JP Morgan Chase 2008 Annual Report Download - page 75

JPMorgan Chase & Co./ 2008 Annual Report 73
CORPORATE/PRIVATE EQUITY
Selected income statement data
Year ended December 31,
(in millions) 2008 2007 2006
Revenue
Principal transactions(a)(b) $ (3,588) $ 4,552 $ 1,181
Securities gains (losses)(c) 1,637 39 (608)
All other income(d) 1,673 465 485
Noninterest revenue (278) 5,056 1,058
Net interest income (expense) 347 (637) (1,044)
Total net revenue 69 4,419 14
Provision for credit losses 447(j)(k) (11) (1)
Provision for credit losses –
accounting conformity(e) 1,534 ——
Noninterest expense
Compensation expense 2,340 2,754 2,626
Noncompensation expense(f) 1,841 3,025 2,357
Merger costs 432 209 305
Subtotal 4,613 5,988 5,288
Net expense allocated to other
businesses (4,641) (4,231) (4,141)
Total noninterest expense (28) 1,757 1,147
Income (loss) from continuing
operations before income
tax expense (benefit) (1,884) 2,673 (1,132)
Income tax expense (benefit)(g) (535) 788 (1,179)
Income (loss) from continuing
operations (1,349) 1,885 47
Income from discontinued
operations(h) —— 795
Income before extraordinary gain (1,349) 1,885 842
Extraordinary gain(i) 1,906 ——
Net income $ 557 $ 1,885 $ 842
(a) Included losses on preferred equity interests in Fannie Mae and Freddie Mac in
2008.
(b) The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages
141–155 of this Annual Report for additional information.
(c) Included gain on sale of MasterCard shares in 2008.
(d) Included a gain from the dissolution of the Chase Paymentech Solutions joint ven-
ture and proceeds from the sale of Visa shares in its initial public offering in 2008.
(e) Represents an accounting conformity loan loss reserve provision related to the
acquisition of Washington Mutual Bank’s banking operations. For a further discus-
sion, see Consumer Credit Portfolio on page 104 of this Annual Report.
(f) Included a release of credit card litigation reserves in 2008 and insurance recoveries
related to settlement of the Enron and WorldCom class action litigations and for
certain other material legal proceedings of $512 million for full year 2006.
(g) Includes tax benefits recognized upon resolution of tax audits.
(h) Included a $622 million gain from the sale of selected corporate trust businesses in
2006.
(i) Effective September 25, 2008, JPMorgan Chase acquired Washington Mutual’s
banking operations from the FDIC for $1.9 billion. The fair value of the Washington
Mutual net assets acquired exceeded the purchase price, which resulted in negative
goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-
sale were written down against that negative goodwill. The negative goodwill that
remained after writing down nonfinancial assets was recognized as an extraordinary
gain in 2008.
(j) In November 2008, the Firm transferred $5.8 billion of higher quality credit card
loans from the legacy Chase portfolio to a securitization trust previously established
by Washington Mutual (“the Trust”). As a result of converting higher credit quality
Chase-originated on-book receivables to the Trust's seller's interest which has a
higher overall loss rate reflective of the total assets within the Trust, approximately
$400 million of incremental provision expense was recorded during the fourth quar-
ter. This incremental provision expense was recorded in the Corporate segment as
the action related to the acquisition of Washington Mutual's banking operations. For
further discussion of credit card securitizations, see Note 16 on page 182 of this
Annual Report.
(k) Includes $9 million for credit card securitizations related to the Washington Mutual
transaction.
2008 compared with 2007
Net income for Corporate/Private Equity was $557 million, compared
with net income of $1.9 billion in the prior year. This segment
includes the results of Private Equity and Corporate business seg-
ments, as well as merger-related items.
Net loss for Private Equity was $690 million, compared with net
income of $2.2 billion in the prior year. Net revenue was negative
$963 million, a decrease of $4.9 billion, reflecting Private Equity
losses of $894 million, compared with gains of $4.1 billion in the
prior year. Noninterest expense was negative $120 million, a
decrease of $469 million from the prior year, reflecting lower com-
pensation expense.
Net income for Corporate was $1.5 billion, compared with a net loss
of $150 million in the prior year. Net revenue was $1.0 billion, an
increase of $580 million. Excluding merger-related items, net revenue
was $1.7 billion, an increase of $1.2 billion. Net revenue included a
gain of $1.5 billion on the proceeds from the sale of Visa shares in its
initial public offering, $1.0 billion on the dissolution of the Chase
Paymentech Solutions joint venture, and $668 million from the sale of
MasterCard shares, partially offset by losses of $1.1 billion on pre-
ferred securities of Fannie Mae and Freddie Mac and $464 million
related to the offer to repurchase auction-rate securities. 2007 includ-
ed a gain of $234 million on the sale of MasterCard shares.
Noninterest expense was negative $736 million, compared with $959
million in the prior year, driven mainly by lower litigation expense.
Merger-related items were a net loss of $2.1 billion compared with a
net loss of $130 million in the prior year. Washington Mutual merger-
related items included conforming loan loss reserve of $1.5 billion,
credit card related loan loss reserves of $403 million and net merger-
related costs of $138 million. Bear Stearns merger-related included a
net loss of $423 million, which represented JPMorgan Chase’s
49.4% ownership in Bear Stearns losses from April 8 to May 30,
2008, and net merger-related costs of $665 million. 2007 included
merger costs of $209 million related to the Bank One and Bank of
New York transactions.
The Corporate/Private Equity sector comprises Private
Equity, Treasury, corporate staff units and expense that
is centrally managed. Treasury manages capital, liquidity,
interest rate and foreign exchange risk and the invest-
ment portfolio for the Firm. The corporate staff units
include Central Technology and Operations, Internal
Audit, Executive Office, Finance, Human Resources,
Marketing & Communications, Legal & Compliance,
Corporate Real Estate and General Services, Risk
Management, Corporate Responsibility and Strategy &
Development. Other centrally managed expense includes
the Firm’s occupancy and pension-related expense, net
of allocations to the business.