JP Morgan Chase 2009 Annual Report Download - page 58

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report 56
Noninterest expense
The following table presents the components of noninterest
expense.
Year ended December 31,
(in millions) 2009 2008 2007
Compensation expense $ 26,928 $ 22,746 $
22,689
Noncompensation expense:
Occupancy expense 3,666 3,038
2,608
Technology, communications
and equipment expense 4,624 4,315
3,779
Professional & outside services 6,232 6,053
5,140
Marketing 1,777 1,913
2,070
Other expense(a)(b) 7,594 3,740
3,814
Amortization of intangibles 1,050 1,263
1,394
Total noncompensation expense 24,943 20,322
18,805
Merger costs 481 432
209
Total noninterest expense $ 52,352 $ 43,500 $
41,703
(a) Includes a $675 million FDIC special assessment in 2009.
(b) Includes foreclosed property expense of $1.4 billion, $213 million and $56
million for 2009, 2008 and 2007, respectively. For additional information
regarding foreclosed property, see Note 13 on pages 200–204 of this Annual
Report.
2009 compared with 2008
Total noninterest expense was $52.4 billion, up $8.9 billion, or 20%,
from the prior year. The increase was driven by the impact of the Wash-
ington Mutual transaction, higher performance-based compensation
expense, higher FDIC-related costs and increased mortgage servicing
and default-related expense. These items were offset partially by lower
headcount-related expense, including salary and benefits but excluding
performance-based incentives, and other noncompensation costs
related to employees.
Compensation expense increased in 2009 compared with the prior year,
reflecting higher performance-based incentives, as well as the impact of
the Washington Mutual transaction. Excluding these two items, com-
pensation expense decreased as a result of a reduction in headcount,
particularly in the wholesale businesses and in Corporate.
Noncompensation expense increased from the prior year, due pre-
dominantly to the following: the impact of the Washington Mutual
transaction; higher ongoing FDIC insurance premiums and an FDIC
special assessment of $675 million recognized in the second quar-
ter of 2009; higher mortgage servicing and default-related expense,
which included an increase in foreclosed property expense of $1.2
billion; higher litigation costs; and the effect of the dissolution of
the Chase Paymentech Solutions joint venture. The increase was
partially offset by lower headcount-related expense, particularly in
IB, TSS and AM; a decrease in amortization of intangibles, pre-
dominantly related to purchased credit card relationships; lower
mortgage reinsurance losses; and a decrease in credit card market-
ing expense. For a discussion of amortization of intangibles, refer to
Note 17 on pages 222–225 of this Annual Report.
For information on merger costs, refer to Note 10 on page 194 of this
Annual Report.
2008 compared with 2007
Total noninterest expense for 2008 was $43.5 billion, up $1.8
billion, or 4%, from the prior year. The increase was driven by the
additional operating costs related to the Washington Mutual trans-
action and Bear Stearns merger and investments in the businesses,
partially offset by lower performance-based incentives.
Compensation expense increased slightly from the prior year,
predominantly driven by investments in the businesses, including
headcount additions associated with the Bear Stearns merger and
Washington Mutual transaction, largely offset by lower perform-
ance-based incentives.
Noncompensation expense increased from the prior year as a result
of the Bear Stearns merger and Washington Mutual transaction.
Excluding the effect of these transactions, noncompensation ex-
pense decreased due to a net reduction in other expense related to
litigation; lower credit card and consumer lending marketing ex-
pense; and a decrease in the amortization of intangibles, as certain
purchased credit card relationships were fully amortized in 2007,
and the amortization rate for core deposit intangibles declined in
accordance with the amortization schedule. These decreases were
offset partially by increases in professional & outside services,
driven by investments in new product platforms in TSS, and busi-
ness and volume growth in CS credit card processing and IB bro-
kerage, clearing and exchange transaction processing. Also
contributing to the increases were the following: an increase in
other expense due to higher mortgage reinsurance losses and
mortgage servicing expense due to increased delinquencies and
defaults in RFS; an increase in technology, communications and
equipment expense, reflecting higher depreciation expense on
owned automobiles subject to operating leases in RFS, and other
technology-related investments across the businesses; and an
increase in occupancy expense, partly related to the expansion of
RFS’s retail distribution network. For a further discussion of amorti-
zation of intangibles, refer to Note 17 on pages 222–225 of this
Annual Report.
For information on merger costs, refer to Note 10 on page 194 of
this Annual Report.