JP Morgan Chase 2009 Annual Report Download - page 65

JPMorgan Chase & Co./2009 Annual Report
63
INVESTMENT BANK
J.P. Morgan is one of the world’s leading investment
banks, with deep client relationships and broad prod-
uct capabilities. The Investment Bank’s clients are
corporations, financial institutions, governments and
institutional investors. The Firm offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strat-
egy and structure, capital raising in equity and debt
markets, sophisticated risk management, market-
making in cash securities and derivative instruments,
prime brokerage, research and thought leadership.
IB also commits the Firm’s own capital to principal
investing and trading activities on a limited basis.
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2009
2008
(e)
2007
Revenue
Investment banking fees $ 7,169 $
5,907
$ 6,616
Principal transactions(a) 8,154
(7,042
)
4,409
Lending- and deposit-related fees 664
463
446
Asset management, administration
and commissions 2,650 3,0
64
2,701
All other income(b) (115)
(341
) 43
Noninterest revenue 18,522
2,051
14,215
Net interest income 9,587
10,284
4,076
Total net revenue(c) 28,109
12,335
18,291
Provision for credit losses 2,279 2
,015
654
Noninterest expense
Compensation expense 9,334
7,701
7,965
Noncompensation expense 6,067
6,143
5,109
Total noninterest expense 15,401
13,844
13,074
Income/(loss) before income tax
expense/(benefit) 10,429
(3,524
)
4,563
Income tax expense/(benefit)(d) 3,530
(2,349
)
1,424
Net income/(loss) $ 6,899 $
(1,175
) $
3,139
Financial ratios
ROE 21%
(5
)%
15
%
ROA 0.99
(0.14
)
0.45
Overhead ratio 55
112
71
Compensation expense as % of total
net revenue 33
62
44
(a) The 2009 results reflect modest net gains on legacy leveraged lending and mort-
gage-related positions, compared with net markdowns of $10.6 billion and $2.7
billion in 2008 and 2007, respectively.
(b) TSS was charged a credit reimbursement related to certain exposures managed
within IB credit portfolio on behalf of clients shared with TSS. IB recognizes this
credit reimbursement in its credit portfolio business in all other income. Prior peri-
ods have been revised to conform to the current presentation.
(c) Total net revenue included tax-equivalent adjustments, predominantly due to income
tax credits related to affordable housing and alternative energy investments as well
as tax-exempt income from municipal bond investments of $1.4 billion, $1.7 billion
and $927 million for 2009, 2008 and 2007, respectively.
(d) The income tax benefit in 2008 includes the result of reduced deferred tax liabilities
on overseas earnings.
(e) Results for 2008 include seven months of the combined Firm’s (JPMorgan Chase &
Co.’s and Bear Stearns’) results and five months of heritage JPMorgan Chase results.
2007 reflects heritage JPMorgan Chase & Co. results only.
The following table provides IB’s total net revenue by business segment.
Year ended December 31,
(in millions) 2009
2008
(d)
2007
Revenue by business
Investment banking fees:
Advisory $ 1,867 $
2,008
$ 2,273
Equity underwriting 2,641
1,749
1,713
Debt underwriting 2,661
2,150
2,630
Total investment banking fees 7,169
5,907
6,616
Fixed income markets(a) 17,564
1,957
6,339
Equity markets(b) 4,393
3,611
3,903
Credit portfolio(c) (1,017)
860
1,433
Total net revenue $ 28,109 $12,
335
$18,291
Revenue by region
Americas $ 15,156 $ 2,
610
$ 8,245
Europe/Middle East/Africa 9,790 7,
710
7,330
Asia/Pacific 3,163 2,
015
2,716
Total net revenue $ 28,109 $12,
335
$18,291
(a) Fixed income markets primarily include client and portfolio management
revenue related to market-making across global fixed income markets, includ-
ing foreign exchange, interest rate, credit and commodities markets.
(b) Equities markets primarily include client and portfolio management revenue
related to market-making across global equity products, including cash instru-
ments, derivatives and convertibles.
(c) Credit portfolio revenue includes net interest income, fees and the impact of
loan sales activity, as well as gains or losses on securities received as part of a
loan restructuring, for IB’s credit portfolio. Credit portfolio revenue also in-
cludes the results of risk management related to the Firm’s lending and deriva-
tive activities, and changes in the credit valuation adjustment, which is the
component of the fair value of a derivative that reflects the credit quality of the
counterparty. Additionally, credit portfolio revenue incorporates an adjustment
to the valuation of the Firm’s derivative liabilities. See pages 101–125 of the
Credit Risk Management section of this Annual Report for further discussion.
(d) Results for 2008 include seven months of the combined Firm’s (JPMorgan
Chase & Co.’s and Bear Stearns’) results and five months of heritage JPMorgan
Chase & Co. results. 2007 reflects heritage JPMorgan Chase & Co.’s results
only.
2009 compared with 2008
Net income was $6.9 billion, compared with a net loss of $1.2
billion in the prior year. These results reflected significantly higher
total net revenue, partially offset by higher noninterest expense and
a higher provision for credit losses.
Total net revenue was $28.1 billion, compared with $12.3 billion in
the prior year. Investment banking fees were up 21% to $7.2
billion, consisting of debt underwriting fees of $2.7 billion (up
24%), equity underwriting fees of $2.6 billion (up 51%), and
advisory fees of $1.9 billion (down 7%). Fixed Income Markets
revenue was $17.6 billion, compared with $2.0 billion in the prior
year, reflecting improved performance across most products and
modest net gains on legacy leveraged lending and mortgage-
related positions, compared with net markdowns of $10.6 billion in
the prior year. These results also included losses of $1.0 billion from
the tightening of the Firm’s credit spread on certain structured
liabilities, compared with gains of $814 million in the prior year.
Equity Markets revenue was $4.4 billion, up 22% from the prior
year, driven by strong client revenue across products, particularly
prime services, and improved trading results. These results also
included losses of $536 million from the tightening of the Firm’s
credit spread on certain structured liabilities, compared with gains