JP Morgan Chase 2009 Annual Report Download - page 232

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report
230
Note 23 – Preferred stock
JPMorgan Chase is authorized to issue 200 million shares of preferred
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 Float-
ing Rate Noncumulative Preferred Stock, Series I (“Series I”), for total
proceeds of $6.0 billion.
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 Preferred Stock, Series J (“Series J”), for total pro-
ceeds of $1.8 billion.
On October 28, 2008, pursuant to the U.S. Department of the Treas-
ury’s (the “U.S. Treasury”) Capital Purchase Program (the “Capital
Purchase Program”), the Firm issued to the U.S. Treasury, 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 up to 88,401,697
shares of the Firm’s common stock at an exercise price of $42.42 per
share (the “Warrant”), subject to certain anti-dilution and other
adjustments. 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 allocated to the Series K Preferred Stock and its redemp-
tion value of $25.0 billion was being amortized 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 adjust-
ment to the dividend yield, using the effective-yield method. The
Series K Preferred Stock was nonvoting, qualified as Tier 1 capital and
ranked equally with the Firm’s other series of preferred stock. On June
17, 2009, the Firm redeemed all of the outstanding shares of Series K
Preferred Stock and repaid the full $25.0 billion principal amount
together with accrued but unpaid dividends.
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
preferred 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%. The Series K Preferred Stock bore cumulative dividends,
payable quarterly, at a rate of 5% per year for the first five years
and 9% per year thereafter. Dividends could only be paid if, as and
when declared by the Firm’s Board of Directors. The effective divi-
dend yield on the Series K Preferred Stock was 6.16%. The Series K
Preferred Stock ranked equally with the Firm’s existing 6.15%
Cumulative Preferred Stock, Series E; 5.72% Cumulative Preferred
Stock, Series F; 5.49% Cumulative Preferred Stock, Series G; Fixed-
to-Floating Rate Noncumulative Perpetual Preferred Stock, Series I;
and 8.63% Noncumulative Perpetual Preferred Stock, Series J, in
terms of dividend payments and upon liquidation of the Firm.
The following is a summary of JPMorgan Chase’s preferred stock outstanding as of December 31, 2009 and 2008.
Share value and
redemption Shares Amount (in millions) Earliest
Contractual
rate in effect at
December 31,
December 31, price per share(b) 2009 2008 2009 2008 redemption date 2009
Cumulative Preferred Stock,
Series E(a) $ 200 818,113 818,113 $ 164 $ 164 Any time 6.15%
Cumulative Preferred Stock,
Series F(a) 200 428,825 428,825 86 86 Any time 5.72
Cumulative Preferred Stock,
Series G(a) 200 511,169 511,169 102 102 Any time 5.49
Fixed to Floating Rate
Noncumulative Perpetual
Preferred Stock, Series I(a) 10,000 600,000 600,000 6,000 6,000 4/30/2018 7.90
Noncumulative Perpetual
Preferred Stock, Series J(a) 10,000 180,000 180,000 1,800 1,800 9/1/2013 8.63
Fixed Rate Cumulative
Perpetual Preferred Stock,
Series K 10,000 —
2,500,000 — 23,787(c) — NA
Total preferred stock 2,538,107 5,038,107 $ 8,152 $ 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 was $25.0 billion.