JP Morgan Chase 2008 Annual Report Download - page 172

Notes to consolidated financial statements
170 JPMorgan Chase & Co./ 2008 Annual Report
Note 11 – Noninterest expense
Merger costs
Costs associated with the Bear Stearns merger and the Washington Mutual transaction in 2008, the 2004 merger with Bank One Corporation,
and The Bank of New York, Inc. (“The Bank of New York”) transaction in 2006 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
135–140 of this Annual Report. A summary of merger-related costs is shown in the following table.
2008
Year ended December 31, (in millions) Bear Stearns Washington Mutual Total 2007(b) 2006(b)
Expense category
Compensation $ 181 $ 113 $ 294 $ (19) $ 26
Occupancy 42 — 42 17 25
Technology and communications and other 85 11 96 188 239
The Bank of New York transaction ———23 15
Total(a) $ 308 $ 124 $ 432 $ 209 $ 305
(a) With the exception of occupancy and technology-related write-offs, all of the costs in the table required the expenditure of cash.
(b) The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation and the Bank of New York transaction.
The table below shows the change in the merger reserve balance related to the costs associated with the transactions.
2008
Year ended December 31, (in millions) Bear Stearns Washington Mutual Total 2007(a) 2006(a)
Merger reserve balance, beginning of period $— $ — $— $ 155 $ 311
Recorded as merger costs 308 124 432 186 290
Included in net assets acquired 1,112 435 1,547 (60) —
Utilization of merger reserve (1,093) (118) (1,211) (281) (446)
Merger reserve balance, end of period $ 327 $ 441 $ 768 $—
(b) $ 155(b)
(a) The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation.
(b) Excludes $10 million and $21 million at December 31, 2007 and 2006, respectively, related to the Bank of New York transaction.
Note 12 – Securities
Securities are classified as AFS, held-to-maturity (“HTM”) or trading.
Trading securities are discussed in Note 6 on pages 158–160 of this
Annual Report. Securities are classified primarily as AFS when used
to manage the Firm’s exposure to interest rate movements, as well
as to make strategic longer-term investments. AFS securities are car-
ried at fair value on the Consolidated Balance Sheets. Unrealized
gains and losses, after any applicable SFAS 133 hedge accounting
adjustments, are reported as net increases or decreases to accumu-
lated other comprehensive income (loss). The specific identification
method is used to determine realized gains and losses on AFS secu-
rities, which are included in securities gains (losses) on the
Consolidated Statements of Income. Securities that the Firm has the
positive intent and ability to hold to maturity are classified as HTM
and are carried at amortized cost on the Consolidated Balance
Sheets. The Firm has not classified new purchases of securities as
HTM for the past several years.
The following table presents realized gains and losses from AFS
securities.
Year ended December 31,
(in millions) 2008 2007 2006
Realized gains $ 1,890 $ 667 $ 399
Realized losses (330)(b) (503) (942)
Net realized securities
gains (losses)(a) $ 1,560 $ 164 $ (543)
(a) Proceeds from securities sold were within approximately 2% of amortized cost.
(b) 2008 includes $76 million of losses due to the other-than-temporary impairment of
subprime mortgage-backed securities.