JP Morgan Chase 2010 Annual Report Download - page 166

Notes to consolidated financial statements
166 JPMorgan Chase & Co./2010 Annual Report
Note 2 – Business changes and
developments
Decrease in common stock dividend
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.
Acquisition of the banking operations of Washington
Mutual Bank
On September 25, 2008, JPMorgan Chase acquired the banking
operations of Washington Mutual Bank (“Washington Mutual”)
from the FDIC for $1.9 billion. The acquisition expanded JPMorgan
Chase’s consumer branch network into several states, including
California, Florida Washington, Georgia, Idaho, Nevada and Oregon
and created the third largest branch network in the U.S. The acquisi-
tion also extended the reach of the Firm’s business banking, com-
mercial banking, credit card, consumer lending and wealth
management businesses.
The acquisition was accounted for under the purchase method of
accounting, which requires that the assets and liabilities of Washing-
ton Mutual be initially reported at fair value.
In 2008, the $1.9 billion purchase price was preliminarily allocated
to the Washington Mutual assets acquired and liabilities assumed,
which resulted in negative goodwill. In accordance with U.S. GAAP
for business combinations that was in effect at the time of the
acquisition, noncurrent nonfinancial assets acquired in the Washing-
ton Mutual transaction that were not held-for-sale, such as the
premises and equipment and other intangibles, were written down
against the negative goodwill. The negative goodwill that remained
after writing down the nonfinancial assets was recognized as an
extraordinary gain of $1.9 billion at December 31, 2008. The final
total extraordinary gain that resulted from the Washington Mutual
transaction was $2.0 billion.
The final summary computation of the purchase price and the allocation of the final total purchase price of $1.9 billion to the net assets acquired of Wash-
ington Mutual – based on their respective fair values as of September 25, 2008, and the resulting final negative goodwill of $2.0 billion are
presented below.
September 25, 2008
(in millions)
Purchase price
Purchase price
$
1,938
Direct acquisition costs
3
Total purchase price
1,941
Net assets acquired
:
Washington Mutual’s net assets before fair value adjustments
$
39,186
Washington Mutual’s goodwill and other intangible assets
(7,566
)
Subtotal
31,620
Adjustments to reflect assets acquired at fair value:
Sec
urities
(16
)
Trading assets
(591
)
Loans
(30,998
)
Allowance for loan losses
8,216
Premises and equipment
680
Accrued interest and accounts receivable
(243
)
Other assets
4,010
Adjustments to reflect liabilities assumed at fair val
ue:
Deposits
(686
)
Other borrowed funds
68
Accounts payable, accrued expense and other liabilities
(1,124
)
Long
-
term debt
1,063
Fair value of net assets acquired
11,999
Negative goodwill before allocation to nonfinancial assets
(10,058
)
Negative goodwill allocated to nonfinancial assets
(a)
8,076
Negative goodwill resulting from the acquisition
(b)
$ (1,982
)
(a) The acquisition was accounted for as a purchase business combination, which requires the assets (including identifiable intangible assets) and liabilities (including
executory contracts and other commitments) of an acquired business to be recorded at their respective fair values as of the effective date of the acquisition and consoli-
dated with those of JPMorgan Chase. The fair value of the net assets of Washington Mutual’s banking operations exceeded the $1.9 billion purchase price, resulting in
negative goodwill. Noncurrent, nonfinancial assets not held-for-sale, such as premises and equipment and other intangibles, were written down against the negative
goodwill. The negative goodwill that remained after writing down transaction-related core deposit intangibles of approximately $4.9 billion and premises and equip-
ment of approximately $3.2 billion was recognized as an extraordinary gain of $2.0 billion.
(b) The extraordinary gain was recorded net of tax expense in Corporate/Private Equity.