JP Morgan Chase 2009 Annual Report Download - page 52

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 50
Firm ended 2009 with a very strong Tier 1 Capital ratio of 11.1%
and a Tier 1 Common ratio of 8.8%.
Throughout this turbulent financial period, JPMorgan Chase sup-
ported and served its 90 million customers and the communities in
which it operates; delivered consumer-friendly products and policies;
and continued to lend. The Firm extended nearly $250 billion in new
credit to consumers during the year and for its corporate and munici-
pal clients, either lent or assisted them in raising approximately $1
trillion in loans, stocks or bonds. The Firm also remained committed
to helping homeowners meet the challenges of declining home
prices and rising unemployment. Since 2007, the Firm has initiated
over 900,000 actions to prevent foreclosures through its own pro-
grams and through government mortgage-modification programs.
During 2009 alone, JPMorgan Chase offered approximately 600,000
loan modifications to struggling homeowners. Of these, 89,000
loans have achieved permanent modification. By March 31, 2010,
the Firm will have opened 51 Chase Homeownership Centers across
the country and already has over 14,000 employees dedicated to
mortgage loss mitigation.
Management remains confident that JPMorgan Chase’s capital and
reserve strength, combined with its significant earnings power, will
allow the Firm to meet the uncertainties that lie ahead and still
continue investing in its businesses and serving its clients and share-
holders over the long term.
The discussion that follows highlights the performance of each
business segment compared with the prior year and presents results
on a managed basis unless otherwise noted. For more information
about managed basis, see Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures on pages 58–60 of this
Annual Report.
Investment Bank reported record net income in 2009 compared
with a net loss in 2008. The significant rebound in earnings was
driven by record net revenue, partially offset by increases in both
noninterest expense and the provision for credit losses. The increase
in net revenue was driven by record Fixed Income Markets revenue,
reflecting strong results across most products, as well as modest net
gains on legacy leveraged lending and mortgage-related positions,
compared with over $10 billion of net markdowns in the prior year.
Investment banking fees rose to record levels, as higher equity and
debt underwriting fees were partially offset by lower advisory fees.
Record Equity Markets revenue was driven by solid client revenue,
particularly in prime services, and strong trading results. The net
revenue results for IB in 2009 included losses from the tightening of
the Firm’s credit spread on certain structured liabilities and deriva-
tives, compared with gains in 2008 from the widening of the spread
on those liabilities. The provision for credit losses increased, driven
by continued weakness in the credit environment. IB ended the year
with a ratio of allowance for loan losses to end-of-period loans
retained of 8.25%. Noninterest expense increased, reflecting higher
performance-based compensation offset partially by lower head-
count-related expense.
Retail Financial Services net income decreased from the prior
year, as an increase in the provision for credit losses and higher
noninterest expense were predominantly offset by double-digit
growth in net revenue. Higher net revenue reflected the impact of
the Washington Mutual transaction, wider loan and deposit spreads,
and higher net mortgage servicing revenue. The provision for credit
losses increased from the prior year as weak economic conditions
and housing price declines continued to drive higher estimated losses
for the home equity and mortgage loan portfolios. RFS ended the
year with a ratio of allowance for loan losses to ending loans, ex-
cluding purchased credit-impaired loans of 5.09%. Noninterest
expense was higher, reflecting the impact of the Washington Mutual
transaction and higher servicing and default-related expense.
Card Services reported a net loss for the year, compared with net
income in 2008. The decline was driven by a significantly higher
provision for credit losses, partially offset by higher net revenue. The
double-digit growth in managed net revenue was driven by the
impact of the Washington Mutual transaction, wider loan spreads
and higher merchant servicing revenue related to the dissolution of
the Chase Paymentech Solutions joint venture; these were partially
offset by higher revenue reversals associated with higher charge-offs,
a decreased level of fees and lower average loan balances. The
provision for credit losses increased, reflecting continued weakness
in the credit environment. CS ended the year with a ratio of allow-
ance for loan losses to end-of-period loans of 12.28%. Noninterest
expense increased due to the dissolution of the Chase Paymentech
Solutions joint venture and the impact of the Washington Mutual
transaction, partially offset by lower marketing expense.
Commercial Banking net income decreased from 2008, as an
increase in provision for credit losses and higher noninterest expense
were predominantly offset by higher net revenue. Double-digit
growth in net revenue reflected the impact of the Washington Mu-
tual transaction and record levels of lending- and deposit-related and
investment banking fees. Revenue rose in all business segments:
Middle Market Banking, Commercial Term Lending, Mid-Corporate
Banking and Real Estate Banking. The provision for credit losses
increased, reflecting continued weakness throughout the year in the
credit environment across all business segments, predominantly in
real estate–related segments. CB ended the year with a ratio of
allowance for loan losses to end-of-period loans retained of 3.12%.
Noninterest expense increased due to the impact of the Washington
Mutual transaction and higher Federal Deposit Insurance Corpora-
tion (“FDIC”) insurance premiums.
Treasury & Securities Services net income declined from the
prior year, driven by lower net revenue. The decrease in net revenue
reflected lower Worldwide Securities Services net revenue, driven by
lower balances and spreads on liability products; lower securities
lending balances, primarily as a result of declines in asset valuations
and demand; and the effect of market depreciation on certain cus-
tody assets. Treasury Services net revenue also declined, reflecting
lower deposit balances and spreads, offset by higher trade revenue
driven by wider spreads and growth across cash management and
card product volumes. Noninterest expense rose slightly compared
with the prior year, reflecting higher FDIC insurance premiums offset
by lower headcount-related expense.