JP Morgan Chase 2008 Annual Report Download - page 58

Management’s discussion and analysis
56 JPMorgan Chase & Co./ 2008 Annual Report
Selected metrics
Year ended December 31,
(in millions, except ratio data) 2008 2007 2006
Credit data and quality
statistics
Net charge-offs (recoveries) $ 105 $ 36 $ (31)
Nonperforming assets:
Nonperforming loans(a) 1,175 353 231
Other nonperforming assets 1,326 100 38
Total nonperforming assets 2,501 453 269
Allowance for credit losses:
Allowance for loan losses 3,444 1,329 1,052
Allowance for lending-related
commitments 360 560 305
Total allowance for credit losses 3,804 1,889 1,357
Net charge-off (recovery) rate(a)(b)(c) 0.14% 0.06% (0.05)%
Allowance for loan losses to
average loans(a)(b)(c) 4.71(h) 2.14(h) 1.79
Allowance for loan losses to
nonperforming loans(a) 301 439 461
Nonperforming loans to average
loans 1.28 0.44 0.29
Market risk–average trading
and credit portfolio VaR
– 99% confidence level(d)
Trading activities:
Fixed income $ 181 $80 $56
Foreign exchange 34 23 22
Equities 57 48 31
Commodities and other 32 33 45
Diversification(e) (108) (77) (70)
Total trading VaR(f) 196 107 84
Credit portfolio VaR(g) 69 17 15
Diversification(e) (63) (18) (11)
Total trading and credit
portfolio VaR $ 202 $ 106 $ 88
(a) Nonperforming loans included loans held-for-sale and loans at fair value of $32 mil-
lion, $50 million and $3 million at December 31, 2008, 2007 and 2006, respectively,
which were excluded from the allowance coverage ratios. Nonperforming loans at
December 31, 2006, excluded distressed loans held-for-sale that were purchased as
part of IB’s proprietary activities. As a result of the adoption of SFAS 159 in the first
quarter of 2007, these loans were reclassified to trading assets.
(b) As a result of the adoption of SFAS 159 in the first quarter of 2007, $11.7 billion of
loans were reclassified to trading assets.
(c) Loans held-for-sale and loans at fair value were excluded when calculating the
allowance coverage ratio and net charge-off (recovery) rate.
(d) Results for 2008 include seven months of the combined Firm’s (JPMorgan Chase’s
and Bear Stearns’) results and five months of heritage JPMorgan Chase results. All
prior periods reflect heritage JPMorgan Chase results. For a more complete descrip-
tion of value-at-risk (“VaR”), see pages 112–115 of this Annual Report.
(e) Average VaRs were less than the sum of the VaRs of their market risk components,
which was due to risk offsets resulting from portfolio diversification.The diversification
effect reflected the fact that the risks were not perfectly correlated. The risk of a port-
folio of positions is usually less than the sum of the risks of the positions themselves.
(f) Trading VaR includes predominantly all trading activities in IB; however, particular risk
parameters of certain products are not fully captured, for example, correlation risk.
Trading VaR does not include VaR related to held-for-sale funded loans and unfunded
commitments, nor the debit valuation adjustments (“DVA”) taken on derivative and
structured liabilities to reflect the credit quality of the Firm. See the DVA Sensitivity
table on page 115 of this Annual Report for further details. Trading VaR also does not
include the MSR portfolio or VaR related to other corporate functions, such as
Corporate/Private Equity. Beginning in the fourth quarter of 2008, trading VaR
includes the estimated credit spread sensitivity of certain mortgage products.
(g) Included VaR on derivative credit valuation adjustments (“CVA”), hedges of the CVA
and mark-to-market hedges of the retained loan portfolio, which were all reported in
principal transactions revenue. This VaR does not include the retained loan portfolio.
(h) Excluding the impact of a loan originated in March 2008 to Bear Stearns, the
adjusted ratio would be 4.84% for 2008. The average balance of the loan extended
to Bear Stearns was $1.9 billion for 2008. The allowance for loan losses to period-
end loans was 4.83% and 1.92% at December 31, 2008 and 2007, respectively.
Market shares and rankings(a)
2008 2007 2006
Market Market Market
December 31, share Rankings share Rankings share Rankings
Global debt, equity
and equity-related 10% #1 8% #2 7% #2
Global syndicated loans 12 1 13 1 14 1
Global long-term debt(b) 9273 63
Global equity and
equity-related(c) 12 1 92 76
Global announced
M&A(d) 27 2 27 4 26 4
U.S. debt, equity and
equity-related 16 1 10 2 9 2
U.S. syndicated loans 26 1 24 1 26 1
U.S. long-term debt(b) 15 1 10 2 9 2
U.S. equity and
equity-related(c) 16 1 11 5 8 6
U.S. announced M&A(d) 33 3 28 3 29 3
(a) Source: Thomson Reuters. The results for 2008 are pro forma for the Bear Stearns
merger. The results for 2007 and 2006 represent heritage JPMorgan Chase only.
(b) Includes asset-backed securities, mortgage-backed securities and municipal securi-
ties.
(c) Includes rights offerings; U.S. domiciled equity and equity-related transactions.
(d) Global announced M&A is based upon rank value; all other rankings are based
upon proceeds, with full credit to each book manager/equal if joint. Because of joint
assignments, market share of all participants will add up to more than 100%.
Global and U.S. announced M&A market share and rankings for 2007 and 2006
include transactions withdrawn since December 31, 2007 and 2006. U.S.
announced M&A represents any U.S. involvement ranking.
According to Thomson Reuters, in 2008, the Firm improved its posi-
tions to #1 in Global Debt, Equity and Equity-related transactions
and Global Equity and Equity-related transactions; and improved its
position to #2 in Global Long-term Debt and Global Announced
M&A. The Firm maintained its #1 position in Global Syndicated
Loans.
According to Dealogic, the Firm was ranked #1 in Investment
Banking fees generated during 2008, based upon revenue.