JP Morgan Chase 2008 Annual Report Download - page 80

Management’s discussion and analysis
78 JPMorgan Chase & Co./ 2008 Annual Report
Deposits
The Firm’s deposits represent a liability to customers, both retail and
wholesale, related to non-brokerage funds held on their behalf.
Deposits are generally classified by location (U.S. and non-U.S.),
whether they are interest or noninterest-bearing, and by type (i.e.,
demand, money market deposit, savings, time or negotiable order of
withdrawal accounts). Deposits help provide a stable and consistent
source of funding for the Firm. Deposits were at a higher level com-
pared with the level at December 31, 2007, predominantly from the
deposits assumed in the Washington Mutual transaction, net increas-
es in wholesale interest- and noninterest-bearing deposits in TSS, AM
and CB. The increase in TSS was driven by both new and existing
clients, and due to the deposit inflows related to the heightened
volatility and credit concerns affecting the markets. For more infor-
mation on deposits, refer to the TSS and RFS segment discussions on
pages 68–69 and 57–62, respectively, and the Liquidity Risk
Management discussion on pages 88–92 of this Annual Report. For
more information on wholesale liability balances, including deposits,
refer to the CB and TSS segment discussions on pages 66–67 and
68–69 of this Annual Report.
Commercial paper and other borrowed funds
The Firm utilizes commercial paper and other borrowed funds as part
of its liquidity management activities to meet short-term funding
needs, and in connection with a TSS liquidity management product
whereby excess client funds, are transferred into commercial paper
overnight sweep accounts. The increase in other borrowed funds was
predominantly due to advances from Federal Home Loan Banks of
$70.2 billion (net of maturities of $10.4 billion) that were assumed
as part of the Washington Mutual transaction and nonrecourse
advances from the Federal Reserve Bank of Boston (“FRBB”) to fund
purchases of asset-backed commercial paper from money market
mutual funds, and other borrowings from the Federal Reserve under
the Term Auction Facility program. For additional information on the
Firm’s Liquidity Risk Management and other borrowed funds, see
pages 88–92 and Note 21 on page 202 of this Annual Report.
Long-term debt and trust preferred capital debt securities
The Firm utilizes long-term debt and trust preferred capital debt
securities to provide cost-effective and diversified sources of funds
and as critical components of the Firm’s liquidity and capital man-
agement. Long-term debt and trust preferred capital debt securities
increased from December 31, 2007, predominantly due to debt
assumed in both the Bear Stearns merger and the Washington
Mutual transaction, and debt issuances of $20.8 billion, which are
guaranteed by the FDIC under its TLG Program. These increases were
partially offset by net maturities and redemptions, including IB struc-
tured notes, the issuances of which are generally client-driven. For
additional information on the Firm’s long-term debt activities, see the
Liquidity Risk Management discussion on pages 88–92 and Note 23
on pages 203–204 of this Annual Report.
Stockholders’ equity
The increase in total stockholders’ equity from December 31, 2007,
was predominantly due to the issuance of preferred and common
equity securities during 2008. In the fourth quarter of 2008, JPMorgan
Chase participated in the Capital Purchase Program and issued pre-
ferred stock and a warrant to purchase common stock to the U.S.
Treasury, resulting in a $25.0 billion increase to stockholders’ equity.
Additional preferred stock issuances and a common stock issuance
during 2008 increased equity by $19.3 billion. Equity from issuances of
stock awards under the Firm’s employee stock-based compensation
plans, the Bear Stearns merger, and net income for 2008 was more
than offset by the declaration of cash dividends and net losses recorded
within accumulated other comprehensive income related to AFS securi-
ties and defined benefit pension and other postretirement employee
benefit plans. For a further discussion, see the Capital Management
section that follows, and Note 24 and Note 27 on pages 205–206
and 208, respectively, of this Annual Report.