JP Morgan Chase 2010 Annual Report Download - page 69

JPMorgan Chase & Co./2010 Annual Report
69
INVESTMENT BANK
J.P. Morgan is one of the world’s leading investment
banks, with deep client relationships and broad product
capabilities. The clients of IB 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 strategy and structure, capital-
raising in equity and debt markets, sophisticated risk
management, market-making in cash securities and
derivative instruments, prime brokerage, and research.
Selected income statement data
Year ended December 31,
(in millions, except ratios) 2010 200
9
2008(e)
Revenue
Investment banking fees
$
6,18
6
$ 7,169
$ 5,907
Principal transactions
(a)
8,454
8,154
(7,042)
Lending- and deposit-related fees
819
664
463
Asset management, admin
i
stration
and commissions 2,413
2,650
3,064
All other income
(b)
381 (
115
) (341)
Noninterest revenue
18,253
18,522
2,051
Net interest income
7,964
9,587
10,284
Total net revenue
(c)
26,217
28,109
12,335
Provision for credit losses (1,200)
2,279
2,015
Noninterest expense
Compensation expense
9,727
9,334
7,701
Noncompensation expense
7,538
6,067
6,143
Total noninterest e
x
pense
17
,
265
15,401
13,844
Income/(loss) before i
n
come tax
expense/(benefit) 10,152
10,429
(3,524)
Income tax expense/(benefit)
(d)
3,513
3,530
(2,349)
Net income/(loss)
$
6,639
$ 6,899
$ (1,175)
Financial ratios
ROE
17
%
21
%
(5
)%
ROA
0.91
0.99
(0.14)
Overhead ratio
66
55
112
Compensation expense as % of total
net revenue(f) 37
33
62
(a) The 2009 results reflect modest net gains on legacy leveraged lending and
mortgage-related positions, compared with net markdowns of $10.6 billion in 2008.
(b) TSS was charged a credit reimbursement related to certain exposures managed
within IB’s credit portfolio on behalf of clients shared with TSS. IB recognizes this
credit reimbursement in its credit portfolio business in all other income.
(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 $1.7 billion, $1.4 billion
and $1.7 billion for 2010, 2009 and 2008, 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.
(f) The compensation expense as a percentage of total net revenue ratio includes the
impact of the U.K. Bank Payroll Tax on certain compensation awarded from
December 9, 2009 to April 5, 2010 to relevant banking employees. For
comparability to prior periods, IB excludes the impact of the U.K. Bank Payroll Tax
expense, which results in a compensation expense as a percentage of total net
revenue for 2010 of 35%, which is a non-GAAP financial measure.
The following table provides IB’s total net revenue by business segment.
Year ende
d December 31,
(in millions) 2010 2009 2008(e)
Revenue by business
Investment banking fees:
Advisory
$
1,469
$ 1,867 $ 2,008
Equity underwriting
1,589
2,641 1,749
Debt underwriting
3,128
2,661 2,150
Total investment banking fees
6,186
7,169 5,907
Fixed income markets
(a)
15,025
17,564 1,957
Equity markets
(b)
4,763 4,393 3,611
Credit portfolio
(c)
(d)
243 (1,017) 860
Total net revenue
$
26,217
$ 28,109 $12,335
Revenue by region
(d)
Americas
$
15,
189
$ 15,156 $ 2,610
Europe/Middle East/Africa
7,
405
9,790 7,710
Asia/Pacific
3,62
3
3,163 2,015
Total net revenue
$
26,217
$ 28,109 $12,335
(a) Fixed income markets primarily include revenue related to market-making across
global fixed income markets, including foreign exchange, interest rate, credit and
commodities markets.
(b) Equities markets primarily include revenue related to market-making across
global equity products, including cash instruments, derivatives, convertibles and
prime services.
(c) Credit portfolio revenue includes net interest income, fees and loan sale 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 includes the results of risk
management related to the Firm’s lending and derivative activities. See pages
116–118 of the Credit Risk Management section of this Annual Report for
further discussion.
(d) TSS was charged a credit reimbursement related to certain exposures managed
within IB’s credit portfolio on behalf of clients shared with TSS. IB recognizes this
credit reimbursement in its credit portfolio business in all other income.
(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
& Co. results.
2010 compared with 2009
Net income was $6.6 billion, down 4% compared with the prior year.
These results primarily reflected lower net revenue as well as higher
noninterest expense, largely offset by a benefit from the provision for
credit losses, compared with an expense in the prior year.
Net revenue was $26.2 billion, compared with $28.1 billion in the
prior year. Investment banking fees were $6.2 billion, down 14%
from the prior year; these consisted of record debt underwriting
fees of $3.1 billion (up 18%), equity underwriting fees of
$1.6 billion (down 40%), and advisory fees of $1.5 billion (down
21%). Fixed Income Markets revenue was $15.0 billion, compared
with $17.6 billion in the prior year. The decrease from the prior
year largely reflected lower results in rates and credit markets,
partially offset by gains of $287 million from the widening of the
Firm’s credit spread on certain structured liabilities, compared with
losses of $1.1 billion in the prior year. Equity Markets revenue was
$4.8 billion, compared with $4.4 billion in the prior year, reflecting
solid client revenue, as well as gains of $181 million from the
widening of the Firm’s credit spread on certain structured liabilities,
compared with losses of $596 million in the prior year. Credit
Portfolio revenue was $243 million, primarily reflecting net interest
income and fees on loans, partially offset by the negative impact of