JP Morgan Chase 2008 Annual Report Download - page 207

JPMorgan Chase & Co./ 2008 Annual Report 205
Note 24 – Preferred stock
JPMorgan Chase is authorized to issue 200 million shares of pre-
ferred stock, in one or more series, with a par value of $1 per share.
On April 23, 2008, the Firm issued 600,000 shares of Fixed to
Floating Rate Noncumulative
Perpetual Preferred Stock, Series I
(“Series I”).
On July 15, 2008, each series of Bear Stearns preferred stock then
issued and outstanding was exchanged into a series of JPMorgan
Chase preferred stock (Cumulative Preferred Stock, Series E, Series F
and Series G) having substantially identical terms. As a result of the
exchange, these preferred shares rank equally with the other series
of the Firm’s preferred stock.
On August 21, 2008, the Firm issued 180,000 shares of 8.625%
Noncumulative Perpetual Preferred Stock, Series J (“Series J”).
On October 28, 2008, pursuant to the U.S. Department of the
Treasury’s (the “U.S. Treasury”) Capital Purchase Program (the
“Capital Purchase Program”), the Firm issued to the U.S. Treasury, in
exchange for total proceeds of $25.0 billion, (i) 2.5 million shares of
the Firm’s Fixed Rate Cumulative Perpetual Preferred Stock, Series K,
par value $1 per share and liquidation preference $10,000 per share
(the “Series K Preferred Stock”), and (ii) a warrant to purchase
88,401,697 shares of the Firm’s common stock at an exercise price
of $42.42 per share (the “Warrant”). The $25.0 billion proceeds
were allocated to the Series K Preferred Stock and the Warrant based
on the relative fair value of the instruments. The difference between
the initial carrying value of $23.7 billion that was allocated to the
Series K Preferred Stock and its redemption value of $25.0 billion
will be charged to retained earnings (with a corresponding increase
in the carrying value of the Series K Preferred Stock) over the first
five years of the contract as an adjustment to the dividend yield
using the effective yield method. The Series K Preferred Stock is non-
voting, qualifies as Tier 1 capital and ranks equally with the Firm’s
other series of preferred stock.
In the event of a liquidation or dissolution of the Firm, JPMorgan
Chase’s preferred stock then outstanding takes precedence over the
Firm’s common stock for the payment of dividends and the distribu-
tion of assets.
Generally, dividends on shares of outstanding series of preferred
stock are payable quarterly. Dividends on the shares of Series I pre-
ferred stock are payable semiannually at a fixed annual dividend rate
of 7.90% through April 2018, and then become payable quarterly at
an annual dividend rate of three-month LIBOR plus 3.47%.
Dividends are payable quarterly on the Series K Preferred Stock at a
fixed annual dividend rate of 5% for the first five years, and a fixed
annual dividend rate of 9% thereafter. The effective dividend yield of
Series K Preferred stock is 6.16%.
The following is a summary of JPMorgan Chase preferred stock outstanding as of December 31, 2008. There was no preferred stock outstanding
at December 31, 2007.
Share value Outstanding at Earliest Contractual rate
and redemption December 31, 2008 redemption in effect at
price per share(b) Shares (in millions) date December 31, 2008
Cumulative Preferred Stock, Series E(a) $ 200 818,113 $ 164 Any time(d) 6.15%
Cumulative Preferred Stock, Series F(a) 200 428,825 86 Any time(d) 5.72
Cumulative Preferred Stock, Series G(a) 200 511,169 102 Any time(d) 5.49
Fixed to Floating Rate Noncumulative
Perpetual Preferred Stock, Series I(a) 10,000 600,000 6,000 4/30/2018 7.90
Noncumulative Perpetual Preferred
Stock, Series J(a) 10,000 180,000 1,800 9/1/2013 8.63
Fixed Rate Cumulative Perpetual
Preferred Stock, Series K 10,000 2,500,000 23,787(c) 12/1/2011(e) 5.00
Total preferred stock 5,038,107 $ 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 is $25.0 billion.
(d) Subject to Series K Preferred Stock restrictions, which are discussed below.
(e) Generally, the Firm may not redeem Series K Preferred Stock prior to the first dividend payment date falling on or after October 28, 2011. However, prior to this
date, the Firm may redeem the securities up to the amount of the aggregate gross proceeds from a “qualified equity offering” if it has received aggregate gross
proceeds from such offerings above an amount agreed with the U.S. Treasury and received approval from the applicable federal banking agencies.