JP Morgan Chase 2008 Annual Report Download - page 213

JPMorgan Chase & Co./ 2008 Annual Report 211
JPMorgan Chase is subject to ongoing tax examinations by the tax
authorities of the various jurisdictions in which it operates, including
U.S. federal and state and non-U.S. jurisdictions. The Firm’s consoli-
dated federal income tax returns are presently under examination by
the Internal Revenue Service (“IRS”) for the years 2003, 2004 and
2005. The consolidated federal income tax returns of Bank One
Corporation, which merged with and into JPMorgan Chase on July 1,
2004, are under examination for the years 2000 through 2003, and
for the period January 1, 2004, through July 1, 2004. The consolidat-
ed federal income tax returns of Bear Stearns for the years ended
November 30, 2003, 2004 and 2005, are also under examination. All
three examinations are expected to conclude in 2009. The IRS audits
of the consolidated federal income tax returns of JPMorgan Chase
for the years 2006 and 2007, and for Bear Stearns for the years
ended November 30, 2006 and 2007, are expected to commence in
2009. Administrative appeals are pending with the IRS relating to
prior examination periods. For 2002 and prior years, refund claims
relating to income and credit adjustments, and to tax attribute carry-
backs, for JPMorgan Chase and its predecessor entities, including
Bank One, have been filed. Amended returns to reflect refund claims
primarily attributable to net operating losses and tax credit carry-
backs will be filed for the final Bear Stearns federal consolidated tax
return for the period December 1, 2007, through May 30, 2008, and
for prior years.
The following table presents the U.S. and non-U.S. components of
income from continuing operations before income tax expense (benefit).
Year ended December 31, (in millions) 2008 2007 2006
U.S. $ (2,094) $13,720 $12,934
Non-U.S.(a) 4,867 9,085 6,952
Income from continuing operations
before income tax
expense (benefit) $ 2,773 $22,805 $19,886
(a) For purposes of this table, non-U.S. income is defined as income generated from
operations located outside the U.S.
Note 29 – Restrictions on cash and intercom-
pany funds transfers
The business of JPMorgan Chase Bank, National Association
(“JPMorgan Chase Bank, N.A.”) is subject to examination and regula-
tion by the Office of the Comptroller of the Currency (“OCC”). The
Bank is a member of the U.S. Federal Reserve System, and its deposits
are insured by the FDIC as discussed in Note 20 on page 202 of this
Annual Report.
The Board of Governors of the Federal Reserve System (the “Federal
Reserve”) requires depository institutions to maintain cash reserves
with a Federal Reserve Bank. The average amount of reserve bal-
ances deposited by the Firm’s bank subsidiaries with various Federal
Reserve Banks was approximately $1.6 billion in 2008 and 2007.
Restrictions imposed by U.S. federal law prohibit JPMorgan Chase
and certain of its affiliates from borrowing from banking subsidiaries
unless the loans are secured in specified amounts. Such secured
loans to the Firm or to other affiliates are generally limited to 10%
of the banking subsidiary’s total capital, as determined by the risk-
based capital guidelines; the aggregate amount of all such loans is
limited to 20% of the banking subsidiary’s total capital.
The principal sources of JPMorgan Chase’s income (on a parent com-
pany–only basis) are dividends and interest from JPMorgan Chase
Bank, N.A., and the other banking and nonbanking subsidiaries of
JPMorgan Chase. In addition to dividend restrictions set forth in
statutes and regulations, the Federal Reserve, the OCC and the FDIC
have authority under the Financial Institutions Supervisory Act to pro-
hibit or to limit the payment of dividends by the banking organizations
they supervise, including JPMorgan Chase and its subsidiaries that are
banks or bank holding companies, if, in the banking regulator’s opin-
ion, payment of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking organization.
At January 1, 2009 and 2008, JPMorgan Chase’s banking sub-
sidiaries could pay, in the aggregate, $17.0 billion and $16.2 billion,
respectively, in dividends to their respective bank holding companies
without the prior approval of their relevant banking regulators. The
capacity to pay dividends in 2009 will be supplemented by the bank-
ing subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S. and
non-U.S. regulators, as of December 31, 2008 and 2007, cash in the
amount of $20.8 billion and $16.0 billion, respectively, and securities
with a fair value of $12.1 billion and $3.4 billion, respectively, were
segregated in special bank accounts for the benefit of securities and
futures brokerage customers.