JP Morgan Chase 2008 Annual Report Download - page 47

JPMorgan Chase & Co./ 2008 Annual Report 45
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of JPMorgan
Chase’s Consolidated Results of Operations on a reported basis for
the three-year period ended December 31, 2008. Factors that related
primarily to a single business segment are discussed in more detail
within that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the Consolidated
Results of Operations, see pages 119–123 of this Annual Report.
Revenue
Year ended December 31, (in millions) 2008(a) 2007 2006
Investment banking fees $ 5,526 $ 6,635 $ 5,520
Principal transactions (10,699) 9,015 10,778
Lending & deposit-related fees 5,088 3,938 3,468
Asset management, administration
and commissions 13,943 14,356 11,855
Securities gains (losses) 1,560 164 (543)
Mortgage fees and related income 3,467 2,118 591
Credit card income 7,419 6,911 6,913
Other income 2,169 1,829 2,175
Noninterest revenue 28,473 44,966 40,757
Net interest income 38,779 26,406 21,242
Total net revenue $67,252 $ 71,372 $ 61,999
(a) 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 Firm’s results from each respective transaction date. For additional information
on these transactions, see Note 2 on pages 135–140 of this Annual Report.
2008 compared with 2007
Total net revenue of $67.3 billion was down $4.1 billion, or 6%, from
the prior year. The decline resulted from the extremely challenging
business environment for financial services firms in 2008. Principal
transactions revenue decreased significantly and included net mark-
downs on mortgage-related positions and leveraged lending funded
and unfunded commitments, losses on preferred securities of Fannie
Mae and Freddie Mac, and losses on private equity investments. Also
contributing to the decline in total net revenue were other losses and
markdowns recorded in other income, including the Firm’s share of
Bear Stearns’ losses from April 8 to May 30, 2008.These declines
were largely offset by higher net interest income, proceeds from the
sale of Visa shares in its initial public offering, and the gain on the
dissolution of the Chase Paymentech Solutions joint venture.
Investment banking fees were down from the record level of the
prior year due to lower debt underwriting fees, as well as lower advi-
sory and equity underwriting fees, both of which were at record lev-
els in 2007. These declines were attributable to reduced market
activity. For a further discussion of investment banking fees, which
are primarily recorded in IB, see IB segment results on pages 54–56
of this Annual Report.
In 2008, principal transactions revenue, which consists of revenue
from the Firm’s trading and private equity investing activities,
declined by $19.7 billion from the prior year. Trading revenue
decreased $14.5 billion to a negative $9.8 billion compared with a
positive $4.7 billion in 2007. The decline in trading revenue was
largely driven by higher net markdowns of $5.9 billion on mortgage-
related exposures compared with $1.4 billion in the prior year; high-
er net markdowns of $4.7 billion on leveraged lending funded and
unfunded commitments compared with $1.3 billion in the prior year;
losses of $1.1 billion on preferred securities of Fannie Mae and
Freddie Mac; and weaker equity trading results compared with a
record level in 2007. In addition, trading revenue was adversely
impacted by the Bear Stearns merger. Partially offsetting the decline
in trading revenue were record results in rates and currencies, credit
trading, commodities and emerging markets, as well as strong equity
client revenue across products and total gains of $2.0 billion from
the widening of the Firm’s credit spread on certain structured liabili-
ties and derivatives, compared with $1.3 billion in 2007. Private
equity results also declined substantially from the prior year, swing-
ing to losses of $908 million in 2008 from gains of $4.3 billion in
2007. In addition, the first quarter of 2007 included a fair value
adjustment related to the adoption of SFAS 157. For a further discus-
sion of principal transactions revenue, see IB and Corporate/Private
Equity segment results on pages 54–56 and 73–75, respectively, and
Note 6 on pages 158–160 of this Annual Report.
Lending & deposit-related fees rose from the prior year, predomi-
nantly resulting from higher deposit-related fees and the impact of
the Washington Mutual transaction. For a further discussion of lend-
ing & deposit-related fees, which are mostly recorded in RFS, TSS and
CB, see the RFS segment results on pages 57–62, the TSS segment
results on pages 68–69, and the CB segment results on pages
66–67 of this Annual Report.
The decline in asset management, administration and commissions
revenue compared with 2007 was driven by lower asset manage-
ment fees in AM due to lower performance fees and the effect of
lower markets on assets under management. This decline was par-
tially offset by an increase in commissions revenue related predomi-
nantly to higher brokerage transaction volume within IB’s equity mar-
kets revenue, which included additions from Bear Stearns’ Prime
Services business; and higher administration fees in TSS driven by
wider spreads in securities lending and increased product usage by
new and existing clients. For additional information on these fees
and commissions, see the segment discussions for IB on pages
54–56, RFS on pages 57–62, TSS on pages 68–69, and AM on
pages 70–72 of this Annual Report.
The increase in securities gains compared with the prior year was
due to the repositioning of the Corporate investment securities port-
folio as a result of lower interest rates as part of managing the struc-
tural interest rate risk of the Firm, and higher gains from the sale of
MasterCard shares. For a further discussion of securities gains, which
are mostly recorded in the Firm’s Corporate business, see the
Corporate/Private Equity segment discussion on pages 73–75 of this
Annual Report.
Mortgage fees and related income increased from the prior year,
driven by higher net mortgage servicing revenue, which benefited
from an improvement in MSR risk management results and increased
loan servicing revenue. Mortgage production revenue increased
slightly, as the impact of growth in originations was predominantly