JP Morgan Chase 2010 Annual Report Download - page 70

Management’s discussion and analysis
JPMorgan Chase & Co./2010 Annual Report
70
credit spreads on derivative assets and mark-to-market losses on
hedges of retained loans.
The provision for credit losses was a benefit of $1.2 billion, compared
with an expense of $2.3 billion in the prior year. The current-year
provision reflected a reduction in the allowance for loan losses, largely
related to net repayments and loan sales. Net charge-offs were
$735 million, compared with $1.9 billion in the prior year.
Noninterest expense was $17.3 billion, up $1.9 billion from the prior
year, driven by higher noncompensation expense, which included
increased litigation reserves, and higher compensation expense
which included the impact of the U.K. Bank Payroll Tax.
Return on Equity was 17% on $40.0 billion of average allocated
capital.
2009 compared with 2008
Net income was $6.9 billion, compared with a net loss of $1.2
billion in the prior year. These results reflected significantly higher
total net revenue, partially offset by higher noninterest expense and
a higher provision for credit losses.
Total net revenue was $28.1 billion, compared with $12.3 billion in
the prior year. Investment banking fees were up 21% to $7.2
billion, consisting of debt underwriting fees of $2.7 billion (up
24%), equity underwriting fees of $2.6 billion (up 51%), and
advisory fees of $1.9 billion (down 7%). Fixed Income Markets
revenue was $17.6 billion, compared with $2.0 billion in the prior
year, reflecting improved performance across most products and
modest net gains on legacy leveraged lending and mortgage-
related positions, compared with net markdowns of $10.6 billion in
the prior year. Equity Markets revenue was $4.4 billion, up 22%
from the prior year, driven by strong client revenue across products,
particularly prime services, and improved trading results. Fixed
Income and Equity Markets results also included losses of $1.7
billion from the tightening of the Firm’s credit spread on certain
structured liabilities, compared with gains of $1.2 billion in the
prior year. Credit Portfolio revenue was a loss of $1.0 billion versus
a gain of $860 million in the prior year, driven by mark-to-market
losses on hedges of retained loans compared with gains in the prior
year, partially offset by the positive net impact of credit spreads on
derivative assets and liabilities.
The provision for credit losses was $2.3 billion, compared with $2.0
billion in the prior year, reflecting continued weakness in the credit
environment. The allowance for loan losses to end-of-period loans
retained was 8.25%, compared with 4.83% in the prior year. Net
charge-offs were $1.9 billion, compared with $105 million in the
prior year. Total nonperforming assets were $4.2 billion, compared
with $2.5 billion in the prior year.
Noninterest expense was $15.4 billion, up $1.6 billion, or 11%,
from the prior year, driven by higher performance-based
compensation expense, partially offset by lower headcount-related
expense.
Return on Equity was 21% on $33.0 billion of average allocated
capital, compared with negative 5% on $26.1 billion of average
allocated capital in the prior year.
Selected metrics
As of or for the y
ear ended
December 31, (in millions,
except headcount)
2010
2009 2008
Selected balance sheet data
(period-end)
Loans:(a)
Loans retained(b) $ 53,145 $ 45,544 $
71,357
Loans held
-
for
-
sale and loans at
fair value 3,746 3,567 13,660
Total loans
56,891
49,111 85,017
Equity 40,000 33,000 33,000
Selected balance sheet data
(average)
Total assets
$
731,801
$ 699,039 $ 832,729
Trading assets
–
debt and equity
instruments 307,061 273,624 350,812
Trading assets
–
derivative
receivables 70,289 96,042 112,337
Loans: (a)
Loans retained
(
b
)
54,402 62,722 73,108
Loans held
-
for
-
sale a
nd loans at
fair value 3,215 7,589 18,502
Total loans
57,617
70,311 91,610
Adjusted assets(c) 540,449 538,724 679,780
Equity
40,000
33,000 26,098
Headcount 26,314 24,654 27,938
(a) Effective January 1, 2010, the Firm adopted accounting guidance related to
VIEs. Upon adoption of the guidance, the Firm consolidated its Firm-
administered multi-seller conduits. As a result, $15.1 billion of related loans
were recorded in loans on the Consolidated Balance Sheets.
(b) Loans retained included credit portfolio loans, leveraged leases and other
accrual loans, and excluded loans held-for-sale and loans at fair value.
(c) Adjusted assets, a non-GAAP financial measure, equals total assets minus
(1) securities purchased under resale agreements and securities borrowed less
securities sold, not yet purchased; (2) assets of variable interest entities
(“VIEs”); (3) cash and securities segregated and on deposit for regulatory and
other purposes; (4) goodwill and intangibles; (5) securities received as
collateral; and (6) investments purchased under the Asset-Backed Commercial
Paper Money Market Mutual Fund Liquidity Facility (“AML Facility”). The
amount of adjusted assets is presented to assist the reader in comparing IB’s
asset and capital levels to other investment banks in the securities industry.
Asset-to-equity leverage ratios are commonly used as one measure to assess a
company’s capital adequacy. IB believes an adjusted asset amount that
excludes the assets discussed above, which were considered to have a low risk
profile, provides a more meaningful measure of balance sheet leverage in the
securities industry.