JP Morgan Chase 2010 Annual Report Download - page 60

Management’s discussion and analysis
JPMorgan Chase & Co./2010 Annual Report
60
interest income and the provision for credit losses, and the
elimination of securitization income/(losses) in other income).
Lower income from other fee-based products also contributed to
the decrease in credit card income. Excluding the impact of the
adoption of the new accounting guidance, credit card income
increased in 2010, reflecting higher customer charge volume on
credit and debit cards. For a more detailed discussion of the impact
of the adoption of the new accounting guidance on the
Consolidated Statements of Income, see Explanation and
Reconciliation of the Firm’s Use of Non-GAAP Financial Measures
on pages 64–66 of this Annual Report. For additional information
on credit card income, see the CS and RFS segment results on
pages 79–81, and pages 72–78, respectively, of this Annual
Report.
Other income increased in 2010, largely due to the write-down of
securitization interests during 2009 and higher auto operating
lease income in RFS.
Net interest income was relatively flat in 2010 compared with
2009. The effect of lower loan balances was predominantly offset
by the effect of the adoption of the new accounting guidance
related to VIEs (which increased net interest income by
approximately $5.8 billion in 2010). Excluding the impact of the
adoption of the new accounting guidance, net interest income
decreased, driven by lower average loan balances, primarily in
CS, RFS and IB, reflecting the continued runoff of the credit card
balances and residential real estate loans, and net repayments
and loan sales; lower yields and fees on credit card receivables,
reflecting the impact of legislative changes; and lower yields on
securities in Corporate resulting from investment portfolio
repositioning. The Firm’s average interest-earning assets were
$1.7 trillion in 2010, and the net yield on those assets, on a FTE
basis, was 3.06%, a decrease of 6 basis points from 2009. For a
more detailed discussion of the impact of the adoption of the
new accounting guidance related to VIEs on the Consolidated
Statements of Income, see Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures on pages 64–66 of
this Annual Report. For further information on the impact of the
legislative changes on the Consolidated Statements of Income,
see CS discussion on Credit Card Legislation on page 79 of this
Annual Report.
2009 compared with 2008
Total net revenue was $100.4 billion, up by $33.2 billion, or 49%,
from the prior year. The increase was driven by higher principal
transactions revenue, primarily related to improved performance
across most fixed income and equity products, and the absence of
net markdowns on legacy leveraged lending and mortgage
positions in IB, as well as higher levels of trading gains and
investment securities income in Corporate/Private Equity. Results
also benefited from the impact of the Washington Mutual
transaction, which contributed to increases in net interest income,
lending- and deposit-related fees, and mortgage fees and related
income. Lastly, higher investment banking fees also contributed to
revenue growth. These increases in revenue were offset partially by
reduced fees and commissions from the effect of lower market
levels on assets under management and custody, and the absence
of proceeds from the sale of Visa shares in its initial public offering
in the first quarter of 2008.
Investment banking fees increased from the prior year, due to
higher equity and debt underwriting fees. For a further discussion
of investment banking fees, which are primarily recorded in IB, see
IB segment results on pages 69–71 of this Annual Report.
Principal transactions revenue, which consists of revenue from
trading and private equity investing activities, was significantly
higher compared with the prior year. Trading revenue increased,
driven by improved performance across most fixed income and
equity products; modest net gains on legacy leveraged lending and
mortgage-related positions, compared with net markdowns of
$10.6 billion in the prior year; and gains on trading positions in
Corporate/Private Equity, compared with losses in the prior year of
$1.1 billion on markdowns of Federal National Mortgage
Association (“Fannie Mae”) and Federal Home Loan Mortgage
Corporation (“Freddie Mac”) preferred securities. These increases
in revenue were offset partially by an aggregate loss of $2.3 billion
from the tightening of the Firm’s credit spread on certain structured
liabilities and derivatives, compared with gains of $2.0 billion in the
prior year from widening spreads on these liabilities and
derivatives. The Firm’s private equity investments produced a slight
net loss in 2009, a significant improvement from a larger net loss in
2008. For a further discussion of principal transactions revenue, see
IB and Corporate/Private Equity segment results on pages 69–71
and 89–90, respectively, and Note 7 on pages 199–200 of this
Annual Report.