JP Morgan Chase 2009 Annual Report Download - page 95

JPMorgan Chase & Co./2009 Annual Report 93
• Measure performance consistently across all lines of business
• Provide comparability with peer firms for each of the lines of
business
Equity for a line of business represents the amount the Firm believes
the business would require if it were operating independently, incor-
porating sufficient capital to address economic risk measures, regula-
tory capital requirements and capital levels for similarly rated peers.
Capital is also allocated to each line of business for, among other
things, goodwill and other intangibles associated with acquisitions
effected by the line of business. Return on common equity is meas-
ured and internal targets for expected returns are established as a key
measure of a business segment’s performance.
Relative to 2008, line of business equity remained largely un-
changed during 2009.
Line of business equity
December 31, (in billions) 2009
2008
Investment Bank $ 33.0 $
33.0
Retail Financial Services 25.0
25.0
Card Services 15.0
15.0
Commercial Banking 8.0
8.0
Treasury & Securities Services 5.0
4.5
Asset Management 7.0
7.0
Corporate/Private Equity 64.2
42.4
Total common stockholders’ equity $ 157.2 $
134.9
Line of business equity Yearly Average
(in billions) 2009
2008
Investment Bank $ 33.0 $
26.1
Retail Financial Services 25.0
19.0
Card Services 15.0
14.3
Commercial Banking 8.0
7.3
Treasury & Securities Services 5.0
3.8
Asset Management 7.0
5.6
Corporate/Private Equity 52.9
53.0
Total common stockholders’ equity $ 145.9 $
129.1
In 2010, the Firm will enhance its line of business equity framework
to better align equity assigned to each line of business with the
anticipated changes in the business, as well as changes in the com-
petitive and regulatory landscape. The lines of business will be capi-
talized based on the Tier 1 common standard, rather than the Tier 1
Capital standard.
Capital actions
Dividends
On February 23, 2009, the Board of Directors reduced the Firm’s
quarterly common stock dividend from $0.38 to $0.05 per share,
effective with the dividend paid on April 30, 2009, to shareholders
of record on April 6, 2009. The action enabled the Firm to retain
approximately $5 billion in common equity during 2009, and was
taken to ensure the Firm had sufficient capital strength in the event
the very weak economic conditions that existed at the beginning of
the year further deteriorated.
For information regarding dividend restrictions, see Note 23 and
Note 28 on pages 230–231 and 236, respectively, of this Annual
Report.
The following table shows the common dividend payout ratio based
on reported net income.
Common dividend payout ratio
Year ended December 31, 2009 2008 2007
Common dividend payout ratio 9%
114% 34%
Issuance
On June 5, 2009, the Firm issued $5.8 billion, or 163 million
shares, of common stock at $35.25 per share. On September 30,
2008, the Firm issued $11.5 billion, or 284 million shares, of com-
mon stock at $40.50 per share. The proceeds from these issuances
were used for general corporate purposes. For additional informa-
tion regarding common stock, see Note 24 on pages 231–232 of
this Annual Report.
Stock repurchases
In April 2007, the Board of Directors approved a stock repurchase
program that authorizes the repurchase of up to $10.0 billion of the
Firm’s common shares. In connection with the U.S. Treasury’s sale of
the warrants it received as part of the Capital Purchase Program, the
Board of Directors amended the Firm’s securities repurchase program
to authorize the repurchase of warrants for its stock. During the years
ended December 31, 2009 and 2008, the Firm did not repurchase
any shares of its common stock. As of December 31, 2009, $6.2
billion of authorized repurchase capacity remained under the repur-
chase program with respect to repurchases of common stock, and all
the authorized repurchase capacity remained with respect to the
warrants.
The authorization to repurchase common stock and warrants will
be utilized at management’s discretion, and the timing of purchases
and the exact number of shares and warrants purchased is subject
to various factors, including market conditions; legal considerations
affecting the amount and timing of repurchase activity; the Firm’s
capital position (taking into account goodwill and intangibles);
internal capital generation; and alternative potential investment
opportunities. The repurchase program does not include specific
price targets or timetables, may be executed through open market
purchases or privately negotiated transactions, or utilizing Rule
10b5-1 programs; and may be suspended at any time. A Rule
10b5-1 repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing com-
mon stock – for example, during internal trading “black-out peri-
ods.” All purchases under a Rule 10b5-1 plan must be made
according to a predefined plan that is established when the Firm is
not aware of material nonpublic information.
For additional information regarding repurchases of the Firm’s equity
securities, see Part II, Item 5, Market for registrant’s common equity,
related stockholder matters and issuer purchases of equity securities,
on page 18 of JPMorgan Chase’s 2009 Form 10-K.