JP Morgan Chase 2009 Annual Report Download - page 238

Notes to consolidated financial statements
JPMorgan Chase & Co./2009 Annual Report
236
The following table presents the U.S. and non-U.S. components of
income before income tax expense/(benefit) and extraordinary gain
for the years ended December 31, 2009, 2008 and 2007.
Year ended December 31,
(in millions) 2009
2008
2007
U.S. $ 6,263 $
(2,094
) $ 13,720
Non-U.S.(a) 9,804
4,867
9,085
Income before income tax
expense/(benefit) and
extraordinary gain $ 16,067 $
2,773
$ 22,805
(a) For purposes of this table, non-U.S. income is defined as income generated
from operations located outside the U.S.
Note 28 – Restrictions on cash and inter-
company funds transfers
The business of JPMorgan Chase Bank, National Association
(“JPMorgan Chase Bank, N.A.”) is subject to examination and
regulation by the Office of the Comptroller of the Currency
(“OCC”). The Bank is a member of the U.S. Federal Reserve Sys-
tem, and its deposits are insured by the FDIC.
The Board of Governors of the Federal Reserve System (the “Fed-
eral Reserve”) requires depository institutions to maintain cash
reserves with a Federal Reserve Bank. The average amount of
reserve balances deposited by the Firm’s bank subsidiaries with
various Federal Reserve Banks was approximately $821 million and
$1.6 billion in 2009 and 2008, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan Chase
and certain of its affiliates from borrowing from banking subsidiar-
ies unless the loans are secured in specified amounts. Such secured
loans to the Firm or to other affiliates are generally limited to 10%
of the banking subsidiary’s total capital, as determined by the risk-
based capital guidelines; the aggregate amount of all such loans is
limited to 20% of the banking subsidiary’s total capital.
The principal sources of JPMorgan Chase’s income (on a parent
company–only basis) are dividends and interest from JPMorgan
Chase Bank, N.A., and the other banking and nonbanking subsidi-
aries of JPMorgan Chase. In addition to dividend restrictions set
forth in statutes and regulations, the Federal Reserve, the OCC and
the FDIC have authority under the Financial Institutions Supervisory
Act to prohibit or to limit the payment of dividends by the banking
organizations they supervise, including JPMorgan Chase and its
subsidiaries that are banks or bank holding companies, if, in the
banking regulator’s opinion, payment of a dividend would consti-
tute an unsafe or unsound practice in light of the financial condi-
tion of the banking organization.
At January 1, 2010 and 2009, JPMorgan Chase’s banking subsidi-
aries could pay, in the aggregate, $3.6 billion and $17.0 billion,
respectively, in dividends to their respective bank holding compa-
nies without the prior approval of their relevant banking regulators.
The capacity to pay dividends in 2010 will be supplemented by the
banking subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S. and
non-U.S. regulators, as of December 31, 2009 and 2008, cash in
the amount of $24.0 billion and $34.8 billion, respectively, and
securities with a fair value of $10.2 billion and $23.4 billion, re-
spectively, were segregated in special bank accounts for the benefit
of securities and futures brokerage customers.
Note 29 – Capital
The Federal Reserve establishes capital requirements, including
well-capitalized standards for the consolidated financial holding
company. The OCC establishes similar capital requirements and
standards for the Firm’s national banks, including JPMorgan Chase
Bank, N.A., and Chase Bank USA, N.A.
There are two categories of risk-based capital: Tier 1 capital and
Tier 2 capital. Tier 1 capital includes common stockholders’ equity,
qualifying preferred stock and minority interest less goodwill and
other adjustments. Tier 2 capital consists of preferred stock not
qualifying as Tier 1, subordinated long-term debt and other instru-
ments qualifying as Tier 2, and the aggregate allowance for credit
losses up to a certain percentage of risk-weighted assets. Total
regulatory capital is subject to deductions for investments in certain
subsidiaries. Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum ratios of
Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets,
as well as minimum leverage ratios (which are defined as Tier 1
capital to average adjusted on–balance sheet assets). Failure to
meet these minimum requirements could cause the Federal Reserve
to take action. Banking subsidiaries also are subject to these capital
requirements by their respective primary regulators. As of December
31, 2009 and 2008, JPMorgan Chase and all of its banking sub-
sidiaries were well-capitalized and met all capital requirements to
which each was subject.