JP Morgan Chase 2008 Annual Report Download - page 68

Management’s discussion and analysis
66 JPMorgan Chase & Co./ 2008 Annual Report
COMMERCIAL BANKING
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual from the FDIC, adding approxi-
mately $44.5 billion in loans to the Commercial Term Lending, Real
Estate Banking and Other businesses in Commercial Banking. On
October 1, 2006, JPMorgan Chase completed the acquisition of The
Bank of New York’s consumer, business banking and middle-market
banking businesses, adding approximately $2.3 billion in loans and
$1.2 billion in deposits in Commercial Banking.
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2008 2007 2006
Revenue
Lending & deposit-related fees $ 854 $ 647 $ 589
Asset management, administration
and commissions 113 92 67
All other income(a) 514 524 417
Noninterest revenue 1,481 1,263 1,073
Net interest income 3,296 2,840 2,727
Total net revenue 4,777 4,103 3,800
Provision for credit losses 464 279 160
Noninterest expense
Compensation expense 692 706 740
Noncompensation expense 1,206 1,197 1,179
Amortization of intangibles 48 55 60
Total noninterest expense 1,946 1,958 1,979
Income before income tax
expense 2,367 1,866 1,661
Income tax expense 928 732 651
Net income $1,439 $1,134 $1,010
Financial ratios
ROE 20% 17% 18%
Overhead ratio 41 48 52
(a) Revenue from investment banking products sold to CB clients and commercial card
revenue is included in all other income.
2008 compared with 2007
Net income was $1.4 billion, an increase of $305 million, or 27%,
from the prior year, due to growth in total net revenue including the
impact of the Washington Mutual transaction, partially offset by a
higher provision for credit losses.
Record total net revenue of $4.8 billion increased $674 million, or
16%. Net interest income of $3.3 billion increased $456 million, or
16%, driven by double-digit growth in liability and loan balances
and the impact of the Washington Mutual transaction, partially offset
by spread compression in the liability and loan portfolios. Noninterest
revenue was $1.5 billion, up $218 million, or 17%, due to higher
deposit and lending-related fees.
On a client segment basis, Middle Market Banking revenue was $2.9
billion, an increase of $250 million, or 9%, from the prior year due
predominantly to higher deposit-related fees and growth in liability
and loan balances. Revenue from Commercial Term Lending, a new
client segment established as a result of the Washington Mutual
transaction encompassing multi-family and commercial mortgage
loans, was $243 million. Mid-Corporate Banking revenue was $921
million, an increase of $106 million, or 13%, reflecting higher loan
balances, investment banking revenue, and deposit-related fees. Real
Estate Banking revenue of $413 million decreased $8 million, or 2%.
Provision for credit losses was $464 million, an increase of $185 mil-
lion, or 66%, compared with the prior year, reflecting a weakening
credit environment and loan growth. Net charge-offs were $288 mil-
lion (0.35% net charge-off rate), compared with $44 million (0.07%
net charge-off rate) in the prior year, predominantly related to an
increase in real estate charge-offs. The allowance for loan losses
increased $1.1 billion, which primarily reflected the impact of the
Washington Mutual transaction. Nonperforming assets were $1.1 bil-
lion, an increase of $1.0 billion compared with the prior year, pre-
dominantly reflecting the Washington Mutual transaction and higher
real estate-related balances.
Noninterest expense was $1.9 billion, a decrease of $12 million, or
1%, from the prior year, due to lower performance-based incentive
compensation and volume-based charges from service providers, pre-
dominantly offset by the impact of the Washington Mutual transaction.
2007 compared with 2006
Net income was $1.1 billion, an increase of $124 million, or 12%,
from the prior year due primarily to growth in total net revenue, par-
tially offset by higher provision for credit losses.
Record total net revenue of $4.1 billion increased $303 million, or
8%. Net interest income of $2.8 billion increased $113 million, or
4%, driven by double-digit growth in liability balances and loans,
which reflected organic growth and the Bank of New York transac-
tion, largely offset by the continued shift to narrower-spread liability
products and spread compression in the loan and liability portfolios.
Noninterest revenue was $1.3 billion, up $190 million, or 18%, due
to increased deposit-related fees, higher investment banking revenue,
and gains on sales of securities acquired in the satisfaction of debt.
On a segment basis, Middle Market Banking revenue was $2.7 bil-
lion, an increase of $154 million, or 6%, primarily due to the Bank of
New York transaction, higher deposit-related fees and growth in
investment banking revenue. Mid-Corporate Banking revenue was
$815 million, an increase of $159 million, or 24%, reflecting higher
Commercial Banking serves more than 26,000 clients
nationally, including corporations, municipalities, finan-
cial institutions and not-for-profit entities with annual
revenue generally ranging from $10 million to $2 billion,
and nearly 30,000 real estate investors/owners.
Delivering extensive industry knowledge, local expertise
and dedicated service, CB partners with the Firm’s other
businesses to provide comprehensive solutions, includ-
ing lending, treasury services, investment banking and
asset management, to meet its clients’ domestic and
international financial needs.