JP Morgan Chase 2009 Annual Report Download - page 30

28
Aug 08
Jul 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
Jun 09
Jul 09
Aug 09
Sep 09
400
600
800
$1,000
900
700
500
Flight
to quality
Return
to normalcy
We kept our liquidity extremely high
As we entered the most tumultuous financial
markets since the Great Depression, we expe-
rienced the opposite of a “run on the bank”
as deposits flowed in (in a two-month period,
$150 billion owed in – we barely knew what
to do with it). At JPMorgan Chase, our deposits
always exceeded our loans; deposits always
have been considered one of the safest sources
of funding for a bank. The average bank has
loans that are generally greater than 110% of
its deposits. For JPMorgan Chase, loans were
approximately 75% of deposits. In fact, our
excess deposits greatly reduced the need to
finance ourselves in riskier wholesale markets.
In the long-term wholesale unsecured markets,
we borrowed on average $270 billion. Only $40
billion was borrowed unsecured in the short-
term credit markets – an extraordinarily low
amount for a company of our size. When we
borrow in the secured markets, we do so under
the assumption that we would have access to
some, not all, of that funding in a crisis.
We always maintained excess liquidity at the
bank holding company. We had and continue to
have enough cash or cash equivalents on hand
to fund ourselves for more than two years, even
in the event that we are unable to borrow from
the unsecured credit markets at all.
We were prepared for things to get even worse
While the economic environment had become
as bad as any of us had ever seen, we reluc-
tantly prepared for the situation to get worse,
with a possible U.S. unemployment rate of
15% or higher. Such an adverse environment
would have required drastic actions: a large
headcount reduction, elimination of marketing
and other investments, and a decrease in
lending to preserve capital. Steps like these
would have saved more than $12 billion in
expenses and created considerable additional
capital. However, it also would have imposed
deep hardship on many of our employees,
suppliers and customers. Fortunately, we never
had to execute such a drastic plan. This was
precisely what the government was trying to
avoid, and I believe its actions helped prevent
many companies from taking steps like those
mentioned above.
Government programs were a mixed blessing
While we deeply appreciate the government’s
actions – and they clearly had benets for the
system and for JPMorgan Chase – they also
were a mixed blessing.
In June 2009, we paid back the TARP capital
in full. The $25 billion we borrowed for eight
months cost us money, because we never were
able to lend the $25 billion and earn a rate
Average
monthly
deposits
(in billions)
WaMu deposits