JP Morgan Chase 2009 Annual Report Download - page 31

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higher than the 5% coupon we were paying on
the preferred shares. In addition, we gave the
government warrants worth almost $1 billion –
a direct cost to our shareholders.
We did participate in the Federal Deposit
Insurance Corporation (FDIC) guarantee
program, under which we issued $40 billion of
debt with an FDIC guarantee. Many banks that
used this program would not have had access
to the capital markets without this guarantee
and possibly could have failed. For JPMorgan
Chase, it was not a question of access or need –
to the extent we needed it, the markets always
were open to us – but the program did save us
money. As part of this program, we have paid
the FDIC $1.3 billion, and, after paying the
FDIC, it will save us a significant amount of
money over the next few years.
Our company was highly criticized for
accepting the TARP capital and for using
the FDIC program. After April 1, 2009, even
though we were eligible to continue using the
FDIC program, we stopped using it. There
were many other government programs (with
acronyms such as TALF and PPIP) that we
believe were beneficial to the capital markets,
but that we did not need and chose not to use,
so as to avoid the stigma. (We did use the Term
Auction Facility (TAF), a special government-
sponsored depository facility, but this was
done at the request of the Federal Reserve to
help motivate others to use the system.)
While no one knows what would have
happened in the absence of all these govern-
ment programs, there is a strong argument
that those that entered the crisis in a position
of strength may have gathered huge benefits
at the expense of failing competitors – but it is
hard to argue that this would have been good
for the country.
We did not anticipate the anger or backlash
the acceptance of TARP capital would evoke
from the public, politicians and the media –
but, even with hindsight, I think we would
have had to accept TARP capital because doing
so was in the best interest of the country. I do
wish it would have been possible to distinguish
between the healthy and unhealthy banks in
a way that didn’t damage the success of the
program – so as not to create a situation where
the public was left with the impression that all
banks were bailed out. Last, I do regret having
used the FDIC guarantee because we didn’t
need it, and it just added to the argument that
all banks had been bailed out and fueled the
anger directed toward banks.
The government runs the FDIC, but the banks
pay for it
While the FDIC is a government institution
that insures bank deposits, our shareholders
should know that the costs associated with
failed banks are borne in full by the banks,
not by taxpayers. We think this is completely
appropriate. Even if the FDIC’s special Tempo-
rary Liquidity Guarantee Program (TLGP)
had lost money, those losses would have been
charged back to the surviving banks. There-
fore, it is these surviving banks that have paid
for the cost to the FDIC of the approximately
200 bank failures since the beginning of 2008.
Of those failures, the largest one, WaMu (with
assets exceeding $260 billion), has cost the
FDIC nothing. That is because JPMorgan Chase
bought WaMu. All of the other banks that have
failed were far smaller (the next largest failure
was IndyMac, with $32 billion). All of these
failures combined have cost the FDIC an esti-
mated $55 billion.
Between deposit insurance and TLGP funding
for 2008 and 2009, plus estimates for our
share of assessments over the next three years,
JPMorgan Chase alone will have given the
FDIC a total of approximately $6 billion to
cover the cost of failed banks.