JP Morgan Chase 2008 Annual Report Download - page 5

3
I. REVIEW OF 2008 FINANCIAL
PERFORMANCE AND BUSINESS RESULTS
JPMorgan Chase earned nearly $6 billion in 2008,
down 64% from the $15 billion we earned in the prior
year. During a “normal” credit cycle and environment,
we should earn more than $15 billion. So clearly, this
was not a great year financially. Essentially, the year’s
financial results were marred by two issues, both of
which were highlighted as major risks in last year’s
letter. The first related to increasing credit costs, most-
ly for consumer and mortgage loans. The second
resulted from Investment Bank write-downs of more
than $10 billion, primarily from leveraged lending and
mortgage exposures.
Throughout this financial crisis, we have benefited
from a fortress balance sheet. We started this year
with Tier 1 capital of 8.4% and ended it with 10.9%.
We increased credit loss reserves to $24 billion (up
almost $14 billion, including $4 billion related to
Washington Mutual (WaMu)). Even without the infu-
sion of government capital in the year’s final quarter,
our Tier 1 capital at year-end would have been 8.9%.
Across all other measures of capital, we have remained
relatively conservative. Although we did not anticipate
all of the extraordinary events of the year, our strong
balance sheet, general conservatism and constant focus
on risk management served us well and enabled us to
weather this terrible environment.
While we are disappointed with our 2008 financial
results, we have not lost sight of our important
achievements. We are extremely gratified that we were
able to grow and gain healthy market share in virtually
all of our businesses. And we never stopped investing
in our systems and infrastructure and adding bankers,
branches and products.
Regardless of what 2009 will bring, this emphasis on
serving clients and growing our businesses will drive
our results for years to come.
A. Results by Line of Business
The Investment Bank reported a loss of $1.2 billion
Our Investment Bank (IB) had disappointing financial
results on an absolute basis but performed relatively
well compared with most of our competitors. The
results reflect a tough operating environment and suf-
fered from the aforementioned $10 billion in write-
downs on leveraged lending and mortgage-related
assets, partially related to the acquisition of Bear
Stearns. While those write-downs were painful, they
were among the lowest in our industry. Moreover, our
underlying business performed solidly, and in some
notable areas, it outperformed. Several core businesses
– Rates and Currencies, Commodities, Emerging
Markets and Credit Trading – reported record results.
We also were able to make significant progress across
our IB business. At the end of May, we closed our acqui-
sition of Bear Stearns, which I will discuss in more detail
later in this letter. Throughout the year, we stayed com-
pletely focused on servicing our corporate and investor
clients, and in spite of the credit crisis, we continued to
be there for our clients when they needed our advice and
responsible capital support. J.P. Morgan was engaged in
nearly all of the largest and most complex deals of the
year, and we solidly established ourselves as the first call
for clients on their most important challenges.
We try not to overemphasize market share tables or
awards, but years of focus and discipline did lead to
some extraordinary industry recognition that is worth
noting. We earned our best rankings ever across the
league tables, finishing first in global investment bank-
ing fees; mergers and acquisitions; global syndicated
loans; debt; equity; and debt and equity-related trans-
actions – the only firm ever to finish No. 1 in all of
these categories in a given year. In our Markets busi-
nesses, client revenue increased 40% year-over-year, as
clients shifted more of their business to us in uncertain
times. In addition, J.P. Morgan received top awards
from International Financing Review, Risk and Financial
News and received a leading number of distinctions in
the Greenwich Associates’ 2008 Quality Leader survey
– a record number of industry honors for us.