![]() September 14, 2010 Jamie Dimon, Chairman and Chief Executive Officer Barclays Global Financial Services Conference Exhibit 99.1 |
![]() I. Exceptional franchises II. Issues facing JPM, the industry and global economy III. Key investor topics Regulatory reform impact – Banking activity restrictions – Derivatives Retail Financial Services – Credit trends – Mortgage repurchase risk – Regulatory reform impact– Regulation E, debit interchange and BCFP Agenda Fortress balance sheet Capital generation Basel III Capital proposals Hierarchy of capital usage Basel III Liquidity proposals Interest rate positioning IV. Outlook V. Commitment to drive economic recovery VI. Summary VII. Appendix 1 |
![]() JPM’s fundamentals remain extremely strong Excellent client franchises and businesses Each standalone business has a top 1, 2 or 3 position Unparalleled client relationships in 100+ countries Culture of innovation; new products and programs launched during crisis Continued investment across LOBs driving organic growth Consistent record of operating efficiency and delivering merger saves Businesses stronger together than apart; additional revenue streams generated Further strengthened balance sheet: Tier 1 Capital of $137B or 12.1%, Tier 1 Common at $108B or 9.6% High quality capital and very high level of reserves ($36.7B), loan loss reserve of 5.34% Strong funding and liquidity profile: $888B deposits, 1.3x loan coverage Strong and stable management team Deep bench of talent; thoughtful succession planning 1 See note 3 on slide 52 2 See note 2 on slide 52 2 Excellent client franchises and businesses Significant earnings power Fortress balance sheet Strong management team Robust technology infrastructure to serve clients Benefits from diversification – funding, capital, lower volatility 2 1 |
![]() Agenda Page 3 Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 |
![]() Market leading exceptional franchises ROE of 35% is best in peer group Only bank in peer group with a loan-to- deposit ratio under 100% Strong deposit base will support NII as the rate environment improves Best of the top 5 banks 71% of Chase clients use Chase for their TS needs 87% of Chase clients say it is likely they will continue doing business with Chase 36% of Chase clients say they will increase the amount of business they award Chase going forward 1 Greenwich Research, 2009 2 Ernst & Young and Federal Reserve 3 Nilson 4 2Q10 Company reports 5 iMoney.net, June 2010 Pretax margin of 32% is second highest and ROE of 24% is highest in peer group Long-term AUM net inflows of 14% over last 12 months through June 2010, higher than all peers reporting flows by asset class Leader in alternatives with $91B in AUM #1 Institutional Money Market Fund Manager Worldwide 5 #1 Ultra-High-Net-Worth Private Bank Globally 6 Leading International Asset Manager #1 Asset Management Company in Asia; Asset Management Company of the Year 7 #1 Pan-European Fund Management Firm 8 Best overall performing foreign asset manager operating in China 9 ROE of 18% consistent with peer group Top tier player in cash management, processing a market leading average of $3.1T in U.S. dollar transfers daily #1 clearer of U.S. dollars in the world and #1 Automated Clearing House for originations #1 Visa/ MasterCard Commercial, Purchasing and Prepaid card issuer in the U.S. #2 in Assets under Custody with $14.9T serviced 4 Top provider of custody services leveraging significant scale and global footprint 6 EuroMoney, February 2010 7 The Asset Magazine, 2009 8 Thomson Reuters, June 2010 9 PWC survey 4 Commercial Banking Treasury & Securities Services Asset Management 2 3 1 |
![]() Global Corporate Bank Joint-Venture between IB and TSS to manage/better serve global corporate banking relationships with ~2,300 of the world’s largest global companies Significant TS international growth opportunity Targeting ~10% international share of wallet by 2014 Material growth opportunity for IB and TSS Opportunity Expansion plans Expand coverage/ footprint, extend more credit and increase product capabilities Extended footprint Over 20+ branches and representative offices across EMEA, APAC and LATAM Nearly 500 front office employees – Nearly 200 Corporate Bankers and analysts, over 250 TS Sales, Product Support Specialists, and Credit Officers Approximately $50B+ in incremental lending over 5 years Expansion of local treasury capabilities in 10 locations Nearly $400mm additional investment targeted for key product gaps 5 |
![]() IB – AM CB – IB/TSS/AM IB – TSS Significant competitive advantage created and benefit to franchise value from cross-sell collaboration Integrated IB/TSS/AM offering provided through CB Bankers Corporate Finance FX/Derivatives TS and Liquidity Leverage new GCB/International capabilities for Mid- Corp and Mid-Market clients Liquidity solutions Important cross-referrals between IM and WSS (e.g., insurance companies, pension funds) Global Corporate Bank: enhance international capabilities to meet global clients needs Integrated Prime Custody services for asset managers and hedge funds Joint FX offering sold through TSS and executed by IB Institutional AM: Liquidity solutions Long-term asset management Retirement Plan Services Private client access to IB product capabilities (e.g., trading desk, IPOs, research) IB is an important source of referrals for the Private Bank AM – TSS Large-Corp, Financial Institutions and Private Clients 65% of Fortune 500 companies were simultaneously clients of IB, TSS and AM in 2009 Mid-Corporate / Middle Market Clients 80%+ CB clients used at least one TSS product in 2009 ~25% CB clients used IB capabilities each year over the last 3 years 6 |
![]() ~25mm transactions done by CB clients in 2009 at branches ~40% CB customers used a branch teller in 4Q09 CB has 2.7x greater revenue in high branch density locations Asset Management Commercial Banking Card Services Retail branches are invaluable to the rest of our Franchise Treasury & Securities Services $8B of JPM investment products sold through branches in 2009 $24B of JPM investment balance AUM comes from the branch ~50% Private Wealth Management customers and ~30% PB customers used a branch teller in 4Q09 New offering for affluent RFS customers Use of core banking services (e.g., deposits and change orders) Check Cashing Agreements: cashing of employee payroll checks without a fee across Branch network Chase At Work: better payroll management, convenient banking & discounts to employees 7 ~1.5mm cards sold through branches ~40% of RFS customers have a Card relationship Significant uplift (~10%+) in Card Services direct mail production driven by local market presence Integrated experience for Card branch clients |
![]() JPM Rank Share% 2001 5 9.9 2002 7 9.2 2003 5 10.2 2004 7 8.4 2005 9 8.1 2006 8 7.6 2007 6 7.2 2008 5 8.6 2009 3 12.4 1H10 2 12.2 Market leading franchises – Investment Bank JPM Rank Share% 2001 7 5.3 2002 6 6.5 2003 3 9.2 2004 4 7.2 2005 4 7.7 2006 5 7.3 2007 2 9.5 2008 2 11.6 2009 1 11.6 1H10 1 8.1 Market leader for Global IB Fees, ranking #1 for the past two years Improved Equity Underwriting rank from #7 in 2001 to #1 in 1H10 Ranked #1 2010 All-America Fixed Income Research team by Institutional Investor magazine 55 ranked analysts – up from 31 in 2002 Record number of coverage areas honored as best-in-class Top 2 player in emerging markets over past 5 years 1 Material improvement in trading market share from 2005 to YTD 2010 Added Prime Brokerage and continue to build-out Commodities 1 Source: Coalition 2 Source: Per external disclosure. Global markets represents JPM’s share of top 10 competitors. 2006 to 1H10 represents current pro-forma competitor set; 2001 to 2005 represents competitors as reported 3 Source: Dealogic Global Equity & Equity-related Global Markets 2002 2003 2004 2005 2006 2007 2008 2009 2010 Equity US 10 8 9 7 6 3 2 2 NA Europe 9 8 9 10 10 8 8 3 2 Fixed Income US 2 3 2 2 2 3 2 2 1 Europe 4 1 1 1 2 2 2 NA NA Institutional Investor Research Analyst Rankings 8 3 2 |
![]() Rank 1989 1999 2009 1 Merrill Lynch Salomon Smith Barney JPMorgan 2 Goldman Sachs Merrill Lynch Bank of America Merrill Lynch 3 First Boston Goldman Sachs Citi 4 Salomon Morgan Stanley Barclays 5 Morgan Stanley Lehman Brothers Goldman Sachs 6 Shearson Lehman Credit Suisse Morgan Stanley 7 Drexel JPMorgan Deutsche Bank 8 Bear Stearns Bear Stearns Credit Suisse 9 Prudential Securities Donald Lufkin & Jenrette UBS 10 Kidder Peabody Chase Royal Bank of Scotland Market leading franchises – Investment Bank US Equity, Equity-related and Debt JPM has built outstanding underwriting and advisory franchises in the last 10 years Source: Thomson Reuters. Data as of 8/31/10. Ranking based on $ volume Note: Light gray font designates firms that no longer exist, red font indicates non-US based firms Competition from international firms has strengthened significantly Based on market capitalization, US firms represent 11 of top 50 financial institutions for YTD 2010 vs. 44 in 1989 US banking system is far less concentrated than other countries Banks represent only a third of the credit lent or financed in the US vs. two-thirds in Europe 9 |
![]() Added over 13,000 Personal Bankers since 2005 - annual growth rate of 26%; 14% organic Branch network of 5,159 up 2,518 branches from 2005 - annual growth rate of 16%; 5% organic Added 8,342 ATMs since 2005 - annual growth rate of 18%; 12% organic Market leading franchises – Retail Banking competitive position 2009 net income $3.9B - up 24% annually since 2005; 15% organic 10 Net income Branch / ATM distribution Strong organic growth consistently year after year and lift from WaMu acquisition |
![]() Active online customers of 16.6mm+ - annual growth rate of 42% since 2006 3.7mm+ households with active online bill pay - annual growth rate of 46%; 30% organic 385mm electronic alerts sent to customers in 2009 - ~doubling year over year Strong checking account growth - 28% annually since 2005; 12% organic Average deposits of $336B - annual growth rate of 16% since 2005; 7% organic Total households served of 22.8mm, up 13.6mm since 2007 - annual growth rate of 38%; 9% organic 11mm+ households with direct deposit - annual growth rate of 34% since 2007; 16% organic 18mm+ households with debit cards - annual growth rate of 40% since 2007; 19% organic Market leading franchises – Retail Banking competitive position (cont.’d.) 11 Serving our customers Innovation — Online & Mobile Banking Strong organic growth consistently year after year and lift from WaMu acquisition |
![]() 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 DDAs Convenience Products Savings Credit Cards Investments & Loans Sales Production (in units) per branch – hChase Sales production has increased steadily over the past six years… 2Q10 vs. 2Q05 % Change 94% (28)% 41% 17% 525% 28% Convenience products include Direct Deposit, Online Bill Pay, Business Online Banking, and Fee-Based Debit Card Sales & Upgrades. Totals exclude instore branches 12 |
![]() Retail Financial Services – factors impacting revenue and growth Revenue currently adversely impacted by portfolio run-off and repurchase expense Real Estate Portfolios expected to make a positive contribution to earnings and capital over time as credit losses are reduced and significant expense reductions are realized 2009 2010 2011 2012 2013 Balances $270 $235 $200 $175 $150 Net interest income 6.6 5.5 4.5 4.0 3.5 Capital returned — — 1.0 1.0 1.0 Ultimately all of these factors will result in higher quality revenue and better returns on capital 13 Real Estate portfolios — simulated balance run-off & NII (Average balances, $ in billions) Real Estate portfolios — simulated balance run-off & NII (Average balances, $ in billions) |
![]() Market leading franchises — Card Services Annualized spend per open account – AXP vs. Chase Affluent Sales growth YoY – DFS vs. Chase Brands Mass Affluent Chase is #1 Visa credit card issuer Over 50mm customers receive a credit card statement from Chase each month Our affluent portfolio, though far smaller, exhibits higher spend per account behavior relative to AXP US Card Targeting Mass Affluent and business card markets with Chase branded cards and suite of products Continue to invest in innovation and our branded portfolio Including Blueprint, Sapphire, Ink, Slate, and Ultimate Rewards $12,862 $13,503 $12,302 $11,320 $12,304 $11,711 $10,000 $11,000 $12,000 $13,000 $14,000 AXP US Card¹ Chase Affluent² 2Q09 1Q10 2Q10 2Q09 1Q10 2Q10 6.3% 5.7% (2.8)% (4.3)% 4.5% 5.2% (6.0)% (4.0)% (2.0)% 0.0% 2.0% 4.0% 6.0% 8.0% DFS³ Chase Mass Affluent 2Q09 1Q10 2Q10 2Q09 1Q10 2Q10 1 AXP open accounts represents ‘Basic Cards in Force’ 2 Chase Affluent portfolio includes Cobrand T&E and Branded Affluent-HNW portfolios 3 Discover’s portfolio includes mass affluent as well as affluent customers Source: Earnings release, Internal Chase data $21.5 $22.4 $22.9 $21.2 $19.8 $22.4 Sales in $B: 14 |
![]() Card Services – reduction in EOP outstandings – lower revenue, higher quality WaMu portfolio declined to $16B in 2Q10 from $20B at year-end 2009, expected to decline to $10B by end of 2011 EOP outstandings for Chase (excluding WaMu) are projected to decline by 15% or $21B year-over- year in 2010 More than half of the decline in receivables is driven by conscious pullback in balance transfer offers Expect underlying receivables growth in late 2010. Overall receivables growth in 2011, reflecting a better mix of customers Decline in receivables will free up capital and reserves Reserve levels were down $1.5B last quarter, this will probably continue Expect Chase losses of approximately 8.00%+/- in 3Q10 vs. 9.02% in 2Q10 $123 $113 $116 $21 $10 $9 $0 $30 $60 $90 $120 $150 12/31/09 Est. 12/31/10 Est. 12/31/11 Core balances Balance transfers $144 $123 $125 15 Chase (excluding WaMu) EOP outstandings ($ in billions) |
![]() Agenda Page 16 Issues facing JPM, the industry and global economy 16 Exceptional franchises 3 Key investor topics 21 Summary remarks 38 Appendix 42 |
![]() Industry is facing multiple regulatory, market and other issues Ongoing issues in the mortgage market Home prices Capital markets activity levels Unemployment / economic growth Low interest rate environment Consumer and wholesale credit Commercial real estate Revenue growth opportunities Portfolio run-off International expansion Global convergence Regulation Market Other Governance Say-on-Pay Proxy access Living will Compensation rules Pre-emption Bail-in and contingent capital Bank taxes FDIC assessment Securitization GSEs and future structure Healthcare Litigation JPM will continue to invest in its businesses and expand product capabilities, to maintain best-in-class franchises and drive organic growth These issues will have a significant impact on the industry and markets Capital, Liquidity, Basel III Trust preferred securities Dividend, stock buyback Basel III Derivatives Volcker rule Debit interchange NSF/OD Fair value accounting Enhanced regulatory oversight including Fed, FSA, BCFP, etc. 17 |
![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() ![]() Investment Advisory Mutual and money market funds; wealth management; trust services Consumer Lending Credit cards; student and auto loans Commercial Lending Commercial and industrial lending Broker-dealer Institutional and retail brokerage; securities lending; prime broker services Retail Banking Deposit products; mortgages and home equity Payment and Clearing Systems Payments processing; custody and clearing State Regulatory Authorities and AG’s Power to enforce rules promulgated by Bureau of Consumer Financial Protection Derivatives Futures, commodities and derivatives Alternative Investments Hedge funds; private equity Investment Banking Securities underwriting; M&A financial advisory services Financial Stability Oversight Council Identify risks to the financial stability of the U.S. from activities of large, interconnected financial companies. Authority to gather information from financial institutions. 1 Make recommendations to the Fed and other primary financial regulatory agencies regarding heightened prudential standards. OFAC / FinCEN CFTC Market oversight and enforcement functions. Authority over swaps, swap dealers and major swap participants. Regulates trading markets, clearing organizations and intermediaries. SEC Regulates securities exchanges; mutual funds and investment advisers. Examination authority for broker- dealers. Authority over security- based swaps, security- based swap dealers and major security-based swap participants. FDIC Focus on protecting deposits through insurance fund; safety and soundness; manage bank receiverships. Examination authority.² Orderly liquidation of systemically important financial institutions³. Office of the Comptroller of the Currency Focus on safety and soundness. Primary regulator of national banks and federal savings associations. Examination authority. Examines loan portfolio, liquidity, internal controls, risk management, audit, compliance, foreign branches. Federal Reserve Focus on safety and soundness-Supervisor for bank holding companies: monetary policy; payment systems. Supervisor for systemically important financial institutions and their subsidiaries. Establish heightened prudential standards on its own and based on Council recommendations. Examination authority. FINRA Regulates brokerage firms and registered securities representatives. Writes and enforces rules. Examination authority over securities firms. Office of Financial Research Office within Treasury, which may collect data from financial institutions on behalf of Council. No examination authority. Strengthened but not simplified Green indicates new agency or new powers and authority Gold indicates old agency. Dotted line indicates authority to request information, but no examination authority. Bureau of Consumer Financial Protection Focus on protecting consumers in the financial products and services markets. Authority to write rules, examine institutions and enforcement. No prudential mandate. 18 This chart assumes these activities are conducted in a systemically important bank holding company (BHC) 1 The Council, through Office of Financial Research, may request reports from systemically important BHCs 2 FDIC may conduct exams of systemically important BHCs for purposes of implementing its authority for orderly liquidations, but may not examine those in generally sound condition 3 The Dodd-Frank Act expanded the FDIC’s authority when liquidating a financial institution to include the bank holding company, not just entities that house FDIC-insured deposits Note: Green lines from SEC and CFTC represent enhanced authority over existing relationships |
![]() Multiple regulatory and market issues (and not just in U.S.) Topic & Section Rulemaking One-time Reports / Studies Periodic Reports TOTAL Financial Stability (Title I) 35 8 5 48 Orderly Liquidation (Title II) 14 12 2 28 Private Fund Investment Advisers (Title IV) 14 5 2 21 Insurance (Title V) 8 2 3 13 Regulation of Bank Holding Companies, Savings & Loan Holding Companies and Depository Institutions (excluding Volcker Rule) (Title VI) 9 3 0 12 Volcker Rule (Title VI – Section 619) 3 1 0 4 Derivatives (Title VII) 56 7 3 66 Payment, Clearing and Settlement Supervision (Title VIII) 6 1 0 7 Investor Protection and Regulatory Enforcement (Title IX – Subtitle A) 7 6 2 15 Credit Rating Agencies (Title IX – Subtitle C) 14 6 0 20 Asset-Backed Securitization (Title IX – Subtitle D) 7 2 0 9 Executive Compensation and Corporate Governance (Title IX – Subtitles E and G) 11 1 0 12 Municipal Securities (Title IX – Subtitle H) 6 4 0 10 Bureau of Consumer Financial Protection (Title X) 29 6 1 36 Mortgage Reform and Anti-Predatory Lending (Title XIV) 37 9 4 50 Miscellaneous – Titles III, XI, XII, XIII, XV and parts of Title IX 29 19 22 70 TOTAL 285 92 44 421 Source: Sullivan & Cromwell LLP 19 Dodd-Frank legislation rulemaking summary |
![]() Although regulatory reform will potentially have a significant impact on our businesses and clients, we are convinced we can manage through the change and thrive JPM remains supportive of safe and sound regulatory reform Much regulatory reform was needed – financial industry and global economy are better for it. However, some was ill-conceived and there are unknown, unintended consequences Industry capital and liquidity were too low – we need to get it right – need level global playing field JPM has substantial franchise strength Always continue to invest in our businesses Extremely strong balance sheet Continue to build our excellent client franchises Always strive to maintain strong relationships with regulators Committed to ensuring that the implementation of regulatory reform is done in a way that is good for our clients and our company Adding people to 75+ existing work streams – dedicated to implementing regulatory reform 20 |
![]() Agenda Page 21 Key investor topics 21 Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Summary remarks 38 Appendix 42 |
![]() Regulatory reform impact – Banking activity restrictions (Volcker) Law does not limit the growth of our client businesses, market-making activities or ability to serve our clients Can continue to sponsor client-only hedge funds (i.e., Highbridge) 3% limitation for seed capital — consistent with current practice Can continue to make permissible merchant banking investments (through OEP) We will keep OEP and wind down third-party investments within regulatory period Remaining few proprietary trading areas will be transitioned to Asset Management — de minimus impact 22 |
![]() Regulatory reform impact – Derivatives Always supported moving standardized and liquid swaps to clearinghouses Revenue impact of $1B+/-, potentially positive offsets May create significant liquidity and margin requirements for clients Overall capital impact on dealers is unclear, but likely positive Do not expect spread to change materially on liquid products Critical that central clearinghouses are properly managed Clearing and Swap Execution Facility (SEF) Major concern is that we can properly serve clients across legal entities Creates significant operational work which will be done Complicated regulation Majority of derivatives – except commodities (other than metals), equity, and high yield and certain investment grade CDS – are not required to be moved Possible capital requirements of $6B+/-, not incremental to the Firm Final operational and legal structure has yet to be decided Conduct certain activities in a non-bank subsidiary 23 |
![]() Home lending credit trends – Net credit losses and loan loss reserve levels Current loss guidance – at the current rate of delinquency and loss severity, quarterly losses could be: Home equity $1B Prime mortgage $400mm Subprime mortgage $400mm Rate of improvement slowed and delinquencies flattened in 2Q10 – July and August remained flat to June Home Lending reserves for the nonpurchased credit impaired portfolio at 2Q10 of $11.3B Current loss guidance annualized of $7B +/- Reserve level reflects significant uncertainty, allow for further stress If delinquencies return to 2H09 levels with 10-15% incremental HPI decline from here, losses could run to $8B +/- in 2011/2012 When roll rates and severities improve and uncertainty in the environment is reduced, we will release reserves In the purchased credit impaired portfolio lifetime losses plus additional impairment through reserves are $33.4B If delinquencies and severities remain flat - additional impairment over the next two years could be $3B+/- If delinquencies return to 2H09 levels with 10-15% incremental HPI decline from here - additional impairment over the next two years could be $7B+/- 24 |
![]() Home lending credit trends – Net credit losses and loan loss reserve levels (cont.’d.) Performance of loans modified after trial periods is still not certain as a large number of these modifications were completed in the last six months Early indications are that performance is better than that experienced on prior modifications Foreclosure inventory will remain at current elevated levels +/- through beginning of 2011 as improvement in delinquencies is offset by new referrals, and then trend down gradually through 2013; in turn REO inventory will increase through 2013 25 |
![]() Repurchase demands elevated at $1B+ per quarter; demands driven by 2006-2008 vintages (~90%) and third-party originated (~40%) Demands lag loans reaching 90 DPD by 12-20 months - delinquency improvements have not yet flowed through to demand activity; demands expected to remain elevated well into 2011 Reserves of $2.0B ($2.3B firmwide) at June 30, 2010 for demands presented and expected future demands Key reserve assumptions include demand frequency, cure rate, loss severity and third party recoveries; assumptions are reviewed and adjusted quarterly based upon actual experience A 10% adverse change in all key assumptions would increase repurchase liability by $1B +; a more severe stress of 20% by $2-2.5B When demands and losses trend downwards, we will release reserves Losses could approach $1.2B+/- in 2010 and $1.0B+/- in 2011 Repurchase risk 1 Heritage Chase only 26 Repurchase settlement experience and reserves ($ in millions) 2009 1 1Q10 2Q10 Repurchase settlements $580 $238 $312 Reserve build 1,032 194 355 Total repurchase expense 1,612 432 667 EOP reserves $1.4B $2.0B |
![]() Regulatory reform impact – Reg E, debit interchange and BCFP All industries decide what to charge for services and what to provide for free Pricing should be relative to the value provided, not just the costs incurred Pricing of specific products and services need to cover broader fixed costs related to servicing accounts and the relationship Many services are free. Checking account customers receive the following free services: debit cards, ATM access at Chase’s 15,500 ATMs, on-line banking and on-line bill pay, access to Chase’s 5,100 branches, and 100% fraud protection on debit transactions We agree that merchants should have the option to accept/decline a form of payment or to discount as they choose However, the government should not be able to set pricing Cash and checks are cheaper than debit and credit alternatives, but they are not without cost Industry will inevitably reprice as result of regulatory change: Many products and services will no longer be free Banks will exit certain customer relationships The industry may reduce investment in distribution and innovation We will work with the BCFP to ensure consumer financial products are transparent and fair. However, consumers may be adversely affected by potential unintended consequences, which could include reduced credit availability and increased costs 27 |
![]() Fortress balance sheet as of 2Q10 Strong capital base – Tier 1 Common of $108B or 9.6% High quality capital and very high level of reserves ($36.7B), loan loss coverage of 5.34% Large deposit base – ~$900B. Stable source of funding – retail and wholesale – geographic Low reliance on short term unsecured capital markets – plenty of capacity in these short-term markets as well as long-term unsecured funding markets Significant unused liquidity in the form of cash and high quality liquid unencumbered collateral Loss of trust preferred securities (~$21B) regulatory capital credit – minimum impact on JPM – unfair to many US banks – we will determine what to do when we see final rules Wholesale (Investment Bank and Commercial Banking) credit trends have improved from 2009 peak levels but remain above historical averages Strong loan loss reserves - allowance for loan losses of $4.8B Net charge-off rate of 0.55% Total net fair value assets of $777B Level 1 and 2 assets are 85% of total assets at fair value – actively traded in liquid markets Level 3 assets represent 15% of total assets at fair value Strong capital position today will be further strengthened by significant earnings and need for lower reserve levels over time 28 |
![]() Analyst Projections "Stressed" Analyst Projections 2010 2011 2012 2013 2010 2011 2012 2013 Tier 1 Common (%) 10% 12% 13% 14% 10% 11% 11% 12% Tier 1 Common ($) $120 $130 $150 $170 $110 $120 $130 $140 Excess Tier 1 Common Over 8% $25 $40 $60 $75 $20 $30 $40 $45 ROE 9% 11% 11% 12% 6% 7% 7% 8% Allowance for Loan Loss $35 $30 $20 $25 $35 $35 $35 $35 Dividend $0.29 $0.74 $1.12 $1.33 $0.29 $0.74 $1.12 $1.33 We have significant capital generation Illustrative “stress” case based on analyst projections $15.5 $19.0 $22.5 $24.5 ~$15 ~$14 ~$12 ~$10 2010 2011 2012 2013 Analyst Projections "Stressed" Analyst Projections ¹ Analyst average includes 8 analysts through 2012; 2013 is composed of 3 analysts plus I/B/E/S LTG projections for other 5 in 2013; Regulatory changes are assumed to be incorporated in the analyst projections. One analyst is excluded from 2013 Tier 1 Common average due to assumption that JPM repurchases a significant amount of shares during the year; ratios reflect Basel I through ‘12 & Basel III in ‘13 (~50bp impact); other capital deployment represents analyst average less 1 firm in ‘13 due to significant share repurchase. JPM does not endorse these projections ² “Stressed” Analyst Projections incorporate JPM stressed scenario assumptions ³ Analyst projection of capital deployment through common dividends of $11.8B: analyst average dividend of $0.29, $0.74, $1.12, $1.33 in ‘10, ‘11, ‘12 & ‘13, respectively (assumes 2013 payout constant to 2012) Note: Basel I through 2012 and Basel III in 2013; Numbers rounded for presentation purposes. Ratios and other calculations may not round perfectly Net Income Capital Multiple stress scenarios are run on a regular basis. Highly stressed scenario has Tier 1 Common of ~12% despite: Peak unemployment of 12% in 4Q13 HPI peak-to-trough of 45% in 1Q12 Excess capital reduces ROEs Equity markets bottom at 850 during 1H11 & remain stagnant through 4Q13 Fed funds stay at 20bps through 4Q13 29 Analyst and “stressed” analyst projections ($ in billions) ¹,²,³ |
![]() Basel III capital summary as of 2Q10 Tougher capital standards (which we always believed in) More restrictive capital definitions (e.g., deductions) Higher risk-weighted assets (e.g., CVA, Market Risk) Higher required capital Basel I: 4% Tier 1 Common standard (SCAP) Basel III: 7% Tier 1 Common standard 1 9.6% JPM’s 2Q10 Tier 1 Common ratio under Basel I Results in estimated 9% 2 Basel III Tier 1 Common ratio in 4Q11 after taking known actions JPM will mostly manage to the new capital rules effective immediately JPM does not need to or intend to issue common stock JPM will probably not operate with an additional self-imposed buffer, as we have in the past, because we believe the new capital requirements are sufficient 1 Preliminary view (as of 9/12/10) of Basel III based on interpretation of current rules/initial estimates. Subject to change as interpretation of Basel III rules is ongoing and dependant on guidance from Basel/International regulators ² Based on JPM and analyst projections (see page 29) 30 Tougher standard and higher calibration Estimated impact on JPM Current JPM expectations |
![]() Basel I 2Q10 Basel III 4Q10 Basel III 4Q11 JPM estimated capital levels under Basel III are well in excess of Basel I standards Estimated projections as of 2Q10 $1.1 $1.5 Adjustments to RWA from 2Q10 Basel I to 4Q11 Basel III (+$400B): Market risk impact (+$180B) Risk weight 50/50 deductions at 1250% (+$140B) CVA (+$60B) Other (+$30B) Known actions by 4Q11 to reduce Basel III RWA (-$180B): Market risk – reduce IB & CIO positions (-$50B) CVA – reduction/ hedging of derivative positions (-$20B) RWA on 50/50 deductions; reduce IB/CIO securitization (-$70B) exposure Retail loan run-off (-$40B) Other (-$5B) Basel I 2Q10 Basel III 4Q10 Basel III 4Q11 Adjustments to Capital from 2Q10 Basel I to 4Q11 Basel III with known actions (-$0.5B): Deduct net pension asset (-$2B) Deduct PCCR (-$1B) Deduct DTA from NOL carryforward-(-$0.5B) Net Impact of adding back 50/50 deductions (+$1B) Add back of OCI balance (+$2B) Includes estimated capital generation of $15B based on average analyst projections¹ $108 $109 $1.4 $123 Includes known actions Includes known actions ¹ Based on analyst projections of capital generation; see page 29 Note: Numbers rounded for presentation purposes. Ratios and other calculations may not round perfectly 10% 7% 9% Tier 1 Common Ratio 31 Capital ($ in billions) RWA ($ in trillions) |
![]() Hierarchy of capital usage We intend to restore the dividend Ultimately return to dividend payout ratio of 30-40% of normalized earnings (pending tax rule changes) Initial increase is not likely to hit payout ratio, but would be material Subject to final analysis of Basel III in November and regulatory capital adequacy Hopefully early 2011 Hierarchy of capital after restoration of dividend Investing in organic growth Stock buyback – Will be higher when stock price is lower – Will be lower when stock price is higher – Will be adjusted for other future opportunities Acquisitions 32 We clearly have excess capital generation, which will be used to benefit shareholders |
![]() Implications of Basel III liquidity proposal – Liquidity Coverage Ratio 53% Liquid Asset Buffer Net Funding Outflow < 30 days Items included in LCR Comments $72B: Cash & Central Bank reserves 100% factor $83B: US Treasuries / Sovereigns 100% factor $22B: Agency / Agency MBS 85% factor $7B: Public fund deposits collateral 25% factor $2B: Eligible Corp. Securities ( AA- ) 85% factor $225B: Deposits (25% average factor) $124B: Non-Operational Deposits 75-100% factor $101B: Wholesale Operational & Retail/SME Deposits – 5-25% factor $100B: Unfunded commitments 48% average factor $89B: Liquidity Commitments & FI Credit Commitments – 100% factor $11B: Wholesale Credit (ex FI) & Retail Commitment outflow – 5-10% factor $31B: Secured funding outflow (Repo) 10% factor ($7B): Other funding Inflows/Outflows² 0-100% factor Example of items not included in LCR Munis Corp. securities below AA- Sovereign guaranteed loans (i.e., EXIM) Fed Discount Window Eligible loans (~$80B) JPM experienced net deposit inflows Historic experience during the financial crisis¹ JPM experienced 6-8% drawdown on unfunded balances We understand banks under stress would have outflows / draw-downs; it is prudent to be prepared 33 186 349 Preliminary view of JPM Liquidity Coverage Ratio (LCR) - Estimate based on 2Q10 balances for illustrative purposes ($B) ¹ Financial crisis occurred between late 2007 and mid 2009 ²Includes impact of account payable/receivable, trading assets derivatives payable/receivable, and other contractual payments <30 days Note: Preliminary view (as of 9/7/10) of JPM LCR ratio based on interpretation of current rules/ initial estimates of 2Q10 asset buffer and net funding outflow. Subject to change as interpretation of Basel III liquidity rules is ongoing and dependant on guidance from Basel/International regulators Numbers rounded for presentation purposes. Ratios and other calculations may not round perfectly |
![]() Business evolution Potential levers to meet proposed Basel III LCR requirements Known actions: Reduction in size of IB (~$8B) & CIO portfolios (~$2B) – estimated notional impact by end of 2011 RFS loan run-off (~$80B) & reduction in size of PE (~$2B) – estimated notional impact by end of 2013 Raise Unsecured Term Debt (e.g., term CP, CDs, and 1+ year notes) Term-out existing Short-Term debt Raise Secured Term Debt (e.g., FHLB, Auto and Card ABS) Reduce “illiquid” assets so that proceeds can count towards the buffer Consider profitability impact Raise additional Retail deposits Consider profitability impact Reduce Committed Credit and Liquidity Facilities - probably done through pricing Consider client impact Reduce wholesale deposits - probably done through pricing Convert Financial Institution deposits to Term Outflows 34 Buffer Outflows |
![]() ![]() ![]() Potential market pricing changes due to Basel III liquidity constraints Due to modest ROEs on current credit pricing and higher funding costs, client pricing expected to increase Does not take into account potentially higher capital charges under Basel III or funding costs if short- term funding supply constraints develop in market Impact will be dramatically different by client and type of product Annual pricing impact on client¹ - Illustrative example ($ in 000’s) 1 Example is meant to be illustrative and based on hypothetical client experience, which include assumptions on probability of draw and current/future upfront and arranger fees. Pricing increase over current expected price to client, including arranger/other upfront fees is amortized over the life of the facility (where applicable) ² Assumes JPM ROE and capital stay constant; Does not reflect leverage ratio constraintthat would likely lead to more severe price impact Client Characteristics of Facility Actual Cost to Client Incremental Funding Cost to JPM to be LCR neutral ² Large Corporate A / A2 3 Year Revolver (CP Backstop) $100mm JPM Exposure $275 $800 35 |
![]() Overall okay; but will cause some capital shortfall for banks RWA needs to be done fairly across global banks Basel III industry implications Appropriate to do right; likely some changes to come Either way JPM will be fine Could create additional funding costs and pricing issues for clients Role of banks likely reduced Policy mismatch between LCR and money market industry, LCR and Interbank lending Basel III Capital Basel III Liquidity 36 |
![]() Firm interest rate positioning — NIM by line of business Increase from higher long-term rates due to increased value of deposits Negatively impacted by higher short-term rate (flatter and stagflation) scenarios Retail Financial Services Card Services Commercial Banking, TSS, AM Corporate Firm benefits from immediate +100 bps parallel rate shock by +$947mm over the next 12 months Firm benefits from higher long term rates (steeper yield curve) and slightly negative to rising short-term rates (flatter yield curve) If rates remain where they are, NIM could be compressed Benefit from higher long-term rates, adversely impacted by higher short-term rates Immediate ability to reposition, refinance, change size of investment portfolio Modest benefit from rising short-term rates Fairly neutral to higher long-term rates If rates remain where they are, NIM could be modestly compressed Generally benefits from rising short and/or low long-term rates 37 |
![]() Agenda Page 38 Summary remarks 38 Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Appendix 42 |
![]() Chase and WaMu credit losses expected to continue to improve Chase losses of approximately 8.00%+/- in 3Q10 vs. 9.02% in 2Q10 Total net income impact from the CARD Act, including recent legislative reasonable and proportional fee changes is $750mm+/- 65% of run-rate expected to be included in 3Q10 results vs. 25% in 2Q10 Outlook Corporate quarterly net income expected to decline to $300mm+/-, subject to the size and duration of the investment securities portfolio Investment Bank Trading environment has been stable Card Services Corporate 39 |
![]() Commitment to drive economic recovery Providing capital, financing and liquidity: annualized 1H10 of $1.4T, up 3% and up 6% vs. 2009 and 2008, respectively 1H10 small business lending of $4.7B up 35% vs. 1H09 Remain committed to 2010 originations target of $10B for small business lending On track to hire 10K people in the US in 2010 40 |
![]() Significant earnings power JPM’s fundamentals remain extremely strong Excellent client franchises and businesses Each standalone business has a top 1, 2 or 3 position Unparalleled client relationships in 100+ countries Culture of innovation; new products and programs launched during crisis Robust technology infrastructure to serve clients Excellent client franchises and businesses Fortress balance sheet Continued investment across LOBs driving organic growth Consistent record of operating efficiency and delivering merger saves Businesses stronger together than apart; additional revenue streams generated Further strengthened balance sheet: Tier 1 Capital of $137B or 12.1%, Tier 1 Common 1 at $108B or 9.6% High quality capital and very high level of reserves ($36.7B), loan loss reserve of 5.34% 2 Strong funding and liquidity profile: $888B deposits, 1.3x loan coverage Benefits from diversification – funding, capital, lower volatility Strong management team Strong and stable management team Deep bench of talent; thoughtful succession planning 1 See note 3 on slide 52 2 See note 2 on slide 52 41 |
![]() Agenda Page 42 Appendix 42 Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 |
![]() Financial results $O/(U) 1H10 1H09 1H09 Investment Bank $3,852 $3,077 $775 Retail Financial Services 911 489 422 Card Services 40 (1,219) 1,259 Commercial Banking 1,083 706 377 Treasury & Securities Services 571 687 (116) Asset Management 783 576 207 Corporate/Private Equity 881 546 335 Total Firm Net Income $8,121 $4,862 $3,259 Firmwide results ( $ in millions) Net income by line of business ($ in millions) 1 Revenue is on a fully taxable-equivalent (FTE) basis. See note 1 on slide 52 2 Net income used to calculate the ratios for 1H09 excludes the one-time, non-cash negative adjustment of $1.1B resulting from the repayment of TARP preferred capital 3 See note 4 on slide 52 43 $O/(U) 1H10 1H09 1H09 Revenue (FTE) 1 $53,785 $54,631 ($846) Credit Costs 1 10,373 19,755 (9,381) Expense 30,755 26,893 3,863 Reported Net Income $8,121 $4,862 $3,259 Reported EPS $1.83 $0.68 $1.15 ROE 2 10% 6% ROTCE 2,3 15% 9% |
![]() Market leading franchises – Retail Banking growth drivers Checking accounts (# in 000s) 25,712 10,839 9,995 24,499 8,793 26,351 2005 2006 2007 2008 2009 2Q10 CAGR 28% (hChase 12%) Branches 5,159 2,641 5,474 3,079 3,152 5,154 2005 2006 2007 2008 2009 2Q10 Average deposits ($ in billions) 338 175 245 190 207 341 2005 2006 2007 2008 2009 2Q10 CAGR 16% (hChase 7%) CAGR 16% WaMu WaMu ATMs 15,654 7,312 15,424 8,506 9,186 15,406 2005 2006 2007 2008 2009 2Q10 CAGR 18% hChase hChase 44 Strong growth through organic expansion and WaMu acquisition |
![]() 5,760 17,391 7,414 8,409 18,357 Jan-07 Jan-08 Jan-09 Dec-09 Jun-10 Market leading franchises – Retail Banking growth drivers Households with direct deposit (# in 000’s) 4,240 10,860 4,926 5,852 11,364 Jan-07 Jan-08 Jan-09 Dec-09 Jun-10 Households with debit cards (# in 000’s) CAGR 34% (hChase 16%) CAGR 40% (hChase 19%) WaMu (data not available until 2009) WaMu (data not available until 2009) Total households (# in 000s) 10,285 22,838 11,125 22,541 Jan-08 Jan-09 Dec-09 Jun-10 CAGR 38% (hChase 9%) WaMu (data not available until 2009) Active online customers (# in 000s) 4,909 15,424 5,918 11,710 16,584 2006 2007 2008 2009 2Q10 CAGR 42% hChase hChase hChase 45 Strong growth through organic expansion and WaMu acquisition |
![]() 1.7 3.0 1.9 2.2 3.9 2005 2006 2007 2008 2009 Market leading franchises – Retail Banking growth drivers Strong growth through organic expansion and WaMu acquisition 20,170 7,067 15,825 7,573 9,650 17,991 2005 2006 2007 2008 2009 2Q10 CAGR 26% Alerts (# in millions) 135.2 103.1 83.9 124.5 73.6 155.3 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 CAGR 82% Households with active online bill pay (# in 000’s) 1,022 3,266 1,279 1,685 3,752 Jan-07 Jan-08 Jan-09 Dec-09 Jun-10 CAGR 46% (hChase 30%) WaMu (data not available until 2009) CAGR 24% (hChase 15%) WaMu Personal bankers Net income ($ in billions) hChase hChase 46 |
![]() Consumer credit — delinquency trends (Excl. purchased credit-impaired loans) Note: Delinquencies prior to September 2008 are heritage Chase Prime Mortgage excludes held-for-sale, Asset Management and Government Insured loans 1 See note 1 on slide 52 2 “Payment holiday” in 2Q09 impacted 30+ day and 30-89 day delinquency trends in 3Q09 $2,000 $3,300 $4,600 $5,900 $7,200 $8,500 Mar-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 30+ day delinquencies 30-89 day delinquencies Card Services delinquency trend 1,2 — Excl. WaMu ($ in millions) Prime Mortgage delinquency trend ($ in millions) Subprime Mortgage delinquency trend ($ in millions) Home Equity delinquency trend ($ in millions) $0 $1,000 $2,000 $3,000 $4,000 Mar-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 $0 $1,300 $2,600 $3,900 $5,200 $6,500 Mar-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 $0 $1,000 $2,000 $3,000 $4,000 $5,000 Mar-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies March 2008 – August 2010 47 |
![]() Consumer credit — Home lending delinquency trends (Excl. purchased credit-impaired loans) Prime Mortgage excludes held-for-sale, Asset Management and Government Insured loans Prime Mortgage delinquency trend ($ in millions) Subprime Mortgage delinquency trend ($ in millions) Home Equity delinquency trend ($ in millions) $1,000 $1,500 $2,000 $2,500 $3,000 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 $1,000 $1,500 $2,000 $2,500 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 $1,000 $1,250 $1,500 $1,750 $2,000 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 30 – 150 day delinquencies 30 – 150 day delinquencies 30 – 150 day delinquencies December 2009 – August 2010 48 |
![]() $0 $3,000 $6,000 $9,000 $12,000 $15,000 Sep-08 Jan-09 Jun-09 Oct-09 Mar-10 Aug-10 Consumer credit — Home lending delinquency trends (Purchased credit-impaired loans) Note: Credit Impaired delinquency is gross UPB. Prime Mortgage excludes Government Insured loans Subprime Mortgage delinquency trend ($ in millions) Home Equity delinquency trend ($ in millions) $0 $1,000 $2,000 $3,000 $4,000 $5,000 Sep-08 Jan-09 Jun-09 Oct-09 Mar-10 Aug-10 $0 $1,500 $3,000 $4,500 $6,000 $7,500 Sep-08 Jan-09 Jun-09 Oct-09 Mar-10 Aug-10 $0 $1,000 $2,000 $3,000 $4,000 $5,000 Sep-08 Jan-09 Jun-09 Oct-09 Mar-10 Aug-10 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies Option ARM delinquency trend ($ in millions) 30 – 150 day delinquencies 30+ day delinquencies 150+ day delinquencies September 2008 – August 2010 Prime Mortgage delinquency trend ($ in millions) 49 |
![]() Note: Credit Impaired Delinquency is gross UPB. Prime Mortgage excludes Government Insured loans Prime Mortgage delinquency trend ($ in millions) Subprime Mortgage delinquency trend ($ in millions) Home Equity delinquency trend ($ in millions) $1,000 $1,500 $2,000 $2,500 $3,000 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 $1,000 $1,500 $2,000 $2,500 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 $750 $1,000 $1,250 $1,500 $1,750 $2,000 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 Option ARM delinquency trend ($ in millions) $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Dec-09 Jan-10 Apr-10 Jun-10 Aug-10 30 – 150 day delinquencies 30 – 150 day delinquencies 30 – 150 day delinquencies 30 – 150 day delinquencies Consumer credit — Home lending delinquency trends (Purchased credit-impaired loans) December 2009 – August 2010 50 |
![]() 6,933 8,953 11,401 14,785 17,767 17,564 17,050 16,179 13,246 19,052 23,164 27,381 5,273 30,633 35,836 38,186 31,602 29,072 Coverage ratio remains strong Loan Loss Reserve Nonperforming Loans Loan Loss Reserve/Total Loans Loan Loss Reserve/NPLs Peer comparison 1 See note 2 on slide 52 2 Peer average reflects equivalent metrics for key competitors. Peers are defined as C, BAC and WFC. Consumer and wholesale peer average percentages reflected in table differ from actual average percents due to peer loan disclosure 3 See note 1 on slide 52 ($ in millions) $35.8B of loan loss reserves in 2Q10, up ~$22.6B from $13.2B two years ago; loan loss coverage ratio of 5.34% 1 $7.5B (pretax) addition in allowance for loan losses predominantly related to the consolidation of credit card receivables in 1Q10 3 Strong coverage ratios compared to peers 51 2Q10 JPM 1 Peer Avg.² Consumer LLR/Total Loans 6.88 % 5.75 % LLR/NPLs 265 % 181 % Wholesale LLR/Total Loans 2.42 % 2.95 % LLR/NPLs 97 % 63 % Firmwide LLR/Total Loans 5.34 % 4.87 % LLR/NPLs 209 % 131 % 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 0% 100% 200% 300% 400% 500% 1 1 |
![]() Notes on non-GAAP financial measures 52 1. In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) 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. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business. Prior to January 1, 2010, the Firm’s managed-basis presentation also included certain reclassification adjustments that assumed credit card loans securitized by CS remained on the balance sheet. Effective January 1, 2010, the Firm adopted new accounting guidance that amended the accounting for the transfer of financial assets and the consolidation of VIEs. Additionally, the new guidance required the Firm to consolidate its Firm-sponsored credit card securitizations trusts. The income, expense and credit costs associated with these securitization activities are now recorded in the 2010 Consolidated Statements of Income in the same classifications that were previously used to report such items on a managed basis. As a result of the consolidation of the credit card securitization trusts, reported and managed basis relating to credit card securitizations are comparable for periods beginning after January 1, 2010. The presentation in 2009 of CS results on a managed basis assumed that credit card loans that had been securitized and sold in accordance with U.S. GAAP remained on the Consolidated Balance Sheets, and that the earnings on the securitized loans were classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase used the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations were funded and decisions were 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 customer’s credit performance affects both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase believed that this managed-basis information was useful to investors, as it enabled them to understand both the credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firm’s retained interests in securitized loans 2. The ratio for the allowance for loan losses to end-of-period loans excludes the following: loans accounted for at fair value and loans held-for-sale; purchased credit- impaired loans; the allowance for loan losses related to purchased credit-impaired loans; and, loans from the Washington Mutual Master Trust, which were consolidated on the firm's balance sheet at fair value during the second quarter of 2009. Additionally, Real Estate Portfolios net charge-off rates exclude the impact of purchased credit- impaired loans. The allowance for loan losses related to the purchased credit-impaired portfolio was $2.8 billion, $2.8 billion, $1.6 billion and $1.1 billion at June 30, 2010, March 31, 2010, December 31, 2009 and September 30, 2009, respectively. No allowance for loan losses was recorded at or for any period prior to, June 30, 2009 related to these loans. 3. Tier 1 Common Capital ("Tier 1 Common") 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, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and compare the quality and composition of the Firm’s capital with the capital of other financial services companies. The Firm uses Tier 1 Common along with the other capital measures to assess and monitor its capital position. 4. Tangible Common Equity ("TCE") is calculated, for all purposes, as 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. Return on tangible common equity, a non-GAAP financial ratio, measures the Firm’s earnings as a percentage of TCE, and is in management’s view a meaningful measure to assess the Firm’s use of equity. The TCE measures used in this presentation are not necessarily comparable to similarly titled measures provided by other firms due to differences in calculation methodologies. 5. Headcount-related expense includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees. |
![]() Forward-looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan Chase’s actual results to differ materially from those described in the forward-looking statements can be found in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Reports on Form 10-Q for the quarters ended June 30, 2010 and March 31, 2010, each of which has been filed with the Securities and Exchange Commission and is available on JPMorgan Chase’s website (www.jpmorganchase.com) and on the Securities and Exchange Commission’s website (www.sec.gov). JPMorgan Chase does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. 53 |