JP Morgan Chase 2008 Annual Report Download - page 142

Notes to consolidated financial statements
140 JPMorgan Chase & Co./ 2008 Annual Report
Solutions joint venture was accounted for as a step acquisition in
accordance with SFAS 141, and the Firm recognized an after-tax gain
of $627 million in the fourth quarter of 2008 as a result of the dissolu-
tion. The gain represents the amount by which the fair value of the net
assets acquired (predominantly intangible assets and goodwill) exceed-
ed JPMorgan Chase’s book basis in the net assets transferred to First
Data Corporation. Upon dissolution, the Firm began to consolidate the
retained Chase Paymentech Solutions business.
Proceeds from Visa Inc. shares
On March 19, 2008, Visa Inc. (“Visa”) completed its initial public
offering (“IPO”). Prior to the IPO, JPMorgan Chase held approxi-
mately a 13% equity interest in Visa. On March 28, 2008, Visa used
a portion of the proceeds from the offering to redeem a portion of
the Firm’s equity interest, which resulted in the recognition of a pre-
tax gain of $1.5 billion (recorded in other income). In conjunction
with the IPO, Visa placed $3.0 billion in escrow to cover liabilities
related to certain litigation matters. The escrow was increased by
$1.1 billion in the fourth quarter of 2008. JPMorgan Chase’s interest
in the escrow was recorded as a reduction of other expense and
reported net to the extent of established litigation reserves.
Purchase of additional interest in Highbridge Capital
Management
In January 2008, JPMorgan Chase purchased an additional equity
interest in Highbridge Capital Management, LLC (“Highbridge”). As a
result, the Firm currently owns 77.5% of Highbridge.
Acquisition of the consumer, business banking and middle-
market banking businesses of The Bank of New York in
exchange for selected corporate trust businesses, including
trustee, paying agent, loan agency and document manage-
ment services
On October 1, 2006, JPMorgan Chase completed the acquisition of
The Bank of New York Company, Inc.’s (“The Bank of New York”)
consumer, business and middle-market banking businesses in
exchange for selected corporate trust businesses plus a cash pay-
ment of $150 million. The transaction also included a contingent
payment payable to The Bank of New York; the amount due of $25
million was paid in 2008. The acquisition added 339 branches and
more than 400 ATMs, and it significantly strengthened Retail
Financial Services’ distribution network in the New York tri-state
area. The Bank of New York businesses acquired were valued at a
premium of $2.3 billion; the Firm’s corporate trust businesses that
were transferred (i.e., trustee, paying agent, loan agency and docu-
ment management services) were valued at a premium of $2.2 bil-
lion. This transaction included the acquisition of approximately $7.7
billion in loans net of allowance for loan losses and $12.9 billion in
deposits from the Bank of New York. The Firm also recognized core
deposit intangibles of $485 million, which are being amortized using
an accelerated method over a 10-year period. JPMorgan Chase
recorded an after-tax gain of $622 million on this transaction in the
fourth quarter of 2006. For additional discussion related to the trans-
action, see Note 3 on pages 140–141 of this Annual Report.
JPMorgan Partners management
On August 1, 2006, the buyout and growth equity professionals of
JPMorgan Partners (“JPMP”) formed an independent firm, CCMP
Capital, LLC (“CCMP”), and the venture professionals separately
formed an independent firm, Panorama Capital, LLC (“Panorama”).
The investment professionals of CCMP and Panorama continue to
manage the former JPMP investments pursuant to a management
agreement with the Firm.
Sale of insurance underwriting business
On July 1, 2006, JPMorgan Chase completed the sale of its life insur-
ance and annuity underwriting businesses to Protective Life
Corporation for cash proceeds of approximately $1.2 billion, consist-
ing of $900 million of cash received from Protective Life Corporation
and approximately $300 million of preclosing dividends received
from the entities sold. The after-tax impact of this transaction was
negligible. The sale included both the heritage Chase insurance busi-
ness and the insurance business that Bank One had bought from
Zurich Insurance in 2003.
Acquisition of private-label credit card portfolio from Kohl’s
Corporation
On April 21, 2006, JPMorgan Chase completed the acquisition of
$1.6 billion of private-label credit card receivables and approximately
21 million accounts from Kohl’s Corporation (“Kohl’s”). JPMorgan
Chase and Kohl’s also entered into an agreement under which
JPMorgan Chase is offering private-label credit cards to both new
and existing Kohl’s customers.
Collegiate Funding Services
On March 1, 2006, JPMorgan Chase acquired, for approximately
$663 million, Collegiate Funding Services, a leader in student loan
servicing and consolidation. This acquisition included $6 billion of
student loans.
Note 3 – Discontinued operations
On October 1, 2006, JPMorgan Chase completed the acquisition of
The Bank of New York’s consumer, small-business and middle-market
banking businesses in exchange for selected corporate trust busi-
nesses. Refer to Note 2 on pages 135–140 of this Annual Report for
additional information.