JP Morgan Chase 2008 Annual Report Download - page 9

7
ucts, and trade finance services to the world’s leading
companies and institutional investors. We now serve
more than 2,800 clients around the world. In 2008,
TSS brought in more than 250 significant new client
relationships, representing more than $80 million in
annualized revenue. In a business with global scale,
50% of TSS’ revenue is from business outside the
United States, and in 2008, this revenue grew by
15%. TSS further strengthened its international
presence, expanding services in more than 20 coun-
tries throughout Europe, the Middle East, Africa,
Asia and Latin America – we now do business in
more than 45 countries.
Notably, TSS also broke its single-day U.S. dollar-
clearing volume record – by clearing a staggering $5
trillion in a single day, 59% over its average. Due to
market conditions, TSS assets under custody decreased
by 17% to $13.2 trillion. Yet, at the same time, average
liability balances were up 22% to $280 billion, reflect-
ing a flight to quality as clients were drawn to the
stability of J.P. Morgan.
TSS is preparing for continued stress in the equity
markets in 2009, declining securities lending balances
and the negative impact of 0% interest rates.
Nevertheless, it remains an excellent business, serving
clients from all five of our other businesses, and we
expect it to produce strong results for years to come.
Asset Management reported net income of $1.4 billion
with an ROE of 24%
Asset Management, with assets under supervision of
$1.5 trillion, experienced a turbulent year in 2008. As
anticipated in this letter last year, earnings dropped
(by 31%). But overall, the year’s results were the result
of three trends: continued strong growth in Private
Banking, a small reduction in assets under manage-
ment (but a large change in the mix of asset types)
and a rigorous management of risk.
Private Banking had an exceptional year, bringing in a
record number of new clients and a record level of net
new assets (approximately $80 billion, for a total of
$538 billion). Earnings grew 12%. Over the past two
years, more than 235 new bankers have joined the
Private Bank and promise to contribute significantly
to its future growth.
Assets under management were $1.13 trillion at the
end of 2008 versus $1.19 trillion in 2007. Net new
inflows were a healthy $151 billion, up 31% from the
prior year. Unfortunately, this was more than offset by
the declines in market values. In addition, there was a
large change in the mix of assets. The cash we manage
for all our clients increased dramatically, with liquidity
balances growing by $210 billion to reach $613 billion
by year-end, as clients globally sought safety away
from higher-risk investments. Equities and alternatives
went in the opposite direction, with a 49% decline to
$240 billion from $472 billion, largely due to a 41%
drop in the value of equity markets. Finally, alternative
assets dropped 17% to $100 billion from $121 billion.
The current turmoil has reinforced the importance of
managing risk. Our culture of strong risk management
(proper due diligence, documentation, auditing, among
other measures) is consistent with our philosophy of
putting clients’ interests first and has enabled us to
avoid many of the negative developments that sur-
faced last year.
We anticipate another difficult year in 2009, with
earnings continuing to be affected by market condi-
tions. But this is a great business, and we intend to
keep it that way by focusing on helping our clients
through the current environment.
The Corporate sector reported net income of $557 million
In 2008, we reported a net loss of $700 million in
Private Equity – a different story from 2007, when we
reported pre-tax private equity gains of more than $4
billion. We love the private equity business, but as we
indicated in prior years, private equity returns are by
their nature lumpy, and we did not expect the stellar
2007 results to be repeated in 2008. We will remain
patient and still expect this business to deliver in
excess of 20% return on equity for us over time.