JP Morgan Chase 2008 Annual Report Download - page 55

JPMorgan Chase & Co./ 2008 Annual Report 53
Capital allocation
Each business segment is allocated capital by taking into considera-
tion stand-alone peer comparisons, economic risk measures and reg-
ulatory capital requirements. The amount of capital assigned to each
business is referred to as equity. Line of business equity increased
during the second quarter of 2008 in IB and AM due to the Bear
Stearns merger and, for AM, the purchase of the additional equity
interest in Highbridge. At the end of the third quarter of 2008, equity
was increased for each line of business with a view toward the
future implementation of the new Basel II capital rules. For further
details on these rules, see Basel II on page 84 of this Annual Report.
In addition, equity allocated to RFS, CS and CB was increased as a
result of the Washington Mutual transaction. For a further discussion,
see Capital management–Line of business equity on page 82 of this
Annual Report.
Expense allocation
Where business segments use services provided by support units
within the Firm, the costs of those support units are allocated to the
business segments. The expense is allocated based upon their actual
cost or the lower of actual cost or market, as well as upon usage of
the services provided. In contrast, certain other expense related to
certain corporate functions, or to certain technology and operations,
are not allocated to the business segments and are retained in
Corporate. Retained expense includes: parent company costs that
would not be incurred if the segments were stand-alone businesses;
adjustments to align certain corporate staff, technology and opera-
tions allocations with market prices; and other one-time items not
aligned with the business segments.
Segment results – Managed basis(a)(b)
The following table summarizes the business segment results for the periods indicated.
Year ended December 31, Total net revenue Noninterest expense
(in millions, except ratios) 2008 2007 2006 2008 2007 2006
Investment Bank $ 12,214 $ 18,170 $ 18,833 $ 13,844 $13,074 $ 12,860
Retail Financial Services 23,520 17,305 14,825 12,077 9,905 8,927
Card Services 16,474 15,235 14,745 5,140 4,914 5,086
Commercial Banking 4,777 4,103 3,800 1,946 1,958 1,979
Treasury & Securities Services 8,134 6,945 6,109 5,223 4,580 4,266
Asset Management 7,584 8,635 6,787 5,298 5,515 4,578
Corporate/Private Equity 69 4,419 14 (28) 1,757 1,147
Total $ 72,772 $ 74,812 $ 65,113 $ 43,500 $41,703 $38,843
Year ended December 31, Net income (loss) Return on equity
(in millions, except ratios) 2008 2007 2006 2008 2007 2006
Investment Bank $ (1,175) $ 3,139 $ 3,674 (5)% 15% 18%
Retail Financial Services 880 2,925 3,213 518 22
Card Services 780 2,919 3,206 521 23
Commercial Banking 1,439 1,134 1,010 20 17 18
Treasury & Securities Services 1,767 1,397 1,090 47 47 48
Asset Management 1,357 1,966 1,409 24 51 40
Corporate/Private Equity(c) 557 1,885 842 NM NM NM
Total $ 5,605 $ 15,365 $ 14,444 4% 13% 13%
(a) Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
(b) On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these
transactions was accounted for as a purchase and their respective results of operations are included in the Firm’s results from each respective transaction date. For additional informa-
tion on these transactions, see Note 2 on pages 135–140 of this Annual Report.
(c) Net income included an extraordinary gain of $1.9 billion related to the Washington Mutual transaction for 2008 and income from discontinued operations of $795 million for 2006.