JP Morgan Chase 2008 Annual Report Download - page 7

2004 2005 2006 2007 2008
Investment Bank $ 3,654 $ 3,673 $ 3,674 $ 3,139 $ (1,175)
Retail Financial Services 3,279 3,427 3,213 2,925 880
Card Services 1,681 1,907 3,206 2,919 780
Commercial Banking 992 951 1,010 1,134 1,439
Treasury & Securities Services 231 863 1,090 1,397 1,767
Asset Management 879 1,216 1,409 1,966 1,357
Corporate (4,172) (3,554) 842 1,885 557
JPMorgan Chase $ 6,544 $ 8,483 $ 14,444 $ 15,365 $ 5,605
5
Card Services reported net income of $780 million with
an ROE of 5%
Card Services’ full-year net income was $780 million,
down 73% year-over-year as charge-offs increased from
$5.5 billion in 2007 to $8.2 billion in 2008 (up 48%).
The net charge-off rate was approximately 5% of loans.
In 2008, Card Services increased net revenue by 8%
and grew managed loans by 3% (excluding WaMu).
In 2008, we added 14.9 million new credit card
accounts. By investing in activities to further engage
current cardmembers and attract new customers, we
continued growing the business. These activities
included renewing contracts with important partners
(AARP, Continental, Disney, Marriott and United) and
enhancing our customer service. Equally important,
Chase kept credit open and available to customers and
businesses in a safe and sound manner and extended
more than $84 billion in new credit.
With the WaMu acquisition, Chase became the largest
credit card issuer in the nation, with more than 168
million cards in circulation and more than $190 billion
in managed loans. Yet, being the biggest does not
mean we are the best. We will continue to invest in
areas that will make us the best in the business.
Specifically, our focus will be on responsive customer
service, valued loyalty and rewards programs, and
upgraded systems and infrastructure. In addition, our
ability to do a better job underwriting and to give our
customers added value through cross-selling is a huge
competitive advantage in both the card and retail
banking businesses.
Our focus on sound risk management extends to the
card business. Early in this crisis, we responded quick-
ly to leading indicators of change and made consider-
able risk management improvements. This included:
raising the credit-score threshold for direct-mail mar-
keting and increasing the number of applications that
are subject to our thorough review process. We regu-
larly manage our customers’ credit lines, based on
their willingness and ability to pay. While we are
lowering credit lines for customers who show signs
of increased risk or inactivity, we also are raising lines
for our most creditworthy customers. In addition, we
are closing accounts that have been inactive for long
periods of time because we know from experience that
these accounts are extremely risky.
Looking ahead, we expect losses will continue to
increase from 5% to 9%, essentially tracking the rate
of unemployment. To prepare for higher losses, we
increased our reserves from $3 billion to $8 billion and
are intensifying our collections efforts. At the same
time, we have expanded our use of flexible payment
programs to help those customers experiencing finan-
cial distress: In 2008, we saw 600,000 new enrollments
in payment programs, and we anticipate, and are
prepared for, that number to increase.
We do not expect 2009 to be a good year for the credit
card business. In fact, we do not expect to make any
money in Card Services this year. However, once this
crisis is over, we believe that our ongoing investments
in service quality, rewards programs and enhanced
infrastructure will ultimately make us one of the best
credit card companies in America.
Earnings by Line of Business (in millions)
(a)
(a) 2004 data are
unaudited pro
forma combined,
reflecting the
merger of
JPMorgan Chase
and Bank One