JP Morgan Chase 2010 Annual Report Download - page 89

JPMorgan Chase & Co./2010 Annual Report
89
CORPORATE/PRIVATE EQUITY
The Corporate/Private Equity sector comprises Private
Equity, Treasury, the Chief Investment Office, corporate
staff units and expense that is centrally managed.
Treasury and the Chief Investment Office manage capital,
liquidity and structural risks of the Firm. The corporate
staff units include Central Technology and Operations,
Internal Audit, Executive Office, Finance, Human
Resources, Marketing & Communications, Legal &
Compliance, Corporate Real Estate and General Services,
Risk Management, Corporate Responsibility and Strategy
& Development. Other centrally managed expense
includes the Firm’s occupancy and pension-related
expense, net of allocations to the business.
Selected income statement data
Year ended D
e
cember 31,
(in millions, except headcount) 20
10
200
9
2008
Revenue
Principal transactions
(a)
$
2,208
$ 1,574
$ (3,588 )
Securities gains
(
b
)
2,898
1,139
1,637
All other income
(
c
)
253
58
1,673
Noninterest revenue
5,359
2,
771
(278 )
Net interest income
2,063
3,863
347
Total net revenue
(d)
7,422
6,634
69
Provision for credit losses
14
80
447 (j)
Provision for credit losses
–
accounting conformity(e)
—
—
1,534
Noninterest expense
Compensation expense
2,357
2,811
2,340
Noncompensation expense
(f)
8,788
3,597
1,841
Merger costs
—
481
432
Subtotal
11,145
6,889
4,613
Net expense allocated to other
businesses (
4,790
)
(4,994
) (4,641 )
Total noninte
rest e
x
pense
6,355
1,895
(28 )
Income/(loss) before i
n
come
tax expense/(benefit) and
extraordinary gain
1,053
4,659
(1,884 )
Income tax expense/(benefit)
(g)
(
205
)
1,705
(535 )
Income/(loss) before
extraordinary gain
1,258
2,954
(1,349 )
Extraordinary gain
(h)
—
76
1,906
Net income
$
1,258
$
3,030
$ 557
Total net revenue
Private equity
$
1,239
$
18
$ (963 )
Corporate
6,183
6,616
1,032
Total net revenue
$
7,422
$
6,634
$ 69
Net income/(loss)
Private equity
$
588
$
(78
) $ (690 )
Corporate
(i)
670
3,
108
1,247
Total net income
$
1,258
$
3,030
$ 557
Headcount
20,030
20,11
9
23,376
(a) Included losses on preferred equity interests in Fannie Mae and Freddie Mac in
2008.
(b) Included gain on sale of MasterCard shares in 2008.
(c) Included a gain from the dissolution of the Chase Paymentech Solutions joint
venture and proceeds from the sale of Visa shares in its initial public offering in
2008.
(d) Total net revenue included tax-equivalent adjustments, predominantly due to
tax-exempt income from municipal bond investments of $226 million, $151
million and $57 million for 2010, 2009 and 2008, respectively.
(e) Represents an accounting conformity credit loss reserve provision related to the
acquisition of Washington Mutual Bank’s banking operations.
(f) Includes litigation expense of $5.7 billion for 2010, compared with net benefits
of $0.3 billion and $1.0 billion for 2009 and 2008, respectively. Included in the
net benefits were a release of credit card litigation reserves in 2008 and
insurance recoveries related to settlement of the Enron and WorldCom class
action litigations. Also included a $675 million FDIC special assessment during
2009.
(g) Includes tax benefits recognized upon the resolution of tax audits.
(h) On September 25, 2008, JPMorgan Chase acquired the banking operations of
Washington Mutual Bank. The acquisition resulted in negative goodwill, and
accordingly, the Firm recognized an extraordinary gain. A preliminary gain of
$1.9 billion was recognized at December 31, 2008. The final total extraordinary
gain that resulted from the Washington Mutual transaction was $2.0 billion.
(i) 2009 and 2008 included merger costs and the extraordinary gain related to the
Washington Mutual transaction, as well as items related to the Bear Stearns
merger, including merger costs, asset management liquidation costs and
JPMorgan Securities broker retention expense.
(j) In November 2008, the Firm transferred $5.8 billion of higher quality credit card
loans from the legacy Chase portfolio to a securitization trust previously
established by Washington Mutual (“the Trust”). As a result of converting higher
credit quality Chase-originated on-book receivables to the Trust’s seller’s interest
which had a higher overall loss rate reflective of the total assets within the Trust,
approximately $400 million of incremental provision expense was recorded
during the fourth quarter of 2008. This incremental provision expense was
recorded in the Corporate segment as the action related to the acquisition of
Washington Mutual's banking operations. For further discussion of credit card
securitizations, see Note 16 on pages 244–259 of this Annual Report.
2010 compared with 2009
Net income was $1.3 billion compared with $3.0 billion in the prior
year. The decrease was driven by higher litigation expense, partially
offset by higher net revenue.
Net income for Private Equity was $588 million, compared with a
net loss of $78 million in the prior year, reflecting the impact of
improved market conditions on certain investments in the portfolio.
Net revenue was $1.2 billion compared with $18 million in the
prior year, reflecting private equity gains of $1.3 billion compared
with losses of $54 million. Noninterest expense was $323 million,
an increase of $182 million, driven by higher compensation
expense.
Net income for Corporate was $670 million, compared with $3.1
billion in the prior year. Current year results reflect after-tax
litigation expense of $3.5 billion, lower net interest income and
trading gains, partially offset by a higher level of securities gains,
primarily driven by repositioning of the portfolio in response to
changes in the interest rate environment and to rebalance
exposure. The prior year included merger-related net loss of $635
million and a $419 million FDIC assessment.