JP Morgan Chase 2009 Annual Report Download - page 77

JPMorgan Chase & Co./2009 Annual Report
75
COMMERCIAL BANKING
Commercial Banking serves nearly 25,000 clients
nationally, including corporations, municipalities,
financial institutions and not-for-profit entities with
annual revenue generally ranging from $10 million to
$2 billion, and more than 30,000 real estate investors/
owners. Delivering extensive industry knowledge,
local expertise and dedicated service, CB partners with
the Firm’s other businesses to provide comprehensive
solutions, including lending, treasury services, invest-
ment banking and asset management to meet its
clients’ domestic and international financial needs.
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual from the FDIC, adding approxi-
mately $44.5 billion in loans to the Commercial Term Lending,
Real Estate Banking and Other businesses in Commercial Banking.
Commercial Banking is divided into four primary client segments:
Middle Market Banking, Commercial Term Lending, Mid-Corporate
Banking, and Real Estate Banking. Middle Market Banking covers
corporate, municipal, financial institution and not-for-profit clients,
with annual revenue generally ranging between $10 million and
$500 million. Mid-Corporate Banking covers clients with annual
revenue generally ranging between $500 million and $2 billion and
focuses on clients that have broader investment banking needs.
Commercial Term Lending primarily provides term financing to real
estate investors/owners for multi-family properties as well as financ-
ing office, retail and industrial properties. Real Estate Banking pro-
vides full-service banking to investors and developers of institutional-
grade real estate properties.
Selected income statement data
Year ended December 31,
(in millions) 2009 2008 2007
Revenue
Lending- and deposit-
related fees
$ 1,081 $ 854 $ 647
Asset management, administra-
tion and commissions 140 113 92
All other income(a) 596 514
524
Noninterest revenue 1,817 1,481 1,263
Net interest income 3,903 3,296
2,840
Total net revenue 5,720 4,777
4,103
Provision for credit losses 1,454 464
279
Noninterest expense
Compensation expense 776 692 706
Noncompensation expense
1,359 1,206 1,197
Amortization of intangibles
41 48 55
Total noninterest expense 2,176 1,946
1,958
Income before income
tax expense 2,090 2,367
1,866
Income tax expense 819 928
732
Net income $ 1,271 $ 1,439 $
1,134
Revenue by product:
Lending $ 2,663 $ 1,743 $
1,419
Treasury services 2,642 2,648
2,350
Investment banking 394 334
292
Other 21 52
42
Total Commercial Banking
revenue $ 5,720 $ 4,777 $
4,103
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2009 2008 2007
IB revenue, gross(b) $ 1,163 $ 966 $
888
Revenue by business:
Middle Market Banking $ 3,055 $ 2,939 $
2,689
Commercial Term Lending(c) 875 243 —
Mid-Corporate Banking 1,102 921
815
Real Estate Banking(c) 461 413
421
Other(c) 227 261
178
Total Commercial Banking
revenue $ 5,720 $ 4,777 $
4,103
Financial ratios
ROE 16% 20% 17%
Overhead ratio 38 41 48
(a) Revenue from investment banking products sold to CB clients and commercial
card revenue is included in all other income.
(b) Represents the total revenue related to investment banking products sold to
CB clients.
(c) Results for 2009 and 2008 include total net revenue on net assets acquired in
the Washington Mutual transaction.
2009 compared with 2008
Net income was $1.3 billion, a decrease of $168 million, or 12%,
from the prior year, as higher provision for credit losses and nonin-
terest expense was partially offset by higher net revenue, reflecting
the impact of the Washington Mutual transaction.
Record net revenue of $5.7 billion increased $943 million, or 20%,
from the prior year. Net interest income of $3.9 billion increased
$607 million, or 18%, driven by the impact of the Washington
Mutual transaction. Noninterest revenue was $1.8 billion, an
increase of $336 million, or 23%, from the prior year, reflecting
higher lending- and deposit-related fees and higher investment
banking fees and other income.
On a client-segment basis, revenue from Middle Market Banking
was $3.1 billion, an increase of $116 million, or 4%, from the prior
year due to higher liability balances, a shift to higher-spread liability
products, wider loan spreads, higher lending- and deposit-related
fees, and higher other income, partially offset by a narrowing of
spreads on liability products and reduced loan balances. Revenue
from Commercial Term Lending (a new client segment acquired in
the Washington Mutual transaction encompassing multi-family and
commercial mortgage loans) was $875 million, an increase of $632
million. Mid-Corporate Banking revenue was $1.1 billion, an in-
crease of $181 million, or 20%, driven by higher investment bank-
ing fees, increased loan spreads, and higher lending- and deposit-
related fees. Real Estate Banking revenue was $461 million, an
increase of $48 million, or 12%, due to the impact of the Washing-
ton Mutual transaction.
The provision for credit losses was $1.5 billion, compared with
$464 million in the prior year, reflecting continued weakness in the
credit environment, predominantly in real estate-related segments.
Net charge-offs were $1.1 billion (1.02% net charge-off rate), com-
pared with $288 million (0.35% net charge-off rate) in the prior year.
The allowance for loan losses to end-of-period loans retained was
3.12%, up from 2.45% in the prior year. Nonperforming loans were
$2.8 billion, an increase of $1.8 billion from the prior year.