JP Morgan Chase 2009 Annual Report Download - page 29

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At the worst point in the crisis, we
aggressively provided credit
Throughout the financial crisis, JPMorgan
Chase never posted a quarterly loss. We served
as a safe haven for depositors, worked closely
with the federal government and remained an
active lender.
Our fortress balance sheet enabled us to buy
Bear Stearns in March 2008, adding $289
billion in assets; then we acquired Washington
Mutual just six months later, adding a further
$264 billion of assets. Through it all, JPMorgan
Chase absorbed the stress of higher consumer
and wholesale credit losses while maintaining
high liquidity and acceptable growth in our
capital. We acquired Washington Mutual just
10 days after Lehman Brothers’ collapse on
September 15, 2008, and, in order to maintain
our fortress balance sheet, immediately sold
$11.5 billion in common stock the following
morning. The takeover of Bear Stearns and
WaMu provided essential credit and support
to the system and minimized a potentially
disastrous disruption that could have resulted
from their failures. In the several months
after Lehman’s failure, our interbank lending
grew from almost nothing to as high as $70
billion, and our average lending was approxi-
mately $100 billion per month, even higher
than it had been in the prior months. We also
purchased, at one point, a net $250 billion of
securities, which helped facilitate much-needed
liquidity in the marketplace.
We consistently maintained extremely
high capital levels
As the chart below shows, we ended 2008 with
Tier 1 Common Capital of 7.0% (the critical
measure used by the Federal Reserve for its
bank stress tests), and we ended 2009 with
Tier 1 Common Capital of 8.8%.
In May 2009, the U.S. government ran a stress
test on 19 banks. The test assumed an adverse
environment of 10.4% unemployment and a
48% peak-to-trough decline in the housing price
index across a two-year time span. Upon comple-
tion of the test, the results required 10 banks
to raise common equity to maintain 4% Tier 1
Common Capital through the end of the stress
scenarios. Under the government’s test, JPMorgan
Chase always had common equity of $40 billion
in excess of the 4% minimum (for the record,
the $25 billion of TARP capital we accepted was
preferred stock and, therefore, never was part
of this calculation). The bottom line is that we
passed the stress test with flying colors.
2Q
2008
3Q
2008
4Q
2008
1Q
2009
2Q
2009
3Q
2009
4Q
2009
7.3% 7.7%
8.2%
8.8%
5.0
6.0
7.0
8.0
4.0
3.0
2.0
1.0
9.0%
7.1% 6.8% 7.0%
Quarterly capital levels
* The Tier 1 Common ratio
is Tier 1 Common Capital
divided by risk-weighted
assets. Tier 1 Common
Capital is predominantly
Tier 1 Capital less preferred
equity, noncontrolling
interests and trust preferred
capital debt securities. Tier 1
Common Capital is the first
element of capital to absorb
losses. See page 90 for
further discussion.
Stress test’s minimum
4% Tier 1 Common Capital
requirement
Tier 1 Common* ratio