JP Morgan Chase 2009 Annual Report Download - page 57

JPMorgan Chase & Co./2009 Annual Report
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Firm; and higher gains from the sale of MasterCard shares. For a
further discussion of securities gains, which are mostly recorded in
the Firm’s Corporate/Private Equity business, see the Corpo-
rate/Private Equity segment discussion on pages 82–83 of this
Annual Report.
Mortgage fees and related income increased from the prior year,
driven by higher net mortgage servicing revenue, which benefited
from an improvement in mortgage servicing rights (“MSR”) risk
management results and increased loan servicing revenue. Mort-
gage production revenue increased slightly, as growth in origina-
tions was predominantly offset by markdowns on the mortgage
warehouse and increased losses related to the repurchase of previ-
ously sold loans. For a discussion of mortgage fees and related
income, which is recorded primarily in RFS’s Consumer Lending
business, see the Consumer Lending discussion on pages 68–71 of
this Annual Report.
Credit card income rose compared with the prior year, driven by
increased interchange income, due to higher customer charge
volume in CS and higher debit card transaction volume in RFS; the
impact of the Washington Mutual transaction; and increased servic-
ing fees resulting from a higher level of securitized receivables.
These results were partially offset by increases in volume-driven
payments to partners and expense related to rewards programs. For
a further discussion of credit card income, see CS’s segment results
on pages 72–74 of this Annual Report.
Other income increased compared with the prior year, due pre-
dominantly to the proceeds from the sale of Visa shares in its initial
public offering of $1.5 billion, the gain on the dissolution of the
Chase Paymentech joint venture of $1.0 billion, and gains on sales
of certain other assets. These proceeds and gains were partially
offset by lower valuations on certain investments, including seed
capital in AM; a $464 million charge related to the offer to repur-
chase auction-rate securities at par; losses of $423 million reflect-
ing the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8
to May 30, 2008; and lower net securitization income in CS.
Net interest income increased from the prior year driven, in part, by
the Washington Mutual transaction, which contributed to higher
average loans and deposits, and, to a lesser extent, by the Bear
Stearns merger. The Bear Stearns Prime Services business contrib-
uted to higher net interest income, as this business increased
average balances in other interest-earning assets (primarily cus-
tomer receivables) and other interest-bearing liabilities (primarily
customer payables). The Firm’s interest-earning assets were $1.4
trillion, and the net yield on those assets, on an FTE basis, was
2.87%, an increase of 48 basis points from 2007. Excluding the
impact of the Washington Mutual transaction and the Bear Stearns
merger, the increase in net interest income in 2008 was driven by a
wider net interest margin, which reflected the overall decline in
market interest rates during the year. The decline in rates had a
positive effect on the net interest margin, as rates paid on the
Firm’s interest-bearing liabilities decreased faster relative to the
decrease in rates earned on interest-earning assets. Growth in
consumer and wholesale loan balances also contributed to the
increase in net interest income.
Provision for credit losses
Year ended December 31,
(in millions) 2009 2008 2007
Wholesale $ 3,974 $ 3,327 $ 934
Consumer 28,041 17,652 5,930
Total provision for credit losses $ 32,015 $ 20,979 $
6,864
2009 compared with 2008
The provision for credit losses in 2009 rose by $11.0 billion com-
pared with the prior year, predominantly due to a significant in-
crease in the consumer provision. The prior year included a $1.5
billion charge to conform Washington Mutual’s allowance for loan
losses, which affected both the consumer and wholesale portfolios.
For the purpose of the following analysis, this charge is excluded. The
consumer provision reflected additions to the allowance for loan
losses for the home equity, mortgage and credit card portfolios, as
weak economic conditions, housing price declines and higher
unemployment rates continued to drive higher estimated losses for
these portfolios. Included in the 2009 addition to the allowance for
loan losses was a $1.6 billion provision related to estimated dete-
rioration in the Washington Mutual purchased credit-impaired
portfolio. The wholesale provision increased from the prior year,
reflecting continued weakness in the credit environment in 2009
compared with the prior year. For a more detailed discussion of the
loan portfolio and the allowance for loan losses, see the segment
discussions for RFS on pages 66–71, CS on pages 72–74, IB on
pages 63–65 and CB on pages 75–76, and the Allowance for
Credit Losses section on pages 123–125 of this Annual Report.
2008 compared with 2007
The provision for credit losses in 2008 rose by $14.1 billion com-
pared with the prior year, due to increases in both the consumer
and wholesale provisions. The increase in the consumer provision
reflected higher estimated losses for home equity and mortgages
resulting from declining housing prices; an increase in estimated
losses for the auto, student and business banking loan portfolios;
and an increase in the allowance for loan losses and higher charge-
offs of credit card loans. The increase in the wholesale provision
was driven by a higher allowance resulting from a weakening credit
environment and growth in retained loans. The wholesale provision
in the first quarter of 2008 also included the effect of the transfer
of $4.9 billion of funded and unfunded leveraged lending commit-
ments to retained loans from the held-for-sale portfolio. In addi-
tion, in 2008 both the consumer and wholesale provisions were
affected by a $1.5 billion charge to conform assets acquired from
Washington Mutual to the Firm’s loan loss methodologies. For a
more detailed discussion of the loan portfolio and the allowance for
loan losses, see the segment discussions for RFS on pages 66–71,
CS on pages 72–74, IB on pages 63–65 and CB on pages 75–76,
and the Credit Risk Management section on pages 101–125 of this
Annual Report.