in the quarter, including significantly lower net markdowns on
legacy leveraged lending and mortgage-related positions, compared with markdowns of $7.7 billion in
the prior year; these benefits were offset partially by an aggregate loss of $1.9 billion from the
tightening of the Firms credit spread on certain structured liabilities and derivatives, compared
with gains of $2.8 billion in the prior year from the widening of spreads on those liabilities. The
Firms private equity investments generated net gains in the third quarter of 2009, compared with
net losses in the prior year. For the first nine months of 2009, the private equity investments
produced net losses, compared with net gains in the prior year. For a further discussion of
principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 21-24
and 47-49 respectively, and Note 3 on pages 106-121 of this Form 10-Q.
Lending- and deposit-related fees rose from the third quarter and first nine 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 IB, as well as in CB. 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 25-32, the CB segment results on pages 37-39, and the TSS segment results
on pages 40-43 of this Form 10-Q.
11
The decline in asset management, administration and commissions revenue compared with the third
quarter of 2008 reflected lower brokerage commissions revenue in IB, predominantly related to lower
transaction volume; lower asset management fees in AM, from the impact of lower market levels on
assets under management; and lower administration fees in TSS, driven by the effect of market
depreciation on certain custody assets and lower securities lending balances. For the first nine
months of 2009, the decline was largely due to lower asset management fees in AM from the impact of
lower market levels on assets under management. Lower brokerage commissions revenue in IB and lower
administrative fees in TSS also contributed to the decrease.
The decrease in securities gains compared with the third quarter of 2008 was due to lower gains
from the repositioning of the Corporate investment securities portfolio, in connection with
managing the Firms structural interest rate risk. For the first nine months of 2009, the decrease
reflected lower gains from the sale of MasterCard shares, which totaled $241 million in 2009,
compared with $668 million in 2008. 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 47-49 of this Form 10-Q.
Mortgage fees and related income increased during the third quarter and first nine months of 2009,
as higher net mortgage servicing revenue was offset partially by a production-related net loss in
the third quarter of 2009. The increase in net mortgage servicing revenue was driven by growth in
average third-party loans serviced as a result of the Washington Mutual transaction and higher MSR
risk management results, reflecting primarily, for the nine-month period, the positive impact of a
decrease in estimated future mortgage prepayments and positive hedging results. Mortgage production
generated a net loss for the third quarter of 2009, and a decline from the first nine months of
2008, reflecting an increase in reserves for the repurchase of previously-sold loans, offset by
wider margins on new originations. 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
29-32 of this Form 10-Q.
Credit card income, which includes the impact of the Washington Mutual transaction, was flat
compared with the third quarter and first nine months of 2008, as lower servicing fees earned in
connection with CS securitization activities, largely as a result of
higher credit losses, were
offset by wider loan margins on securitized credit card loans. Also partially offsetting the
decline were 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 33-36 of this Form 10-Q.
Other income increased in the third quarter of 2009 due to the absence of a $375 million charge
recognized in the third quarter of 2008 related to the repurchase of auction-rate securities at
par. Also contributing to the increase in other income during the quarter were higher markups on
certain investments, including seed capital in AM, and higher gains on the sale of certain assets,
including other real estate owned. For the first nine months of 2009, other income decreased, due
predominantly to the absence of $1.5 billion in proceeds from the sale of Visa shares in the first
quarter of 2008 during its initial public offering, lower net securitization income in CS and the
dissolution of the Chase Paymentech Solutions joint venture. These items were partially offset by
the absence of a $423 million loss incurred in the second quarter of 2008, reflecting the Firms
49.4% share in Bear Stearns losses from April 8 to May 30, 2008, and the same items that drove the
increase in the third quarter of 2009 results compared with the third quarter of 2008.
Net interest income increased $3.7 billion to $12.7 billion, and $13.8 billion to $38.8 billion,
for the third quarter and first nine months of 2009, respectively, compared with the comparable
periods in 2008. The increase from the prior year was driven by the Washington Mutual transaction,
which contributed to higher average loans and deposits, and the impact of a wider net interest
margin. For the quarter, the net yield on the Firms interest-earning assets of $1.6 trillion, on a
fully taxable-equivalent (FTE) basis, was 3.10%, an increase of 37 basis points from 2008. For the
first nine months, the net yield on the Firms interest-earning assets of $1.7 trillion, on an FTE
basis, was 3.15%, an increase of 47 basis points from 2008. Excluding the impact of the Washington
Mutual transaction, the increase in net interest income in the quarter and first nine months of the
year was driven by the overall decline in market interest rates during the periods, which benefited
the net interest margin as rates paid on the Firms interest-bearing liabilities declined faster
relative to the decline in rates earned on interest-earning assets. The higher level of the
investment securities portfolio also contributed to the increase in net interest income. The
increase in net interest income was offset partially by lower loan balances, which included the
effect of loan charge-offs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Wholesale |
|
$ |
779 |
|
|
$ |
962 |
|
|
|
(19 |
)% |
|
$ |
3,553 |
|
|
$ |
2,214 |
|
|
|
60 |
% |
Consumer |
|
|
7,325 |
|
|
|
4,825 |
|
|
|
52 |
|
|
|
21,178 |
|
|
|
11,452 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for credit losses |
|
$ |
8,104 |
|
|
$ |
5,787 |
|
|
|
40 |
|
|
$ |
24,731 |
|
|
$ |
13,666 |
|
|
|
81 |
|
|
12
Provision for credit losses
The provision for credit losses in the third quarter and first nine months of 2009 rose compared
with the equivalent 2008 periods due to increases in the consumer provision. The prior-year quarter
included a $2.0 billion charge to conform Washington Mutuals allowance for loan losses, which
affected both the consumer and wholesale portfolios. For the purpose of the following analysis,
this charge is excluded. The consumer provision reflected additions to the allowance for loan
losses for the home equity, mortgage and credit card portfolios, as weak economic conditions,
housing price declines and higher unemployment rates continued to drive higher estimated losses for
these portfolios. Included in the third-quarter 2009 addition to the allowance for loan losses was
a $1.1 billion increase related to estimated deterioration in the Washington Mutual purchased
credit-impaired portfolio. The wholesale provision increased from the comparable 2008 periods,
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
25-32, CS on pages 33-36, IB on pages 21-24 and CB on pages 37-39, and the Allowance for Credit
Losses section on pages 81-84 of this Form 10-Q.
Noninterest expense
The following table presents the components of noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Compensation expense |
|
$ |
7,311 |
|
|
$ |
5,858 |
|
|
|
25 |
% |
|
$ |
21,816 |
|
|
$ |
17,722 |
|
|
|
23 |
% |
Noncompensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy expense |
|
|
923 |
|
|
|
766 |
|
|
|
20 |
|
|
|
2,722 |
|
|
|
2,083 |
|
|
|
31 |
|
Technology, communications and
equipment expense |
|
|
1,140 |
|
|
|
1,112 |
|
|
|
3 |
|
|
|
3,442 |
|
|
|
3,108 |
|
|
|
11 |
|
Professional & outside services |
|
|
1,517 |
|
|
|
1,451 |
|
|
|
5 |
|
|
|
4,550 |
|
|
|
4,234 |
|
|
|
7 |
|
Marketing |
|
|
440 |
|
|
|
453 |
|
|
|
(3 |
) |
|
|
1,241 |
|
|
|
1,412 |
|
|
|
(12 |
) |
Other expense(a) |
|
|
1,767 |
|
|
|
1,096 |
|
|
|
61 |
|
|
|
5,332 |
|
|
|
2,498 |
|
|
|
113 |
|
Amortization of intangibles |
|
|
254 |
|
|
|
305 |
|
|
|
(17 |
) |
|
|
794 |
|
|
|
937 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noncompensation expense |
|
|
6,041 |
|
|
|
5,183 |
|
|
|
17 |
|
|
|
18,081 |
|
|
|
14,272 |
|
|
|
27 |
|
Merger costs |
|
|
103 |
|
|
|
96 |
|
|
|
7 |
|
|
|
451 |
|
|
|
251 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
13,455 |
|
|
$ |
11,137 |
|
|
|
21 |
|
|
$ |
40,348 |
|
|
$ |
32,245 |
|
|
|
25 |
|
|
|
|
|
(a) |
|
Includes $675 million accrued for an FDIC special assessment in the second quarter of
2009. |
Total noninterest expense for the third quarter of 2009 was $13.5 billion, up $2.3 billion, or
21%, from the third quarter of 2008; for the first nine months of 2009, total noninterest expense
was $40.3 billion, up by $8.1 billion, or 25%, from the comparable 2008 period. The increase was
driven by the impact of the Washington Mutual transaction, higher performance-based compensation
expense, the accrual of $0.7 billion for an FDIC special assessment recognized in the second
quarter of 2009, higher FDIC insurance premiums and increased mortgage-related servicing expense.
These items were offset partially by lower headcount-related expense, which includes salary and
benefits (excluding performance-based incentives), and other noncompensation costs related to
employees.
Compensation expense increased in the third quarter and first nine months of 2009 compared with the
prior-year periods, reflecting higher performance-based incentives, as well as the impact of the
Washington Mutual transaction. Excluding these two items, compensation expense decreased as a
result of the reduction in headcount, particularly in the wholesale businesses and in Corporate.
Noncompensation expense increased from the third quarter of 2008, due predominantly to the
following: the impact of the Washington Mutual transaction; higher litigation costs, partly as a
result of benefits recognized in 2008 from certain litigation matters; higher mortgage
servicing-related expense due to increased delinquencies and defaults, which included an increase
in foreclosed property expense of $0.3 billion; higher FDIC insurance premiums; and the impact of
the dissolution of the Chase Paymentech Solutions joint venture. These items were offset partially
by lower headcount-related expense, particularly in IB, TSS and AM, and lower mortgage reinsurance
losses. Noncompensation expense increased from the first nine months of 2008, primarily due to the
drivers discussed for the third quarter and an accrual of $0.7 billion for an FDIC special
assessment recognized in the second quarter of 2009. The increase was partially offset by lower
credit card marketing expense.
For information on merger costs, refer to Note 10 on page 135 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 September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except rate) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Income/(loss) before income tax expense/(benefit) |
|
$ |
5,063 |
|
|
$ |
(2,187 |
) |
|
$ |
12,191 |
|
|
$ |
4,115 |
|
Income tax expense/(benefit) |
|
|
1,551 |
|
|
|
(2,133 |
) |
|
|
3,817 |
|
|
|
(207 |
) |
Effective tax rate |
|
|
30.6 |
% |
|
|
97.5 |
% |
|
|
31.3 |
% |
|
|
(5.0 |
)% |
|
The change in the effective tax rate for the third quarter and first nine months of 2009,
compared with the same periods 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. In addition, the
third quarter and first nine months of 2008 reflected the realization of benefits of $927 million
and $1.1 billion, respectively, from the release of deferred tax liabilities associated with the
undistributed earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely. For a
further discussion of income taxes, see Critical Accounting Estimates used by the Firm on pages
92-94 of this Form 10-Q.
Extraordinary gain
The Firm
recognized a $76 million increase in the extraordinary gain in the third quarter of
2009 associated with the final purchase accounting adjustments for the September 25, 2008
acquisition of the banking operations of Washington Mutual, compared with a preliminary gain of
$581 million in the third quarter of 2008. The transaction was accounted for under the purchase
method of accounting in accordance with U.S. GAAP for business combinations. The adjusted net asset
value of the banking operations after purchase accounting adjustments was higher than the
consideration paid by JPMorgan Chase, resulting in these extraordinary gains. For a further
discussion of the Washington Mutual transaction, see Note 2 on pages 102-106 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 U.S. GAAP; these financial
statements appear on pages 98-101 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 FTE basis. These adjustments do not have
any impact on net income as reported by the lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with U.S. GAAP remain on the Consolidated Balance Sheets, and
that the earnings on the securitized loans are classified in the same manner as the earnings on
retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of
managed basis to evaluate the credit performance and overall financial performance of the entire
managed credit card portfolio. Operations are funded and decisions are made about allocating
resources, such as employees and capital, based on managed financial information. In addition, the
same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated
Balance Sheets and securitized loans. Although securitizations result in the sale of credit card
receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers
may continue to use their credit cards; accordingly, the customers credit performance will affect
both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan
Chase believes managed basis information is useful to investors, enabling them to understand both
the credit risks associated with the loans reported on the Consolidated Balance Sheets and the
Firms retained interests in securitized loans. For a reconciliation of reported to managed basis
results for CS, see CS segment results on pages 33-36 of this Form 10-Q. For information regarding
the securitization process, and loans and residual interests sold and securitized, see Note 15 on
pages 147-155 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.
Tangible common equity (TCE) represents common stockholders equity (i.e., total stockholders
equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill,
net of related deferred tax liabilities. ROTCE, a non-GAAP financial ratio, measures the Firms
earnings as a percentage of TCE, and is in managements view a meaningful measure to assess the
Firms use of equity.
Management also uses certain non-GAAP financial measures at the business-segment level, because it
believes these other non-GAAP financial measures provide information to investors about the
underlying operational performance and trends of the particular business segment and, therefore,
facilitate a comparison of the business segment with the performance of its competitors.
15
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(d) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,679 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,679 |
|
Principal transactions |
|
|
3,860 |
|
|
|
|
|
|
|
|
|
|
|
3,860 |
|
Lending- and deposit-related fees |
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
1,826 |
|
Asset management, administration and commissions |
|
|
3,158 |
|
|
|
|
|
|
|
|
|
|
|
3,158 |
|
Securities gains |
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
184 |
|
Mortgage fees and related income |
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
843 |
|
Credit card income |
|
|
1,710 |
|
|
|
(285 |
) |
|
|
|
|
|
|
1,425 |
|
Other income |
|
|
625 |
|
|
|
|
|
|
|
371 |
|
|
|
996 |
|
|
Noninterest revenue |
|
|
13,885 |
|
|
|
(285 |
) |
|
|
371 |
|
|
|
13,971 |
|
Net interest income |
|
|
12,737 |
|
|
|
1,983 |
|
|
|
89 |
|
|
|
14,809 |
|
|
Total net revenue |
|
|
26,622 |
|
|
|
1,698 |
|
|
|
460 |
|
|
|
28,780 |
|
Noninterest expense |
|
|
13,455 |
|
|
|
|
|
|
|
|
|
|
|
13,455 |
|
|
Pre-provision profit |
|
|
13,167 |
|
|
|
1,698 |
|
|
|
460 |
|
|
|
15,325 |
|
Provision for credit losses |
|
|
8,104 |
|
|
|
1,698 |
|
|
|
|
|
|
|
9,802 |
|
|
Income before income tax expense and extraordinary gain |
|
|
5,063 |
|
|
|
|
|
|
|
460 |
|
|
|
5,523 |
|
Income tax expense |
|
|
1,551 |
|
|
|
|
|
|
|
460 |
|
|
|
2,011 |
|
|
Income before extraordinary gain |
|
|
3,512 |
|
|
|
|
|
|
|
|
|
|
|
3,512 |
|
Extraordinary gain |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
Net income |
|
$ |
3,588 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,588 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
0.80 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.80 |
|
Return on assets(b) |
|
|
0.70 |
% |
|
NM |
|
|
NM |
|
|
|
0.67 |
% |
Overhead ratio |
|
|
51 |
|
|
NM |
|
|
NM |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(d) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,316 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,316 |
|
Principal transactions |
|
|
(2,763 |
) |
|
|
|
|
|
|
|
|
|
|
(2,763 |
) |
Lending- and deposit-related fees |
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
1,168 |
|
Asset management, administration and commissions |
|
|
3,485 |
|
|
|
|
|
|
|
|
|
|
|
3,485 |
|
Securities gains |
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
424 |
|
Mortgage fees and related income |
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
457 |
|
Credit card income |
|
|
1,771 |
|
|
|
(843 |
) |
|
|
|
|
|
|
928 |
|
Other income |
|
|
(115 |
) |
|
|
|
|
|
|
323 |
|
|
|
208 |
|
|
Noninterest revenue |
|
|
5,743 |
|
|
|
(843 |
) |
|
|
323 |
|
|
|
5,223 |
|
Net interest income |
|
|
8,994 |
|
|
|
1,716 |
|
|
|
155 |
|
|
|
10,865 |
|
|
Total net revenue |
|
|
14,737 |
|
|
|
873 |
|
|
|
478 |
|
|
|
16,088 |
|
Noninterest expense |
|
|
11,137 |
|
|
|
|
|
|
|
|
|
|
|
11,137 |
|
|
Pre-provision profit |
|
|
3,600 |
|
|
|
873 |
|
|
|
478 |
|
|
|
4,951 |
|
Provision for credit losses |
|
|
3,811 |
|
|
|
873 |
|
|
|
|
|
|
|
4,684 |
|
Provision for credit losses accounting conformity(c) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
1,976 |
|
|
Income/(loss) before income tax expense/(benefit) and
extraordinary gain |
|
|
(2,187 |
) |
|
|
|
|
|
|
478 |
|
|
|
(1,709 |
) |
Income tax expense/(benefit) |
|
|
(2,133 |
) |
|
|
|
|
|
|
478 |
|
|
|
(1,655 |
) |
|
Income/(loss) before extraordinary gain |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
(54 |
) |
Extraordinary gain |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
Net income |
|
$ |
527 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
527 |
|
|
Diluted earnings (loss) per share(a)(b) |
|
$ |
(0.08 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.08 |
) |
Return on assets(b) |
|
|
(0.01 |
)% |
|
NM |
|
|
NM |
|
|
|
(0.01 |
)% |
Overhead ratio |
|
|
76 |
|
|
NM |
|
|
NM |
|
|
|
69 |
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(d) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
5,171 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,171 |
|
Principal transactions |
|
|
8,958 |
|
|
|
|
|
|
|
|
|
|
|
8,958 |
|
Lending- and deposit-related fees |
|
|
5,280 |
|
|
|
|
|
|
|
|
|
|
|
5,280 |
|
Asset management, administration and commissions |
|
|
9,179 |
|
|
|
|
|
|
|
|
|
|
|
9,179 |
|
Securities gains |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
729 |
|
Mortgage fees and related income |
|
|
3,228 |
|
|
|
|
|
|
|
|
|
|
|
3,228 |
|
Credit card income |
|
|
5,266 |
|
|
|
(1,119 |
) |
|
|
|
|
|
|
4,147 |
|
Other income |
|
|
685 |
|
|
|
|
|
|
|
1,043 |
|
|
|
1,728 |
|
|
Noninterest revenue |
|
|
38,496 |
|
|
|
(1,119 |
) |
|
|
1,043 |
|
|
|
38,420 |
|
Net interest income |
|
|
38,774 |
|
|
|
5,945 |
|
|
|
272 |
|
|
|
44,991 |
|
|
Total net revenue |
|
|
77,270 |
|
|
|
4,826 |
|
|
|
1,315 |
|
|
|
83,411 |
|
Noninterest expense |
|
|
40,348 |
|
|
|
|
|
|
|
|
|
|
|
40,348 |
|
|
Pre-provision profit |
|
|
36,922 |
|
|
|
4,826 |
|
|
|
1,315 |
|
|
|
43,063 |
|
Provision for credit losses |
|
|
24,731 |
|
|
|
4,826 |
|
|
|
|
|
|
|
29,557 |
|
|
Income before income tax expense and extraordinary gain |
|
|
12,191 |
|
|
|
|
|
|
|
1,315 |
|
|
|
13,506 |
|
Income tax expense |
|
|
3,817 |
|
|
|
|
|
|
|
1,315 |
|
|
|
5,132 |
|
|
Income before extraordinary gain |
|
|
8,374 |
|
|
|
|
|
|
|
|
|
|
|
8,374 |
|
Extraordinary gain |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
76 |
|
|
Net income |
|
$ |
8,450 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,450 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
1.50 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.50 |
|
Return on assets(b) |
|
|
0.55 |
% |
|
NM |
|
|
NM |
|
|
|
0.53 |
% |
Overhead ratio |
|
|
52 |
|
|
NM |
|
|
NM |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
Reported |
|
Credit |
|
Fully tax-equivalent |
|
Managed |
(in millions, except per share and ratios) |
|
results |
|
card(d) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
4,144 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,144 |
|
Principal transactions |
|
|
(2,814 |
) |
|
|
|
|
|
|
|
|
|
|
(2,814 |
) |
Lending- and deposit-related fees |
|
|
3,312 |
|
|
|
|
|
|
|
|
|
|
|
3,312 |
|
Asset management, administration and commissions |
|
|
10,709 |
|
|
|
|
|
|
|
|
|
|
|
10,709 |
|
Securities gains |
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
1,104 |
|
Mortgage fees and related income |
|
|
1,678 |
|
|
|
|
|
|
|
|
|
|
|
1,678 |
|
Credit card income |
|
|
5,370 |
|
|
|
(2,623 |
) |
|
|
|
|
|
|
2,747 |
|
Other income |
|
|
1,576 |
|
|
|
|
|
|
|
773 |
|
|
|
2,349 |
|
|
Noninterest revenue |
|
|
25,079 |
|
|
|
(2,623 |
) |
|
|
773 |
|
|
|
23,229 |
|
Net interest income |
|
|
24,947 |
|
|
|
5,007 |
|
|
|
481 |
|
|
|
30,435 |
|
|
Total net revenue |
|
|
50,026 |
|
|
|
2,384 |
|
|
|
1,254 |
|
|
|
53,664 |
|
Noninterest expense |
|
|
32,245 |
|
|
|
|
|
|
|
|
|
|
|
32,245 |
|
|
Pre-provision profit |
|
|
17,781 |
|
|
|
2,384 |
|
|
|
1,254 |
|
|
|
21,419 |
|
Provision for credit losses |
|
|
11,690 |
|
|
|
2,384 |
|
|
|
|
|
|
|
14,074 |
|
Provision for credit losses accounting conformity(c) |
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
1,976 |
|
|
Income before income tax expense/(benefit) and extraordinary gain |
|
|
4,115 |
|
|
|
|
|
|
|
1,254 |
|
|
|
5,369 |
|
Income tax expense/(benefit) |
|
|
(207 |
) |
|
|
|
|
|
|
1,254 |
|
|
|
1,047 |
|
|
Income before extraordinary gain |
|
|
4,322 |
|
|
|
|
|
|
|
|
|
|
|
4,322 |
|
Extraordinary gain |
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
581 |
|
|
Net income |
|
$ |
4,903 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,903 |
|
|
Diluted earnings per share(a)(b) |
|
$ |
1.13 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.13 |
|
Return on assets(b) |
|
|
0.35 |
% |
|
NM |
|
|
NM |
|
|
|
0.33 |
% |
Overhead ratio |
|
|
64 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised. For further discussion of the
guidance, see Note 21 on pages 166-167 of this Form 10-Q. |
|
(b) |
|
Based on income/(loss) before extraordinary gain. |
|
(c) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
|
(d) |
|
See pages 33-36 of this Form 10-Q for a discussion of the effect of credit card
securitizations on CS. |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2009 |
|
2008 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
653,144 |
|
|
$ |
87,028 |
|
|
$ |
740,172 |
|
|
$ |
761,381 |
|
|
$ |
93,664 |
|
|
$ |
855,045 |
|
Total assets average |
|
|
1,999,176 |
|
|
|
82,779 |
|
|
|
2,081,955 |
|
|
|
1,756,359 |
|
|
|
75,712 |
|
|
|
1,832,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2009 |
|
2008 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
653,144 |
|
|
$ |
87,028 |
|
|
$ |
740,172 |
|
|
$ |
761,381 |
|
|
$ |
93,664 |
|
|
$ |
855,045 |
|
Total assets average |
|
|
2,034,640 |
|
|
|
82,383 |
|
|
|
2,117,023 |
|
|
|
1,665,285 |
|
|
|
73,966 |
|
|
|
1,739,251 |
|
|
Average tangible common equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended September 30, |
(in millions) |
|
Sept. 30, 2009 |
|
June 30, 2009 |
|
March 31, 2009 |
|
Dec. 31, 2008 |
|
Sept. 30, 2008 |
|
2009 |
|
2008 |
|
Common
stockholders
equity |
|
$ |
149,468 |
|
|
$ |
140,865 |
|
|
$ |
136,493 |
|
|
$ |
138,757 |
|
|
$ |
126,640 |
|
|
$ |
142,322 |
|
|
$ |
125,878 |
|
Less: Goodwill |
|
|
48,328 |
|
|
|
48,273 |
|
|
|
48,071 |
|
|
|
46,838 |
|
|
|
45,947 |
|
|
|
48,225 |
|
|
|
45,809 |
|
Less: Certain
identifiable
intangible assets |
|
|
4,984 |
|
|
|
5,218 |
|
|
|
5,443 |
|
|
|
5,586 |
|
|
|
5,512 |
|
|
|
5,214 |
|
|
|
5,845 |
|
Add: Deferred
tax liabilities(a) |
|
|
2,531 |
|
|
|
2,518 |
|
|
|
2,609 |
|
|
|
2,547 |
|
|
|
2,378 |
|
|
|
2,552 |
|
|
|
2,309 |
|
|
Tangible common
equity (TCE) |
|
$ |
98,687 |
|
|
$ |
89,892 |
|
|
$ |
85,588 |
|
|
$ |
88,880 |
|
|
$ |
77,559 |
|
|
$ |
91,435 |
|
|
$ |
76,533 |
|
|
|
|
|
(a) |
|
Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable
intangibles created in non-taxable transactions, which are netted against goodwill and other
intangibles when calculating TCE. |
Impact on ROE of redemption of TARP preferred stock issued to the U.S. Treasury
The calculation of second-quarter 2009 net income applicable to common equity includes a one-time,
noncash reduction of $1.1 billion resulting from the repayment of TARP preferred capital. Excluding
this reduction ROE would have been 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 |
(in millions, except ratios) |
|
As reported |
|
TARP 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 |
% |
|
18
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 included 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 for the three months ended June 30, 2009 and the nine months ended September 30, 2009,
and the $0.27 reduction to diluted earnings per share which resulted from the repayment. There was
no impact on diluted earnings per share from the TARP repayment during the third quarter of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009 |
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
Effect of |
|
|
|
|
|
Effect of |
(in millions, except per share) |
|
As reported |
|
TARP redemption |
|
As reported |
|
TARP redemption |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,721 |
|
|
$ |
|
|
|
$ |
8,450 |
|
|
$ |
|
|
Less: Preferred stock dividends |
|
|
473 |
|
|
|
|
|
|
|
1,165 |
|
|
|
|
|
Less: Accelerated
amortization from redemption
of preferred stock issued to
the U.S. Treasury |
|
|
1,112 |
|
|
|
1,112 |
|
|
|
1,112 |
|
|
|
1,112 |
|
|
Net income applicable to
common equity |
|
$ |
1,136 |
|
|
$ |
(1,112 |
) |
|
$ |
6,173 |
|
|
$ |
(1,112 |
) |
Less: Dividends and
undistributed earnings
allocated to participating
securities |
|
|
64 |
|
|
|
(64 |
) |
|
|
348 |
|
|
|
(64 |
) |
|
Net income applicable to
common stockholders |
|
$ |
1,072 |
|
|
$ |
(1,048 |
) |
|
$ |
5,825 |
|
|
$ |
(1,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average diluted
shares outstanding |
|
|
3,824.1 |
|
|
|
3,824.1 |
|
|
|
3,848.3 |
|
|
|
3,848.3 |
|
|
Net income per share |
|
$ |
0.28 |
|
|
$ |
(0.27 |
) |
|
$ |
1.51 |
|
|
$ |
(0.27 |
) |
|
Other financial measures
The Firm also discloses the allowance for loan losses to total retained loans, excluding home
lending purchased credit-impaired loans and loans held by the Washington Mutual Master Trust. For a
further discussion of this credit metric, see Allowance for Credit
Losses on pages 8184 of this Form
10-Q.
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.
19
Segment Results Managed Basis(a)(b)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
|
September 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income/(loss) |
|
|
on equity |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank(c) |
|
$ |
7,508 |
|
|
$ |
4,066 |
|
|
|
85 |
% |
|
$ |
4,274 |
|
|
$ |
3,816 |
|
|
|
12 |
% |
|
$ |
1,921 |
|
|
$ |
882 |
|
|
|
118 |
% |
|
|
23 |
% |
|
|
13 |
% |
Retail Financial Services |
|
|
8,218 |
|
|
|
4,963 |
|
|
|
66 |
|
|
|
4,196 |
|
|
|
2,779 |
|
|
|
51 |
|
|
|
7 |
|
|
|
64 |
|
|
|
(89 |
) |
|
|
|
|
|
|
1 |
|
Card Services |
|
|
5,159 |
|
|
|
3,887 |
|
|
|
33 |
|
|
|
1,306 |
|
|
|
1,194 |
|
|
|
9 |
|
|
|
(700 |
) |
|
|
292 |
|
|
NM |
|
|
|
(19 |
) |
|
|
8 |
|
Commercial Banking |
|
|
1,459 |
|
|
|
1,125 |
|
|
|
30 |
|
|
|
545 |
|
|
|
486 |
|
|
|
12 |
|
|
|
341 |
|
|
|
312 |
|
|
|
9 |
|
|
|
17 |
|
|
|
18 |
|
Treasury & Securities Services |
|
|
1,788 |
|
|
|
1,953 |
|
|
|
(8 |
) |
|
|
1,280 |
|
|
|
1,339 |
|
|
|
(4 |
) |
|
|
302 |
|
|
|
406 |
|
|
|
(26 |
) |
|
|
24 |
|
|
|
46 |
|
Asset Management |
|
|
2,085 |
|
|
|
1,961 |
|
|
|
6 |
|
|
|
1,351 |
|
|
|
1,362 |
|
|
|
(1 |
) |
|
|
430 |
|
|
|
351 |
|
|
|
23 |
|
|
|
24 |
|
|
|
25 |
|
Corporate/Private Equity(c) |
|
|
2,563 |
|
|
|
(1,867 |
) |
|
NM |
|
|
|
503 |
|
|
|
161 |
|
|
|
212 |
|
|
|
1,287 |
|
|
|
(1,780 |
) |
|
NM |
|
|
NM |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28,780 |
|
|
$ |
16,088 |
|
|
|
79 |
% |
|
$ |
13,455 |
|
|
$ |
11,137 |
|
|
|
21 |
% |
|
$ |
3,588 |
|
|
$ |
527 |
|
|
NM |
|
|
|
9 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
|
September 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) |
|
$ |
23,180 |
|
|
$ |
12,607 |
|
|
|
84 |
% |
|
$ |
13,115 |
|
|
$ |
11,103 |
|
|
|
18 |
% |
|
$ |
4,998 |
|
|
$ |
1,189 |
|
|
|
320 |
% |
|
|
20 |
% |
|
|
7 |
% |
Retail Financial Services |
|
|
25,023 |
|
|
|
14,836 |
|
|
|
69 |
|
|
|
12,446 |
|
|
|
8,031 |
|
|
|
55 |
|
|
|
496 |
|
|
|
256 |
|
|
|
94 |
|
|
|
3 |
|
|
|
2 |
|
Card Services |
|
|
15,156 |
|
|
|
11,566 |
|
|
|
31 |
|
|
|
3,985 |
|
|
|
3,651 |
|
|
|
9 |
|
|
|
(1,919 |
) |
|
|
1,151 |
|
|
NM |
|
|
|
(17 |
) |
|
|
11 |
|
Commercial Banking |
|
|
4,314 |
|
|
|
3,298 |
|
|
|
31 |
|
|
|
1,633 |
|
|
|
1,447 |
|
|
|
13 |
|
|
|
1,047 |
|
|
|
959 |
|
|
|
9 |
|
|
|
17 |
|
|
|
18 |
|
Treasury & Securities Services |
|
|
5,509 |
|
|
|
5,885 |
|
|
|
(6 |
) |
|
|
3,887 |
|
|
|
3,884 |
|
|
|
|
|
|
|
989 |
|
|
|
1,234 |
|
|
|
(20 |
) |
|
|
26 |
|
|
|
47 |
|
Asset Management |
|
|
5,770 |
|
|
|
5,926 |
|
|
|
(3 |
) |
|
|
4,003 |
|
|
|
4,085 |
|
|
|
(2 |
) |
|
|
1,006 |
|
|
|
1,102 |
|
|
|
(9 |
) |
|
|
19 |
|
|
|
28 |
|
Corporate/Private Equity(c) |
|
|
4,459 |
|
|
|
(454 |
) |
|
NM |
|
|
|
1,279 |
|
|
|
44 |
|
|
NM |
|
|
|
1,833 |
|
|
|
(988 |
) |
|
NM |
|
|
NM |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
83,411 |
|
|
$ |
53,664 |
|
|
|
55 |
% |
|
$ |
40,348 |
|
|
$ |
32,245 |
|
|
|
25 |
% |
|
$ |
8,450 |
|
|
$ |
4,903 |
|
|
|
72 |
|
|
|
6 |
% |
|
|
5 |
% |
|
|
|
|
(a) |
|
Represents reported results on a fully tax-equivalent basis, excluding 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 102-106 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. |
20
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 September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,658 |
|
|
$ |
1,593 |
|
|
|
4 |
% |
|
$ |
5,277 |
|
|
$ |
4,534 |
|
|
|
16 |
% |
Principal transactions |
|
|
2,714 |
|
|
|
(922 |
) |
|
NM |
|
|
|
8,070 |
|
|
|
(882 |
) |
|
NM |
|
Lending- and deposit-related fees |
|
|
185 |
|
|
|
118 |
|
|
|
57 |
|
|
|
490 |
|
|
|
325 |
|
|
|
51 |
|
Asset management, administration and
commissions |
|
|
633 |
|
|
|
847 |
|
|
|
(25 |
) |
|
|
2,042 |
|
|
|
2,300 |
|
|
|
(11 |
) |
All other income(a) |
|
|
63 |
|
|
|
(248 |
) |
|
NM |
|
|
|
(101 |
) |
|
|
(480 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
5,253 |
|
|
|
1,388 |
|
|
|
278 |
|
|
|
15,778 |
|
|
|
5,797 |
|
|
|
172 |
|
Net interest income(b) |
|
|
2,255 |
|
|
|
2,678 |
|
|
|
(16 |
) |
|
|
7,402 |
|
|
|
6,810 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(c) |
|
|
7,508 |
|
|
|
4,066 |
|
|
|
85 |
|
|
|
23,180 |
|
|
|
12,607 |
|
|
|
84 |
|
Provision for credit losses |
|
|
379 |
|
|
|
234 |
|
|
|
62 |
|
|
|
2,460 |
|
|
|
1,250 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,778 |
|
|
|
2,162 |
|
|
|
28 |
|
|
|
8,785 |
|
|
|
6,535 |
|
|
|
34 |
|
Noncompensation expense |
|
|
1,496 |
|
|
|
1,654 |
|
|
|
(10 |
) |
|
|
4,330 |
|
|
|
4,568 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4,274 |
|
|
|
3,816 |
|
|
|
12 |
|
|
|
13,115 |
|
|
|
11,103 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense/(benefit) |
|
|
2,855 |
|
|
|
16 |
|
|
NM |
|
|
|
7,605 |
|
|
|
254 |
|
|
NM |
|
Income tax expense/(benefit)(d) |
|
|
934 |
|
|
|
(866 |
) |
|
NM |
|
|
|
2,607 |
|
|
|
(935 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,921 |
|
|
$ |
882 |
|
|
|
118 |
|
|
$ |
4,998 |
|
|
$ |
1,189 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
23 |
% |
|
|
13 |
% |
|
|
|
|
|
|
20 |
% |
|
|
7 |
% |
|
|
|
|
ROA |
|
|
1.12 |
|
|
|
0.39 |
|
|
|
|
|
|
|
0.94 |
|
|
|
0.19 |
|
|
|
|
|
Overhead ratio |
|
|
57 |
|
|
|
94 |
|
|
|
|
|
|
|
57 |
|
|
|
88 |
|
|
|
|
|
Compensation expense as a percentage
of total net revenue |
|
|
37 |
|
|
|
53 |
|
|
|
|
|
|
|
38 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
384 |
|
|
$ |
576 |
|
|
|
(33 |
) |
|
$ |
1,256 |
|
|
$ |
1,429 |
|
|
|
(12 |
) |
Equity underwriting |
|
|
681 |
|
|
|
518 |
|
|
|
31 |
|
|
|
2,092 |
|
|
|
1,419 |
|
|
|
47 |
|
Debt underwriting |
|
|
593 |
|
|
|
499 |
|
|
|
19 |
|
|
|
1,929 |
|
|
|
1,686 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
1,658 |
|
|
|
1,593 |
|
|
|
4 |
|
|
|
5,277 |
|
|
|
4,534 |
|
|
|
16 |
|
Fixed income markets |
|
|
5,011 |
|
|
|
815 |
|
|
NM |
|
|
|
14,829 |
|
|
|
3,628 |
|
|
|
309 |
|
Equity markets |
|
|
941 |
|
|
|
1,650 |
|
|
|
(43 |
) |
|
|
3,422 |
|
|
|
3,705 |
|
|
|
(8 |
) |
Credit portfolio |
|
|
(102 |
) |
|
|
8 |
|
|
NM |
|
|
|
(348 |
) |
|
|
740 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
7,508 |
|
|
$ |
4,066 |
|
|
|
85 |
|
|
$ |
23,180 |
|
|
$ |
12,607 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
3,913 |
|
|
$ |
1,072 |
|
|
|
265 |
|
|
$ |
12,890 |
|
|
$ |
4,813 |
|
|
|
168 |
|
Europe/Middle East/Africa |
|
|
2,855 |
|
|
|
2,517 |
|
|
|
13 |
|
|
|
7,685 |
|
|
|
5,684 |
|
|
|
35 |
|
Asia/Pacific |
|
|
740 |
|
|
|
477 |
|
|
|
55 |
|
|
|
2,605 |
|
|
|
2,110 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
7,508 |
|
|
$ |
4,066 |
|
|
|
85 |
|
|
$ |
23,180 |
|
|
$ |
12,607 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 to the current presentation. |
|
(b) |
|
The decrease in net interest income in the third quarter was due to a lower amount of
interest-earning assets, while the increase in year-to-date 2009 was driven by higher spreads
across several fixed income trading businesses, partially offset by lower balances. |
|
(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 $371 million and $427 million for the
quarters ended September 30, 2009 and 2008, respectively, and $1.1 billion for both
year-to-date 2009 and 2008. |
|
(d) |
|
The income tax benefit in the third quarter and year-to-date 2008 was predominantly the
result of reduced deferred tax liabilities on overseas earnings. |
21
Quarterly results
Net income was $1.9 billion, an increase of $1.0 billion from the third quarter of 2008. These
results included the negative impact of the tightening of the Firms credit spread, offset by the
positive impact of counterparty spread tightening and gains on legacy leveraged lending and
mortgage-related positions.
Net revenue was $7.5 billion, an increase of $3.4 billion, or 85%, from the prior year. Investment
banking fees were up 4% to $1.7 billion, consisting of equity underwriting fees of $681 million (up
31%), debt underwriting fees of $593 million (up 19%) and advisory fees of $384 million (down 33%).
Fixed Income Markets revenue was $5.0 billion, up by $4.2 billion, reflecting strong results across
most products and gains of approximately $400 million on legacy leveraged lending and
mortgage-related positions, compared with markdowns of $3.6 billion in the prior year. These
results also included losses of $497 million from the tightening of the Firms credit spread on
certain structured liabilities, compared with gains of $343 million in the prior year from the
widening of the spread on those liabilities. Equity Markets revenue was $941 million, down by $709
million, or 43%, which included losses of $343 million from the tightening of the Firms credit
spread on certain structured liabilities, compared with gains in the prior year of $429 million
from the widening of the spread on those liabilities. The current periods results also included
solid client revenue, particularly in prime services, and strong trading results. Credit Portfolio
revenue was a loss of $102 million, reflecting mark-to-market losses on hedges of retained loans,
largely offset by a combination of the positive net impact of credit spreads on derivative assets
and liabilities, and net interest income on loans.
The provision for credit losses increased to $379 million, compared with $234 million in the prior
year. The increase in the provision reflected deterioration in the credit environment compared with
the third quarter of 2008. Net charge-offs were $750 million compared with $13 million in the prior
year. The allowance for loan losses to end-of-period loans retained was 8.44%, compared with 3.62%
in the prior year. Nonperforming loans were $4.9 billion, up by $4.5 billion from the prior year.
Noninterest expense was $4.3 billion, up by $458 million, or 12%, from the prior year. The increase
was driven by higher performance-based compensation, partially offset by lower headcount-related
expense.
Return on equity was 23% on $33.0 billion of average allocated capital, compared with 13% on $26.0
billion of average allocated capital in the prior year.
Year-to-date results
Net income was $5.0 billion, an increase of $3.8 billion from the prior year. The results reflected
higher net revenue, partially offset by higher noninterest expense and a higher provision for
credit losses.
Net revenue was $23.2 billion, an increase of $10.6 billion, or 84%, from the prior year.
Investment banking fees were up 16% to $5.3 billion, consisting of equity underwriting fees of $2.1
billion (up 47%), debt underwriting fees of $1.9 billion (up 14%) and advisory fees of $1.3 billion
(down 12%). Fixed Income Markets revenue was $14.8 billion, up by $11.2 billion, reflecting strong
results across all products, as well as significantly lower net markdowns on legacy leveraged
lending and mortgage-related positions, compared with markdowns of $7.7 billion in the prior year.
These results also included losses of $848 million from the tightening of the Firms credit spread
on certain structured liabilities, compared with gains of $1.2 billion in the prior year from the
widening of the spread on those liabilities. Equity Markets revenue was $3.4 billion, down by $283
million, or 8%, which included losses of $453 million from the tightening of the Firms credit
spread on certain structured liabilities, compared with gains in the prior year of $865 million
from the widening of the spread on those liabilities. The current periods results also included
solid client revenue, particularly in prime services, and strong trading results. Credit Portfolio
revenue was a loss of $348 million, down by $1.1 billion, reflecting mark-to-market losses on
hedges of retained loans, partially offset by a combination of the positive net impact of credit
spreads on derivative assets and liabilities, and net interest income on loans.
The provision for credit losses increased to $2.5 billion from $1.3 billion in the prior year,
reflecting continued deterioration in the credit environment. Net charge-offs were $1.2 billion in
2009, compared with $18 million in the prior year.
Noninterest expense was $13.1 billion, up by $2.0 billion, or 18%, from the prior year. The
increase was driven by higher performance-based compensation, partially offset by lower
noncompensation expense.
Return on Equity was 20% on $33.0 billion of average allocated capital, compared with 7% on $23.8
billion of average allocated capital in the prior year.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount and ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
$ |
55,703 |
|
|
$ |
73,347 |
|
|
|
(24 |
)% |
|
$ |
55,703 |
|
|
$ |
73,347 |
|
|
|
(24 |
)% |
Loans held-for-sale and loans at fair value |
|
|
4,582 |
|
|
|
16,667 |
|
|
|
(73 |
) |
|
|
4,582 |
|
|
|
16,667 |
|
|
|
(73 |
) |
|
Total loans |
|
|
60,285 |
|
|
|
90,014 |
|
|
|
(33 |
) |
|
|
60,285 |
|
|
|
90,014 |
|
|
|
(33 |
) |
Equity |
|
|
33,000 |
|
|
|
33,000 |
|
|
|
|
|
|
|
33,000 |
|
|
|
33,000 |
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
678,796 |
|
|
$ |
890,040 |
|
|
|
(24 |
) |
|
$ |
707,396 |
|
|
$ |
820,497 |
|
|
|
(14 |
) |
Trading assets debt and equity instruments |
|
|
270,695 |
|
|
|
360,821 |
|
|
|
(25 |
) |
|
|
269,668 |
|
|
|
365,802 |
|
|
|
(26 |
) |
Trading assets derivative receivables |
|
|
86,651 |
|
|
|
105,462 |
|
|
|
(18 |
) |
|
|
103,929 |
|
|
|
98,390 |
|
|
|
6 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
61,269 |
|
|
|
69,022 |
|
|
|
(11 |
) |
|
|
66,479 |
|
|
|
73,107 |
|
|
|
(9 |
) |
Loans held-for-sale and loans at fair value |
|
|
4,981 |
|
|
|
17,612 |
|
|
|
(72 |
) |
|
|
8,745 |
|
|
|
19,215 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
66,250 |
|
|
|
86,634 |
|
|
|
(24 |
) |
|
|
75,224 |
|
|
|
92,322 |
|
|
|
(19 |
) |
Adjusted assets(b) |
|
|
515,718 |
|
|
|
694,459 |
|
|
|
(26 |
) |
|
|
545,235 |
|
|
|
677,945 |
|
|
|
(20 |
) |
Equity |
|
|
33,000 |
|
|
|
26,000 |
|
|
|
27 |
|
|
|
33,000 |
|
|
|
23,781 |
|
|
|
39 |
|
Headcount |
|
|
24,828 |
|
|
|
30,993 |
|
|
|
(20 |
) |
|
|
24,828 |
|
|
|
30,993 |
|
|
|
(20 |
) |
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
750 |
|
|
$ |
13 |
|
|
NM |
|
|
$ |
1,219 |
|
|
$ |
18 |
|
|
NM |
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained(a)(c) |
|
|
4,782 |
|
|
|
404 |
|
|
NM |
|
|
|
4,782 |
|
|
|
404 |
|
|
NM |
|
Nonperforming loans held-for-sale and
loans at fair value |
|
|
128 |
|
|
|
32 |
|
|
|
300 |
|
|
|
128 |
|
|
|
32 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
4,910 |
|
|
|
436 |
|
|
NM |
|
|
|
4,910 |
|
|
|
436 |
|
|
NM |
|
|
Derivative receivables |
|
|
624 |
|
|
|
34 |
|
|
NM |
|
|
|
624 |
|
|
|
34 |
|
|
NM |
|
Assets acquired in loan satisfactions |
|
|
248 |
|
|
|
113 |
|
|
|
119 |
|
|
|
248 |
|
|
|
113 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
|
5,782 |
|
|
|
583 |
|
|
NM |
|
|
|
5,782 |
|
|
|
583 |
|
|
NM |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
4,703 |
|
|
|
2,654 |
|
|
|
77 |
|
|
|
4,703 |
|
|
|
2,654 |
|
|
|
77 |
|
Allowance for lending-related
commitments |
|
|
401 |
|
|
|
463 |
|
|
|
(13 |
) |
|
|
401 |
|
|
|
463 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
5,104 |
|
|
|
3,117 |
|
|
|
64 |
|
|
|
5,104 |
|
|
|
3,117 |
|
|
|
64 |
|
|
Net charge-off rate(a)(d) |
|
|
4.86 |
% |
|
|
0.07 |
% |
|
|
|
|
|
|
2.45 |
% |
|
|
0.03 |
% |
|
|
|
|
Allowance for loan losses to period-end loans
retained(a)(d) |
|
|
8.44 |
|
|
|
3.62 |
|
|
|
|
|
|
|
8.44 |
|
|
|
3.62 |
|
|
|
|
|
Allowance for loan losses to average loans
retained(a)(d) |
|
|
7.68 |
|
|
|
3.85 |
(i) |
|
|
|
|
|
|
7.07 |
|
|
|
3.63 |
(i) |
|
|
|
|
Allowance for loan losses to nonperforming
loans retained (c) |
|
|
98 |
|
|
|
657 |
|
|
|
|
|
|
|
98 |
|
|
|
657 |
|
|
|
|
|
Nonperforming loans to total period-end loans |
|
|
8.14 |
|
|
|
0.48 |
|
|
|
|
|
|
|
8.14 |
|
|
|
0.48 |
|
|
|
|
|
Nonperforming loans to total average loans |
|
|
7.41 |
|
|
|
0.50 |
|
|
|
|
|
|
|
6.53 |
|
|
|
0.47 |
|
|
|
|
|
Market risk-average trading and credit
portfolio VaR - 99% confidence
level(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
243 |
|
|
$ |
183 |
|
|
|
33 |
|
|
$ |
237 |
|
|
$ |
150 |
|
|
|
58 |
|
Foreign exchange |
|
|
30 |
|
|
|
20 |
|
|
|
50 |
|
|
|
32 |
|
|
|
27 |
|
|
|
19 |
|
Equities |
|
|
28 |
|
|
|
80 |
|
|
|
(65 |
) |
|
|
88 |
|
|
|
47 |
|
|
|
87 |
|
Commodities and other |
|
|
38 |
|
|
|
41 |
|
|
|
(7 |
) |
|
|
34 |
|
|
|
33 |
|
|
|
3 |
|
Diversification(f) |
|
|
(134 |
) |
|
|
(104 |
) |
|
|
(29 |
) |
|
|
(144 |
) |
|
|
(95 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading VaR(g) |
|
|
205 |
|
|
|
220 |
|
|
|
(7 |
) |
|
|
247 |
|
|
|
162 |
|
|
|
52 |
|
Credit portfolio VaR(h) |
|
|
50 |
|
|
|
47 |
|
|
|
6 |
|
|
|
120 |
|
|
|
38 |
|
|
|
216 |
|
Diversification(f) |
|
|
(49 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
(99 |
) |
|
|
(39 |
) |
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit portfolio VaR |
|
$ |
206 |
|
|
$ |
218 |
|
|
|
(6 |
) |
|
$ |
268 |
|
|
$ |
161 |
|
|
|
66 |
|
|
|
|
|
(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. |
23
|
|
|
(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 consolidated variable interest entities (VIEs); (3) cash and
securities segregated and on deposit for regulatory and other purposes; (4) goodwill and
intangibles; (5) securities received as collateral; and (6) investments purchased under the
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AML Facility).
The amount of adjusted assets is presented to assist the reader in comparing IBs asset and
capital levels to other investment banks in the securities industry. Asset-to-equity leverage
ratios are commonly used as one measure to assess a companys capital adequacy. IB believes an
adjusted asset amount that excludes the assets discussed above, which were considered to have
a low risk profile, provides a more meaningful measure of balance sheet leverage in the
securities industry. |
|
(c) |
|
Allowance for loan losses of $1.8 billion and $72 million were held against these
nonperforming loans at September 30, 2009 and 2008, respectively. Nonperforming loans excluded
distressed loans held-for-sale that were purchased as part of IBs proprietary activities. |
|
(d) |
|
Loans held-for-sale and loans at fair value were excluded when calculating the allowance
coverage ratio and net charge-off rate. |
|
(e) |
|
Results for year-to-date 2008 include four months of the combined Firms (JPMorgan Chase &
Co.s and Bear Stearns) results and five months of heritage JPMorgan Chase & Co results. For
a more complete description of value-at-risk, see pages 84-89 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 89 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) |
|
Includes 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 3.76% for year-to-date 2008. The average balance of the loan extended to Bear Stearns
was $2.6 billion for year-to-date 2008. |
According to Thomson Reuters, for the first nine 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
Long-Term Debt; #1 in Global Syndicated Loans and #4 in Global Announced M&A based on volume.
According to Dealogic, the Firm was ranked #1 in Investment Banking fees generated for the first
nine months of 2009, based on revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
Full-year 2008 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related |
|
|
10 |
% |
|
|
#1 |
|
|
|
9 |
% |
|
|
#1 |
|
Global syndicated loans |
|
|
9 |
|
|
|
#1 |
|
|
|
11 |
|
|
|
#1 |
|
Global long-term debt(b) |
|
|
9 |
|
|
|
#1 |
|
|
|
9 |
|
|
|
#3 |
|
Global equity and equity-related(c) |
|
|
15 |
|
|
|
#1 |
|
|
|
10 |
|
|
|
#1 |
|
Global announced M&A(d) |
|
|
25 |
|
|
|
#4 |
|
|
|
28 |
|
|
|
#2 |
|
U.S. debt, equity and equity-related |
|
|
15 |
|
|
|
#1 |
|
|
|
15 |
|
|
|
#2 |
|
U.S. syndicated loans |
|
|
23 |
|
|
|
#1 |
|
|
|
25 |
|
|
|
#1 |
|
U.S. long-term debt(b) |
|
|
14 |
|
|
|
#1 |
|
|
|
15 |
|
|
|
#2 |
|
U.S. equity and equity-related(c) |
|
|
18 |
|
|
|
#1 |
|
|
|
11 |
|
|
|
#1 |
|
U.S. announced M&A(d) |
|
|
33 |
|
|
|
#4 |
|
|
|
35 |
|
|
|
#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, and 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. |
24
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 September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and deposit-related fees |
|
$ |
1,046 |
|
|
$ |
538 |
|
|
|
94 |
% |
|
$ |
2,997 |
|
|
$ |
1,496 |
|
|
|
100 |
% |
Asset management, administration
and commissions |
|
|
408 |
|
|
|
346 |
|
|
|
18 |
|
|
|
1,268 |
|
|
|
1,098 |
|
|
|
15 |
|
Mortgage fees and related income |
|
|
873 |
|
|
|
438 |
|
|
|
99 |
|
|
|
3,313 |
|
|
|
1,659 |
|
|
|
100 |
|
Credit card income |
|
|
416 |
|
|
|
204 |
|
|
|
104 |
|
|
|
1,194 |
|
|
|
572 |
|
|
|
109 |
|
Other income |
|
|
321 |
|
|
|
206 |
|
|
|
56 |
|
|
|
829 |
|
|
|
556 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
3,064 |
|
|
|
1,732 |
|
|
|
77 |
|
|
|
9,601 |
|
|
|
5,381 |
|
|
|
78 |
|
Net interest income |
|
|
5,154 |
|
|
|
3,231 |
|
|
|
60 |
|
|
|
15,422 |
|
|
|
9,455 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
8,218 |
|
|
|
4,963 |
|
|
|
66 |
|
|
|
25,023 |
|
|
|
14,836 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
3,988 |
|
|
|
2,056 |
|
|
|
94 |
|
|
|
11,711 |
|
|
|
6,329 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,728 |
|
|
|
1,120 |
|
|
|
54 |
|
|
|
4,990 |
|
|
|
3,464 |
|
|
|
44 |
|
Noncompensation expense |
|
|
2,385 |
|
|
|
1,559 |
|
|
|
53 |
|
|
|
7,207 |
|
|
|
4,267 |
|
|
|
69 |
|
Amortization of intangibles |
|
|
83 |
|
|
|
100 |
|
|
|
(17 |
) |
|
|
249 |
|
|
|
300 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
4,196 |
|
|
|
2,779 |
|
|
|
51 |
|
|
|
12,446 |
|
|
|
8,031 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
34 |
|
|
|
128 |
|
|
|
(73 |
) |
|
|
866 |
|
|
|
476 |
|
|
|
82 |
|
Income tax expense |
|
|
27 |
|
|
|
64 |
|
|
|
(58 |
) |
|
|
370 |
|
|
|
220 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7 |
|
|
$ |
64 |
|
|
|
(89 |
) |
|
$ |
496 |
|
|
$ |
256 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
|
% |
|
|
1 |
% |
|
|
|
|
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
Overhead ratio |
|
|
51 |
|
|
|
56 |
|
|
|
|
|
|
|
50 |
|
|
|
54 |
|
|
|
|
|
Overhead ratio excluding core
deposit
intangibles(a) |
|
|
50 |
|
|
|
54 |
|
|
|
|
|
|
|
49 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
(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 $83
million and $99 million for the quarters ended September 30, 2009 and 2008, respectively, and
$248 million and $297 million for year-to-date September 30, 2009 and 2008, respectively. |
Quarterly results
Net income was $7 million, a decrease of $57 million from the third quarter of 2008, as an increase
in the provision for credit losses was largely offset by the positive impact of the Washington
Mutual transaction.
Net revenue was $8.2 billion, an increase of $3.3 billion, or 66%, from the prior year. Net
interest income was $5.2 billion, up by $1.9 billion, or 60%, reflecting the impact of the
Washington Mutual transaction, wider loan spreads and higher deposit balances offset partially by
lower loan balances. Noninterest revenue was $3.1 billion, up by $1.3 billion, or 77%, driven by
the impact of the Washington Mutual transaction, higher net mortgage servicing revenue and higher
deposit-related fees, partially offset by lower mortgage production revenue.
The provision for credit losses was $4.0 billion, an increase of $1.9 billion from the prior year.
Weak economic conditions and housing price declines continued to drive higher estimated losses for
the home equity and mortgage loan portfolios. The provision included an addition of $1.4 billion to
the allowance for loan losses, compared with additions of $730 million in the prior year. Included
in the third-quarter 2009 addition to the allowance for loan losses was a $1.1 billion increase
related to estimated deterioration in the Washington Mutual purchased credit-impaired portfolio.
Home equity net charge-offs were $1.1 billion (3.38% net charge-off rate; 4.25% excluding purchased
credit-impaired loans), compared with $663 million (2.78% net charge-off rate) in the prior year.
Subprime mortgage net charge-offs were $422 million (8.46% net charge-off rate; 12.31% excluding
purchased credit-impaired loans), compared with $273 million (7.65% net charge-off rate) in the
prior year. Prime mortgage net charge-offs were $525 million (2.58% net charge-off rate; 3.45%
excluding purchased credit-impaired loans), compared with $177 million (1.79% net charge-off rate)
in the prior year.
25
Noninterest expense was $4.2 billion, an increase of $1.4 billion, or 51%. The increase reflected
the impact of the Washington Mutual transaction and higher servicing expense, partially offset by
lower mortgage reinsurance losses.
Year-to-date results
Net income was $496 million, an increase of $240 million from the prior year, as the positive
impact of the Washington Mutual transaction was partially offset by an increase in the provision
for credit losses.
Net revenue was $25.0 billion, an increase of $10.2 billion, or 69%, from the prior year. Net
interest income was $15.4 billion, up by $6.0 billion, or 63%, reflecting the impact of the
Washington Mutual transaction, wider loan and deposit spreads and higher average deposit balances.
Noninterest revenue was $9.6 billion, up by $4.2 billion, or 78%, driven by the impact of the
Washington Mutual transaction and higher net mortgage servicing revenue.
The provision for credit losses was $11.7 billion, an increase of $5.4 billion from the prior year.
Weak economic conditions and housing price declines continued to drive higher estimated losses for
the home equity and mortgage loan portfolios. The provision included an addition of $4.3 billion to
the allowance for loan losses, compared with additions of $3.2 billion in the prior year. Included
in the 2009 addition to the allowance for loan losses was a $1.1 billion increase related to
estimated deterioration in the Washington Mutual purchased credit-impaired portfolio. Home equity
net charge-offs were $3.5 billion (3.40% net charge-off rate; 4.26% excluding purchased
credit-impaired loans), compared with $1.6 billion (2.28% net charge-off rate) in the prior year.
Subprime mortgage net charge-offs were $1.2 billion (7.69% net charge-off rate; 11.18% excluding
purchased credit-impaired loans), compared with $614 million (5.43% net charge-off rate) in the
prior year. Prime mortgage net charge-offs were $1.3 billion (2.10% net charge-off rate; 2.81%
excluding purchased credit-impaired loans), compared with $331 million (1.16% net charge-off rate)
in the prior year.
Noninterest expense was $12.4 billion, an increase of $4.4 billion, or 55%. The increase reflected
the impact of the Washington Mutual transaction and higher servicing expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount and ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
397,673 |
|
|
$ |
426,435 |
|
|
|
(7 |
)% |
|
$ |
397,673 |
|
|
$ |
426,435 |
|
|
|
(7 |
)% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
346,765 |
|
|
|
371,153 |
|
|
|
(7 |
) |
|
|
346,765 |
|
|
|
371,153 |
|
|
|
(7 |
) |
Loans held-for-sale and loans at fair value(a) |
|
|
14,303 |
|
|
|
10,223 |
|
|
|
40 |
|
|
|
14,303 |
|
|
|
10,223 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
361,068 |
|
|
|
381,376 |
|
|
|
(5 |
) |
|
|
361,068 |
|
|
|
381,376 |
|
|
|
(5 |
) |
Deposits |
|
|
361,046 |
|
|
|
353,660 |
|
|
|
2 |
|
|
|
361,046 |
|
|
|
353,660 |
|
|
|
2 |
|
Equity |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
401,620 |
|
|
$ |
265,367 |
|
|
|
51 |
|
|
$ |
411,693 |
|
|
$ |
264,400 |
|
|
|
56 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
349,762 |
|
|
|
222,640 |
|
|
|
57 |
|
|
|
358,623 |
|
|
|
219,464 |
|
|
|
63 |
|
Loans held-for-sale and loans at fair value(a) |
|
|
19,025 |
|
|
|
16,037 |
|
|
|
19 |
|
|
|
18,208 |
|
|
|
18,116 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
368,787 |
|
|
|
238,677 |
|
|
|
55 |
|
|
|
376,831 |
|
|
|
237,580 |
|
|
|
59 |
|
Deposits |
|
|
366,944 |
|
|
|
222,180 |
|
|
|
65 |
|
|
|
371,482 |
|
|
|
224,731 |
|
|
|
65 |
|
Equity |
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
25,000 |
|
|
|
17,000 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
106,951 |
|
|
|
101,826 |
|
|
|
5 |
|
|
|
106,951 |
|
|
|
101,826 |
|
|
|
5 |
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
2,550 |
|
|
$ |
1,326 |
|
|
|
92 |
|
|
$ |
7,375 |
|
|
$ |
3,176 |
|
|
|
132 |
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained |
|
|
10,091 |
|
|
|
5,517 |
|
|
|
83 |
|
|
|
10,091 |
|
|
|
5,517 |
|
|
|
83 |
|
Nonperforming loans held-for-sale and loans
at fair value |
|
|
242 |
|
|
|
207 |
|
|
|
17 |
|
|
|
242 |
|
|
|
207 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans(b)(c)(d) |
|
|
10,333 |
|
|
|
5,724 |
|
|
|
81 |
|
|
|
10,333 |
|
|
|
5,724 |
|
|
|
81 |
|
Nonperforming assets(b)(c)(d) |
|
|
11,883 |
|
|
|
8,085 |
|
|
|
47 |
|
|
|
11,883 |
|
|
|
8,085 |
|
|
|
47 |
|
Allowance for loan losses |
|
|
13,286 |
|
|
|
7,517 |
|
|
|
77 |
|
|
|
13,286 |
|
|
|
7,517 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(e) |
|
|
2.89 |
% |
|
|
2.37 |
% |
|
|
|
|
|
|
2.75 |
% |
|
|
1.93 |
% |
|
|
|
|
Net charge-off rate excluding purchased
credit-impaired loans(e)(f) |
|
|
3.81 |
|
|
|
2.37 |
|
|
|
|
|
|
|
3.62 |
|
|
|
1.93 |
|
|
|
|
|
Allowance for loan losses to ending loans
retained(e) |
|
|
3.83 |
|
|
|
2.03 |
|
|
|
|
|
|
|
3.83 |
|
|
|
2.03 |
|
|
|
|
|
Allowance for loan losses to ending loans
retained excluding purchased credit-impaired
loans(e)(f) |
|
|
4.63 |
|
|
|
2.56 |
|
|
|
|
|
|
|
4.63 |
|
|
|
2.56 |
|
|
|
|
|
Allowance for loan losses to
nonperforming
loans
retained(b)(e)(f) |
|
|
121 |
|
|
|
136 |
|
|
|
|
|
|
|
121 |
|
|
|
136 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
2.86 |
|
|
|
1.50 |
|
|
|
|
|
|
|
2.86 |
|
|
|
1.50 |
|
|
|
|
|
Nonperforming loans to total loans excluding
purchased credit-impaired loans(b) |
|
|
3.72 |
|
|
|
1.88 |
|
|
|
|
|
|
|
3.72 |
|
|
|
1.88 |
|
|
|
|
|
|
|
|
|
(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 $12.8 billion and $8.6 billion at September 30, 2009 and 2008,
respectively. Average balances of these loans totaled $17.7 billion and $14.5 billion for the
quarters ended September 30, 2009 and 2008, respectively, and $15.8 billion and $14.9 billion
for year-to-date 2009 and 2008, respectively. |
|
(b) |
|
Excludes purchased credit-impaired loans that were acquired as part of the Washington Mutual
transaction. These loans are accounted for on a pool basis, and the pools are considered to
be performing. |
|
(c) |
|
Certain of these loans are classified as trading assets on the Consolidated Balance Sheets. |
|
(d) |
|
At September 30, 2009 and 2008, nonperforming loans and assets excluded: (1)
mortgage loans insured by U.S. government agencies of $7.0 billion and $1.4 billion,
respectively; (2) real estate owned insured by U.S. government agencies of $579 million and
$370 million, respectively; and (3) student loans that are 90 days past due and still
accruing, which are insured by U.S. government agencies under the Federal Family Education
Loan Program, of $511 million and $405 million, respectively. These amounts 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 that were acquired as part of the
Washington Mutual transaction. These loans were accounted for at fair value on the acquisition
date, which incorporated managements estimate, as of that date, of credit losses over the
remaining life of the portfolio. During the third quarter of 2009, an allowance for loan
losses of $1.1 billion was recorded for these loans. To date, no charge-offs have been
recorded for these loans. |
RETAIL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Noninterest revenue |
|
$ |
1,844 |
|
|
$ |
1,089 |
|
|
|
69 |
% |
|
$ |
5,365 |
|
|
$ |
3,117 |
|
|
|
72 |
% |
Net interest income |
|
|
2,732 |
|
|
|
1,756 |
|
|
|
56 |
|
|
|
8,065 |
|
|
|
4,972 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,576 |
|
|
|
2,845 |
|
|
|
61 |
|
|
|
13,430 |
|
|
|
8,089 |
|
|
|
66 |
|
Provision for credit losses |
|
|
208 |
|
|
|
70 |
|
|
|
197 |
|
|
|
894 |
|
|
|
181 |
|
|
|
394 |
|
Noninterest expense |
|
|
2,646 |
|
|
|
1,580 |
|
|
|
67 |
|
|
|
7,783 |
|
|
|
4,699 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,722 |
|
|
|
1,195 |
|
|
|
44 |
|
|
|
4,753 |
|
|
|
3,209 |
|
|
|
48 |
|
Net income |
|
$ |
1,043 |
|
|
$ |
723 |
|
|
|
44 |
|
|
$ |
2,876 |
|
|
$ |
1,942 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Overhead ratio |
|
|
58 |
% |
|
|
56 |
% |
|
|
|
|
|
|
58 |
% |
|
|
58 |
% |
|
|
|
|
Overhead ratio excluding core
deposit
intangibles(a) |
|
|
56 |
|
|
|
52 |
|
|
|
|
|
|
|
56 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
(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 $83 million and $99 million for the quarters ended
September 30, 2009 and 2008, respectively, and $248 million and $297 million for
year-to-date 2009 and 2008, respectively. |
27
Quarterly results
Retail Banking reported net income of $1.0 billion, up by $320 million, or 44%, from the prior
year.
Net revenue was $4.6 billion, up by $1.7 billion, or 61%, from the prior year. The increase
reflected the impact of the Washington Mutual transaction, higher deposit balances, higher
deposit-related fees and wider deposit spreads.
The provision for credit losses was $208 million, compared with $70 million in the prior year,
reflecting higher estimated losses for Business Banking loans.
Noninterest expense was $2.6 billion, up by $1.1 billion, or 67%. The increase reflected the impact
of the Washington Mutual transaction, higher headcount-related expense and higher FDIC insurance
premiums.
Year-to-date results
Retail Banking reported net income of $2.9 billion, up by $934 million, or 48%, from the prior
year.
Net revenue was $13.4 billion, up by $5.3 billion, or 66%, from the prior year. The increase
reflected the impact of the Washington Mutual transaction, wider deposit spreads, higher deposit
balances and higher deposit-related fees.
The provision for credit losses was $894 million, compared with $181 million in the prior year,
reflecting higher estimated losses for Business Banking loans.
Noninterest expense was $7.8 billion, up by $3.1 billion, or 66%. The increase reflected the impact
of the Washington Mutual transaction, higher FDIC insurance premiums and higher headcount-related
expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in billions, except ratios and where
otherwise noted) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business banking origination volume |
|
$ |
0.5 |
|
|
$ |
1.2 |
|
|
|
(58 |
)% |
|
$ |
1.6 |
|
|
$ |
4.7 |
|
|
|
(66 |
)% |
End-of-period loans owned |
|
|
17.4 |
|
|
|
18.6 |
|
|
|
(6 |
) |
|
|
17.4 |
|
|
|
18.6 |
|
|
|
(6 |
) |
End-of-period deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
115.5 |
|
|
$ |
106.7 |
|
|
|
8 |
|
|
$ |
115.5 |
|
|
$ |
106.7 |
|
|
|
8 |
|
Savings |
|
|
151.6 |
|
|
|
146.4 |
|
|
|
4 |
|
|
|
151.6 |
|
|
|
146.4 |
|
|
|
4 |
|
Time and other |
|
|
66.6 |
|
|
|
85.8 |
|
|
|
(22 |
) |
|
|
66.6 |
|
|
|
85.8 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period deposits |
|
|
333.7 |
|
|
|
338.9 |
|
|
|
(2 |
) |
|
|
333.7 |
|
|
|
338.9 |
|
|
|
(2 |
) |
Average loans owned |
|
$ |
17.7 |
|
|
$ |
16.6 |
|
|
|
7 |
|
|
$ |
18.0 |
|
|
$ |
16.2 |
|
|
|
11 |
|
Average deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
114.0 |
|
|
$ |
68.0 |
|
|
|
68 |
|
|
$ |
112.6 |
|
|
$ |
67.5 |
|
|
|
67 |
|
Savings |
|
|
151.2 |
|
|
|
105.4 |
|
|
|
43 |
|
|
|
150.1 |
|
|
|
103.9 |
|
|
|
44 |
|
Time and other |
|
|
74.4 |
|
|
|
36.7 |
|
|
|
103 |
|
|
|
81.8 |
|
|
|
41.3 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
339.6 |
|
|
|
210.1 |
|
|
|
62 |
|
|
|
344.5 |
|
|
|
212.7 |
|
|
|
62 |
|
Deposit margin |
|
|
2.99 |
% |
|
|
3.06 |
% |
|
|
|
|
|
|
2.92 |
% |
|
|
2.86 |
% |
|
|
|
|
Average assets |
|
$ |
28.1 |
|
|
$ |
25.6 |
|
|
|
10 |
|
|
$ |
29.1 |
|
|
$ |
25.6 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics
(in millions, except ratio) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
208 |
|
|
$ |
68 |
|
|
|
206 |
|
|
$ |
594 |
|
|
$ |
178 |
|
|
|
234 |
|
Net charge-off rate |
|
|
4.66 |
% |
|
|
1.63 |
% |
|
|
|
|
|
|
4.41 |
% |
|
|
1.47 |
% |
|
|
|
|
Nonperforming assets |
|
$ |
816 |
|
|
$ |
380 |
|
|
|
115 |
|
|
$ |
816 |
|
|
$ |
380 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment sales volume (in millions) |
|
$ |
6,243 |
|
|
$ |
4,389 |
|
|
|
42 |
|
|
$ |
15,933 |
|
|
$ |
13,684 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
5,126 |
|
|
|
5,423 |
|
|
|
(5 |
) |
|
|
5,126 |
|
|
|
5,423 |
|
|
|
(5 |
) |
ATMs |
|
|
15,038 |
|
|
|
14,389 |
|
|
|
5 |
|
|
|
15,038 |
|
|
|
14,389 |
|
|
|
5 |
|
Personal bankers |
|
|
16,941 |
|
|
|
15,491 |
|
|
|
9 |
|
|
|
16,941 |
|
|
|
15,491 |
|
|
|
9 |
|
Sales specialists |
|
|
5,530 |
|
|
|
5,899 |
|
|
|
(6 |
) |
|
|
5,530 |
|
|
|
5,899 |
|
|
|
(6 |
) |
Active online customers (in thousands) |
|
|
13,852 |
|
|
|
11,682 |
|
|
|
19 |
|
|
|
13,852 |
|
|
|
11,682 |
|
|
|
19 |
|
Checking accounts (in thousands) |
|
|
25,546 |
|
|
|
24,490 |
|
|
|
4 |
|
|
|
25,546 |
|
|
|
24,490 |
|
|
|
4 |
|
|
28
CONSUMER LENDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratio) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Noninterest revenue |
|
$ |
1,220 |
|
|
$ |
643 |
|
|
|
90 |
% |
|
$ |
4,236 |
|
|
$ |
2,264 |
|
|
|
87 |
% |
Net interest income |
|
|
2,422 |
|
|
|
1,475 |
|
|
|
64 |
|
|
|
7,357 |
|
|
|
4,483 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,642 |
|
|
|
2,118 |
|
|
|
72 |
|
|
|
11,593 |
|
|
|
6,747 |
|
|
|
72 |
|
Provision for credit losses |
|
|
3,780 |
|
|
|
1,986 |
|
|
|
90 |
|
|
|
10,817 |
|
|
|
6,148 |
|
|
|
76 |
|
Noninterest expense |
|
|
1,550 |
|
|
|
1,199 |
|
|
|
29 |
|
|
|
4,663 |
|
|
|
3,332 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax expense |
|
|
(1,688 |
) |
|
|
(1,067 |
) |
|
|
(58 |
) |
|
|
(3,887 |
) |
|
|
(2,733 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(1,036 |
) |
|
$ |
(659 |
) |
|
|
(57 |
) |
|
$ |
(2,380 |
) |
|
$ |
(1,686 |
) |
|
|
(41 |
) |
Overhead ratio |
|
|
43 |
% |
|
|
57 |
% |
|
|
|
|
|
|
40 |
% |
|
|
49 |
% |
|
|
|
|
|
Quarterly results
Consumer Lending reported a net loss of $1.0 billion, compared with a net loss of $659 million in
the prior year.
Net revenue was $3.6 billion, up by $1.5 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, partially offset by lower loan balances. Mortgage production revenue was
negative $70 million, compared with positive $66 million in the prior year, as an increase in
reserves for the repurchase of previously-sold loans was predominantly offset by wider margins on
new originations. Operating revenue, which represents loan servicing revenue net of other changes
in fair value of the MSR asset, was $508 million, compared with $264 million in the prior year,
reflecting growth in average third-party loans serviced as a result of the Washington Mutual
transaction. MSR risk management results were $435 million, compared with $108 million in the prior
year.
The provision for credit losses was $3.8 billion, compared with $2.0 billion in the prior year,
reflecting continued weakness in the home equity and mortgage loan portfolios (see Retail Financial
Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $1.6 billion, up by $351 million, or 29%, from the prior year, reflecting
higher servicing expense due to increased delinquencies and defaults and the impact of the
Washington Mutual transaction, partially offset by lower mortgage reinsurance losses.
Year-to-date results
Consumer Lending reported a net loss of $2.4 billion, compared with a net loss of $1.7 billion in
the prior year.
Net revenue was $11.6 billion, up by $4.8 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, partially offset by lower loan balances. Mortgage production revenue was
$695 million, down $141 million from the prior year, as an increase in reserves for the repurchase
of previously-sold loans was predominantly offset by wider margins on new originations. Operating
revenue, which represents loan servicing revenue net of other changes in fair value of the MSR
asset, was $1.1 billion, compared with $683 million in the prior year, reflecting growth in average
third-party loans serviced as a result of the Washington Mutual transaction. MSR risk management
results were $1.5 billion, compared with $140 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 $10.8 billion, compared with $6.1 billion in the prior year,
reflecting continued weakness in the home equity and mortgage loan portfolios (see Retail Financial
Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $4.7 billion, up by $1.3 billion, or 40%, from the prior year, reflecting
higher servicing expense due to increased delinquencies and defaults and the impact of the
Washington Mutual transaction, partially offset by lower mortgage reinsurance losses.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 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 |
|
$ |
104.8 |
|
|
$ |
116.8 |
|
|
|
(10 |
)% |
|
$ |
104.8 |
|
|
$ |
116.8 |
|
|
|
(10 |
)% |
Prime mortgage |
|
|
60.1 |
|
|
|
63.0 |
|
|
|
(5 |
) |
|
|
60.1 |
|
|
|
63.0 |
|
|
|
(5 |
) |
Subprime mortgage |
|
|
13.3 |
|
|
|
18.1 |
|
|
|
(27 |
) |
|
|
13.3 |
|
|
|
18.1 |
|
|
|
(27 |
) |
Option ARMs |
|
|
8.9 |
|
|
|
19.0 |
|
|
|
(53 |
) |
|
|
8.9 |
|
|
|
19.0 |
|
|
|
(53 |
) |
Student loans |
|
|
15.5 |
|
|
|
15.3 |
|
|
|
1 |
|
|
|
15.5 |
|
|
|
15.3 |
|
|
|
1 |
|
Auto loans |
|
|
44.3 |
|
|
|
43.3 |
|
|
|
2 |
|
|
|
44.3 |
|
|
|
43.3 |
|
|
|
2 |
|
Other |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
(20 |
) |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
247.7 |
|
|
$ |
276.5 |
|
|
|
(10 |
) |
|
$ |
247.7 |
|
|
$ |
276.5 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
106.6 |
|
|
$ |
94.8 |
|
|
|
12 |
|
|
$ |
110.0 |
|
|
$ |
95.0 |
|
|
|
16 |
|
Prime mortgage |
|
|
60.6 |
|
|
|
39.7 |
|
|
|
53 |
|
|
|
63.1 |
|
|
|
38.4 |
|
|
|
64 |
|
Subprime mortgage |
|
|
13.6 |
|
|
|
14.2 |
|
|
|
(4 |
) |
|
|
14.3 |
|
|
|
15.1 |
|
|
|
(5 |
) |
Option ARMs |
|
|
8.9 |
|
|
|
|
|
|
NM |
|
|
|
8.9 |
|
|
|
|
|
|
NM |
|
Student loans |
|
|
15.2 |
|
|
|
14.1 |
|
|
|
8 |
|
|
|
16.3 |
|
|
|
12.9 |
|
|
|
26 |
|
Auto loans |
|
|
43.3 |
|
|
|
43.9 |
|
|
|
(1 |
) |
|
|
43.0 |
|
|
|
44.0 |
|
|
|
(2 |
) |
Other |
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans |
|
$ |
249.1 |
|
|
$ |
207.6 |
|
|
|
20 |
|
|
$ |
256.7 |
|
|
$ |
206.5 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
27.1 |
|
|
$ |
26.5 |
|
|
|
2 |
|
|
$ |
27.1 |
|
|
$ |
26.5 |
|
|
|
2 |
|
Prime mortgage |
|
|
20.2 |
|
|
|
24.7 |
|
|
|
(18 |
) |
|
|
20.2 |
|
|
|
24.7 |
|
|
|
(18 |
) |
Subprime mortgage |
|
|
6.1 |
|
|
|
3.9 |
|
|
|
56 |
|
|
|
6.1 |
|
|
|
3.9 |
|
|
|
56 |
|
Option ARMs |
|
|
29.8 |
|
|
|
22.6 |
|
|
|
32 |
|
|
|
29.8 |
|
|
|
22.6 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
83.2 |
|
|
$ |
77.7 |
|
|
|
7 |
|
|
$ |
83.2 |
|
|
$ |
77.7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
27.4 |
|
|
$ |
|
|
|
NM |
|
|
$ |
27.9 |
|
|
$ |
|
|
|
NM |
|
Prime mortgage |
|
|
20.5 |
|
|
|
|
|
|
NM |
|
|
|
21.1 |
|
|
|
|
|
|
NM |
|
Subprime mortgage |
|
|
6.2 |
|
|
|
|
|
|
NM |
|
|
|
6.5 |
|
|
|
|
|
|
NM |
|
Option ARMs |
|
|
30.2 |
|
|
|
|
|
|
NM |
|
|
|
30.8 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans |
|
$ |
84.3 |
|
|
$ |
|
|
|
NM |
|
|
$ |
86.3 |
|
|
$ |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer lending portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
131.9 |
|
|
$ |
143.3 |
|
|
|
(8 |
) |
|
$ |
131.9 |
|
|
$ |
143.3 |
|
|
|
(8 |
) |
Prime mortgage |
|
|
80.3 |
|
|
|
87.7 |
|
|
|
(8 |
) |
|
|
80.3 |
|
|
|
87.7 |
|
|
|
(8 |
) |
Subprime mortgage |
|
|
19.4 |
|
|
|
22.0 |
|
|
|
(12 |
) |
|
|
19.4 |
|
|
|
22.0 |
|
|
|
(12 |
) |
Option ARMs |
|
|
38.7 |
|
|
|
41.6 |
|
|
|
(7 |
) |
|
|
38.7 |
|
|
|
41.6 |
|
|
|
(7 |
) |
Student loans |
|
|
15.5 |
|
|
|
15.3 |
|
|
|
1 |
|
|
|
15.5 |
|
|
|
15.3 |
|
|
|
1 |
|
Auto loans |
|
|
44.3 |
|
|
|
43.3 |
|
|
|
2 |
|
|
|
44.3 |
|
|
|
43.3 |
|
|
|
2 |
|
Other |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
(20 |
) |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
$ |
330.9 |
|
|
$ |
354.2 |
|
|
|
(7 |
) |
|
$ |
330.9 |
|
|
$ |
354.2 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Average loans owned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
134.0 |
|
|
$ |
94.8 |
|
|
|
41 |
|
|
$ |
137.9 |
|
|
$ |
95.0 |
|
|
|
45 |
|
Prime mortgage |
|
|
81.1 |
|
|
|
39.7 |
|
|
|
104 |
|
|
|
84.2 |
|
|
|
38.4 |
|
|
|
119 |
|
Subprime mortgage |
|
|
19.8 |
|
|
|
14.2 |
|
|
|
39 |
|
|
|
20.8 |
|
|
|
15.1 |
|
|
|
38 |
|
Option ARMs |
|
|
39.1 |
|
|
|
|
|
|
NM |
|
|
|
39.7 |
|
|
|
|
|
|
NM |
|
Student loans |
|
|
15.2 |
|
|
|
14.1 |
|
|
|
8 |
|
|
|
16.3 |
|
|
|
12.9 |
|
|
|
26 |
|
Auto loans |
|
|
43.3 |
|
|
|
43.9 |
|
|
|
(1 |
) |
|
|
43.0 |
|
|
|
44.0 |
|
|
|
(2 |
) |
Other |
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans owned(b) |
|
$ |
333.4 |
|
|
$ |
207.6 |
|
|
|
61 |
|
|
$ |
343.0 |
|
|
$ |
206.5 |
|
|
|
66 |
|
|
|
|
|
(a) |
|
Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction
for which a deterioration in credit quality occurred between the origination date and JPMorgan
Chases acquisition date. 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 includes loans held-for-sale of $1.3 billion and $1.5 billion for
the quarters ended September 30, 2009 and 2008, respectively; and $2.4 billion and $3.2
billion for year-to-date 2009 and 2008, respectively. |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Net charge-offs excluding purchased
credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
1,142 |
|
|
$ |
663 |
|
|
|
72 |
% |
|
$ |
3,505 |
|
|
$ |
1,621 |
|
|
|
116 |
% |
Prime mortgage |
|
|
525 |
|
|
|
177 |
|
|
|
197 |
|
|
|
1,318 |
|
|
|
331 |
|
|
|
298 |
|
Subprime mortgage |
|
|
422 |
|
|
|
273 |
|
|
|
55 |
|
|
|
1,196 |
|
|
|
614 |
|
|
|
95 |
|
Option ARMs |
|
|
15 |
|
|
|
|
|
|
NM |
|
|
34 |
|
|
|
|
|
|
NM |
Auto loans |
|
|
159 |
|
|
|
124 |
|
|
|
28 |
|
|
|
479 |
|
|
|
361 |
|
|
|
33 |
|
Other |
|
|
79 |
|
|
|
21 |
|
|
|
276 |
|
|
|
249 |
|
|
|
71 |
|
|
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
$ |
2,342 |
|
|
$ |
1,258 |
|
|
|
86 |
|
|
$ |
6,781 |
|
|
$ |
2,998 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate excluding purchased
credit-impaired loans(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
4.25 |
% |
|
|
2.78 |
% |
|
|
|
|
|
|
4.26 |
% |
|
|
2.28 |
% |
|
|
|
|
Prime mortgage |
|
|
3.45 |
|
|
|
1.79 |
|
|
|
|
|
|
|
2.81 |
|
|
|
1.16 |
|
|
|
|
|
Subprime mortgage |
|
|
12.31 |
|
|
|
7.65 |
|
|
|
|
|
|
|
11.18 |
|
|
|
5.43 |
|
|
|
|
|
Option ARMs |
|
|
0.67 |
|
|
|
|
|
|
|
|
|
|
|
0.51 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.46 |
|
|
|
1.12 |
|
|
|
|
|
|
|
1.49 |
|
|
|
1.10 |
|
|
|
|
|
Other |
|
|
2.08 |
|
|
|
0.60 |
|
|
|
|
|
|
|
2.16 |
|
|
|
0.84 |
|
|
|
|
|
Total
net charge-off rate excluding purchased
credit-impaired loans(b) |
|
|
3.75 |
|
|
|
2.43 |
|
|
|
|
|
|
|
3.57 |
|
|
|
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate reported: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
3.38 |
% |
|
|
2.78 |
% |
|
|
|
|
|
|
3.40 |
% |
|
|
2.28 |
% |
|
|
|
|
Prime mortgage |
|
|
2.58 |
|
|
|
1.79 |
|
|
|
|
|
|
|
2.10 |
|
|
|
1.16 |
|
|
|
|
|
Subprime mortgage |
|
|
8.46 |
|
|
|
7.65 |
|
|
|
|
|
|
|
7.69 |
|
|
|
5.43 |
|
|
|
|
|
Option ARMs |
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
1.46 |
|
|
|
1.12 |
|
|
|
|
|
|
|
1.49 |
|
|
|
1.10 |
|
|
|
|
|
Other |
|
|
2.08 |
|
|
|
0.60 |
|
|
|
|
|
|
|
2.16 |
|
|
|
0.84 |
|
|
|
|
|
Total net charge-off rate reported(b) |
|
|
2.80 |
|
|
|
2.43 |
|
|
|
|
|
|
|
2.66 |
|
|
|
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day
delinquency rate excluding purchased
credit-impaired loans(c)(d)(e) |
|
|
5.85 |
% |
|
|
3.16 |
% |
|
|
|
|
|
|
5.85 |
% |
|
|
3.16 |
% |
|
|
|
|
Nonperforming assets(f)(g) |
|
$ |
11,068 |
|
|
$ |
7,705 |
|
|
|
44 |
|
|
$ |
11,068 |
|
|
$ |
7,705 |
|
|
|
44 |
|
Allowance for loan losses to ending loans retained |
|
|
3.74 |
% |
|
|
1.95 |
% |
|
|
|
|
|
|
3.74 |
% |
|
|
1.95 |
% |
|
|
|
|
Allowance for loan losses to ending loans
retained excluding purchased credit-impaired
loans(a) |
|
|
4.56 |
|
|
|
2.50 |
|
|
|
|
|
|
|
4.56 |
|
|
|
2.50 |
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes the impact of purchased credit-impaired loans that were acquired as part of the
Washington Mutual transaction. These loans were accounted for at fair value on the
acquisition date, which incorporated managements estimate, as of that date, of credit losses
over the remaining life of the portfolio. An allowance for loan losses of $1.1 billion has
been recorded for these loans as of September 30, 2009. To date, no charge-offs have been
recorded for these loans. |
|
(b) |
|
Average loans held-for-sale of $1.3 billion and $1.5 billion for the quarters ended
September 30, 2009 and 2008, respectively, and $2.4 billion and $3.2 billion for year-to-date
2009 and 2008, respectively, were excluded when calculating the net charge-off rate. |
|
(c) |
|
Excluded mortgage loans that are insured by U.S. government agencies of $7.7 billion and
$2.2 billion at September 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 $903 million and $787
million at September 30, 2009 and 2008, respectively. These amounts are excluded, as
reimbursement is proceeding normally. |
|
(e) |
|
The delinquency rate for purchased credit-impaired loans was 25.56% and 13.21% at September
30, 2009 and 2008, respectively. |
|
(f) |
|
At September 30, 2009 and 2008, nonperforming assets excluded: (1) mortgage loans insured by
U.S. government agencies of $7.0 billion and $1.4 billion, respectively; (2) real estate
owned insured by U.S. government agencies of $579 million and $370 million, respectively; and
(3) student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $511 million and $405
million, respectively. These amounts are excluded, as reimbursement is proceeding normally. |
|
(g) |
|
Excludes purchased credit-impaired loans that were acquired as part of the Washington Mutual
transaction. These loans are accounted for on a pool basis, and the pools are considered to
be performing. |
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Lending (continued) |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in billions, except where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Origination volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
13.3 |
|
|
$ |
8.4 |
|
|
|
58 |
% |
|
$ |
41.6 |
|
|
$ |
33.5 |
|
|
|
24 |
% |
Wholesale(a) |
|
|
3.4 |
|
|
|
5.9 |
|
|
|
(42 |
) |
|
|
8.4 |
|
|
|
25.6 |
|
|
|
(67 |
) |
Correspondent |
|
|
18.4 |
|
|
|
13.2 |
|
|
|
39 |
|
|
|
55.6 |
|
|
|
42.2 |
|
|
|
32 |
|
CNT (negotiated transactions) |
|
|
2.0 |
|
|
|
10.2 |
|
|
|
(80 |
) |
|
|
10.3 |
|
|
|
39.6 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total mortgage origination volume |
|
|
37.1 |
|
|
|
37.7 |
|
|
|
(2 |
) |
|
|
115.9 |
|
|
|
140.9 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
0.5 |
|
|
|
2.6 |
|
|
|
(81 |
) |
|
|
2.0 |
|
|
|
14.6 |
|
|
|
(86 |
) |
Student loans |
|
|
1.5 |
|
|
|
2.6 |
|
|
|
(42 |
) |
|
|
3.6 |
|
|
|
5.9 |
|
|
|
(39 |
) |
Auto loans |
|
|
6.9 |
|
|
|
3.8 |
|
|
|
82 |
|
|
|
17.8 |
|
|
|
16.6 |
|
|
|
7 |
|
|
Application volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage application volume by channel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
17.8 |
|
|
$ |
17.1 |
|
|
|
4 |
|
|
$ |
73.5 |
|
|
$ |
64.9 |
|
|
|
13 |
|
Wholesale(a) |
|
|
4.7 |
|
|
|
11.7 |
|
|
|
(60 |
) |
|
|
12.7 |
|
|
|
54.2 |
|
|
|
(77 |
) |
Correspondent |
|
|
23.0 |
|
|
|
18.2 |
|
|
|
26 |
|
|
|
77.0 |
|
|
|
61.3 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage application volume |
|
|
45.5 |
|
|
|
47.0 |
|
|
|
(3 |
) |
|
|
163.2 |
|
|
|
180.4 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Average mortgage loans held-for-sale and loans
at fair value(b) |
|
|
18.0 |
|
|
|
14.9 |
|
|
|
21 |
|
|
|
16.2 |
|
|
|
15.4 |
|
|
|
5 |
|
Average assets |
|
|
373.5 |
|
|
|
239.8 |
|
|
|
56 |
|
|
|
382.6 |
|
|
|
238.8 |
|
|
|
60 |
|
Third-party mortgage loans serviced (ending) |
|
|
1,098.9 |
|
|
|
1,114.8 |
|
|
|
(1 |
) |
|
|
1,098.9 |
|
|
|
1,114.8 |
|
|
|
(1 |
) |
MSR net carrying value (ending) |
|
|
13.6 |
|
|
|
16.4 |
|
|
|
(17 |
) |
|
|
13.6 |
|
|
|
16.4 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental mortgage fees and related
income details (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
(70 |
) |
|
$ |
66 |
|
|
NM |
|
$ |
695 |
|
|
$ |
836 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
1,220 |
|
|
|
654 |
|
|
|
87 |
|
|
|
3,721 |
|
|
|
1,892 |
|
|
|
97 |
|
Other changes in fair value |
|
|
(712 |
) |
|
|
(390 |
) |
|
|
(83 |
) |
|
|
(2,622 |
) |
|
|
(1,209 |
) |
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
|
508 |
|
|
|
264 |
|
|
|
92 |
|
|
|
1,099 |
|
|
|
683 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
Risk management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model |
|
|
(1,099 |
) |
|
|
(786 |
) |
|
|
(40 |
) |
|
|
4,042 |
|
|
|
101 |
|
|
NM |
Derivative valuation adjustments and other |
|
|
1,534 |
|
|
|
894 |
|
|
|
72 |
|
|
|
(2,523 |
) |
|
|
39 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total risk management |
|
|
435 |
|
|
|
108 |
|
|
|
303 |
|
|
|
1,519 |
|
|
|
140 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
943 |
|
|
|
372 |
|
|
|
153 |
|
|
|
2,618 |
|
|
|
823 |
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage fees and related income |
|
|
873 |
|
|
|
438 |
|
|
|
99 |
|
|
|
3,313 |
|
|
|
1,659 |
|
|
|
100 |
|
|
|
|
|
(a) |
|
Includes rural housing loans sourced through brokers and underwritten under U.S. Department
of Agriculture guidelines. |
|
(b) |
|
Loans at fair value consist of prime mortgages originated with the intent to sell that are
accounted for at fair value and classified as trading assets on the Consolidated Balance
Sheets. Average balances of these loans totaled $17.7 billion and $14.5 billion for the
quarters ended September 30, 2009 and 2008, respectively, and $15.8 billion and $14.9 billion
for year-to-date 2009 and 2008, respectively. |
32
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 15-19 of this Form 10-Q. Managed results exclude the impact of credit card securitizations on
total net revenue, the provision for credit losses, net charge-offs and loan receivables.
Securitization does not change reported net income; however, it does affect the classification of
items on the Consolidated Statements of Income and Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data - managed basis |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
916 |
|
|
$ |
633 |
|
|
|
45 |
% |
|
$ |
2,681 |
|
|
$ |
1,906 |
|
|
|
41 |
% |
All other income |
|
|
(85 |
) |
|
|
13 |
|
|
NM |
|
|
(646 |
) |
|
|
223 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
831 |
|
|
|
646 |
|
|
|
29 |
|
|
|
2,035 |
|
|
|
2,129 |
|
|
|
(4 |
) |
Net interest income |
|
|
4,328 |
|
|
|
3,241 |
|
|
|
34 |
|
|
|
13,121 |
|
|
|
9,437 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
5,159 |
|
|
|
3,887 |
|
|
|
33 |
|
|
|
15,156 |
|
|
|
11,566 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
4,967 |
|
|
|
2,229 |
|
|
|
123 |
|
|
|
14,223 |
|
|
|
6,093 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
354 |
|
|
|
267 |
|
|
|
33 |
|
|
|
1,040 |
|
|
|
792 |
|
|
|
31 |
|
Noncompensation expense |
|
|
829 |
|
|
|
773 |
|
|
|
7 |
|
|
|
2,552 |
|
|
|
2,377 |
|
|
|
7 |
|
Amortization of intangibles |
|
|
123 |
|
|
|
154 |
|
|
|
(20 |
) |
|
|
393 |
|
|
|
482 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,306 |
|
|
|
1,194 |
|
|
|
9 |
|
|
|
3,985 |
|
|
|
3,651 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax
expense |
|
|
(1,114 |
) |
|
|
464 |
|
|
NM |
|
|
(3,052 |
) |
|
|
1,822 |
|
|
NM |
Income tax expense/(benefit) |
|
|
(414 |
) |
|
|
172 |
|
|
NM |
|
|
(1,133 |
) |
|
|
671 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
(700 |
) |
|
$ |
292 |
|
|
NM |
|
$ |
(1,919 |
) |
|
$ |
1,151 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization income/(loss) |
|
$ |
(43 |
) |
|
$ |
(28 |
) |
|
|
(54 |
) |
|
$ |
(491 |
) |
|
$ |
78 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
(19 |
)% |
|
|
8 |
% |
|
|
|
|
|
|
(17 |
)% |
|
|
11 |
% |
|
|
|
|
Overhead ratio |
|
|
25 |
|
|
|
31 |
|
|
|
|
|
|
|
26 |
|
|
|
32 |
|
|
|
|
|
|
Quarterly results
Card Services reported a net loss of $700 million, a decline of $992 million from the third quarter
of 2008. The decrease was driven by a higher provision for credit losses, partially offset by
higher net revenue.
End-of-period managed loans were $165.2 billion, a decrease of $21.3 billion, or 11%, from the
prior year. The decrease was due to lower charge volume and a higher level of charge-offs. Average
managed loans were $169.2 billion, an increase of $11.6 billion, or 7%, from the prior year.
Excluding the impact of the Washington Mutual transaction, end-of-period and average managed loans
were $144.1 billion and $146.9 billion, respectively.
Managed net revenue was $5.2 billion, an increase of $1.3 billion, or 33%, from the prior year. Net
interest income was $4.3 billion, up by $1.1 billion, or 34%, 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, lower average loan balances and a
decreased level of fees. Noninterest revenue was $831 million, up by $185 million, or 29%. The
increase was driven by higher merchant servicing revenue related to the dissolution of the Chase
Paymentech Solutions joint venture and the impact of the Washington Mutual transaction.
The managed provision for credit losses was $5.0 billion, an increase of $2.7 billion from the
prior year. The provision reflected a higher level of charge-offs and an increase of $575 million
in the allowance for loan losses in the current period, compared with an increase of $250 million
in the prior year. The managed net charge-off rate for the quarter was 10.30%, up from 5.00% in the
prior year. The 30-day managed delinquency rate was 5.99%, up from 3.91% in the prior year.
Excluding the impact of the Washington Mutual transaction, the managed net charge-off rate for the
third quarter was 9.41%, and the 30-day delinquency rate was 5.38%.
33
Noninterest expense was $1.3 billion, an increase of $112 million, or 9%, 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 $1.9 billion, a decline of $3.1 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 $175.5 billion, an increase of $20.9 billion, or 13%, 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
$150.8 billion.
Managed net revenue was $15.2 billion, an increase of $3.6 billion, or 31%, from the prior year.
Net interest income was $13.1 billion, up by $3.7 billion, or 39%, 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 $2.0 billion, a decrease of $94 million, or 4%, 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 $14.2 billion, an increase of $8.1 billion from the
prior year. The provision reflected a higher level of charge-offs and an increase of $2.0 billion
in the allowance for loan losses in the current period, compared with an increase of $550 million
in the prior year. The managed net charge-off rate was 9.32%, up from 4.79% in the prior year.
Excluding the impact of the Washington Mutual transaction, the managed net charge-off rate was
8.39%.
Noninterest expense was $4.0 billion, an increase of $334 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 |
|
|
|
|
(in millions, except headcount, ratios and |
|
Three months ended September 30, |
|
Nine months ended September 30, |
where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
10.15 |
% |
|
|
8.18 |
% |
|
|
|
|
|
|
10.00 |
% |
|
|
8.15 |
% |
|
|
|
|
Provision for credit losses |
|
|
11.65 |
|
|
|
5.63 |
|
|
|
|
|
|
|
10.84 |
|
|
|
5.26 |
|
|
|
|
|
Noninterest revenue |
|
|
1.95 |
|
|
|
1.63 |
|
|
|
|
|
|
|
1.55 |
|
|
|
1.84 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
0.45 |
|
|
|
4.19 |
|
|
|
|
|
|
|
0.71 |
|
|
|
4.73 |
|
|
|
|
|
Noninterest expense |
|
|
3.06 |
|
|
|
3.01 |
|
|
|
|
|
|
|
3.04 |
|
|
|
3.15 |
|
|
|
|
|
Pretax income/(loss) (ROO)(b) |
|
|
(2.61 |
) |
|
|
1.17 |
|
|
|
|
|
|
|
(2.32 |
) |
|
|
1.57 |
|
|
|
|
|
Net income/(loss) |
|
|
(1.64 |
) |
|
|
0.74 |
|
|
|
|
|
|
|
(1.46 |
) |
|
|
0.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
82.6 |
|
|
$ |
93.9 |
|
|
|
(12 |
)% |
|
$ |
241.4 |
|
|
$ |
272.9 |
|
|
|
(12 |
)% |
Net accounts opened (in millions)(c) |
|
|
2.4 |
|
|
|
16.6 |
|
|
|
(86 |
) |
|
|
7.0 |
|
|
|
23.6 |
|
|
|
(70 |
) |
Credit cards issued (in millions) |
|
|
146.6 |
|
|
|
171.9 |
|
|
|
(15 |
) |
|
|
146.6 |
|
|
|
171.9 |
|
|
|
(15 |
) |
Number of registered internet customers
(in millions) |
|
|
31.3 |
|
|
|
34.3 |
|
|
|
(9 |
) |
|
|
31.3 |
|
|
|
34.3 |
|
|
|
(9 |
) |
Merchant acquiring business(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
103.5 |
|
|
$ |
197.1 |
|
|
|
(47 |
) |
|
$ |
299.3 |
|
|
$ |
578.8 |
|
|
|
(48 |
) |
Total transactions (in billions) |
|
|
4.5 |
|
|
|
5.7 |
|
|
|
(21 |
) |
|
|
13.1 |
|
|
|
16.5 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
78,215 |
|
|
$ |
92,881 |
|
|
|
(16 |
) |
|
$ |
78,215 |
|
|
$ |
92,881 |
|
|
|
(16 |
) |
Securitized loans |
|
|
87,028 |
|
|
|
93,664 |
|
|
|
(7 |
) |
|
|
87,028 |
|
|
|
93,664 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
165,243 |
|
|
$ |
186,545 |
|
|
|
(11 |
) |
|
$ |
165,243 |
|
|
$ |
186,545 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
192,141 |
|
|
$ |
169,413 |
|
|
|
13 |
|
|
$ |
195,517 |
|
|
$ |
163,560 |
|
|
|
20 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
83,146 |
|
|
$ |
79,183 |
|
|
|
5 |
|
|
$ |
90,154 |
|
|
$ |
78,090 |
|
|
|
15 |
|
Securitized loans |
|
|
86,017 |
|
|
|
78,371 |
|
|
|
10 |
|
|
|
85,352 |
|
|
|
76,564 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average loans |
|
$ |
169,163 |
|
|
$ |
157,554 |
|
|
|
7 |
|
|
$ |
175,506 |
|
|
$ |
154,654 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
$ |
15,000 |
|
|
$ |
14,100 |
|
|
|
6 |
|
|
Headcount |
|
|
22,850 |
|
|
|
22,283 |
|
|
|
3 |
|
|
|
22,850 |
|
|
|
22,283 |
|
|
|
3 |
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
4,392 |
|
|
$ |
1,979 |
|
|
|
122 |
% |
|
$ |
12,238 |
|
|
$ |
5,543 |
|
|
|
121 |
% |
Net charge-off rate(e) |
|
|
10.30 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
9.32 |
% |
|
|
4.79 |
% |
|
|
|
|
Managed delinquency rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day(e) |
|
|
5.99 |
% |
|
|
3.91 |
% |
|
|
|
|
|
|
5.99 |
% |
|
|
3.91 |
% |
|
|
|
|
90+ day(e) |
|
|
2.76 |
|
|
|
1.77 |
|
|
|
|
|
|
|
2.76 |
|
|
|
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses(f) |
|
$ |
9,297 |
|
|
$ |
5,946 |
|
|
|
56 |
|
|
$ |
9,297 |
|
|
$ |
5,946 |
|
|
|
56 |
|
Allowance for loan losses to period-end loans(f)(g) |
|
|
11.89 |
% |
|
|
6.40 |
% |
|
|
|
|
|
|
11.89 |
% |
|
|
6.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats Washington Mutual only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
21,163 |
|
|
$ |
27,235 |
|
|
|
(22 |
) |
|
$ |
21,163 |
|
|
$ |
27,235 |
|
|
|
(22 |
) |
Managed average loans |
|
|
22,287 |
|
|
|
|
|
|
NM |
|
|
24,742 |
|
|
|
|
|
|
NM |
Net interest income(h) |
|
|
17.04 |
% |
|
|
|
|
|
|
|
|
|
|
17.11 |
% |
|
|
|
|
|
|
|
|
Risk adjusted margin(a)(h) |
|
|
(4.45 |
) |
|
|
|
|
|
|
|
|
|
|
(1.01 |
) |
|
|
|
|
|
|
|
|
Net charge-off rate(i) |
|
|
21.94 |
|
|
|
|
|
|
|
|
|
|
|
18.32 |
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(i) |
|
|
12.44 |
|
|
|
7.53 |
% |
|
|
|
|
|
|
12.44 |
|
|
|
7.53 |
% |
|
|
|
|
90+ day delinquency rate(i) |
|
|
6.21 |
|
|
|
3.51 |
|
|
|
|
|
|
|
6.21 |
|
|
|
3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key stats excluding Washington Mutual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
144,080 |
|
|
$ |
159,310 |
|
|
|
(10 |
) |
|
$ |
144,080 |
|
|
$ |
159,310 |
|
|
|
(10 |
) |
Managed average loans |
|
|
146,876 |
|
|
|
157,554 |
|
|
|
(7 |
) |
|
|
150,764 |
|
|
|
154,654 |
|
|
|
(3 |
) |
Net interest income(h) |
|
|
9.10 |
% |
|
|
8.18 |
% |
|
|
|
|
|
|
8.83 |
% |
|
|
8.15 |
% |
|
|
|
|
Risk adjusted margin(a)(h) |
|
|
1.19 |
|
|
|
4.19 |
|
|
|
|
|
|
|
0.99 |
|
|
|
4.73 |
|
|
|
|
|
Net charge-off rate |
|
|
9.41 |
|
|
|
5.00 |
|
|
|
|
|
|
|
8.39 |
|
|
|
4.79 |
|
|
|
|
|
30+ day delinquency rate |
|
|
5.38 |
|
|
|
3.69 |
|
|
|
|
|
|
|
5.38 |
|
|
|
3.69 |
|
|
|
|
|
90+ day delinquency rate |
|
|
2.48 |
|
|
|
1.74 |
|
|
|
|
|
|
|
2.48 |
|
|
|
1.74 |
|
|
|
|
|
|
|
|
|
(a) |
|
Represents total net revenue less provision for credit losses. |
|
(b) |
|
Pretax return on average managed outstandings. |
|
(c) |
|
Third quarter of 2008 included approximately 13 million credit card accounts acquired by
JPMorgan Chase in the Washington Mutual transaction. |
|
(d) |
|
The Chase Paymentech Solutions joint venture was dissolved effective November 1, 2008.
JPMorgan Chase retained approximately 51% of the business and operates the business under the
name Chase Paymentech Solutions. For the three and nine months ended September 30, 2008, the
data presented represents activity for the Chase Paymentech Solutions joint venture, and for
the three and nine months ended September 30, 2009, the data presented represents activity for
Chase Paymentech Solutions. |
|
(e) |
|
Results reflect the impact of purchase accounting adjustments related to the Washington
Mutual transaction and the consolidation of the Washington Mutual Master Trust. |
|
(f) |
|
Based on loans on balance sheets (reported basis). |
|
(g) |
|
Includes $3.0 billion of loans at September 30, 2009, held by the Washington Mutual Master
Trust, which were consolidated onto the Card Services balance sheet at fair value during the
second quarter of 2009. No allowance for loan losses was recorded for these loans as of
September 30, 2009. Excluding these loans, the allowance for loan losses to period-end loans
was 12.36%. |
|
(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. |
35
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to
disclose the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
1,201 |
|
|
$ |
1,476 |
|
|
|
(19 |
)% |
|
$ |
3,800 |
|
|
$ |
4,529 |
|
|
|
(16 |
)% |
Securitization adjustments |
|
|
(285 |
) |
|
|
(843 |
) |
|
|
66 |
|
|
|
(1,119 |
) |
|
|
(2,623 |
) |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
916 |
|
|
$ |
633 |
|
|
|
45 |
|
|
$ |
2,681 |
|
|
$ |
1,906 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,345 |
|
|
$ |
1,525 |
|
|
|
54 |
|
|
$ |
7,176 |
|
|
$ |
4,430 |
|
|
|
62 |
|
Securitization adjustments |
|
|
1,983 |
|
|
|
1,716 |
|
|
|
16 |
|
|
|
5,945 |
|
|
|
5,007 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
4,328 |
|
|
$ |
3,241 |
|
|
|
34 |
|
|
$ |
13,121 |
|
|
$ |
9,437 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,461 |
|
|
$ |
3,014 |
|
|
|
15 |
|
|
$ |
10,330 |
|
|
$ |
9,182 |
|
|
|
13 |
|
Securitization adjustments |
|
|
1,698 |
|
|
|
873 |
|
|
|
95 |
|
|
|
4,826 |
|
|
|
2,384 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
5,159 |
|
|
$ |
3,887 |
|
|
|
33 |
|
|
$ |
15,156 |
|
|
$ |
11,566 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
3,269 |
|
|
$ |
1,356 |
|
|
|
141 |
|
|
$ |
9,397 |
|
|
$ |
3,709 |
|
|
|
153 |
|
Securitization adjustments |
|
|
1,698 |
|
|
|
873 |
|
|
|
95 |
|
|
|
4,826 |
|
|
|
2,384 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit losses |
|
$ |
4,967 |
|
|
$ |
2,229 |
|
|
|
123 |
|
|
$ |
14,223 |
|
|
$ |
6,093 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
109,362 |
|
|
$ |
93,701 |
|
|
|
17 |
|
|
$ |
113,134 |
|
|
$ |
89,594 |
|
|
|
26 |
|
Securitization adjustments |
|
|
82,779 |
|
|
|
75,712 |
|
|
|
9 |
|
|
|
82,383 |
|
|
|
73,966 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
192,141 |
|
|
$ |
169,413 |
|
|
|
13 |
|
|
$ |
195,517 |
|
|
$ |
163,560 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
$ |
2,694 |
|
|
$ |
1,106 |
|
|
|
144 |
|
|
$ |
7,412 |
|
|
$ |
3,159 |
|
|
|
135 |
|
Securitization adjustments |
|
|
1,698 |
|
|
|
873 |
|
|
|
95 |
|
|
|
4,826 |
|
|
|
2,384 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
4,392 |
|
|
$ |
1,979 |
|
|
|
122 |
|
|
$ |
12,238 |
|
|
$ |
5,543 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported |
|
|
12.85 |
% |
|
|
5.56 |
% |
|
|
|
|
|
|
10.99 |
% |
|
|
5.40 |
% |
|
|
|
|
Securitized |
|
|
7.83 |
|
|
|
4.43 |
|
|
|
|
|
|
|
7.56 |
|
|
|
4.16 |
|
|
|
|
|
Managed net charge-off rate |
|
|
10.30 |
|
|
|
5.00 |
|
|
|
|
|
|
|
9.32 |
|
|
|
4.79 |
|
|
|
|
|
|
|
|
|
(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 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 15-19 of this
Form 10-Q. |
36
COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 54-55 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and deposit-related fees |
|
$ |
269 |
|
|
$ |
212 |
|
|
|
27 |
% |
|
$ |
802 |
|
|
$ |
612 |
|
|
|
31 |
% |
Asset management, administration and
commissions |
|
|
35 |
|
|
|
29 |
|
|
|
21 |
|
|
|
105 |
|
|
|
81 |
|
|
|
30 |
|
All other income(a) |
|
|
170 |
|
|
|
147 |
|
|
|
16 |
|
|
|
447 |
|
|
|
412 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
474 |
|
|
|
388 |
|
|
|
22 |
|
|
|
1,354 |
|
|
|
1,105 |
|
|
|
23 |
|
Net interest income |
|
|
985 |
|
|
|
737 |
|
|
|
34 |
|
|
|
2,960 |
|
|
|
2,193 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,459 |
|
|
|
1,125 |
|
|
|
30 |
|
|
|
4,314 |
|
|
|
3,298 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
355 |
|
|
|
126 |
|
|
|
182 |
|
|
|
960 |
|
|
|
274 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
196 |
|
|
|
177 |
|
|
|
11 |
|
|
|
593 |
|
|
|
528 |
|
|
|
12 |
|
Noncompensation expense |
|
|
339 |
|
|
|
298 |
|
|
|
14 |
|
|
|
1,008 |
|
|
|
882 |
|
|
|
14 |
|
Amortization of intangibles |
|
|
10 |
|
|
|
11 |
|
|
|
(9 |
) |
|
|
32 |
|
|
|
37 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
545 |
|
|
|
486 |
|
|
|
12 |
|
|
|
1,633 |
|
|
|
1,447 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
559 |
|
|
|
513 |
|
|
|
9 |
|
|
|
1,721 |
|
|
|
1,577 |
|
|
|
9 |
|
Income tax expense |
|
|
218 |
|
|
|
201 |
|
|
|
8 |
|
|
|
674 |
|
|
|
618 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
341 |
|
|
$ |
312 |
|
|
|
9 |
|
|
$ |
1,047 |
|
|
$ |
959 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
675 |
|
|
$ |
377 |
|
|
|
79 |
|
|
$ |
2,024 |
|
|
$ |
1,132 |
|
|
|
79 |
|
Treasury services |
|
|
672 |
|
|
|
643 |
|
|
|
5 |
|
|
|
1,997 |
|
|
|
1,889 |
|
|
|
6 |
|
Investment banking |
|
|
99 |
|
|
|
87 |
|
|
|
14 |
|
|
|
286 |
|
|
|
246 |
|
|
|
16 |
|
Other |
|
|
13 |
|
|
|
18 |
|
|
|
(28 |
) |
|
|
7 |
|
|
|
31 |
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,459 |
|
|
$ |
1,125 |
|
|
|
30 |
|
|
$ |
4,314 |
|
|
$ |
3,298 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenue, gross(b) |
|
$ |
301 |
|
|
$ |
252 |
|
|
|
19 |
|
|
$ |
835 |
|
|
$ |
725 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
771 |
|
|
$ |
729 |
|
|
|
6 |
|
|
$ |
2,295 |
|
|
$ |
2,143 |
|
|
|
7 |
|
Commercial Term Lending(c) |
|
|
232 |
|
|
|
|
|
|
NM |
|
|
684 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
278 |
|
|
|
236 |
|
|
|
18 |
|
|
|
825 |
|
|
|
678 |
|
|
|
22 |
|
Real Estate Banking(c) |
|
|
121 |
|
|
|
91 |
|
|
|
33 |
|
|
|
361 |
|
|
|
282 |
|
|
|
28 |
|
Other(c) |
|
|
57 |
|
|
|
69 |
|
|
|
(17 |
) |
|
|
149 |
|
|
|
195 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,459 |
|
|
$ |
1,125 |
|
|
|
30 |
|
|
$ |
4,314 |
|
|
$ |
3,298 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
17 |
% |
|
|
18 |
% |
|
|
|
|
|
|
17 |
% |
|
|
18 |
% |
|
|
|
|
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. |
37
Quarterly results
Net income was $341 million, an increase of $29 million, or 9%, from the third quarter of 2008.
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 $334 million, or 30%, from the prior year. Net
interest income was $985 million, up by $248 million, or 34%, driven by the impact of the
Washington Mutual transaction. Excluding Washington Mutual, net interest income was flat compared
with the prior year, as spread compression on liability products and lower loan balances were
offset by wider loan spreads, a shift to higher-spread liability products and overall growth in
liability balances. Noninterest revenue was $474 million, an increase of $86 million, or 22%,
reflecting higher lending- and deposit-related fees.
Revenue from Middle Market Banking was $771 million, an increase of $42 million, or 6%, from the
prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington
Mutual transaction) was $232 million. Revenue from Mid-Corporate Banking was $278 million, an
increase of $42 million, or 18%, from the prior year. Revenue from Real Estate Banking was $121
million, an increase of $30 million, or 33%, from the prior year due to the impact of the
Washington Mutual transaction.
The provision for credit losses was $355 million, compared with $126 million in the prior year,
reflecting continued deterioration in the credit environment across all business segments,
particularly real estate-related segments. Net charge-offs were $291 million (1.11% net charge-off
rate), compared with $40 million (0.22% net charge-off rate) in the prior year. The allowance for
loan losses to end-of-period loans retained was 3.01%, up from 2.30% in the prior year.
Nonperforming loans were $2.3 billion, up by $1.5 billion from the prior year.
Noninterest expense was $545 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.
Year-to-date results
Net income was $1.0 billion, an increase of $88 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 $4.3 billion, an increase of $1.0 billion, or 31%, from the prior year. Net
interest income of $3.0 billion increased by $767 million, or 35%, driven by the impact of the
Washington Mutual transaction. Noninterest revenue was $1.4 billion, an increase of $249 million,
or 23%, from the prior year, reflecting higher lending- and deposit-related fees and higher
investment banking fees.
Revenue from Middle Market Banking was $2.3 billion, an increase of $152 million, or 7%, from the
prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington
Mutual transaction) was $684 million. Mid-Corporate Banking revenue was $825 million, an increase
of $147 million, or 22%. Real Estate Banking revenue was $361 million, an increase of $79 million,
or 28%, due to the impact of the Washington Mutual transaction.
The provision for credit losses was $960 million, compared with $274 million in the prior year,
reflecting continued deterioration in the credit environment across all business segments. Net
charge-offs were $606 million (0.75% net charge-off rate), compared with $170 million (0.32% net
charge-off rate) in the prior year. The allowance for loan losses to end-of-period loans retained
was 3.01%, up from 2.30% in the prior year. Nonperforming loans were $2.3 billion, an increase of
$1.5 billion from the prior year.
Noninterest expense was $1.6 billion, an increase of $186 million, or 13%, from the prior year, due
to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Selected balance sheet data
(period-end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
$ |
101,608 |
|
|
$ |
117,316 |
|
|
|
(13 |
)% |
|
$ |
101,608 |
|
|
$ |
117,316 |
|
|
|
(13 |
)% |
Loans held-for-sale and loans at fair
value |
|
|
288 |
|
|
|
313 |
|
|
|
(8 |
) |
|
|
288 |
|
|
|
313 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
101,896 |
|
|
|
117,629 |
|
|
|
(13 |
) |
|
|
101,896 |
|
|
|
117,629 |
|
|
|
(13 |
) |
Equity |
|
|
8,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
8,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data
(average): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
130,316 |
|
|
$ |
101,681 |
|
|
|
28 |
|
|
$ |
137,248 |
|
|
$ |
102,374 |
|
|
|
34 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
|
103,752 |
|
|
|
71,901 |
|
|
|
44 |
|
|
|
108,654 |
|
|
|
70,038 |
|
|
|
55 |
|
Loans held-for-sale and loans at fair
value |
|
|
297 |
|
|
|
397 |
|
|
|
(25 |
) |
|
|
294 |
|
|
|
432 |
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
104,049 |
|
|
|
72,298 |
|
|
|
44 |
|
|
|
108,948 |
|
|
|
70,470 |
|
|
|
55 |
|
Liability balances(a) |
|
|
109,293 |
|
|
|
99,410 |
|
|
|
10 |
|
|
|
110,012 |
|
|
|
99,430 |
|
|
|
11 |
|
Equity |
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
8,000 |
|
|
|
7,000 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
36,200 |
|
|
$ |
43,155 |
|
|
|
(16 |
) |
|
$ |
38,357 |
|
|
$ |
42,052 |
|
|
|
(9 |
) |
Commercial Term Lending(b) |
|
|
36,943 |
|
|
|
|
|
|
NM |
|
|
36,907 |
|
|
|
|
|
|
NM |
Mid-Corporate Banking |
|
|
14,933 |
|
|
|
16,491 |
|
|
|
(9 |
) |
|
|
16,774 |
|
|
|
15,669 |
|
|
|
7 |
|
Real Estate Banking(b) |
|
|
11,547 |
|
|
|
7,513 |
|
|
|
54 |
|
|
|
12,380 |
|
|
|
7,490 |
|
|
|
65 |
|
Other(b) |
|
|
4,426 |
|
|
|
5,139 |
|
|
|
(14 |
) |
|
|
4,530 |
|
|
|
5,259 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
104,049 |
|
|
$ |
72,298 |
|
|
|
44 |
|
|
$ |
108,948 |
|
|
$ |
70,470 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,177 |
|
|
|
5,298 |
|
|
|
(21 |
) |
|
|
4,177 |
|
|
|
5,298 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
291 |
|
|
$ |
40 |
|
|
NM |
|
$ |
606 |
|
|
$ |
170 |
|
|
|
256 |
|
Nonperforming loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans retained(c) |
|
|
2,284 |
|
|
|
844 |
|
|
|
171 |
|
|
|
2,284 |
|
|
|
844 |
|
|
|
171 |
|
Nonperforming loans held-for-sale
and loans at fair value |
|
|
18 |
|
|
|
|
|
|
NM |
|
|
18 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
2,302 |
|
|
|
844 |
|
|
|
173 |
|
|
|
2,302 |
|
|
|
844 |
|
|
|
173 |
|
Nonperforming assets |
|
|
2,461 |
|
|
|
923 |
|
|
|
167 |
|
|
|
2,461 |
|
|
|
923 |
|
|
|
167 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
3,063 |
|
|
|
2,698 |
|
|
|
14 |
|
|
|
3,063 |
|
|
|
2,698 |
|
|
|
14 |
|
Allowance for lending-related
commitments |
|
|
300 |
|
|
|
191 |
|
|
|
57 |
|
|
|
300 |
|
|
|
191 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
3,363 |
|
|
|
2,889 |
|
|
|
16 |
|
|
|
3,363 |
|
|
|
2,889 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate |
|
|
1.11 |
% |
|
|
0.22 |
% |
|
|
|
|
|
|
0.75 |
% |
|
|
0.32 |
% |
|
|
|
|
Allowance for loan losses to period-end
loans retained |
|
|
3.01 |
|
|
|
2.30 |
|
|
|
|
|
|
|
3.01 |
|
|
|
2.30 |
|
|
|
|
|
Allowance for loan losses to average
loans retained |
|
|
2.95 |
|
|
|
2.32 |
(d) |
|
|
|
|
|
|
2.82 |
|
|
|
3.18 |
(d) |
|
|
|
|
Allowance for loan losses to
nonperforming loans retained |
|
|
134 |
|
|
|
320 |
|
|
|
|
|
|
|
134 |
|
|
|
320 |
|
|
|
|
|
Nonperforming loans to total period-end
loans |
|
|
2.26 |
|
|
|
0.72 |
|
|
|
|
|
|
|
2.26 |
|
|
|
0.72 |
|
|
|
|
|
Nonperforming loans to total average loans |
|
|
2.21 |
|
|
|
0.72 |
(d) |
|
|
|
|
|
|
2.11 |
|
|
|
0.99 |
(d) |
|
|
|
|
|
|
|
|
(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) |
|
Allowance for loan losses of $496 million and $135 million were held against nonperforming
loans retained at September 30, 2009 and 2008, respectively. |
|
(d) |
|
Average loans in the calculation of this ratio were adjusted to include $44.5 billion of
loans acquired from Washington Mutual as if the transaction occurred on July 1, 2008.
Excluding this adjustment, the unadjusted allowance for loan losses to average loans retained
and nonperforming loans to total average loans ratios would have been 3.75% and 1.17%,
respectively, for the period ended September 30, 2008, and 3.85% and 1.20%, respectively, for
the nine months ended September 30, 2008. |
39
TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 56-57 of JPMorgan Chases 2008 Annual
Report and page 6 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount and ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending- and deposit-related fees |
|
$ |
316 |
|
|
$ |
290 |
|
|
|
9 |
% |
|
$ |
955 |
|
|
$ |
842 |
|
|
|
13 |
% |
Asset management, administration and
commissions |
|
|
620 |
|
|
|
719 |
|
|
|
(14 |
) |
|
|
1,956 |
|
|
|
2,385 |
|
|
|
(18 |
) |
All other income |
|
|
201 |
|
|
|
221 |
|
|
|
(9 |
) |
|
|
619 |
|
|
|
649 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,137 |
|
|
|
1,230 |
|
|
|
(8 |
) |
|
|
3,530 |
|
|
|
3,876 |
|
|
|
(9 |
) |
Net interest income |
|
|
651 |
|
|
|
723 |
|
|
|
(10 |
) |
|
|
1,979 |
|
|
|
2,009 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,788 |
|
|
|
1,953 |
|
|
|
(8 |
) |
|
|
5,509 |
|
|
|
5,885 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
13 |
|
|
|
18 |
|
|
|
(28 |
) |
|
|
2 |
|
|
|
37 |
|
|
|
(95 |
) |
Credit reimbursement to IB(a) |
|
|
(31 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
(91 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
629 |
|
|
|
664 |
|
|
|
(5 |
) |
|
|
1,876 |
|
|
|
1,974 |
|
|
|
(5 |
) |
Noncompensation expense |
|
|
633 |
|
|
|
661 |
|
|
|
(4 |
) |
|
|
1,954 |
|
|
|
1,864 |
|
|
|
5 |
|
Amortization of intangibles |
|
|
18 |
|
|
|
14 |
|
|
|
29 |
|
|
|
57 |
|
|
|
46 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,280 |
|
|
|
1,339 |
|
|
|
(4 |
) |
|
|
3,887 |
|
|
|
3,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
464 |
|
|
|
565 |
|
|
|
(18 |
) |
|
|
1,529 |
|
|
|
1,873 |
|
|
|
(18 |
) |
Income tax expense |
|
|
162 |
|
|
|
159 |
|
|
|
2 |
|
|
|
540 |
|
|
|
639 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
302 |
|
|
$ |
406 |
|
|
|
(26 |
) |
|
$ |
989 |
|
|
$ |
1,234 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services(b) |
|
$ |
919 |
|
|
$ |
946 |
|
|
|
(3 |
) |
|
$ |
2,784 |
|
|
$ |
2,711 |
|
|
|
3 |
|
Worldwide Securities Services(b) |
|
|
869 |
|
|
|
1,007 |
|
|
|
(14 |
) |
|
|
2,725 |
|
|
|
3,174 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,788 |
|
|
$ |
1,953 |
|
|
|
(8 |
) |
|
$ |
5,509 |
|
|
$ |
5,885 |
|
|
|
(6 |
) |
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
24 |
% |
|
|
46 |
% |
|
|
|
|
|
|
26 |
% |
|
|
47 |
% |
|
|
|
|
Overhead ratio |
|
|
72 |
|
|
|
69 |
|
|
|
|
|
|
|
71 |
|
|
|
66 |
|
|
|
|
|
Pretax margin ratio(c) |
|
|
26 |
|
|
|
29 |
|
|
|
|
|
|
|
28 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
19,693 |
|
|
$ |
40,675 |
|
|
|
(52 |
) |
|
$ |
19,693 |
|
|
$ |
40,675 |
|
|
|
(52 |
) |
Equity |
|
|
5,000 |
|
|
|
4,500 |
|
|
|
11 |
|
|
|
5,000 |
|
|
|
4,500 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
33,117 |
|
|
$ |
49,386 |
|
|
|
(33 |
) |
|
$ |
35,753 |
|
|
$ |
54,243 |
|
|
|
(34 |
) |
Loans(d) |
|
|
17,062 |
|
|
|
26,650 |
|
|
|
(36 |
) |
|
|
18,231 |
|
|
|
24,527 |
|
|
|
(26 |
) |
Liability balances(e) |
|
|
231,502 |
|
|
|
259,992 |
|
|
|
(11 |
) |
|
|
247,219 |
|
|
|
260,882 |
|
|
|
(5 |
) |
Equity |
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
5,000 |
|
|
|
3,500 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
26,389 |
|
|
|
27,592 |
|
|
|
(4 |
) |
|
|
26,389 |
|
|
|
27,592 |
|
|
|
(4 |
) |
|
|
|
|
(a) |
|
IB credit portfolio group manages certain exposures on behalf of clients shared with TSS. TSS
reimburses IB for a portion of the total cost of managing the credit portfolio. IB recognizes
this credit reimbursement as a component of noninterest revenue. |
|
(b) |
|
Reflects an internal reorganization for escrow products from Worldwide Securities Services to
Treasury Services revenue of $38 million and $49 million for the three months ended September
30, 2009 and 2008, respectively, and $129 million and $148 million for the nine months ended
September 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 on-balance sheet liabilities, such
as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements. |
40
Quarterly results
Net income was $302 million, a decrease of $104 million, or 26%, from the third quarter of 2008.
The decrease was driven by lower net revenue, offset partially by lower noninterest expense.
Net revenue was $1.8 billion, a decrease of $165 million, or 8%, from the prior year. Worldwide
Securities Services net revenue was $869 million, a decrease of $138 million, or 14%. The decrease
was driven by lower securities lending balances, primarily as a result of declines in asset
valuations and demand, lower spreads and balances on liability products, and the effect of market
depreciation on certain custody assets. Treasury Services net revenue was $919 million, a decrease
of $27 million, or 3%. The decrease reflected spread compression on deposit products offset by
higher trade revenue driven by wider spreads, and higher card product volumes. TSS firmwide net
revenue, which includes net revenue recorded in other lines of business, was $2.5 billion, a
decrease of $149 million, or 6%, primarily due to declines in Worldwide Securities Services.
Treasury Services firmwide net revenue was $1.7 billion, flat compared with the prior year.
The provision for credit losses was $13 million, a decrease of $5 million from the prior year.
Noninterest expense was $1.3 billion, a decrease of $59 million, or 4%. The decrease reflected
lower headcount-related expense, partially offset by higher FDIC insurance premiums.
Year-to-date results
Net income was $989 million, a decrease of $245 million, or 20%, from the prior year, driven by
lower net revenue.
Net revenue was $5.5 billion, a decrease of $376 million, or 6%, from the prior year. Worldwide
Securities Services net revenue was $2.7 billion, a decrease of $449 million, or 14%, from the
prior year. The decrease was driven by lower securities lending balances, primarily as a result of
declines in asset valuations and demand, as well as the effect of market depreciation on certain
custody assets. Treasury Services net revenue was $2.8 billion, an increase of $73 million, or 3%,
reflecting higher trade revenue driven by wider spreads and growth across cash management and card
product volumes, partially offset by spread compression on deposit products. TSS firmwide net
revenue, which includes net revenue recorded in other lines of business, was $7.7 billion, a
decrease of $297 million, or 4%, compared with the prior year, primarily due to declines in
Worldwide Securities Services. Treasury Services firmwide net revenue grew to $5.0 billion, an
increase of $152 million, or 3%, from the prior year.
The provision for credit losses was $2 million, a decrease of $35 million from the prior year.
Noninterest expense was $3.9 billion, flat compared with the prior year, reflecting higher FDIC
insurance premiums, offset by lower headcount-related expense.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
TSS firmwide disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services revenue -
reported(a) |
|
$ |
919 |
|
|
$ |
946 |
|
|
|
(3 |
)% |
|
$ |
2,784 |
|
|
$ |
2,711 |
|
|
|
3 |
% |
Treasury Services revenue reported
in CB |
|
|
672 |
|
|
|
643 |
|
|
|
5 |
|
|
|
1,997 |
|
|
|
1,889 |
|
|
|
6 |
|
Treasury Services revenue reported
in other lines of business |
|
|
63 |
|
|
|
76 |
|
|
|
(17 |
) |
|
|
188 |
|
|
|
217 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
revenue(a)(b) |
|
|
1,654 |
|
|
|
1,665 |
|
|
|
(1 |
) |
|
|
4,969 |
|
|
|
4,817 |
|
|
|
3 |
|
Worldwide Securities Services
revenue(a) |
|
|
869 |
|
|
|
1,007 |
|
|
|
(14 |
) |
|
|
2,725 |
|
|
|
3,174 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Treasury & Securities Services
firmwide revenue(b) |
|
$ |
2,523 |
|
|
$ |
2,672 |
|
|
|
(6 |
) |
|
$ |
7,694 |
|
|
$ |
7,991 |
|
|
|
(4 |
) |
|
Treasury Services firmwide
liability balances
(average)(c)(d) |
|
$ |
261,059 |
|
|
$ |
248,075 |
|
|
|
5 |
|
|
$ |
269,568 |
|
|
$ |
247,956 |
|
|
|
9 |
|
Treasury & Securities Services
firmwide liability balances
(average)(c) |
|
|
340,795 |
|
|
|
359,401 |
|
|
|
(5 |
) |
|
|
357,231 |
|
|
|
360,302 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide overhead
ratio(e) |
|
|
52 |
% |
|
|
52 |
% |
|
|
|
|
|
|
52 |
% |
|
|
53 |
% |
|
|
|
|
Treasury & Securities Services
firmwide overhead
ratio(e) |
|
|
62 |
|
|
|
60 |
|
|
|
|
|
|
|
61 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firmwide business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
14,887 |
|
|
$ |
14,417 |
|
|
|
3 |
|
|
$ |
14,887 |
|
|
$ |
14,417 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.$ ACH transactions originated
(in millions) |
|
|
965 |
|
|
|
997 |
|
|
|
(3 |
) |
|
|
2,921 |
|
|
|
2,994 |
|
|
|
(2 |
) |
Total U.S.$ clearing volume
(in thousands) |
|
|
28,604 |
|
|
|
29,277 |
|
|
|
(2 |
) |
|
|
83,983 |
|
|
|
86,396 |
|
|
|
(3 |
) |
International electronic funds
transfer volume (in
thousands)(f) |
|
|
48,533 |
|
|
|
41,831 |
|
|
|
16 |
|
|
|
139,994 |
|
|
|
123,302 |
|
|
|
14 |
|
Wholesale check volume (in millions) |
|
|
530 |
|
|
|
595 |
|
|
|
(11 |
) |
|
|
1,670 |
|
|
|
1,836 |
|
|
|
(9 |
) |
Wholesale cards issued (in
thousands)(g) |
|
|
26,977 |
|
|
|
21,858 |
|
|
|
23 |
|
|
|
26,977 |
|
|
|
21,858 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
19 |
|
|
$ |
(2 |
) |
|
NM |
Nonperforming loans |
|
|
14 |
|
|
|
|
|
|
NM |
|
|
14 |
|
|
|
|
|
|
NM |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
15 |
|
|
|
47 |
|
|
|
(68 |
) |
|
|
15 |
|
|
|
47 |
|
|
|
(68 |
) |
Allowance for lending-related
commitments |
|
|
104 |
|
|
|
45 |
|
|
|
131 |
|
|
|
104 |
|
|
|
45 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
119 |
|
|
|
92 |
|
|
|
29 |
|
|
|
119 |
|
|
|
92 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
0.14 |
% |
|
|
(0.01 |
)% |
|
|
|
|
Allowance for loan losses to
period-end loans |
|
|
0.08 |
|
|
|
0.12 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.12 |
|
|
|
|
|
Allowance for loan losses to
average loans |
|
|
0.09 |
|
|
|
0.18 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.19 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans |
|
|
107 |
|
|
NM |
|
|
|
|
|
|
107 |
|
|
NM |
|
|
|
|
Nonperforming loans to period-end
loans |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects an internal reorganization for escrow products, from Worldwide Securities Services
to Treasury Services revenue, of $38 million and $49 million for the three months ended
September 30, 2009 and 2008, respectively, and $129 million and $148 million for the nine
months ended September 30, 2009 and 2008, respectively. |
|
(b) |
|
TSS firmwide revenue includes FX revenue recorded in TSS and FX revenue associated with TSS
customers who are FX customers of IB. However, some of the FX revenue associated with TSS
customers who are FX customers of IB is not included in TS and TSS firmwide revenue. These
amounts were $154 million and $196 million, for the three months ended September 30, 2009 and
2008, respectively, and $499 million and $609 million for the nine months ended September 30,
2009 and 2008, respectively. |
42
|
|
|
(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 $13.9 billion and $20.3 billion for the three
months ended September 30, 2009 and 2008, respectively, and $15.6 billion and $21.2 billion
for the nine months ended September 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 September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration
and commissions |
|
$ |
1,443 |
|
|
$ |
1,538 |
|
|
|
(6 |
)% |
|
$ |
3,989 |
|
|
$ |
4,642 |
|
|
|
(14 |
)% |
All other income |
|
|
238 |
|
|
|
43 |
|
|
|
453 |
|
|
|
560 |
|
|
|
232 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,681 |
|
|
|
1,581 |
|
|
|
6 |
|
|
|
4,549 |
|
|
|
4,874 |
|
|
|
(7 |
) |
Net interest income |
|
|
404 |
|
|
|
380 |
|
|
|
6 |
|
|
|
1,221 |
|
|
|
1,052 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,085 |
|
|
|
1,961 |
|
|
|
6 |
|
|
|
5,770 |
|
|
|
5,926 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
38 |
|
|
|
20 |
|
|
|
90 |
|
|
|
130 |
|
|
|
53 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
858 |
|
|
|
816 |
|
|
|
5 |
|
|
|
2,468 |
|
|
|
2,527 |
|
|
|
(2 |
) |
Noncompensation expense |
|
|
474 |
|
|
|
525 |
|
|
|
(10 |
) |
|
|
1,478 |
|
|
|
1,496 |
|
|
|
(1 |
) |
Amortization of intangibles |
|
|
19 |
|
|
|
21 |
|
|
|
(10 |
) |
|
|
57 |
|
|
|
62 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,351 |
|
|
|
1,362 |
|
|
|
(1 |
) |
|
|
4,003 |
|
|
|
4,085 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
696 |
|
|
|
579 |
|
|
|
20 |
|
|
|
1,637 |
|
|
|
1,788 |
|
|
|
(8 |
) |
Income tax expense |
|
|
266 |
|
|
|
228 |
|
|
|
17 |
|
|
|
631 |
|
|
|
686 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
430 |
|
|
$ |
351 |
|
|
|
23 |
|
|
$ |
1,006 |
|
|
$ |
1,102 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Bank |
|
$ |
639 |
|
|
$ |
631 |
|
|
|
1 |
|
|
$ |
1,862 |
|
|
$ |
1,935 |
|
|
|
(4 |
) |
Institutional |
|
|
534 |
|
|
|
486 |
|
|
|
10 |
|
|
|
1,481 |
|
|
|
1,448 |
|
|
|
2 |
|
Retail |
|
|
471 |
|
|
|
399 |
|
|
|
18 |
|
|
|
1,135 |
|
|
|
1,355 |
|
|
|
(16 |
) |
Private Wealth Management |
|
|
339 |
|
|
|
352 |
|
|
|
(4 |
) |
|
|
985 |
|
|
|
1,057 |
|
|
|
(7 |
) |
Bear Stearns Private Client Services |
|
|
102 |
|
|
|
93 |
|
|
|
10 |
|
|
|
307 |
|
|
|
131 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,085 |
|
|
$ |
1,961 |
|
|
|
6 |
|
|
$ |
5,770 |
|
|
$ |
5,926 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
24 |
% |
|
|
25 |
% |
|
|
|
|
|
|
19 |
% |
|
|
28 |
% |
|
|
|
|
Overhead ratio |
|
|
65 |
|
|
|
69 |
|
|
|
|
|
|
|
69 |
|
|
|
69 |
|
|
|
|
|
Pretax margin ratio(a) |
|
|
33 |
|
|
|
30 |
|
|
|
|
|
|
|
28 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
(a) |
|
Pretax margin represents income before income tax expense divided by total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
43
Quarterly results
Net income was $430 million, an increase of $79 million, or 23%, from the third quarter of 2008, as
higher net revenue and lower noninterest expense were offset partially by a higher provision for
credit losses.
Net revenue was $2.1 billion, an increase of $124 million, or 6%, from the prior year. Noninterest
revenue was $1.7 billion, an increase of $100 million, or 6%, due to gains on the Firms seed
capital investments and net inflows, largely offset by the effect of lower market levels and
decreased placement fees. Net interest income was $404 million, up by $24 million, or 6%, from the
prior year, due to wider loan spreads and higher deposit balances, largely offset by narrower
deposit spreads and lower loan balances.
Revenue from the Private Bank was $639 million, up 1%, from the prior year. Revenue from
Institutional was $534 million, up 10%. Revenue from Retail was $471 million, up 18%. Revenue from
Private Wealth Management was $339 million, down 4%. Revenue from Bear Stearns Private Client
Services was $102 million, up 10%.
The provision for credit losses was $38 million, an increase of $18 million from the prior year,
reflecting continued deterioration in the credit environment.
Noninterest expense was $1.4 billion, down by $11 million, or 1%, from the prior year. The decrease
was due to lower headcount-related expense, offset by higher performance-based compensation and
higher FDIC insurance premiums.
Year-to-date results
Net income was $1.0 billion, a decrease of $96 million, or 9%, from the prior year, due to lower
net revenue and a higher provision for credit losses offset partially by lower noninterest expense.
Net revenue was $5.8 billion, a decrease of $156 million, or 3%, from the prior year. Noninterest
revenue was $4.5 billion, a decrease of $325 million, or 7%, due to the effect of lower market
levels, lower placement fees and lower performance fees; these effects were offset predominantly by
gains on the Firms seed capital investments, the benefit from the Bear Stearns merger and net
inflows. Net interest income was $1.2 billion, up by $169 million, or 16%, from the prior year,
predominantly due to wider loan spreads and higher deposit balances, partially offset by lower loan
balances.
Revenue from the Private Bank was $1.9 billion, down 4%, from the prior year. Revenue from
Institutional was $1.5 billion, up 2%. Revenue from Retail was $1.1 billion, down 16%. Revenue from
Private Wealth Management was $985 million, down 7%. Bear Stearns Private Client Services
contributed $307 million to revenue.
The provision for credit losses was $130 million, an increase of $77 million from the prior year,
reflecting continued deterioration in the credit environment.
Noninterest expense was $4.0 billion, a decrease of $82 million, or 2%, from the prior year due to
lower headcount-related expense and lower performance-based compensation, offset predominantly by
the effect of the Bear Stearns merger and higher FDIC insurance premiums.
44
Business metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ratios and |
|
Three months ended September 30, |
|
Nine months ended September 30, |
ranking data, and where otherwise noted) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors(a) |
|
|
1,891 |
|
|
|
1,814 |
|
|
|
4 |
% |
|
|
1,891 |
|
|
|
1,814 |
|
|
|
4 |
% |
Retirement planning services participants |
|
|
1,620,000 |
|
|
|
1,492,000 |
|
|
|
9 |
|
|
|
1,620,000 |
|
|
|
1,492,000 |
|
|
|
9 |
|
Bear Stearns brokers |
|
|
365 |
|
|
|
323 |
|
|
|
13 |
|
|
|
365 |
|
|
|
323 |
|
|
|
13 |
|
% of customer assets in 4 & 5 Star Funds(b) |
|
|
39 |
% |
|
|
39 |
% |
|
|
|
|
|
|
39 |
% |
|
|
39 |
% |
|
|
|
|
% of AUM in 1st and 2nd quartiles:(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
60 |
% |
|
|
49 |
% |
|
|
22 |
|
|
|
60 |
% |
|
|
49 |
% |
|
|
22 |
|
3 years |
|
|
70 |
% |
|
|
67 |
% |
|
|
4 |
|
|
|
70 |
% |
|
|
67 |
% |
|
|
4 |
|
5 years |
|
|
74 |
% |
|
|
77 |
% |
|
|
(4 |
) |
|
|
74 |
% |
|
|
77 |
% |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (period-end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
35,925 |
|
|
$ |
39,720 |
|
|
|
(10 |
) |
|
$ |
35,925 |
|
|
$ |
39,720 |
|
|
|
(10 |
) |
Equity |
|
|
7,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
7,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheet data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
60,345 |
|
|
$ |
71,189 |
|
|
|
(15 |
) |
|
$ |
59,309 |
|
|
$ |
65,518 |
|
|
|
(9 |
) |
Loans |
|
|
34,822 |
|
|
|
39,750 |
|
|
|
(12 |
) |
|
|
34,567 |
|
|
|
38,552 |
|
|
|
(10 |
) |
Deposits |
|
|
73,649 |
|
|
|
65,621 |
|
|
|
12 |
|
|
|
76,888 |
|
|
|
67,918 |
|
|
|
13 |
|
Equity |
|
|
7,000 |
|
|
|
5,500 |
|
|
|
27 |
|
|
|
7,000 |
|
|
|
5,190 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
14,919 |
|
|
|
15,493 |
|
|
|
(4 |
) |
|
|
14,919 |
|
|
|
15,493 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
17 |
|
|
$ |
(1 |
) |
|
NM |
|
$ |
82 |
|
|
$ |
(1 |
) |
|
NM |
Nonperforming loans |
|
|
409 |
|
|
|
121 |
|
|
|
238 |
|
|
|
409 |
|
|
|
121 |
|
|
|
238 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
251 |
|
|
|
170 |
|
|
|
48 |
|
|
|
251 |
|
|
|
170 |
|
|
|
48 |
|
Allowance for lending-related
commitments |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
256 |
|
|
|
175 |
|
|
|
46 |
|
|
|
256 |
|
|
|
175 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
0.19 |
% |
|
|
(0.01 |
)% |
|
|
|
|
|
|
0.32 |
% |
|
|
|
% |
|
|
|
|
Allowance for loan losses to period-end loans |
|
|
0.70 |
|
|
|
0.43 |
|
|
|
|
|
|
|
0.70 |
|
|
|
0.43 |
|
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.72 |
|
|
|
0.43 |
|
|
|
|
|
|
|
0.73 |
|
|
|
0.44 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
61 |
|
|
|
140 |
|
|
|
|
|
|
|
61 |
|
|
|
140 |
|
|
|
|
|
Nonperforming loans to period-end loans |
|
|
1.14 |
|
|
|
0.30 |
|
|
|
|
|
|
|
1.14 |
|
|
|
0.30 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
1.17 |
|
|
|
0.30 |
|
|
|
|
|
|
|
1.18 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
(a) |
|
Prior periods have been restated to conform to 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. |
45
Assets under supervision
Assets under supervision were $1.7 trillion, an increase of $108 billion, or 7%, from the prior
year. Assets under management were $1.3 trillion, an increase of $106 billion, or 9%. The increases
were due to inflows in liquidity, fixed income and equity products, partially offset by the effect
of lower market levels and outflows in alternative products. Custody, brokerage, administration and
deposit balances were $411 billion, up by $2 billion, due to brokerage inflows in the Private Bank,
partially offset by the effect of lower market levels on custody and brokerage balances.
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
As of September 30, |
|
2009 |
|
2008 |
|
Assets by asset class |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
634 |
|
|
$ |
524 |
|
Fixed income |
|
|
215 |
|
|
|
189 |
|
Equities & balanced |
|
|
316 |
|
|
|
308 |
|
Alternatives |
|
|
94 |
|
|
|
132 |
|
|
Total assets under management |
|
|
1,259 |
|
|
|
1,153 |
|
Custody/brokerage/administration/deposits |
|
|
411 |
|
|
|
409 |
|
|
Total assets under supervision |
|
$ |
1,670 |
|
|
$ |
1,562 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional |
|
$ |
737 |
|
|
$ |
653 |
|
Private Bank |
|
|
180 |
|
|
|
194 |
|
Retail |
|
|
256 |
|
|
|
223 |
|
Private Wealth Management |
|
|
71 |
|
|
|
75 |
|
Bear Stearns Private Client Services |
|
|
15 |
|
|
|
8 |
|
|
Total assets under management |
|
$ |
1,259 |
|
|
$ |
1,153 |
|
|
Institutional |
|
$ |
737 |
|
|
$ |
653 |
|
Private Bank |
|
|
414 |
|
|
|
417 |
|
Retail |
|
|
339 |
|
|
|
303 |
|
Private Wealth Management |
|
|
131 |
|
|
|
134 |
|
Bear Stearns Private Client Services |
|
|
49 |
|
|
|
55 |
|
|
Total assets under supervision |
|
$ |
1,670 |
|
|
$ |
1,562 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
862 |
|
|
$ |
785 |
|
International |
|
|
397 |
|
|
|
368 |
|
|
Total assets under management |
|
$ |
1,259 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
1,179 |
|
|
$ |
1,100 |
|
International |
|
|
491 |
|
|
|
462 |
|
|
Total assets under supervision |
|
$ |
1,670 |
|
|
$ |
1,562 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
576 |
|
|
$ |
470 |
|
Fixed income |
|
|
57 |
|
|
|
44 |
|
Equities |
|
|
133 |
|
|
|
127 |
|
Alternatives |
|
|
10 |
|
|
|
7 |
|
|
Total mutual fund assets |
|
$ |
776 |
|
|
$ |
648 |
|
|
|
|
|
(a) |
|
Excludes assets under management of American Century Companies, Inc., in which the Firm
retained 42% and 43% ownership at September 30, 2009 and 2008, respectively. |
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
Assets under management rollforward |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Beginning balance |
|
$ |
1,171 |
|
|
$ |
1,185 |
|
|
$ |
1,133 |
|
|
$ |
1,193 |
|
Net asset flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
9 |
|
|
|
55 |
|
|
|
21 |
|
|
|
124 |
|
Fixed income |
|
|
13 |
|
|
|
(4 |
) |
|
|
22 |
|
|
|
(5 |
) |
Equities, balanced and alternatives |
|
|
12 |
|
|
|
(5 |
) |
|
|
9 |
|
|
|
(29 |
) |
Market/performance/other impacts |
|
|
54 |
|
|
|
(78 |
) |
|
|
74 |
|
|
|
(130 |
) |
|
Total assets under management |
|
$ |
1,259 |
|
|
$ |
1,153 |
|
|
$ |
1,259 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,543 |
|
|
$ |
1,611 |
|
|
$ |
1,496 |
|
|
$ |
1,572 |
|
Net asset flows |
|
|
45 |
|
|
|
61 |
|
|
|
61 |
|
|
|
108 |
|
Market/performance/other impacts |
|
|
82 |
|
|
|
(110 |
) |
|
|
113 |
|
|
|
(118 |
) |
|
Total assets under supervision |
|
$ |
1,670 |
|
|
$ |
1,562 |
|
|
$ |
1,670 |
|
|
$ |
1,562 |
|
|
CORPORATE / PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 6163 of JPMorgan
Chases 2008 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except headcount) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions |
|
$ |
1,109 |
|
|
$ |
(1,876 |
) |
|
NM |
|
$ |
859 |
|
|
$ |
(1,968 |
) |
|
NM |
Securities gains |
|
|
181 |
|
|
|
440 |
|
|
|
(59 |
)% |
|
|
761 |
|
|
|
1,138 |
|
|
|
(33 |
)% |
All other income(a) |
|
|
273 |
|
|
|
(275 |
) |
|
NM |
|
|
45 |
|
|
|
988 |
|
|
|
(95 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,563 |
|
|
|
(1,711 |
) |
|
NM |
|
|
1,665 |
|
|
|
158 |
|
|
NM |
Net interest income (expense) |
|
|
1,031 |
|
|
|
(125 |
) |
|
NM |
|
|
2,885 |
|
|
|
(521 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,594 |
|
|
|
(1,836 |
) |
|
NM |
|
|
4,550 |
|
|
|
(363 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses(b) |
|
|
62 |
|
|
|
1,977 |
|
|
|
(97 |
) |
|
|
71 |
|
|
|
2,014 |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
768 |
|
|
|
652 |
|
|
|
18 |
|
|
|
2,064 |
|
|
|
1,902 |
|
|
|
9 |
|
Noncompensation expense(c) |
|
|
875 |
|
|
|
563 |
|
|
|
55 |
|
|
|
2,539 |
|
|
|
1,168 |
|
|
|
117 |
|
Merger costs |
|
|
103 |
|
|
|
96 |
|
|
|
7 |
|
|
|
451 |
|
|
|
251 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1,746 |
|
|
|
1,311 |
|
|
|
33 |
|
|
|
5,054 |
|
|
|
3,321 |
|
|
|
52 |
|
Net expense allocated to other businesses |
|
|
(1,243 |
) |
|
|
(1,150 |
) |
|
|
(8 |
) |
|
|
(3,775 |
) |
|
|
(3,277 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
503 |
|
|
|
161 |
|
|
|
212 |
|
|
|
1,279 |
|
|
|
44 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax expense
and extraordinary gain |
|
|
2,029 |
|
|
|
(3,974 |
) |
|
NM |
|
|
3,200 |
|
|
|
(2,421 |
) |
|
NM |
Income tax expense/(benefit) |
|
|
818 |
|
|
|
(1,613 |
) |
|
NM |
|
|
1,443 |
|
|
|
(852 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
|
1,211 |
|
|
|
(2,361 |
) |
|
NM |
|
|
1,757 |
|
|
|
(1,569 |
) |
|
NM |
Extraordinary gain(d) |
|
|
76 |
|
|
|
581 |
|
|
|
(87 |
) |
|
|
76 |
|
|
|
581 |
|
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
1,287 |
|
|
$ |
(1,780 |
) |
|
NM |
|
$ |
1,833 |
|
|
$ |
(988 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
172 |
|
|
$ |
(216 |
) |
|
NM |
|
$ |
(278 |
) |
|
$ |
144 |
|
|
NM |
Corporate |
|
|
2,422 |
|
|
|
(1,620 |
) |
|
NM |
|
|
4,828 |
|
|
|
(507 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,594 |
|
|
$ |
(1,836 |
) |
|
NM |
|
$ |
4,550 |
|
|
$ |
(363 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
88 |
|
|
$ |
(164 |
) |
|
NM |
|
$ |
(219 |
) |
|
$ |
(8 |
) |
|
NM |
Corporate |
|
|
1,269 |
|
|
|
(881 |
) |
|
NM |
|
|
2,514 |
|
|
|
295 |
|
|
NM |
Merger-related items(e) |
|
|
(70 |
) |
|
|
(735 |
) |
|
|
90 |
|
|
|
(462 |
) |
|
|
(1,275 |
) |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net income/(loss) |
|
$ |
1,287 |
|
|
$ |
(1,780 |
) |
|
NM |
|
$ |
1,833 |
|
|
$ |
(988 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
20,747 |
|
|
|
24,967 |
|
|
|
(17 |
) |
|
|
20,747 |
|
|
|
24,967 |
|
|
|
(17 |
) |
|
|
|
|
(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) |
|
2008 included an accounting conformity loan loss reserve provision related to the acquisition
of Washington Mutuals banking operations. For a further discussion, see Consumer Credit
Portfolio on page 103 of JPMorgan Chases 2008 Annual Report. |
|
(c) |
|
Second quarter of 2009 included an accrual of $675 million for an FDIC special assessment.
The first quarter of 2008 included a release of credit card litigation reserves. |
47
|
|
|
(d) |
|
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 U.S. GAAP for business combinations, nonfinancial assets
that are not held-for-sale were written down against that negative goodwill. The negative
goodwill that remained after writing down nonfinancial assets was recognized as an
extraordinary gain. As a result of the final refinement of the purchase price allocation
during the third quarter of 2009, the Firm recognized a $76 million
increase in the extraordinary gain. |
|
(e) |
|
Included costs related to the Washington Mutual transaction, as well as items related to the
Bear Stearns merger. |
Quarterly results
Net income was $1.3 billion, compared with a net loss of $1.8 billion in the third quarter of 2008.
Private Equity reported net income of $88 million, compared with a net loss of $164 million in the
prior year. Net revenue was $172 million, an increase of $388 million, reflecting Private Equity
gains of $155 million, compared with losses of $206 million in the prior year. Noninterest expense
was $34 million, a decrease of $7 million.
Net income for Corporate was $1.3 billion, compared with a net loss of $881 million in the prior
year. Net revenue was $2.4 billion, reflecting continued gains on trading positions and net
interest income.
Year-to-date results
Net income was $1.8 billion, compared with a loss of $988 million in the prior year.
Private Equity reported a net loss of $219 million, compared with a net loss of $8 million in the
prior year. Net revenue was negative $278 million, a decrease of $422 million, reflecting Private
Equity losses of $327 million, compared with gains of $203 million in the prior year. Noninterest
expense was $65 million, a decrease of $96 million.
Net income for Corporate was $2.5 billion, compared with $295 million in the prior year.
Current-year results reflected continued gains on trading positions,
net interest income driven by higher levels of investment
securities, and a
gain of $150 million (after-tax) from the sale of MasterCard shares, partially offset by a $419
million (after-tax) FDIC special assessment. Prior-year results included $955 million (after-tax)
proceeds from the sale of Visa shares in its initial public offering, partially offset by losses of
$642 million (after-tax) on preferred securities of Fannie Mae and Freddie Mac and a $248 million
(after-tax) charge related to the offer to repurchase auction-rate securities.
Merger-related items were a net loss of $462 million, compared with a loss of $1.3 billion in the
prior year. Bear Stearns net merger-related costs were $262 million, compared with $635 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 $200 million, which included an extraordinary gain of $76 million,
compared with a loss of $640 million. The prior year included a charge of $1.2 billion (after-tax)
to conform loan loss reserves and an extraordinary gain of $581 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains(a) |
|
$ |
181 |
|
|
$ |
442 |
|
|
|
(59 |
)% |
|
$ |
769 |
|
|
$ |
1,140 |
|
|
|
(33 |
)% |
Investment securities portfolio
(average)(b) |
|
|
339,745 |
|
|
|
108,728 |
|
|
|
212 |
|
|
|
314,202 |
|
|
|
97,498 |
|
|
|
222 |
|
Investment securities portfolio (ending)(b) |
|
|
351,823 |
|
|
|
119,085 |
|
|
|
195 |
|
|
|
351,823 |
|
|
|
119,085 |
|
|
|
195 |
|
Mortgage loans (average) |
|
|
7,469 |
|
|
|
7,221 |
|
|
|
3 |
|
|
|
7,303 |
|
|
|
6,986 |
|
|
|
5 |
|
Mortgage loans (ending) |
|
|
7,665 |
|
|
|
7,297 |
|
|
|
5 |
|
|
|
7,665 |
|
|
|
7,297 |
|
|
|
5 |
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
57 |
|
|
$ |
40 |
|
|
|
43 |
|
|
$ |
97 |
|
|
$ |
1,693 |
|
|
|
(94 |
) |
Unrealized gains/(losses)(c) |
|
|
88 |
|
|
|
(273 |
) |
|
NM |
|
|
(305 |
) |
|
|
(1,480 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct investments |
|
|
145 |
|
|
|
(233 |
) |
|
NM |
|
|
(208 |
) |
|
|
213 |
|
|
NM |
Third-party fund investments |
|
|
10 |
|
|
|
27 |
|
|
|
(63 |
) |
|
|
(119 |
) |
|
|
(10 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains/(losses)(d) |
|
$ |
155 |
|
|
$ |
(206 |
) |
|
NM |
|
$ |
(327 |
) |
|
$ |
203 |
|
|
NM |
|
48
Private equity portfolio information(e)
Direct investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Change |
|
Publicly held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
674 |
|
|
$ |
483 |
|
|
|
40 |
% |
Cost |
|
|
751 |
|
|
|
792 |
|
|
|
(5 |
) |
Quoted public value |
|
|
720 |
|
|
|
543 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
4,722 |
|
|
|
5,564 |
|
|
|
(15 |
) |
Cost |
|
|
5,823 |
|
|
|
6,296 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
1,440 |
|
|
|
805 |
|
|
|
79 |
|
Cost |
|
|
2,068 |
|
|
|
1,169 |
|
|
|
77 |
|
|
|
|
|
|
Total private equity portfolio Carrying value |
|
$ |
6,836 |
|
|
$ |
6,852 |
|
|
|
|
|
Total private equity portfolio Cost |
|
$ |
8,642 |
|
|
$ |
8,257 |
|
|
|
5 |
|
|
|
|
|
(a) |
|
Year-to-date 2008 included a $668 million gain on the sale of MasterCard shares. Treasury
repositions its investment securities portfolio on an ongoing basis in connection with the
management of the Firms structural interest rate risk, which may result in the recognition of
varying levels of securities gains and losses in the reporting periods presented. |
|
(b) |
|
For further discussion, see Securities on page 50 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 106121 of this Form 10-Q. |
|
(f) |
|
Excludes unfunded commitments to third-party private equity funds of $1.4 billion at both
September 30, 2009, and December 31, 2008, |
The carrying value of the private equity portfolio at September 30, 2009, was $6.8 billion, down
from $6.9 billion at December 31, 2008. The portfolio represented 6.0% of the Firms stockholders
equity less goodwill at September 30, 2009, up from 5.8% at December 31, 2008.
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
21,068 |
|
|
$ |
26,895 |
|
Deposits with banks |
|
|
59,623 |
|
|
|
138,139 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
171,007 |
|
|
|
203,115 |
|
Securities borrowed |
|
|
128,059 |
|
|
|
124,000 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
330,370 |
|
|
|
347,357 |
|
Derivative receivables |
|
|
94,065 |
|
|
|
162,626 |
|
Securities |
|
|
372,867 |
|
|
|
205,943 |
|
Loans |
|
|
653,144 |
|
|
|
744,898 |
|
Allowance for loan losses |
|
|
(30,633 |
) |
|
|
(23,164 |
) |
|
Loans, net of allowance for loan losses |
|
|
622,511 |
|
|
|
721,734 |
|
Accrued interest and accounts receivable |
|
|
59,948 |
|
|
|
60,987 |
|
Goodwill |
|
|
48,334 |
|
|
|
48,027 |
|
Other intangible assets |
|
|
18,525 |
|
|
|
14,984 |
|
Other assets |
|
|
114,632 |
|
|
|
121,245 |
|
|
Total assets |
|
$ |
2,041,009 |
|
|
$ |
2,175,052 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
867,977 |
|
|
$ |
1,009,277 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
310,219 |
|
|
|
192,546 |
|
Commercial paper and other borrowed funds |
|
|
104,744 |
|
|
|
170,245 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
65,233 |
|
|
|
45,274 |
|
Derivative payables |
|
|
69,214 |
|
|
|
121,604 |
|
Accounts payable and other liabilities |
|
|
171,386 |
|
|
|
187,978 |
|
Beneficial interests issued by consolidated VIEs |
|
|
17,859 |
|
|
|
10,561 |
|
Long-term debt and trust preferred capital debt securities |
|
|
272,124 |
|
|
|
270,683 |
|
|
Total liabilities |
|
|
1,878,756 |
|
|
|
2,008,168 |
|
Stockholders equity |
|
|
162,253 |
|
|
|
166,884 |
|
|
Total liabilities and stockholders equity |
|
$ |
2,041,009 |
|
|
$ |
2,175,052 |
|
|
49
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 uses these instruments 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 their securities for the short-term. The Firm uses federal funds purchased and securities
loaned or sold under repurchase agreements as short-term funding sources 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 shift in the Firms investment of excess cash to the
available-for-sale (AFS) securities portfolio. The increase in securities sold under 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 5963 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; and physical commodities inventories. The decrease in
trading assets debt and equity instruments reflected the effect of balance sheet management
activities and the impact of the challenging capital markets
environment that existed at December 31, 2008, and continued into the
first half of 2009,
partially offset by stabilization in the capital markets during the third quarter. Trading
liabilities debt and equity instruments increased as market conditions improved from the prior
year and capital markets stabilized. For additional information, refer to Note 3 and Note 5 on
pages 106121 and 123131, 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, volatile foreign
exchange rates and changes in the equity markets. For additional information, refer to derivative
contracts, on pages 6971, Note 3 and Note 5 on pages 106121 and 123131, respectively, of this
Form 10-Q.
Securities
Substantially
all of the securities portfolio is classified as AFS and is used primarily to manage the
Firms exposure to interest rate movements, as well as to make strategic longer-term investments.
The increase in the securities portfolio was due to the Firms significant purchases of
mortgage-backed securities guaranteed by U.S. government agencies, corporate debt securities, U.S.
Treasury and government agency securities and other asset-backed securities associated with the
shift in the Firms investment of its excess cash, in part, from securities purchased under resale
agreements, and its management of interest rates. The increase in securities was partially offset
by sales of higher-coupon instruments as part of the positioning of the portfolio as well as
prepayments and maturities. For additional information related to securities, refer to the
Corporate/Private Equity segment on pages 4749, Note 3 and Note 11 on pages 106121 and 136141,
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 continued lower customer demand in the wholesale businesses, lower charge
volume on credit cards, paydowns, a higher level of charge-offs across all major loan portfolios,
and the effect of tighter underwriting and loan qualification standards, which resulted in lower
loan originations.
Both the consumer and wholesale components of the allowance for loan losses increased, as weak
economic conditions, housing price declines and higher unemployment rates 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 Portfolio on pages 6484, and Notes 3, 4, 13 and 14 on pages 106121, 121123, 142145 and
146147, respectively, of this Form 10-Q.
50
Accrued interest and accounts receivable; other assets; 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 other assets consist of private equity and
other investments, collateral received, corporate and bank-owned life insurance policies, premises
and equipment, assets acquired in loan satisfactions (including real estate owned), and all other
assets, including receivables for securities provided as collateral. 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 that for interest-bearing liabilities;
and all other liabilities, including obligations to return securities received as collateral. The
decrease in other assets was primarily due to a decline to zero in the balance related to the
Federal Reserves AML Facility, which is scheduled to end on February 1, 2010. The decrease in
accounts payable and other liabilities primarily reflected lower customer payables in IBs Prime
Services business and slightly lower accounts payable.
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 final purchase accounting adjustments related to the Bear
Stearns merger, foreign currency translation adjustments related to the Firms Canadian credit card
operations, and IBs acquisition of a commodities business. For additional information, see Note 17
on pages 161164 of this Form 10-Q.
Other intangible assets
The Firms other intangible assets consist of MSRs, purchased credit card relationships, other
credit cardrelated intangibles, core deposit intangibles and other intangibles. MSRs increased due
to markups in the fair value of the MSR asset, related 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
161164 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. Also included within deposits was strong underlying growth in the
retail banking franchise offset partially by the maturity of high rate interest-bearing CDs that
were acquired as part of the Washington Mutual transaction. For more information on deposits, refer
to the RFS, TSS and AM segment discussions on pages 2532, 4043 and 4347, respectively; the
Liquidity Risk Management discussion on pages 5963; and Note 18 on pages 164165 of this Form
10-Q. For more information on wholesale liability balances, including deposits, refer to the CB and
TSS segment discussions on pages 3739 and 4043, respectively, of this Form 10-Q.
Commercial paper and other borrowed funds
The Firm uses 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 lower advances from Federal
Home Loan Banks, the absence of borrowings from the Federal Reserve under the Term Auction Facility
program and a decline to zero in the balance related to the AML Facility, which is scheduled to end
on February 1, 2010. For additional information on the Firms Liquidity Risk Management and other
borrowed funds, see pages 5963, and Note 19 on page 165 of this Form 10-Q.
Beneficial interests issued by consolidated VIEs
JPMorgan Chase uses VIEs to assist clients in accessing the financial markets in a cost-efficient
manner and to issue guaranteed capital debt securities. The Firm consolidates a VIE if the Firm
will absorb a majority of a VIEs expected losses, receive the majority of a VIEs expected residual
returns, 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
51
additional information on
Firm-sponsored VIEs and loan securitization trusts, see OffBalance Sheet Arrangements and
Contractual Cash Obligations on pages 5254, and Note 15 and Note 16 on pages 147155 and pages
156161 respectively, of this Form 10-Q.
Long-term debt and trust preferred capital debt securities
The Firm uses 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 $7.0 billion and $2.6 billion of non-FDIC guaranteed debt in the U.S. and European and
markets, respectively. For additional
information on the Firms long-term debt activities, see the Liquidity Risk Management discussion
on pages 5963 of this
Form 10-Q.
Stockholders equity
The decrease in total stockholders equity was largely due to the redemption in the second quarter
of 2009 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 net income for the first nine months of 2009; net unrealized gains recorded within
accumulated other comprehensive income, due primarily to market spread and market liquidity
improvement; the issuance of $5.8 billion of common equity; and net issuances under the Firms employee
stock-based compensation plans. For a further discussion, see the Capital Management section on
pages 5458, Note 20 on pages 165166 and Note 22 on pages 167168 of this Form 10-Q.
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 own
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 168176 and Note 17 on pages 177186 of JPMorgan Chases 2008 Annual
Report.
During the quarter ended June 30, 2009, 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 147155 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 prior to
January 1, 2010. Upon the Firms adoption of new FASB guidance 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 the new guidance, see Accounting and
Reporting Developments on pages 9597 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.
The Firm modifies loans that it services, and that were sold to off-balance sheet SPEs, pursuant to
the U.S. Treasurys Making Home Affordable Plan and the Firms other loss mitigation programs. For
both the Firms on-balance sheet loans and loans serviced for others, approximately 262,000 trial
mortgage modifications had been offered to borrowers as of September 30, 2009, primarily under the
U.S. Treasurys Making Home Affordable Plan and the Firms other loss
mitigation programs. Substantially all of the loans contractually modified to date were modified
under the Firms other
52
loss mitigation programs. See Consumer Credit Portfolio on pages 7380 of
this Form 10-Q for more details on these 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 $37.6 billion and $61.0
billion at September 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 liquidity commitments to SPEs are included in other unfunded commitments to extend credit
and asset purchase agreements, as shown in the Offbalance sheet lending-related financial
instruments and guarantees table on page 54 of this
Form 10-Q.
Special-purpose entities revenue
The following table summarizes certain revenue information related
to consolidated and nonconsolidated VIEs and QSPEs with which the Firm has significant involvement.
The revenue reported in the table below predominantly represents contractual servicing and credit
fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does
not include mark-to-market gains and losses from changes in the fair value of trading positions
(such as derivative transactions) entered into with VIEs. Those gains and losses are recorded in
principal transactions revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from VIEs and QSPEs |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
VIEs(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
120 |
|
|
$ |
81 |
|
|
$ |
376 |
|
|
$ |
205 |
|
Credit card loans(b) |
|
|
30 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
Investor intermediation |
|
|
26 |
|
|
|
6 |
|
|
|
66 |
|
|
|
11 |
|
|
Total VIEs |
|
|
176 |
|
|
|
87 |
|
|
|
490 |
|
|
|
216 |
|
QSPEs(c) |
|
|
585 |
|
|
|
336 |
|
|
|
1,795 |
|
|
|
1,018 |
|
|
Total |
|
$ |
761 |
|
|
$ |
423 |
|
|
$ |
2,285 |
|
|
$ |
1,234 |
|
|
|
|
|
(a) |
|
Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs. |
|
(b) |
|
Represents revenue associated with the consolidated Washington Mutual Master Trust. |
|
(c) |
|
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 uses 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 pages
7172,
Note 5 and Note 24 on pages 123131 and 168172, respectively, of this Form 10-Q, and Credit Risk
Management on page 90 and Note 32 and Note 33 on pages 202210 of JPMorgan Chases 2008 Annual
Report.
The following table presents the contractual amounts of offbalance 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 would 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 with the Firms administered multi-seller,
asset-backed commercial paper conduits, and other third-party entities. During the second quarter
of 2009, the Firm consolidated a multi-seller conduit due to the redemption of the expected loss
note. As a result, asset purchase agreements, in the following table, exclude $8.4 billion at September 30, 2009, related to
this consolidated multi-seller conduit. The maturities, in the following table, are based on the weighted-average life of
the underlying assets in the SPE, which are based on 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.
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
584,231 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
584,231 |
|
|
$ |
623,702 |
|
Home equity |
|
|
842 |
|
|
|
3,735 |
|
|
|
13,208 |
|
|
|
46,977 |
|
|
|
64,762 |
|
|
|
95,743 |
|
Other |
|
|
18,256 |
|
|
|
380 |
|
|
|
119 |
|
|
|
1,019 |
|
|
|
19,774 |
|
|
|
22,062 |
|
|
Total consumer |
|
$ |
603,329 |
|
|
$ |
4,115 |
|
|
$ |
13,327 |
|
|
$ |
47,996 |
|
|
$ |
668,767 |
|
|
$ |
741,507 |
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend
credit(a)(b) |
|
|
64,028 |
|
|
|
92,170 |
|
|
|
27,295 |
|
|
|
4,205 |
|
|
|
187,698 |
|
|
|
189,563 |
|
Asset purchase agreements |
|
|
6,989 |
|
|
|
12,892 |
|
|
|
4,957 |
|
|
|
287 |
|
|
|
25,125 |
|
|
|
53,729 |
|
Standby letters of credit and other financial
guarantees(a)(c)(d) |
|
|
25,614 |
|
|
|
43,332 |
|
|
|
18,405 |
|
|
|
2,134 |
|
|
|
89,485 |
|
|
|
95,352 |
|
Unused advised lines of credit |
|
|
29,551 |
|
|
|
5,640 |
|
|
|
293 |
|
|
|
427 |
|
|
|
35,911 |
|
|
|
36,300 |
|
Other letters of credit(a)(c) |
|
|
3,285 |
|
|
|
1,361 |
|
|
|
258 |
|
|
|
12 |
|
|
|
4,916 |
|
|
|
4,927 |
|
|
Total wholesale |
|
|
129,467 |
|
|
|
155,395 |
|
|
|
51,208 |
|
|
|
7,065 |
|
|
|
343,135 |
|
|
|
379,871 |
|
|
Total lending-related |
|
$ |
732,796 |
|
|
$ |
159,510 |
|
|
$ |
64,535 |
|
|
$ |
55,061 |
|
|
$ |
1,011,902 |
|
|
$ |
1,121,378 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(e) |
|
$ |
174,675 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
174,675 |
|
|
$ |
169,281 |
|
Residual value guarantees |
|
|
|
|
|
|
670 |
|
|
|
|
|
|
|
|
|
|
|
670 |
|
|
|
670 |
|
Derivatives qualifying as guarantees(f) |
|
|
21,668 |
|
|
|
23,072 |
|
|
|
13,703 |
|
|
|
29,790 |
|
|
|
88,233 |
|
|
|
83,835 |
|
|
|
|
|
(a) |
|
Represents the contractual amount net of risk participations totaling $26.9 billion and $28.3
billion at September 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 $1.4 billion at both
September 30, 2009, and December 31, 2008. Also excludes unfunded commitments for other equity
investments of $918 million and $1.0 billion at September 30, 2009, and December 31, 2008,
respectively. |
|
(c) |
|
JPMorgan Chase held collateral relating to
$28.8 billion and $31.0 billion of standby letters of credit, respectively, and $1.4 billion
and $1.0 billion of other letters of credit at September 30, 2009, and December 31, 2008,
respectively. |
|
(d) |
|
Includes unissued standby letters-of-credit commitments of $37.7 billion and $39.5 billion at
September 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Collateral held by the Firm in support of securities lending indemnification agreements
was $178.7 billion and $170.1 billion at September 30, 2009, and December 31, 2008,
respectively. Securities lending collateral comprises primarily cash,
and 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 168172 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, overseen
by senior management and reviewed 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.
54
In accordance with FASB guidance, 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 161164 of this Form 10-Q.
Line-of-business equity
|
|
|
|
|
|
|
|
|
(in billions) |
|
September 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 |
|
|
61.1 |
|
|
|
42.4 |
|
|
Total common stockholders equity |
|
$ |
154.1 |
|
|
$ |
134.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line-of-business equity |
|
Average for the period |
(in billions) |
|
3Q09 |
|
4Q08 |
|
3Q08 |
|
Investment Bank |
|
$ |
33.0 |
|
|
$ |
33.0 |
|
|
$ |
26.0 |
|
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 |
|
|
|
5.5 |
|
Corporate/Private Equity |
|
|
56.5 |
|
|
|
46.3 |
|
|
|
53.5 |
|
|
Total common stockholders equity |
|
$ |
149.5 |
|
|
$ |
138.8 |
|
|
$ |
126.6 |
|
|
Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying its business
activities, using internal risk-assessment methodologies. The Firm measures economic capital based
primarily on four risk factors: credit, market, operational and private equity risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
(in billions) |
|
3Q09 |
|
4Q08 |
|
3Q08 |
|
Credit risk |
|
$ |
49.9 |
|
|
$ |
46.3 |
|
|
$ |
37.1 |
|
Market risk |
|
|
15.2 |
|
|
|
14.0 |
|
|
|
10.9 |
|
Operational risk |
|
|
8.7 |
|
|
|
7.5 |
|
|
|
6.3 |
|
Private equity risk |
|
|
4.7 |
|
|
|
5.6 |
|
|
|
6.3 |
|
|
Economic risk capital |
|
|
78.5 |
|
|
|
73.4 |
|
|
|
60.6 |
|
Goodwill |
|
|
48.3 |
|
|
|
46.8 |
|
|
|
45.9 |
|
Other(a) |
|
|
22.7 |
|
|
|
18.6 |
|
|
|
20.1 |
|
|
Total common stockholders equity |
|
$ |
149.5 |
|
|
$ |
138.8 |
|
|
$ |
126.6 |
|
|
|
|
|
(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 well-capitalized 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 capital, which is defined as Tier 1 capital
less elements of capital not in the form of common equity such as qualifying perpetual preferred
stock, qualifying noncontrolling interest in subsidiaries and qualifying trust preferred capital
debt securities. Tier 1 common capital, a non-GAAP financial measure, is used by banking
regulators, investors and analysts to assess and compare the quality and composition of the Firms
capital with the capital of other financial services companies. The Firm uses Tier 1
common capital along with the other capital measures presented below to assess and monitor its
capital position.
55
The following table presents capital ratios for JPMorgan Chase and its significant banking
subsidiaries at September 30, 2009, and December 31, 2008. The Firm and its significant banking
subsidiaries exceeded all well-capitalized regulatory thresholds for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co.(c) |
|
JPMorgan Chase Bank, N.A.(c) |
|
Chase Bank USA, N.A.(c) |
|
Well- |
|
Minimum |
|
|
Sept. 30, |
|
Dec. 31, |
|
Sept. 30, |
|
Dec. 31, |
|
Sept. 30, |
|
Dec. 31, |
|
Capitalized |
|
capital |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
ratios(f) |
|
ratios(f) |
|
Regulatory capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
$ |
126,541 |
|
|
$ |
136,104 |
|
|
$ |
95,942 |
|
|
$ |
100,594 |
|
|
$ |
10,932 |
|
|
$ |
11,190 |
|
|
|
|
|
|
|
|
|
Total |
|
|
171,804 |
|
|
|
184,720 |
|
|
|
136,946 |
|
|
|
143,854 |
|
|
|
13,674 |
|
|
|
12,901 |
|
|
|
|
|
|
|
|
|
Tier 1 common |
|
|
101,420 |
|
|
|
86,908 |
|
|
|
94,916 |
|
|
|
99,571 |
|
|
|
10,932 |
|
|
|
11,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted(a) |
|
|
1,237,760 |
(d)(e) |
|
|
1,244,659 |
|
|
|
1,058,364 |
|
|
|
1,153,039 |
|
|
|
113,209 |
|
|
|
101,472 |
|
|
|
|
|
|
|
|
|
Adjusted
average(b) |
|
|
1,940,689 |
(d)(e) |
|
|
1,966,895 |
|
|
|
1,617,607 |
|
|
|
1,705,750 |
|
|
|
78,446 |
|
|
|
87,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
10.2 |
% |
|
|
10.9 |
% |
|
|
9.1 |
% |
|
|
8.7 |
% |
|
|
9.7 |
% |
|
|
11.0 |
% |
|
|
6.0 |
% |
|
|
4.0 |
% |
Total capital |
|
|
13.9 |
|
|
|
14.8 |
|
|
|
12.9 |
|
|
|
12.5 |
|
|
|
12.1 |
|
|
|
12.7 |
|
|
|
10.0 |
|
|
|
8.0 |
|
Tier 1 leverage |
|
|
6.5 |
|
|
|
6.9 |
|
|
|
5.9 |
|
|
|
5.9 |
|
|
|
13.9 |
|
|
|
12.8 |
|
|
|
5.0 |
(g) |
|
|
3.0 |
(h) |
Tier 1 common |
|
|
8.2 |
|
|
|
7.0 |
|
|
|
9.0 |
|
|
|
8.6 |
|
|
|
9.7 |
|
|
|
11.0 |
|
|
NA |
|
NA |
|
|
|
|
(a) |
|
Includes offbalance sheet risk-weighted assets at September 30, 2009, of $373.1 billion,
$317.2 billion and $48.4 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. Risk-weighted assets are calculated in accordance with federal regulatory
capital standards. |
|
(b) |
|
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. |
|
(c) |
|
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. |
|
(d) |
|
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 ended on
September 30, 2009. |
|
(e) |
|
The FASB issued new Consolidation guidance for sponsored securitization QSPEs and VIEs which
impacts the accounting for transactions that involve QSPEs and VIEs. Based on the new guidance
and the Firms interpretation of its requirements, the Firm estimates that the impact of
consolidation of the Firms QSPEs and VIEs upon implementation, in the first quarter of 2010,
could be up to $110.0 billion of assets and liabilities and an increase to risk-weighted
assets of up to $15 billion; the resulting decrease in the Tier 1 capital ratio could be
approximately 40 basis points. The impact to the Tier 1 capital ratio includes the establishment of loan
loss reserves at the adoption date due to the effect of consolidating certain assets and
liabilities for U.S. GAAP at their assumed carrying values. The
impact to the Tier 1 capital ratio does
not include proposed guidance issued by the banking regulators in August 2009, which would
change the current regulatory treatment for consolidated asset-backed commercial paper
(ABCP) conduits. The ultimate impact could differ significantly, due to ongoing
interpretations of the final rules and market conditions. |
|
(f) |
|
As defined by the regulations issued by the Federal Reserve, OCC and FDIC. |
|
(g) |
|
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. |
|
(h) |
|
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 $860 million at September 30, 2009, and $1.1 billion at
December 31, 2008. Additionally, the Firm had deferred tax liabilities resulting from
tax-deductible goodwill of $1.7 billion and $1.6 billion at September 30, 2009, and December
31, 2008, respectively. |
56
A reconciliation of Total stockholders equity to Tier 1 common capital, Tier 1 capital and Total
qualifying capital is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
(in millions) |
|
2009 |
|
2008 |
|
Tier 1 capital |
|
|
|
|
|
|
|
|
Tier 1 common capital: |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
$ |
162,253 |
|
|
$ |
166,884 |
|
Less: Preferred stock |
|
|
8,152 |
|
|
|
31,939 |
|
|
Common stockholders equity |
|
|
154,101 |
|
|
|
134,945 |
|
Effect of certain items in accumulated other comprehensive (income)/loss excluded from Tier 1
common equity |
|
|
(334 |
) |
|
|
5,084 |
|
|
Adjusted common stockholders equity |
|
|
153,767 |
|
|
|
140,029 |
|
Less: Goodwill(a) |
|
|
46,667 |
|
|
|
46,417 |
|
Fair value DVA on derivative and structured note liabilities related to the Firms
credit quality |
|
|
1,192 |
|
|
|
2,358 |
|
Investments in certain subsidiaries |
|
|
753 |
|
|
|
679 |
|
Other intangible assets |
|
|
3,735 |
|
|
|
3,667 |
|
|
Tier 1 common capital |
|
|
101,420 |
|
|
|
86,908 |
|
|
Preferred stock |
|
|
8,152 |
|
|
|
31,939 |
|
Qualifying hybrid securities and noncontrolling interests(b) |
|
|
16,969 |
|
|
|
17,257 |
|
|
Total Tier 1 capital |
|
|
126,541 |
|
|
|
136,104 |
|
|
Tier 2 capital |
|
|
|
|
|
|
|
|
Long-term debt and other instruments qualifying as Tier 2 |
|
|
29,725 |
|
|
|
31,659 |
|
Qualifying allowance for credit losses |
|
|
15,770 |
|
|
|
17,187 |
|
Adjustment for investments in certain subsidiaries and other |
|
|
(232 |
) |
|
|
(230 |
) |
|
Tier 2 capital |
|
|
45,263 |
|
|
|
48,616 |
|
|
Total qualifying capital |
|
$ |
171,804 |
|
|
$ |
184,720 |
|
|
|
|
|
(a) |
|
The goodwill balance is net of any associated deferred tax liabilities. The prior period has
been revised to conform to the current presentation. |
|
(b) |
|
Primarily includes trust preferred capital debt securities of certain business trusts. |
The Firms Tier 1 common capital was $101.4 billion at September 30, 2009, compared with $86.9
billion at December 31, 2008, an increase of $14.5 billion. The increase was due to net income
(adjusted for DVA) of $9.6 billion, a $5.8 billion issuance of common stock in June 2009, and net
issuances of common stock under the Firms employee stock-based compensation plans, of $2.1
billion. The increase was partially offset by $1.8 billion of dividends on preferred and common
stock outstanding 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 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 issued to the U.S. Treasury. The proceeds from this issuance were used for general corporate
purposes. The Firms Tier 1 capital was $126.5 billion at September 30, 2009, compared with $136.1
billion at December 31, 2008, a decrease of $9.6 billion. The decrease in Tier 1 capital reflects
the 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 200201 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
57
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.
Capital requirements calculated in accordance with Basel II are expected to be more dynamic over
time than capital requirements calculated under Basel I, because the drivers of such capital
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 September 30, 2009, JPMorgan Securities net capital, as defined by the Net
Capital Rule, of $8.7 billion exceeded the minimum requirement by $8.2 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, in accordance with the market and
credit risk standards of Appendix E of the Net Capital Rule. As of September 30, 2009, JPMorgan
Securities had tentative net capital in excess of the minimum and notification requirements, and
J.P. Morgan Clearing Corp.s net capital, as defined by the Net Capital Rule, of $5.3 billion
exceeded the minimum requirement by $3.9 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 Consolidated Balance
Sheets retained the capital strength necessary should economic conditions further deteriorate.
The decision of the Firms Board of Directors regarding any
increase in the level of common stock dividends will be subject to their
judgment that the likelihood of another severe economic downturn has
sufficiently diminished, and that overall business performance has
stabilized. When, in the Boards judgment, it is appropriate to
increase the dividend, the likely result might involve an initial increase to
a $0.75 to $1.00 per share annual payout level followed by a
subsequent return to the Firms historical dividend payout ratio
of 30% to 40% of normalized earnings over time.
JPMorgan Chase declared quarterly cash dividends on its common stock in the
amount of $0.38 per share for each quarter of 2008.
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. See Note 20 on
pages 165166 of this Form 10-Q for further discussion regarding the redemption of the Series K
preferred stock and dividend restrictions that existed during the period that shares of the Series
K preferred stock were outstanding.
Stock repurchases
The Board
of Directors has amended the Firms securities repurchase
program, pursuant to which the Firm is authorized to repurchase shares of
its stock, to authorize the repurchase of warrants for its stock, if
and as such warrants may become available. During the period that shares of the Series K preferred stock were outstanding, the Firm
could not repurchase or redeem any common stock, warrants 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 nine months ended September 30, 2009 and 2008, the Firm did
not repurchase any shares or warrants other than the redemption of the Series K preferred stock. As of
September 30, 2009, $6.2 billion of authorized repurchase capacity remained under the current $10.0
billion repurchase program with respect to repurchases of common
stock, and as of the date of this Form 10-Q, all the authorized
repurchase capacity remained with respect to the warrants. 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 187188 of this Form 10-Q.
The
authorization to repurchase stock and warrants will be utilized at managements discretion, and the timing
of purchases and the exact number of shares and warrants purchased will depend on any limitations on the Firms
ability to effect any such repurchases, 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.
58
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
types of risk 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 intended to ensure liquidity and diversity of funding
sources to meet actual and contingent liabilities during 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 March 30, 2009, the Federal Reserve announced that, effective April 27, 2009, it will reduce the
amount it lent 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. On August 19, 2009, the Federal Reserve announced that, effective October 19, 2009,
it would further reduce the amount it lent against certain loans pledged as collateral to the
Federal Reserve Banks for discount-window or payment-system risk purposes. JPMorgan Chase has
maintained sufficient levels of eligible collateral available to be pledged to the Federal Reserve
Banks to replace the reduction in collateral value, and accordingly, these changes by the Federal
Reserve have not had a material impact on the Firms aggregate funding capacity.
On October 22, 2009, the Firm notified the FDIC that, as of January 1, 2010, it will no longer
participate in the FDICs Transaction Account Guarantee Program. Thus, after December 31, 2009,
funds held in noninterest bearing transaction accounts will no longer be guaranteed in full under
the Transaction Account Guarantee Program, but will be insured up to $250,000 under the FDICs
general deposit rules. The standard insurance amount of $250,000 per depositor is in effect through
December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per
depositor for all account categories except Individual Retirement Accounts (IRAs) and certain
other retirement accounts, which will remain at $250,000 per depositor.
The Firm believes its liquidity position is strong, based on its liquidity metrics as of September
30, 2009. The Firm believes that its unsecured and secured funding capacity is sufficient to meet
its on and offbalance sheet obligations. JPMorgan Chases long-dated funding, including core
liabilities, exceeded illiquid assets. In addition, at the parent holding company level, long-term
funding is managed to ensure that the parent holding company has, at a minimum, sufficient
liquidity to cover its obligations and those of its nonbank subsidiaries within 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.
59
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 September 30, 2009, total deposits for the Firm were
$868.0 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 2009, the Firms deposit levels, predominantly its wholesale deposit levels, continued
to normalize, resulting in a decrease in deposits of $141.3 billion, from $1.0 trillion at December
31, 2008, but relatively unchanged from June 30, 2009.
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 onbalance 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.
The Firm experienced a decline in retail deposits in the third quarter, partially due to the
high-rate Washington Mutual certificates of deposit maturing during the quarter; however, this did
not have a material impact on the Firms liquidity. 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 2147 and 4951 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 its use of asset-backed securitizations as a funding source in the
future, in light of the effects of its implementation on January 1, 2010, of the new FASB guidance
regarding the accounting for QSPEs and VIEs, which the Firm estimates will require it to
consolidate up to $110.0 billion of assets of these entities, and potential credit rating agency
actions on the Firms credit card asset-backed securities related to the implementation of the new
accounting guidance.
Issuance
During the first nine months of 2009, the Firm issued approximately $19.7 billion of
FDIC-guaranteed long-term debt under the FDICs Temporary Liquidity Guarantee Program (the TLG
Program), which became effective in October 2008. The Firm did not issue any FDIC-guaranteed
long-term debt in the third quarter. The Firm also issued non-FDIC guaranteed debt of $1.5 billion
and $7.0 billion, during the third quarter and first nine months of 2009, respectively, in the U.S.
markets. The Firm issued $2.6 billion of non-FDIC guaranteed debt in the European markets through
the first nine months of 2009. The Firm did not issue any non-FDIC guaranteed debt in the European
markets in the third quarter. Issuing non-FDIC guaranteed debt in the capital markets was a
prerequisite for the Firm redeeming the $25.0 billion of Series K preferred stock. In addition,
during the third quarter and first nine months of 2009, JPMorgan Chase issued $3.1 billion and
$13.4 billion, respectively, of IB structured notes that are included within long-term debt. During
the third quarter and first nine months of 2009, the Firm also securitized $10.1 billion and $26.5
billion, respectively, of credit card loans. During the third quarter and first nine months of
2009, $8.8 billion and $43.7 billion, respectively, of long-term debt and trust preferred capital
debt securities matured or were redeemed, including $5.2 billion and $22.2 billion, respectively,
of IB structured notes; the maturities or redemptions in the first nine months of 2009 offset the
issuances during the period.
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). These RCCs grant 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 (including any
60
supplements thereto) entered into by the Firm in relation to such trust preferred capital debt
securities and noncumulative perpetual preferred stock, as filed with the U.S. Securities and
Exchange Commission under cover of Forms 8-K.
Cash flows
Cash and due from banks was $21.1 billion and $54.4 billion at September 30, 2009 and 2008, respectively; these
balances decreased by $5.8 billion and increased by $14.2 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 nine months of 2009 and 2008.
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 nine months ended September 30, 2009, net cash provided by operating activities was $110.9 billion, primarily
driven by a decline in trading assets. The net decline in trading assets and liabilities was affected by balance sheet
management activities and the impact of the challenging capital markets environment that existed at December 31, 2008,
and continued into the first half 2009, partially offset by net increases resulting from stabilization in the capital markets
during the third quarter. Also, net cash generated from operating activities was higher than net income, largely as a result
of adjustments for non-cash items such as the provision for credit losses. In addition, 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 lower activity in the
markets.
For the nine months ended September 30, 2008, net cash provided by operating activities was $32.4 billion, largely
reflecting higher net payables in IBs prime services business due to the Bear Stearns merger. Also, net cash generated
from operating activities was higher than net income, largely as a result of adjustments for non-cash items such as the
provision for credit losses. 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 nine months of 2008, as a result of the volatility and credit concerns in the markets since the
second half of 2007. Operating cash flows also reflected the Firms capital markets activities.
Cash flows from investing activities
The Firms investing activities predominantly include originating loans to be held for investment, the AFS securities
portfolio and short-term interest-earning investments. For the nine months ended September 30, 2009, net cash of $37.6
billion was provided by investing activities. This derived primarily from a decrease in deposits with banks, as inter-bank
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, driven by continued lower customer demand in
the wholesale businesses, lower charge volume on credit cards, a higher level of credit card securitizations, and
paydowns; a decrease in securities purchased under resale agreements; and the maturity of all asset-backed commercial
paper issued by money market mutual funds in connection with the Federal Reserve Bank of Boston AML Facility.
Largely offsetting these cash proceeds were net purchases of AFS securities, associated with a shift in the Firms
investment of its excess cash from securities purchased under resale agreements, and management of interest rates.
For the nine months ended September 30, 2008, net cash used in investing activities was $219.5 billion, primarily for net
purchases of AFS securities to manage the Firms exposure to interest rates; net additions to the wholesale loan portfolio,
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; an increase in
securities purchased under resale agreements, reflecting growth in demand from clients for liquidity; the purchase of asset-backed commercial paper from money market mutual funds in connection with the Federal Reserve Bank of Boston AML
Facility; and an increase in deposits with banks as the result of the availability of excess cash for short-term interest-earning investments. Partially offsetting these uses of cash were proceeds from credit card securitizations, and net cash
received from acquisitions and the sale of an investment. Additionally, in June 2008, in connection with the merger with
Bear Stearns, the Firm sold assets acquired from Bear Stearns to the FRBNY and received cash proceeds of $28.85 billion.
61
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 nine months of 2009, net
cash used in financing activities was $154.6 billion; this reflected a decline in wholesale deposits, predominantly in TSS,
driven by the continued normalization of wholesale deposit levels that has resulted from the 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, net
repayments of advances from Federal Home Loan Banks and the maturity of the nonrecourse advances under the Federal
Reserve Bank of Boston AML Facility; 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; and the issuance of $5.8 billion of common stock. Long-term debt and trust preferred capital
debt securities were relatively stable during the period, as issuances of FDIC-guaranteed debt and non-FDIC guaranteed
debt in both the U.S. and European markets were offset by redemptions. There were no open-market stock repurchases
during the first nine months of 2009.
In the first nine months of 2008, net cash provided by financing activities was $201.7 billion, due to: growth in
wholesale deposits, in particular, interest- and noninterest-bearing deposits in TSS driven by both new and existing
clients, and due to heightened volatility and credit concerns in the global markets that began in the third quarter of 2008;
an increase in other borrowings due to nonrecourse advances from the Federal Reserve Bank of Boston under the AML
Facility; 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; and issuances of common stock and preferred stock. Partially offsetting these cash proceeds was a net
decline in long-term debt and trust preferred capital debt securities, as proceeds from new issuances were more than
offset by repayments; and the payment of cash dividends. There were no open-market stock repurchases during the first
nine 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 5253 and Ratings
profile of derivative receivables marked to market (MTM) on page 70 and Note 5 on pages 123131
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 September 30, 2009, were as follows.
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|
|
Short-term debt |
|
Senior long-term debt |
|
|
Moodys |
|
S&P |
|
Fitch |
|
Moodys |
|
S&P |
|
Fitch |
|
JPMorgan Chase & Co. |
|
P |
-1 |
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|
|
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. At September 30,
2009, Moodys outlook remained negative.
Ratings from S&P and Fitch on JPMorgan Chase and its principal bank subsidiaries remained unchanged
at September 30, 2009, from December 31, 2008. At September 30, 2009, S&Ps current outlook
remained negative, while Fitchs outlook remained stable.
62
Following the Firms earnings release on October, 14, 2009, S&P and Moodys announced that their
ratings on the Firm remained unchanged.
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.
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; and the subordinated securities for the Chase Credit Card Master Trust were placed on
negative credit watch. These actions were the result of increasing levels of delinquency and loss,
and Fitchs view that such increases would 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 August 6, 2009, S&P downgraded $51 million of mezzanine credit card asset-backed securities of
the Chase Credit Card Master Trust, and it affirmed the ratings of, and removed from negative
credit watch status, $205 million of mezzanine and subordinated credit card asset-backed securities
of the Chase Credit Card Master Trust that S&P had, on April 2, 2009, placed on negative credit
watch.
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 that had been originated by Washington
Mutual.
The ratings on the Firms asset-backed securities programs are currently independent of the Firms
own ratings. However, no assurance can be given that the credit rating agencies will not consider
a linkage between the ratings of the Firms asset-backed securities programs and the Firms own
ratings in connection with the new accounting guidance for QSPEs and VIEs.
63
CREDIT PORTFOLIO
The following table presents JPMorgan Chases credit portfolio as of September 30, 2009, and
December 31, 2008. Total credit exposure at September 30, 2009, decreased by $269.0 billion from
December 31, 2008, reflecting decreases of $149.1 billion in the wholesale portfolio and $119.9
billion in the consumer portfolio. During the first nine months of 2009, lending-related
commitments decreased by $109.5 billion, managed loans decreased by $90.3 billion and derivative
receivables decreased by $68.6 billion.
While overall portfolio exposure declined, the Firm provided more than $140 billion in new loans
and lines of credit to consumer and wholesale clients in the third quarter of 2009, and over $440
billion in the year-to-date period, including individuals, small businesses, large corporations,
not-for-profit organizations, U.S. states and municipalities, and other financial institutions.
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. Loans retained are presented net of unearned income, unamortized
discounts and premiums, and net deferred loan costs; for additional information, see Note 13 on
pages 142145 of this Form 10-Q. Nonperforming assets include nonaccrual loans and assets acquired
in satisfaction of debt (primarily real estate owned). Nonaccrual loans are those for which the
accrual of interest has been suspended, in accordance with the Firms accounting policies. Average
retained loan balances are used for the net charge-off rate calculations.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
Nonperforming |
|
90 days past due |
|
|
exposure |
|
assets(c)(d) |
|
and still accruing |
|
|
September 30, |
|
Dec. 31, |
|
September 30, |
|
Dec. 31, |
|
September 30, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained |
|
$ |
646,363 |
|
|
$ |
728,915 |
|
|
$ |
17,621 |
|
|
$ |
8,921 |
|
|
$ |
3,740 |
|
|
$ |
3,275 |
|
Loans held-for-sale |
|
|
4,850 |
|
|
|
8,287 |
|
|
|
51 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
1,931 |
|
|
|
7,696 |
|
|
|
95 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
653,144 |
|
|
$ |
744,898 |
|
|
$ |
17,767 |
|
|
$ |
8,953 |
|
|
$ |
3,740 |
|
|
$ |
3,275 |
|
Loans securitized(a) |
|
|
87,028 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
1,813 |
|
|
|
1,802 |
|
|
Total managed loans |
|
|
740,172 |
|
|
|
830,469 |
|
|
|
17,767 |
|
|
|
8,953 |
|
|
|
5,553 |
|
|
|
5,077 |
|
Derivative receivables |
|
|
94,065 |
|
|
|
162,626 |
|
|
|
624 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers |
|
|
13,148 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased receivables |
|
|
2,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed credit-related
assets |
|
|
849,714 |
|
|
|
1,009,236 |
|
|
|
18,391 |
|
|
|
10,032 |
|
|
|
5,553 |
|
|
|
5,077 |
|
Lending-related commitments |
|
|
1,011,902 |
|
|
|
1,121,378 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Assets acquired in loan satisfactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
NA |
|
|
NA |
|
|
|
1,854 |
|
|
|
2,533 |
|
|
NA |
|
|
NA |
|
Other |
|
NA |
|
|
NA |
|
|
|
117 |
|
|
|
149 |
|
|
NA |
|
|
NA |
|
|
Total assets acquired in loan
satisfactions |
|
NA |
|
|
NA |
|
|
|
1,971 |
|
|
|
2,682 |
|
|
NA |
|
|
NA |
|
|
Total credit portfolio |
|
$ |
1,861,616 |
|
|
$ |
2,130,614 |
|
|
$ |
20,362 |
|
|
$ |
12,714 |
|
|
$ |
5,553 |
|
|
$ |
5,077 |
|
|
Net credit derivative hedges
notional(b) |
|
$ |
(62,608 |
) |
|
$ |
(91,451 |
) |
|
$ |
(203 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
|
Liquid securities collateral held
against derivatives |
|
|
(14,334 |
) |
|
|
(19,816 |
) |
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
Net charge-offs |
|
charge-off
rate(e) |
|
Net charge-offs |
|
charge-off
rate(e) |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
6,373 |
|
|
$ |
2,484 |
|
|
|
3.84 |
% |
|
|
1.91 |
% |
|
$ |
16,788 |
|
|
$ |
6,520 |
|
|
|
3.28 |
% |
|
|
1.70 |
% |
Loans securitized(a) |
|
|
1,698 |
|
|
|
873 |
|
|
|
7.83 |
|
|
|
4.43 |
|
|
|
4,826 |
|
|
|
2,384 |
|
|
|
7.56 |
|
|
|
4.16 |
|
|
Total managed loans |
|
$ |
8,071 |
|
|
$ |
3,357 |
|
|
|
4.30 |
% |
|
|
2.24 |
% |
|
$ |
21,614 |
|
|
$ |
8,904 |
|
|
|
3.75 |
% |
|
|
2.02 |
% |
|
|
|
|
(a) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Note 15 on pages 147155 of this Form 10-Q. |
64
|
|
|
(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 U.S. GAAP. For
additional information, see pages 7071 and Note 5 on pages 130131 of this Form 10-Q. |
|
(c) |
|
At September 30, 2009, and December 31, 2008,
nonperforming loans and assets excluded: (1) mortgage loans insured by U.S. government
agencies of $7.0 billion and $3.0 billion, respectively; (2) real estate owned, which is insured by U.S. government agencies, of $579
million and $364 million, respectively; and (3)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $511 million and $437
million, respectively. These amounts are excluded, as reimbursement is proceeding
normally. |
|
(d) |
|
Excludes home lending purchased credit-impaired loans that were acquired as part of the
Washington Mutual transaction. These loans are accounted for on a pool basis, and the pools
are considered to be performing. |
|
(e) |
|
Net charge-off ratios were calculated using: (1) average retained loans of $658.3 billion and
$517.3 billion for the quarters ended September 30, 2009
and 2008, respectively, and $684.6 billion
and $511.0 billion for year-to-date 2009 and 2008, respectively; (2) average securitized loans of
$86.0 billion and $78.4 billion for the quarters ended
September 30, 2009 and 2008, respectively,
and $85.4 billion and $76.6 billion for year-to-date 2009
and 2008, respectively; and (3) average
managed loans of $744.3 billion and $595.7 billion for the quarters ended September 30, 2009 and
2008, respectively, and $769.9 billion and $587.6 billion for year-to-date 2009 and 2008,
respectively. |
WHOLESALE CREDIT PORTFOLIO
As of September 30, 2009, wholesale exposure (IB, CB, TSS and AM) decreased by $149.1 billion from
December 31, 2008. The $149.1 billion decrease was primarily driven by decreases of $68.6 billion
of derivative receivables, $43.1 billion of loans and $36.7 billion of lending-related commitments.
The decrease in derivative receivables primarily related to tightening credit spreads, volatile
foreign exchange rates and changes in the equity markets. 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 |
|
|
September 30, |
|
Dec. 31, |
|
September 30, |
|
Dec. 31, |
|
September 30, |
|
Dec. 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans retained |
|
$ |
213,718 |
|
|
$ |
248,089 |
|
|
$ |
7,494 |
|
|
$ |
2,350 |
|
|
$ |
484 |
|
|
$ |
163 |
|
Loans held-for-sale |
|
|
3,304 |
|
|
|
6,259 |
|
|
|
51 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Loans at fair value |
|
|
1,931 |
|
|
|
7,696 |
|
|
|
95 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
218,953 |
|
|
$ |
262,044 |
|
|
$ |
7,640 |
|
|
$ |
2,382 |
|
|
$ |
484 |
|
|
$ |
163 |
|
Derivative receivables |
|
|
94,065 |
|
|
|
162,626 |
|
|
|
624 |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
Receivables from customers |
|
|
13,148 |
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased receivables |
|
|
2,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale credit-related assets |
|
|
328,495 |
|
|
|
440,811 |
|
|
|
8,264 |
|
|
|
3,461 |
|
|
|
484 |
|
|
|
163 |
|
Lending-related commitments |
|
|
343,135 |
|
|
|
379,871 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total wholesale credit exposure |
|
$ |
671,630 |
|
|
$ |
820,682 |
|
|
$ |
8,264 |
|
|
$ |
3,461 |
|
|
$ |
484 |
|
|
$ |
163 |
|
|
Net credit derivative hedges
notional(a) |
|
$ |
(62,608 |
) |
|
$ |
(91,451 |
) |
|
$ |
(203 |
) |
|
$ |
|
|
|
NA |
|
|
NA |
|
Liquid securities collateral held
against derivatives |
|
|
(14,334 |
) |
|
|
(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 U.S. GAAP. For
additional information, see pages 7071 and Note 5 on pages 130131 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 68 of this Form 10-Q. |
65
The following table presents summaries of the maturity and ratings profiles of the wholesale
portfolio as of September 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 September 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 |
|
|
33 |
% |
|
|
39 |
% |
|
|
28 |
% |
|
|
100 |
% |
|
$ |
125 |
|
|
$ |
89 |
|
|
$ |
214 |
|
|
|
58 |
% |
Derivative receivables |
|
|
22 |
|
|
|
39 |
|
|
|
39 |
|
|
|
100 |
|
|
|
73 |
|
|
|
21 |
|
|
|
94 |
|
|
|
78 |
|
Lending-related
commitments |
|
|
38 |
|
|
|
60 |
|
|
|
2 |
|
|
|
100 |
|
|
|
276 |
|
|
|
67 |
|
|
|
343 |
|
|
|
80 |
|
|
|
|
Total excluding loans
held-for-sale and
loans at fair value |
|
|
34 |
% |
|
|
51 |
% |
|
|
15 |
% |
|
|
100 |
% |
|
$ |
474 |
|
|
$ |
177 |
|
|
$ |
651 |
|
|
|
73 |
% |
Loans held-for-sale and
loans at fair value(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
Receivables from
customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Interests in purchased
receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
Total exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
672 |
|
|
|
|
|
|
|
|
Net credit derivative
hedges notional(b) |
|
|
42 |
% |
|
|
48 |
% |
|
|
10 |
% |
|
|
100 |
% |
|
$ |
(54 |
) |
|
$ |
(9 |
) |
|
$ |
(63 |
) |
|
|
86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity profile(c) |
|
Ratings profile |
|
|
|
|
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 U.S. GAAP. |
|
(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. |
66
Wholesale credit and criticized exposure selected industry concentrations
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 $35.3 billion at
September 30, 2009, from $26.0 billion at year-end 2008. The increase was primarily related to
downgrades within the portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
76,242 |
|
|
|
12 |
% |
|
$ |
13,104 |
|
|
|
37 |
% |
|
$ |
83,799 |
|
|
|
11 |
% |
|
$ |
7,737 |
|
|
|
30 |
% |
Banks and finance
companies |
|
|
57,962 |
|
|
|
9 |
|
|
|
2,360 |
|
|
|
7 |
|
|
|
75,577 |
|
|
|
10 |
|
|
|
2,849 |
|
|
|
11 |
|
Healthcare |
|
|
36,449 |
|
|
|
6 |
|
|
|
335 |
|
|
|
1 |
|
|
|
38,032 |
|
|
|
5 |
|
|
|
436 |
|
|
|
2 |
|
State and municipal
governments |
|
|
34,408 |
|
|
|
5 |
|
|
|
90 |
|
|
|
|
|
|
|
35,954 |
|
|
|
5 |
|
|
|
847 |
|
|
|
3 |
|
Retail and consumer
services |
|
|
29,980 |
|
|
|
5 |
|
|
|
799 |
|
|
|
2 |
|
|
|
32,714 |
|
|
|
4 |
|
|
|
1,311 |
|
|
|
5 |
|
Utilities |
|
|
29,537 |
|
|
|
5 |
|
|
|
2,157 |
|
|
|
6 |
|
|
|
34,246 |
|
|
|
4 |
|
|
|
114 |
|
|
|
|
|
Asset managers |
|
|
28,718 |
|
|
|
4 |
|
|
|
950 |
|
|
|
3 |
|
|
|
49,256 |
|
|
|
6 |
|
|
|
819 |
|
|
|
3 |
|
Consumer products |
|
|
26,787 |
|
|
|
4 |
|
|
|
572 |
|
|
|
2 |
|
|
|
29,766 |
|
|
|
4 |
|
|
|
792 |
|
|
|
3 |
|
Oil and gas |
|
|
23,096 |
|
|
|
4 |
|
|
|
482 |
|
|
|
1 |
|
|
|
24,746 |
|
|
|
3 |
|
|
|
231 |
|
|
|
1 |
|
Technology |
|
|
18,029 |
|
|
|
3 |
|
|
|
1,314 |
|
|
|
4 |
|
|
|
17,555 |
|
|
|
2 |
|
|
|
230 |
|
|
|
1 |
|
Securities firms and
exchanges |
|
|
15,680 |
|
|
|
2 |
|
|
|
175 |
|
|
|
|
|
|
|
25,590 |
|
|
|
3 |
|
|
|
138 |
|
|
|
1 |
|
Media |
|
|
14,855 |
|
|
|
2 |
|
|
|
2,082 |
|
|
|
6 |
|
|
|
17,254 |
|
|
|
2 |
|
|
|
1,674 |
|
|
|
6 |
|
Insurance |
|
|
12,930 |
|
|
|
2 |
|
|
|
303 |
|
|
|
1 |
|
|
|
17,744 |
|
|
|
2 |
|
|
|
712 |
|
|
|
3 |
|
Metals/mining |
|
|
12,753 |
|
|
|
2 |
|
|
|
794 |
|
|
|
2 |
|
|
|
14,980 |
|
|
|
2 |
|
|
|
262 |
|
|
|
1 |
|
Central government |
|
|
12,739 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
15,259 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Building materials/
construction |
|
|
11,758 |
|
|
|
2 |
|
|
|
1,756 |
|
|
|
5 |
|
|
|
12,904 |
|
|
|
2 |
|
|
|
1,363 |
|
|
|
5 |
|
Machinery and equipment
manufacturing |
|
|
11,028 |
|
|
|
2 |
|
|
|
341 |
|
|
|
1 |
|
|
|
12,504 |
|
|
|
2 |
|
|
|
82 |
|
|
|
|
|
Holding companies |
|
|
10,432 |
|
|
|
2 |
|
|
|
240 |
|
|
|
1 |
|
|
|
14,466 |
|
|
|
2 |
|
|
|
116 |
|
|
|
|
|
Business services |
|
|
10,370 |
|
|
|
2 |
|
|
|
357 |
|
|
|
1 |
|
|
|
11,247 |
|
|
|
1 |
|
|
|
145 |
|
|
|
1 |
|
Chemicals/plastics |
|
|
10,267 |
|
|
|
2 |
|
|
|
722 |
|
|
|
2 |
|
|
|
11,719 |
|
|
|
1 |
|
|
|
591 |
|
|
|
2 |
|
Automotive |
|
|
9,783 |
|
|
|
1 |
|
|
|
2,204 |
|
|
|
6 |
|
|
|
11,448 |
|
|
|
1 |
|
|
|
1,775 |
|
|
|
7 |
|
Transportation |
|
|
9,620 |
|
|
|
1 |
|
|
|
632 |
|
|
|
2 |
|
|
|
10,253 |
|
|
|
1 |
|
|
|
319 |
|
|
|
1 |
|
Telecom services |
|
|
8,827 |
|
|
|
1 |
|
|
|
110 |
|
|
|
|
|
|
|
9,160 |
|
|
|
1 |
|
|
|
130 |
|
|
|
1 |
|
Agriculture/paper manufacturing |
|
|
6,867 |
|
|
|
1 |
|
|
|
567 |
|
|
|
2 |
|
|
|
7,548 |
|
|
|
1 |
|
|
|
726 |
|
|
|
3 |
|
Aerospace/defense |
|
|
5,318 |
|
|
|
1 |
|
|
|
56 |
|
|
|
|
|
|
|
6,126 |
|
|
|
1 |
|
|
|
31 |
|
|
|
|
|
All other(b) |
|
|
126,483 |
|
|
|
18 |
|
|
|
2,833 |
|
|
|
8 |
|
|
|
170,739 |
|
|
|
22 |
|
|
|
2,567 |
|
|
|
10 |
|
|
Subtotal |
|
$ |
650,918 |
|
|
|
100 |
% |
|
$ |
35,335 |
|
|
|
100 |
% |
|
$ |
790,586 |
|
|
|
100 |
% |
|
$ |
25,997 |
|
|
|
100 |
% |
|
Loans held-for-sale and
loans at fair value |
|
|
5,235 |
|
|
|
|
|
|
|
2,211 |
|
|
|
|
|
|
|
13,955 |
|
|
|
|
|
|
|
2,258 |
|
|
|
|
|
Receivables from customers |
|
|
13,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests in purchased
receivables(c) |
|
|
2,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
671,630 |
|
|
|
|
|
|
$ |
37,546 |
|
|
|
|
|
|
$ |
820,682 |
|
|
|
|
|
|
$ |
28,255 |
|
|
|
|
|
|
|
|
|
(a) |
|
Rankings are based on exposure at September 30, 2009. The industries presented in the
December 31, 2008, table reflect the same rankings of the exposure at September 30, 2009. |
|
(b) |
|
For more information on exposures to SPEs included in all other, see Note 16 on pages 156161
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. |
67
Loans
The following table presents wholesale loans and nonperforming assets by business segment as of
September 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
55,703 |
|
|
$ |
4,582 |
|
|
$ |
60,285 |
|
|
$ |
4,910 |
|
|
$ |
624 |
(b) |
|
$ |
248 |
|
|
$ |
|
|
|
$ |
5,782 |
|
Commercial Banking |
|
|
101,608 |
|
|
|
288 |
|
|
|
101,896 |
|
|
|
2,302 |
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
2,461 |
|
Treasury &
Securities Services |
|
|
19,693 |
|
|
|
|
|
|
|
19,693 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Asset Management |
|
|
35,925 |
|
|
|
|
|
|
|
35,925 |
|
|
|
409 |
|
|
|
|
|
|
|
2 |
|
|
|
11 |
|
|
|
422 |
|
Corporate/Private
Equity |
|
|
789 |
|
|
|
365 |
|
|
|
1,154 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
Total |
|
$ |
213,718 |
|
|
$ |
5,235 |
|
|
$ |
218,953 |
|
|
$ |
7,640 |
(a) |
|
$ |
624 |
|
|
$ |
409 |
|
|
$ |
11 |
|
|
$ |
8,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
The Firm held allowances for loan losses of $2.4 billion and $712 million, respectively,
related to these nonperforming loans, resulting in allowance coverage ratios of 32% and 30%,
at September 30, 2009, and December 31, 2008, respectively. Wholesale nonperforming loans
represent 3.49% and 0.91% of total wholesale loans at September 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 September 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.
Retained wholesale loans were $213.7 billion at September 30, 2009, compared with $248.1 billion at
December 31, 2008. The $34.4 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 and loans carried at
fair value were $5.2 billion and $14.0 billion at September 30, 2009, and December 31, 2008,
respectively. The decreases in both held-for-sale loans and loans at fair value reflected 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 nine months of 2009 and 2008, the Firm sold $1.4 billion and $3.3 billion of loans and
commitments, respectively, recognizing losses of $29 million in each period. These results include
gains or losses on sales of nonperforming loans, if any, as discussed on page 69 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 5963 and 147155 respectively, of this Form
10-Q.
A loan is placed on nonaccrual status and considered nonperforming when full payment of principal
and interest according to the contractual terms of the agreement is in doubt, or when principal or
interest is 90 days or more past due, and collateral, if any, is insufficient to cover principal
and interest. Nonperforming loans modified in a troubled debt restructuring may be returned to
accrual status when a borrower has made six contractual payments. Nonperforming wholesale loans
were $7.6 billion at September 30, 2009, an increase of $5.3 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. As of September 30, 2009, wholesale loans
restructured as part of a troubled debt restructuring were approximately $1.0 billion.
68
The following table presents the geographic distribution of wholesale loans and nonperforming loans
as of September 30, 2009, and December 31, 2008, respectively. The geographic distribution of the
wholesale portfolio is determined based predominantly on the domicile of the borrower.
Loans and nonperforming loans, U.S. and Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
Wholesale |
|
|
|
|
|
Nonperforming |
|
|
|
|
|
Nonperforming |
(in millions) |
|
Loans |
|
loans |
|
Loans |
|
loans |
|
U.S. |
|
$ |
161,691 |
|
|
$ |
6,621 |
|
|
$ |
186,776 |
|
|
$ |
2,123 |
|
Non-U.S. |
|
|
57,262 |
|
|
|
1,019 |
|
|
|
75,268 |
|
|
|
259 |
|
|
Ending balance |
|
$ |
218,953 |
|
|
$ |
7,640 |
|
|
$ |
262,044 |
|
|
$ |
2,382 |
|
|
The following table presents the change in the nonperforming loan portfolio for the nine months
ended September 30, 2009 and 2008.
Nonperforming loan activity
|
|
|
|
|
|
|
|
|
Wholesale |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Beginning balance at January 1 |
|
$ |
2,382 |
|
|
$ |
514 |
|
Additions |
|
|
10,889 |
|
|
|
1,801 |
|
|
Reductions: |
|
|
|
|
|
|
|
|
Paydowns and other |
|
|
3,554 |
|
|
|
554 |
|
Gross charge-offs |
|
|
1,996 |
|
|
|
283 |
|
Returned to performing |
|
|
78 |
|
|
|
33 |
|
Sales |
|
|
3 |
|
|
|
40 |
|
|
Total reductions |
|
|
5,631 |
|
|
|
910 |
|
|
Net additions |
|
|
5,258 |
|
|
|
891 |
|
|
Ending balance |
|
$ |
7,640 |
|
|
$ |
1,405 |
|
|
The following table presents net charge-offs, which are defined as gross charge-offs less
recoveries, for the three and nine months ended September 30, 2009 and 2008. A nonaccrual loan is
charged off to the allowance for loan losses when it is highly certain that a loss has been
realized; this determination considers many factors, including the prioritization of the Firms
claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the
borrowers equity. The amounts in the table below do not include gains from sales of nonperforming
loans.
Net charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans reported |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,058 |
|
|
$ |
52 |
|
|
$ |
1,928 |
|
|
$ |
185 |
|
Average annual net charge-off rate(a) |
|
|
1.93 |
% |
|
|
0.10 |
% |
|
|
1.13 |
% |
|
|
0.12 |
% |
|
|
|
|
(a) |
|
Net charge-off ratio was calculated using average retained loans of $218.0 billion and $208.3
billion for the quarters ended September 30, 2009 and 2008, respectively, and $228.5 billion
and $206.5 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 123131 of this
Form 10-Q, and Derivative contracts on pages 8790 (including notional amounts) and Notes 32 and 34
on pages 202205 and 210211 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) |
September 30, 2009 |
December 31, 2008 |
|
Interest rate(a) |
|
$ |
38,759 |
|
|
$ |
49,996 |
|
Credit derivatives |
|
|
20,512 |
|
|
|
44,695 |
|
Foreign exchange(a) |
|
|
24,139 |
|
|
|
38,820 |
|
Equity |
|
|
2,213 |
|
|
|
14,285 |
|
Commodity |
|
|
8,442 |
|
|
|
14,830 |
|
|
Total, net of cash collateral |
|
|
94,065 |
|
|
|
162,626 |
|
Liquid securities collateral held against derivative receivables |
|
|
(14,334 |
) |
|
|
(19,816 |
) |
|
Total, net of all collateral |
|
$ |
79,731 |
|
|
$ |
142,810 |
|
|
69
|
|
|
(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. |
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
36,718 |
|
|
|
46 |
% |
|
$ |
68,708 |
|
|
|
48 |
% |
A+/A1 to A-/A3 |
|
|
12,658 |
|
|
|
16 |
|
|
|
24,748 |
|
|
|
17 |
|
BBB+/Baa1 to BBB-/Baa3 |
|
|
10,389 |
|
|
|
13 |
|
|
|
15,747 |
|
|
|
11 |
|
BB+/Ba1 to B-/B3 |
|
|
17,232 |
|
|
|
22 |
|
|
|
28,186 |
|
|
|
20 |
|
CCC+/Caa1 and below |
|
|
2,734 |
|
|
|
3 |
|
|
|
5,421 |
|
|
|
4 |
|
|
Total |
|
$ |
79,731 |
|
|
|
100 |
% |
|
$ |
142,810 |
|
|
|
100 |
% |
|
The amount of derivative receivables reported on the Consolidated Balance Sheets of $94.1 billion
and $162.6 billion at September 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
$14.3 billion and $19.8 billion at September 30, 2009, and December 31, 2008, respectively,
resulting in total exposure, net of all collateral, of $79.7 billion and $142.8 billion at
September 30, 2009, and December 31, 2008, respectively. The decrease of $63.1 billion in
derivative receivables MTM, net of the above mentioned collateral, from December 31, 2008, was
primarily related to tightening credit spreads, volatile foreign exchange rates and changes in the
equity markets.
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 September 30, 2009, and December 31, 2008, the Firm
held $18.1 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 88% as of September 30, 2009, and remained unchanged from
December 31, 2008.
The Firm posted $66.0 billion and $99.1 billion of collateral at September 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 September 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 $1.5 billion and $4.4 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 of JPMorgan Chases 2008 Annual
Report. The following table presents the Firms notional amounts of credit derivatives protection
purchased and sold as of September 30, 2009, and December 31, 2008.
70
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 |
|
September 30, 2009 |
|
$ |
3,181 |
|
|
$ |
3,130 |
|
|
$ |
64 |
|
|
$ |
1 |
|
|
$ |
6,376 |
|
December 31, 2008(a) |
|
|
4,193 |
|
|
|
4,102 |
|
|
|
92 |
|
|
|
1 |
|
|
|
8,388 |
|
|
|
|
|
(a) |
|
The dealer/client amounts of protection purchased and protection sold for the prior period
have been revised to conform to current presentation. |
|
(b) |
|
Included $3.1 trillion and $4.0 trillion at September 30, 2009, and December 31, 2008,
respectively, of notional exposure within protection purchased and protection sold where the
underlying reference instrument was identical. For a further discussion on credit derivatives,
see Note 5 on pages 123131 of this Form 10-Q. |
|
(c) |
|
Included $19.7 billion and $34.9 billion at September 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 September 30, 2009, the total
notional amount of protection purchased and sold in the dealer/client business decreased by $2.0
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) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Credit derivatives used to manage: |
|
|
|
|
|
|
|
|
Loans and lending-related commitments |
|
$ |
51,716 |
|
|
$ |
81,227 |
|
Derivative receivables |
|
|
11,980 |
|
|
|
10,861 |
|
|
Total protection purchased(a) |
|
$ |
63,696 |
|
|
$ |
92,088 |
|
Total protection sold |
|
|
1,088 |
|
|
|
637 |
|
|
Credit derivatives hedges notional |
|
$ |
62,608 |
|
|
$ |
91,451 |
|
|
|
|
|
(a) |
|
Included $19.7 billion and $34.9 billion at September 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 U.S. GAAP; 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 period to period 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 pages 87-89 of JPMorgan Chases 2008 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Hedges of lending-related commitments(a) |
|
$ |
(886 |
) |
|
$ |
269 |
|
|
$ |
(2,950 |
) |
|
$ |
447 |
|
CVA and hedges of CVA(a) |
|
|
687 |
|
|
|
(702 |
) |
|
|
2,006 |
|
|
|
(1,285 |
) |
|
Net gains/(losses)(b) |
|
$ |
(199 |
) |
|
$ |
(433 |
) |
|
$ |
(944 |
) |
|
$ |
(838 |
) |
|
|
|
|
(a) |
|
These hedges do not qualify for hedge accounting under U.S. GAAP. |
|
(b) |
|
Excluded losses of $1.1 billion and gains of $604 million for the quarters ended September
30, 2009 and 2008, respectively, and losses of $1.9 billion and gains of $2.0 billion for nine
months ended 2009 and 2008, respectively, of other principal transaction revenue that was not
associated with hedging activities. |
Lending-related commitments
JPMorgan Chase uses 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.
71
Wholesale lending-related commitments were $343.1 billion at September 30, 2009, compared with
$379.9 billion at December 31, 2008, reflecting lower customer demand. In the Firms view, the
total contractual amount of these wholesale lending-related commitments 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 commitments, 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 amounts of the Firms
lending-related commitments were $179.0 billion and $204.3 billion as of September 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 its
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 September 30, 2009 |
|
Cross-border |
|
|
|
|
|
Total |
(in billions) |
|
Lending(a) |
|
Trading(b) |
|
Other(c) |
|
Total |
|
Local(d) |
|
exposure |
|
South Korea |
|
$ |
2.1 |
|
|
$ |
1.1 |
|
|
$ |
1.2 |
|
|
$ |
4.4 |
|
|
$ |
4.0 |
|
|
$ |
8.4 |
|
Brazil |
|
|
2.8 |
|
|
|
(0.2 |
) |
|
|
1.1 |
|
|
|
3.7 |
|
|
|
3.2 |
|
|
|
6.9 |
|
India |
|
|
1.1 |
|
|
|
2.4 |
|
|
|
1.1 |
|
|
|
4.6 |
|
|
|
0.6 |
|
|
|
5.2 |
|
China |
|
|
1.5 |
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
3.0 |
|
|
|
0.2 |
|
|
|
3.2 |
|
Hong Kong |
|
|
1.7 |
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
Mexico |
|
|
1.4 |
|
|
|
0.9 |
|
|
|
0.4 |
|
|
|
2.7 |
|
|
|
|
|
|
|
2.7 |
|
Taiwan |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
1.0 |
|
|
|
1.6 |
|
|
|
2.6 |
|
United Arab Emirates |
|
|
1.5 |
|
|
|
0.6 |
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
Malaysia |
|
|
|
|
|
|
1.2 |
|
|
|
0.3 |
|
|
|
1.5 |
|
|
|
0.5 |
|
|
|
2.0 |
|
South Africa |
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
1.6 |
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and booked
locally. Any exposure not meeting these criteria is defined as cross-border exposure. |
72
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 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 on a pool basis, and the pools are considered to be performing. 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. During the third quarter of
2009, management concluded that it was probable that higher expected future credit losses for the
purchased credit-impaired prime mortgage portfolio would result in a decrease in expected future
cash flows for this portfolio. As a result, an allowance for loan losses of $1.1 billion was
established. For additional information, see Note 13 on pages 142145 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 on real
estate when the loans are charged off. Delinquencies and nonperforming loans continued to increase
in the third quarter of 2009, particularly for the prime mortgage portfolio. The increases in these
credit quality metrics were due, in part, to foreclosure moratorium programs, which ended in early
2009. These moratoriums halted stages of the foreclosure process while the U.S. Treasury developed
its foreclosure program and the Firm enhanced its foreclosure-prevention programs. Due to high
volume of foreclosures after the moratoriums, processing timelines for foreclosures were elongated
by approximately 100 days. 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 foreclosed upon remain in the mortgage and home equity loan portfolios. Additional
deterioration in the overall economic environment, including continued deterioration in the labor
and residential real estate markets, 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 nonreal estate consumer
lending 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. The Firm believes that these
actions have better aligned loan pricing with the underlying credit risk of the loans. In addition,
originations of subprime mortgage loans, stated income and broker-originated mortgage and home
equity loans have been eliminated entirely to further reduce originations with high-risk
characteristics.
During 2009, the Firm reviewed 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 (MHA) programs, which are designed to assist
eligible homeowners by modifying the terms of their mortgages. The Firm is participating in the MHA
programs while continuing to expand its other loss-mitigation efforts for financially distressed
borrowers who do not qualify for the MHA programs. The MHA programs and the Firms other
loss-mitigation programs for financially troubled borrowers generally represent various concessions
such as term extensions, rate reductions and deferral of principal payments that would have been
required under the terms of the original agreement. 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 could be contractually modified. The Firms loss-mitigation programs
are intended to minimize 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. For both the Firms
on-balance sheet loans and loans serviced for others, approximately 262,000 trial mortgage
modifications had been offered to borrowers as of September 30, 2009.
73
The following table presents information relating to restructured on-balance sheet residential real
estate loans for which concessions have been granted to borrowers experiencing financial difficulty
as of September 30, 2009. Modifications of purchased credit-impaired loans continue to be accounted
for and reported as purchased credit-impaired loans, and 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. Modifications of other loans are generally accounted
for and reported as troubled debt restructurings.
Restructured residential real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
September 30, 2009 |
|
Onbalance |
|
onbalance |
(in millions) |
|
sheet loans |
|
sheet loans(e) |
|
Restructured residential real estate loans excluding
purchased credit-impaired loans(a) |
|
|
|
|
|
|
|
|
Home equity senior lien(b) |
|
$ |
198 |
|
|
$ |
1 |
|
Home equity junior lien(c) |
|
|
208 |
|
|
|
10 |
|
Prime mortgage |
|
|
467 |
|
|
|
119 |
|
Subprime mortgage |
|
|
2,052 |
|
|
|
561 |
|
Option ARMs |
|
|
5 |
|
|
|
4 |
|
|
Total restructured residential real estate loans excluding purchased credit-impaired
loans |
|
$ |
2,930 |
|
|
$ |
695 |
|
|
|
Restructured purchased credit-impaired loans(d) |
|
|
|
|
|
|
|
|
Home equity |
|
$ |
393 |
|
|
NA |
|
Prime mortgage |
|
|
986 |
|
|
NA |
|
Subprime mortgage |
|
|
1,948 |
|
|
NA |
|
Option ARMs |
|
|
1,575 |
|
|
NA |
|
|
Total restructured purchased credit-impaired loans |
|
$ |
4,902 |
|
|
NA |
|
|
|
|
|
(a) |
|
Amounts represent the carrying value of restructured residential real estate loans. |
|
(b) |
|
Represents loans where JPMorgan Chase holds the first security interest placed upon the
property. |
|
(c) |
|
Represents loans where JPMorgan Chase holds a security interest that is subordinate in rank
to other liens. |
|
(d) |
|
Amounts represent the unpaid principal balance of
restructured purchased credit-impaired loans. |
|
(e) |
|
Nonperforming loans modified in a troubled debt restructuring are returned to accrual status
when a borrower has made six contractual payments. |
The following tables present managed consumer creditrelated information (including RFS, CS and
residential real estate loans reported in the Corporate/Private Equity segment) for the dates
indicated.
Managed consumer credit-related information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming |
|
90 days past due |
|
|
Credit exposure |
|
loans(f) |
|
and still accruing |
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
September 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 senior lien |
|
$ |
27,726 |
|
|
$ |
29,793 |
|
|
$ |
449 |
|
|
$ |
291 |
|
|
$ |
|
|
|
$ |
|
|
Home equity junior lien |
|
|
77,069 |
|
|
|
84,542 |
|
|
|
1,149 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
67,597 |
|
|
|
72,266 |
|
|
|
4,007 |
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
13,270 |
|
|
|
15,330 |
|
|
|
3,233 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
8,852 |
|
|
|
9,018 |
|
|
|
244 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Auto loans(a) |
|
|
44,309 |
|
|
|
42,603 |
|
|
|
179 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
Credit card reported(b) |
|
|
78,215 |
|
|
|
104,746 |
|
|
|
3 |
|
|
|
4 |
|
|
|
2,745 |
|
|
|
2,649 |
|
All other loans |
|
|
32,405 |
|
|
|
33,715 |
|
|
|
863 |
|
|
|
430 |
|
|
|
511 |
|
|
|
463 |
|
|
Total |
|
|
349,443 |
|
|
|
392,013 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
3,256 |
|
|
|
3,112 |
|
|
Consumer loans purchased
credit-impaired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
27,088 |
|
|
|
28,555 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
Prime mortgage |
|
|
20,229 |
|
|
|
21,855 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
Subprime mortgage |
|
|
6,135 |
|
|
|
6,760 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
Option ARMs |
|
|
29,750 |
|
|
|
31,643 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total consumer loans purchased
credit-impaired |
|
|
83,202 |
|
|
|
88,813 |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total consumer loans retained |
|
|
432,645 |
|
|
|
480,826 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
3,256 |
|
|
|
3,112 |
|
|
Loans held-for-sale |
|
|
1,546 |
|
|
|
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans reported |
|
|
434,191 |
|
|
|
482,854 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
3,256 |
|
|
|
3,112 |
|
|
Credit card securitized(c) |
|
|
87,028 |
|
|
|
85,571 |
|
|
|
|
|
|
|
|
|
|
|
1,813 |
|
|
|
1,802 |
|
|
Total consumer loans managed |
|
|
521,219 |
|
|
|
568,425 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
5,069 |
|
|
|
4,914 |
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days past due |
|
|
Credit exposure |
|
Nonperforming loans(f) |
|
and still accruing |
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer lending-related
commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity(d) |
|
|
64,762 |
|
|
|
95,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage |
|
|
2,000 |
|
|
|
5,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARMs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto loans |
|
|
6,169 |
|
|
|
4,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card(d) |
|
|
584,231 |
|
|
|
623,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other loans |
|
|
11,605 |
|
|
|
12,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lending-related
commitments |
|
|
668,767 |
|
|
|
741,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer credit portfolio |
|
$ |
1,189,986 |
|
|
$ |
1,309,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Credit card managed |
|
$ |
165,243 |
|
|
$ |
190,317 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
4,558 |
|
|
$ |
4,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
|
|
|
|
|
|
|
net charge-off |
|
|
|
|
|
|
|
|
|
net charge-off |
|
|
Net charge-offs |
|
rate(g) |
|
Net charge-offs |
|
rate(g) |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding
purchased credit-impaired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity senior lien |
|
$ |
65 |
|
|
$ |
23 |
|
|
|
0.93 |
% |
|
|
0.37 |
% |
|
$ |
164 |
|
|
$ |
60 |
|
|
|
0.77 |
% |
|
|
0.33 |
% |
Home equity junior lien |
|
|
1,077 |
|
|
|
640 |
|
|
|
5.41 |
|
|
|
3.63 |
|
|
|
3,341 |
|
|
|
1,561 |
|
|
|
5.49 |
|
|
|
2.97 |
|
Prime mortgage |
|
|
528 |
|
|
|
177 |
|
|
|
3.09 |
|
|
|
1.51 |
|
|
|
1,323 |
|
|
|
331 |
|
|
|
2.53 |
|
|
|
0.98 |
|
Subprime mortgage |
|
|
422 |
|
|
|
273 |
|
|
|
12.31 |
|
|
|
7.65 |
|
|
|
1,196 |
|
|
|
614 |
|
|
|
11.18 |
|
|
|
5.43 |
|
Option ARMs |
|
|
15 |
|
|
|
|
|
|
|
0.67 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
0.51 |
|
|
|
|
|
Auto loans |
|
|
159 |
|
|
|
124 |
|
|
|
1.46 |
|
|
|
1.12 |
|
|
|
479 |
|
|
|
361 |
|
|
|
1.49 |
|
|
|
1.10 |
|
Credit card reported |
|
|
2,694 |
|
|
|
1,106 |
|
|
|
12.85 |
|
|
|
5.56 |
|
|
|
7,412 |
|
|
|
3,159 |
|
|
|
10.99 |
|
|
|
5.40 |
|
All other loans |
|
|
355 |
|
|
|
89 |
|
|
|
4.31 |
|
|
|
1.16 |
|
|
|
911 |
|
|
|
249 |
|
|
|
3.65 |
|
|
|
1.21 |
|
|
Total
consumer loans excluding
purchased credit-impaired
loans(e) |
|
|
5,315 |
|
|
|
2,432 |
|
|
|
5.92 |
|
|
|
3.13 |
|
|
|
14,860 |
|
|
|
6,335 |
|
|
|
5.37 |
|
|
|
2.78 |
|
|
Total consumer loans reported |
|
|
5,315 |
|
|
|
2,432 |
|
|
|
4.79 |
|
|
|
3.13 |
|
|
|
14,860 |
|
|
|
6,335 |
|
|
|
4.36 |
|
|
|
2.78 |
|
|
Credit card securitized(c) |
|
|
1,698 |
|
|
|
873 |
|
|
|
7.83 |
|
|
|
4.43 |
|
|
|
4,826 |
|
|
|
2,384 |
|
|
|
7.56 |
|
|
|
4.16 |
|
|
Total consumer loans managed |
|
|
7,013 |
|
|
|
3,305 |
|
|
|
5.29 |
|
|
|
3.39 |
|
|
|
19,686 |
|
|
|
8,719 |
|
|
|
4.86 |
|
|
|
3.06 |
|
|
Total consumer loans managed
excluding purchased credit-impaired
loans(e) |
|
$ |
7,013 |
|
|
$ |
3,305 |
|
|
|
6.29 |
% |
|
|
3.39 |
% |
|
$ |
19,686 |
|
|
$ |
8,719 |
|
|
|
5.78 |
% |
|
|
3.06 |
% |
|
Memo: Credit card managed |
|
$ |
4,392 |
|
|
$ |
1,979 |
|
|
|
10.30 |
% |
|
|
5.00 |
% |
|
$ |
12,238 |
|
|
$ |
5,543 |
|
|
|
9.32 |
% |
|
|
4.79 |
% |
|
|
|
|
(a) |
|
Excluded operating leaserelated assets of $2.7 billion and $2.2 billion at September 30,
2009, and December 31, 2008, respectively. |
|
(b) |
|
Includes $3.0 billion of loans at September 30, 2009, held by the Washington Mutual Master
Trust, which were consolidated onto the Firms Consolidated Balance Sheets 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 3336 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 would 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) |
|
Charge-offs are not recorded on purchased credit-impaired loans until actual losses exceed
estimated losses that were recorded as purchase accounting adjustments at the time of
acquisition. To date, no charge-offs have been recorded for these loans. |
|
(f) |
|
At September 30, 2009, and December 31, 2008, nonperforming loans excluded: (1) mortgage loans insured by U.S. government agencies of $7.0
billion and $3.0 billion, 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 $511 million and $437
million, respectively. These amounts are excluded, as reimbursement is proceeding normally. |
|
(g) |
|
Average consumer loans held-for-sale and loans at fair value were $1.3 billion and $1.5
billion for the quarters ended September 30, 2009 and 2008, respectively, and $2.4 billion and
$3.2 billion for year-to-date 2009 and 2008, respectively. These amounts were excluded when
calculating the net charge-off rates. |
75
The following table presents consumer nonperforming assets by business segment as of September 30,
2009, and December 31, 2008. Except for credit card loans and certain mortgage and student loans
insured by U.S. government agencies, a loan is placed on nonaccrual status and considered
nonperforming when full payment of principal and interest according to the contractual terms of the
agreement is in doubt, or when the loan is 90 days or more past due and collateral, if any, is
insufficient to cover principal and interest.
Consumer nonperforming assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Assets acquired in |
|
|
|
|
|
|
|
|
|
Assets acquired in |
|
|
|
|
|
|
|
|
loan satisfactions |
|
|
|
|
|
|
|
|
|
loan satisfactions |
|
|
|
|
Nonperforming |
|
Real estate |
|
|
|
|
|
Nonperforming |
|
Nonperforming |
|
Real estate |
|
|
|
|
|
Nonperforming |
(in millions) |
|
loans |
|
owned |
|
Other |
|
assets |
|
loans |
|
owned |
|
Other |
|
assets |
|
Retail Financial
Services(a) |
|
$ |
10,091 |
|
|
$ |
1,444 |
|
|
$ |
106 |
|
|
$ |
11,641 |
|
|
$ |
6,548 |
|
|
$ |
2,183 |
|
|
$ |
110 |
|
|
$ |
8,841 |
|
Card Services |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Corporate/Private Equity |
|
|
33 |
|
|
|
1 |
|
|
|
|
|
|
|
34 |
|
|
|
19 |
|
|
|
1 |
|
|
|
|
|
|
|
20 |
|
|
Total |
|
$ |
10,127 |
|
|
$ |
1,445 |
|
|
$ |
106 |
|
|
$ |
11,678 |
|
|
$ |
6,571 |
|
|
$ |
2,184 |
|
|
$ |
110 |
|
|
$ |
8,865 |
|
|
|
|
|
(a) |
|
At September 30, 2009, and December 31, 2008, nonperforming
loans and assets excluded: (1) mortgage loans insured by U.S.
government agencies of $7.0 billion and $3.0 billion, respectively; (2) real estate owned that was insured by U.S. government agencies of $579
million and $364 million, respectively; and (3)
student loans that are 90 days past due and still accruing, which are insured by U.S.
government agencies under the Federal Family Education Loan Program, of $511 million and $437
million, respectively. These amounts are
excluded, as reimbursement is proceeding normally. |
The following table presents 30+ day delinquency information for the dates indicated.
Consumer 30+ day delinquency information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquent loans |
|
30+ day delinquency rate |
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
(in millions, except ratios) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Consumer loans excluding
purchased credit-impaired
loans(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity senior lien |
|
$ |
796 |
|
|
$ |
585 |
|
|
|
2.87 |
% |
|
|
1.96 |
% |
Home equity junior lien |
|
|
2,577 |
|
|
|
2,563 |
|
|
|
3.34 |
|
|
|
3.03 |
|
Prime mortgage |
|
|
5,457 |
(b) |
|
|
3,180 |
(b) |
|
|
8.05 |
(d) |
|
|
4.39 |
(d) |
Subprime mortgage |
|
|
4,370 |
|
|
|
3,760 |
|
|
|
32.93 |
|
|
|
24.53 |
|
Option ARMs |
|
|
364 |
|
|
|
68 |
|
|
|
4.11 |
|
|
|
0.75 |
|
Auto loans |
|
|
743 |
|
|
|
963 |
|
|
|
1.68 |
|
|
|
2.26 |
|
Credit card reported |
|
|
5,817 |
|
|
|
5,653 |
|
|
|
7.44 |
|
|
|
5.40 |
|
All other
loans |
|
|
1,284 |
(c) |
|
|
708 |
(c) |
|
|
3.80 |
|
|
|
1.99 |
|
|
Total consumer loans
excluding purchased
credit-impaired loans
reported |
|
$ |
21,408 |
|
|
$ |
17,480 |
|
|
|
6.10 |
% |
|
|
4.44 |
% |
|
Credit card securitized |
|
|
4,083 |
|
|
|
3,811 |
|
|
|
4.69 |
|
|
|
4.45 |
|
|
Total consumer loans
excluding purchased
credit-impaired loans
managed |
|
$ |
25,491 |
|
|
$ |
21,291 |
|
|
|
5.82 |
% |
|
|
4.44 |
% |
|
Memo: Credit card managed |
|
$ |
9,900 |
|
|
$ |
9,464 |
|
|
|
5.99 |
% |
|
|
4.97 |
% |
|
|
|
|
(a) |
|
The delinquency rate for purchased credit-impaired loans, which is based on the unpaid
principal balance, was 25.56% and 17.89% at September 30, 2009 and December 31, 2008,
respectively. |
|
(b) |
|
Excluded 30+ day delinquent mortgage loans that are insured by U.S. government agencies of $7.7 billion and $3.5
billion at September 30, 2009, and December 31, 2008, respectively. These amounts are
excluded, as reimbursement is proceeding normally. |
|
(c) |
|
Excluded 30+ day delinquent loans that are 30 days or more past due and still accruing, which are insured by
U.S. government agencies under the Federal Family Education Loan Program, of $903 million and
$824 million at September 30, 2009 and December 31, 2008, respectively. These amounts are
excluded, as reimbursement is proceeding normally. |
(d) |
|
The denominator for the calculation of the 30+ day
delinquency rate includes: (1) residential real estate loans reported
in the Corporate/Private Equity segment; and (2) mortgage loans
insured by U.S. government agencies. The 30+ day delinquency rate
excluding these loan balances was 10.47% and 5.14% at September 30,
2009 and December 31, 2008, respectively. |
76
The following tables present the geographic distribution of certain consumer credit outstandings by
product as of September 30, 2009, and December 31, 2008, excluding purchased credit-impaired loans
acquired in the Washington Mutual transaction.
Consumer loans by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
Home |
|
Home |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
consumer |
|
|
|
|
|
consumer |
September 30, 2009 |
|
equity |
|
equity |
|
Prime |
|
Subprime |
|
Option |
|
home loan |
|
|
|
|
|
Card |
|
All other |
|
loans |
|
Card |
|
loans |
(in billions) |
|
senior lien |
|
junior lien |
|
mortgage |
|
mortgage |
|
ARMs |
|
portfolio |
|
Auto |
|
reported |
|
loans |
|
reported |
|
securitized |
|
managed |
|
Excluding purchased
credit-impaired
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
3.6 |
|
|
$ |
17.5 |
|
|
$ |
19.9 |
|
|
$ |
1.9 |
|
|
$ |
3.9 |
|
|
$ |
46.8 |
|
|
$ |
4.5 |
|
|
$ |
11.0 |
|
|
$ |
1.8 |
|
|
$ |
64.1 |
|
|
$ |
11.8 |
|
|
$ |
75.9 |
|
New York |
|
|
3.4 |
|
|
|
12.7 |
|
|
|
9.4 |
|
|
|
1.6 |
|
|
|
0.9 |
|
|
|
28.0 |
|
|
|
3.6 |
|
|
|
6.0 |
|
|
|
4.4 |
|
|
|
42.0 |
|
|
|
6.9 |
|
|
|
48.9 |
|
Texas |
|
|
4.4 |
|
|
|
2.8 |
|
|
|
2.4 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
10.2 |
|
|
|
4.1 |
|
|
|
5.6 |
|
|
|
3.9 |
|
|
|
23.8 |
|
|
|
6.6 |
|
|
|
30.4 |
|
Florida |
|
|
1.1 |
|
|
|
4.4 |
|
|
|
6.0 |
|
|
|
2.0 |
|
|
|
0.9 |
|
|
|
14.4 |
|
|
|
1.7 |
|
|
|
5.2 |
|
|
|
0.9 |
|
|
|
22.2 |
|
|
|
5.0 |
|
|
|
27.2 |
|
Illinois |
|
|
1.8 |
|
|
|
5.0 |
|
|
|
3.3 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
11.0 |
|
|
|
2.3 |
|
|
|
3.9 |
|
|
|
2.3 |
|
|
|
19.5 |
|
|
|
5.0 |
|
|
|
24.5 |
|
Ohio |
|
|
2.4 |
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
|
|
|
|
5.5 |
|
|
|
3.2 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
|
14.7 |
|
|
|
3.5 |
|
|
|
18.2 |
|
New Jersey |
|
|
0.7 |
|
|
|
4.0 |
|
|
|
2.3 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
8.0 |
|
|
|
1.7 |
|
|
|
3.0 |
|
|
|
1.1 |
|
|
|
13.8 |
|
|
|
3.6 |
|
|
|
17.4 |
|
Michigan |
|
|
1.3 |
|
|
|
2.0 |
|
|
|
1.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.1 |
|
|
|
1.9 |
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
11.8 |
|
|
|
3.0 |
|
|
|
14.8 |
|
Arizona |
|
|
1.6 |
|
|
|
3.8 |
|
|
|
1.6 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
7.4 |
|
|
|
1.5 |
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
12.4 |
|
|
|
2.1 |
|
|
|
14.5 |
|
Pennsylvania |
|
|
0.3 |
|
|
|
1.2 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
2.7 |
|
|
|
2.0 |
|
|
|
2.8 |
|
|
|
0.6 |
|
|
|
8.1 |
|
|
|
3.3 |
|
|
|
11.4 |
|
Washington |
|
|
0.9 |
|
|
|
2.5 |
|
|
|
2.0 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
6.1 |
|
|
|
0.6 |
|
|
|
1.5 |
|
|
|
0.3 |
|
|
|
8.5 |
|
|
|
1.6 |
|
|
|
10.1 |
|
Colorado |
|
|
0.4 |
|
|
|
1.7 |
|
|
|
1.7 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
4.2 |
|
|
|
0.9 |
|
|
|
1.6 |
|
|
|
1.0 |
|
|
|
7.7 |
|
|
|
2.2 |
|
|
|
9.9 |
|
All other |
|
|
5.8 |
|
|
|
17.5 |
|
|
|
16.3 |
|
|
|
4.2 |
|
|
|
1.6 |
|
|
|
45.4 |
|
|
|
16.3 |
|
|
|
30.5 |
|
|
|
10.2 |
|
|
|
102.4 |
|
|
|
32.4 |
|
|
|
134.8 |
|
|
Total excluding
purchased
credit-impaired
loans |
|
$ |
27.7 |
|
|
$ |
77.1 |
|
|
$ |
67.8 |
|
|
$ |
13.3 |
|
|
$ |
8.9 |
|
|
$ |
194.8 |
|
|
$ |
44.3 |
|
|
$ |
78.2 |
|
|
$ |
33.7 |
|
|
$ |
351.0 |
|
|
$ |
87.0 |
|
|
$ |
438.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
Home |
|
Home |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
consumer |
|
|
|
|
|
consumer |
December 31, 2008 |
|
equity |
|
equity |
|
Prime |
|
Subprime |
|
Option |
|
home loan |
|
|
|
|
|
Card |
|
All other |
|
loans |
|
Card |
|
loans |
(in billions) |
|
senior lien |
|
junior lien |
|
mortgage |
|
mortgage |
|
ARMs |
|
portfolio |
|
Auto |
|
reported |
|
loans |
|
reported |
|
securitized |
|
managed |
|
Excluding purchased
credit-impaired
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
3.9 |
|
|
$ |
19.3 |
|
|
$ |
22.8 |
|
|
$ |
2.2 |
|
|
$ |
3.8 |
|
|
$ |
52.0 |
|
|
$ |
4.7 |
|
|
$ |
14.8 |
|
|
$ |
2.0 |
|
|
$ |
73.5 |
|
|
$ |
12.5 |
|
|
$ |
86.0 |
|
New York |
|
|
3.3 |
|
|
|
13.0 |
|
|
|
10.4 |
|
|
|
1.7 |
|
|
|
0.9 |
|
|
|
29.3 |
|
|
|
3.7 |
|
|
|
8.3 |
|
|
|
4.7 |
|
|
|
46.0 |
|
|
|
6.6 |
|
|
|
52.6 |
|
Texas |
|
|
5.0 |
|
|
|
3.1 |
|
|
|
2.7 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
11.4 |
|
|
|
3.8 |
|
|
|
7.4 |
|
|
|
4.1 |
|
|
|
26.7 |
|
|
|
6.1 |
|
|
|
32.8 |
|
Florida |
|
|
1.3 |
|
|
|
5.0 |
|
|
|
6.0 |
|
|
|
2.3 |
|
|
|
0.9 |
|
|
|
15.5 |
|
|
|
1.5 |
|
|
|
6.8 |
|
|
|
0.9 |
|
|
|
24.7 |
|
|
|
5.2 |
|
|
|
29.9 |
|
Illinois |
|
|
1.9 |
|
|
|
5.3 |
|
|
|
3.3 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
11.5 |
|
|
|
2.2 |
|
|
|
5.3 |
|
|
|
2.5 |
|
|
|
21.5 |
|
|
|
4.6 |
|
|
|
26.1 |
|
Ohio |
|
|
2.6 |
|
|
|
2.0 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.7 |
|
|
|
3.3 |
|
|
|
4.1 |
|
|
|
3.3 |
|
|
|
16.4 |
|
|
|
3.4 |
|
|
|
19.8 |
|
New Jersey |
|
|
0.8 |
|
|
|
4.2 |
|
|
|
2.5 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
8.6 |
|
|
|
1.6 |
|
|
|
4.2 |
|
|
|
0.9 |
|
|
|
15.3 |
|
|
|
3.6 |
|
|
|
18.9 |
|
Michigan |
|
|
1.4 |
|
|
|
2.2 |
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
|
|
|
|
5.3 |
|
|
|
1.5 |
|
|
|
3.4 |
|
|
|
2.8 |
|
|
|
13.0 |
|
|
|
2.8 |
|
|
|
15.8 |
|
Arizona |
|
|
1.7 |
|
|
|
4.2 |
|
|
|
1.6 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
8.1 |
|
|
|
1.6 |
|
|
|
2.3 |
|
|
|
1.9 |
|
|
|
13.9 |
|
|
|
1.8 |
|
|
|
15.7 |
|
Pennsylvania |
|
|
0.2 |
|
|
|
1.4 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
2.9 |
|
|
|
1.7 |
|
|
|
3.9 |
|
|
|
0.7 |
|
|
|
9.2 |
|
|
|
3.2 |
|
|
|
12.4 |
|
Washington |
|
|
1.0 |
|
|
|
2.8 |
|
|
|
2.3 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
6.9 |
|
|
|
0.6 |
|
|
|
2.0 |
|
|
|
0.4 |
|
|
|
9.9 |
|
|
|
1.6 |
|
|
|
11.5 |
|
Colorado |
|
|
0.5 |
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
4.9 |
|
|
|
0.9 |
|
|
|
2.1 |
|
|
|
0.9 |
|
|
|
8.8 |
|
|
|
2.1 |
|
|
|
10.9 |
|
All other |
|
|
6.2 |
|
|
|
20.1 |
|
|
|
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 |
|
$ |
29.8 |
|
|
$ |
84.5 |
|
|
$ |
72.5 |
|
|
$ |
15.3 |
|
|
$ |
9.0 |
|
|
$ |
211.1 |
|
|
$ |
42.6 |
|
|
$ |
104.7 |
|
|
$ |
35.6 |
|
|
$ |
394.0 |
|
|
$ |
85.6 |
|
|
$ |
479.6 |
|
|
77
The following table presents the geographic distribution of home loans with estimated loan-to-value
(LTVs) in excess of 100% as of September 30, 2009, and December 31, 2008, excluding purchased
credit-impaired loans acquired in the Washington Mutual transaction. The collateral values that
were used to calculate the current estimated LTV ratios in the following table were derived from a
nationally recognized home price index measured at the MSA level. Because such values do not
represent actual appraised loan-level collateral values, the resulting ratios are necessarily
imprecise and should therefore be viewed as estimates.
Geographic distribution of home loans with estimated LTVs >100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
Home equity |
|
|
|
|
|
Subprime |
|
|
|
|
(in billions, except ratios) |
|
junior lien(a) |
|
Prime mortgage |
|
mortgage |
|
Total |
|
% of total loans |
|
California |
|
$ |
8.3 |
|
|
$ |
8.1 |
|
|
$ |
1.2 |
|
|
$ |
17.6 |
|
|
|
45 |
% |
New York |
|
|
2.7 |
|
|
|
1.2 |
|
|
|
0.4 |
|
|
|
4.3 |
|
|
|
18 |
|
Arizona |
|
|
3.0 |
|
|
|
1.0 |
|
|
|
0.2 |
|
|
|
4.2 |
|
|
|
74 |
|
Florida |
|
|
3.2 |
|
|
|
3.6 |
|
|
|
1.4 |
|
|
|
8.2 |
|
|
|
66 |
|
Michigan |
|
|
1.3 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
|
2.3 |
|
|
|
61 |
|
All other |
|
|
9.9 |
|
|
|
5.8 |
|
|
|
2.0 |
|
|
|
17.7 |
|
|
|
24 |
|
|
|
|
|
|
Total LTV >100% |
|
$ |
28.4 |
|
|
$ |
20.4 |
|
|
$ |
5.5 |
|
|
$ |
54.3 |
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans |
|
|
37 |
% |
|
|
30 |
% |
|
|
41 |
% |
|
|
34 |
% |
|
|
|
|
Total portfolio average LTV at origination |
|
|
74 |
|
|
|
73 |
|
|
|
79 |
|
|
|
74 |
|
|
|
|
|
Total portfolio average estimated current LTV(b) |
|
|
99 |
|
|
|
90 |
|
|
|
102 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
Home equity |
|
|
|
|
|
Subprime |
|
|
|
|
(in billions, except ratios) |
|
junior lien(a) |
|
Prime mortgage |
|
mortgage |
|
Total |
|
% of total loans |
|
California |
|
$ |
8.3 |
|
|
$ |
7.4 |
|
|
$ |
1.2 |
|
|
$ |
16.9 |
|
|
|
38 |
% |
New York |
|
|
1.8 |
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
2.7 |
|
|
|
11 |
|
Arizona |
|
|
2.9 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
3.9 |
|
|
|
63 |
|
Florida |
|
|
2.9 |
|
|
|
2.7 |
|
|
|
1.5 |
|
|
|
7.1 |
|
|
|
53 |
|
Michigan |
|
|
1.4 |
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
2.1 |
|
|
|
54 |
|
All other |
|
|
7.3 |
|
|
|
3.1 |
|
|
|
1.7 |
|
|
|
12.1 |
|
|
|
15 |
|
|
|
|
|
|
Total LTV >100% |
|
$ |
24.6 |
|
|
$ |
15.1 |
|
|
$ |
5.1 |
|
|
$ |
44.8 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total loans |
|
|
29 |
% |
|
|
21 |
% |
|
|
33 |
% |
|
|
26 |
% |
|
|
|
|
Total portfolio average LTV at origination |
|
|
75 |
|
|
|
72 |
|
|
|
79 |
|
|
|
74 |
|
|
|
|
|
Total portfolio average estimated current LTV(b) |
|
|
90 |
|
|
|
81 |
|
|
|
92 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
(a) |
|
Represents combined loan-to-value, which considers all lien positions related to the
property. |
|
(b) |
|
The average estimated current LTV ratio reflects the outstanding balance at the balance sheet
date, divided by the estimated current property value. Current property values are estimated
based on home valuation models utilizing nationally recognized home price index valuation
estimates. |
The following discussion relates to the specific loan and lending-related categories within the
consumer portfolio.
Home equity: Home equity loans at September 30, 2009, were $104.8 billion, excluding purchased
credit-impaired loans, a decrease of $9.5 billion from year-end 2008. The decrease primarily
reflected 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 included net increases
of $1.5 billion to the allowance for loan losses, reflecting the impact of the weak economic
environment. Early-stage delinquencies have shown signs of stabilization despite seasonal upward
pressure, and credit losses have declined from the prior quarter. Senior lien nonperforming loans
and net charge-offs have continued to increase due to the weak economic environment. Junior lien
nonperforming loans were relatively unchanged from year-end 2008, while credit losses have
increased from the prior-year quarter, as a result of a greater number of loans being fully charged
off. 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.
78
Mortgage: Mortgage loans at September 30, 2009, which include prime mortgages, subprime mortgages,
option adjustable-rate mortgages (option ARMs) and mortgage loans held-for-sale, were $90.0
billion, excluding purchased credit-impaired loans. This represented a $6.8 billion decrease from
year-end 2008, due to lower prime mortgage loans retained in the portfolio, as well as run-off of
the subprime mortgage portfolio.
Prime mortgages of $67.8 billion decreased $4.7 billion from December 31, 2008. The year-to-date
2009 provision for credit losses includes a net increase of $1.0 billion to the allowance for loan
losses reflecting the impact of the weak economic environment. Early-stage delinquencies have
remained relatively stable through the third quarter, while late-stage delinquencies have increased
as a result of prior foreclosure moratoriums and ongoing trial modification activity, driving an
increase in nonperforming loans.
Subprime mortgages of $13.3 billion, excluding purchased credit-impaired loans, decreased $2.0
billion from December 31, 2008, as a result of the discontinuation of new originations, charge-offs
and foreclosures on delinquent loans. The year-to-date 2009 provision for credit losses includes a
net increase of $225 million to the allowance for loan losses, reflecting the impact of the weak
economic environment.
Option ARMs of $8.9 billion, excluding purchased credit-impaired loans, represent less than 5% of
non-credit impaired real estate loans and were relatively unchanged compared with December 31,
2008. This portfolio is primarily comprised of loans with low LTVs and high borrower FICOs, and to
which the Firm currently expects substantially lower losses in comparison with the purchased
credit-impaired portfolio. Approximately 3% of borrowers, representing loans with a carrying value
of $293 million, were electing to make only the minimum or interest-only payment on option ARMs
during the three months ended September 30, 2009. New originations of option ARMs were discontinued
by Washington Mutual prior to the date of JPMorgan Chases acquisition of Washington Mutual. The
Firm has not originated, and does not originate, option ARMs.
Auto loans: As of September 30, 2009, auto loans were $44.3 billion, an increase of $1.7 billion
from year-end 2008, partially as a result of new originations in connection with the U.S.
governments cash for clunkers program in the third quarter. Delinquent loans were slightly lower
than in the prior quarter. Loss severities also decreased as a result of higher used-car prices
nationwide. The auto loan portfolio reflects a high concentration of prime-quality credits.
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 securitizations. Managed credit card receivables were $165.2 billion at September 30, 2009,
a decrease of $25.1 billion from year-end 2008, reflecting lower charge volume and a higher level
of charge-offs.
The 30-day managed delinquency rate increased to 5.99% at September 30, 2009, from 4.97% at
December 31, 2008, as a result of deterioration in the current economic environment. The managed
credit card net charge-off rate increased to 10.30% for the third quarter of 2009, from 5.00% in
the third quarter of 2008. The year-to-date managed credit card net charge-off rate increased to
9.32% in 2009, from 4.79% in 2008. These increases were due primarily to higher charge-offs as a
result of the current economic environment, especially in MSAs experiencing the greatest housing
price depreciation and highest unemployment and to the credit performance of loans acquired in the
Washington Mutual transaction. The allowance for loan losses was increased by $2.0 billion for the
year-to-date 2009, through additional provision for credit losses. The managed credit card
portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S.
geographic diversification.
Managed credit card receivables, excluding the Washington Mutual portfolio, were $144.1 billion at
September 30, 2009, compared with $162.1 billion at December 31, 2008; while the 30-day managed
delinquency rate was 5.38% at September 30, 2009, up from 4.36% at December 31, 2008. The managed
credit card net charge-off rate excluding the Washington Mutual portfolio increased to 9.41% for
the third quarter of 2009 from 5.00% in the third quarter of 2008, while the year-to-date managed
credit card net charge-off rate increased to 8.39% in 2009 from 4.79% in 2008.
Managed credit card receivables of the Washington Mutual portfolio were $21.2 billion at September
30, 2009, compared with $28.3 billion at December 31, 2008. Excluding the impact of the purchase
accounting adjustments related to the Washington Mutual transaction and the consolidation of the
Washington Mutual Master Trust, the Washington Mutual portfolios 30-day managed delinquency rate
was 12.44% at September 30, 2009 compared with 9.14% at December 31, 2008, while the third quarter
and year-to-date 2009 net charge-off rates were 21.94% and 18.32%, respectively.
79
All other: 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 September 30, 2009, other loans, including loans held-for-sale,
were $33.7 billion, down $1.9 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, primarily in the business banking and student loan
portfolios, reflecting the impact of the weak economic environment in the business banking and
student loan portfolios.
Purchased credit-impaired: Purchased credit-impaired loans were $83.2 billion at September 30,
2009, compared with $88.8 billion at December 31, 2008. This portfolio represents loans acquired in
the Washington Mutual transaction that were recorded at fair value at the time of acquisition. The
fair value of these loans included an estimate of credit losses expected to be realized over the
remaining lives of the loans, and therefore no allowance for loan losses was recorded for these
loans as of the acquisition date.
During the third quarter of 2009, management concluded that it was probable that higher expected
future credit losses for the purchased credit-impaired prime mortgage portfolio would result in a
decrease in expected future cash flows for this pool. As a result, an allowance for loan losses of
$1.1 billion was established. The credit performance of the
other pools has generally been
consistent with the estimate of losses at the acquisition date. Accordingly, an expected change in
the amounts and timing of future cash flows related to these pools of loans has not occurred. A
probable decrease in expectation of future cash collections on these loans would
result in the need to record an additional allowance for credit losses. 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 loans.
The following table presents the current estimated LTV ratio, as well as the ratio of the carrying
value of the underlying loans to the current collateral value, for purchased credit-impaired loans.
Because such loans were initially measured at fair value, the ratio of the carrying value to the
current collateral value will be lower than the current estimated LTV ratio, which is based on the
unpaid principal balance. The collateral values used to calculate these ratios were derived from a
nationally recognized home price index measured at the MSA level. Because such values do not
represent actual appraised loan-level collateral values, the resulting ratios are necessarily
imprecise and should therefore be viewed as estimates.
LTV ratios and ratios of carrying values to current collateral values
purchased credit-impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of carrying |
September 30, 2009 |
|
Unpaid principal |
|
Current estimated |
|
|
|
value to current |
(in millions, except ratios) |
|
balance(b) |
|
LTV
ratio(c) |
|
Carrying
value(e) |
|
collateral value |
|
Option
ARMs (a) |
|
$ |
38,493 |
|
|
|
111 |
% |
|
$ |
29,750 |
|
|
|
86 |
% |
Home equity |
|
|
34,441 |
|
|
|
115 |
(d) |
|
|
27,088 |
|
|
|
90 |
|
Prime mortgage |
|
|
22,682 |
|
|
|
107 |
|
|
|
20,229 |
|
|
|
90 |
(f) |
Subprime mortgage |
|
|
9,301 |
|
|
|
111 |
|
|
|
6,135 |
|
|
|
73 |
|
|
Total |
|
$ |
104,917 |
|
|
|
111 |
% |
|
$ |
83,202 |
|
|
|
87 |
% |
|
|
|
|
(a) |
|
The percentage of borrowers electing to make only the minimum or interest-only payment on
option ARMs was 22% during the three months ended September 30, 2009. The amount of unpaid
interest added to the unpaid principal balance of option ARMs was $1.9 billion at September
30, 2009. Assuming a stable interest rate environment, if all eligible borrowers elect the
minimum payment option all of the time and no borrowers prepay, the Firm would expect the
following balance of loans to experience a payment recast based on reaching the principal cap:
$193 million in the remainder of 2009, $2.1 billion in 2010 and $1.7 billion in 2011. |
|
(b) |
|
Represents the contractual amount of principal owed at September 30,
2009.
|
|
(c) |
|
Represents the aggregate unpaid principal balance of loans divided by the collateral value.
Current property values are estimated based on home valuation models utilizing nationally
recognized home price index valuation estimates. |
|
(d) |
|
Represents combined loan-to-value, which considers all lien positions related to the
property. |
|
(e) |
|
Carrying values include the effect of fair value adjustments that were
applied to the consumer purchased credit-impaired portfolio at the
date of acquisition.
|
|
(f) |
|
Ratio of carrying value to current collateral value for the prime mortgage portfolio is net
of the allowance for loan losses of $1.1 billion. |
Purchased credit-impaired loans in the states of California and Florida represented 54% and 11%,
respectively, of total purchased credit-impaired loans at September 30, 2009. The current estimated
LTV ratios were 118% and 136% in California and Florida, respectively, at September 30, 2009.
Real
estate owned (REO): 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 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 expense, such as real estate taxes and maintenance, are charged to other
expense.
REO assets declined from year-end 2008 as a result of the foreclosure moratorium in early 2009 and
the subsequent increase in loss-mitigation activities. It is anticipated that REO assets will
increase over the next several quarters, as loans moving through the foreclosure process are
expected to increase.
80
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chases allowance for loan losses covers the wholesale (risk-rated) and consumer
(primarily scored) loan portfolios and represents managements estimate of probable credit losses
inherent in the Firms loan portfolio. Management also computes an allowance for wholesale
lending-related commitments using a methodology similar to that used for the wholesale
loans. During the nine-month period ended September 30, 2009, the Firm has not made any significant
changes to the methodologies or policies described in the following paragraphs.
Wholesale loans are charged off to the allowance for loan losses when it is highly certain that a
loss has been realized; this determination considers many factors, including the prioritization of
the Firms claim in bankruptcy, expectations of the workout/restructuring of the loan, and
valuation of the borrowers equity. Consumer loans, other than purchased credit-impaired loans, are
generally charged off to the allowance for loan losses upon reaching specified stages of
delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For
example, 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 of receiving notification about a specified event (e.g., bankruptcy
of the borrower), whichever is earlier. Residential mortgage products are generally charged off to
an amount equal to the net realizable value of the underlying collateral based on a broker price
opinion, no later than the date the loan becomes 180 days past due. Other consumer products, if
collateralized, are generally charged off to the net realizable value of the underlying collateral
at 120 days past due.
Determining the appropriateness of the allowance is complex and requires judgment about the effect
of matters that are inherently uncertain. Assumptions about unemployment rates, housing prices and
overall economic conditions could have a significant impact on the Firms determination of loan
quality. Subsequent evaluations of the loan portfolio, in light of then-prevailing factors, may
result in significant changes in the allowances for loan losses and lending-related commitments in
future periods. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk
Officer, the Chief Financial Officer and the Controller of the Firm and discussed with the Risk
Policy and Audit Committees of the Board of Directors of the Firm. As of September 30, 2009,
JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb
losses inherent in the portfolio, including those not yet identifiable).
For a further discussion of the components of the allowance for credit losses, see Critical
Accounting Estimates Used by the Firm on pages 92-94 and Note 14 on pages 146-147 of this Form
10-Q, and pages 107-108 and Note 15 on pages 166-168 of JPMorgan Chases 2008 Annual Report.
The credit ratios in the table below are based on retained loan balances, which exclude loans
held-for-sale (with valuation changes recorded in noninterest revenue); and loans accounted for at
fair value (with changes in fair value recorded in noninterest revenue). As of September
30, 2009 and 2008, wholesale retained loans were $213.7 billion and $271.5 billion, respectively;
and consumer retained loans were $432.6 billion and $471.3 billion, respectively. For the nine
months ended September 30, 2009 and 2008, average wholesale retained loans were $228.5 billion and
$206.5 billion, respectively; and average consumer retained loans were $456.1 billion and $304.5
billion, respectively. Also provided in the following table is a credit ratio excluding the
following items: home lending purchased credit-impaired loans acquired in the Washington Mutual
transaction; and credit card loans consolidated from the Washington Mutual Master Trust, which were
consolidated on the Firms balance sheet at fair value during the second quarter of 2009. The
purchased credit-impaired 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. Accordingly, no allowance for loan losses was recorded for these loans as of the
acquisition date. Subsequent evaluations of estimated credit deterioration in this portfolio
resulted in the recording of an allowance for loan losses of $1.1 billion at September 30, 2009.
For more information on home lending purchased credit-impaired loans,
see pages 74-75 and 80 of this Form
10-Q. For more information on the consolidation of assets from the Washington Mutual Master Trust,
see Note 15 on pages 147-155 of this Form 10-Q.
81
Summary of changes in the allowance for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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 |
|
|
1,996 |
|
|
|
15,562 |
|
|
|
17,558 |
|
|
|
283 |
|
|
|
6,932 |
|
|
|
7,215 |
|
Gross recoveries |
|
|
(68 |
) |
|
|
(702 |
) |
|
|
(770 |
) |
|
|
(98 |
) |
|
|
(597 |
) |
|
|
(695 |
) |
|
Net charge-offs |
|
|
1,928 |
|
|
|
14,860 |
|
|
|
16,788 |
|
|
|
185 |
|
|
|
6,335 |
|
|
|
6,520 |
|
Provision for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision excluding accounting policy conformity |
|
|
3,380 |
|
|
|
21,189 |
|
|
|
24,569 |
|
|
|
1,788 |
|
|
|
10,039 |
|
|
|
11,827 |
|
Accounting policy conformity(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
564 |
|
|
|
1,412 |
|
|
|
1,976 |
|
|
Total provision for loan losses |
|
|
3,380 |
|
|
|
21,189 |
|
|
|
24,569 |
|
|
|
2,352 |
|
|
|
11,451 |
|
|
|
13,803 |
|
Acquired allowance resulting from the Washington Mutual
transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
2,306 |
|
|
|
2,535 |
|
Other(b) |
|
|
44 |
|
|
|
(356 |
) |
|
|
(312 |
) |
|
|
29 |
|
|
|
(29 |
) |
|
|
|
|
|
Ending balance at September 30 |
|
$ |
8,041 |
|
|
$ |
22,592 |
|
|
$ |
30,633 |
|
|
$ |
5,579 |
|
|
$ |
13,473 |
|
|
$ |
19,052 |
|
|
Components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
2,410 |
|
|
$ |
161 |
|
|
$ |
2,571 |
|
|
$ |
253 |
|
|
$ |
70 |
|
|
$ |
323 |
|
Formula-based |
|
|
5,631 |
|
|
|
22,431 |
|
|
|
28,062 |
|
|
|
5,326 |
|
|
|
13,403 |
|
|
|
18,729 |
|
|
Total allowance for loan losses |
|
$ |
8,041 |
|
|
$ |
22,592 |
|
|
$ |
30,633 |
|
|
$ |
5,579 |
|
|
$ |
13,473 |
|
|
$ |
19,052 |
|
|
Allowance for lending-related commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, |
|
$ |
634 |
|
|
$ |
25 |
|
|
$ |
659 |
|
|
$ |
835 |
|
|
$ |
15 |
|
|
$ |
850 |
|
Provision for lending-related commitments |
|
|
173 |
|
|
|
(11 |
) |
|
|
162 |
|
|
|
(138 |
) |
|
|
1 |
|
|
|
(137 |
) |
Other(b) |
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
7 |
|
|
|
(7 |
) |
|
|
|
|
|
Ending balance at September 30 |
|
$ |
810 |
|
|
$ |
11 |
|
|
$ |
821 |
|
|
$ |
704 |
|
|
$ |
9 |
|
|
$ |
713 |
|
|
Components: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
213 |
|
|
$ |
|
|
|
$ |
213 |
|
|
$ |
34 |
|
|
$ |
|
|
|
$ |
34 |
|
Formula-based |
|
|
597 |
|
|
|
11 |
|
|
|
608 |
|
|
|
670 |
|
|
|
9 |
|
|
|
679 |
|
|
Total allowance for lending-related commitments |
|
$ |
810 |
|
|
$ |
11 |
|
|
$ |
821 |
|
|
$ |
704 |
|
|
$ |
9 |
|
|
$ |
713 |
|
|
Total allowance for credit losses |
|
$ |
8,851 |
|
|
$ |
22,603 |
|
|
$ |
31,454 |
|
|
$ |
6,283 |
|
|
$ |
13,482 |
|
|
$ |
19,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to retained loans |
|
|
3.76 |
% |
|
|
5.22 |
% |
|
|
4.74 |
% |
|
|
2.06 |
% |
|
|
2.86 |
% |
|
|
2.56 |
% |
Net charge-off rates(c) |
|
|
1.13 |
|
|
|
4.36 |
|
|
|
3.28 |
|
|
|
0.12 |
|
|
|
2.78 |
|
|
|
1.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit ratios excluding home
lending purchased credit-impaired
loans and loans held by the
Washington Mutual Master Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to retained loans(d) |
|
|
3.77 |
|
|
|
6.21 |
|
|
|
5.28 |
|
|
|
2.06 |
|
|
|
3.42 |
|
|
|
2.87 |
|
|
|
|
|
(a) |
|
Related to the Washington Mutual transaction in the third quarter of 2008. |
|
(b) |
|
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. |
|
(c) |
|
Charge-offs are not recorded on purchased credit-impaired loans until actual losses exceed
estimated losses that were recorded as purchase accounting adjustments at the time of
acquisition. |
|
(d) |
|
Excludes the impact of purchased credit-impaired loans that were acquired as part of the
Washington Mutual transaction and loans held by the Washington Mutual Master Trust, which were
consolidated onto the Firms balance sheet at fair value during the second quarter of 2009.
During the third quarter of 2009, an allowance for loan losses of $1.1 billion was recorded
for the purchased credit-impaired loans acquired in the Washington Mutual transaction. No
allowance was recorded for the loans that were consolidated from the Washington Mutual Master
Trust as of September 30, 2009. To date, no charge-offs have been recorded for any of these
loans. |
82
The calculation of the allowance for loan losses to total retained loans, excluding both home
lending purchased credit-impaired loans and loans held by the Washington Mutual Master Trust, is
presented below.
|
|
|
|
|
|
|
|
|
September 30, (in millions, except ratios) |
|
2009 |
|
2008 |
|
Allowance for loan losses |
|
$ |
30,633 |
|
|
$ |
19,052 |
|
Less: Allowance for purchased credit-impaired loans |
|
|
1,090 |
|
|
|
|
|
|
Adjusted allowance for loan losses |
|
$ |
29,543 |
|
|
$ |
19,052 |
|
|
|
|
|
|
|
|
|
|
|
Total loans retained |
|
$ |
646,363 |
|
|
$ |
742,797 |
|
Less: Firmwide purchased credit-impaired loans |
|
|
83,388 |
|
|
|
78,125 |
|
Loans held by the Washington Mutual Master Trust |
|
|
3,008 |
|
|
|
|
|
|
Adjusted loans |
|
$ |
559,967 |
|
|
$ |
664,672 |
|
Allowance for loan losses to ending loans excluding purchased credit-impaired loans and
loans held by the Washington Mutual Master Trust |
|
|
5.28 |
% |
|
|
2.87 |
% |
|
The allowance for credit losses increased by $7.6 billion from December 31, 2008, to $31.5 billion,
reflecting increases of $6.0 billion and $1.6 billion in the consumer and wholesale portfolios,
respectively. Excluding held-for-sale loans, loans carried at fair value, purchased credit-impaired
loans and loans held by the Washington Mutual Master Trust, the allowance for loan losses
represented 5.28% of loans at September 30, 2009, compared with 3.62% at December 31, 2008. The
consumer allowance increased by $4.4 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 by
$1.6 billion for Card Services, due to the weakening credit environment. The increase in the
wholesale allowance for loan losses of $1.5 billion reflected the effect of this continued
deterioration in the credit environment.
The allowance for lending-related commitments, which is reported in other liabilities, was $821
million and $659 million at September 30, 2009, and December 31, 2008, respectively. The increase
reflects the continued deterioration in the credit environment.
The following table presents the allowance for credit losses by business segment at September 30,
2009 and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2009 |
|
|
December
31, 2008 |
|
|
|
|
|
|
Allowance for |
|
|
|
|
|
|
|
|
Allowance for |
|
|
|
|
|
|
Allowance for |
|
|
lending-related |
|
|
Total allowance |
|
|
Allowance for |
|
|
lending-related |
|
|
Total allowance |
|
(in millions) |
|
loan losses |
|
|
commitments |
|
|
for credit losses |
|
|
loan losses |
|
|
commitments |
|
|
for credit losses |
|
|
Investment Bank |
|
$ |
4,703 |
|
|
$ |
401 |
|
|
$ |
5,104 |
|
|
$ |
3,444 |
|
|
$ |
360 |
|
|
$ |
3,804 |
|
Commercial Banking |
|
|
3,063 |
|
|
|
300 |
|
|
|
3,363 |
|
|
|
2,826 |
|
|
|
206 |
|
|
|
3,032 |
|
Treasury & Securities Services |
|
|
15 |
|
|
|
104 |
|
|
|
119 |
|
|
|
74 |
|
|
|
63 |
|
|
|
137 |
|
Asset Management |
|
|
251 |
|
|
|
5 |
|
|
|
256 |
|
|
|
191 |
|
|
|
5 |
|
|
|
196 |
|
Corporate/Private Equity |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
Total Wholesale |
|
|
8,041 |
|
|
|
810 |
|
|
|
8,851 |
|
|
|
6,545 |
|
|
|
634 |
|
|
|
7,179 |
|
|
Retail Financial Services |
|
|
13,286 |
|
|
|
11 |
|
|
|
13,297 |
|
|
|
8,918 |
|
|
|
25 |
|
|
|
8,943 |
|
Card
Services |
|
|
9,297 |
|
|
|
|
|
|
|
9,297 |
|
|
|
7,692 |
|
|
|
|
|
|
|
7,692 |
|
Corporate/Private Equity |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
Total
Consumer |
|
|
22,592 |
|
|
|
11 |
|
|
|
22,603 |
|
|
|
16,619 |
|
|
|
25 |
|
|
|
16,644 |
|
|
Total |
|
$ |
30,633 |
|
|
$ |
821 |
|
|
$ |
31,454 |
|
|
$ |
23,164 |
|
|
$ |
659 |
|
|
$ |
23,823 |
|
|
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 $9.8 billion for the three
months ended September 30, 2009, up by $3.1 billion from the prior year. The prior-year quarter
included a $2.0 billion charge to conform Washington Mutuals allowance for loan losses, which
affected both the consumer and wholesale portfolios. For the purpose of the following analysis,
this charge is excluded. The total consumer managed provision for credit losses was $9.0 billion in
the current quarter, compared with $4.3 billion in the prior year, reflecting the continued
deterioration in the credit environment. The increase in the consumer provision reflected increases
in estimated losses across most of the portfolios. The wholesale provision for credit losses was
$779 million for the third quarter of 2009, compared with $398 million in the prior year,
reflecting the continued deterioration in the credit environment. The managed provision for credit
losses was $29.6 billion for the nine months ended September 30, 2009, up by $15.5 billion from the
prior year-to-date period in both the consumer and wholesale provisions for credit losses
reflecting the continued deterioration in the credit environment.
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for lending- |
|
|
Total provision |
|
|
|
Provision for loan losses |
|
|
related commitments |
|
|
for credit losses |
|
Three months ended September 30, (in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank |
|
$ |
330 |
|
|
$ |
238 |
|
|
$ |
49 |
|
|
$ |
(4 |
) |
|
$ |
379 |
|
|
$ |
234 |
|
Commercial Banking |
|
|
326 |
|
|
|
105 |
|
|
|
29 |
|
|
|
21 |
|
|
|
355 |
|
|
|
126 |
|
Treasury & Securities Services |
|
|
1 |
|
|
|
7 |
|
|
|
12 |
|
|
|
11 |
|
|
|
13 |
|
|
|
18 |
|
Asset Management |
|
|
37 |
|
|
|
21 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
38 |
|
|
|
20 |
|
Corporate/Private Equity(a) |
|
|
(6 |
) |
|
|
564 |
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
564 |
|
|
Total wholesale |
|
|
688 |
|
|
|
935 |
|
|
|
91 |
|
|
|
27 |
|
|
|
779 |
|
|
|
962 |
|
Retail Financial Services |
|
|
4,004 |
|
|
|
2,056 |
|
|
|
(16 |
) |
|
|
|
|
|
|
3,988 |
|
|
|
2,056 |
|
Card Services reported |
|
|
3,269 |
|
|
|
1,356 |
|
|
|
|
|
|
|
|
|
|
|
3,269 |
|
|
|
1,356 |
|
Corporate/Private Equity(a) |
|
|
68 |
|
|
|
1,413 |
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
1,413 |
|
|
Total consumer |
|
|
7,341 |
|
|
|
4,825 |
|
|
|
(16 |
) |
|
|
|
|
|
|
7,325 |
|
|
|
4,825 |
|
|
Total provision for credit losses reported |
|
|
8,029 |
|
|
|
5,760 |
|
|
|
75 |
|
|
|
27 |
|
|
|
8,104 |
|
|
|
5,787 |
|
Credit card securitized |
|
|
1,698 |
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
1,698 |
|
|
|
873 |
|
|
Total provision for credit losses managed |
|
$ |
9,727 |
|
|
$ |
6,633 |
|
|
$ |
75 |
|
|
$ |
27 |
|
|
$ |
9,802 |
|
|
$ |
6,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for lending- |
|
|
Total provision |
|
|
|
Provision for loan losses |
|
|
related commitments |
|
|
for credit losses |
|
Nine months ended September 30, (in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Investment Bank |
|
$ |
2,419 |
|
|
$ |
1,347 |
|
|
$ |
41 |
|
|
$ |
(97 |
) |
|
$ |
2,460 |
|
|
$ |
1,250 |
|
Commercial Banking |
|
|
869 |
|
|
|
325 |
|
|
|
91 |
|
|
|
(51 |
) |
|
|
960 |
|
|
|
274 |
|
Treasury & Securities Services |
|
|
(39 |
) |
|
|
25 |
|
|
|
41 |
|
|
|
12 |
|
|
|
2 |
|
|
|
37 |
|
Asset Management |
|
|
130 |
|
|
|
55 |
|
|
|
|
|
|
|
(2 |
) |
|
|
130 |
|
|
|
53 |
|
Corporate/Private Equity(a) |
|
|
1 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
600 |
|
|
Total wholesale |
|
|
3,380 |
|
|
|
2,352 |
|
|
|
173 |
|
|
|
(138 |
) |
|
|
3,553 |
|
|
|
2,214 |
|
Retail Financial Services |
|
|
11,722 |
|
|
|
6,328 |
|
|
|
(11 |
) |
|
|
1 |
|
|
|
11,711 |
|
|
|
6,329 |
|
Card Services reported |
|
|
9,397 |
|
|
|
3,709 |
|
|
|
|
|
|
|
|
|
|
|
9,397 |
|
|
|
3,709 |
|
Corporate/Private Equity(a) |
|
|
70 |
|
|
|
1,414 |
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
1,414 |
|
|
Total consumer |
|
|
21,189 |
|
|
|
11,451 |
|
|
|
(11 |
) |
|
|
1 |
|
|
|
21,178 |
|
|
|
11,452 |
|
|
Total provision for credit losses reported |
|
|
24,569 |
|
|
|
13,803 |
|
|
|
162 |
|
|
|
(137 |
) |
|
|
24,731 |
|
|
|
13,666 |
|
Credit card securitized |
|
|
4,826 |
|
|
|
2,384 |
|
|
|
|
|
|
|
|
|
|
|
4,826 |
|
|
|
2,384 |
|
|
Total provision for credit losses managed |
|
$ |
29,395 |
|
|
$ |
16,187 |
|
|
$ |
162 |
|
|
$ |
(137 |
) |
|
$ |
29,557 |
|
|
$ |
16,050 |
|
|
|
|
|
(a) |
|
Includes accounting conformity provisions related to the Washington Mutual transaction in
2008. |
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, for
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 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 106-121 of this Form 10-Q. Credit
portfolio VaR does not include the retained loan portfolio, which is not marked to market.
84
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 assumption may not always be accurate, particularly given the
volatility in the recent 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 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 present VaR solely 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.
The table
below shows the results of the Firms VaR measure using the
legacy 99% confidence level.
99% Confidence Level VaR
IB trading VaR by risk type and credit portfolio VaR
|
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Nine months ended |
|
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|
Three months ended September 30, |
|
|
|
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|
|
|
|
|
|
September 30,(c) |
|
|
|
2009 |
|
|
2008 |
|
|
At September 30, |
|
|
Average |
|
(in millions) |
|
Avg. |
|
|
Min |
|
|
Max |
|
|
Avg. |
|
|
Min |
|
|
Max |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
By risk type: |
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
243 |
|
|
$ |
209 |
|
|
$ |
288 |
|
|
$ |
183 |
|
|
$ |
144 |
|
|
$ |
255 |
|
|
$ |
283 |
|
|
$ |
228 |
|
|
$ |
237 |
|
|
$ |
150 |
|
Foreign exchange |
|
|
30 |
|
|
|
18 |
|
|
|
49 |
|
|
|
20 |
|
|
|
13 |
|
|
|
33 |
|
|
|
33 |
|
|
|
15 |
|
|
|
32 |
|
|
|
27 |
|
Equities |
|
|
28 |
|
|
|
13 |
|
|
|
59 |
|
|
|
80 |
|
|
|
19 |
|
|
|
187 |
|
|
|
15 |
|
|
|
94 |
|
|
|
88 |
|
|
|
47 |
|
Commodities and
other |
|
|
38 |
|
|
|
24 |
|
|
|
52 |
|
|
|
41 |
|
|
|
27 |
|
|
|
53 |
|
|
|
26 |
|
|
|
37 |
|
|
|
34 |
|
|
|
33 |
|
Diversification |
|
|
(134) |
(a) |
|
NM |
(b) |
|
NM |
(b) |
|
|
(104 |
)(a) |
|
NM |
(b) |
|
NM |
(b) |
|
|
(129) |
(a) |
|
|
(109 |
)(a) |
|
|
(144) |
(a) |
|
|
(95 |
)(a) |
|
|
|
|
|
|
|
|
|
|
Trading VaR |
|
$ |
205 |
|
|
$ |
149 |
|
|
$ |
260 |
|
|
$ |
220 |
|
|
$ |
133 |
|
|
$ |
325 |
|
|
$ |
228 |
|
|
$ |
265 |
|
|
$ |
247 |
|
|
$ |
162 |
|
Credit portfolio VaR |
|
|
50 |
|
|
|
35 |
|
|
|
67 |
|
|
|
47 |
|
|
|
37 |
|
|
|
105 |
|
|
|
39 |
|
|
|
105 |
|
|
|
120 |
|
|
|
38 |
|
Diversification |
|
|
(49) |
(a) |
|
NM |
(b) |
|
NM |
(b) |
|
|
(49 |
)(a) |
|
NM |
(b) |
|
NM |
(b) |
|
|
(31) |
(a) |
|
|
(117 |
)(a) |
|
|
(99) |
(a) |
|
|
(39 |
)(a) |
|
|
|
|
|
|
|
|
|
|
Total trading and
credit portfolio
VaR |
|
$ |
206 |
|
|
$ |
160 |
|
|
$ |
247 |
|
|
$ |
218 |
|
|
$ |
141 |
|
|
$ |
309 |
|
|
$ |
236 |
|
|
$ |
253 |
|
|
$ |
268 |
|
|
$ |
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 nine months ended September 30, 2008, included five months of heritage
JPMorgan Chase & Co. only results and four months of combined JPMorgan Chase & Co. and Bear
Stearns results. |
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 89 of
this Form 10-Q for further details. For a discussion of MSRs and the corporate functions, see Note
3 on pages 106-121; Note 17 on pages 162-163 and Corporate/Private Equity on pages 47-49 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.
Third-quarter 2009 VaR results (99% Confidence Level VaR)
IBs average total trading and credit portfolio VaR for the third quarter and first nine months of
2009 were $206 million and $268 million, respectively, compared with $218 million in the third
quarter and $161 million in the first nine months of 2008. The decrease in VaR for the third
quarter of 2009 compared with the third quarter of 2008 was primarily driven by a reduction in
exposures, which was partially offset by an increase in market volatility. The increase in VaR in
the year-over-year nine-month period was primarily due to increased market volatility across all
asset classes. For the third quarter of 2009, compared with the
prior-year period, average trading VaR diversification increased to $134 million, or 40% of the sum
of the components, from $104 million, or 32% of the sum of the components. In general, over the
course of the year, VaR exposures can vary significantly as positions change, market volatility
fluctuates and diversification benefits change.
85
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 nine months of 2009. The chart shows that IB
posted market risk-related gains on 161 out of 195 days in this period, with 51 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 34 days during the nine months ended September 30, 2009, and with no loss exceeding
the VaR measure. For the first nine months of 2008, losses had exceeded the VaR measure on three
days, 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.
Daily IB Trading & Credit Portfolio Market Risk-Related Gains and Losses
(99% Confidence Level VaR)
Nine Months Ended September 30, 2009
86
The table below shows the results of the Firms VaR measure using a 95% confidence level.
95% Confidence Level VaR
Total IB trading VaR by risk type, credit portfolio VaR and other VaR
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Nine months |
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ended |
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|
|
Three months ended September 30, |
|
|
|
|
|
|
|
|
|
|
September 30,(a) |
|
|
|
2009 |
|
|
2008 |
|
|
At September 30, |
|
|
Average |
|
(in millions) |
|
Avg. |
|
|
Min |
|
|
Max |
|
|
Avg. |
|
|
Min |
|
|
Max |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
IB VaR by risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
182 |
|
|
$ |
163 |
|
|
$ |
212 |
|
|
$ |
130 |
|
|
$ |
103 |
|
|
$ |
167 |
|
|
$ |
210 |
|
|
$ |
139 |
|
|
$ |
173 |
|
Foreign exchange |
|
|
19 |
|
|
|
12 |
|
|
|
28 |
|
|
|
13 |
|
|
|
9 |
|
|
|
23 |
|
|
|
21 |
|
|
|
11 |
|
|
|
19 |
|
Equities |
|
|
19 |
|
|
|
9 |
|
|
|
40 |
|
|
|
46 |
|
|
|
12 |
|
|
|
111 |
|
|
|
10 |
|
|
|
54 |
|
|
|
55 |
|
Commodities and
other |
|
|
23 |
|
|
|
14 |
|
|
|
32 |
|
|
|
24 |
|
|
|
14 |
|
|
|
33 |
|
|
|
18 |
|
|
|
23 |
|
|
|
22 |
|
Diversification
benefit to IB
trading VaR |
|
|
(97) |
(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(69 |
)(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(92) |
(b) |
|
|
(77 |
)(b) |
|
|
(101) |
(b) |
|
|
|
|
|
|
|
|
IB Trading VaR |
|
$ |
146 |
|
|
$ |
116 |
|
|
$ |
175 |
|
|
$ |
144 |
|
|
$ |
123 |
|
|
$ |
175 |
|
|
$ |
167 |
|
|
$ |
150 |
|
|
$ |
168 |
|
Credit portfolio VaR |
|
|
29 |
|
|
|
20 |
|
|
|
39 |
|
|
|
25 |
|
|
|
20 |
|
|
|
42 |
|
|
|
22 |
|
|
|
42 |
|
|
|
61 |
|
Diversification
benefit to IB
trading and credit
portfolio VaR |
|
|
(32) |
(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(22 |
)(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(15) |
(b) |
|
|
(35 |
)(b) |
|
|
(52) |
(b) |
|
|
|
|
|
|
|
|
Total IB trading and
credit portfolio VaR |
|
$ |
143 |
|
|
$ |
116 |
|
|
$ |
184 |
|
|
$ |
147 |
|
|
$ |
124 |
|
|
$ |
175 |
|
|
$ |
174 |
|
|
$ |
157 |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
Consumer
Lending VaR |
|
|
49 |
|
|
|
31 |
|
|
|
70 |
|
|
|
19 |
|
|
|
7 |
|
|
|
58 |
|
|
|
31 |
|
|
|
43 |
|
|
|
66 |
|
Corporate Risk
Management VaR |
|
|
99 |
|
|
|
85 |
|
|
|
103 |
|
|
|
22 |
|
|
|
18 |
|
|
|
43 |
|
|
|
90 |
|
|
|
43 |
|
|
|
111 |
|
Diversification
benefit to total
other VaR |
|
|
(31) |
(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(10 |
)(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(25) |
(b) |
|
|
(20 |
)(b) |
|
|
(41) |
(b) |
|
|
|
|
|
|
|
|
Total other VaR |
|
$ |
117 |
|
|
$ |
96 |
|
|
$ |
132 |
|
|
$ |
31 |
|
|
$ |
21 |
|
|
$ |
72 |
|
|
$ |
96 |
|
|
$ |
66 |
|
|
$ |
136 |
|
|
|
|
|
|
|
|
|
Diversification
benefit to total IB
and other VaR |
|
|
(82) |
(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(24 |
)(b) |
|
NM |
(c) |
|
NM |
(c) |
|
|
(55) |
(b) |
|
|
(32 |
)(b) |
|
|
(87) |
(b) |
|
|
|
|
|
|
|
|
Total IB and other VaR |
|
$ |
178 |
|
|
$ |
151 |
|
|
$ |
219 |
|
|
$ |
154 |
|
|
$ |
134 |
|
|
$ |
191 |
|
|
$ |
215 |
|
|
$ |
191 |
|
|
$ |
226 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Results for the nine months ended September 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 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. The 95% VaR measure also 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.
87
The 95% 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 longer-term 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.
Third-quarter 2009 VaR results (95% Confidence Level VaR)
Total average IB and other VaR for the third quarter of 2009 was $178 million, compared with $154
million in the third quarter of 2008. The increase in average VaR in the year-over-year quarters
was primarily due to higher Corporate Risk Management VaR and Consumer Lending VaR. Average
Corporate Risk Management VaR was $99 million for the third quarter of 2009, compared with $22
million for the third quarter of 2008. The increase in average Corporate Risk Management VaR was
driven by both increased market volatility and increased risk management positions. Consumer
Lending VaR was $49 million for the third quarter of 2009, compared with $19 million for the third
quarter of 2008. The increase in average Consumer Lending VaR was driven primarily by increased
volatility in the mortgage markets, which affected the MSR VaR; an increase in the MSR asset
resulting from the Washington Mutual transaction; and increased mortgage originations within the
Firms mortgage pipeline and warehouse loan portfolio. 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 (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 (excluding longer-term Corporate investments); IB
brokerage commissions, underwriting fees or other revenue; 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 nine months of 2009. The chart shows
that the Firm posted market risk-related gains on 168 out of 195 days in this period, with 63 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 27 days during the nine months ended September 30, 2009, and
exceeded the VaR measure on one day, in the first quarter of 2009, due to high market volatility.
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.
88
Daily IB & Other Market Risk-Related Gains and Losses
(95% Confidence Level VaR)
Nine Months Ended September 30, 2009
The following table provides information about the gross sensitivity of DVA to a one-basis-point
increase in JPMorgan Chases credit spreads. This 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 |
|
September 30, 2009 |
|
$ |
38 |
|
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.
89
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.
90
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 September 30, 2009, and
December 31, 2008, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate change in rates |
(in millions) |
|
+200bp |
|
+100bp |
|
-100bp |
|
-200bp |
|
September 30, 2009 |
|
$ |
(2,226 |
) |
|
$ |
(697 |
) |
|
$NM(a) |
|
$NM(a) |
December 31, 2008 |
|
$ |
336 |
|
|
$ |
672 |
|
|
$NM(a) |
|
$NM(a) |
|
|
|
|
(a) |
|
Down 100- and 200-basis-point parallel shocks would 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.
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 $755 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 September 30, 2009, and December 31, 2008, the carrying value of the Private Equity
portfolio was $6.8 billion and $6.9 billion, respectively, of which $674 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 September 30, 2009, JPMorgan Chases bank subsidiaries could pay, in the aggregate, $10.1
billion in dividends to their respective bank holding companies without the prior approval of their
relevant banking regulators.
91
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.
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 September 30, 2009 and 2008, see Allowance for Credit
Losses on page 82 and Note 14 on pages 146-147 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. As of September 30, 2009,
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 $1.8 billion. 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 would ultimately impact the
frequency or severity of losses; and overall loss rates are a function of both the frequency and
severity of individual loan losses.
92
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. 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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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) |
|
$ |
330.4 |
|
|
$ |
39.8 |
|
|
$ |
347.4 |
|
|
$ |
41.4 |
|
Derivative receivables gross |
|
|
1,815.2 |
|
|
|
48.7 |
|
|
|
2,741.7 |
|
|
|
53.0 |
|
Netting adjustment |
|
|
(1,721.1 |
) |
|
|
|
|
|
|
(2,579.1 |
) |
|
|
|
|
|
Derivative receivables net |
|
|
94.1 |
|
|
|
48.7 |
(d) |
|
|
162.6 |
|
|
|
53.0 |
(d) |
AFS securities |
|
|
372.8 |
|
|
|
13.4 |
|
|
|
205.9 |
|
|
|
12.4 |
|
Loans |
|
|
1.9 |
|
|
|
1.4 |
|
|
|
7.7 |
|
|
|
2.7 |
|
MSRs |
|
|
13.7 |
|
|
|
13.7 |
|
|
|
9.4 |
|
|
|
9.4 |
|
Private equity investments |
|
|
6.8 |
|
|
|
6.2 |
|
|
|
6.9 |
|
|
|
6.4 |
|
Other(b) |
|
|
36.3 |
|
|
|
4.3 |
|
|
|
46.5 |
|
|
|
5.0 |
|
|
Total assets carried at fair value on a recurring basis |
|
|
856.0 |
|
|
|
127.5 |
|
|
|
786.4 |
|
|
|
130.3 |
|
Total assets carried at fair value on a nonrecurring basis(c) |
|
|
8.9 |
|
|
|
2.5 |
|
|
|
11.0 |
|
|
|
4.3 |
|
|
Total assets carried at fair value |
|
$ |
864.9 |
|
|
$ |
130.0 |
(e) |
|
$ |
797.4 |
|
|
$ |
134.6 |
(e) |
Less: level 3 assets for which the Firm does not bear economic exposure |
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total level 3 assets for which the Firm bears economic exposure |
|
|
|
|
|
$ |
127.8 |
|
|
|
|
|
|
$ |
113.4 |
|
|
Total Firm assets |
|
$ |
2,041.0 |
|
|
|
|
|
|
$ |
2,175.1 |
|
|
|
|
|
|
Level 3 assets as a percentage of total Firm assets |
|
|
|
|
|
|
6 |
% |
|
|
|
|
|
|
6 |
% |
Level 3 assets for which the Firm bears economic exposure as a
percentage of total Firm assets |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
5 |
|
Level 3 assets as a percentage of total Firm assets at fair value |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
17 |
|
Level 3 assets for which the Firm bears economic exposure as a
percentage of total assets at fair value |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
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) |
|
Derivative receivable and derivative payable 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 derivative
receivable and derivative payable balances for netting adjustments, 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 receivable and derivative payable balances would be $17.8
billion at September 30, 2009. |
|
(e) |
|
Included in the table above are, at September 30,
2009, and December 31, 2008, $86.7 billion
and $95.1 billion, respectively, of level 3 assets, consisting of recurring and nonrecurring
assets carried by IB. This includes $2.2 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 106-121 of this Form 10-Q.
93
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 on a pool basis, and the pools
are considered to be performing. 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. 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 subjective, 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 the accounting guidance for these loans, 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 September 30, 2009, a 1% decrease in expected future principal cash payments
for the entire portfolio of purchased credit-impaired loans would result in the recognition of an
allowance for loan losses for these loans of approximately $800 million. For additional information
on purchased credit-impaired loans, see page 110 of JPMorgan Chases 2008 Annual Report and Note 13
on page 144 of this Form 10-Q.
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 third 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 September 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.
94
ACCOUNTING AND REPORTING DEVELOPMENTS
FASB Accounting Standards Codification
In July 2009, the FASB implemented the FASB Accounting Standards Codification (the Codification)
as the single source of authoritative U.S. generally accepted accounting principles. The
Codification simplifies the classification of accounting standards into one online database under a
common referencing system, organized into eight areas, ranging from industry-specific to general
financial statement matters. Use of the Codification is effective for interim and annual periods
ending after September 15, 2009. The Firm began to use the Codification on the effective date, and
it had no impact on the Firms Consolidated Financial Statements. However, throughout this Form
10-Q, all references to prior FASB, AICPA and EITF accounting pronouncements have been removed, and
all non-SEC accounting guidance is referred to in terms of the applicable subject matter.
Business combinations/noncontrolling interests in consolidated financial statements
In December 2007, the FASB issued new guidance, which amended the accounting and reporting of
business combinations, as well as noncontrolling (i.e., minority) interests. For JPMorgan Chase,
the new guidance became effective for business combinations that close on or after January 1, 2009.
The new guidance for noncontrolling interests became effective for JPMorgan Chase for fiscal
periods beginning January 1, 2009. In April 2009, the FASB issued additional guidance, which amends
the accounting for contingencies acquired in a business combination.
The new guidance for business combinations will generally only impact the accounting for future
transactions as well as 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 the new business-combination guidance relates to accounting for income taxes
associated with transactions 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.
The new guidance for noncontrolling interests requires that they be accounted for and presented as
equity if material, rather than as a liability or mezzanine equity. The presentation and disclosure
requirements for noncontrolling interests are to be applied retrospectively. The adoption of the
reporting requirements for noncontrolling interests 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 guidance, 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, unless certain criteria
are met. The Firm adopted the guidance on January 1, 2009, for new transactions entered into
after the date of adoption. The adoption of the guidance did not have a material impact on the
Consolidated Balance Sheets or results of operations.
Disclosures about derivative instruments and hedging activities
In March 2008, the FASB issued guidance, which amends the prior disclosure requirements for
derivatives. The guidance, which is effective for fiscal years beginning after November 15,
2008, requires increased disclosures about derivative instruments and hedging activities and their
effects on an entitys financial position, financial performance and cash flows. The Firm adopted
the guidance on January 1, 2009, and it only affected JPMorgan Chases disclosures of
derivative instruments and related hedging activities, and not its Consolidated Balance Sheets or
results of operations.
95
Determining whether instruments granted in share-based payment transactions are participating
securities
In June 2008, the FASB issued guidance for participating securities, which clarifies that
unvested stock-based compensation awards containing nonforfeitable rights to dividends or dividend
equivalents (collectively, dividends), are considered participating securities and therefore
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 guidance is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods within those years.
The Firm adopted the guidance retrospectively effective January 1, 2009, and EPS data for all
prior periods has been revised. Adoption of the guidance did not affect the Firms results of
operations, but basic and diluted EPS were reduced as disclosed in Note 21 on pages 166-167 of this
Form 10-Q.
Determining whether an instrument (or embedded feature) is indexed to an entitys own stock
In June 2008, the FASB issued guidance, 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 should be applied. The
guidance is effective for fiscal years beginning after December 2008. The adoption of this
guidance on January 1, 2009, did not have an impact on the Firms Consolidated Balance Sheets or
results of operations.
The recognition and presentation of other-than-temporary impairment
In April 2009, the FASB issued guidance, which amends the other-than-temporary impairment model
for debt securities. Under the guidance, 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 guidance 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 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. The guidance 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 guidance as of
January 1, 2009. For additional information regarding the impact on the Firm of the adoption of the
guidance, see Note 11 on pages 136-141 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 guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly declined. The guidance also includes
identifying circumstances that indicate a transaction is not orderly. The guidance is effective
for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted.
The Firm elected to early adopt the guidance in the first quarter of 2009. The application of
the guidance 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 guidance that requires disclosures about the fair value of
certain financial instruments (including financial instruments not carried at fair value) to be
presented in interim financial statements in addition to annual financial statements. The
guidance 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 2009 reporting.
96
Employers disclosures about postretirement benefit plan assets
In December 2008, the FASB issued guidance requiring 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 their fair value. This
guidance 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 new guidance which amends the accounting for the transfers of
financial assets and the consolidation of VIEs. The new guidance eliminates the concept of QSPEs
and provides additional guidance with regard to accounting for transfers of financial assets. The
new guidance also 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. The new
guidance is 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 new provisions and the Firms interpretation of the new
requirements, the Firm estimates that the impact of consolidating Firm-sponsored QSPEs and VIEs, on
January 1, 2010, could be up to $110.0 billion of assets; the resulting decrease in the Tier 1
capital ratio could be approximately 40 basis points. The impact to Tier 1 capital includes the
establishment of loan loss reserves at the adoption date due to the effect of consolidating certain
assets and liabilities for U.S. GAAP at their assumed carrying values. The impact to Tier 1 capital
does not include the effect of proposed guidance issued by the banking regulators in August 2009,
which would change the current regulatory treatment for consolidated ABCP conduits. 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 fourth quarter of 2009 that would result in the
consolidation of these vehicles prior to the implementation date of the new guidance. Refer to Note
15 on pages 147-155 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 new guidance that established 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 new guidance was effective for interim or annual
financial periods ending after June 15, 2009. The Firm adopted the new guidance in the second
quarter of 2009. The application of the new guidance did not have any impact on the Firms
Consolidated Balance Sheets or results of operations.
Measuring liabilities at fair value
In August 2009, the FASB issued new guidance clarifying how to develop fair value measurements for
liabilities, particularly where there may be a lack of observable market information. This guidance
is effective for interim or annual periods beginning after August 26, 2009. The adoption of this
new guidance did not have an impact on the Firms Consolidated Balance Sheets or results of
operations.
Measuring fair value of certain alternative investments
In September 2009, the FASB issued new guidance, which amends the guidance on fair value
measurements and offers a practical expedient for measuring the fair value of investments in
certain entities that calculate net asset value (NAV) per share when the fair value is not
readily determinable. This guidance is effective for the first interim or annual reporting period
ending after December 15, 2009. The adoption of this new guidance is not expected to have a
material impact on JPMorgan Chases Consolidated Balance Sheets or results of operations.
97
JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except per share data) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,679 |
|
|
$ |
1,316 |
|
|
$ |
5,171 |
|
|
$ |
4,144 |
|
Principal transactions |
|
|
3,860 |
|
|
|
(2,763 |
) |
|
|
8,958 |
|
|
|
(2,814 |
) |
Lending- and deposit-related fees |
|
|
1,826 |
|
|
|
1,168 |
|
|
|
5,280 |
|
|
|
3,312 |
|
Asset management, administration and commissions |
|
|
3,158 |
|
|
|
3,485 |
|
|
|
9,179 |
|
|
|
10,709 |
|
Securities gains(a) |
|
|
184 |
|
|
|
424 |
|
|
|
729 |
|
|
|
1,104 |
|
Mortgage fees and related income |
|
|
843 |
|
|
|
457 |
|
|
|
3,228 |
|
|
|
1,678 |
|
Credit card income |
|
|
1,710 |
|
|
|
1,771 |
|
|
|
5,266 |
|
|
|
5,370 |
|
Other income |
|
|
625 |
|
|
|
(115 |
) |
|
|
685 |
|
|
|
1,576 |
|
|
Noninterest revenue |
|
|
13,885 |
|
|
|
5,743 |
|
|
|
38,496 |
|
|
|
25,079 |
|
|
Interest income |
|
|
16,260 |
|
|
|
17,326 |
|
|
|
50,735 |
|
|
|
51,387 |
|
Interest expense |
|
|
3,523 |
|
|
|
8,332 |
|
|
|
11,961 |
|
|
|
26,440 |
|
|
Net interest income |
|
|
12,737 |
|
|
|
8,994 |
|
|
|
38,774 |
|
|
|
24,947 |
|
|
Total net revenue |
|
|
26,622 |
|
|
|
14,737 |
|
|
|
77,270 |
|
|
|
50,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
8,104 |
|
|
|
5,787 |
|
|
|
24,731 |
|
|
|
13,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
7,311 |
|
|
|
5,858 |
|
|
|
21,816 |
|
|
|
17,722 |
|
Occupancy expense |
|
|
923 |
|
|
|
766 |
|
|
|
2,722 |
|
|
|
2,083 |
|
Technology, communications and equipment expense |
|
|
1,140 |
|
|
|
1,112 |
|
|
|
3,442 |
|
|
|
3,108 |
|
Professional & outside services |
|
|
1,517 |
|
|
|
1,451 |
|
|
|
4,550 |
|
|
|
4,234 |
|
Marketing |
|
|
440 |
|
|
|
453 |
|
|
|
1,241 |
|
|
|
1,412 |
|
Other expense |
|
|
1,767 |
|
|
|
1,096 |
|
|
|
5,332 |
|
|
|
2,498 |
|
Amortization of intangibles |
|
|
254 |
|
|
|
305 |
|
|
|
794 |
|
|
|
937 |
|
Merger costs |
|
|
103 |
|
|
|
96 |
|
|
|
451 |
|
|
|
251 |
|
|
Total noninterest expense |
|
|
13,455 |
|
|
|
11,137 |
|
|
|
40,348 |
|
|
|
32,245 |
|
|
Income/(loss) before income tax expense/(benefit) and
extraordinary gain |
|
|
5,063 |
|
|
|
(2,187 |
) |
|
|
12,191 |
|
|
|
4,115 |
|
Income tax expense/(benefit) |
|
|
1,551 |
|
|
|
(2,133 |
) |
|
|
3,817 |
|
|
|
(207 |
) |
|
Income/(loss) before extraordinary gain |
|
|
3,512 |
|
|
|
(54 |
) |
|
|
8,374 |
|
|
|
4,322 |
|
Extraordinary gain |
|
|
76 |
|
|
|
581 |
|
|
|
76 |
|
|
|
581 |
|
|
Net income |
|
$ |
3,588 |
|
|
$ |
527 |
|
|
$ |
8,450 |
|
|
$ |
4,903 |
|
|
Net income applicable to common stockholders |
|
$ |
3,240 |
|
|
$ |
318 |
|
|
$ |
5,825 |
|
|
$ |
4,492 |
|
|
Per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
$ |
0.80 |
|
|
$ |
(0.08 |
) |
|
$ |
1.50 |
|
|
$ |
1.14 |
|
Net income |
|
|
0.82 |
|
|
|
0.09 |
|
|
|
1.52 |
|
|
|
1.31 |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
|
0.80 |
|
|
|
(0.08 |
) |
|
|
1.50 |
|
|
|
1.13 |
|
Net income |
|
|
0.82 |
|
|
|
0.09 |
|
|
|
1.51 |
|
|
|
1.30 |
|
Weighted-average basic shares |
|
|
3,937.9 |
|
|
|
3,444.6 |
|
|
|
3,835.0 |
|
|
|
3,422.3 |
|
Weighted-average diluted shares |
|
|
3,962.0 |
|
|
|
3,444.6 |
|
|
|
3,848.3 |
|
|
|
3,446.2 |
|
Cash dividends declared per common share |
|
$ |
0.05 |
|
|
$ |
0.38 |
|
|
$ |
0.15 |
|
|
$ |
1.14 |
|
|
|
|
|
(a) |
|
Securities gains for the three and nine months ended September 30, 2009, included credit
losses of $18 million and $202 million, respectively, consisting of zero and $880 million,
respectively, of total other-than-temporary impairment losses, net of ($18) million and $678
million, respectively, of other-than-temporary impairment losses recorded in (reclassified
from) other comprehensive income. |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
98
JPMORGAN CHASE & CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
(in millions, except share data) |
|
2009 |
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
21,068 |
|
|
$ |
26,895 |
|
Deposits with banks |
|
|
59,623 |
|
|
|
138,139 |
|
Federal funds sold and securities purchased under resale agreements (included $18,931 and $20,843 at fair value at
September 30, 2009, and December 31, 2008, respectively) |
|
|
171,007 |
|
|
|
203,115 |
|
Securities borrowed (included $5,458 and $3,381 at fair value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
128,059 |
|
|
|
124,000 |
|
Trading assets (included assets pledged of $54,077 and $75,063 at September 30, 2009, and December 31, 2008,
respectively) |
|
|
424,435 |
|
|
|
509,983 |
|
Securities (included $372,840 and $205,909 at fair value at September 30, 2009, and December 31, 2008,
respectively, and assets pledged of $95,959 and $25,942 at September 30, 2009, and December 31, 2008,
respectively) |
|
|
372,867 |
|
|
|
205,943 |
|
Loans (included $1,931 and $7,696 at fair value at September 30, 2009, and December 31, 2008, respectively) |
|
|
653,144 |
|
|
|
744,898 |
|
Allowance for loan losses |
|
|
(30,633 |
) |
|
|
(23,164 |
) |
|
Loans, net of allowance for loan losses |
|
|
622,511 |
|
|
|
721,734 |
|
|
|
|
|
|
|
|
|
|
Accrued interest and accounts receivable |
|
|
59,948 |
|
|
|
60,987 |
|
Premises and equipment |
|
|
10,675 |
|
|
|
10,045 |
|
Goodwill |
|
|
48,334 |
|
|
|
48,027 |
|
Other intangible assets: |
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
13,663 |
|
|
|
9,403 |
|
Purchased credit card relationships |
|
|
1,342 |
|
|
|
1,649 |
|
All other intangibles |
|
|
3,520 |
|
|
|
3,932 |
|
Other assets (included $18,745 and $29,199 at fair value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
103,957 |
|
|
|
111,200 |
|
|
Total assets |
|
$ |
2,041,009 |
|
|
$ |
2,175,052 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits (included $3,916 and $5,605 at fair value at September 30, 2009, and December 31, 2008, respectively) |
|
$ |
867,977 |
|
|
$ |
1,009,277 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,693 and $2,993 at
fair value at September 30, 2009, and December 31, 2008, respectively) |
|
|
310,219 |
|
|
|
192,546 |
|
Commercial paper |
|
|
53,920 |
|
|
|
37,845 |
|
Other borrowed funds (included $5,043 and $14,713 at fair value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
50,824 |
|
|
|
132,400 |
|
Trading liabilities |
|
|
134,447 |
|
|
|
166,878 |
|
Accounts payable and other liabilities (at September 30, 2009, and December 31, 2008, included the allowance for
lending-related commitments of $821 and $659, respectively, and $384 and zero at fair value, respectively) |
|
|
171,386 |
|
|
|
187,978 |
|
Beneficial interests issued by consolidated variable interest entities (included $1,995 and $1,735 at fair value at
September 30, 2009, and December 31, 2008, respectively) |
|
|
17,859 |
|
|
|
10,561 |
|
Long-term debt (included $52,179 and $58,214 at fair value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
254,413 |
|
|
|
252,094 |
|
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities |
|
|
17,711 |
|
|
|
18,589 |
|
|
Total liabilities |
|
|
1,878,756 |
|
|
|
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 September 30, 2009, and December 31, 2008;
issued 2,538,107 and 5,038,107 shares at September 30, 2009, and December 31, 2008, respectively) |
|
|
8,152 |
|
|
|
31,939 |
|
Common stock ($1 par value; authorized 9,000,000,000 shares at September 30, 2009, and December 31, 2008; issued
4,104,933,895 and 3,941,633,895 shares at September 30, 2009, and December 31, 2008, respectively) |
|
|
4,105 |
|
|
|
3,942 |
|
Capital surplus |
|
|
97,564 |
|
|
|
92,143 |
|
Retained earnings |
|
|
59,573 |
|
|
|
54,013 |
|
Accumulated other comprehensive income/(loss) |
|
|
283 |
|
|
|
(5,687 |
) |
Shares held in RSU Trust, at cost (1,925,550 and 4,794,723 shares at September 30, 2009, and December 31, 2008,
respectively) |
|
|
(86 |
) |
|
|
(217 |
) |
Treasury stock, at cost (166,184,844 and 208,833,260 shares at September 30, 2009, and December 31, 2008,
respectively) |
|
|
(7,338 |
) |
|
|
(9,249 |
) |
|
Total stockholders equity |
|
|
162,253 |
|
|
|
166,884 |
|
|
Total liabilities and stockholders equity |
|
$ |
2,041,009 |
|
|
$ |
2,175,052 |
|
|
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
99
JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in millions, except per share data) |
|
2009 |
|
|
2008 |
|
|
Preferred stock |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
$ |
31,939 |
|
|
$ |
|
|
Issuance of preferred stock |
|
|
|
|
|
|
7,800 |
|
Issuance of preferred stock conversion of the Bear Stearns preferred stock |
|
|
|
|
|
|
352 |
|
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 September 30 |
|
|
8,152 |
|
|
|
8,152 |
|
|
Common stock |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
3,942 |
|
|
|
3,658 |
|
Issuance of common stock |
|
|
163 |
|
|
|
284 |
|
|
Balance at September 30 |
|
|
4,105 |
|
|
|
3,942 |
|
|
Capital surplus |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
92,143 |
|
|
|
78,597 |
|
Issuance of common stock |
|
|
5,593 |
|
|
|
11,201 |
|
Preferred stock issue cost |
|
|
|
|
|
|
(54 |
) |
Shares issued and commitments to issue common stock for employee
stock-based compensation awards and related tax effects |
|
|
48 |
|
|
|
501 |
|
Net change from the Bear Stearns merger: |
|
|
|
|
|
|
|
|
Reissuance of treasury stock and the Share Exchange agreement |
|
|
|
|
|
|
48 |
|
Employee stock awards |
|
|
|
|
|
|
242 |
|
Other |
|
|
(220 |
) |
|
|
|
|
|
Balance at September 30 |
|
|
97,564 |
|
|
|
90,535 |
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
54,013 |
|
|
|
54,715 |
|
Net income |
|
|
8,450 |
|
|
|
4,903 |
|
Dividend declared: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
(1,166 |
) |
|
|
(251 |
) |
Accelerated amortization from redemption of preferred stock issued
to the U.S. Treasury |
|
|
(1,112 |
) |
|
|
|
|
Common stock ($0.15 and $1.14 per share for 2009 and 2008, respectively) |
|
|
(612 |
) |
|
|
(4,150 |
) |
|
Balance at September 30 |
|
|
59,573 |
|
|
|
55,217 |
|
|
Accumulated other comprehensive income/(loss) |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(5,687 |
) |
|
|
(917 |
) |
Other comprehensive income/(loss) |
|
|
5,970 |
|
|
|
(1,310 |
) |
|
Balance at September 30 |
|
|
283 |
|
|
|
(2,227 |
) |
|
Shares held in RSU Trust |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(217 |
) |
|
|
|
|
Resulting from the Bear Stearns merger |
|
|
|
|
|
|
(269 |
) |
Reissuance from RSU Trust |
|
|
131 |
|
|
|
2 |
|
|
Balance at September 30 |
|
|
(86 |
) |
|
|
(267 |
) |
|
Treasury stock, at cost |
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
(9,249 |
) |
|
|
(12,832 |
) |
Reissuance from treasury stock |
|
|
1,930 |
|
|
|
2,174 |
|
Share repurchases related to employee stock-based compensation awards |
|
|
(19 |
) |
|
|
(1 |
) |
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 September 30 |
|
|
(7,338 |
) |
|
|
(9,509 |
) |
|
Total stockholders equity |
|
$ |
162,253 |
|
|
$ |
145,843 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,450 |
|
|
$ |
4,903 |
|
Other comprehensive income/(loss) |
|
|
5,970 |
|
|
|
(1,310 |
) |
|
Comprehensive income |
|
$ |
14,420 |
|
|
$ |
3,593 |
|
|
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.
100
JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,450 |
|
|
$ |
4,903 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
24,731 |
|
|
|
13,666 |
|
Depreciation and amortization |
|
|
1,952 |
|
|
|
2,313 |
|
Amortization of intangibles |
|
|
794 |
|
|
|
937 |
|
Deferred tax benefits |
|
|
(2,254 |
) |
|
|
(2,974 |
) |
Investment securities gains |
|
|
(729 |
) |
|
|
(1,104 |
) |
Proceeds on sale of investment |
|
|
|
|
|
|
(1,739 |
) |
Stock-based compensation |
|
|
2,435 |
|
|
|
2,085 |
|
Originations and purchases of loans held-for-sale |
|
|
(14,055 |
) |
|
|
(29,552 |
) |
Proceeds from sales, securitizations and paydowns of loans held-for-sale |
|
|
23,082 |
|
|
|
32,197 |
|
Net change in: |
|
|
|
|
|
|
|
|
Trading assets |
|
|
115,081 |
|
|
|
18,933 |
|
Securities borrowed |
|
|
(3,978 |
) |
|
|
(12,605 |
) |
Accrued interest and accounts receivable |
|
|
1,141 |
|
|
|
(33,480 |
) |
Other assets |
|
|
26,985 |
|
|
|
(16,875 |
) |
Trading liabilities |
|
|
(59,431 |
) |
|
|
(10,044 |
) |
Accounts payable and other liabilities |
|
|
(20,521 |
) |
|
|
79,090 |
|
Other operating adjustments |
|
|
7,201 |
|
|
|
(13,346 |
) |
|
Net cash provided by operating activities |
|
|
110,884 |
|
|
|
32,405 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits with banks |
|
|
78,436 |
|
|
|
(15,162 |
) |
Federal funds sold and securities purchased under resale agreements |
|
|
31,698 |
|
|
|
(76,166 |
) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
Proceeds |
|
|
7 |
|
|
|
8 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Proceeds from maturities |
|
|
64,985 |
|
|
|
29,565 |
|
Proceeds from sales |
|
|
85,132 |
|
|
|
62,763 |
|
Purchases |
|
|
(305,648 |
) |
|
|
(146,480 |
) |
Proceeds from sales and securitization of loans held-for-investment |
|
|
28,620 |
|
|
|
26,430 |
|
Other changes in loans, net |
|
|
43,744 |
|
|
|
(67,081 |
) |
Net cash received in business acquisitions or dispositions |
|
|
60 |
|
|
|
2,162 |
|
Proceeds from asset sale to the FRBNY |
|
|
|
|
|
|
28,850 |
|
Net maturities (purchases) of asset-backed commercial paper guaranteed by the FRBB |
|
|
11,228 |
|
|
|
(61,321 |
) |
All other investing activities, net |
|
|
(667 |
) |
|
|
(3,097 |
) |
|
Net cash provided by (used in) investing activities |
|
|
37,595 |
|
|
|
(219,529 |
) |
|
Financing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits |
|
|
(172,478 |
) |
|
|
81,989 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
116,550 |
|
|
|
46,908 |
|
Commercial paper and other borrowed funds |
|
|
(69,361 |
) |
|
|
58,527 |
|
Proceeds from the issuance of long-term debt and trust preferred capital debt securities |
|
|
42,724 |
|
|
|
47,572 |
|
Repayments of long-term debt and trust preferred capital debt securities |
|
|
(43,749 |
) |
|
|
(50,290 |
) |
Excess tax benefits related to stock-based compensation |
|
|
8 |
|
|
|
135 |
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
7,746 |
|
Redemption of preferred stock issued to the U.S. Treasury |
|
|
(25,000 |
) |
|
|
|
|
Proceeds from issuance of common stock |
|
|
5,756 |
|
|
|
11,500 |
|
Cash dividends paid |
|
|
(2,933 |
) |
|
|
(4,027 |
) |
All other financing activities, net |
|
|
(6,075 |
) |
|
|
1,625 |
|
|
Net cash (used in) provided by financing activities |
|
|
(154,558 |
) |
|
|
201,685 |
|
|
Effect of exchange rate changes on cash and due from banks |
|
|
252 |
|
|
|
(355 |
) |
|
Net (decrease) increase in cash and due from banks |
|
|
(5,827 |
) |
|
|
14,206 |
|
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 |
|
$ |
21,068 |
|
|
$ |
54,350 |
|
|
Cash interest paid |
|
$ |
11,755 |
|
|
$ |
27,552 |
|
Cash income taxes paid |
|
|
4,111 |
|
|
|
2,831 |
|
|
|
|
|
Note: |
|
In 2008, the fair value of noncash assets acquired and liabilities assumed in: (1) 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 the merger); and (2) the Washington Mutual transaction were $260.3 billion and
$260.1 billion, respectively. |
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements
101
See Glossary of Terms on pages 178-181 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 segment
information, see Note 25 on pages 172-175 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.
Acquisition of the banking operations of Washington Mutual Bank
Refer to Note 2 on pages 123-124 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 was accounted
for under the purchase method of accounting in accordance with U.S. GAAP for business combinations.
The final 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. As the result of the final refinement of the purchase price allocation during
the third quarter of 2009, the Firm recognized a $76 million increase in the extraordinary gain. The final summary computation of the purchase price and the allocation of the purchase
price to the net assets of Washington Mutual are presented below.
102
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
Purchase price |
|
|
|
|
|
|
|
|
Purchase price |
|
|
|
|
|
$ |
1,938 |
|
Direct acquisition costs |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
|
1,941 |
|
Net assets acquired |
|
|
|
|
|
|
|
|
Washington Mutuals net assets before fair value adjustments |
|
$ |
39,186 |
|
|
|
|
|
Washington Mutuals goodwill and other intangible assets |
|
|
(7,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
31,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reflect assets acquired at fair value: |
|
|
|
|
|
|
|
|
Securities |
|
|
(16 |
) |
|
|
|
|
Trading assets |
|
|
(591 |
) |
|
|
|
|
Loans |
|
|
(30,998 |
) |
|
|
|
|
Allowance for loan losses |
|
|
8,216 |
|
|
|
|
|
Premises and equipment |
|
|
680 |
|
|
|
|
|
Accrued interest and accounts receivable |
|
|
(243 |
) |
|
|
|
|
Other assets |
|
|
4,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reflect liabilities assumed at fair value: |
|
|
|
|
|
|
|
|
Deposits |
|
|
(686 |
) |
|
|
|
|
Other borrowed funds |
|
|
68 |
|
|
|
|
|
Accounts payable, accrued expense and other liabilities |
|
|
(1,124 |
) |
|
|
|
|
Long-term debt |
|
|
1,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
|
|
|
|
11,999 |
|
|
|
|
|
|
|
|
|
Negative goodwill before allocation to nonfinancial assets |
|
|
|
|
|
|
(10,058 |
) |
Negative goodwill allocated to nonfinancial assets(a) |
|
|
|
|
|
|
8,076 |
|
|
|
|
|
|
|
|
|
Negative goodwill resulting from the acquisition(b) |
|
|
|
|
|
$ |
(1,982 |
) |
|
|
|
|
(a) |
|
The acquisition was accounted for as a purchase business combination in accordance with U.S.
GAAP for business combinations. This guidance requires the assets (including identifiable
intangible assets) and liabilities (including executory contracts and other commitments) of an
acquired business as of the effective date of the acquisition to be recorded at their
respective fair values and consolidated with those of JPMorgan Chase. The fair value of the
net assets of Washington Mutuals banking operations exceeded the $1.9 billion purchase price,
resulting in negative goodwill. In accordance with U.S. GAAP for business combinations,
noncurrent, nonfinancial assets not held-for-sale, such as premises and equipment and other
intangibles, were written down against the negative goodwill. The negative goodwill that
remained after writing down transaction-related core deposit intangibles of approximately $4.9
billion and premises and equipment of approximately $3.2 billion was recognized as an
extraordinary gain of $2.0 billion. |
|
(b) |
|
The extraordinary gain was recorded net of tax expense in Corporate/Private Equity. |
The following condensed statement of net assets acquired reflects the final value assigned to the
Washington Mutual net assets as of September 25, 2008.
|
|
|
|
|
(in millions) |
|
September 25, 2008 |
|
Assets |
|
|
|
|
Cash and due from banks |
|
$ |
3,680 |
|
Deposits with banks |
|
|
3,517 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
1,700 |
|
Trading assets |
|
|
5,691 |
|
Securities |
|
|
17,224 |
|
Loans (net of allowance for loan losses) |
|
|
206,456 |
|
Accrued interest and accounts receivable |
|
|
3,253 |
|
Mortgage servicing rights |
|
|
5,874 |
|
All other assets |
|
|
16,596 |
|
|
|
|
|
|
|
Total assets |
|
$ |
263,991 |
|
|
Liabilities |
|
|
|
|
Deposits |
|
$ |
159,872 |
|
Federal funds purchased and securities loaned or sold under repurchase agreements |
|
|
4,549 |
|
Other borrowed funds |
|
|
81,636 |
|
Trading liabilities |
|
|
585 |
|
Accounts payable, accrued expense and other liabilities |
|
|
6,708 |
|
Long-term debt |
|
|
6,718 |
|
|
Total liabilities |
|
|
260,068 |
|
|
|
|
|
|
|
Washington Mutual net assets acquired |
|
$ |
3,923 |
|
|
103
Merger with The Bear Stearns Companies Inc.
Refer to Note 2 on pages 125-127 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 was accounted for under the purchase method of
accounting in accordance with U.S. GAAP for business combinations. The final 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 final
summary computation of the purchase price and the allocation of the purchase price to the net
assets of Bear Stearns are presented below.
|
|
|
|
|
|
|
|
|
(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 through 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 155-157 of
JPMorgan Chases 2008 Annual Report. |
|
(c) |
|
The goodwill was recorded in Investment Bank (IB) and is not tax-deductible. |
104
Condensed statement of net assets acquired
The following reflects the final value assigned to the Bear Stearns net assets as of May 30, 2008.
|
|
|
|
|
(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 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 nine months ended September 30,
2008, if the Bear Stearns merger and the Washington Mutual transaction had been completed on
January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
(in millions, except per share data) |
|
September 30, 2008 |
|
September 30, 2008 |
|
Total net revenue |
|
$ |
16,962 |
|
|
$ |
50,923 |
|
Net loss |
|
|
(3,710 |
) |
|
|
(12,886 |
) |
Net loss per common share data(a): |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.14 |
) |
|
$ |
(3.87 |
) |
Diluted(b) |
|
|
(1.14 |
) |
|
|
(3.87 |
) |
Weighted-average common shares issued and
outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
3,444.6 |
|
|
|
3,432.9 |
|
Diluted(b) |
|
|
3,444.6 |
|
|
|
3,432.9 |
|
|
|
|
|
(a) |
|
Effective January 1, 2009, the Firm implemented new FASB guidance for participating
securities. Accordingly, prior-period amounts have been revised. For further discussion of the
guidance, see Note 21 on pages 166-167 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 nine months ended September 30, 2008, as the effect would be
antidilutive. |
105
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 nine
months ended September 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 nine months ended September 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, which resulted in a $220 million adjustment to capital surplus.
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 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 September 30, 2009,
and through November 9, 2009 (the date of the filing of this Form 10-Q). There have been no
material 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 nine-month periods ending September 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 fair value hierarchy, see Note 4 on
pages 129-143 of JPMorgan Chases 2008 Annual Report.
During the first nine months 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 146-148 of JPMorgan Chases 2008 Annual Report.
106
The following table presents the financial instruments carried at fair value as of September 30,
2009, and December 31, 2008, by major product category and by the fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
Netting |
|
Total |
September 30, 2009 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
adjustments(g) |
|
fair value |
|
Federal funds sold and securities purchased under
resale agreements |
|
$ |
|
|
|
$ |
18,931 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,931 |
|
Securities borrowed |
|
|
|
|
|
|
5,458 |
|
|
|
|
|
|
|
|
|
|
|
5,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
37,560 |
|
|
|
5,544 |
|
|
|
319 |
|
|
|
|
|
|
|
43,423 |
|
Residential nonagency(b) |
|
|
|
|
|
|
1,117 |
|
|
|
2,791 |
|
|
|
|
|
|
|
3,908 |
|
Commercial nonagency(b) |
|
|
|
|
|
|
526 |
|
|
|
1,853 |
|
|
|
|
|
|
|
2,379 |
|
|
Total mortgage-backed securities |
|
|
37,560 |
|
|
|
7,187 |
|
|
|
4,963 |
|
|
|
|
|
|
|
49,710 |
|
U.S. Treasury and government agencies(a) |
|
|
25,570 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
25,839 |
|
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
8,110 |
|
|
|
2,189 |
|
|
|
|
|
|
|
10,299 |
|
Certificates of deposit, bankers acceptances and
commercial paper |
|
|
|
|
|
|
6,001 |
|
|
|
|
|
|
|
|
|
|
|
6,001 |
|
Non-U.S. government debt securities |
|
|
32,798 |
|
|
|
30,797 |
|
|
|
766 |
|
|
|
|
|
|
|
64,361 |
|
Corporate debt securities |
|
|
|
|
|
|
48,209 |
|
|
|
5,310 |
|
|
|
|
|
|
|
53,519 |
|
Loans |
|
|
|
|
|
|
19,183 |
|
|
|
14,626 |
|
|
|
|
|
|
|
33,809 |
|
Asset-backed securities |
|
|
|
|
|
|
1,434 |
|
|
|
8,824 |
|
|
|
|
|
|
|
10,258 |
|
|
Total debt instruments |
|
|
95,928 |
|
|
|
121,190 |
|
|
|
36,678 |
|
|
|
|
|
|
|
253,796 |
|
Equity securities |
|
|
60,888 |
|
|
|
3,318 |
|
|
|
1,905 |
|
|
|
|
|
|
|
66,111 |
|
Physical commodities(c) |
|
|
7,348 |
|
|
|
574 |
|
|
|
|
|
|
|
|
|
|
|
7,922 |
|
Other |
|
|
|
|
|
|
1,360 |
|
|
|
1,181 |
|
|
|
|
|
|
|
2,541 |
|
|
Total debt and equity instruments |
|
|
164,164 |
|
|
|
126,442 |
|
|
|
39,764 |
|
|
|
|
|
|
|
330,370 |
|
Derivative receivables(d) |
|
|
3,074 |
|
|
|
1,763,397 |
|
|
|
48,670 |
|
|
|
(1,721,076 |
) |
|
|
94,065 |
|
|
Total trading assets |
|
|
167,238 |
|
|
|
1,889,839 |
|
|
|
88,434 |
|
|
|
(1,721,076 |
) |
|
|
424,435 |
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(a) |
|
|
181,561 |
|
|
|
3,347 |
|
|
|
|
|
|
|
|
|
|
|
184,908 |
|
Residential nonagency(b) |
|
|
|
|
|
|
11,721 |
|
|
|
42 |
|
|
|
|
|
|
|
11,763 |
|
Commercial nonagency(b) |
|
|
|
|
|
|
4,528 |
|
|
|
|
|
|
|
|
|
|
|
4,528 |
|
|
Total mortgage-backed securities |
|
|
181,561 |
|
|
|
19,596 |
|
|
|
42 |
|
|
|
|
|
|
|
201,199 |
|
U.S. Treasury and government agencies(a) |
|
|
644 |
|
|
|
39,400 |
|
|
|
|
|
|
|
|
|
|
|
40,044 |
|
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
5,722 |
|
|
|
474 |
|
|
|
|
|
|
|
6,196 |
|
Certificates of deposit |
|
|
|
|
|
|
6,235 |
|
|
|
|
|
|
|
|
|
|
|
6,235 |
|
Non-U.S. government debt securities |
|
|
6,183 |
|
|
|
17,239 |
|
|
|
|
|
|
|
|
|
|
|
23,422 |
|
Corporate debt securities |
|
|
1 |
|
|
|
49,481 |
|
|
|
19 |
|
|
|
|
|
|
|
49,501 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
|
|
|
|
25,523 |
|
|
|
|
|
|
|
|
|
|
|
25,523 |
|
Collateralized debt and loan obligations |
|
|
|
|
|
|
10 |
|
|
|
12,143 |
|
|
|
|
|
|
|
12,153 |
|
Other |
|
|
|
|
|
|
5,175 |
|
|
|
613 |
|
|
|
|
|
|
|
5,788 |
|
Equity securities |
|
|
2,591 |
|
|
|
113 |
|
|
|
75 |
|
|
|
|
|
|
|
2,779 |
|
|
Total available-for-sale securities |
|
|
190,980 |
|
|
|
168,494 |
|
|
|
13,366 |
|
|
|
|
|
|
|
372,840 |
|
|
Loans |
|
|
|
|
|
|
519 |
|
|
|
1,412 |
|
|
|
|
|
|
|
1,931 |
|
Mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
13,663 |
|
|
|
|
|
|
|
13,663 |
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(e) |
|
|
171 |
|
|
|
503 |
|
|
|
6,162 |
|
|
|
|
|
|
|
6,836 |
|
All other |
|
|
7,311 |
|
|
|
96 |
|
|
|
4,502 |
|
|
|
|
|
|
|
11,909 |
|
|
Total other assets |
|
|
7,482 |
|
|
|
599 |
|
|
|
10,664 |
|
|
|
|
|
|
|
18,745 |
|
|
Total assets measured at fair value on a recurring
basis |
|
$ |
365,700 |
|
|
$ |
2,083,840 |
|
|
$ |
127,539 |
|
|
$ |
(1,721,076 |
) |
|
$ |
856,003 |
|
Less: Level 3 assets for which the Firm does not
bear economic exposure(f) |
|
|
|
|
|
|
|
|
|
|
2,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring level 3 assets for which the Firm
bears economic exposure |
|
|
|
|
|
|
|
|
|
$ |
125,299 |
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
Netting |
|
Total |
September 30, 2009 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
adjustments(g) |
|
fair value |
|
Deposits |
|
$ |
|
|
|
$ |
3,383 |
|
|
$ |
533 |
|
|
$ |
|
|
|
$ |
3,916 |
|
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
|
|
|
|
2,693 |
|
|
|
|
|
|
|
|
|
|
|
2,693 |
|
Other borrowed funds |
|
|
|
|
|
|
4,948 |
|
|
|
95 |
|
|
|
|
|
|
|
5,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
53,483 |
|
|
|
11,738 |
|
|
|
12 |
|
|
|
|
|
|
|
65,233 |
|
Derivative payables(d) |
|
|
2,178 |
|
|
|
1,730,562 |
|
|
|
36,398 |
|
|
|
(1,699,924 |
) |
|
|
69,214 |
|
|
Total trading liabilities |
|
|
55,661 |
|
|
|
1,742,300 |
|
|
|
36,410 |
|
|
|
(1,699,924 |
) |
|
|
134,447 |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
|
2 |
|
|
|
382 |
|
|
|
|
|
|
|
384 |
|
Beneficial interests issued by consolidated VIEs |
|
|
|
|
|
|
741 |
|
|
|
1,254 |
|
|
|
|
|
|
|
1,995 |
|
Long-term debt |
|
|
|
|
|
|
33,120 |
|
|
|
19,059 |
|
|
|
|
|
|
|
52,179 |
|
|
Total liabilities measured at fair value on a
recurring basis |
|
$ |
55,661 |
|
|
$ |
1,787,187 |
|
|
$ |
57,733 |
|
|
$ |
(1,699,924 |
) |
|
$ |
200,657 |
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
Netting |
|
Total |
December 31, 2008 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
adjustments(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 |
|
Residential nonagency(b) |
|
|
|
|
|
|
658 |
|
|
|
3,339 |
|
|
|
|
|
|
|
3,997 |
|
Commercial nonagency(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 |
|
Residential nonagency(b) |
|
|
|
|
|
|
9,115 |
|
|
|
49 |
|
|
|
|
|
|
|
9,164 |
|
Commercial nonagency(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 |
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
Netting |
|
Total |
December 31, 2008 (in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
adjustments(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 $218.9 billion and $182.1
billion at September 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 117118. |
|
(c) |
|
Physical commodities inventories are accounted for at the lower of cost or fair value. |
|
(d) |
|
Derivative receivable and derivative payable 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
receivable and derivative payable 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 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 receivable and derivative payable balances would be $17.8
billion at September 30, 2009. |
|
(e) |
|
Private equity instruments represent investments within the Corporate/Private Equity line of
business. The costs of the private equity investment portfolio were $8.6 billion and $8.3
billion at September 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 U.S. GAAP, 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 nine
months ended September 30, 2009 and 2008 (including changes in fair value), for financial
instruments classified by the Firm within level 3 of the fair value 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 fair value 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.
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
gains/(losses) |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Three months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2009 |
|
June 30, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2009 |
|
gains/(losses) |
|
net |
|
level 3 |
|
30, 2009 |
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
257 |
|
|
$ |
3 |
|
|
$ |
63 |
|
|
$ |
(4 |
) |
|
$ |
319 |
|
|
$ |
3 |
|
Residential nonagency(a) |
|
|
2,832 |
|
|
|
(140 |
) |
|
|
(69 |
) |
|
|
168 |
|
|
|
2,791 |
|
|
|
(153 |
) |
Commercial nonagency(a) |
|
|
1,850 |
|
|
|
81 |
|
|
|
(81 |
) |
|
|
3 |
|
|
|
1,853 |
|
|
|
72 |
|
|
Total mortgage-backed securities |
|
|
4,939 |
|
|
|
(56 |
) |
|
|
(87 |
) |
|
|
167 |
|
|
|
4,963 |
|
|
|
(78 |
) |
Obligations of U.S. states and
municipalities |
|
|
2,416 |
|
|
|
18 |
|
|
|
(245 |
) |
|
|
|
|
|
|
2,189 |
|
|
|
4 |
|
Non-U.S. government debt securities |
|
|
726 |
|
|
|
27 |
|
|
|
(18 |
) |
|
|
31 |
|
|
|
766 |
|
|
|
31 |
|
Corporate debt securities |
|
|
5,482 |
|
|
|
200 |
|
|
|
(301 |
) |
|
|
(71 |
) |
|
|
5,310 |
|
|
|
132 |
|
Loans |
|
|
15,208 |
|
|
|
299 |
(d) |
|
|
(898 |
) |
|
|
17 |
|
|
|
14,626 |
|
|
|
194 |
(d) |
Asset-backed securities |
|
|
7,683 |
|
|
|
609 |
|
|
|
509 |
|
|
|
23 |
|
|
|
8,824 |
|
|
|
620 |
|
|
Total debt instruments |
|
|
36,454 |
|
|
|
1,097 |
|
|
|
(1,040 |
) |
|
|
167 |
|
|
|
36,678 |
|
|
|
903 |
|
Equity securities |
|
|
1,509 |
|
|
|
47 |
|
|
|
(143 |
) |
|
|
492 |
|
|
|
1,905 |
|
|
|
80 |
|
Other |
|
|
1,269 |
|
|
|
26 |
|
|
|
(90 |
) |
|
|
(24 |
) |
|
|
1,181 |
|
|
|
22 |
|
|
Total debt and equity instruments |
|
|
39,232 |
|
|
|
1,170 |
(e) |
|
|
(1,273 |
) |
|
|
635 |
|
|
|
39,764 |
|
|
|
1,005 |
(e) |
|
Net derivative receivables |
|
|
18,348 |
|
|
|
(5,777 |
)(e) |
|
|
(688 |
) |
|
|
389 |
|
|
|
12,272 |
|
|
|
(6,298 |
)(e) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
11,934 |
|
|
|
168 |
|
|
|
654 |
|
|
|
|
|
|
|
12,756 |
|
|
|
165 |
|
Other |
|
|
1,677 |
|
|
|
(18 |
) |
|
|
(5 |
) |
|
|
(1,044 |
) |
|
|
610 |
|
|
|
(18 |
) |
|
Total available-for-sale securities |
|
|
13,611 |
|
|
|
150 |
(f) |
|
|
649 |
|
|
|
(1,044 |
) |
|
|
13,366 |
|
|
|
147 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1,756 |
|
|
|
7 |
(e) |
|
|
(198 |
) |
|
|
(153 |
) |
|
|
1,412 |
|
|
|
(44 |
)(e) |
Mortgage servicing rights |
|
|
14,600 |
|
|
|
(1,096 |
)(d) |
|
|
159 |
|
|
|
|
|
|
|
13,663 |
|
|
|
(1,096 |
)(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
6,129 |
|
|
|
(103 |
)(e) |
|
|
136 |
|
|
|
|
|
|
|
6,162 |
|
|
|
(98 |
)(e) |
All other |
|
|
4,489 |
|
|
|
(63 |
)(g) |
|
|
76 |
|
|
|
|
|
|
|
4,502 |
|
|
|
(56 |
)(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
(gains)/losses |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Three months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2009 |
|
June 30, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2009 |
|
(gains)/losses |
|
net |
|
level 3 |
|
30, 2009 |
|
2009 |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
627 |
|
|
$ |
28 |
(e) |
|
$ |
(117 |
) |
|
$ |
(5 |
) |
|
$ |
533 |
|
|
$ |
22 |
(e) |
Other borrowed funds |
|
|
134 |
|
|
|
2 |
(e) |
|
|
(41 |
) |
|
|
|
|
|
|
95 |
|
|
|
1 |
(e) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
53 |
|
|
|
6 |
(e) |
|
|
(47 |
) |
|
|
|
|
|
|
12 |
|
|
|
2 |
(e) |
Accounts payable and other
liabilities |
|
|
437 |
|
|
|
(56 |
)(e) |
|
|
1 |
|
|
|
|
|
|
|
382 |
|
|
|
(57 |
)(e) |
Beneficial interests
issued by consolidated
VIEs |
|
|
1,060 |
|
|
|
246 |
(e) |
|
|
(52 |
) |
|
|
|
|
|
|
1,254 |
|
|
|
241 |
(e) |
Long-term debt |
|
|
17,473 |
|
|
|
1,274 |
(e) |
|
|
616 |
|
|
|
(304 |
) |
|
|
19,059 |
|
|
|
1,352 |
(e) |
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
gains/(losses) |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Three months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2008 |
|
June 30, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2008 |
|
gains/(losses) |
|
net |
|
level 3 |
|
30, 2008 |
|
2008 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
$ |
58,896 |
|
|
$ |
(4,288 |
)(d)(e) |
|
$ |
(12,884 |
) |
|
$ |
4,658 |
|
|
$ |
46,382 |
|
|
$ |
(3,515 |
)(d)(e) |
Net derivative receivables |
|
|
5,975 |
|
|
|
2,535 |
(e) |
|
|
(1,399 |
) |
|
|
780 |
|
|
|
7,891 |
|
|
|
3,248 |
(e) |
Available-for-sale securities |
|
|
271 |
|
|
|
(741 |
)(f) |
|
|
1,644 |
|
|
|
9,479 |
|
|
|
10,653 |
|
|
|
(740 |
)(f) |
Loans |
|
|
8,329 |
|
|
|
(317 |
)(e) |
|
|
(651 |
) |
|
|
104 |
|
|
|
7,465 |
|
|
|
(295 |
)(e) |
Mortgage servicing rights |
|
|
11,617 |
|
|
|
(797 |
)(d) |
|
|
6,228 |
|
|
|
|
|
|
|
17,048 |
|
|
|
(797 |
)(d) |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
7,001 |
|
|
|
(214 |
)(e) |
|
|
140 |
|
|
|
|
|
|
|
6,927 |
|
|
|
(195 |
)(e) |
All other |
|
|
4,931 |
|
|
|
(155 |
)(g) |
|
|
883 |
|
|
|
13 |
|
|
|
5,672 |
|
|
|
(120 |
)(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
(gains)/losses |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Three months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2008 |
|
June 30, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2008 |
|
(gains)/losses |
|
net |
|
level 3 |
|
30, 2008 |
|
2008 |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,328 |
|
|
$ |
(89 |
)(e) |
|
$ |
78 |
|
|
$ |
|
|
|
$ |
1,317 |
|
|
$ |
(90 |
)(e) |
Other borrowed funds |
|
|
300 |
|
|
|
(28 |
)(e) |
|
|
(168 |
) |
|
|
9 |
|
|
|
113 |
|
|
|
(31 |
)(e) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
870 |
|
|
|
(93 |
)(e) |
|
|
(177 |
) |
|
|
(211 |
) |
|
|
389 |
|
|
|
(112 |
)(e) |
Accounts payable and other
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interests issued
by consolidated VIEs |
|
|
8,151 |
|
|
|
|
|
|
|
(7,532 |
) |
|
|
(24 |
) |
|
|
595 |
|
|
|
|
|
Long-term debt |
|
|
22,976 |
|
|
|
(2,883 |
)(e) |
|
|
(630 |
) |
|
|
16 |
|
|
|
19,479 |
|
|
|
(2,209 |
)(e) |
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
gains/(losses) |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Nine months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2009 |
|
January 1, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2009 |
|
gains/(losses) |
|
net |
|
level 3 |
|
30, 2009 |
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
163 |
|
|
$ |
(32 |
) |
|
$ |
119 |
|
|
$ |
69 |
|
|
$ |
319 |
|
|
$ |
(31 |
) |
Residential nonagency(a) |
|
|
3,339 |
|
|
|
(688 |
) |
|
|
498 |
|
|
|
(358 |
) |
|
|
2,791 |
|
|
|
(743 |
) |
Commercial nonagency(a) |
|
|
2,487 |
|
|
|
(160 |
) |
|
|
(326 |
) |
|
|
(148 |
) |
|
|
1,853 |
|
|
|
(206 |
) |
|
Total mortgage-backed
securities |
|
|
5,989 |
|
|
|
(880 |
) |
|
|
291 |
|
|
|
(437 |
) |
|
|
4,963 |
|
|
|
(980 |
) |
Obligations of U.S. states and
municipalities |
|
|
2,641 |
|
|
|
71 |
|
|
|
(523 |
) |
|
|
|
|
|
|
2,189 |
|
|
|
(7 |
) |
Non-U.S. government debt
securities |
|
|
707 |
|
|
|
52 |
|
|
|
(58 |
) |
|
|
65 |
|
|
|
766 |
|
|
|
22 |
|
Corporate debt securities |
|
|
5,280 |
|
|
|
36 |
|
|
|
(3,403 |
) |
|
|
3,397 |
|
|
|
5,310 |
|
|
|
(9 |
) |
Loans |
|
|
17,091 |
|
|
|
(889 |
)(d) |
|
|
(1,852 |
) |
|
|
276 |
|
|
|
14,626 |
|
|
|
(989 |
)(d) |
Asset-backed securities |
|
|
7,106 |
|
|
|
1,278 |
|
|
|
637 |
|
|
|
(197 |
) |
|
|
8,824 |
|
|
|
903 |
|
|
Total debt instruments |
|
|
38,814 |
|
|
|
(332 |
) |
|
|
(4,908 |
) |
|
|
3,104 |
|
|
|
36,678 |
|
|
|
(1,060 |
) |
Equity securities |
|
|
1,380 |
|
|
|
(200 |
) |
|
|
(502 |
) |
|
|
1,227 |
|
|
|
1,905 |
|
|
|
(107 |
) |
Other |
|
|
1,226 |
|
|
|
(81 |
) |
|
|
4 |
|
|
|
32 |
|
|
|
1,181 |
|
|
|
96 |
|
|
Total debt and equity instruments |
|
|
41,420 |
|
|
|
(613 |
)(e) |
|
|
(5,406 |
) |
|
|
4,363 |
|
|
|
39,764 |
|
|
|
(1,071 |
)(e) |
|
Net derivative receivables |
|
|
9,507 |
|
|
|
(10,715 |
) |
|
|
(2,921 |
) |
|
|
16,401 |
|
|
|
12,272 |
|
|
|
(10,127 |
) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
11,447 |
|
|
|
30 |
|
|
|
1,104 |
|
|
|
175 |
|
|
|
12,756 |
|
|
|
168 |
|
Other |
|
|
944 |
|
|
|
(78 |
) |
|
|
242 |
|
|
|
(498 |
) |
|
|
610 |
|
|
|
(82 |
) |
|
Total available-for-sale securities |
|
|
12,391 |
|
|
|
(48 |
)(f) |
|
|
1,346 |
|
|
|
(323 |
) |
|
|
13,366 |
|
|
|
86 |
(f) |
|
Loans |
|
|
2,667 |
|
|
|
(471 |
)(e) |
|
|
(1,507 |
) |
|
|
723 |
|
|
|
1,412 |
|
|
|
(469 |
)(e) |
Mortgage servicing rights |
|
|
9,403 |
|
|
|
4,045 |
(d) |
|
|
215 |
|
|
|
|
|
|
|
13,663 |
|
|
|
4,045 |
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity investments(b) |
|
|
6,369 |
|
|
|
(576 |
)(e) |
|
|
299 |
|
|
|
70 |
|
|
|
6,162 |
|
|
|
(557 |
)(e) |
All other |
|
|
5,015 |
|
|
|
(597 |
)(g) |
|
|
142 |
|
|
|
(58 |
) |
|
|
4,502 |
|
|
|
(525 |
)(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
(gains)/losses |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Nine months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2009 |
|
January 1, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2009 |
|
(gains)/losses |
|
net |
|
level 3 |
|
30, 2009 |
|
2009 |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,235 |
|
|
$ |
51 |
(e) |
|
$ |
(810 |
) |
|
$ |
57 |
|
|
$ |
533 |
|
|
$ |
25 |
(e) |
Other borrowed funds |
|
|
101 |
|
|
|
(84 |
)(e) |
|
|
35 |
|
|
|
43 |
|
|
|
95 |
|
|
|
(2 |
)(e) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
288 |
|
|
|
64 |
(e) |
|
|
(337 |
) |
|
|
(3 |
) |
|
|
12 |
|
|
|
1 |
(e) |
Accounts payable and other
liabilities |
|
|
|
|
|
|
(60 |
)(e) |
|
|
442 |
|
|
|
|
|
|
|
382 |
|
|
|
(61 |
)(e) |
Beneficial interests issued by
consolidated VIEs |
|
|
|
|
|
|
407 |
(e) |
|
|
(32 |
) |
|
|
879 |
|
|
|
1,254 |
|
|
|
390 |
(e) |
Long-term debt |
|
|
16,548 |
|
|
|
1,315 |
(e) |
|
|
(1,935 |
) |
|
|
3,131 |
|
|
|
19,059 |
|
|
|
1,015 |
(e) |
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
gains/(losses) |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Nine months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2008 |
|
January 1, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2008 |
|
gains/(losses) |
|
net |
|
level 3 |
|
30, 2008 |
|
2008 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
$ |
24,066 |
|
|
$ |
(7,500 |
)(d)(e) |
|
$ |
8,427 |
|
|
$ |
21,389 |
|
|
$ |
46,382 |
|
|
$ |
(6,628 |
)(d)(e) |
Net derivative receivables |
|
|
633 |
|
|
|
5,328 |
(e) |
|
|
440 |
|
|
|
1,490 |
|
|
|
7,891 |
|
|
|
6,146 |
(e) |
Available-for-sale securities |
|
|
101 |
|
|
|
(850 |
)(f) |
|
|
1,982 |
|
|
|
9,420 |
|
|
|
10,653 |
|
|
|
(748 |
)(f) |
Loans |
|
|
8,380 |
|
|
|
(638 |
)(e) |
|
|
323 |
|
|
|
(600 |
) |
|
|
7,465 |
|
|
|
(845 |
)(e) |
Mortgage servicing rights |
|
|
8,632 |
|
|
|
87 |
(d) |
|
|
8,329 |
|
|
|
|
|
|
|
17,048 |
|
|
|
87 |
(d) |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity
investments(b) |
|
|
6,763 |
|
|
|
448 |
(e) |
|
|
(284 |
) |
|
|
|
|
|
|
6,927 |
|
|
|
(195 |
)(e) |
All other |
|
|
3,160 |
|
|
|
(168 |
)(g) |
|
|
2,659 |
|
|
|
21 |
|
|
|
5,672 |
|
|
|
(114 |
)(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized |
|
|
Fair value measurements using significant unobservable inputs |
|
(gains)/losses |
|
|
|
|
|
|
Total |
|
Purchases, |
|
Transfers |
|
|
|
|
|
related to financial |
Nine months ended |
|
Fair value, |
|
realized/ |
|
issuances |
|
into and/or |
|
Fair value, |
|
instruments held |
September 30, 2008 |
|
January 1, |
|
unrealized |
|
settlements, |
|
out of |
|
September |
|
at September 30, |
(in millions) |
|
2008 |
|
(gains)/losses |
|
net |
|
level 3 |
|
30, 2008 |
|
2008 |
|
Liabilities(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,161 |
|
|
$ |
(12 |
)(e) |
|
$ |
116 |
|
|
$ |
52 |
|
|
$ |
1,317 |
|
|
$ |
(10 |
)(e) |
Other borrowed funds |
|
|
105 |
|
|
|
33 |
(e) |
|
|
33 |
|
|
|
(58 |
) |
|
|
113 |
|
|
|
(38 |
)(e) |
Trading liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity
instruments |
|
|
480 |
|
|
|
(21 |
)(e) |
|
|
(2 |
) |
|
|
(68 |
) |
|
|
389 |
|
|
|
(271 |
)(e) |
Accounts payable and
other liabilities |
|
|
25 |
|
|
|
(25 |
)(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interests
issued by consolidated
VIEs |
|
|
82 |
|
|
|
(24 |
)(e) |
|
|
(8 |
) |
|
|
545 |
|
|
|
595 |
|
|
|
|
|
Long-term debt |
|
|
21,938 |
|
|
|
(2,846 |
)(e) |
|
|
(234 |
) |
|
|
621 |
|
|
|
19,479 |
|
|
|
(2,496 |
)(e) |
|
|
|
|
(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 117-118. |
|
(b) |
|
Private equity instruments represent investments within the Corporate/Private Equity line of
business. The costs of the private equity investment portfolio were $8.6 billion and $8.3
billion at September 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
September 30, 2009, and December 31, 2008, respectively. |
|
(d) |
|
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. |
|
(e) |
|
Reported in principal transactions revenue. |
|
(f) |
|
Realized gains and losses on available-for-sale securities, as well as other-than-temporary
impairment losses that are recorded in earnings, are reported in securities gains. Unrealized
gains and losses are reported in accumulated other comprehensive income. |
|
(g) |
|
Reported in other income. |
114
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 fair value hierarchy (as described above) as of September 30, 2009, and December 31, 2008, for
which a nonrecurring change in fair value has been recorded during the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hierarchy |
|
|
September 30, 2009 (in millions) |
|
Level 1 |
|
|
Level 2 |
|
Level 3 |
|
Total fair value |
|
Loans(a) |
|
$ |
|
|
|
$ |
6,249 |
|
|
$ |
1,869 |
|
|
$ |
8,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
|
|
|
|
173 |
|
|
|
403 |
|
|
|
576 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
215 |
|
|
Total other assets |
|
|
|
|
|
|
173 |
|
|
|
618 |
|
|
|
791 |
|
|
Total assets at fair value on a nonrecurring basis |
|
$ |
|
|
|
$ |
6,422 |
|
|
$ |
2,487 |
|
|
$ |
8,909 |
|
|
Accounts payable and other liabilities(b) |
|
$ |
|
|
|
$ |
87 |
|
|
$ |
31 |
|
|
$ |
118 |
|
|
Total liabilities at fair value on a nonrecurring
basis |
|
$ |
|
|
|
$ |
87 |
|
|
$ |
31 |
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, at September 30, 2009, and December 31, 2008, the fair value adjustment
associated with $654 million and $1.5 billion, respectively, of unfunded held-for-sale
lending-related commitments within the leveraged lending portfolio. |
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 nine
months ended September 30, 2009 and 2008, related to financial instruments held at those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Loans |
|
$ |
(1,030 |
) |
|
$ |
(1,071 |
) |
|
$ |
(3,094 |
) |
|
$ |
(2,524 |
) |
Other assets |
|
|
(53 |
) |
|
|
(134 |
) |
|
|
(94 |
) |
|
|
(225 |
) |
Accounts payable and other liabilities |
|
|
29 |
|
|
|
(34 |
) |
|
|
12 |
|
|
|
(84 |
) |
|
Total nonrecurring fair value gains/(losses) |
|
$ |
(1,054 |
) |
|
$ |
(1,239 |
) |
|
$ |
(3,176 |
) |
|
$ |
(2,833 |
) |
|
In the above table, loans predominantly include: (1) write-downs of delinquent 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 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.
115
Level 3 analysis
Consolidated Balance Sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 6% of total
Firm assets at September 30, 2009. The following describes significant changes to level 3 assets
during the quarter.
For the three months ended September 30, 2009
Level 3
assets were $130.0 billion at September 30, 2009,
reflecting a decrease of $11.7 billion in
the third quarter of 2009. The decline was largely due to a $9.2 billion decrease in derivative
receivables, predominantly due to the tightening of credit spreads. In addition, mortgage servicing
rights (MSRs) decreased by $937 million due to market, interest rates and other changes affecting
the Firms estimate of future prepayments, partially offset by sales in Retail Financial Services
(RFS) of originated loans for which servicing rights were retained.
For the nine months ended September 30, 2009
Level 3
assets decreased by $4.6 billion in the first nine months of 2009, due to the following:
|
|
A net decrease of $4.3 billion in derivative receivables, which was mainly driven by: a
$20.4 billion decline due to tightening credit spreads; a $17.7 billion transfer of
single-name CDS on ABS from level 3 to level 2; and $3.6 billion related to sales of CDS
positions on commercial- and residential mortgage-backed securities. The decrease was
predominantly offset by the transfer of structured credit derivative receivables from level 2
to level 3, resulting from a decrease in transaction activity and the lack of observable
market data. At September 30, 2009, the fair value of these receivables was approximately
$24.3 billion. Offsetting these receivables were derivative payables with a fair value of
$14.1 billion at September 30, 2009. |
|
|
A net increase of $4.3 billion in MSRs, primarily due to market interest rates and other
changes affecting the Firms estimate of future prepayments, partially offset by sales in RFS
of originated loans for which servicing rights were retained. |
|
|
A net decrease of $2.4 billion, driven by sales of leveraged loans and transfers of similar
loans to level 2 due to the increased price transparency for such assets. |
|
|
A net decrease of $1.7 billion in trading assetsdebt and equity instruments, primarily in
loans and residential- and commercial mortgage-backed securities, principally driven by sales
and markdowns, and by sales and unwinds of structured transactions with hedge funds. The
declines were partially offset by a transfer of certain structured notes reflecting lower
liquidity and less pricing observability, and increases in other asset-backed securities. |
Gains and Losses
Included in the tables for the three months ended September 30, 2009
|
|
$5.8 billion of net losses on derivatives primarily related to credit spread tightening. |
|
|
$1.2 billion in gains on tradingdebt and equity assets, predominantly from other
asset-backed securities and mortgage-related transactions. |
|
|
$1.1 billion of losses on MSRs. |
|
|
$1.3 billion of losses related to structured note liabilities, predominantly due to
volatility in equity markets. |
Included in the tables for the three months ended September 30, 2008
|
|
$4.3 billion of losses on tradingdebt and equity instruments, principally from
mortgage-related transactions. |
|
|
$860 million of losses 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. |
|
|
$797 million of losses on MSRs. |
|
|
Net gains of approximately $2.5 billion, principally related to equity derivatives
transactions. |
|
|
Losses on private equity instruments of approximately $214 million. |
|
|
$2.9 billion of gains related to structured notes, principally due to significant
volatility in the fixed income, commodities and equity markets. |
Included in the tables for the nine months ended September 30, 2009
|
|
$10.7 billion of net losses on derivatives primarily related to credit spread tightening. |
|
|
$1.9 billion of losses on tradingdebt and equity assets primarily related to residential
and commercial loans and mortgage-backed securities, principally driven by markdowns and
sales. These losses were partially offset by gains of $1.3 billion on other 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. |
|
|
$4.0 billion of gains on MSRs. |
|
|
$1.3 billion of losses related to structured note liabilities, predominantly due to
volatility in the equity markets. |
116
Included in the tables for the nine months ended September 30, 2008
|
|
Losses on tradingdebt and equity instruments of approximately $7.5 billion,
principally from mortgage-related transactions and auction-rate securities. |
|
|
Losses of approximately $2.5 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 $5.3 billion related to fixed income and equity derivatives. |
|
|
Gains of $2.8 billion related to structured notes, principally due to significant
volatility in the fixed income, commodities and equity markets. |
|
|
Private equity gains of approximately $448 million. |
|
|
Gains of $87 million on MSRs. |
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, and 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 118 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure as of |
|
Exposure as of |
|
|
|
|
September 30, 2009 |
|
December 31, 2008(e) |
|
Net gains/(losses) reported in income(e)(f) |
|
|
|
|
|
|
Net of risk |
|
|
|
|
|
Net of risk |
|
Three months ended |
|
Nine months ended |
|
|
|
|
|
|
management |
|
|
|
|
|
management |
|
September 30, |
|
September 30, |
(in millions) |
|
Gross |
|
activities(d) |
|
Gross |
|
activities(d) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
U.S. residential
mortgage:(a)(b)(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
3,970 |
|
|
$ |
3,970 |
|
|
$ |
4,612 |
|
|
$ |
4,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
3,353 |
|
|
|
3,353 |
|
|
|
3,934 |
|
|
|
3,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,323 |
|
|
|
7,323 |
|
|
|
8,546 |
|
|
|
8,529 |
|
|
$ |
388 |
|
|
$ |
(2,097 |
) |
|
$ |
226 |
|
|
$ |
(3,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
646 |
|
|
|
191 |
|
|
|
941 |
|
|
|
(28 |
) |
|
|
(27 |
) |
|
|
(133 |
) |
|
|
(57 |
) |
|
|
(370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential |
|
|
1,763 |
|
|
|
1,499 |
|
|
|
1,591 |
|
|
|
951 |
|
|
|
48 |
|
|
|
(192 |
) |
|
|
44 |
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
2,435 |
|
|
|
1,779 |
|
|
|
2,836 |
|
|
|
1,438 |
|
|
|
38 |
|
|
|
(149 |
) |
|
|
293 |
|
|
|
(508 |
) |
Loans |
|
|
2,952 |
|
|
|
1,935 |
|
|
|
4,338 |
|
|
|
2,179 |
|
|
|
(18 |
) |
|
|
(216 |
) |
|
|
(402 |
) |
|
|
(313 |
) |
|
|
|
|
(a) |
|
Included exposures in IB, CIO and RFS. |
|
(b) |
|
Excluded, at September 30, 2009, and December 31, 2008, 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 $43.4 billion and $58.9 billion, respectively; (ii)
conforming mortgage loans originated with the intent to sell to U.S. government agencies and
U.S. government sponsored enterprises of $11.3 billion and $6.2 billion, respectively; and
(iii) reverse mortgages of $4.6 billion and $4.3 billion, respectively, for which the
principal risk is mortality risk. Also excluded mortgage servicing rights, which are reported
in Note 17 on pages 162163 of this Form 10-Q. |
|
(c) |
|
Excluded certain mortgage-related financing transactions, which are collateralized by
mortgage-related assets, of $4.1 billion and $5.7 billion at September 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, $152 million and $1.2 billion were considered impaired at September
30, 2009, and December 31, 2008, respectively. |
|
(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). |
117
Residential mortgages
Prime mortgage Of the $4.0 billion of prime mortgage exposure at September 30, 2009,
approximately $1.8 billion relates to first-lien mortgages predominantly classified in level 3. The
remaining $2.2 billion relates to securities of $1.5 billion where $160 million was classified in
level 2 and $1.4 billion was classified in level 3; and $686 million of forward purchase
commitments, reported in derivative receivables, which were classified 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 September 30, 2009,
approximately $2.5 billion relates to first-lien mortgages classified in level 3. The remaining
$894 million relates to securities, which are largely rated BB+ and below, where $337 million was
classified in level 2, and $557 million was classified in level 3.
Subprime mortgage Of the $646 million of subprime mortgage exposure at September 30, 2009, $445
million relates to securities, predominantly rated BB+ and below, where $17 million was classified
in level 2, and $428 million was classified in level 3. The remaining $201 million relates to
first-lien mortgages classified in level 3.
Non-U.S. residential mortgages
Of the $1.8 billion of non-U.S. residential mortgage exposure at September 30, 2009, $1.0 billion
relates to securities, largely rated AAA, where $603 million was classified in level 2, and $443
million was classified in level 3. The remaining $717 million relates to first-lien mortgages
classified in level 3.
Commercial mortgages
Of the $5.4 billion of commercial mortgage exposure at September 30, 2009, $3.0 billion relates to
first-lien mortgages, largely in the U.S., classified in level 3. The remaining $2.4 billion
relates to securities, which are largely rated AA and above, where $506 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 other |
|
|
Exposures |
|
Exposures |
|
Net gains/(losses) reported in income(a) |
|
comprehensive income (pretax) |
|
|
as of |
|
as of |
|
Three months ended |
|
Nine months ended |
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
December 31, |
|
September 30, |
|
September 30, |
|
September 30, |
|
September 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 |
|
$ |
184,908 |
|
|
$ |
117,385 |
|
|
$ |
80 |
|
|
$ |
407 |
|
|
$ |
519 |
|
|
$ |
404 |
|
|
$ |
2,525 |
|
|
$ |
532 |
|
|
$ |
2,130 |
|
|
$ |
(494 |
) |
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
4,802 |
|
|
|
6,895 |
|
|
|
(16 |
) |
|
|
|
|
|
|
(251 |
) |
|
|
|
|
|
|
549 |
|
|
|
(391 |
) |
|
|
579 |
|
|
|
(570 |
) |
Subprime |
|
|
35 |
|
|
|
194 |
|
|
|
1 |
|
|
|
(12 |
) |
|
|
(34 |
) |
|
|
(41 |
) |
|
|
1 |
|
|
|
(41 |
) |
|
|
20 |
|
|
|
(43 |
) |
Non-U.S. |
|
|
6,926 |
|
|
|
2,075 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
302 |
|
|
|
12 |
|
|
|
339 |
|
|
|
12 |
|
Commercial |
|
|
4,528 |
|
|
|
3,939 |
|
|
|
15 |
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
530 |
|
|
|
|
|
|
|
671 |
|
|
|
|
|
|
Total mortgage-backed
securities |
|
$ |
201,199 |
|
|
$ |
130,488 |
|
|
$ |
80 |
|
|
$ |
397 |
|
|
$ |
209 |
|
|
$ |
365 |
|
|
$ |
3,907 |
|
|
$ |
112 |
|
|
$ |
3,739 |
|
|
$ |
(1,095 |
) |
U.S. government agencies |
|
|
34,356 |
|
|
|
9,657 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
263 |
|
|
|
(3 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
(a) |
|
Excludes related net interest income. |
Exposures in the table above include $235.6 billion and $140.1 billion of mortgage-backed and
mortgage-related securities classified as available-for-sale on the Firms Consolidated Balance
Sheets at September 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 rated AAA.
For additional information on investment securities in the available-for-sale portfolio, see Note
11 on pages 136141 of this Form 10-Q.
118
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 under U.S. GAAP. 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 129143 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 as of the dates indicated.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Derivative receivables balance |
|
$ |
94,065 |
|
|
$ |
162,626 |
|
Derivative CVAs(a) |
|
|
(3,728 |
) |
|
|
(9,566 |
) |
Derivatives payables balance |
|
|
69,214 |
|
|
|
121,604 |
|
Derivative DVAs |
|
|
(808 |
) |
|
|
(1,389 |
) |
Structured notes balance(b)(c) |
|
|
61,138 |
|
|
|
67,340 |
|
Structured note DVAs |
|
|
(1,112 |
) |
|
|
(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 the fair value
option. For further information on these elections, see Note 4 on
pages 121123 of this Form
10-Q. |
The following table provides the impact of credit adjustments on earnings in the respective
periods, excluding the effect of any hedging activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Credit adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative CVAs(a) |
|
$ |
1,439 |
|
|
$ |
(977 |
) |
|
$ |
5,838 |
|
|
$ |
(2,349 |
) |
Derivative DVAs |
|
|
(202 |
) |
|
|
229 |
|
|
|
(581 |
) |
|
|
868 |
|
Structured note DVAs(b) |
|
|
(840 |
) |
|
|
727 |
|
|
|
(1,301 |
) |
|
|
1,933 |
|
|
|
|
|
(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 the fair value
option. For further information on these elections, see Note 4 on
pages 121123 of this Form
10-Q. |
Additional disclosures about the fair value of financial instruments (including financial
instruments not carried at fair value)
U.S. GAAP 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 these disclosure requirements are included in
the following table. Additionally, certain financial instruments and all nonfinancial instruments
are excluded from the scope. Accordingly, the fair value disclosures required 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; 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, U.S. GAAP 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; recognition of the inherent funding value of these
instruments is not allowed.
119
The following table presents the carrying value and estimated fair value of financial assets and
liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
140.6 |
|
|
$ |
140.6 |
|
|
$ |
|
|
|
$ |
226.0 |
|
|
$ |
226.0 |
|
|
$ |
|
|
Federal funds sold and securities purchased under
resale agreements (included $18.9 and $20.8 at fair
value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
171.0 |
|
|
|
171.0 |
|
|
|
|
|
|
|
203.1 |
|
|
|
203.1 |
|
|
|
|
|
Securities borrowed (included $5.5 and $3.4 at fair
value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
128.1 |
|
|
|
128.1 |
|
|
|
|
|
|
|
124.0 |
|
|
|
124.0 |
|
|
|
|
|
Trading assets |
|
|
424.4 |
|
|
|
424.4 |
|
|
|
|
|
|
|
510.0 |
|
|
|
510.0 |
|
|
|
|
|
Securities (included $372.8 and $205.9 at fair
value at September 30, 2009, and December 31, 2008,
respectively) |
|
|
372.9 |
|
|
|
372.9 |
|
|
|
|
|
|
|
205.9 |
|
|
|
205.9 |
|
|
|
|
|
Loans (included $1.9 and $7.7 at fair value at
September 30, 2009, and December 31, 2008,
respectively) |
|
|
622.5 |
|
|
|
615.8 |
|
|
|
(6.7 |
) |
|
|
721.7 |
|
|
|
700.0 |
|
|
|
(21.7 |
) |
Mortgage servicing rights at fair value |
|
|
13.7 |
|
|
|
13.7 |
|
|
|
|
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
|
|
Other (included $18.7 and $29.2 at fair value at
September 30, 2009, and December 31, 2008,
respectively)(a) |
|
|
76.7 |
|
|
|
76.5 |
|
|
|
(0.2 |
) |
|
|
83.0 |
|
|
|
83.1 |
|
|
|
0.1 |
|
|
Total financial assets |
|
$ |
1,949.9 |
|
|
$ |
1,943.0 |
|
|
$ |
(6.9 |
) |
|
$ |
2,083.1 |
|
|
$ |
2,061.5 |
|
|
$ |
(21.6 |
) |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits (included $3.9 and $5.6 at fair value at
September 30, 2009, and December 31, 2008,
respectively) |
|
$ |
868.0 |
|
|
$ |
869.1 |
|
|
$ |
(1.1 |
) |
|
$ |
1,009.3 |
|
|
$ |
1,010.2 |
|
|
$ |
(0.9 |
) |
Federal funds purchased and securities loaned or
sold under repurchase agreements (included $2.7 and
$3.0 at fair value at September 30, 2009, and
December 31, 2008, respectively) |
|
|
310.2 |
|
|
|
310.2 |
|
|
|
|
|
|
|
192.5 |
|
|
|
192.5 |
|
|
|
|
|
Commercial paper |
|
|
53.9 |
|
|
|
53.9 |
|
|
|
|
|
|
|
37.8 |
|
|
|
37.8 |
|
|
|
|
|
Other borrowed funds (included $5.0 and $14.7 at
fair value at September 30, 2009, and December 31,
2008, respectively) |
|
|
50.8 |
|
|
|
51.2 |
|
|
|
(0.4 |
) |
|
|
132.4 |
|
|
|
134.1 |
|
|
|
(1.7 |
) |
Trading liabilities |
|
|
134.4 |
|
|
|
134.4 |
|
|
|
|
|
|
|
166.9 |
|
|
|
166.9 |
|
|
|
|
|
Accounts payable and other liabilities(a) |
|
|
148.1 |
|
|
|
148.1 |
|
|
|
|
|
|
|
167.2 |
|
|
|
167.2 |
|
|
|
|
|
Beneficial interests issued by consolidated VIEs
(included $2.0 and $1.7 at fair value at September
30, 2009, and December 31, 2008, respectively) |
|
|
17.9 |
|
|
|
17.9 |
|
|
|
|
|
|
|
10.6 |
|
|
|
10.5 |
|
|
|
0.1 |
|
Long-term debt and junior subordinated deferrable
interest debentures (included $52.2 and $58.2 at
fair value at September 30, 2009, and December 31,
2008, respectively) |
|
|
272.1 |
|
|
|
271.0 |
|
|
|
1.1 |
|
|
|
270.7 |
|
|
|
262.1 |
|
|
|
8.6 |
|
|
Total financial liabilities |
|
$ |
1,855.4 |
|
|
$ |
1,855.8 |
|
|
$ |
(0.4 |
) |
|
$ |
1,987.4 |
|
|
$ |
1,981.3 |
|
|
$ |
6.1 |
|
|
Net (depreciation) appreciation |
|
|
|
|
|
|
|
|
|
$ |
(7.3 |
) |
|
|
|
|
|
|
|
|
|
$ |
(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 September 30, 2009,
and December 31, 2008, were liabilities of $1.7 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.
120
Trading assets and liabilities average balances
Average trading assets and liabilities were as follows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Trading assets debt and equity instruments |
|
$ |
316,938 |
|
|
$ |
391,060 |
|
|
$ |
313,586 |
|
|
$ |
398,119 |
|
Trading assets derivative receivables |
|
|
99,807 |
|
|
|
111,214 |
|
|
|
118,560 |
|
|
|
104,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities debt and equity instruments(a) |
|
$ |
59,843 |
|
|
$ |
87,516 |
|
|
$ |
56,451 |
|
|
$ |
86,317 |
|
Trading liabilities derivative payables |
|
|
75,458 |
|
|
|
83,805 |
|
|
|
82,781 |
|
|
|
81,568 |
|
|
|
|
|
(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 nine months ended September 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 September 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 |
|
$ |
161 |
|
|
$ |
|
|
|
$ |
161 |
|
|
$ |
(28 |
) |
|
$ |
|
|
|
$ |
(28 |
) |
Securities borrowed |
|
|
100 |
|
|
|
|
|
|
|
100 |
|
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments, excluding loans |
|
|
200 |
|
|
|
(4 |
)(c) |
|
|
196 |
|
|
|
(354 |
) |
|
|
|
|
|
|
(354 |
) |
Loans reported as trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
132 |
|
|
|
5 |
(c) |
|
|
137 |
|
|
|
(3,099 |
) |
|
|
(78 |
)(c) |
|
|
(3,177 |
) |
Other changes in fair value |
|
|
397 |
|
|
|
965 |
(c) |
|
|
1,362 |
|
|
|
(197 |
) |
|
|
306 |
(c) |
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
29 |
|
|
|
|
|
|
|
29 |
|
|
|
(457 |
) |
|
|
|
|
|
|
(457 |
) |
Other changes in fair value |
|
|
(53 |
) |
|
|
|
|
|
|
(53 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(39 |
) |
Other assets |
|
|
|
|
|
|
(87 |
)(d) |
|
|
(87 |
) |
|
|
|
|
|
|
(88 |
)(d) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(a) |
|
|
(313 |
) |
|
|
|
|
|
|
(313 |
) |
|
|
264 |
|
|
|
|
|
|
|
264 |
|
Federal funds purchased and securities loaned or sold
under repurchase agreements |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Other borrowed funds(a) |
|
|
(1,092 |
) |
|
|
|
|
|
|
(1,092 |
) |
|
|
783 |
|
|
|
|
|
|
|
783 |
|
Trading liabilities |
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
24 |
|
|
|
|
|
|
|
24 |
|
Beneficial interests issued by consolidated VIEs |
|
|
(277 |
) |
|
|
|
|
|
|
(277 |
) |
|
|
337 |
|
|
|
|
|
|
|
337 |
|
Other liabilities |
|
|
(59 |
) |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk(a) |
|
|
(831 |
) |
|
|
|
|
|
|
(831 |
) |
|
|
714 |
|
|
|
|
|
|
|
714 |
|
Other changes in fair value |
|
|
(1,002 |
) |
|
|
|
|
|
|
(1,002 |
) |
|
|
10,945 |
|
|
|
|
|
|
|
10,945 |
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 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 |
|
$ |
(334 |
) |
|
$ |
|
|
|
$ |
(334 |
) |
|
$ |
123 |
|
|
$ |
|
|
|
$ |
123 |
|
Securities borrowed |
|
|
81 |
|
|
|
|
|
|
|
81 |
|
|
|
66 |
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and equity instruments, excluding loans |
|
|
504 |
|
|
|
15 |
(c) |
|
|
519 |
|
|
|
(230 |
) |
|
|
15 |
(c) |
|
|
(215 |
) |
Loans reported as trading assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
(340 |
) |
|
|
(160 |
)(c) |
|
|
(500 |
) |
|
|
(4,712 |
) |
|
|
(128 |
)(c) |
|
|
(4,840 |
) |
Other changes in fair value |
|
|
1,109 |
|
|
|
2,397 |
(c) |
|
|
3,506 |
|
|
|
(192 |
) |
|
|
715 |
(c) |
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk |
|
|
(300 |
) |
|
|
|
|
|
|
(300 |
) |
|
|
(957 |
) |
|
|
|
|
|
|
(957 |
) |
Other changes in fair value |
|
|
(179 |
) |
|
|
|
|
|
|
(179 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
Other assets |
|
|
|
|
|
|
(675 |
)(d) |
|
|
(675 |
) |
|
|
|
|
|
|
(129 |
)(d) |
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits(a) |
|
|
(499 |
) |
|
|
|
|
|
|
(499 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
(105 |
) |
Federal funds purchased and securities loaned or
sold under repurchase agreements |
|
|
75 |
|
|
|
|
|
|
|
75 |
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Other borrowed funds(a) |
|
|
(1,238 |
) |
|
|
|
|
|
|
(1,238 |
) |
|
|
695 |
|
|
|
|
|
|
|
695 |
|
Trading liabilities |
|
|
(23 |
) |
|
|
|
|
|
|
(23 |
) |
|
|
26 |
|
|
|
|
|
|
|
26 |
|
Beneficial interests issued by consolidated VIEs |
|
|
(401 |
) |
|
|
|
|
|
|
(401 |
) |
|
|
368 |
|
|
|
|
|
|
|
368 |
|
Other liabilities |
|
|
(55 |
) |
|
|
|
|
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in instrument-specific credit risk(a) |
|
|
(1,225 |
) |
|
|
|
|
|
|
(1,225 |
) |
|
|
1,892 |
|
|
|
|
|
|
|
1,892 |
|
Other changes in fair value |
|
|
(2,773 |
) |
|
|
|
|
|
|
(2,773 |
) |
|
|
10,505 |
|
|
|
|
|
|
|
10,505 |
|
|
|
|
|
(a) |
|
Total changes in instrument-specific credit risk related to structured notes were $(840)
million and $727 million for the three months ended September 30, 2009 and 2008, respectively;
and $(1.3) billion and $1.9 billion for the nine months ended September 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 and loans
purchased as part of IBs trading activities. |
|
(c) |
|
Reported in mortgage fees and related income. |
|
(d) |
|
Reported in other income. |
122
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 September 30, 2009, and December 31,
2008, for loans and long-term debt for which the fair value option has been elected. The loans were
classified in trading assets debt and equity instruments or in loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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) |
|
|
6,690 |
|
|
|
1,949 |
|
|
|
(4,741 |
) |
|
|
5,156 |
|
|
|
1,460 |
|
|
|
(3,696 |
) |
Loans |
|
|
1,134 |
|
|
|
149 |
|
|
|
(985 |
) |
|
|
189 |
|
|
|
51 |
|
|
|
(138 |
) |
|
Subtotal |
|
|
7,824 |
|
|
|
2,098 |
|
|
|
(5,726 |
) |
|
|
5,345 |
|
|
|
1,511 |
|
|
|
(3,834 |
) |
All other performing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported as trading assets(a) |
|
|
39,399 |
|
|
|
31,860 |
|
|
|
(7,539 |
) |
|
|
36,336 |
|
|
|
30,342 |
|
|
|
(5,994 |
) |
Loans |
|
|
3,212 |
|
|
|
1,588 |
|
|
|
(1,624 |
) |
|
|
10,206 |
|
|
|
7,441 |
|
|
|
(2,765 |
) |
|
Total loans |
|
$ |
50,435 |
|
|
$ |
35,546 |
|
|
$ |
(14,889 |
) |
|
$ |
51,887 |
|
|
$ |
39,294 |
|
|
$ |
(12,593 |
) |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal protected debt |
|
$ |
27,352 |
(c) |
|
$ |
26,975 |
|
|
$ |
(377 |
) |
|
$ |
27,043 |
(c) |
|
$ |
26,241 |
|
|
$ |
(802 |
) |
Nonprincipal protected debt(b) |
|
NA |
|
|
|
25,204 |
|
|
NA |
|
|
NA |
|
|
|
31,973 |
|
|
NA |
|
|
Total long-term debt |
|
NA |
|
|
$ |
52,179 |
|
|
NA |
|
|
NA |
|
|
$ |
58,214 |
|
|
NA |
|
|
Long-term beneficial interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal protected debt |
|
$ |
112 |
|
|
$ |
112 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Nonprincipal protected debt(b) |
|
NA |
|
|
|
1,883 |
|
|
NA |
|
|
NA |
|
|
|
1,735 |
|
|
NA |
|
|
Total long-term beneficial interests |
|
NA |
|
|
$ |
1,995 |
|
|
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 129 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 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 or losses
123
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, 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 related to these 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 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 price risk associated with energy-related tolling and load-serving contracts and
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 130131 of this Form 10-Q.
For more information about risk management derivatives, see the risk management derivatives gains
and losses table on page 129 of this Form 10-Q.
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of
September 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Notional amounts(c) |
(in billions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Interest rate contracts |
|
|
|
|
|
|
|
|
Swaps(a) |
|
$ |
48,893 |
|
|
$ |
54,524 |
|
Futures and forwards |
|
|
6,066 |
|
|
|
6,277 |
|
Written options |
|
|
4,762 |
|
|
|
4,803 |
|
Purchased options |
|
|
4,617 |
|
|
|
4,656 |
|
|
Total interest rate contracts |
|
|
64,338 |
|
|
|
70,260 |
|
|
Credit derivatives(b) |
|
|
6,376 |
|
|
|
8,388 |
|
|
Foreign exchange contracts |
|
|
|
|
|
|
|
|
Cross-currency swaps(a) |
|
|
2,043 |
|
|
|
1,681 |
|
Spot, futures and forwards |
|
|
3,973 |
|
|
|
3,744 |
|
Written options |
|
|
685 |
|
|
|
972 |
|
Purchased options |
|
|
700 |
|
|
|
959 |
|
|
Total foreign exchange contracts |
|
|
7,401 |
|
|
|
7,356 |
|
|
Equity contracts |
|
|
|
|
|
|
|
|
Swaps |
|
|
86 |
|
|
|
77 |
|
Futures and forwards |
|
|
54 |
|
|
|
56 |
|
Written options |
|
|
698 |
|
|
|
628 |
|
Purchased options |
|
|
658 |
|
|
|
652 |
|
|
Total equity contracts |
|
|
1,496 |
|
|
|
1,413 |
|
|
Commodity contracts |
|
|
|
|
|
|
|
|
Swaps |
|
|
181 |
|
|
|
234 |
|
Spot, futures and forwards |
|
|
104 |
|
|
|
115 |
|
Written options |
|
|
202 |
|
|
|
206 |
|
Purchased options |
|
|
193 |
|
|
|
198 |
|
|
Total commodity contracts |
|
|
680 |
|
|
|
753 |
|
|
Total derivative notional amounts |
|
$ |
80,291 |
|
|
$ |
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) |
|
Primarily consists of credit default swaps. For more information on volumes and types of
credit derivative contracts, see the credit derivative discussion on pages 130131 of this
Form 10-Q. |
|
(c) |
|
Represents the sum of gross long and gross short third-party notional derivative contracts. |
124
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
126131 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.
125
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 September 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 |
September 30, 2009 |
|
Not designated as |
|
Designated as |
|
Total derivative |
|
Not designated |
|
Designated as |
|
Total derivative |
(in millions) |
|
hedges |
|
hedges |
|
receivables |
|
as hedges |
|
hedges |
|
payables |
|
Trading assets and
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
$ |
1,345,970 |
|
|
$ |
8,579 |
|
|
$ |
1,354,549 |
|
|
$ |
1,316,078 |
|
|
$ |
148 |
|
|
$ |
1,316,226 |
|
Credit |
|
|
202,994 |
|
|
|
|
|
|
|
202,994 |
|
|
|
195,648 |
|
|
|
|
|
|
|
195,648 |
|
Foreign exchange |
|
|
164,338 |
|
|
|
2,571 |
|
|
|
166,909 |
|
|
|
166,167 |
|
|
|
818 |
|
|
|
166,985 |
|
Equity |
|
|
53,492 |
|
|
|
|
|
|
|
53,492 |
|
|
|
56,625 |
|
|
|
|
|
|
|
56,625 |
|
Commodity |
|
|
37,197 |
|
|
|
|
|
|
|
37,197 |
|
|
|
33,654 |
|
|
|
|
(c) |
|
|
33,654 |
|
|
Gross fair value of trading
assets and liabilities |
|
$ |
1,803,991 |
|
|
$ |
11,150 |
|
|
$ |
1,815,141 |
|
|
$ |
1,768,172 |
|
|
$ |
966 |
|
|
$ |
1,769,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting adjustment(b) |
|
|
|
|
|
|
|
|
|
|
(1,721,076 |
) |
|
|
|
|
|
|
|
|
|
|
(1,699,924 |
) |
|
Carrying value of derivative
trading assets and trading
liabilities on the
Consolidated
Balance Sheets |
|
|
|
|
|
|
|
|
|
$ |
94,065 |
|
|
|
|
|
|
|
|
|
|
$ |
69,214 |
|
|
|
|
|
(a) |
|
Excludes structured notes for which the fair value option has been elected. See Note 4 on
pages 121123 of this Form 10-Q for further information. |
|
(b) |
|
U.S. GAAP permits the netting of derivative receivables and 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 $1.1 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 netting adjustments as of September 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Derivative receivables: |
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
38,759 |
|
|
$ |
49,996 |
|
Credit |
|
|
20,512 |
|
|
|
44,695 |
|
Foreign exchange(a) |
|
|
24,139 |
|
|
|
38,820 |
|
Equity |
|
|
2,213 |
|
|
|
14,285 |
|
Commodity |
|
|
8,442 |
|
|
|
14,830 |
|
|
Total derivative receivables |
|
$ |
94,065 |
|
|
$ |
162,626 |
|
|
|
|
|
|
|
|
|
|
|
Trading liabilities |
|
|
|
|
|
|
|
|
Derivative payables: |
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
18,804 |
|
|
$ |
27,645 |
|
Credit |
|
|
9,444 |
|
|
|
23,566 |
|
Foreign exchange(a) |
|
|
24,825 |
|
|
|
41,156 |
|
Equity |
|
|
12,277 |
|
|
|
17,316 |
|
Commodity |
|
|
3,864 |
|
|
|
11,921 |
|
|
Total derivative payables |
|
$ |
69,214 |
|
|
$ |
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 of derivative receivables and $20.8 billion of derivative payables, between
cross-currency interest rate swaps and foreign exchange contracts, as of December 31, 2008. |
126
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 nine months ended September 30, 2009, by accounting designation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative-related gains/(losses) |
Consolidated Statements of Income |
|
Fair value |
|
Cash flow |
|
Net investment |
|
Risk management |
|
Trading |
|
|
(in millions) |
|
hedges(a) |
|
hedges |
|
hedges |
|
activities |
|
activities(a) |
|
Total |
|
Three months ended
September 30, 2009 |
|
$ |
(3,844 |
) |
|
$ |
42 |
|
|
$ |
(40 |
) |
|
$ |
479 |
|
|
$ |
5,965 |
|
|
$ |
2,602 |
|
Nine months ended
September 30, 2009 |
|
|
(6,517 |
) |
|
|
184 |
|
|
|
(70 |
) |
|
|
(4,910 |
) |
|
|
16,090 |
|
|
|
4,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative-related net changes in other comprehensive income |
Other Comprehensive |
|
Fair value |
|
Cash flow |
|
Net investment |
|
Risk management |
|
Trading |
|
|
Income/(loss) |
|
hedges |
|
hedges |
|
hedges |
|
activities |
|
activities |
|
Total |
|
Three months ended
September 30, 2009 |
|
$ |
NA |
|
|
$ |
351 |
|
|
$ |
(223 |
) |
|
$ |
NA |
|
|
$ |
NA |
|
|
$ |
128 |
|
Nine months ended
September 30, 2009 |
|
|
NA |
|
|
|
519 |
|
|
|
(250 |
) |
|
|
NA |
|
|
|
NA |
|
|
|
269 |
|
|
|
|
|
(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 nine months ended September 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 nine months ended September 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 |
|
|
September 30, 2009 |
|
Derivatives |
|
|
|
|
|
Hedge |
|
excluded |
|
Total income |
(in millions) |
|
hedged risk |
|
Hedged items |
|
ineffectiveness(d) |
|
components(e) |
|
statement impact |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
5,304 |
|
|
$ |
(5,272 |
) |
|
$ |
32 |
|
|
$ |
(3,763 |
) |
|
$ |
(3,731 |
) |
Foreign exchange(b) |
|
|
(37 |
) |
|
|
37 |
|
|
|
|
|
|
|
(90 |
) |
|
|
(90 |
) |
Commodity(c) |
|
|
(61 |
) |
|
|
61 |
|
|
|
|
|
|
|
(23 |
) |
|
|
(23 |
) |
|
Total |
|
$ |
5,206 |
|
|
$ |
(5,174 |
) |
|
$ |
32 |
|
|
$ |
(3,876 |
) |
|
$ |
(3,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income |
Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
September 30, 2009 |
|
Derivatives |
|
|
|
|
|
Hedge |
|
excluded |
|
Total income |
(in millions) |
|
hedged risk |
|
Hedged items |
|
ineffectiveness(d) |
|
components(e) |
|
statement impact |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
4,186 |
|
|
$ |
(4,638 |
) |
|
$ |
(452 |
) |
|
$ |
(6,056 |
) |
|
$ |
(6,508 |
) |
Foreign exchange(b) |
|
|
(1,807 |
) |
|
|
1,807 |
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Commodity(c) |
|
|
(243 |
) |
|
|
243 |
|
|
|
|
|
|
|
(36 |
) |
|
|
(36 |
) |
|
Total |
|
$ |
2,136 |
|
|
$ |
(2,588 |
) |
|
$ |
(452 |
) |
|
$ |
(6,065 |
) |
|
$ |
(6,517 |
) |
|
|
|
|
(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 current-period
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. |
127
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 nine months ended September 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 |
|
|
|
|
|
|
|
|
effective portion |
|
ineffectiveness |
|
Total income |
|
Derivatives |
|
Total change |
Three months ended |
|
reclassified from |
|
recorded directly |
|
statement |
|
effective portion |
|
in OCI |
September 30, 2009 (in millions) |
|
AOCI to income |
|
in income(c) |
|
impact |
|
recorded in OCI |
|
for period |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
(5 |
) |
|
$ |
(13 |
) |
|
$ |
(18 |
) |
|
$ |
382 |
|
|
$ |
387 |
|
Foreign exchange(b) |
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
|
24 |
|
|
|
(36 |
) |
|
Total |
|
$ |
55 |
|
|
$ |
(13 |
) |
|
$ |
42 |
|
|
$ |
406 |
|
|
$ |
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income and other comprehensive income/(loss) |
|
|
Derivatives |
|
Hedge |
|
|
|
|
|
|
|
|
effective portion |
|
ineffectiveness |
|
Total income |
|
Derivatives |
|
Total change |
Nine months ended |
|
reclassified from |
|
recorded directly |
|
statement |
|
effective portion |
|
in OCI |
September 30, 2009 (in millions) |
|
AOCI to income |
|
in income(c) |
|
impact |
|
recorded in OCI |
|
for period |
|
Contract type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
(74 |
) |
|
$ |
(11 |
) |
|
$ |
(85 |
) |
|
$ |
83 |
|
|
$ |
157 |
|
Foreign exchange(b) |
|
|
269 |
|
|
|
|
|
|
|
269 |
|
|
|
631 |
|
|
|
362 |
|
|
Total |
|
$ |
195 |
|
|
$ |
(11 |
) |
|
$ |
184 |
|
|
$ |
714 |
|
|
$ |
519 |
|
|
|
|
|
(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 nonU.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, the Firm expects that $119 million (after-tax) of net losses recorded
in AOCI at September 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 nine months ended September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income and other comprehensive income/(loss) |
Three months ended |
|
Derivatives excluded components |
|
Derivatives effective portion |
September 30, 2009 (in millions) |
|
recorded directly in income(a) |
|
recorded in OCI |
|
Contract type |
|
|
|
|
|
|
|
|
Foreign exchange |
|
$ |
(40 |
) |
|
$ |
(223 |
) |
|
Total |
|
$ |
(40 |
) |
|
$ |
(223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in income and other comprehensive income/(loss) |
Nine months ended |
|
Derivatives excluded components |
|
Derivatives effective portion |
September 30, 2009 (in millions) |
|
recorded directly in income(a) |
|
recorded in OCI |
|
Contract type |
|
|
|
|
|
|
|
|
Foreign exchange |
|
$ |
(70 |
) |
|
$ |
(250 |
) |
|
Total |
|
$ |
(70 |
) |
|
$ |
(250 |
) |
|
|
|
|
(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 nine months ended September 30, 2009. |
128
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
nine months ended September 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 |
|
|
Three months ended |
|
Nine months ended |
(in millions) |
|
September 30, 2009 |
|
September 30, 2009 |
|
Contract type |
|
|
|
|
|
|
|
|
Interest rate(a) |
|
$ |
1,422 |
|
|
$ |
(1,778 |
) |
Credit(b) |
|
|
(886 |
) |
|
|
(2,914 |
) |
Foreign exchange(c) |
|
|
(8 |
) |
|
|
(159 |
) |
Equity(b) |
|
|
(7 |
) |
|
|
(7 |
) |
Commodity(b) |
|
|
(42 |
) |
|
|
(52 |
) |
|
Total |
|
$ |
479 |
|
|
$ |
(4,910 |
) |
|
|
|
|
(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 nine
months ended September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) recorded in principal transactions revenue |
|
|
Three months ended |
|
Nine months ended |
(in millions) |
|
September 30, 2009 |
|
September 30, 2009 |
|
Type of instrument |
|
|
|
|
|
|
|
|
Interest rate |
|
$ |
1,320 |
|
|
$ |
5,078 |
|
Credit |
|
|
2,321 |
|
|
|
4,004 |
|
Foreign exchange |
|
|
1,734 |
|
|
|
4,860 |
|
Equity |
|
|
264 |
|
|
|
1,062 |
|
Commodity |
|
|
326 |
|
|
|
1,086 |
|
|
Total |
|
$ |
5,965 |
|
|
$ |
16,090 |
|
|
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 mark-to-market (MTM) moves in the counterparties favor, or
upon specified downgrades in the Firms and its subsidiaries respective credit ratings. At
September 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 $1.5 billion
and $4.4 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 September
30, 2009, the impact of single-notch and six-notch ratings downgrades 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 $5.2
billion, respectively. The aggregate fair value of net derivative payables that contain contingent
collateral or termination features triggered upon a downgrade was $25.9 billion at September 30,
2009, for which the Firm has posted collateral of $24.2 billion in the normal course of business.
129
The following table shows the current credit risk of derivative receivables after netting
adjustments and collateral received, and the current liquidity risk of derivative payables after
netting adjustments and collateral posted, as of September 30, 2009.
|
|
|
|
|
|
|
|
|
September 30, 2009 (in millions) |
|
Derivative receivables |
|
Derivative payables |
|
Gross derivative fair value |
|
$ |
1,815,141 |
|
|
$ |
1,769,138 |
|
Netting adjustment offsetting receivables/payables |
|
|
(1,650,371 |
) |
|
|
(1,650,371 |
) |
Netting adjustment cash collateral received/paid |
|
|
(70,705 |
) |
|
|
(49,553 |
) |
|
Carrying value on Consolidated Balance Sheets |
|
|
94,065 |
|
|
|
69,214 |
|
Securities collateral received/paid |
|
|
(14,334 |
) |
|
|
(10,465 |
) |
|
Derivative fair value, net of all collateral |
|
$ |
79,731 |
|
|
$ |
58,749 |
|
|
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 September 30, 2009, the Firm received $18.3 billion and delivered $6.0 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 September 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 protection in the credit derivatives market and uses
these 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 September 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 amounts 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.
130
Total credit derivatives and credit-related notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum payout/Notional amount |
September 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 |
|
$ |
(3,117,964 |
) |
|
$ |
3,161,190 |
|
|
$ |
43,226 |
|
|
$ |
39,652 |
|
Other credit derivatives(a) |
|
|
(13,031 |
) |
|
|
15,943 |
|
|
|
2,912 |
|
|
|
27,889 |
|
|
Total credit derivatives |
|
|
(3,130,995 |
) |
|
|
3,177,133 |
|
|
|
46,138 |
|
|
|
67,541 |
|
Credit-related notes |
|
|
(4,369 |
) |
|
|
|
|
|
|
(4,369 |
) |
|
|
1,613 |
|
|
Total |
|
$ |
(3,135,364 |
) |
|
$ |
3,177,133 |
|
|
$ |
41,769 |
|
|
$ |
69,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 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(a)/maturity profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
September 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-) |
|
$ |
(194,943 |
) |
|
$ |
(1,223,609 |
) |
|
$ |
(477,036 |
) |
|
$ |
(1,895,588 |
) |
|
$ |
(47,234 |
) |
Noninvestment-grade (BB+ and below) |
|
|
(139,434 |
) |
|
|
(834,699 |
) |
|
|
(265,643 |
) |
|
|
(1,239,776 |
) |
|
|
(95,236 |
) |
|
Total |
|
$ |
(334,377 |
) |
|
$ |
(2,058,308 |
) |
|
$ |
(742,679 |
) |
|
$ |
(3,135,364 |
) |
|
$ |
(142,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-)(b) |
|
$ |
(179,379 |
) |
|
$ |
(1,743,283 |
) |
|
$ |
(701,775 |
) |
|
$ |
(2,624,437 |
) |
|
$ |
(222,318 |
) |
Noninvestment-grade (BB+ and below)(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. |
131
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 September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
681 |
|
|
$ |
245 |
|
|
$ |
1,938 |
|
|
$ |
1,146 |
|
Debt |
|
|
616 |
|
|
|
515 |
|
|
|
1,985 |
|
|
|
1,602 |
|
|
Total underwriting |
|
|
1,297 |
|
|
|
760 |
|
|
|
3,923 |
|
|
|
2,748 |
|
Advisory |
|
|
382 |
|
|
|
556 |
|
|
|
1,248 |
|
|
|
1,396 |
|
|
Total investment banking fees |
|
$ |
1,679 |
|
|
$ |
1,316 |
|
|
$ |
5,171 |
|
|
$ |
4,144 |
|
|
The following table presents principal transactions revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Trading revenue |
|
$ |
3,700 |
|
|
$ |
(2,587 |
) |
|
$ |
9,344 |
|
|
$ |
(3,052 |
) |
Private equity gains/(losses)(a) |
|
|
160 |
|
|
|
(176 |
) |
|
|
(386 |
) |
|
|
238 |
|
|
Principal transactions |
|
$ |
3,860 |
|
|
$ |
(2,763 |
) |
|
$ |
8,958 |
|
|
$ |
(2,814 |
) |
|
|
|
|
(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 September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Asset management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
$ |
1,283 |
|
|
$ |
1,458 |
|
|
$ |
3,538 |
|
|
$ |
4,332 |
|
All other asset management fees |
|
|
93 |
|
|
|
61 |
|
|
|
252 |
|
|
|
351 |
|
|
Total asset management fees |
|
|
1,376 |
|
|
|
1,519 |
|
|
|
3,790 |
|
|
|
4,683 |
|
Total administration fees(a) |
|
|
477 |
|
|
|
527 |
|
|
|
1,430 |
|
|
|
1,887 |
|
Commission and other fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage commissions |
|
|
726 |
|
|
|
892 |
|
|
|
2,175 |
|
|
|
2,400 |
|
All other commissions and fees |
|
|
579 |
|
|
|
547 |
|
|
|
1,784 |
|
|
|
1,739 |
|
|
Total commissions and fees |
|
|
1,305 |
|
|
|
1,439 |
|
|
|
3,959 |
|
|
|
4,139 |
|
|
Total asset management, administration and commissions |
|
$ |
3,158 |
|
|
$ |
3,485 |
|
|
$ |
9,179 |
|
|
$ |
10,709 |
|
|
|
|
|
(a) |
|
Includes fees for custody, securities lending, funds services and securities clearance. |
132
NOTE 7 INTEREST INCOME AND INTEREST EXPENSE
Details of interest income and interest expense were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Interest income(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
9,442 |
|
|
$ |
8,450 |
|
|
$ |
29,775 |
|
|
$ |
26,165 |
|
Securities |
|
|
3,242 |
|
|
|
1,522 |
|
|
|
9,280 |
|
|
|
4,099 |
|
Trading assets |
|
|
2,975 |
|
|
|
4,469 |
|
|
|
9,143 |
|
|
|
13,125 |
|
Federal funds sold, securities purchased under resale agreements |
|
|
368 |
|
|
|
1,558 |
|
|
|
1,386 |
|
|
|
4,498 |
|
Securities borrowed |
|
|
(30 |
) |
|
|
703 |
|
|
|
(40 |
) |
|
|
2,013 |
|
Deposits with banks |
|
|
130 |
|
|
|
316 |
|
|
|
819 |
|
|
|
1,025 |
|
Other assets(b) |
|
|
133 |
|
|
|
308 |
|
|
|
372 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
16,260 |
|
|
|
17,326 |
|
|
|
50,735 |
|
|
|
51,387 |
|
|
Interest expense(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
1,086 |
|
|
|
3,351 |
|
|
|
3,937 |
|
|
|
11,551 |
|
Short-term and other liabilities(c) |
|
|
941 |
|
|
|
2,722 |
|
|
|
2,908 |
|
|
|
8,632 |
|
Long-term debt |
|
|
1,426 |
|
|
|
2,176 |
|
|
|
4,951 |
|
|
|
5,942 |
|
Beneficial interests issued by consolidated VIEs |
|
|
70 |
|
|
|
83 |
|
|
|
165 |
|
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,523 |
|
|
|
8,332 |
|
|
|
11,961 |
|
|
|
26,440 |
|
|
Net interest income |
|
|
12,737 |
|
|
|
8,994 |
|
|
|
38,774 |
|
|
|
24,947 |
|
Provision for credit losses |
|
|
8,104 |
|
|
|
3,811 |
|
|
|
24,731 |
|
|
|
11,690 |
|
Provision for credit losses accounting conformity(d) |
|
|
|
|
|
|
1,976 |
|
|
|
|
|
|
|
1,976 |
|
|
Net interest income after provision for credit losses |
|
$ |
4,633 |
|
|
$ |
3,207 |
|
|
$ |
14,043 |
|
|
$ |
11,281 |
|
|
|
|
|
(a) |
|
Interest income and 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 U.S. GAAP absent the
fair value option 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. |
|
(d) |
|
The third quarter of 2008 included an accounting conformity loan loss reserve provision
related to the acquisition of Washington Mutuals banking operations. |
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 September 30, (in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits earned during the period |
|
$ |
81 |
|
|
$ |
64 |
|
|
$ |
7 |
|
|
$ |
11 |
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest cost on benefit obligations |
|
|
128 |
|
|
|
122 |
|
|
|
29 |
|
|
|
33 |
|
|
|
17 |
|
|
|
18 |
|
Expected return on plan assets |
|
|
(146 |
) |
|
|
(179 |
) |
|
|
(27 |
) |
|
|
(38 |
) |
|
|
(25 |
) |
|
|
(24 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
76 |
|
|
|
|
|
|
|
11 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(4 |
) |
|
Net periodic benefit cost |
|
|
140 |
|
|
|
8 |
|
|
|
20 |
|
|
|
12 |
|
|
|
(10 |
) |
|
|
(9 |
) |
Other defined benefit pension plans(a) |
|
|
3 |
|
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
NA |
|
NA |
|
Total defined benefit plans |
|
|
143 |
|
|
|
12 |
|
|
|
21 |
|
|
|
15 |
|
|
|
(10 |
) |
|
|
(9 |
) |
Total defined contribution plans |
|
|
77 |
|
|
|
66 |
|
|
|
47 |
|
|
|
70 |
|
|
NA |
|
NA |
|
Total pension and OPEB cost included in compensation expense |
|
$ |
220 |
|
|
$ |
78 |
|
|
$ |
68 |
|
|
$ |
85 |
|
|
$ |
(10 |
) |
|
$ |
(9 |
) |
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans |
|
|
|
|
U.S. |
|
Non-U.S. |
|
OPEB plans |
Nine months ended September 30, (in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits earned during the period |
|
$ |
238 |
|
|
$ |
192 |
|
|
$ |
21 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
4 |
|
Interest cost on benefit obligations |
|
|
384 |
|
|
|
366 |
|
|
|
85 |
|
|
|
109 |
|
|
|
48 |
|
|
|
55 |
|
Expected return on plan assets |
|
|
(438 |
) |
|
|
(539 |
) |
|
|
(79 |
) |
|
|
(120 |
) |
|
|
(73 |
) |
|
|
(73 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
229 |
|
|
|
|
|
|
|
32 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
Prior service cost (credit) |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(12 |
) |
|
Net periodic benefit cost |
|
|
416 |
|
|
|
22 |
|
|
|
59 |
|
|
|
34 |
|
|
|
(32 |
) |
|
|
(26 |
) |
Other defined benefit pension plans(a) |
|
|
10 |
|
|
|
10 |
|
|
|
9 |
|
|
|
12 |
|
|
NA |
|
NA |
|
Total defined benefit plans |
|
|
426 |
|
|
|
32 |
|
|
|
68 |
|
|
|
46 |
|
|
|
(32 |
) |
|
|
(26 |
) |
Total defined contribution plans |
|
|
231 |
|
|
|
202 |
|
|
|
169 |
|
|
|
232 |
|
|
NA |
|
NA |
|
Total pension and OPEB cost included in compensation expense |
|
$ |
657 |
|
|
$ |
234 |
|
|
$ |
237 |
|
|
$ |
278 |
|
|
$ |
(32 |
) |
|
$ |
(26 |
) |
|
|
|
|
(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 $11.3 billion and $2.3 billion, respectively,
as of September 30, 2009, and $8.1 billion and $2.0 billion, respectively, as of December 31, 2008.
See Note 22 on pages 167168 of this Form 10-Q for further information on unrecognized amounts
(i.e., net loss and prior service costs/(credit)) reflected in AOCI for the nine months ended
September 30, 2009 and 2008.
On January 15, 2009 and on August 28, 2009, the Firm made discretionary cash contributions to its
U.S. defined benefit pension plan of $1.3 billion and $1.5 billion, respectively, 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, non-U.S. defined benefit pension plans and
OPEB plans are $39 million, $124 million and $2 million, respectively.
On May 1, 2009, the Firm amended the employer matching contribution feature of its 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. became 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 became final and nonappealable 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 $763 million and $697 million for the quarters ended September 30, 2009 and
2008, respectively, and $2.4 billion and $2.1 billion in the first nine months of 2009 and 2008,
respectively, in its Consolidated Statements of Income. These amounts included accruals for the
estimated cost of stock awards to be granted to full-career eligible employees of $192 million and
$159 million for the quarters ended September 30, 2009 and 2008, respectively, and $524 million and
$433 million for the first nine months ended September 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.
134
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 102106 of this
Form 10-Q. A summary of merger-related costs is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
Three months ended September 30, |
|
|
|
|
|
Washington |
|
|
|
|
|
|
|
(in millions) |
|
Bear Stearns |
|
|
Mutual |
|
|
Total |
|
|
2008(c) |
|
|
Expense category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
$ |
2 |
|
|
$ |
26 |
|
|
$ |
28 |
|
|
$ |
24 |
|
Occupancy(a) |
|
|
|
|
|
|
(6 |
) |
|
|
(6 |
) |
|
|
42 |
|
Technology and communications and other |
|
|
8 |
|
|
|
73 |
|
|
|
81 |
|
|
|
30 |
|
|
Total(b) |
|
$ |
10 |
|
|
$ |
93 |
|
|
$ |
103 |
|
|
$ |
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Nine months ended September 30, |
|
|
|
|
|
Washington |
|
|
|
|
(in millions) |
|
Bear Stearns |
|
Mutual |
|
Total |
|
2008(c) |
|
Expense category |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation(a) |
|
$ |
(8 |
) |
|
$ |
239 |
|
|
$ |
231 |
|
|
$ |
150 |
|
Occupancy(a) |
|
|
(3 |
) |
|
|
17 |
|
|
|
14 |
|
|
|
42 |
|
Technology and communications and other |
|
|
25 |
|
|
|
181 |
|
|
|
206 |
|
|
|
59 |
|
|
Total(b) |
|
$ |
14 |
|
|
$ |
437 |
|
|
$ |
451 |
|
|
$ |
251 |
|
|
|
|
|
(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) |
|
The 2008 activity reflects the Bear Stearns merger. Costs related to the Washington Mutual
transaction for the three and nine months ended September 30, 2008, were not material. |
The table below shows changes in the merger reserve balance related to costs associated with
the Bear Stearns merger and the Washington Mutual transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Three months ended September 30, |
|
|
|
|
|
Washington |
|
|
|
|
|
|
|
|
|
Washington |
|
|
(in millions) |
|
Bear Stearns |
|
Mutual |
|
Total |
|
Bear Stearns |
|
Mutual |
|
Total |
|
Merger reserve balance, beginning
of period |
|
$ |
69 |
|
|
$ |
202 |
|
|
$ |
271 |
|
|
$ |
1,093 |
|
|
$ |
|
|
|
$ |
1,093 |
|
Recorded as merger costs |
|
|
10 |
|
|
|
93 |
|
|
|
103 |
|
|
|
96 |
|
|
|
|
|
|
|
96 |
|
Recorded as goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363 |
|
|
|
363 |
|
Utilization of merger reserve |
|
|
(38 |
) |
|
|
(165 |
) |
|
|
(203 |
) |
|
|
(592 |
) |
|
|
|
|
|
|
(592 |
) |
|
Merger reserve balance, end
of period |
|
$ |
41 |
|
|
$ |
130 |
|
|
$ |
171 |
|
|
$ |
597 |
|
|
$ |
363 |
|
|
$ |
960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Nine months ended September 30, |
|
|
|
|
|
Washington |
|
|
|
|
|
|
|
|
|
Washington |
|
|
(in millions) |
|
Bear Stearns |
|
Mutual |
|
Total |
|
Bear Stearns |
|
Mutual |
|
Total |
|
Merger reserve balance, beginning of period |
|
$ |
327 |
|
|
$ |
441 |
|
|
$ |
768 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Recorded as merger costs |
|
|
14 |
|
|
|
437 |
|
|
|
451 |
|
|
|
251 |
|
|
|
|
|
|
|
251 |
|
Recorded as goodwill |
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
1,112 |
|
|
|
363 |
|
|
|
1,475 |
|
Utilization of merger reserve |
|
|
(295 |
) |
|
|
(748 |
) |
|
|
(1,043 |
) |
|
|
(766 |
) |
|
|
|
|
|
|
(766 |
) |
|
Merger reserve balance, end
of period |
|
$ |
41 |
|
|
$ |
130 |
|
|
$ |
171 |
|
|
$ |
597 |
|
|
$ |
363 |
|
|
$ |
960 |
|
|
135
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 3 on pages
106121 of this
Form 10-Q.
Securities gains and losses
The following table presents realized gains and losses and credit losses that were recognized
in income from AFS securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Realized gains |
|
$ |
283 |
|
|
$ |
459 |
|
|
$ |
1,436 |
|
|
$ |
1,271 |
|
Realized losses |
|
|
(81 |
) |
|
|
(35 |
) |
|
|
(505 |
) |
|
|
(167 |
) |
|
Net realized gains(a) |
|
|
202 |
|
|
|
424 |
|
|
|
931 |
|
|
|
1,104 |
|
Credit losses included in securities gains |
|
|
(18 |
)(b) |
|
|
|
|
|
|
(202 |
)(b) |
|
|
|
|
|
Net securities gains |
|
$ |
184 |
|
|
$ |
424 |
|
|
$ |
729 |
|
|
$ |
1,104 |
|
|
|
|
|
(a) |
|
Proceeds from securities sold were within approximately 1% of amortized cost. |
|
(b) |
|
Includes other-than-temporary impairment losses recognized in income for the three and nine
months ended September 30, 2009, on certain prime mortgage-backed securities and obligations
of U.S. states and municipalities. |
The amortized costs and estimated fair values of AFS and HTM securities were as follows for
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
unrealized |
|
unrealized |
|
|
|
|
|
Amortized |
|
unrealized |
|
unrealized |
|
Fair |
(in millions) |
|
cost |
|
gains |
|
losses |
|
Fair value |
|
cost |
|
gains |
|
losses |
|
value |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies(b) |
|
$ |
181,110 |
|
|
$ |
3,942 |
|
|
$ |
144 |
|
|
$ |
184,908 |
|
|
$ |
115,198 |
|
|
$ |
2,414 |
|
|
$ |
227 |
|
|
$ |
117,385 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
5,903 |
|
|
|
65 |
|
|
|
1,166 |
(d) |
|
|
4,802 |
|
|
|
8,826 |
|
|
|
4 |
|
|
|
1,935 |
|
|
|
6,895 |
|
Subprime |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
213 |
|
|
|
|
|
|
|
19 |
|
|
|
194 |
|
Non-U.S. |
|
|
6,744 |
|
|
|
294 |
|
|
|
112 |
|
|
|
6,926 |
|
|
|
2,233 |
|
|
|
24 |
|
|
|
182 |
|
|
|
2,075 |
|
Commercial |
|
|
4,516 |
|
|
|
89 |
|
|
|
77 |
|
|
|
4,528 |
|
|
|
4,623 |
|
|
|
|
|
|
|
684 |
|
|
|
3,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
$ |
198,308 |
|
|
$ |
4,390 |
|
|
$ |
1,499 |
|
|
$ |
201,199 |
|
|
$ |
131,093 |
|
|
$ |
2,442 |
|
|
$ |
3,047 |
|
|
$ |
130,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies(b) |
|
|
40,015 |
|
|
|
221 |
|
|
|
192 |
|
|
|
40,044 |
|
|
|
10,402 |
|
|
|
52 |
|
|
|
97 |
|
|
|
10,357 |
|
Obligations of U.S. states and municipalities |
|
|
5,887 |
|
|
|
439 |
|
|
|
130 |
(d) |
|
|
6,196 |
|
|
|
3,479 |
|
|
|
94 |
|
|
|
238 |
|
|
|
3,335 |
|
Certificates of deposit |
|
|
6,227 |
|
|
|
9 |
|
|
|
1 |
|
|
|
6,235 |
|
|
|
17,226 |
|
|
|
64 |
|
|
|
8 |
|
|
|
17,282 |
|
Non-U.S. government debt securities |
|
|
23,210 |
|
|
|
264 |
|
|
|
52 |
|
|
|
23,422 |
|
|
|
8,173 |
|
|
|
173 |
|
|
|
2 |
|
|
|
8,344 |
|
Corporate debt securities |
|
|
48,780 |
|
|
|
794 |
|
|
|
73 |
|
|
|
49,501 |
|
|
|
9,358 |
|
|
|
257 |
|
|
|
61 |
|
|
|
9,554 |
|
Asset-backed securities(a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
25,082 |
|
|
|
518 |
|
|
|
77 |
|
|
|
25,523 |
|
|
|
13,651 |
|
|
|
8 |
|
|
|
2,268 |
|
|
|
11,391 |
|
Collateralized debt and loan obligations |
|
|
12,282 |
|
|
|
400 |
|
|
|
529 |
|
|
|
12,153 |
|
|
|
11,847 |
|
|
|
168 |
|
|
|
820 |
|
|
|
11,195 |
|
Other |
|
|
5,719 |
|
|
|
113 |
|
|
|
44 |
|
|
|
5,788 |
|
|
|
1,026 |
|
|
|
4 |
|
|
|
135 |
|
|
|
895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale debt securities |
|
$ |
365,510 |
|
|
$ |
7,148 |
|
|
$ |
2,597 |
(d) |
|
$ |
370,061 |
|
|
$ |
206,255 |
|
|
$ |
3,262 |
|
|
$ |
6,676 |
|
|
$ |
202,841 |
|
Available-for-sale equity securities |
|
|
2,646 |
|
|
|
137 |
|
|
|
4 |
|
|
|
2,779 |
|
|
|
3,073 |
|
|
|
2 |
|
|
|
7 |
|
|
|
3,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
368,156 |
|
|
$ |
7,285 |
|
|
$ |
2,601 |
(d) |
|
$ |
372,840 |
|
|
$ |
209,328 |
|
|
$ |
3,264 |
|
|
$ |
6,683 |
|
|
$ |
205,909 |
|
|
Total held-to-maturity securities(c) |
|
$ |
27 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
29 |
|
|
$ |
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 $175.4
billion and $120.1 billion at September 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. |
|
(d) |
|
Includes a total of $678 million (before tax) of unrealized losses reported in
accumulated comprehensive income not related to credit on debt securities for which credit
losses have been recognized in income. Of this amount, $592 million and $86 million relate to
prime mortgage-backed securities and obligations of U.S. states and municipalities,
respectively. |
136
Securities impairment
The following tables present the fair value and gross unrealized losses for AFS securities by aging
category at September 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 |
September 30, 2009 (in millions) |
|
value |
|
losses |
|
value |
|
losses |
|
value |
|
losses |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
|
$ |
21,705 |
|
|
$ |
127 |
|
|
$ |
1,081 |
|
|
$ |
17 |
|
|
$ |
22,786 |
|
|
$ |
144 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime and Alt-A |
|
|
701 |
|
|
|
47 |
|
|
|
3,076 |
|
|
|
1,119 |
|
|
|
3,777 |
|
|
|
1,166 |
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. |
|
|
804 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
804 |
|
|
|
112 |
|
Commercial |
|
|
58 |
|
|
|
4 |
|
|
|
1,305 |
|
|
|
73 |
|
|
|
1,363 |
|
|
|
77 |
|
|
Total mortgage-backed securities |
|
|
23,268 |
|
|
|
290 |
|
|
|
5,462 |
|
|
|
1,209 |
|
|
|
28,730 |
|
|
|
1,499 |
|
U.S. Treasury and government agencies |
|
|
7,420 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
7,420 |
|
|
|
192 |
|
Obligations of U.S. states and municipalities |
|
|
531 |
|
|
|
129 |
|
|
|
26 |
|
|
|
1 |
|
|
|
557 |
|
|
|
130 |
|
Certificates of deposit |
|
|
1,349 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1,349 |
|
|
|
1 |
|
Non-U.S. government debt securities |
|
|
1,362 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
1,362 |
|
|
|
52 |
|
Corporate debt securities |
|
|
6,515 |
|
|
|
62 |
|
|
|
1,162 |
|
|
|
11 |
|
|
|
7,677 |
|
|
|
73 |
|
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card receivables |
|
|
63 |
|
|
|
1 |
|
|
|
4,574 |
|
|
|
76 |
|
|
|
4,637 |
|
|
|
77 |
|
Collateralized debt and loan obligations |
|
|
582 |
|
|
|
15 |
|
|
|
7,572 |
|
|
|
514 |
|
|
|
8,154 |
|
|
|
529 |
|
Other |
|
|
1,540 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
1,540 |
|
|
|
44 |
|
|
Total available-for-sale debt securities |
|
|
42,630 |
|
|
|
786 |
|
|
|
18,796 |
|
|
|
1,811 |
|
|
|
61,426 |
|
|
|
2,597 |
|
Available-for-sale equity securities |
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
|
Total securities with gross unrealized losses |
|
$ |
42,631 |
|
|
$ |
787 |
|
|
$ |
18,799 |
|
|
$ |
1,814 |
|
|
$ |
61,430 |
|
|
$ |
2,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
137
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 that the investor 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
other-than-temporary impairments.
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 for
purchased or retained beneficial interests in securitized assets, 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. The Firm also considers an OTTI to have
occurred when there is an adverse change in cash flows 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 credit losses that are included in the securities gains and losses
table above.
|
|
|
|
|
|
|
|
|
September 30, 2009 (in millions) |
|
Three months ended |
|
Nine months ended |
|
Debt securities the Firm does not intend to sell that have credit losses |
|
|
|
|
|
|
|
|
Total losses(a) |
|
$ |
|
|
|
$ |
(880 |
) |
Losses recorded in/(reclassified from) other comprehensive income |
|
|
(18 |
) |
|
|
678 |
|
|
Credit losses recognized in income(b)(c) |
|
|
(18 |
) |
|
|
(202 |
) |
|
|
|
|
(a) |
|
For initial other-than-temporary impairments, represents the excess of the amortized cost
over the fair value of AFS debt securities. For subsequent impairments of the same security,
represents additional declines in fair value subsequent to the previously recorded
other-than-temporary impairment(s), if applicable. |
|
(b) |
|
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.
Subsequent credit losses may be recorded on securities without a corresponding further decline
in fair value if there has been a decline in expected cash flows. |
|
(c) |
|
Excluded from this table are OTTI losses of $7 million that were recognized in income during
the six months ended June 30, 2009, related to subprime mortgage-backed debt securities the
Firm intended to sell. These securities were sold during the third quarter of 2009, resulting
in the recognition of a recovery of $1 million. |
138
Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward of the credit loss component of OTTI losses that were
recognized in income during the three and nine months ended September 30, 2009, related to debt
securities that the Firm does not intend to sell.
|
|
|
|
|
|
|
|
|
September 30, 2009 (in millions) |
|
Three months ended |
|
Nine months ended |
|
Balance, beginning of period |
|
$ |
184 |
|
|
$ |
|
|
Additions: |
|
|
|
|
|
|
|
|
Newly credit-impaired securities |
|
|
|
|
|
|
202 |
|
Increase in losses on previously credit-impaired securities reclassified from other comprehensive income |
|
|
18 |
|
|
|
|
|
|
Balance, end of period |
|
$ |
202 |
|
|
$ |
202 |
|
|
During 2009, the Firm continued to increase the size of its AFS securities portfolio. Overall, unrealized losses have decreased since December
31, 2008, due primarily to overall market spread and market liquidity, which resulted in increased
pricing across asset classes. As of September 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. 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 September 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 these
investments.
Mortgage-backed securities U.S. government agencies
As of September 30, 2009, gross unrealized losses on mortgage-backed securities related to U.S.
agencies were $144 million, of which $17 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 September 30, 2009, gross unrealized losses related to prime and Alt-A residential
mortgage-backed securities issued by private issuers were $1.2 billion, of which $1.1 billion
related to securities that have been in an unrealized loss position for longer than 12 months.
Overall losses have decreased since December 31, 2008, due to increased market stabilization,
resulting from increased demand for higher-yielding asset classes and new U.S. government programs.
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 $84 million of OTTI losses 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 40% and an unemployment rate of 10%. 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 September 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 nine
months ended September 30, 2009, the Firm recorded losses of zero and $7 million, respectively, on
subprime RMBS based on the Firms intent to sell such securities. In addition, the Firm realized a
gain of $1 million and a loss of $27 million, respectively, on sales of subprime RMBS during the
three and nine months ended September 30, 2009.
139
Mortgage-backed securities Commercial
As of September 30, 2009, gross unrealized losses related to commercial mortgage-backed securities
were $77 million, of which $73 million related to securities that have been in an unrealized loss
position for longer than 12 months. The Firms commercial mortgage-backed
securities are rated AAA, AA, A and BBB and possess, on average, 28% subordination (a form
of credit enhancement for the benefit of senior securities, expressed here as the percentage of
pool losses that can occur before a senior 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) default of all loans more than
60 days delinquent; (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.
Asset-backed securities Credit card receivables
As of September 30, 2009, gross unrealized losses related to credit card receivables asset-backed
securities were $77 million, of which $76 million of the losses related to securities that were in
an unrealized loss position for longer than 12 months. Of the $77 million of unrealized losses
related to credit cardrelated asset-backed securities, $68 million relates to purchased credit
cardrelated asset-backed securities, and $9 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
cardrelated 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 3%
to 9%. The Firm uses internal models to project the cash flows that affect 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, ranging from 8% to 16% (charge-off rates consider
underlying assumptions such as unemployment rates and roll rates), payment rates of 11% to 23%, and
portfolio yields of 16% to 26%.
Asset-backed securities Collateralized debt and loan obligations
As of September 30, 2009, gross unrealized losses related to collateralized debt and loan
obligations were $529 million, of which $514 million related to securities that were in an
unrealized loss position for longer than 12 months. Overall losses have decreased since December
31, 2008, mainly as a result of an increase in high-yield markets, lower default forecasts and
spread tightening across various asset classes. Substantially all of these securities are rated
AAA and AA 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 12% for three months, 6% for
the next 24 months and 4% thereafter. Further, loss severities were assumed to be 50% for loans and
80% for debt securities. Losses on collateral were estimated to occur approximately 24 months after
default.
140
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at September 30, 2009, of
JPMorgan Chases AFS and HTM securities by contractual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
10 years |
|
10 years(c) |
|
Total |
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
15 |
|
|
$ |
234 |
|
|
$ |
7,205 |
|
|
$ |
190,854 |
|
|
$ |
198,308 |
|
Fair value |
|
|
15 |
|
|
|
238 |
|
|
|
7,251 |
|
|
|
193,695 |
|
|
|
201,199 |
|
Average yield(a) |
|
|
1.14 |
% |
|
|
4.31 |
% |
|
|
4.79 |
% |
|
|
4.70 |
% |
|
|
4.70 |
% |
U.S. Treasury and government agencies(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
11,040 |
|
|
$ |
28,719 |
|
|
$ |
148 |
|
|
$ |
108 |
|
|
$ |
40,015 |
|
Fair value |
|
|
11,070 |
|
|
|
28,710 |
|
|
|
163 |
|
|
|
101 |
|
|
|
40,044 |
|
Average yield(a) |
|
|
2.77 |
% |
|
|
2.29 |
% |
|
|
5.85 |
% |
|
|
5.01 |
% |
|
|
2.44 |
% |
Obligations of U.S. states and municipalities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
141 |
|
|
$ |
429 |
|
|
$ |
5,317 |
|
|
$ |
5,887 |
|
Fair value |
|
|
|
|
|
|
148 |
|
|
|
454 |
|
|
|
5,594 |
|
|
|
6,196 |
|
Average yield(a) |
|
|
|
% |
|
|
4.32 |
% |
|
|
5.10 |
% |
|
|
4.39 |
% |
|
|
4.44 |
% |
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
6,227 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,227 |
|
Fair value |
|
|
6,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,235 |
|
Average yield(a) |
|
|
2.83 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
2.83 |
% |
Non-U.S. government debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
8,328 |
|
|
$ |
14,216 |
|
|
$ |
507 |
|
|
$ |
159 |
|
|
$ |
23,210 |
|
Fair value |
|
|
8,346 |
|
|
|
14,434 |
|
|
|
480 |
|
|
|
162 |
|
|
|
23,422 |
|
Average yield(a) |
|
|
1.02 |
% |
|
|
2.01 |
% |
|
|
1.85 |
% |
|
|
1.70 |
% |
|
|
1.65 |
% |
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
4,103 |
|
|
$ |
43,725 |
|
|
$ |
753 |
|
|
$ |
199 |
|
|
$ |
48,780 |
|
Fair value |
|
|
4,179 |
|
|
|
44,302 |
|
|
|
801 |
|
|
|
219 |
|
|
|
49,501 |
|
Average yield(a) |
|
|
1.55 |
% |
|
|
2.13 |
% |
|
|
5.25 |
% |
|
|
6.12 |
% |
|
|
2.15 |
% |
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
13,752 |
|
|
$ |
8,683 |
|
|
$ |
9,502 |
|
|
$ |
11,146 |
|
|
$ |
43,083 |
|
Fair value |
|
|
13,889 |
|
|
|
8,881 |
|
|
|
9,571 |
|
|
|
11,123 |
|
|
|
43,464 |
|
Average yield(a) |
|
|
1.91 |
% |
|
|
1.52 |
% |
|
|
0.69 |
% |
|
|
0.79 |
% |
|
|
1.27 |
% |
|
Total available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
43,465 |
|
|
$ |
95,718 |
|
|
$ |
18,544 |
|
|
$ |
207,783 |
|
|
$ |
365,510 |
|
Fair value |
|
|
43,734 |
|
|
|
96,713 |
|
|
|
18,720 |
|
|
|
210,894 |
|
|
|
370,061 |
|
Average yield(a) |
|
|
2.06 |
% |
|
|
2.11 |
% |
|
|
2.64 |
% |
|
|
4.48 |
% |
|
|
3.48 |
% |
|
Available-for-sale equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,646 |
|
|
$ |
2,646 |
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,779 |
|
|
|
2,779 |
|
Average yield(a) |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
0.21 |
% |
|
|
0.21 |
% |
|
Total available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
43,465 |
|
|
$ |
95,718 |
|
|
$ |
18,544 |
|
|
$ |
210,429 |
|
|
$ |
368,156 |
|
Fair value |
|
|
43,734 |
|
|
|
96,713 |
|
|
|
18,720 |
|
|
|
213,673 |
|
|
|
372,840 |
|
Average yield(a) |
|
|
2.06 |
% |
|
|
2.11 |
% |
|
|
2.64 |
% |
|
|
4.42 |
% |
|
|
3.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
|
|
|
$ |
1 |
|
|
$ |
24 |
|
|
$ |
2 |
|
|
$ |
27 |
|
Fair value |
|
|
|
|
|
|
1 |
|
|
|
26 |
|
|
|
2 |
|
|
|
29 |
|
Average yield(a) |
|
|
|
% |
|
|
7.00 |
% |
|
|
6.89 |
% |
|
|
6.48 |
% |
|
|
6.86 |
% |
|
|
|
|
(a) |
|
Average yield was based on amortized cost balances at the end of the period and did not
give effect to changes in fair value 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 September 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. |
141
NOTE 12 SECURITIES FINANCING ACTIVITIES
For a discussion of accounting policies relating to securities financing activities, see Note 13 on
pages 162163 of JPMorgan Chases 2008 Annual Report. For further information regarding securities
borrowed and securities lending agreements for which the fair value option has been elected, see
Note 4 on pages 121123 of this Form 10-Q.
The following table details the components of collateralized financings.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Securities purchased under resale agreements(a) |
|
$ |
170,660 |
|
|
$ |
200,265 |
|
Securities borrowed(b) |
|
|
128,059 |
|
|
|
124,000 |
|
|
Securities sold under repurchase agreements(c) |
|
$ |
294,308 |
|
|
$ |
174,456 |
|
Securities loaned |
|
|
7,992 |
|
|
|
6,077 |
|
|
|
|
|
(a) |
|
Includes resale agreements of $18.9 billion and $20.8 billion accounted for at fair value
at September 30, 2009, and December 31, 2008, respectively. |
|
(b) |
|
Includes securities borrowed of $5.5 billion and $3.4 billion accounted for at fair value at
September 30, 2009, and December 31, 2008, respectively. |
|
(c) |
|
Includes repurchase agreements of $2.7 billion and $3.0 billion accounted for at fair value
at September 30, 2009, and December 31, 2008, respectively. |
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 September 30, 2009, the Firm received securities as collateral that could be repledged,
delivered or otherwise used with a fair value of approximately $631.1 billion. This collateral was
generally obtained under resale or securities-borrowing agreements. Of these securities,
approximately $496.1 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,
unamortized discounts and premiums, 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 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 163166
of JPMorgan Chases 2008 Annual Report. See Note 4 on pages
121123 of this Form 10-Q for further
information on the Firms elections of fair value accounting under the fair value option. See Note
3 on pages 106121 of this Form 10-Q for further information on loans carried at fair value and
classified as trading assets.
142
The composition of the Firms aggregate loan portfolio at each of the dates indicated was as
follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
U.S. wholesale loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
52,966 |
|
|
$ |
68,709 |
|
Real estate |
|
|
60,344 |
|
|
|
64,214 |
|
Financial institutions |
|
|
17,125 |
|
|
|
20,615 |
|
Government agencies |
|
|
5,765 |
|
|
|
5,918 |
|
Other |
|
|
22,975 |
|
|
|
22,330 |
|
Loans held-for-sale and at fair value |
|
|
2,516 |
|
|
|
4,990 |
|
|
Total U.S. wholesale loans |
|
|
161,691 |
|
|
|
186,776 |
|
|
Non-U.S. wholesale loans: |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
21,829 |
|
|
|
27,941 |
|
Real estate |
|
|
2,601 |
|
|
|
2,667 |
|
Financial institutions |
|
|
11,694 |
|
|
|
16,381 |
|
Government agencies |
|
|
1,047 |
|
|
|
603 |
|
Other |
|
|
17,372 |
|
|
|
18,711 |
|
Loans held-for-sale and at fair value |
|
|
2,719 |
|
|
|
8,965 |
|
|
Total non-U.S. wholesale loans |
|
|
57,262 |
|
|
|
75,268 |
|
|
Total wholesale loans:(a) |
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
74,795 |
|
|
|
96,650 |
|
Real estate(b) |
|
|
62,945 |
|
|
|
66,881 |
|
Financial institutions |
|
|
28,819 |
|
|
|
36,996 |
|
Government agencies |
|
|
6,812 |
|
|
|
6,521 |
|
Other |
|
|
40,347 |
|
|
|
41,041 |
|
Loans held-for-sale and at fair value(c) |
|
|
5,235 |
|
|
|
13,955 |
|
|
Total wholesale loans |
|
|
218,953 |
|
|
|
262,044 |
|
|
Total consumer loans:(d) |
|
|
|
|
|
|
|
|
Home equity senior lien(e) |
|
|
27,726 |
|
|
|
29,793 |
|
Home equity junior lien(f) |
|
|
77,069 |
|
|
|
84,542 |
|
Prime mortgage |
|
|
67,597 |
|
|
|
72,266 |
|
Subprime mortgage |
|
|
13,270 |
|
|
|
15,330 |
|
Option ARMs |
|
|
8,852 |
|
|
|
9,018 |
|
Auto loans |
|
|
44,309 |
|
|
|
42,603 |
|
Credit card(g)(h) |
|
|
78,215 |
|
|
|
104,746 |
|
Other |
|
|
32,405 |
|
|
|
33,715 |
|
Loans held-for-sale(i) |
|
|
1,546 |
|
|
|
2,028 |
|
|
Total consumer loans excluding purchased credit-impaired loans |
|
|
350,989 |
|
|
|
394,041 |
|
|
Consumer loans purchased credit-impaired loans |
|
|
83,202 |
|
|
|
88,813 |
|
|
Total consumer loans |
|
|
434,191 |
|
|
|
482,854 |
|
|
Total loans(j) |
|
$ |
653,144 |
|
|
$ |
744,898 |
|
|
|
|
|
(a) |
|
Includes Investment Bank, Commercial Banking, Treasury & Securities Services and Asset
Management. |
|
(b) |
|
Represents credits extended for real estaterelated purposes to borrowers who are
primarily in the real estate development or investment businesses, and in which the
repayment is predominantly from the sale, lease, management, operations or refinancing of
the property. |
|
(c) |
|
Includes loans for commercial and industrial, real estate, financial institutions and other
of $3.9 billion, $279 million, $210 million and $852 million, respectively, at September 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) |
|
Represents loans where JPMorgan Chase holds the first security interest placed upon the
property. |
|
(f) |
|
Represents loans where JPMorgan Chase holds a security interest that is subordinate in rank
to other liens. |
|
(g) |
|
Includes billed finance charges and fees net of an allowance for uncollectible amounts. |
|
(h) |
|
Includes $3.0 billion of loans at September 30, 2009, held by 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 147155 of this Form 10-Q. |
|
(i) |
|
Includes loans for prime mortgages and other (largely student loans) of $187 million and
$1.4 billion, respectively, at September 30, 2009, and $206 million and $1.8 billion,
respectively, at December 31, 2008. |
|
(j) |
|
Loans (other than purchased loans and those for which the fair value option has been
elected) are presented net of $1.6 billion and $2.0 billion of unearned income, unamortized
discounts and premiums, and net deferred loan costs at September 30, 2009, and December 31,
2008, respectively. Prior periods have been revised to conform to the current presentation. |
143
The following table reflects information about the Firms loan sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a) |
|
$ |
347 |
|
|
$ |
(650 |
) |
|
$ |
360 |
|
|
$ |
(1,602 |
) |
|
|
|
|
(a) |
|
Excludes sales related to loans accounted for at fair value. |
Purchased credit-impaired loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain loans that it
deemed to be credit-impaired. For a detailed discussion of purchased credit-impaired loans,
including accounting policies, see Note 14 on pages 163166 of JPMorgan Chases 2008 Annual
Report.
Purchased credit-impaired loans are reported in loans on the Firms Consolidated Balance Sheets.
During the third quarter of 2009, an allowance for loan losses of $1.1 billion was recorded for
non-option ARM prime mortgage pool loans. This allowance for loan losses is reported as a reduction
of the carrying amount of the loans in the table below. The outstanding balance and the carrying
amount of the purchased credit-impaired consumer loans were as follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Outstanding balance(a) |
|
$ |
106,650 |
|
|
$ |
118,180 |
|
Carrying amount |
|
|
82,112 |
|
|
|
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 nine months ended September 30, 2009.
Accretable yield activity
|
|
|
|
|
|
|
|
|
(in millions) |
|
Three months ended September 30, 2009 |
|
Nine months ended September 30, 2009(a) |
|
Balance at the beginning of the period |
|
$ |
26,963 |
|
|
$ |
32,619 |
|
Accretion into interest income |
|
|
(1,037 |
) |
|
|
(3,402 |
) |
Changes in interest rates on variable-rate loans |
|
|
(1,467 |
) |
|
|
(4,758 |
) |
|
Balance, September 30, 2009 |
|
$ |
24,459 |
|
|
$ |
24,459 |
|
|
|
|
|
(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
Impaired loans predominantly include wholesale nonaccrual loans and all loans, other than purchased
credit-impaired loans, restructured in troubled debt restructurings. A loan with an insignificant
delay or an insignificant shortfall in the amount of payments expected to be collected is not
considered to be impaired, particularly if the Firm expects to collect all amounts due, including
interest accrued at the contractual interest rate for the period of
delay. Troubled debt
restructurings may be returned to accrual status if certain criteria are met; however, such loans
must continue to be reported as impaired loans, unless the loan was restructured at a then-current
market rate of interest. For additional 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 163166 of JPMorgan Chases 2008 Annual
Report.
144
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) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Impaired loans with an allowance: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
6,761 |
|
|
$ |
2,026 |
|
Consumer(a) |
|
|
3,839 |
|
|
|
2,252 |
|
|
Total impaired loans with an allowance |
|
|
10,600 |
|
|
|
4,278 |
|
|
Impaired loans without an allowance:(b) |
|
|
|
|
|
|
|
|
Wholesale |
|
|
487 |
|
|
|
62 |
|
Consumer(a) |
|
|
|
|
|
|
|
|
|
Total impaired loans without an allowance |
|
|
487 |
|
|
|
62 |
|
|
Total impaired loans |
|
$ |
11,087 |
|
|
$ |
4,340 |
|
|
Allowance for impaired loans: |
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
2,410 |
|
|
$ |
712 |
|
Consumer(a) |
|
|
1,009 |
|
|
|
379 |
|
|
Total allowance for impaired loans(c) |
|
$ |
3,419 |
|
|
$ |
1,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Average balance of impaired loans during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
5,771 |
|
|
$ |
864 |
|
|
$ |
4,357 |
|
|
$ |
744 |
|
Consumer(a) |
|
|
3,796 |
|
|
|
1,298 |
|
|
|
3,193 |
|
|
|
959 |
|
|
Total impaired loans |
|
$ |
9,567 |
|
|
$ |
2,162 |
|
|
$ |
7,550 |
|
|
$ |
1,703 |
|
|
Interest income recognized on impaired loans during
the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Consumer(a) |
|
|
27 |
|
|
|
17 |
|
|
|
94 |
|
|
|
38 |
|
|
Total interest income recognized on impaired
loans during the period |
|
$ |
27 |
|
|
$ |
17 |
|
|
$ |
94 |
|
|
$ |
38 |
|
|
|
|
|
(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. |
|
(c) |
|
The allowance for impaired loans 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 $3.0 billion and $1.8
billion as of September 30, 2009, and December 31, 2008, respectively. Of the consumer loans
modified in troubled debt restructurings, $734 million and $853 million were classified as
nonperforming at September 30, 2009, and December 31, 2008, respectively. As of September 30, 2009,
wholesale loans restructured in troubled debt restructurings were approximately $1.0 billion. For a
detailed discussion of the modification of the terms of credit card loan agreements, see Note 14 on
pages 163166 of JPMorgan Chases 2008 Annual Report. At September 30, 2009, and December 31,
2008, the Firm modified $4.6 billion and $2.4 billion,
respectively, of onbalance sheet credit
card loans outstanding.
During 2009, the Firm reviewed 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 (MHA)
programs, which are designed to
assist eligible homeowners by modifying the terms of their mortgages. The Firm is participating in
the MHA programs while continuing to expand its other loss-mitigation efforts for financially
distressed borrowers who do not qualify for the MHA programs. The MHA programs and the Firms other
loss-mitigation programs for financially troubled borrowers generally represent various
concessions such as term extensions, rate reductions and deferral of
principal payments that would have been required
under the terms of the original agreement. 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 could be contractually modified. Upon contractual modification, retained loans are
accounted for as troubled debt restructurings. 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
accounted for and reported as purchased credit-impaired loans.
145
NOTE 14 ALLOWANCE FOR CREDIT LOSSES
The allowance for loan losses includes an asset-specific component and a formula-based component.
The asset-specific component relates to risk-rated loans considered to be impaired and all loans
restructured in troubled debt restructurings (except for certain purchased credit-impaired loans).
An allowance is established when the loans discounted cash flows (or collateral value or
observable market price) are lower than its carrying value. To compute the asset-specific component
of the allowance, larger loans are evaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respective class of assets. Risk-rated
loans (primarily wholesale loans) are
pooled by risk rating, while scored loans (i.e., consumer loans) are pooled by product type. An allowance for loan losses
will also be recorded for purchased credit-impaired loans if there are probable credit-related
decreases in expected future cash flows. Any required allowance would be measured based on the
present value of expected cash flows discounted at the loans (or pools) effective interest rate.
The formula-based component is based on a statistical calculation and covers performing wholesale
loans and consumer loans, except for loans restructured in troubled debt restructurings and
purchased credit-impaired loans. For risk-rated loans, the statistical
calculation is the product of an estimated probability of default (PD) and an estimated loss
given default (LGD). These factors are differentiated by risk rating and expected maturity. In
assessing the risk rating of a particular loan, among the factors considered are the obligors debt
capacity and financial flexibility, the level of the obligors earnings, the amount and sources for
repayment, the level and nature of contingencies, management strength, and the industry and
geography in which the obligor operates. These factors are based on an evaluation of historical and
current information, and involve subjective assessment and interpretation. Emphasizing one factor
over another or considering additional factors could impact the risk rating assigned by the Firm to
that loan. PD estimates are based on observable external data, primarily credit-rating agency
default statistics. LGD estimates are based on a study of actual credit losses over more than one
credit cycle.
For scored loans, the statistical calculation is performed on pools of loans
with similar risk characteristics (e.g., product type) and generally computed as the product of
actual outstandings, an expected-loss factor and an estimated-loss coverage period. Expected-loss
factors are statistically derived and consider historical factors such as loss frequency and
severity. In developing loss frequency and severity assumptions, the Firm considers known and
anticipated changes in the economic environment, including changes in housing prices, unemployment
rates and other risk indicators. A nationally recognized home price index measure is used to
develop loss severity estimates on defaulted home loans at the MSA level. These loss severity
estimates are regularly validated by actual losses recognized on defaulted loans, market-specific
real estate appraisals and property sales activity. Real estate appraisals are updated when the
loan is charged-off, annually thereafter, and at the time of the final foreclosure sale.
Forecasting methods are used to estimate expected-loss factors, including credit loss forecasting
models and vintage-based loss forecasting.
Management applies judgment within an established framework to adjust the results of applying the
statistical calculation described above. Where adjustments are made to the statistical calculation
for the risk-rated portfolios, the determination of the appropriate point within the range is based
on managements quantitative and qualitative assessment of the quality of underwriting standards;
relevant internal factors affecting the credit quality of the current portfolio; and external
factors, such as current macroeconomic and political conditions that have occurred but are not yet
reflected in the loss factors. Factors related to unemployment, housing prices, and both
concentrated and deteriorating industries are also incorporated into the calculation, where
relevant. Adjustments to the statistical calculation for the scored loan portfolios are
accomplished in part by analyzing the historical loss experience for each major product segment.
The specific ranges and the determination of the appropriate point within the range are based on
managements view of uncertainties that relate to current macroeconomic and political conditions,
the quality of underwriting standards, and other relevant internal and external factors affecting
the credit quality of the portfolio.
Management establishes an asset-specific allowance for lending-related commitments that are
considered impaired and computes a formula-based allowance for performing wholesale lending-related
commitments. These are computed using a methodology similar to that used for the wholesale loan
portfolio, modified for expected maturities and probabilities of drawdown.
For further discussion of the allowance for credit losses and the related accounting policies, see
Note 15 on pages 166168 of JPMorgan Chases 2008 Annual Report.
146
The table below summarizes the changes in the allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Allowance for loan losses at January 1 |
|
$ |
23,164 |
|
|
$ |
9,234 |
|
Gross charge-offs |
|
|
17,558 |
|
|
|
7,215 |
|
Gross (recoveries) |
|
|
(770 |
) |
|
|
(695 |
) |
|
Net charge-offs |
|
|
16,788 |
|
|
|
6,520 |
|
Provision for loan losses: |
|
|
|
|
|
|
|
|
Provision excluding accounting policy conformity |
|
|
24,569 |
|
|
|
11,827 |
|
Provision for loan losses accounting conformity(a) |
|
|
|
|
|
|
1,976 |
|
|
Total provision |
|
|
24,569 |
|
|
|
13,803 |
|
Addition resulting from the Washington Mutual transaction |
|
|
|
|
|
|
2,535 |
|
Other(b) |
|
|
(312 |
) |
|
|
|
|
|
Allowance for loan losses at September 30 |
|
$ |
30,633 |
|
|
$ |
19,052 |
|
|
Components: |
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
2,571 |
|
|
|
$323 |
|
Formula-based |
|
|
28,062 |
|
|
|
18,729 |
|
|
Total allowance for loan losses |
|
$ |
30,633 |
|
|
$ |
19,052 |
|
|
|
|
|
(a) |
|
Related to the Washington Mutual transaction in the third quarter of 2008. |
|
(b) |
|
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 147155 of
this Form 10-Q. |
The table below summarizes the changes in the allowance for lending-related commitments.
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Allowance for lending-related commitments at January 1 |
|
$ |
659 |
|
|
$ |
850 |
|
Provision for lending-related commitments |
|
|
162 |
|
|
|
(137 |
) |
|
Allowance for lending-related commitments at September 30 |
|
$ |
821 |
|
|
$ |
713 |
|
|
Components: |
|
|
|
|
|
|
|
|
Asset-specific |
|
$ |
213 |
|
|
$ |
34 |
|
Formula-based |
|
|
608 |
|
|
|
679 |
|
|
Total allowance for lending-related commitments |
|
$ |
821 |
|
|
$ |
713 |
|
|
NOTE
15 LOAN SECURITIZATIONS
For a discussion of the accounting policies relating to loan securitizations, see Note 16 on pages
168176 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.
147
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 September 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.
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Principal amount outstanding |
|
JPMorgan Chase interest in securitized assets(e)(f)(g)(h) |
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Assets held |
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in QSPEs |
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Total interests |
September 30, 2009 |
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Total assets held by |
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with continuing |
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Trading |
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AFS |
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|
|
|
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Other |
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held by |
(in billions) |
|
Firm-sponsored QSPEs |
|
involvement |
|
assets |
|
securities |
|
Loans |
|
assets(i) |
|
JPMorgan Chase |
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Securitization-related: |
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Credit card |
|
$ |
104.8 |
|
|
$ |
104.8 |
(d) |
|
$ |
0.1 |
|
|
$ |
15.8 |
|
|
$ |
14.9 |
|
|
$ |
6.2 |
|
|
$ |
37.0 |
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Residential mortgage: |
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|
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Prime(a) |
|
|
199.9 |
|
|
|
184.3 |
|
|
|
1.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
Subprime |
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52.0 |
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44.9 |
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|
|
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|
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Option ARMs |
|
|
43.6 |
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43.6 |
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|
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|
|
0.1 |
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|
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|
|
0.1 |
|
Commercial and other(b) |
|
|
157.2 |
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|
|
24.6 |
|
|
|
1.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
2.4 |
|
Student |
|
|
1.1 |
|
|
|
1.1 |
|
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|
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0.1 |
|
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|
0.1 |
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Auto |
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|
0.3 |
|
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|
0.3 |
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Total(c) |
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$ |
558.9 |
|
|
$ |
403.6 |
|
|
$ |
2.8 |
|
|
$ |
16.8 |
|
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$ |
14.9 |
|
|
$ |
6.3 |
|
|
$ |
40.8 |
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Principal amount outstanding |
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JPMorgan Chase interest in securitized assets(e)(f)(g)(h) |
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Assets held |
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in QSPEs |
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Total interests |
December 31, 2008 |
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Total assets held by |
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with continuing |
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Trading |
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AFS |
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Other |
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held by |
(in billions) |
|
Firm-sponsored QSPEs |
|
involvement |
|
assets |
|
securities |
|
Loans |
|
assets(i) |
|
JPMorgan Chase |
|
Securitization-related: |
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Credit card |
|
$ |
121.6 |
|
|
$ |
121.6 |
(d) |
|
$ |
0.5 |
|
|
$ |
5.6 |
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$ |
33.3 |
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$ |
5.6 |
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$ |
45.0 |
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Residential mortgage: |
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Prime(a) |
|
|
233.9 |
|
|
|
212.3 |
|
|
|
1.7 |
|
|
|
0.7 |
|
|
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|
|
|
|
|
|
|
|
2.4 |
|
Subprime |
|
|
61.0 |
|
|
|
58.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
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|
|
|
|
|
|
0.1 |
|
Option ARMs |
|
|
48.3 |
|
|
|
48.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
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|
0.4 |
|
Commercial and other(b) |
|
|
174.1 |
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|
45.7 |
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|
2.0 |
|
|
|
0.5 |
|
|
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|
2.5 |
|
Student |
|
|
1.1 |
|
|
|
1.1 |
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|
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|
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|
0.1 |
|
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|
0.1 |
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Auto |
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|
0.8 |
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0.8 |
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Total(c) |
|
$ |
640.8 |
|
|
$ |
488.4 |
|
|
$ |
4.3 |
|
|
$ |
7.2 |
|
|
$ |
33.3 |
|
|
$ |
5.7 |
|
|
$ |
50.5 |
|
|
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(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. |
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(c) |
|
Includes securitized loans where the Firm owns less than a majority of the subordinated or
residual interests in the securitizations. |
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(d) |
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Includes credit card loans, accrued interest and fees, and cash amounts on deposit. |
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(e) |
|
Excludes retained servicing (for a discussion of MSRs, see
Note 17 on pages 162163 of this
Form 10-Q). |
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(f) |
|
Excludes senior and subordinated securities of $1.0 billion and $974 million at September 30,
2009, and December 31, 2008, respectively, which the Firm purchased in connection with IBs
secondary market-making activities. |
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(g) |
|
Includes investments acquired in the secondary market, but predominantly for
held-for-investment purposes, of $1.9 billion and $1.8 billion as of September 30, 2009, and
December 31, 2008, respectively. This is comprised of $1.7 billion and $1.4 billion of
investments classified as available-for-sale, including $1.7 billion and $172 million in
credit cards, zero and $693 million of residential mortgages, and zero and $495 million of
commercial and other; and $186 million and $452 million of investments classified as trading,
including $104 million and $112 million of credit cards, $80 million and $303 million of
residential mortgages, and $2 million and $37 million of commercial and other, all
respectively at September 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 123131
of this Form 10-Q for further information on derivatives. |
|
(i) |
|
Certain of the Firms retained interests are reflected at their fair values. |
148
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 132 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 card trust, through the first nine 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 comprised 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
Chasesponsored credit card securitization master trust, during the fourth quarter of 2008 the
Firm randomly removed $6.2 billion of credit card loans held by 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 Mutualoriginated 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 composed 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
pretax loss of approximately $64 million.
Retained interests in nonconsolidated credit card securitizations
The following is a description of the Firms retained interests in credit card securitizations that
were not consolidated at the dates presented. Accordingly, the Firms retained interests in the WMM
Trust are included in the amounts reported at December 31, 2008, but no longer included at
September 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 156161 of this Form 10-Q.
149
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 September 30, 2009,
and December 31, 2008, the Firm had $14.9 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 16% for the nine months ended September 30, 2009, and
22% for the year ended December 31, 2008. These undivided interests in the trusts represent the
Firms interests in 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 are classified within loans.
CS retains senior and subordinated securities in its credit card securitization trusts. The senior
securities totaled $7.1 billion and $3.5 billion at September 30, 2009, and December 31, 2008,
respectively, and the subordinated securities totaled $7.0 billion and $2.3 billion at September
30, 2009, and December 31, 2008, respectively. Of the securities retained, $14.1 billion and $5.4
billion were classified as AFS securities at September 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 $1.1 billion and
$74 million as of September 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
September 30, 2009, and December 31, 2008, respectively. JPMorgan Chase has also recorded $669
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 162-163 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 $337 million and $939 million at September 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.
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 $29 million
and $155 million at September 30, 2009, and December 31, 2008, respectively. Additionally, IB
retained $2.4 billion and $2.8 billion of senior and subordinated interests as of September 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 $35.5 billion and $31.9 billion during the three months ended
September 30, 2009 and 2008, respectively, and $113.9 billion and $101.0 billion during the nine
months ended September 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 $17
million and $4 million during the three months ended September 30, 2009 and 2008, respectively, and
$68 million and $30 million during the nine months ended September 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 168172 of this Form 10-Q for additional information on loans
sold with recourse.
150
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 September 30,
2009, and December 31, 2008, the Firm held $10 million and $37 million, respectively, of retained
interests in securitized automobile loan securitizations, and $50 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 nine months ended September 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.
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Three months ended September 30, 2009 |
|
|
|
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|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
Student |
|
Auto |
|
Principal securitized |
|
$ |
10,115 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
10,115 |
(e)(g) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
313 |
|
|
|
105 |
|
|
|
45 |
|
|
|
118 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
Other cash flows received(a) |
|
|
2,245 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
43,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
|
|
|
(h) |
|
|
36 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
112 |
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
78 |
|
|
|
148 |
|
|
|
6 |
|
|
|
11 |
|
|
|
31 |
|
|
|
2 |
|
|
|
10 |
|
|
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 |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
Student |
|
Auto |
|
Principal securitized |
|
$ |
6,085 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
361 |
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
6,085 |
(e) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
357 |
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
285 |
|
|
|
25 |
|
|
|
22 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
Other cash flows received(a) |
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in revolving
securitizations |
|
|
36,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred financial
assets (or the underlying collateral)(b) |
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210 |
|
Cash flows received on the interests that continue
to be held by the Firm(c) |
|
|
33 |
|
|
|
109 |
|
|
|
5 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
16 |
|
|
Key assumptions used to measure retained
interests originated during the year (rates per
annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPR |
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Discount rate |
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
Student |
|
Auto |
|
Principal securitized |
|
$ |
26,538 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
26,538 |
(e)(g) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
947 |
|
|
|
337 |
|
|
|
130 |
|
|
|
364 |
|
|
|
10 |
|
|
|
3 |
|
|
|
4 |
|
Other cash flows received(a) |
|
|
3,354 |
|
|
|
8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
120,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
|
|
|
(h) |
|
|
112 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
249 |
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
223 |
|
|
|
512 |
|
|
|
19 |
|
|
|
75 |
|
|
|
189 |
|
|
|
5 |
|
|
|
23 |
|
|
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 |
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
16.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
(in millions, except for ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(f) |
|
Subprime |
|
ARMs |
|
and other |
|
Student |
|
Auto |
|
Principal securitized |
|
$ |
21,390 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,023 |
|
|
$ |
|
|
|
$ |
|
|
Pretax gains |
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flows during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations |
|
$ |
21,389 |
(e) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
989 |
|
|
$ |
|
|
|
$ |
|
|
Servicing fees collected |
|
|
836 |
|
|
|
85 |
|
|
|
78 |
|
|
|
|
|
|
|
4 |
|
|
|
2 |
|
|
|
13 |
|
Other cash flows received(a) |
|
|
3,932 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from collections reinvested in
revolving
securitizations |
|
|
113,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of previously
transferred
financial assets (or
the underlying
collateral)(b) |
|
|
|
|
|
|
186 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359 |
|
Cash flows received on the interests
that continue to be held by the
Firm(c) |
|
|
49 |
|
|
|
267 |
|
|
|
19 |
|
|
|
|
|
|
|
123 |
|
|
|
|
|
|
|
40 |
|
|
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment rate(d) |
|
|
19.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
PPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CPR |
|
|
|
|
|
|
|
|
|
|
Weighted-average life (in years) |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
Expected credit losses |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Discount rate |
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(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; CPR: constant prepayment rate. |
|
(e) |
|
Includes $5.4 billion and $12.8 billion of securities retained by the Firm for the three and
nine months ended September 30, 2009, respectively; $4.3 billion and $5.5 billion of
securities were retained by the Firm for the three and nine months ended September 30, 2008,
respectively. |
|
(f) |
|
Includes Alt-A loans. |
|
(g) |
|
As required under the terms of the transaction documents, $1.1 billion and $1.6 billion of
proceeds from new securitizations were deposited to cash escrow accounts during the three and
nine months ended September 30, 2009, respectively. |
|
(h) |
|
Excludes activities related to the Washington Mutual Master Trust. For a description of these
activities, see pages 149-150 of this Note. |
152
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 September 30, 2009, and December 31, 2008,
respectively. The risk ratings are periodically reassessed as information becomes available. As of
September 30, 2009, and December 31, 2008, 61% 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) |
|
|
September 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) |
|
$ |
15.9 |
|
|
$ |
5.0 |
|
|
$ |
20.9 |
|
|
$ |
5.8 |
|
|
$ |
3.8 |
|
|
$ |
9.6 |
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime(b) |
|
|
0.8 |
|
|
|
0.4 |
|
|
|
1.2 |
|
|
|
2.0 |
|
|
|
0.4 |
|
|
|
2.4 |
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Option ARMs |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
Commercial and other |
|
|
2.1 |
|
|
|
0.3 |
|
|
|
2.4 |
|
|
|
2.2 |
|
|
|
0.3 |
|
|
|
2.5 |
|
Student |
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18.9 |
|
|
$ |
5.8 |
|
|
$ |
24.7 |
|
|
$ |
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, at September 30,
2009, and December 31, 2008, undivided seller interest in the trusts of $14.9 billion and
$33.3 billion, respectively, and unencumbered cash amounts on deposit of $1.2 billion and $2.1
billion, 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 $1.9 billion and $1.8 billion of investments acquired in the secondary market, but
predominantly held for investment purposes, as of September 30, 2009, and December 31, 2008,
respectively. Of these amounts, $1.8 billion and $1.7 billion are classified as
investment-grade as of September 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Excludes senior and subordinated securities of $1.0 billion and $974 million at September 30,
2009, and December 31, 2008, respectively, which the Firm purchased in connection with IBs
secondary market-making activities. |
The table below outlines the key economic assumptions used at September 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 162-163 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except rates and where |
|
|
|
|
|
Residential mortgage |
|
Commercial |
|
|
|
|
otherwise noted) |
|
Credit card |
|
Prime(d) |
|
Subprime |
|
Option ARMs |
|
and other |
|
Student |
|
Auto |
|
JPMorgan Chase interests in securitized assets |
|
$ |
3,940 |
(c) |
|
$ |
1,267 |
|
|
$ |
46 |
|
|
$ |
130 |
|
|
$ |
2,339 |
|
|
$ |
53 |
|
|
$ |
10 |
|
|
Weighted-average life (in years) |
|
|
0.5 |
|
|
|
8.7 |
|
|
|
2.4 |
|
|
|
7.0 |
|
|
|
3.7 |
|
|
|
8.1 |
|
|
|
0.7 |
|
|
Weighted-average prepayment rate(b) |
|
|
16.4 |
% |
|
|
6.0 |
% |
|
|
24.1 |
% |
|
|
7.5 |
% |
|
|
0.1 |
% |
|
|
5.0 |
% |
|
|
1.4 |
% |
|
|
PPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
CPR |
|
|
ABS |
|
Impact of 10% adverse change |
|
$ |
(5 |
) |
|
$ |
(21 |
) |
|
$ |
(2 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(7 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(10 |
) |
|
|
(41 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(1 |
) |
|
Weighted-average loss assumption |
|
|
9.9 |
% |
|
|
3.3 |
% |
|
|
7.1 |
% |
|
|
6.1 |
% |
|
|
1.4 |
% |
|
|
% |
(e) |
|
|
1.0 |
% |
Impact of 10% adverse change |
|
$ |
(40 |
) |
|
$ |
(24 |
) |
|
$ |
(4 |
) |
|
$ |
|
|
|
$ |
(36 |
) |
|
$ |
|
|
|
$ |
|
|
Impact of 20% adverse change |
|
|
(41 |
) |
|
|
(44 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
12.0 |
% |
|
|
16.5 |
% |
|
|
24.1 |
% |
|
|
12.4 |
% |
|
|
12.1 |
% |
|
|
9.0 |
% |
|
|
3.0 |
% |
Impact of 10% adverse change |
|
$ |
(10 |
) |
|
$ |
(51 |
) |
|
$ |
(2 |
) |
|
$ |
(1 |
) |
|
$ |
(71 |
) |
|
$ |
(4 |
) |
|
$ |
|
|
Impact of 20% adverse change |
|
|
(19 |
) |
|
|
(98 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(140 |
) |
|
|
(6 |
) |
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except rates and |
|
|
|
|
|
Residential mortgage |
|
Commercial |
|
|
|
|
where otherwise noted |
|
Credit card |
|
Prime(d) |
|
Subprime |
|
Option ARMs |
|
and other |
|
Student |
|
Auto |
|
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 September 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 136-141 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.
154
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 September 30, 2009, and December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days past due |
|
|
|
|
|
|
|
|
|
Net loan |
|
|
Total loans |
|
and still accruing |
|
Nonaccrual assets(g) |
|
charge-offs (recoveries) |
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
Sept. 30, |
|
Dec. 31, |
|
Sept. 30, |
|
Dec. 31, |
|
Sept. 30, |
|
Dec. 31, |
|
September 30, |
|
September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Home equity senior lien |
|
$ |
27,726 |
|
|
$ |
29,793 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
449 |
|
|
$ |
291 |
|
|
$ |
65 |
|
|
$ |
23 |
|
|
$ |
164 |
|
|
$ |
60 |
|
Home equity junior lien |
|
|
77,069 |
|
|
|
84,542 |
|
|
|
|
|
|
|
|
|
|
|
1,149 |
|
|
|
1,103 |
|
|
|
1,077 |
|
|
|
640 |
|
|
|
3,341 |
|
|
|
1,561 |
|
Prime mortgage(a) |
|
|
67,597 |
|
|
|
72,266 |
|
|
|
|
|
|
|
|
|
|
|
4,007 |
|
|
|
1,895 |
|
|
|
528 |
|
|
|
177 |
|
|
|
1,323 |
|
|
|
331 |
|
Subprime mortgage |
|
|
13,270 |
|
|
|
15,330 |
|
|
|
|
|
|
|
|
|
|
|
3,233 |
|
|
|
2,690 |
|
|
|
422 |
|
|
|
273 |
|
|
|
1,196 |
|
|
|
614 |
|
Option ARMs |
|
|
8,852 |
|
|
|
9,018 |
|
|
|
|
|
|
|
|
|
|
|
244 |
|
|
|
10 |
|
|
|
15 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
Auto |
|
|
44,309 |
|
|
|
42,603 |
|
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
148 |
|
|
|
159 |
|
|
|
124 |
|
|
|
479 |
|
|
|
361 |
|
Credit card |
|
|
78,215 |
|
|
|
104,746 |
|
|
|
2,745 |
|
|
|
2,649 |
|
|
|
3 |
|
|
|
4 |
|
|
|
2,694 |
|
|
|
1,106 |
|
|
|
7,412 |
|
|
|
3,159 |
|
All other |
|
|
32,405 |
|
|
|
33,715 |
|
|
|
511 |
|
|
|
463 |
|
|
|
863 |
|
|
|
430 |
|
|
|
355 |
|
|
|
89 |
|
|
|
911 |
|
|
|
249 |
|
Loans held-for-sale(b) |
|
|
1,546 |
|
|
|
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NA |
|
|
NA |
|
|
NA |
|
|
NA |
|
|
Total consumer loans excluding
purchased credit-impaired loans |
|
|
350,989 |
|
|
|
394,041 |
|
|
|
3,256 |
|
|
|
3,112 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
5,315 |
|
|
|
2,432 |
|
|
|
14,860 |
|
|
|
6,335 |
|
Consumer loans purchased
credit-impaired
loans(c) |
|
|
83,202 |
|
|
|
88,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans |
|
|
434,191 |
|
|
|
482,854 |
|
|
|
3,256 |
|
|
|
3,112 |
|
|
|
10,127 |
|
|
|
6,571 |
|
|
|
5,315 |
|
|
|
2,432 |
|
|
|
14,860 |
|
|
|
6,335 |
|
Total wholesale loans |
|
|
218,953 |
|
|
|
262,044 |
|
|
|
484 |
|
|
|
163 |
|
|
|
7,640 |
(h) |
|
|
2,382 |
(h) |
|
|
1,058 |
|
|
|
52 |
|
|
|
1,928 |
|
|
|
185 |
|
|
Total loans reported |
|
|
653,144 |
|
|
|
744,898 |
|
|
|
3,740 |
|
|
|
3,275 |
|
|
|
17,767 |
|
|
|
8,953 |
|
|
|
6,373 |
|
|
|
2,484 |
|
|
|
16,788 |
|
|
|
6,520 |
|
|
Securitized loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage(a) |
|
|
184,271 |
|
|
|
212,274 |
|
|
|
|
|
|
|
|
|
|
|
33,448 |
|
|
|
21,130 |
|
|
|
2,728 |
|
|
|
1,139 |
|
|
|
7,319 |
|
|
|
1,822 |
|
Subprime mortgage |
|
|
44,894 |
|
|
|
58,607 |
|
|
|
|
|
|
|
|
|
|
|
16,213 |
|
|
|
13,301 |
|
|
|
1,684 |
|
|
|
729 |
|
|
|
5,962 |
|
|
|
1,621 |
|
Option ARMs |
|
|
43,598 |
|
|
|
48,328 |
|
|
|
|
|
|
|
|
|
|
|
10,667 |
|
|
|
6,440 |
|
|
|
566 |
|
|
|
|
|
|
|
1,420 |
|
|
|
|
|
Auto |
|
|
261 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
7 |
|
|
|
4 |
|
|
|
12 |
|
Credit card |
|
|
87,028 |
|
|
|
85,571 |
|
|
|
1,813 |
|
|
|
1,802 |
|
|
|
|
|
|
|
|
|
|
|
1,698 |
|
|
|
873 |
|
|
|
4,826 |
|
|
|
2,384 |
|
Student |
|
|
1,027 |
|
|
|
1,074 |
|
|
|
65 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Commercial and other |
|
|
24,633 |
|
|
|
45,677 |
|
|
|
|
|
|
|
28 |
|
|
|
789 |
|
|
|
166 |
|
|
|
2 |
|
|
|
3 |
|
|
|
12 |
|
|
|
8 |
|
|
Total loans
securitized(d) |
|
|
385,712 |
|
|
|
452,322 |
|
|
|
1,878 |
|
|
|
1,896 |
|
|
|
61,117 |
|
|
|
41,039 |
|
|
|
6,679 |
|
|
|
2,751 |
|
|
|
19,543 |
|
|
|
5,848 |
|
|
Total loans reported and
securitized(e) |
|
$ |
1,038,856 |
(f) |
|
$ |
1,197,220 |
(f) |
|
$ |
5,618 |
|
|
$ |
5,171 |
|
|
$ |
78,884 |
|
|
$ |
49,992 |
|
|
$ |
13,052 |
|
|
$ |
5,235 |
|
|
$ |
36,331 |
|
|
$ |
12,368 |
|
|
|
|
|
(a) |
|
Includes Alt-A loans. |
|
(b) |
|
Includes loans for prime mortgages and other (largely student loans) of $187 million and $1.4
billion at September 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. 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 142-145 of this Form 10-Q. |
|
(d) |
|
Total assets held in securitization-related SPEs were $558.9 billion and $640.8 billion at
September 30, 2009, and December 31, 2008, respectively. The $385.7 billion and $452.3 billion
of loans securitized at September 30, 2009, and December 31, 2008, respectively, excludes:
$155.3 billion and $152.4 billion of securitized loans, in which the Firm has no continuing
involvement; $14.9 billion and $33.3 billion of sellers interests in credit card master
trusts; and $3.0 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) |
|
At September 30, 2009, and December 31, 2008, nonperforming loans and assets excluded: (i)
mortgage loans insured by U.S. government agencies of $7.0 billion and $3.0 billion,
respectively; (ii) real estate owned that was insured by U.S. government agencies of $579
million and $364 million, respectively; and (iii) 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 $511 million and $437 million, respectively. These amounts are
excluded, as reimbursement is proceeding normally. |
|
(h) |
|
Includes nonperforming loans held-for-sale and loans at fair value of $146 million and $32
million at September 30, 2009, and December 31, 2008, respectively. |
155
NOTE 16 VARIABLE INTEREST ENTITIES
Refer to Note 1 on page 122 and Note 17 on pages 177-186 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 Firm-administered multi-seller conduits. On May 31, 2009, the Firm
consolidated one of these 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
(in billions) |
|
Consolidated |
|
Nonconsolidated |
|
December 31, 2008 |
|
Total assets held by conduits |
|
$ |
5.2 |
|
|
$ |
19.0 |
|
|
$ |
42.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial paper issued by conduits |
|
|
5.2 |
|
|
|
19.0 |
|
|
|
43.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and credit enhancements |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal-specific liquidity facilities (primarily asset purchase
agreements) |
|
|
8.5 |
|
|
|
26.7 |
(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) |
|
|
8.5 |
|
|
|
27.3 |
|
|
|
56.9 |
|
|
|
|
|
(a) |
|
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 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 the guarantees reflected in these agreements is further discussed in Note
33 on pages 206-210 of JPMorgan Chases 2008 Annual Report. The carrying values related to
asset purchase agreements were $115 million and $147 million at September 30, 2009, and
December 31, 2008, respectively, of which $110 million and $138 million, respectively,
represented the remaining fair value of the guarantee. 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 September 30, 2009, and December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
|
|
Unfunded |
|
Commercial |
|
Liquidity |
|
Liquidity |
|
Unfunded |
|
Commercial |
|
Liquidity |
|
Liquidity |
|
|
commitments to |
|
paper-funded |
|
provided by |
|
provided |
|
commitments to |
|
paper-funded |
|
provided by |
|
provided |
(in billions) |
|
Firms clients |
|
assets |
|
third parties |
|
by Firm |
|
Firms clients |
|
assets |
|
third parties |
|
by Firm |
|
Asset types: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
2.1 |
|
|
$ |
3.9 |
|
|
$ |
|
|
|
$ |
6.0 |
|
|
$ |
3.0 |
|
|
$ |
8.9 |
|
|
$ |
0.1 |
|
|
$ |
11.8 |
|
Vehicle loans and
leases |
|
|
1.5 |
|
|
|
5.9 |
|
|
|
|
|
|
|
7.4 |
|
|
|
1.4 |
|
|
|
10.0 |
|
|
|
|
|
|
|
11.4 |
|
Trade receivables |
|
|
3.3 |
|
|
|
2.0 |
|
|
|
|
|
|
|
5.3 |
|
|
|
3.8 |
|
|
|
5.5 |
|
|
|
|
|
|
|
9.3 |
|
Student loans |
|
|
0.3 |
|
|
|
1.7 |
|
|
|
|
|
|
|
2.0 |
|
|
|
0.7 |
|
|
|
4.6 |
|
|
|
|
|
|
|
5.3 |
|
Commercial |
|
|
0.5 |
|
|
|
1.9 |
|
|
|
|
|
|
|
2.4 |
|
|
|
1.5 |
|
|
|
4.0 |
|
|
|
0.4 |
|
|
|
5.1 |
|
Residential mortgage |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
Capital commitments |
|
|
0.2 |
|
|
|
1.7 |
|
|
|
0.6 |
|
|
|
1.3 |
|
|
|
1.3 |
|
|
|
3.9 |
|
|
|
0.6 |
|
|
|
4.6 |
|
Rental car finance |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.6 |
|
Equipment loans and
leases |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
2.3 |
|
Floorplan vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
1.8 |
|
|
|
|
|
|
|
2.5 |
|
Floorplan other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
0.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
0.7 |
|
Other |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
0.3 |
|
|
|
1.1 |
|
|
Total |
|
$ |
8.3 |
|
|
$ |
19.0 |
|
|
$ |
0.6 |
|
|
$ |
26.7 |
|
|
$ |
14.0 |
|
|
$ |
42.9 |
|
|
$ |
1.5 |
|
|
$ |
55.4 |
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratings profile of VIE assets of the nonconsolidated multi-seller conduits(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninvestment- |
|
Commercial |
|
Wt. avg. |
September 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 |
|
$ |
1.6 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.9 |
|
|
|
1.6 |
|
Vehicle loans and leases |
|
|
3.6 |
|
|
|
1.6 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
|
|
2.5 |
|
Trade receivables |
|
|
|
|
|
|
1.4 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
2.0 |
|
|
|
0.8 |
|
Student loans |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
1.1 |
|
Commercial |
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.3 |
|
|
|
1.9 |
|
|
|
2.5 |
|
Residential mortgage |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.6 |
|
|
|
3.5 |
|
Capital commitments |
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
|
|
2.2 |
|
Rental car finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
Equipment loans and leases |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
2.2 |
|
Floorplan vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floorplan other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
1.8 |
|
Other |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
5.1 |
|
|
Total |
|
$ |
8.3 |
|
|
$ |
7.2 |
|
|
$ |
3.0 |
|
|
$ |
0.1 |
|
|
$ |
0.4 |
|
|
$ |
19.0 |
|
|
|
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 September 30,
2009, and December 31, 2008, 94% 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
September 30, 2009, and December 31, 2008, was 17 days and 27 days, respectively, and the average
yield on the commercial paper was 0.2% 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 nine months ended September 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 September 30, 2009, was
approximately $373 million, or 5%, 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 Chase-administered conduits.
157
Consolidation analysis
Each nonconsolidated multi-seller conduit administered by the Firm at September 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 September 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 September 30, 2009, and December 31, 2008,
including the ratings profile of the VIEs assets, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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) |
|
$ |
13.2 |
|
|
$ |
8.2 |
|
|
$ |
5.0 |
|
|
$ |
8.2 |
|
|
$ |
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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
$ |
1.6 |
|
|
$ |
11.5 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13.2 |
|
|
|
8.4 |
|
December 31, 2008 |
|
|
3.8 |
|
|
|
5.9 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
10.0 |
|
|
|
22.3 |
|
|
|
|
|
(a) |
|
Excluded $3.4 billion and $6.0 billion at September 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 reported at fair value). This line item excluded a
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 September 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 September 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 nine months 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 nine months of 2009.
As remarketing agent, the Firm may hold putable floating-rate certificates of the municipal bond
vehicles. At September 30, 2009, and December 31, 2008, respectively, the Firm held $286 million
and $293 million of these certificates on its Consolidated Balance Sheets. The largest amount held
by the Firm at any time during the first nine months of 2009 was $458 million, or 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 September 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
on either the rating of the underlying municipal bond itself, or the rating including any credit
enhancement. At September 30, 2009, and December 31, 2008, $2.4 billion and $2.6 billion,
respectively, of the bonds were insured by monoline bond insurers.
158
Credit-linked note vehicles
Exposure to nonconsolidated credit-linked note VIEs at September 30, 2009, and December 31, 2008,
was as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
1.9 |
|
|
$ |
0.7 |
|
|
$ |
2.6 |
|
|
$ |
11.4 |
|
|
$ |
3.6 |
|
|
$ |
0.7 |
|
|
$ |
4.3 |
|
|
$ |
14.5 |
|
Managed structure(b) |
|
|
5.0 |
|
|
|
0.7 |
|
|
|
5.7 |
|
|
|
15.1 |
|
|
|
7.7 |
|
|
|
0.3 |
|
|
|
8.0 |
|
|
|
16.6 |
|
|
Total |
|
$ |
6.9 |
|
|
$ |
1.4 |
|
|
$ |
8.3 |
|
|
$ |
26.5 |
|
|
$ |
11.3 |
|
|
$ |
1.0 |
|
|
$ |
12.3 |
|
|
$ |
31.1 |
|
|
|
|
|
(a) |
|
Excluded collateral with a fair value of $1.6 billion and $2.1 billion at September 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 September 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) |
|
On-balance 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
on 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 September 30, 2009, and December 31, 2008, was as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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) |
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
6.2 |
|
|
$ |
(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) |
|
On-balance 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 $0.6 billion and $1.0 billion at September 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 184-185 of JPMorgan Chases 2008 Annual Report.
As of September 30, 2009, and December 31, 2008, the Firm had noninvestment-grade funded loans of
$163 million and $405 million, respectively, to nonconsolidated CDO warehouse VIEs; additionally,
the Firm had unfunded commitments of zero and $746 million, 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 $163 million and $1.1 billion as of September 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 it 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 September 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.
159
The Firm is not the
primary beneficiary of the trust and accounts for its investment at fair value within AFS
investment securities. At September 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 $3.6 billion and $2.6
billion, respectively. For more information on AFS securities, see Note 11 on pages 136-141 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 FRBNY. The extent to which the FRBNY and JPMorgan Chase loans will be repaid will
depend on 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.
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 |
September 30, 2009 |
|
Trading assets - debt |
|
|
|
|
|
|
(in billions) |
|
and equity instruments |
|
Loans |
|
Other(b) |
|
Total assets(c) |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
|
|
|
$ |
2.9 |
|
|
$ |
2.3 |
|
|
$ |
5.2 |
|
Credit card loans(a) |
|
|
|
|
|
|
6.6 |
|
|
|
0.4 |
|
|
|
7.0 |
|
Municipal bond vehicles |
|
|
3.3 |
|
|
|
|
|
|
|
0.1 |
|
|
|
3.4 |
|
Credit-linked notes |
|
|
1.4 |
|
|
|
|
|
|
|
0.2 |
|
|
|
1.6 |
|
CDO warehouses |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Student loans |
|
|
|
|
|
|
3.8 |
|
|
|
0.1 |
|
|
|
3.9 |
|
Mortgage securitizations |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy investments |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Other |
|
|
2.1 |
|
|
|
1.0 |
|
|
|
0.8 |
|
|
|
3.9 |
|
|
Total |
|
$ |
7.2 |
|
|
$ |
14.3 |
|
|
$ |
4.3 |
|
|
$ |
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
September 30, 2009 |
|
Beneficial interests |
|
|
|
|
(in billions) |
|
in VIE assets(d) |
|
Other(e) |
|
Total liabilities |
|
VIE program type |
|
|
|
|
|
|
|
|
|
|
|
|
Multi-seller conduits |
|
$ |
5.2 |
|
|
$ |
|
|
|
$ |
5.2 |
|
Credit card loans(a) |
|
|
4.6 |
|
|
|
|
|
|
|
4.6 |
|
Municipal bond vehicles |
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
Credit-linked notes |
|
|
0.9 |
|
|
|
0.1 |
|
|
|
1.0 |
|
CDO warehouses |
|
|
|
|
|
|
|
|
|
|
|
|
Student loans |
|
|
2.6 |
|
|
|
1.1 |
|
|
|
3.7 |
|
Mortgage securitizations |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
|
|
Energy investments |
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Other |
|
|
1.2 |
|
|
|
0.7 |
|
|
|
1.9 |
|
|
Total |
|
$ |
17.9 |
|
|
$ |
1.9 |
|
|
$ |
19.8 |
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Mortgage securitization |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
Employee funds |
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
Energy investments |
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Other |
|
|
2.1 |
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
4.5 |
|
|
Total |
|
$ |
10.8 |
|
|
$ |
5.3 |
|
|
$ |
2.5 |
|
|
$ |
18.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Mortgage securitization |
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
Employee funds |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Energy investments |
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Other |
|
|
0.7 |
|
|
|
1.3 |
|
|
|
2.0 |
|
|
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 52-54 and Note 15 on pages 147-155 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 $12.6 billion and $10.6 billion at
September 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) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Goodwill |
|
$ |
48,334 |
|
|
$ |
48,027 |
|
Mortgage servicing rights |
|
|
13,663 |
|
|
|
9,403 |
|
|
|
|
|
|
|
|
|
|
Purchased credit card relationships |
|
|
1,342 |
|
|
|
1,649 |
|
|
|
|
|
|
|
|
|
|
All other intangible assets: |
|
|
|
|
|
|
|
|
Other credit card-related intangibles |
|
$ |
711 |
|
|
$ |
743 |
|
Core deposit intangibles |
|
|
1,302 |
|
|
|
1,597 |
|
Other intangibles |
|
|
1,507 |
|
|
|
1,592 |
|
|
Total all other intangible assets |
|
$ |
3,520 |
|
|
$ |
3,932 |
|
|
161
Goodwill
The $307 million increase in goodwill from December 31, 2008, was largely due to purchase
accounting adjustments related to the Bear Stearns merger; currency translation adjustments related
to Canadian credit card operations; and the acquisition of a commodities business by IB. For
additional information related to the Bear Stearns merger, see Note 2 on pages 102-106 of this Form
10-Q.
Goodwill was not impaired at September 30, 2009, or December 31, 2008, nor was any goodwill written
off due to impairment during either of the nine month periods ended September 30, 2009 or 2008.
Goodwill attributed to the business segments was as follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Investment Bank |
|
$ |
4,961 |
|
|
$ |
4,765 |
|
Retail Financial Services |
|
|
16,832 |
|
|
|
16,840 |
|
Card Services |
|
|
14,110 |
|
|
|
13,977 |
|
Commercial Banking |
|
|
2,868 |
|
|
|
2,870 |
|
Treasury & Securities Services |
|
|
1,661 |
|
|
|
1,633 |
|
Asset Management |
|
|
7,525 |
|
|
|
7,565 |
|
Corporate/Private Equity |
|
|
377 |
|
|
|
377 |
|
|
Total goodwill |
|
$ |
48,334 |
|
|
$ |
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 nine months ended September 30, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except where otherwise noted) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Fair value at the beginning of the period |
|
$ |
14,600 |
|
|
$ |
11,617 |
|
|
$ |
9,403 |
|
|
$ |
8,632 |
|
MSR activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations of MSRs |
|
|
873 |
|
|
|
763 |
|
|
|
2,851 |
|
|
|
2,685 |
|
Purchase of MSRs |
|
|
|
|
|
|
5,893 |
(a) |
|
|
2 |
|
|
|
6,903 |
(a) |
Disposition of MSRs |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
Total net additions |
|
|
873 |
|
|
|
6,656 |
|
|
|
2,843 |
|
|
|
9,588 |
|
Change in valuation due to inputs and assumptions(b) |
|
|
(1,096 |
) |
|
|
(797 |
) |
|
|
4,045 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in fair value(c) |
|
|
(714 |
) |
|
|
(428 |
) |
|
|
(2,628 |
) |
|
|
(1,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in fair value of MSRs(d) |
|
|
(1,810 |
) |
|
|
(1,225 |
) |
|
|
1,417 |
|
|
|
(1,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at September 30 |
|
$ |
13,663 |
(e) |
|
$ |
17,048 |
|
|
$ |
13,663 |
(e) |
|
$ |
17,048 |
|
|
Change in unrealized gains/(losses) included in income related
to MSRs held at September 30 |
|
$ |
(1,096 |
) |
|
$ |
(797 |
) |
|
$ |
4,045 |
|
|
$ |
87 |
|
|
Contractual service fees, late fees and other ancillary fees
included in income |
|
$ |
1,187 |
|
|
$ |
762 |
|
|
$ |
3,615 |
|
|
$ |
2,074 |
|
|
Third-party mortgage loans serviced at September 30
(in billions) |
|
$ |
1,107.7 |
|
|
$ |
1,219.6 |
|
|
$ |
1,107.7 |
|
|
$ |
1,219.6 |
|
|
|
|
|
(a) |
|
Includes MSRs acquired as a result of the Washington Mutual transaction. For further
discussion, see Note 2 on pages 102-106 of this Form 10-Q. |
|
(b) |
|
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 using significant
unobservable inputs (level 3). |
|
(c) |
|
Includes changes in MSR value due to modeled servicing portfolio runoff (or time decay).
Represents the impact of cash settlements using significant unobservable inputs (level 3). |
|
(d) |
|
Includes $1 million and $(3) million related to changes in commercial real estate for
the three- and nine-month periods ended September 30, 2009. |
|
(e) |
|
Includes $42 million related to commercial real estate. |
162
The following table presents the components of mortgage fees and related income (including the
impact of MSR risk management activities) for the three and nine months ended September 30, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
RFS net mortgage servicing revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue |
|
$ |
(70 |
) |
|
$ |
66 |
|
|
$ |
695 |
|
|
$ |
836 |
|
|
Net mortgage servicing revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
1,220 |
|
|
|
654 |
|
|
|
3,721 |
|
|
|
1,892 |
|
Other changes in MSR asset fair value(a) |
|
|
(712 |
) |
|
|
(390 |
) |
|
|
(2,622 |
) |
|
|
(1,209 |
) |
|
Total operating revenue |
|
|
508 |
|
|
|
264 |
|
|
|
1,099 |
|
|
|
683 |
|
|
Risk management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in MSR asset fair value due to inputs or
assumptions in model(b) |
|
|
(1,099 |
) |
|
|
(786 |
) |
|
|
4,042 |
|
|
|
101 |
|
Derivative valuation adjustments and other |
|
|
1,534 |
|
|
|
894 |
|
|
|
(2,523 |
) |
|
|
39 |
|
|
Total risk management |
|
|
435 |
|
|
|
108 |
|
|
|
1,519 |
|
|
|
140 |
|
|
Total RFS net mortgage servicing revenue |
|
|
943 |
|
|
|
372 |
|
|
|
2,618 |
|
|
|
823 |
|
|
All other(c) |
|
|
(30 |
) |
|
|
19 |
|
|
|
(85 |
) |
|
|
19 |
|
|
Mortgage fees and related income |
|
$ |
843 |
|
|
$ |
457 |
|
|
$ |
3,228 |
|
|
$ |
1,678 |
|
|
|
|
|
(a) |
|
Includes changes in the MSR value due to modeled servicing portfolio runoff (or time decay).
Represents the impact of cash settlements using significant unobservable inputs (level 3). |
|
(b) |
|
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 using significant
unobservable inputs (level 3). |
|
(c) |
|
Primarily represents risk management activities performed by Corporate. |
The table below outlines the key economic assumptions used to determine the fair value of the
Firms MSRs at September 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) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Weighted-average prepayment speed assumption (CPR) |
|
|
14.11 |
% |
|
|
35.21 |
% |
Impact on fair value of 10% adverse change |
|
$ |
(951 |
) |
|
$ |
(1,039 |
) |
Impact on fair value of 20% adverse change |
|
|
(1,832 |
) |
|
|
(1,970 |
) |
|
Weighted-average option adjusted spread |
|
|
4.72 |
% |
|
|
3.80 |
% |
Impact on fair value of 100 basis points adverse change |
|
$ |
(530 |
) |
|
$ |
(311 |
) |
Impact on fair value of 200 basis points adverse change |
|
|
(1,019 |
) |
|
|
(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 nine months ended September 30, 2009, purchased credit card relationships, other credit
card-related intangibles, core deposit intangibles and other intangible assets decreased by $719
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.
163
The components of credit card relationships, core deposits and other intangible assets were as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
$ |
5,781 |
|
|
$ |
4,439 |
|
|
$ |
1,342 |
|
|
$ |
5,765 |
|
|
$ |
4,116 |
|
|
$ |
1,649 |
|
All other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit card-related
intangibles |
|
$ |
890 |
|
|
$ |
179 |
|
|
$ |
711 |
|
|
$ |
852 |
|
|
$ |
109 |
|
|
$ |
743 |
|
Core deposit intangibles |
|
|
4,279 |
|
|
|
2,977 |
|
|
|
1,302 |
|
|
|
4,280 |
|
|
|
2,683 |
|
|
|
1,597 |
|
Other intangibles |
|
|
2,190 |
|
|
|
683 |
(a) |
|
|
1,507 |
|
|
|
2,376 |
|
|
|
784 |
|
|
|
1,592 |
|
|
|
|
|
(a) |
|
The decrease from December 2008 in the gross amount of other intangibles and in accumulated
amortization 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 September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Purchased credit card relationships |
|
$ |
99 |
|
|
$ |
149 |
|
|
$ |
323 |
|
|
$ |
466 |
|
All other intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit card-related intangibles |
|
|
24 |
|
|
|
5 |
|
|
|
70 |
|
|
|
16 |
|
Core deposit intangibles |
|
|
96 |
|
|
|
117 |
|
|
|
294 |
|
|
|
355 |
|
Other intangibles(a) |
|
|
35 |
|
|
|
34 |
|
|
|
107 |
|
|
|
100 |
|
|
Total amortization expense |
|
$ |
254 |
|
|
$ |
305 |
|
|
$ |
794 |
|
|
$ |
937 |
|
|
|
|
|
(a) |
|
Excludes amortization expense related to servicing assets on securitized automobile loans,
which is recorded in lending- and deposit-related fees, of $1 million for the three months
ended September 30, 2008, and $1 million and $4 million for the nine months ended September
30, 2009 and 2008, respectively. |
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 |
|
|
|
|
|
All other |
|
|
|
|
Purchased credit |
|
card-related |
|
Core deposit |
|
intangible |
|
|
For the year: (in millions) |
|
card relationships |
|
intangibles |
|
intangibles |
|
assets |
|
Total |
|
2009(a) |
|
$ |
421 |
|
|
$ |
94 |
|
|
$ |
389 |
|
|
$ |
142 |
|
|
$ |
1,046 |
|
2010 |
|
|
353 |
|
|
|
102 |
|
|
|
329 |
|
|
|
127 |
|
|
|
911 |
|
2011 |
|
|
290 |
|
|
|
101 |
|
|
|
284 |
|
|
|
116 |
|
|
|
791 |
|
2012 |
|
|
251 |
|
|
|
104 |
|
|
|
240 |
|
|
|
112 |
|
|
|
707 |
|
2013 |
|
|
212 |
|
|
|
103 |
|
|
|
195 |
|
|
|
109 |
|
|
|
619 |
|
|
|
|
|
(a) |
|
Includes $323 million, $70 million, $294 million and $107 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 nine
months of 2009. |
NOTE 18 DEPOSITS
For further discussion of deposits, see Note 20 on page 190 in JPMorgan Chases 2008 Annual Report.
At September 30, 2009, and December 31, 2008, noninterest-bearing and interest-bearing deposits
were as follows.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
U.S. offices: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
195,561 |
|
|
$ |
210,899 |
|
Interest-bearing (included
$1,074 and $1,849 at fair value
at September 30, 2009, and
December 31, 2008,
respectively) |
|
|
415,122 |
|
|
|
511,077 |
|
Non-U.S. offices: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
|
9,390 |
|
|
|
7,697 |
|
Interest-bearing (included
$2,842 and $3,756 at fair value
at September 30, 2009, and
December 31, 2008,
respectively) |
|
|
247,904 |
|
|
|
279,604 |
|
|
Total |
|
$ |
867,977 |
|
|
$ |
1,009,277 |
|
|
164
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 Federal Deposit Insurance Corporations (FDIC) temporary
standard maximum deposit insurance amount, which was increased on October 3, 2008, from $100,000 to
$250,000 per depositor per institution. On January 1, 2014, the standard maximum deposit insurance
amount will return to $100,000 per depositor for all deposit accounts except certain retirement
accounts, which will remain at $250,000 per depositor.
NOTE 19 OTHER BORROWED FUNDS
The following table details the components of other borrowed funds.
|
|
|
|
|
|
|
|
|
(in millions) |
|
September 30, 2009 |
|
December 31, 2008 |
|
Advances from Federal Home Loan Banks(a)
|
|
$ |
36,452 |
|
|
$ |
70,187 |
|
Nonrecourse advances FRBB(b)
|
|
|
|
|
|
|
11,192 |
|
Other(c)
|
|
|
14,372 |
|
|
|
51,021 |
|
|
Total other borrowed funds(d)
|
|
$ |
50,824 |
|
|
$ |
132,400 |
|
|
|
|
|
(a) |
|
Maturities of advances from the FHLBs were $32.2 billion, $2.6 billion, and $717 million in
each of the 12-month periods ending September 30, 2010, 2011, and 2013, respectively, and $930
million maturing after September 30, 2014. Maturities for the 12-month periods ending
September 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 (AML Facility), to
provide liquidity to eligible U.S. money market mutual funds. Under the AML Facility, banking
organizations must use the loan proceeds to finance their purchases of eligible high-quality
asset-backed commercial paper (ABCP) investments from money market mutual funds, 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 AML Facility is scheduled to end on February 1, 2010. 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 September 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 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 markets are not operating efficiently. |
|
(d) |
|
Includes other borrowed funds of $5.0 billion and $14.7 billion accounted for at fair value
at September 30, 2009, and December 31, 2008, respectively. |
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 September 30, 2009, and December
31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual |
|
|
Share value and |
|
Shares at |
|
Outstanding at |
|
|
|
|
|
rate in effect at |
|
|
redemption |
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
Earliest |
|
September 30, |
(in millions) |
|
price per share(b) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
redemption date |
|
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. |
165
Redemption of Series K preferred stock
On June 17, 2009, the Firm redeemed all outstanding shares of Series K preferred stock issued to
the U.S. Treasury pursuant to the Capital Purchase Program and repaid the full $25.0 billion
principal amount. Following discussions regarding the warrant that was issued to the U.S. Treasury
in connection with its purchase of the Series K preferred stock, JPMorgan Chase notified the U.S.
Treasury on July 7, 2009, that it had revoked its warrant repurchase notice. JPMorgan Chase
understands, based on 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 the Series K preferred shares 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.
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 new FASB guidance for participating securities,
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
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 guidance.
The following table presents the calculation of basic and diluted EPS for the three and nine months
ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except per share amounts) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
$ |
3,512 |
|
|
$ |
(54 |
) |
|
$ |
8,374 |
|
|
$ |
4,322 |
|
Extraordinary gain |
|
|
76 |
|
|
|
581 |
|
|
|
76 |
|
|
|
581 |
|
|
Net income |
|
|
3,588 |
|
|
|
527 |
|
|
|
8,450 |
|
|
|
4,903 |
|
Less: Preferred stock dividends |
|
|
163 |
|
|
|
161 |
|
|
|
1,165 |
|
|
|
251 |
|
Less: Accelerated amortization from redemption of
preferred stock issued to the U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
1,112 |
(c) |
|
|
|
|
|
Net income applicable to common equity |
|
|
3,425 |
|
|
|
366 |
|
|
|
6,173 |
|
|
|
4,652 |
|
Less: Dividends and undistributed earnings allocated to
participating securities |
|
|
185 |
|
|
|
48 |
|
|
|
348 |
|
|
|
160 |
|
|
Net income applicable to common stockholders(a) |
|
$ |
3,240 |
|
|
$ |
318 |
|
|
$ |
5,825 |
|
|
$ |
4,492 |
|
Total weighted-average basic shares outstanding |
|
|
3,937.9 |
|
|
|
3,444.6 |
|
|
|
3,835.0 |
|
|
|
3,422.3 |
|
|
Per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
$ |
0.80 |
|
|
$ |
(0.08 |
) |
|
$ |
1.50 |
|
|
$ |
1.14 |
|
|
Extraordinary gain |
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.02 |
|
|
|
0.17 |
|
|
Net income(b) |
|
$ |
0.82 |
|
|
$ |
0.09 |
|
|
$ |
1.52 |
(c) |
|
$ |
1.31 |
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders(a) |
|
$ |
3,240 |
|
|
$ |
318 |
|
|
$ |
5,825 |
|
|
$ |
4,492 |
|
Total weighted-average basic shares outstanding |
|
|
3,937.9 |
|
|
|
3,444.6 |
|
|
|
3,835.0 |
|
|
|
3,422.3 |
|
Add: Employee stock options and SARs(d) |
|
|
24.1 |
|
|
|
|
|
|
|
13.3 |
|
|
|
23.9 |
|
|
Total weighted-average diluted shares
outstanding(e) |
|
|
3,962.0 |
|
|
|
3,444.6 |
|
|
|
3,848.3 |
|
|
|
3,446.2 |
|
|
Per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain |
|
$ |
0.80 |
|
|
$ |
(0.08 |
) |
|
$ |
1.50 |
|
|
$ |
1.13 |
|
|
Extraordinary gain |
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.01 |
|
|
|
0.17 |
|
|
Net income per share(b) |
|
$ |
0.82 |
|
|
$ |
0.09 |
|
|
$ |
1.51 |
(c) |
|
$ |
1.30 |
|
|
|
|
|
(a) |
|
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. |
|
(b) |
|
EPS data has been revised to reflect the retrospective application of new FASB guidance for
participating securities, which resulted in a reduction of basic and diluted EPS for the three
months ended September 30, 2009, of $0.05 and $0.01, respectively; for the nine months ended
September 30, 2009, of $0.09 and $0.04, respectively; for the three months ended September 30,
2008, of $0.02 and $0.02, respectively; and for the nine months ended September 30, 2008, of
$0.05 and $0.02, respectively. |
|
(c) |
|
The calculation of basic and diluted EPS for the nine months ended September 30, 2009,
includes a one-time noncash reduction of $1.1 billion, or $0.27 per share, resulting from the
redemption of Series K preferred stock issued to the U.S. Treasury. |
|
(d) |
|
Excluded from the computation of diluted EPS (due to the anditilutive effect) were 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 shares of the Firms common
stock totaling 241 million and 304 million shares for the three months ended September 30,
2009 and 2008, respectively; and 306 million and 178 million for the nine months ended
September 30, 2009 and 2008, respectively. |
|
(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. |
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, foreign currency translation adjustments (including the impact of related
derivatives), cash flow hedging activities and net loss and prior service cost/(credit) related to
the Firms defined benefit pension and OPEB plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and prior |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service costs/(credit) |
|
Accumulated |
Nine months ended |
|
Unrealized |
|
Translation |
|
|
|
|
|
of defined benefit |
|
other |
September 30, 2009 |
|
gains/(losses) on |
|
adjustments, |
|
|
|
|
|
pension and |
|
comprehensive |
(in millions) |
|
AFS securities(a) |
|
net of hedges |
|
Cash flow hedges |
|
OPEB plans |
|
income/(loss) |
|
Balance at January 1, 2009 |
|
$ |
(2,101 |
) |
|
$ |
(598 |
) |
|
$ |
(202 |
) |
|
$ |
(2,786 |
) |
|
$ |
(5,687 |
) |
Net change |
|
|
4,983 |
(b) |
|
|
549 |
(d) |
|
|
293 |
(e) |
|
|
145 |
(f) |
|
|
5,970 |
|
|
Balance at September 30, 2009 |
|
$ |
2,882 |
(c) |
|
$ |
(49 |
) |
|
$ |
91 |
|
|
$ |
(2,641 |
) |
|
$ |
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and prior |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
service costs/(credit) |
|
Accumulated |
Nine months ended |
|
Unrealized |
|
Translation |
|
|
|
|
|
of defined benefit |
|
other |
September 30, 2008 |
|
gains/(losses) on |
|
adjustments, |
|
|
|
|
|
pension and |
|
comprehensive |
(in millions) |
|
AFS securities(a) |
|
net of hedges |
|
Cash flow hedges |
|
OPEB plans |
|
income/(loss) |
|
Balance at January 1, 2008 |
|
$ |
380 |
|
|
$ |
8 |
|
|
$ |
(802 |
) |
|
$ |
(503 |
) |
|
$ |
(917 |
) |
Net change |
|
|
(1,601 |
)(b) |
|
|
5 |
(d) |
|
|
202 |
(e) |
|
|
84 |
(f) |
|
|
(1,310 |
) |
|
Balance at September 30, 2008 |
|
$ |
(1,221 |
) |
|
$ |
13 |
|
|
$ |
(600 |
) |
|
$ |
(419 |
) |
|
$ |
(2,227 |
) |
|
|
|
|
(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 nine months ended September 30, 2009, was due primarily to overall
market spread and market liquidity improvement. The net change for the nine months ended
September 30, 2008, was due to price declines in asset-backed securities positions as a result
of general increases in market spreads, and to net increases in interest rates and market
spreads on agency mortgage-backed pass-through securities. |
|
(c) |
|
Includes after-tax unrealized losses of $(353) million not related to credit on debt
securities for which credit losses have been recognized in income. |
|
(d) |
|
Includes $702 million and $(470) million at September 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 $(153) million and $475
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 nine months ended September 30, 2009, included $117 million of
after-tax gains recognized in income, and $410 million of after-tax gains, representing the
net change in derivative fair value that was reported in comprehensive income. The net change
|
167
|
|
|
|
|
for the nine months ended September 30, 2008, included $218 million of after-tax losses
recognized in income, and $16 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 nine months ended September 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 nine months ended September 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. 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 as 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 September 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.
NOTE
24 OFFBALANCE 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 fulfill its obligation under these guarantees, and the counterparties
subsequently fail to perform according to the terms of these contracts. For a discussion of
offbalance sheet lending-related financial instruments and guarantees, and the Firms related
accounting policies, see Note 33 on pages 206210 of JPMorgan Chases 2008 Annual Report.
To provide for the risk of loss inherent in lending-related contracts, an allowance for credit
losses on lending-related commitments is maintained. See Note 14 on pages 146147of this Form 10-Q
for further discussion regarding the allowance for credit losses on lending-related commitments.
168
The following table summarizes the contractual amounts of offbalance sheet lending-related
financial instruments and guarantees and the related allowance for credit losses on lending-related
commitments at September 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.
Offbalance sheet lending-related financial instruments and guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for lending-related |
|
|
Contractual amount |
|
commitments |
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card |
|
$ |
584,231 |
|
|
$ |
623,702 |
|
|
$ |
|
|
|
$ |
|
|
Home equity |
|
|
64,762 |
|
|
|
95,743 |
|
|
|
|
|
|
|
|
|
Other |
|
|
19,774 |
|
|
|
22,062 |
|
|
|
11 |
|
|
|
25 |
|
|
Total consumer |
|
$ |
668,767 |
|
|
$ |
741,507 |
|
|
$ |
11 |
|
|
$ |
25 |
|
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend credit(a)(b) |
|
|
187,698 |
|
|
|
189,563 |
|
|
|
333 |
|
|
|
349 |
|
Asset purchase agreements |
|
|
25,125 |
|
|
|
53,729 |
|
|
|
5 |
|
|
|
9 |
|
Standby letters of credit and other financial
guarantees(a)(c)(d) |
|
|
89,485 |
|
|
|
95,352 |
|
|
|
471 |
|
|
|
274 |
|
Unused advised lines of credit |
|
|
35,911 |
|
|
|
36,300 |
|
|
|
|
|
|
|
|
|
Other letters of credit(a)(c) |
|
|
4,916 |
|
|
|
4,927 |
|
|
|
1 |
|
|
|
2 |
|
|
Total wholesale |
|
|
343,135 |
|
|
|
379,871 |
|
|
|
810 |
|
|
|
634 |
|
|
Total lending-related |
|
$ |
1,011,902 |
|
|
$ |
1,121,378 |
|
|
$ |
821 |
|
|
$ |
659 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(e) |
|
$ |
174,675 |
|
|
$ |
169,281 |
|
|
NA |
|
NA |
Residual value guarantees |
|
|
670 |
|
|
|
670 |
|
|
NA |
|
NA |
Derivatives qualifying as guarantees(f) |
|
|
88,233 |
|
|
|
83,835 |
|
|
NA |
|
NA |
|
|
|
|
(a) |
|
Represents the contractual amount net of risk participations totaling $26.9 billion and $28.3
billion at September 30, 2009, and December 31, 2008, respectively. |
|
(b) |
|
Excludes unfunded commitments to third-party private equity funds of $1.4 billion at both
September 30, 2009, and December 31, 2008, respectively. Also excludes unfunded commitments
for other equity investments of $918 million and $1.0 billion at September 30, 2009, and
December 31, 2008, respectively. |
|
(c) |
|
JPMorgan Chase held collateral relating to $28.8 billion and $31.0 billion of standby letters
of credit and $1.4 billion and $1.0 billion of other letters of credit at September 30, 2009,
and December 31, 2008, respectively. |
|
(d) |
|
Includes unissued standby letter of credit commitments of $37.7 billion and $39.5 billion at
September 30, 2009, and December 31, 2008, respectively. |
|
(e) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$178.7 billion and $170.1 billion at September 30, 2009, and December 31, 2008, respectively.
Securities lending collateral comprises primarily cash, and 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. |
169
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 $23.0
billion and $23.5 billion at September 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 156161 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 amounts of commitments related to leveraged acquisitions at September 30,
2009, and December 31, 2008, were $2.7 billion and $3.6 billion, respectively. For further
information, see Note 3 and Note 4 on pages 106121 and 121123 respectively, of this Form 10-Q.
Guarantees
The Firm considers the following offbalance sheet lending-related arrangements to be guarantees
under U.S. GAAP: 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 offbalance sheet lending-related arrangements the Firm considers to be guarantees, and the
related accounting policies, see Note 33 on pages 206210 of JPMorgan Chases 2008 Annual Report.
The amount of the liability related to guarantees recorded at September 30, 2009, and December 31,
2008, excluding the allowance for credit losses on lending-related commitments and derivative
contracts discussed below, was $468 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 156161 of this Form 10-Q.
The carrying value of asset purchase agreements was $115 million and $147 million at September 30,
2009, and December 31, 2008, respectively, classified in accounts payable and other liabilities on
the Consolidated Balance Sheets; the carrying values include $5 million and $9 million,
respectively, for the allowance for lending-related commitments, and $110 million and $138 million,
respectively, for the fair value of the 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 values of standby and other letters of credit were $830
million and $673 million at September 30, 2009, and December 31, 2008, respectively, classified in
accounts payable and other liabilities on the Consolidated Balance Sheets; these carrying values
include $472 million and $276 million, respectively, for the allowance for lending-related
commitments, and $358 million and $397 million, respectively, for the fair value of the guarantee
liability.
170
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 September 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 as defined by S&P and Moodys.
Standby letters of credit and other financial guarantees and other letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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) |
|
$ |
65,826 |
|
|
$ |
3,792 |
|
|
$ |
73,394 |
|
|
$ |
3,772 |
|
Noninvestment-grade(a) |
|
|
23,659 |
|
|
|
1,124 |
|
|
|
21,958 |
|
|
|
1,155 |
|
|
Total contractual amount |
|
$ |
89,485 |
(b) |
|
$ |
4,916 |
|
|
$ |
95,352 |
(b) |
|
$ |
4,927 |
|
|
Allowance for lending-related commitments |
|
$ |
471 |
|
|
$ |
1 |
|
|
$ |
274 |
|
|
$ |
2 |
|
Commitments with collateral |
|
|
28,784 |
|
|
|
1,355 |
|
|
|
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 $26.9 billion and $28.3
billion at September 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 U.S. GAAP. The total notional values of the
derivatives that the Firm deems to be guarantees were $88.2 billion and $83.8 billion at September
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 September 30, 2009, and December 31, 2008, the fair value related to
derivative guarantees was a derivative receivable of $232 million and $184 million, respectively,
and a derivative payable of $2.2 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 U.S. GAAP,
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 123131 of this Form 10-Q, and Note
32 on pages 202205 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 163166 and 168176,
respectively, of JPMorgan Chases 2008 Annual Report, and Note 13 and Note 15 on pages 142145 and
147155, 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 breach 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 both September 30, 2009, and December 31, 2008,
the Firm had recorded a repurchase liability of $1.1 billion.
171
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 September 30, 2009, and December 31, 2008, the unpaid principal
balance of loans sold with recourse totaled $13.8 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 would have to perform under this guarantee, were $257 million and
$241 million at September 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 1920 of this Form 10-Q, and pages 4041 and Note
37 on pages 214215 of JPMorgan Chases 2008 Annual Report.
Segment results
The following tables provide a summary of the Firms segment results for the three and nine months
ended September 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 September 30, 2009 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
5,253 |
|
|
$ |
3,064 |
|
|
$ |
831 |
|
|
$ |
474 |
|
Net interest income |
|
|
2,255 |
|
|
|
5,154 |
|
|
|
4,328 |
|
|
|
985 |
|
|
Total net revenue |
|
|
7,508 |
|
|
|
8,218 |
|
|
|
5,159 |
|
|
|
1,459 |
|
Provision for credit losses |
|
|
379 |
|
|
|
3,988 |
|
|
|
4,967 |
|
|
|
355 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
4,274 |
|
|
|
4,196 |
|
|
|
1,306 |
|
|
|
545 |
|
|
Income/(loss) before income tax expense and
extraordinary
gain |
|
|
2,855 |
|
|
|
34 |
|
|
|
(1,114 |
) |
|
|
559 |
|
Income tax expense/(benefit) |
|
|
934 |
|
|
|
27 |
|
|
|
(414 |
) |
|
|
218 |
|
|
Income/(loss) before extraordinary gain |
|
|
1,921 |
|
|
|
7 |
|
|
|
(700 |
) |
|
|
341 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
1,921 |
|
|
$ |
7 |
|
|
$ |
(700 |
) |
|
$ |
341 |
|
|
Average common equity |
|
$ |
33,000 |
|
|
$ |
25,000 |
|
|
$ |
15,000 |
|
|
$ |
8,000 |
|
Average assets |
|
|
678,796 |
|
|
|
401,620 |
|
|
|
192,141 |
|
|
|
130,316 |
|
Return on average common equity |
|
|
23 |
% |
|
|
|
% |
|
|
(19 |
)% |
|
|
17 |
% |
Overhead ratio |
|
|
57 |
|
|
|
51 |
|
|
|
25 |
|
|
|
37 |
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
Treasury & |
|
Asset |
|
Corporate/ |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Private Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
1,137 |
|
|
$ |
1,681 |
|
|
$ |
1,563 |
|
|
$ |
(118 |
) |
|
$ |
13,885 |
|
Net interest income |
|
|
651 |
|
|
|
404 |
|
|
|
1,031 |
|
|
|
(2,071 |
) |
|
|
12,737 |
|
|
Total net revenue |
|
|
1,788 |
|
|
|
2,085 |
|
|
|
2,594 |
|
|
|
(2,189 |
) |
|
|
26,622 |
|
Provision for credit losses |
|
|
13 |
|
|
|
38 |
|
|
|
62 |
|
|
|
(1,698 |
) |
|
|
8,104 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
Noninterest expense(c) |
|
|
1,280 |
|
|
|
1,351 |
|
|
|
503 |
|
|
|
|
|
|
|
13,455 |
|
|
Income/(loss) before income tax expense and
extraordinary gain |
|
|
464 |
|
|
|
696 |
|
|
|
2,029 |
|
|
|
(460 |
) |
|
|
5,063 |
|
Income tax expense/(benefit) |
|
|
162 |
|
|
|
266 |
|
|
|
818 |
|
|
|
(460 |
) |
|
|
1,551 |
|
|
Income before extraordinary gain |
|
|
302 |
|
|
|
430 |
|
|
|
1,211 |
|
|
|
|
|
|
|
3,512 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
76 |
|
|
Net income |
|
$ |
302 |
|
|
$ |
430 |
|
|
$ |
1,287 |
|
|
$ |
|
|
|
$ |
3,588 |
|
|
Average common equity |
|
$ |
5,000 |
|
|
$ |
7,000 |
|
|
$ |
56,468 |
|
|
$ |
|
|
|
$ |
149,468 |
|
Average assets |
|
|
33,117 |
|
|
|
60,345 |
|
|
|
585,620 |
|
|
|
(82,779 |
) |
|
|
1,999,176 |
|
Return on average common equity |
|
|
24 |
% |
|
|
24 |
% |
|
NM |
|
|
NM |
|
|
|
9% |
(f) |
Overhead ratio |
|
|
72 |
|
|
|
65 |
|
|
NM |
|
|
NM |
|
|
|
51 |
|
|
Segment results and reconciliation(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
1,388 |
|
|
$ |
1,732 |
|
|
$ |
646 |
|
|
$ |
388 |
|
Net interest income |
|
|
2,678 |
|
|
|
3,231 |
|
|
|
3,241 |
|
|
|
737 |
|
|
Total net revenue |
|
|
4,066 |
|
|
|
4,963 |
|
|
|
3,887 |
|
|
|
1,125 |
|
Provision for credit losses |
|
|
234 |
|
|
|
2,056 |
|
|
|
2,229 |
|
|
|
126 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
3,816 |
|
|
|
2,779 |
|
|
|
1,194 |
|
|
|
486 |
|
|
Income before income tax expense and
extraordinary gain |
|
|
16 |
|
|
|
128 |
|
|
|
464 |
|
|
|
513 |
|
Income tax expense/(benefit) |
|
|
(866 |
) |
|
|
64 |
|
|
|
172 |
|
|
|
201 |
|
|
Income before extraordinary gain |
|
|
882 |
|
|
|
64 |
|
|
|
292 |
|
|
|
312 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
882 |
|
|
$ |
64 |
|
|
$ |
292 |
|
|
$ |
312 |
|
|
Average common equity |
|
$ |
26,000 |
|
|
$ |
17,000 |
|
|
$ |
14,100 |
|
|
$ |
7,000 |
|
Average assets |
|
|
890,040 |
|
|
|
265,367 |
|
|
|
169,413 |
|
|
|
101,681 |
|
Return on average common equity |
|
|
13 |
% |
|
|
1 |
% |
|
|
8 |
% |
|
|
18 |
% |
Overhead ratio |
|
|
94 |
|
|
|
56 |
|
|
|
31 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
Treasury & |
|
Asset |
|
Corporate/ |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Private Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
1,230 |
|
|
$ |
1,581 |
|
|
$ |
(1,711 |
) |
|
$ |
489 |
|
|
$ |
5,743 |
|
Net interest income/(loss) |
|
|
723 |
|
|
|
380 |
|
|
|
(125 |
) |
|
|
(1,871 |
) |
|
|
8,994 |
|
|
Total net revenue |
|
|
1,953 |
|
|
|
1,961 |
|
|
|
(1,836 |
) |
|
|
(1,382 |
) |
|
|
14,737 |
|
Provision for credit losses |
|
|
18 |
|
|
|
20 |
|
|
|
1,977 |
(g) |
|
|
(873 |
) |
|
|
5,787 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
Noninterest expense(c) |
|
|
1,339 |
|
|
|
1,362 |
|
|
|
161 |
|
|
|
|
|
|
|
11,137 |
|
|
Income/(loss) before income tax expense and
extraordinary gain |
|
|
565 |
|
|
|
579 |
|
|
|
(3,974 |
) |
|
|
(478 |
) |
|
|
(2,187 |
) |
Income tax expense/(benefit) |
|
|
159 |
|
|
|
228 |
|
|
|
(1,613 |
) |
|
|
(478 |
) |
|
|
(2,133 |
) |
|
Income/(loss) before extraordinary gain |
|
|
406 |
|
|
|
351 |
|
|
|
(2,361 |
) |
|
|
|
|
|
|
(54 |
) |
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
581 |
|
|
Net income/(loss) |
|
$ |
406 |
|
|
$ |
351 |
|
|
$ |
(1,780 |
) |
|
$ |
|
|
|
$ |
527 |
|
|
Average common equity |
|
$ |
3,500 |
|
|
$ |
5,500 |
|
|
$ |
53,540 |
|
|
$ |
|
|
|
$ |
126,640 |
|
Average assets |
|
|
49,386 |
|
|
|
71,189 |
|
|
|
284,995 |
|
|
|
(75,712 |
) |
|
|
1,756,359 |
|
Return on average common equity |
|
|
46 |
% |
|
|
25 |
% |
|
NM |
|
|
NM |
|
|
|
(1 |
)%(f) |
Overhead ratio |
|
|
69 |
|
|
|
69 |
|
|
NM |
|
|
NM |
|
|
|
76 |
|
|
173
Segment results and reconciliation(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
15,778 |
|
|
$ |
9,601 |
|
|
$ |
2,035 |
|
|
$ |
1,354 |
|
Net interest income |
|
|
7,402 |
|
|
|
15,422 |
|
|
|
13,121 |
|
|
|
2,960 |
|
|
Total net revenue |
|
|
23,180 |
|
|
|
25,023 |
|
|
|
15,156 |
|
|
|
4,314 |
|
Provision for credit losses |
|
|
2,460 |
|
|
|
11,711 |
|
|
|
14,223 |
|
|
|
960 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
13,115 |
|
|
|
12,446 |
|
|
|
3,985 |
|
|
|
1,633 |
|
|
Income/(loss) before income tax expense |
|
|
7,605 |
|
|
|
866 |
|
|
|
(3,052 |
) |
|
|
1,721 |
|
Income tax expense/(benefit) |
|
|
2,607 |
|
|
|
370 |
|
|
|
(1,133 |
) |
|
|
674 |
|
|
Income/(loss) before extraordinary gain |
|
|
4,998 |
|
|
|
496 |
|
|
|
(1,919 |
) |
|
|
1,047 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
4,998 |
|
|
$ |
496 |
|
|
$ |
(1,919 |
) |
|
$ |
1,047 |
|
|
Average common equity |
|
$ |
33,000 |
|
|
$ |
25,000 |
|
|
$ |
15,000 |
|
|
$ |
8,000 |
|
Average assets |
|
|
707,396 |
|
|
|
411,693 |
|
|
|
195,517 |
|
|
|
137,248 |
|
Return on average common equity |
|
|
20 |
% |
|
|
3 |
% |
|
|
(17 |
)% |
|
|
17 |
% |
Overhead ratio |
|
|
57 |
|
|
|
50 |
|
|
|
26 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
Treasury & |
|
Asset |
|
Corporate/ |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Private Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
3,530 |
|
|
$ |
4,549 |
|
|
$ |
1,665 |
|
|
$ |
(16 |
) |
|
$ |
38,496 |
|
Net interest income |
|
|
1,979 |
|
|
|
1,221 |
|
|
|
2,885 |
|
|
|
(6,216 |
) |
|
|
38,774 |
|
|
Total net revenue |
|
|
5,509 |
|
|
|
5,770 |
|
|
|
4,550 |
|
|
|
(6,232 |
) |
|
|
77,270 |
|
Provision for credit losses |
|
|
2 |
|
|
|
130 |
|
|
|
71 |
|
|
|
(4,826 |
) |
|
|
24,731 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
91 |
|
|
|
|
|
Noninterest expense(c) |
|
|
3,887 |
|
|
|
4,003 |
|
|
|
1,279 |
|
|
|
|
|
|
|
40,348 |
|
|
Income/(loss) before income tax expense |
|
|
1,529 |
|
|
|
1,637 |
|
|
|
3,200 |
|
|
|
(1,315 |
) |
|
|
12,191 |
|
Income tax expense/(benefit) |
|
|
540 |
|
|
|
631 |
|
|
|
1,443 |
|
|
|
(1,315 |
) |
|
|
3,817 |
|
|
Income before extraordinary gain |
|
|
989 |
|
|
|
1,006 |
|
|
|
1,757 |
|
|
|
|
|
|
|
8,374 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
76 |
|
|
Net income |
|
$ |
989 |
|
|
$ |
1,006 |
|
|
$ |
1,833 |
|
|
$ |
|
|
|
$ |
8,450 |
|
|
Average common equity |
|
$ |
5,000 |
|
|
$ |
7,000 |
|
|
$ |
49,322 |
|
|
$ |
|
|
|
$ |
142,322 |
|
Average assets |
|
|
35,753 |
|
|
|
59,309 |
|
|
|
570,107 |
|
|
|
(82,383 |
) |
|
|
2,034,640 |
|
Return on average common equity |
|
|
26 |
% |
|
|
19 |
% |
|
NM |
|
|
NM |
|
|
|
6 |
%(f) |
Overhead ratio |
|
|
71 |
|
|
|
69 |
|
|
NM |
|
|
NM |
|
|
|
52 |
|
|
Segment results and reconciliation(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
Investment |
|
Retail Financial |
|
Card |
|
Commercial |
(in millions, except ratios) |
|
Bank |
|
Services |
|
Services(d) |
|
Banking |
|
Noninterest revenue |
|
$ |
5,797 |
|
|
$ |
5,381 |
|
|
$ |
2,129 |
|
|
$ |
1,105 |
|
Net interest income |
|
|
6,810 |
|
|
|
9,455 |
|
|
|
9,437 |
|
|
|
2,193 |
|
|
Total net revenue |
|
|
12,607 |
|
|
|
14,836 |
|
|
|
11,566 |
|
|
|
3,298 |
|
Provision for credit losses |
|
|
1,250 |
|
|
|
6,329 |
|
|
|
6,093 |
|
|
|
274 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense(c) |
|
|
11,103 |
|
|
|
8,031 |
|
|
|
3,651 |
|
|
|
1,447 |
|
|
Income before income tax expense |
|
|
254 |
|
|
|
476 |
|
|
|
1,822 |
|
|
|
1,577 |
|
Income tax expense/(benefit) |
|
|
(935 |
) |
|
|
220 |
|
|
|
671 |
|
|
|
618 |
|
|
Income before extraordinary gain |
|
|
1,189 |
|
|
|
256 |
|
|
|
1,151 |
|
|
|
959 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,189 |
|
|
$ |
256 |
|
|
$ |
1,151 |
|
|
$ |
959 |
|
|
Average common equity |
|
$ |
23,781 |
|
|
$ |
17,000 |
|
|
$ |
14,100 |
|
|
$ |
7,000 |
|
Average assets |
|
|
820,497 |
|
|
|
264,400 |
|
|
|
163,560 |
|
|
|
102,374 |
|
Return on average common equity |
|
|
7 |
% |
|
|
2 |
% |
|
|
11 |
% |
|
|
18 |
% |
Overhead ratio |
|
|
88 |
|
|
|
54 |
|
|
|
32 |
|
|
|
44 |
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
Treasury & |
|
Asset |
|
Corporate/ |
|
Reconciling |
|
|
(in millions, except ratios) |
|
Securities Services |
|
Management |
|
Private Equity |
|
Items(d)(e) |
|
Total |
|
Noninterest revenue |
|
$ |
3,876 |
|
|
$ |
4,874 |
|
|
$ |
158 |
|
|
$ |
1,759 |
|
|
$ |
25,079 |
|
Net interest income |
|
|
2,009 |
|
|
|
1,052 |
|
|
|
(521 |
) |
|
|
(5,488 |
) |
|
|
24,947 |
|
|
Total net revenue |
|
|
5,885 |
|
|
|
5,926 |
|
|
|
(363 |
) |
|
|
(3,729 |
) |
|
|
50,026 |
|
Provision for credit losses |
|
|
37 |
|
|
|
53 |
|
|
|
2,014 |
(g) |
|
|
(2,384 |
) |
|
|
13,666 |
|
Credit reimbursement (to)/from TSS(b) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
91 |
|
|
|
|
|
Noninterest expense(c) |
|
|
3,884 |
|
|
|
4,085 |
|
|
|
44 |
|
|
|
|
|
|
|
32,245 |
|
|
Income/(loss) before income tax expense |
|
|
1,873 |
|
|
|
1,788 |
|
|
|
(2,421 |
) |
|
|
(1,254 |
) |
|
|
4,115 |
|
Income tax expense/(benefit) |
|
|
639 |
|
|
|
686 |
|
|
|
(852 |
) |
|
|
(1,254 |
) |
|
|
(207 |
) |
|
Income/(loss) before extraordinary gain |
|
|
1,234 |
|
|
|
1,102 |
|
|
|
(1,569 |
) |
|
|
|
|
|
|
4,322 |
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
581 |
|
|
|
|
|
|
|
581 |
|
|
Net income/(loss) |
|
$ |
1,234 |
|
|
$ |
1,102 |
|
|
$ |
(988 |
) |
|
$ |
|
|
|
$ |
4,903 |
|
|
Average common equity |
|
$ |
3,500 |
|
|
$ |
5,190 |
|
|
$ |
55,307 |
|
|
$ |
|
|
|
$ |
125,878 |
|
Average assets |
|
|
54,243 |
|
|
|
65,518 |
|
|
|
268,659 |
|
|
|
(73,966 |
) |
|
|
1,665,285 |
|
Return on average common equity |
|
|
47 |
% |
|
|
28 |
% |
|
NM |
|
|
NM |
|
|
|
4 |
%(f) |
Overhead ratio |
|
|
66 |
|
|
|
69 |
|
|
NM |
|
|
NM |
|
|
|
64 |
|
|
|
|
|
(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 nine months ended September 30,
2009 and 2008, were as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Investment Bank |
|
$ |
5 |
|
|
$ |
17 |
|
|
$ |
21 |
|
|
$ |
149 |
|
Retail Financial Services |
|
|
54 |
|
|
|
|
|
|
|
238 |
|
|
|
|
|
Card Services |
|
|
3 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
Commercial Banking |
|
|
1 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
Treasury & Securities Services |
|
|
3 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
Asset Management |
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
1 |
|
Corporate/Private Equity |
|
|
36 |
|
|
|
79 |
|
|
|
133 |
|
|
|
101 |
|
|
|
|
|
(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 September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Noninterest revenue |
|
$ |
(285 |
) |
|
$ |
(843 |
) |
|
$ |
(1,119 |
) |
|
$ |
(2,623 |
) |
Net interest income |
|
|
1,983 |
|
|
|
1,716 |
|
|
|
5,945 |
|
|
|
5,007 |
|
Provision for credit losses |
|
|
1,698 |
|
|
|
873 |
|
|
|
4,826 |
|
|
|
2,384 |
|
Average assets |
|
|
82,779 |
|
|
|
75,712 |
|
|
|
82,383 |
|
|
|
73,966 |
|
|
|
|
|
(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 nine months ended September 30, 2009 and 2008, were as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Noninterest revenue |
|
$ |
371 |
|
|
$ |
323 |
|
|
$ |
1,043 |
|
|
$ |
773 |
|
Net interest income |
|
|
89 |
|
|
|
155 |
|
|
|
272 |
|
|
|
481 |
|
Income tax expense |
|
|
460 |
|
|
|
478 |
|
|
|
1,315 |
|
|
|
1,254 |
|
|
|
|
|
(f) |
|
Ratio is based on income/(loss) before extraordinary gain. |
|
(g) |
|
Included $2.0 billion charge to conform Washington Mutuals loan loss reserves with JPMorgan
Chases allowance methodology in the third quarter of 2008. |
175
JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
Three months ended September 30, 2008 |
|
|
Average |
|
|
|
|
|
Rate |
|
Average |
|
|
|
|
|
Rate |
|
|
balance |
|
Interest |
|
(annualized) |
|
balance |
|
Interest |
|
(annualized) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with banks |
|
$ |
62,248 |
|
|
$ |
130 |
|
|
|
0.83 |
% |
|
$ |
41,303 |
|
|
$ |
316 |
|
|
|
3.04 |
% |
Federal funds sold and securities purchased
under resale agreements |
|
|
151,705 |
|
|
|
368 |
|
|
|
0.96 |
|
|
|
164,980 |
|
|
|
1,558 |
|
|
|
3.76 |
|
Securities borrowed |
|
|
129,301 |
|
|
|
(30 |
) |
|
|
(0.09 |
) |
|
|
134,651 |
|
|
|
703 |
|
|
|
2.07 |
|
Trading assets debt instruments |
|
|
250,148 |
|
|
|
3,017 |
|
|
|
4.78 |
|
|
|
298,760 |
|
|
|
4,552 |
|
|
|
6.06 |
|
Securities |
|
|
359,451 |
|
|
|
3,281 |
|
|
|
3.62 |
(b) |
|
|
119,443 |
|
|
|
1,530 |
|
|
|
5.09 |
(b) |
Loans |
|
|
665,386 |
|
|
|
9,450 |
|
|
|
5.64 |
|
|
|
536,890 |
|
|
|
8,514 |
|
|
|
6.31 |
|
Other assets |
|
|
24,155 |
|
|
|
133 |
|
|
|
2.18 |
|
|
|
37,237 |
|
|
|
308 |
|
|
|
3.29 |
|
|
Total interest-earning assets |
|
|
1,642,394 |
|
|
|
16,349 |
|
|
|
3.95 |
|
|
|
1,333,264 |
|
|
|
17,481 |
|
|
|
5.22 |
|
Allowance for loan losses |
|
|
(29,319 |
) |
|
|
|
|
|
|
|
|
|
|
(13,351 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
21,256 |
|
|
|
|
|
|
|
|
|
|
|
29,553 |
|
|
|
|
|
|
|
|
|
Trading assets equity instruments |
|
|
66,790 |
|
|
|
|
|
|
|
|
|
|
|
92,300 |
|
|
|
|
|
|
|
|
|
Trading assets derivative receivables |
|
|
99,807 |
|
|
|
|
|
|
|
|
|
|
|
111,214 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
48,328 |
|
|
|
|
|
|
|
|
|
|
|
45,947 |
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
14,384 |
|
|
|
|
|
|
|
|
|
|
|
11,811 |
|
|
|
|
|
|
|
|
|
Purchased credit card relationships |
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
1,903 |
|
|
|
|
|
|
|
|
|
All other intangibles |
|
|
3,595 |
|
|
|
|
|
|
|
|
|
|
|
3,609 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
130,552 |
|
|
|
|
|
|
|
|
|
|
|
140,109 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,999,176 |
|
|
|
|
|
|
|
|
|
|
$ |
1,756,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
660,998 |
|
|
$ |
1,086 |
|
|
|
0.65 |
% |
|
$ |
589,348 |
|
|
$ |
3,351 |
|
|
|
2.26 |
% |
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
303,175 |
|
|
|
150 |
|
|
|
0.20 |
|
|
|
200,032 |
|
|
|
1,322 |
|
|
|
2.63 |
|
Commercial paper |
|
|
42,728 |
|
|
|
24 |
|
|
|
0.23 |
|
|
|
47,579 |
|
|
|
246 |
|
|
|
2.05 |
|
Other borrowings and liabilities(a) |
|
|
178,985 |
|
|
|
767 |
|
|
|
1.70 |
|
|
|
161,821 |
|
|
|
1,154 |
|
|
|
2.84 |
|
Beneficial interests issued by consolidated VIEs |
|
|
19,351 |
|
|
|
70 |
|
|
|
1.43 |
|
|
|
11,431 |
|
|
|
83 |
|
|
|
2.87 |
|
Long-term debt |
|
|
271,281 |
|
|
|
1,426 |
|
|
|
2.09 |
|
|
|
261,385 |
|
|
|
2,176 |
|
|
|
3.31 |
|
|
Total interest-bearing liabilities |
|
|
1,476,518 |
|
|
|
3,523 |
|
|
|
0.95 |
|
|
|
1,271,596 |
|
|
|
8,332 |
|
|
|
2.61 |
|
Noninterest-bearing deposits |
|
|
191,821 |
|
|
|
|
|
|
|
|
|
|
|
127,099 |
|
|
|
|
|
|
|
|
|
Trading liabilities derivative payables |
|
|
75,458 |
|
|
|
|
|
|
|
|
|
|
|
83,805 |
|
|
|
|
|
|
|
|
|
All other liabilities, including the allowance
for lending-related commitments |
|
|
97,759 |
|
|
|
|
|
|
|
|
|
|
|
140,119 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,841,556 |
|
|
|
|
|
|
|
|
|
|
|
1,622,619 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
8,152 |
|
|
|
|
|
|
|
|
|
|
|
7,100 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
149,468 |
|
|
|
|
|
|
|
|
|
|
|
126,640 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
157,620 |
|
|
|
|
|
|
|
|
|
|
|
133,740 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,999,176 |
|
|
|
|
|
|
|
|
|
|
$ |
1,756,359 |
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.00 |
% |
|
|
|
|
|
|
|
|
|
|
2.61 |
% |
Net interest income and net yield on
interest-earning assets |
|
|
|
|
|
$ |
12,826 |
|
|
|
3.10 |
% |
|
|
|
|
|
$ |
9,149 |
|
|
|
2.73 |
% |
|
|
|
|
(a) |
|
Includes securities sold but not yet purchased. |
|
(b) |
|
For the quarters ended September 30, 2009 and 2008, the annualized rates for
available-for-sale securities, based on amortized cost, were
3.64% and 5.04%, respectively. |
176
JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
Nine months ended September 30, 2008 |
|
|
Average |
|
|
|
|
|
Rate |
|
Average |
|
|
|
|
|
Rate |
|
|
balance |
|
Interest |
|
(annualized) |
|
balance |
|
Interest |
|
(annualized) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with banks |
|
$ |
72,849 |
|
|
$ |
819 |
|
|
|
1.50 |
% |
|
$ |
37,378 |
|
|
$ |
1,025 |
|
|
|
3.66 |
% |
Federal
funds sold and securities purchased under
resale agreements |
|
|
151,606 |
|
|
|
1,386 |
|
|
|
1.22 |
|
|
|
158,195 |
|
|
|
4,498 |
|
|
|
3.80 |
|
Securities borrowed |
|
|
124,127 |
|
|
|
(40 |
) |
|
|
(0.04 |
) |
|
|
106,258 |
|
|
|
2,013 |
|
|
|
2.53 |
|
Trading assets debt instruments |
|
|
249,223 |
|
|
|
9,294 |
|
|
|
4.99 |
|
|
|
307,899 |
|
|
|
13,369 |
|
|
|
5.80 |
|
Securities |
|
|
331,981 |
|
|
|
9,377 |
|
|
|
3.78 |
(b) |
|
|
106,392 |
|
|
|
4,190 |
|
|
|
5.26 |
(b) |
Loans |
|
|
696,526 |
|
|
|
29,799 |
|
|
|
5.72 |
|
|
|
533,829 |
|
|
|
26,311 |
|
|
|
6.58 |
|
Other assets |
|
|
29,389 |
|
|
|
372 |
|
|
|
1.69 |
|
|
|
17,694 |
|
|
|
462 |
|
|
|
3.49 |
|
|
Total interest-earning assets |
|
|
1,655,701 |
|
|
|
51,007 |
|
|
|
4.12 |
|
|
|
1,267,645 |
|
|
|
51,868 |
|
|
|
5.47 |
|
Allowance for loan losses |
|
|
(26,725 |
) |
|
|
|
|
|
|
|
|
|
|
(11,667 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
23,740 |
|
|
|
|
|
|
|
|
|
|
|
32,071 |
|
|
|
|
|
|
|
|
|
Trading assets equity instruments |
|
|
64,363 |
|
|
|
|
|
|
|
|
|
|
|
90,220 |
|
|
|
|
|
|
|
|
|
Trading assets derivative receivables |
|
|
118,560 |
|
|
|
|
|
|
|
|
|
|
|
104,816 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
48,225 |
|
|
|
|
|
|
|
|
|
|
|
45,809 |
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
|
|
12,605 |
|
|
|
|
|
|
|
|
|
|
|
10,017 |
|
|
|
|
|
|
|
|
|
Purchased credit card relationships |
|
|
1,485 |
|
|
|
|
|
|
|
|
|
|
|
2,062 |
|
|
|
|
|
|
|
|
|
All other intangibles |
|
|
3,729 |
|
|
|
|
|
|
|
|
|
|
|
3,783 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
132,957 |
|
|
|
|
|
|
|
|
|
|
|
120,529 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,034,640 |
|
|
|
|
|
|
|
|
|
|
$ |
1,665,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
$ |
689,660 |
|
|
$ |
3,937 |
|
|
|
0.76 |
% |
|
$ |
600,554 |
|
|
$ |
11,551 |
|
|
|
2.57 |
% |
Federal funds purchased and securities loaned
or sold under repurchase agreements |
|
|
273,368 |
|
|
|
519 |
|
|
|
0.25 |
|
|
|
194,446 |
|
|
|
4,184 |
|
|
|
2.87 |
|
Commercial paper |
|
|
37,964 |
|
|
|
86 |
|
|
|
0.30 |
|
|
|
47,496 |
|
|
|
904 |
|
|
|
2.54 |
|
Other borrowings and liabilities(a) |
|
|
207,504 |
|
|
|
2,303 |
|
|
|
1.48 |
|
|
|
127,076 |
|
|
|
3,544 |
|
|
|
3.73 |
|
Beneficial interests issued by consolidated VIEs |
|
|
14,569 |
|
|
|
165 |
|
|
|
1.52 |
|
|
|
14,490 |
|
|
|
315 |
|
|
|
2.90 |
|
Long-term debt |
|
|
268,158 |
|
|
|
4,951 |
|
|
|
2.47 |
|
|
|
230,472 |
|
|
|
5,942 |
|
|
|
3.44 |
|
|
Total interest-bearing liabilities |
|
|
1,491,223 |
|
|
|
11,961 |
|
|
|
1.07 |
|
|
|
1,214,534 |
|
|
|
26,440 |
|
|
|
2.91 |
|
Noninterest-bearing deposits |
|
|
196,270 |
|
|
|
|
|
|
|
|
|
|
|
122,011 |
|
|
|
|
|
|
|
|
|
Trading liabilities derivative payables |
|
|
82,781 |
|
|
|
|
|
|
|
|
|
|
|
81,568 |
|
|
|
|
|
|
|
|
|
All other liabilities, including the allowance
for lending-related commitments |
|
|
99,315 |
|
|
|
|
|
|
|
|
|
|
|
117,399 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,869,589 |
|
|
|
|
|
|
|
|
|
|
|
1,535,512 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
22,729 |
|
|
|
|
|
|
|
|
|
|
|
3,895 |
|
|
|
|
|
|
|
|
|
Common stockholders equity |
|
|
142,322 |
|
|
|
|
|
|
|
|
|
|
|
125,878 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
165,051 |
|
|
|
|
|
|
|
|
|
|
|
129,773 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,034,640 |
|
|
|
|
|
|
|
|
|
|
$ |
1,665,285 |
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
3.05 |
% |
|
|
|
|
|
|
|
|
|
|
2.56 |
% |
Net interest income and net yield on
interest-earning assets |
|
|
|
|
|
$ |
39,046 |
|
|
|
3.15 |
% |
|
|
|
|
|
$ |
25,428 |
|
|
|
2.68 |
% |
|
|
|
|
(a) |
|
Includes securities sold but not yet purchased. |
|
(b) |
|
For the nine months ended September 30, 2009 and 2008, the annualized rates for
available-for-sale securities, based on amortized cost, were 3.77% and 5.25%, respectively. |
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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.
Allowance for loan losses to total loans: Represents period-end Allowance for loan losses divided
by retained loans.
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 clients. Excludes assets managed by American Century Companies, Inc. in which the Firm has
a 42% ownership interest as of September 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. 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 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.
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Deposit margin: Represents net interest income expressed as a percentage of average deposits.
EITF: Emerging Issues Task Force.
FASB: Financial Accounting Standards Board.
FICO: Fair Isaac Corporation.
Foreign exchange contracts: Include foreign exchange forward contracts and cross-currency swaps.
Foreign exchange forward contracts exchange the currency of one country for the currency of another
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.
Headcount-related expense: Includes salary and benefits, and other noncompensation costs related to
employees.
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.
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.
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 assets or the amount or source of income.
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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.
The minimum payment on an option ARM is typically subject to adjustment on each anniversary date of
the loan, but each increase or decrease is limited to a fixed percentage of the minimum payment
amount unless and until a recasting event occurs (every 60 months or sooner, if a negative
amortization cap is reached). When a recasting event occurs, a new minimum payment is calculated
without regard to any limits that would otherwise apply under the annual payment cap. This new
minimum monthly payment is calculated to be sufficient to fully repay the principal balance of the
loan, including a deferred unpaid interest, over the remainder of the loan term using the
fully-indexed rate then in effect.
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) a high loan-to-value (LTV) ratio
of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio;
(iv) an occupancy type for the loan 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.
Net charge-off ratio: Represents net charge-offs (annualized) divided by 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 creditworthiness 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 new customers and retain and expand
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 fair value option was elected. Principal transactions revenue also includes private equity
gains and losses.
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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.
Retained Loans: Total loans excluding loans held-for-sale and loans at fair value.
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.
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.
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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.
Equity 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 new customers and retain and expand
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:
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Operating revenue comprises: |
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all gross income earned from servicing third-party mortgage loans, including stated
service fees, excess service fees, late fees and other ancillary fees; and |
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modeled servicing portfolio runoff (or time decay). |
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Risk management comprises: |
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changes in the fair value of the MSR asset due to market-based inputs, such as interest rates
and volatility, as well as updates to assumptions used in the MSR valuation model; and |
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derivative valuation adjustments and other, which represent 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. |
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 Banks, thrifts, other mortgage banks and other financial institutions that sell
closed loans to the Firm.
Correspondent negotiated transactions (CNTs) These transactions occur when mid- to large-sized
mortgage lenders, banks and bank-owned mortgage companies sell 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.
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Card Services
Description of selected business metrics within CS:
Charge volume Dollar amount of cardmember purchases, balance transfers and cash advance
activity.
Net accounts opened Includes originations, purchases and sales.
Merchant acquiring business A business that processes bank card transactions for merchants.
Bank card volume Dollar amount of transactions processed for merchants.
Total transactions Number of transactions and authorizations processed for merchants.
Commercial Banking
Commercial Banking revenue comprises the following:
Lending include 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 include 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,
lockboxes, disbursement and reconciliation services, check deposits, other check and
currencyrelated 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 onbalance 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 onbalance sheet liabilities,
such as commercial paper, federal funds purchased and securities loaned or sold under repurchase
agreements.
Asset Management
Assets under management Assets actively managed by Asset Management on behalf of Institutional,
Retail, Private Banking, Private Wealth Management and Bear Stearns Private Client Services
clients. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 42%
ownership interest as of September 30, 2009.
Assets under supervision Assets under management as well as custody, brokerage, administration
and deposit accounts.
Alternative assets 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.
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.
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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:
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local, regional and international business, economic and political conditions and
geopolitical events; |
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changes in trade, monetary and fiscal policies and laws; |
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securities and capital markets behavior, including changes in market liquidity and
volatility; |
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changes in investor sentiment or consumer spending or savings behavior; |
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the Firms ability to manage effectively its liquidity; |
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credit ratings assigned to the Firm, its subsidiaries or their securities; |
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the Firms reputation; |
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the Firms ability to deal effectively with an economic slowdown or other economic or
market difficulty; |
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technology changes instituted by the Firm, its counterparties or competitors; |
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mergers and acquisitions, including the Firms ability to integrate acquisitions; |
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the Firms ability to develop new products and services; |
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acceptance of the Firms new and existing products and services by the marketplace and the
ability of the Firm to increase market share; |
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the Firms ability to attract and retain employees; |
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the Firms ability to control expense; |
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competitive pressures; |
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changes in the credit quality of the Firm or its customers and counterparties; |
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adequacy of the Firms risk management framework; |
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changes in laws and regulatory requirements or adverse judicial proceedings; |
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changes in applicable accounting policies; |
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the Firms ability to determine accurate values of certain assets and liabilities; |
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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; |
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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 and Part II, Item 1A: Risk Factors in the Firms Form 10-Q for the quarter
ended June 30, 2009. |
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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 statements were
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 8491 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, Part II, Item 1 Legal
Proceedings in the Firms Quarterly Report on Form 10-Q for the quarterly period ending March 31,
2009 and Part II, Item 1 Legal Proceedings in the Firms Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 2009 (the Firms SEC filings).
Municipal Derivatives Investigation and Litigation. J.P. Morgan Securities Inc (JPMSI) has
settled this matter with the SEC. Under the terms of the settlement, JPMSI consented to the entry
of an administrative order finding that JPMSI violated Sections 17(a)(2) and (3) of the Securities
Act of 1933, Section 15B(c)(1) of the Securities Exchange Act of 1934, and Municipal Securities
Rulemaking Board Rule G-17 in connection with bond underwritings and related swap transactions in
2002 and 2003 by failing to disclose in confirmations and official deal documents descriptions of
payments that had been made to mostly local Alabama businesses at the direction of representatives
of the Jefferson County Commission. JPMSI entered into the settlement without admitting or denying
the SECs findings. Pursuant to the terms of the settlement, JPMSI will pay a $25 million penalty.
In addition, JPMSI has undertaken to relinquish claims against the County that arose when the
County defaulted on various swap agreements and will provide $50 million to the county for the
purpose of assisting the Countys displaced employees, residents, and sewer rate payers.
In the coordinated Multi-District Litigation (MDL) antitrust proceeding in the Southern District
of New York, the defendants, including JPMorgan Chase and Bear Stearns, have filed motions to
dismiss the second consolidated amended class action complaint. Briefing is expected to be
completed on November 18, 2009. As noted previously, certain class and individual antitrust actions
that are not part of this class action are proceeding separately in the MDL court, and plaintiffs
in those actions filed amended complaints on September 15, 2009.
Bear Stearns Hedge Fund Matters. As previously reported, a purported investor in the High Grade
Fund had withdrawn from the Joint Voluntary Liquidators action and had commenced a separate
derivative action in New York State Supreme Court against the Bear Stearns defendants and others.
This case has removed to federal court, and plaintiff filed an amended complaint that seeks damages
of no less than $1.1 billion, plus declaratory relief. The Bear Stearns defendants have not yet
responded to the amended complaint.
In the action brought by Bank of America and Bank of America Securities related to a sale of assets
from the High Grade and Enhanced Leveraged Funds to Bank of America Securities, the Court on
September 30, 2009 largely denied the Bear Stearns defendants motion to dismiss, and discovery is
ongoing.
IPO allocation litigation. On October 5, 2009, the United States District Court for the Southern
District of New York issued an opinion and order granting plaintiffs motion for an order of final
approval of the settlement, plan of allocation, and class certification. The Firms share of the
settlement is approximately $62 million. On or about October 23, 2009, three class members filed a
petition in the United States Court of Appeals for the Second Circuit seeking review of the
decision approving the settlement, contending that the District Court abused its discretion
in certifying the settlement class.
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In the Section 16(b) cases, alleging JPMSI and Bear Stearns violated Section 16(b) of the
Securities Exchange Act of 1934 by engaging in purchase and sale transactions in the same security
within six months of each other, which cases are on appeal to the United States Court of Appeals
for the Ninth Circuit, briefing will be completed in mid-November 2009.
Mortgage-Backed Securities Litigation. On September 23, 2009, the Federal Home Loan Bank of
Pittsburgh (the FHLB-Pittsburgh) brought an action in state court in Pennsylvania against a
variety of JPMorgan entities and ratings agencies, including JPMSI and Chase Home Finance, relating
to FHLB-Pittsburghs purchases of tranches of five mortgage-backed securities offerings, four of
which tranches are already the subject of the cases pending in the United States District Courts
for the Southern and Eastern Districts of New York. The Pennsylvania state case has been removed to
the United States District Court for the Western District of Pennsylvania. The defendants do not
anticipate being required to respond to the complaint until after a decision is rendered on a
motion to remand the case back to state court.
The United States District Court for the Western District of Washington has consolidated the
previously disclosed nationwide class actions, the State Filed Action and Federal Filed Action,
which were filed by investors against Washington Mutual Bank and other defendants alleging
violations of the federal securities laws in connection with the sale of mortgage-backed
securities. A consolidated amended complaint is anticipated to be filed on November 23, 2009.
On October 9, 2009, a consolidated class action complaint was filed in the United States District
Court for the Southern District of New York brought on behalf of purchasers of various mortgage
pass-through certificates and asset-backed certificates issued by various trusts sponsored by
affiliates of IndyMac Bancorp (IndyMac trusts). JPMSI, along with numerous other underwriters and
individuals, is named as a defendant, both in its own capacity and as successor to Bear Stearns, as
Bear Stearns and JPMSI underwrote in excess of $3 billion of the securities at issue in the
complaint. The underwriters plan to file a motion to dismiss.
On September 23, 2009, the FHLB-Pittsburgh brought an action in state court in Pennsylvania against
JPMorgan Chase & Co. and certain ratings agencies, relating to its purchase of a $100 million
mortgage pass-through certificate issued by an IndyMac trust, which is also the subject of another
purported class action pending in the United States District Court for the Southern District of New
York. The case has been removed to the United States District Court for the Western District of
Pennsylvania. The defendants do not anticipate being required to respond to the complaint until
after a decision is rendered on a motion to remand the case back to state court.
On September 22, 2009, MBIA Insurance Corp filed an action against JPMorgan Chase & Co., as
successor to Bear Stearns, and other underwriters, in state court in California relating to certain
certificates issued by three IndyMac trusts, as to two of which Bear Stearns was an underwriter.
MBIA claims that it has paid out over $487 million on its guarantees and is exposed to claims in
excess of an additional $566 million. The case has been removed to the United States District Court
for the Central District of California.
The Firm continues to be named as a defendant in other litigation in its capacity as an underwriter
for other issuers in additional litigation involving MBS trusts.
Auction-Rate Securities Investigations and Litigation. With respect to the regulatory
investigations, JPMorgan Chase is in the process of finalizing consent agreements with all North
American Securities Administrator Associations (NASAA) member states. Approximately 20 consent
agreements have been finalized to date. With respect to the two putative antitrust class actions
pending in the Southern District of New York, limited discovery has begun.
Washington Mutual Litigation. On September 4, 2009, in the previously disclosed action commenced by
WMI against the FDIC in the United States District Court for the District of Columbia (the
District Court Action), JPMorgan Chase answered the FDICs counterclaims, which named JPMorgan
Chase as a party, and asserted its own cross claims and counterclaims. On October 5, 2009, the
District Court granted JPMorgan Chases motion to intervene as a defendant with respect to the
original complaint filed by WMI.
On August 24, 2009, in JPMorgan Chases adversary proceeding in the United States Bankruptcy Court
for the District of Delaware (the Bankruptcy Case), seeking a determination that JPMorgan Chase
has legal title to and beneficial ownership in the Washington Mutual assets in dispute, the
Bankruptcy Court denied JPMorgan Chases motion to dismiss counterclaims brought by WMI and its
wholly-owned subsidiary, WMI Investment Corp. (together, the Debtors). On September 21, 2009,
JPMorgan Chase answered Debtors counterclaims.
As previously disclosed, in the Bankruptcy Case, Debtors moved in May 2009 for summary judgment in
the adversary proceeding against JPMorgan Chase in which the Debtors seek turnover of approximately
$4 billion in purported deposit funds. That motion has been fully briefed and argued, but no
decision has been issued by the Bankruptcy Court.
186
In both JPMorgan Chases and the Debtors adversary proceedings, JPMorgan Chase and the FDIC have
argued that the Bankruptcy Court lacks jurisdiction to adjudicate certain claims. On September 18,
2009, JPMorgan Chase and the FDIC filed papers with the United States District Court for the
District of Delaware appealing the Bankruptcy Courts rulings rejecting those jurisdictional
arguments. JPMorgan Chase is also appealing a separate Bankruptcy Court decision holding, in part,
that the Bankruptcy Court could proceed with certain matters while the first appeal is pending.
On September 10, 2009, the United States District Court for the Southern District of Texas granted
the FDICs motion to transfer the Texas Action, in which plaintiffs are seeking unspecified damages
alleging JPMorgan Chase acquired the assets of Washington Mutual Bank at too low a price, to the
United States District Court for the District of Columbia. The plaintiffs are seeking leave to
appeal that transfer and the denial of their motion to remand the case back to state court.
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 on its current
knowledge, after consultation with counsel and after taking into account its current litigation
reserves, that the outcome of the legal actions, proceedings and investigations currently pending
against it should not have a material adverse effect on the Firms consolidated financial
condition. However, in light of the uncertainties involved in such proceedings, actions and
investigations, there is no assurance that the ultimate resolution of these matters will not
significantly exceed the reserves currently accrued by the Firm; as a result, the outcome of a
particular matter may be material to JPMorgan Chases operating results for a particular period,
depending on, among other factors, the size of the loss or liability imposed and the level of
JPMorgan Chases income for that period.
Item 1A Risk Factors
For a discussion of certain risk factors affecting the Firm, see Part I, Item 1A: Risk Factors, on
pages 410 of JPMorgan Chases 2008 Annual Report on Form 10-K, Risk Factors on page 179 of
JPMorgan Chases Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, and
Forward-Looking Statements on pages 184185 of this Form 10-Q.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the third quarter of 2009, shares of common stock of JPMorgan Chase & Co. were issued in
transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2)
thereof, as follows: on July 23, 2009, 948 shares were issued to retired employees who had deferred
receipt of such common shares pursuant to the Corporate Performance Incentive Plan.
The Board
of Directors has amended the Firms repurchase program, pursuant
to which the Firm is authorized to purchase up to $10.0 billion of its
common stock, to authorize the repurchase of warrants for its common
stock if and as they become available. During the third quarter of
2009, under the repurchase program, the Firm did not effect
any repurchases. As of September 30, 2009, $6.2 billion of authorized
repurchase capacity remained under the $10.0 billion repurchase
program with respect to repurchases of common stock, and as of the
date of this Form 10-Q, all the authorized repurchase capacity
remained with respect to the warrants.
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 and warrants in
accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase
shares and warrants during periods when it would not otherwise be
repurchasing common stock and warrants, 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.
187
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 third quarter of 2009 were as follows:
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
Total shares |
|
Average price paid |
September 30, 2009 |
|
repurchased |
|
per share |
|
First quarter |
|
|
986,407 |
|
|
$ |
19.53 |
|
|
Second quarter |
|
|
659 |
|
|
|
32.43 |
|
|
July |
|
|
134 |
|
|
|
33.61 |
|
August |
|
|
52 |
|
|
|
43.25 |
|
September |
|
|
67 |
|
|
|
44.36 |
|
|
Third quarter |
|
|
253 |
|
|
|
38.44 |
|
|
Year-to-date |
|
|
987,319 |
|
|
$ |
19.54 |
|
|
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
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 September 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. |
188
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: November 9, 2009 |
|
By
|
|
/s/ Louis Rauchenberger |
|
|
|
|
|
|
Louis Rauchenberger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managing Director and Controller |
|
|
|
|
|
|
[Principal Accounting Officer] |
|
|
189
INDEX TO EXHIBITS
|
|
|
EXHIBIT NO. |
|
EXHIBITS |
|
|
|
31.1
|
|
Certification |
|
|
|
31.2
|
|
Certification |
|
|
|
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 |
|
|
|
|
|
This exhibit shall not be deemed filed for purposes of Section 18 of
the Securities Exchange Act
of 1934, or otherwise subject to the liability of that Section. Such
exhibit shall not be deemed incorporated into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934. |
|
|
|
As provided in Rule 406T of Regulation S-T, this information shall not
be deemed filed for purposes of Section 11 and 12 of the Securities
Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to liability under those sections. |
190