JP Morgan Chase 2010 Annual Report Download - page 8

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all the capital into our company and not pay
any dividend – but this is not what most
shareholderswant).Wewouldliketobe
completely clear about how we prioritize our
use of capital. These priorities are:
• Firstandforemost,toinvestinorganic
growth – building great, long-term profitable
businesses.Weseesignicantopportunities
for organic growth in each of our businesses.
• Second,tomakeacquisitions–bothsmall
add-ons and larger ones, but only if the
price is right and we have a clear ability
to manage the risks and execute properly.
(If we are not running our own businesses
well,weshouldnotbedoingacquisitions.)
• Andthird,tobuybackstock–asadisci-
pline, we always will buy back the stock
weissueforcompensation.However,we
will buy back additional stock only when,
looking forward, we see few opportunities
to invest in organic growth and acquisi-
tions. And we will buy back stock only
when we believe it benefits our remaining
shareholders – not the ones who are selling
(i.e.,wewillbepricesensitive).
Wealsobelievethatstrengthcreatesgood
opportunities in bad times. And, yes, we
know we have made and will continue to
make mistakes – all businesses do – but we
hope to catch them early, fix them quickly
and learn from them.
Wearenotcomplacentaboutrenewed,
intense competition everywhere we operate –
infact,it’salreadyhere.Whateverthefuture
brings – and it will bring both good and bad
– we are prepared, and we expect to emerge
among the leaders.
How We View European Sovereign and
Geopolitical Risk
TheEuropeanUnion(EU)isoneofthe
great collective endeavors of all time –
where participating countries are striving to
form a permanent union of nations for the
benefit of all their citizens.
In the short run, i.e., in the next year or two,
webelievethattheEuroZone,intsand
starts, will work through its problems. It
has the will and wherewithal to do so. The
politiciansofEuropeseemtobecompletely
devoted to making this work – as their
predecessors were for the past 60 years. The
process will be messy, but the consequence
of giving up could be far worse: Sovereign
defaults could lead to a bank crisis with
serious economic consequences. Since it
is the same money (if sovereign nations
defaultontheirdebt,theEUwillhaveto
recapitalize its banks by approximately the
sameamount),itisbettertoxtheproblem
without causing additional complications.
Once the short-term issues are addressed,
there likely will be some restructuring
of the fiscal and monetary agreements
between the nations and possibly the
restructuring of some of the nations’ debt.
Webelievetherearewaystodothiswith
minimaldamage–particularlyiftheEUis
able to achieve economic growth.
Whenthesovereigncrisisstarted,
JPMorgan Chase’s gross exposures to
Greece, Ireland, Portugal, Spain and Italy
totaled approximately $40 billion – but net
of collateral and hedges, our real exposures
wereapproximately$20billion.Wedidnot
runorpanic–westayedthecourse.While
we reduced some of our exposures (essen-
tially, the investment of excess cash for the
company),wedidnotreducetheexposures
associated with serving our clients, and we
continued to actively conduct business in
those nations. Our position was clear and
consistent: to be there for our clients, not
just in good times, but in bad times as well.
Going forward, this mission will not change.
Weknowtherisks,andweareprepared
to take them. For example, in the unlikely
occurrence of extremely bad outcomes in all
these countries, JPMorgan Chase ultimately