JP Morgan Chase 2010 Annual Report Download

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2010 Annual Report

Table of contents

  • Page 1
    2010 Annual Report

  • Page 2
    ... a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity...

  • Page 3
    ...in more than 25 countries. Over the past year, we, as always, have relied on our core values, our commitment to clients and our fortress balance sheet to guide our actions. We will continue to serve our customers and the communities where they live and work. This is the way JPMorgan Chase is making...

  • Page 4
    .... While helping our clients - large and small - prepare for the future, we continued to actively support the economic recovery. At the same time, we continued to invest in your company's future and to build our businesses - opening branches and offices and adding bankers across the globe, including...

  • Page 5
    ... - in service to our clients. This is the only way we will be able to thrive going forward and to overcome the challenges ahead. I've asked the chief executive of each of our lines of business to write you a letter about his or her respective business, both to review the 2010 results and to offer an...

  • Page 6
    ...on issues of great impact to our business: I. II. The Post-crisis Environment: How We View the Significant Challenges Ahead Big Opportunities: How We Will Grow in U.S. and International Markets III. The Customer Experience: How We Will Continue to Improve It IV. Global Financial Reform: How the Key...

  • Page 7
    ... our stillunbalanced trade and capital flows? • Will the role of banks change in this new environment? Will they be able to grow profitably? Will American banks be able to freely compete with increasingly formidable foreign banks, some of which are the beneficiaries of powerful state support...

  • Page 8
    ... only when, looking forward, we see few opportunities to invest in organic growth and acquisitions. And we will buy back stock only when we believe it benefits our remaining shareholders - not the ones who are selling (i.e., we will be price sensitive). We also believe that strength creates good...

  • Page 9
    ... movements will be to enhance the life and rights of the people in the region. For our company, in particular, our direct exposures are manageable. The key economic impact is if extreme turmoil leads to extraordinarily high oil prices, which then could cause a global recession. As you know, however...

  • Page 10
    .... Global trade is growing - U.S. exports were up 16% in 2010. Job growth seems to have begun. Financial markets are wide open - and banks are lending more freely. U.S. businesses, large and small, are investing more than $2 trillion a year in capital expenditures and research and development. They...

  • Page 11
    ..., they still will need checking and savings accounts, mortgages, investments, and credit and debit cards. When small business customers walk into our branches, they still will need cash management services, loans and investment advice. When the CEOs of middle market companies are called upon by our...

  • Page 12
    ...25 trillion in real 2010 dollar-value terms) over the next 10 years, an approximately 80% increase. • Annual corporate investments in plant and equipment (globally running at approximately $8 trillion a year) should at least double over the next 10 years - our multinational clients account for...

  • Page 13
    ... a restaurant that sells burgers can't sell french fries, it risks losing all of its customers. Like it or not, we will adjust to the impact of new regulation on financial products and pricing. But we will remain vigilant about the changes that could threaten or undermine entire businesses. Three of...

  • Page 14
    ... next few years to better support our affluent clients. At these offices, dedicated bankers will work with customers and provide them with investment products that are tailored to their needs. • Continuing to expand our international wholesale businesses, including our Global Corporate Bank (GCB...

  • Page 15
    ...As these entities expand globally - adding countries and locations to where these organizations do business - we essentially grow with them. We already bank these companies and simply need to be where they are going to need us. We will grow by adding bankers, branches and products The overwhelming...

  • Page 16
    ...acquisition of the world-class Brazilian hedge fund Gávea Investimentos, as part of our Highbridge business, dramatically improves our ability to manage money both for local investors and for those around the world seeking to invest in Brazil and emerging markets. We see global growth opportunities...

  • Page 17
    ...Market Commercial Banking business, within the WaMu footprint, which we are managing and growing carefully, can deliver more than $500 million in pretax profits annually, though this could take more than five years. And the Commercial Term Lending Business, which essentially is making mortgage loans...

  • Page 18
    ... from our offices globally calling on a large corporate client. That's because we provide such a broad set of products and services in multiple locations around the world: M&A and advisory services; asset management; sales and trading or pension plans; management of cash flows, foreign exchange and...

  • Page 19
    ...of our consumer businesses, we've created Consumer Practice groups, managed by very senior people. We expect these groups to review all our policies, products and procedures - ranging from pricing and fee decisions to clear disclosure and transparency of terms associated with each product - and to...

  • Page 20
    ... For Private Banking and high-net-worth clients, we launched an iPad application that lets customers see, in one place, their credit card, checking and investment accounts. Soon these clients will be able to buy and sell securities online through this application. In wholesale banking, innovation...

  • Page 21
    ... veteran community that includes many initiatives, from recruiting veterans into our firm, with our corporate partners, to providing enhanced products and services for the military and their families. As a company, we aim to serve members of our armed services with the respect and special benefits...

  • Page 22
    ...: structural issues, such as a critical lack of liquidity in some of our country's money market funds and in short-term financing markets; high leverage, which was omnipresent in the system; unregulated shadow banking; poor mortgage underwriting; huge trade imbalances; and ineffective regulation of...

  • Page 23
    ... for residential and commercial mortgages and secured financing, among others The marketplace, investors, banks, regulators and rating agencies already have significantly upgraded the standards by which many products and institutions operate. For example: • All new mortgages are being written...

  • Page 24
    ...these crises. Today, a greater number of regulatory bodies are providing an unprecedented level of oversight. New resolution laws and living wills will give regulators even more tools to use in handling a future crisis. Banks' trading businesses are far more conservative Banks in the United States...

  • Page 25
    ... uses: The ability of regulators to change mortgage loan-to-value ratios up or down if they thought the housing market was becoming too frothy; change capital requirements immediately on specific loans, investments or securities when specific asset classes showed signs of becoming problematic; and...

  • Page 26
    ... limits on mortgages, such as higher loan-to-value ratios, didn't experience a mortgage crisis comparable with ours. As recently as five years ago, most Americans would have called the U.S. mortgage market one of the best in the world - boy, was that wrong! What happened to our system did not work...

  • Page 27
    ...of the fixed costs of servicing checking accounts and debit cards. Any business that is allowed to charge only enough to recover its products' variable costs would soon be in bankruptcy. The harm will fall largely on consumers; banks will be forced to lose money on debit interchange transactions and...

  • Page 28
    ... a bank, it has full authority to fire the management and Board of Directors and wipe out equity and unsecured debt - in a way that does not damage the economy. Controlled failure of large financial institutions should work the same way. It is complex because these companies are big and global and...

  • Page 29
    ... plenty of capital. When the government did its first stress test in February of 2009, it required banks to have 4% Tier 1 Common Capital. As shown in the chart on the next page, JPMorgan Chase went into the crisis with 7%. With that level of equity, we were able to acquire both Bear Stearns and...

  • Page 30
    ...4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 SCAP = Supervisory Capital Assessment Program Basel I Tier 1 Common Ratio because the regulators tightened up the definitions for all types of capital - rightly so - and increased standards for the calculation of risk-weighted assets (mostly for trading...

  • Page 31
    ..., money market funds, just about any company that issued commercial paper, insurance companies and others. AA-Rated U.S. Banks' and Other Industries' Spreads above Treasury: "AA" rated U.S. banks and other industries spreads above Treasury: Crisis/Post-crisis (7/2007-9/2010) Crisis/Post-Crisis...

  • Page 32
    ... location; adding improved products, services and systems; and saving some $1 million at each branch. Ultimately, this allowed us to offer our clients better products and services. In a free market economy, companies grow over time because they are winning customers. These companies win customers...

  • Page 33
    ...Product Deposit Market Share for Top 10 Banks in Each Respective Country % Share Notes: Deposit market share data are related to the operations/ transactions conducted by banks domiciled in each respective country, including branches and subsidiaries of foreign banks 1 Deposit market share is based...

  • Page 34
    ... to use tax-deductible preferred stock as The government took great action to stop the capital (overseas banks do). crisis from getting worse. Lawmakers and • Most other countries have made it clear regulators have and will take much action that they will not accept the Volcker Rule to fix what...

  • Page 35
    ..., issues and risks that we have ahead of us. Regarding the regulatory changes, we have some 70 projects and work teams - fully staffed with lawyers; accountants; credit officers; compliance, systems and operations specialists; and bankers and traders - analyzing and preparing for each of the new...

  • Page 36
    ...earn client trust. 2010 Results: Near Record Performance The Investment Bank generated solid returns. Net income was $6.6 billion on revenue of $26 billion, just short of 2009's record levels. ROE was 17% on $40 billion of capital - our through-the-cycle target. J.P. Morgan's debt markets leadership...

  • Page 37
    ... client solutions and financial performance for shareholders. Exceptional employees, the right tools, good momentum and impressive leadership in our related businesses (Asset Management, Commercial Banking, Retail Financial Services and Treasury & Securities Services) - it all adds up to a wealth...

  • Page 38
    .... Our branches also are used to serve customers from other lines of business, including the Commercial Bank and the Private Bank. Mortgage Banking, Auto & Other Consumer Lending services almost 9 million mortgages and provides new loans through loan officers and correspondents. Our customers also...

  • Page 39
    ... investing for the future. In 2010, we opened 154 new branches and added 3,700 personal bankers, nearly 600 loan officers and 450 business bankers to better serve our customers. We opened 1.5 million net new checking accounts and increased our sales production per branch by 16%. Our cross-sell ratio...

  • Page 40
    ..., we plan to open 50 new Chase Private Client locations in 2011, with corresponding investments in staff, technology, products and customized service; we will have more than 150 locations by the end of 2013, primarily in New York, Chicago and Los Angeles. We also are expanding our Business Banking...

  • Page 41
    ... we've read about the health of the mortgage market, what is the current state of JPMorgan Chase's mortgage portfolio? Speaking just for our firm, we service $1.2 trillion in mortgages and home equity loans - a bit less than 9 million in number - which represents about 12% of the entire...

  • Page 42
    ... 2010, excluding the Washington Mutual (WaMu) portfolio, was $302 billion - a record high and a measure that shows customers are using our products more frequently for their daily needs. Beginning in 2008, which was the year the financial crisis began, we have consistently gained sales market share...

  • Page 43
    ... closed inactive accounts, removing approximately $50 billion of unused credit lines since 2008; lowered credit lines for high-risk customers; and reduced average credit lines for new accounts. We've changed our approach to risk assessment, looking at customers' debt-toincome and total bankcard debt...

  • Page 44
    ... on the global reach of JPMorgan Chase's lending, Treasury Services, Investment Banking (IB) and Asset Management businesses. This partnership across our businesses results in very strong cross-sell, and, on average, our clients use more than eight products per relationship. 2010 Results: Record...

  • Page 45
    ... the nation's #2 large middle market lender (c) • Achieved the #1 return on equity in our peer group at 26% • Produced record revenue of $6 billion and record net income through continued focus on long-term performance • Continued to be a leader in asset-based lending by closing...

  • Page 46
    ... stable earnings with excellent margins and high returns on capital. They also grow as global economies grow, trade activity increases and clients' activities in international markets expand. And such businesses are hard to replicate: Success requires scale of investment in people, systems and...

  • Page 47
    ... 200 new corporate bankers since the end of 2009. This investment is critical to support companies based in emerging economies that are expanding into developed international markets, as well as global corporations moving into new markets and emerging economies. In TSS' other operating unit...

  • Page 48
    ... strategies, as well as offer a comprehensive range of investments from leading hedge fund, private equity and real estate managers. With this broader platform, we are better able to serve an increasingly sophisticated and engaged client base. 2010: A Record Year Despite sweeping regulatory changes...

  • Page 49
    ... underpenetrated international markets. Throughout our more than 175 years of constant evolution and expansion, what never has changed is our commitment to delivering "firstclass business in a first-class way." Whether we are investing assets, providing trust and estate services or lending money, we...

  • Page 50
    ...of Low-Income Housing Tax Credits 100 • Continued our commitment $154 Chase Foundation, supporting volunteer service by employees and other community development $70 0 to annually spend more than programs focused toward comthrough the Good Works program loans and investments to preserve...

  • Page 51
    ... Private Equity Risk Management 147 Operational Risk Management 148 Reputation and Fiduciary Risk Management 149 Critical Accounting Estimates Used by the Firm 155 Accounting and Reporting Developments 156 Nonexchange-Traded Commodity Derivative Contracts at Fair Value 157 Forward-Looking Statements...

  • Page 52
    ...") Income from continuing operations Net income Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio (g) Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio (h) Selected balance sheet data (period-end) (g) Trading assets Securities Loans Total assets Deposits Long-term debt...

  • Page 53
    ... capital ratio ("Tier 1 common ratio") is Tier 1 common divided by risk-weighted assets. For further discussion, see Regulatory capital on pages 102-104 of this Annual Report. FIVE-YEAR STOCK PERFORMANCE The following table and graph compare the five-year cumulative total return for JPMorgan Chase...

  • Page 54
    ... the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including moneymarket instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and...

  • Page 55
    ...Card Services, the loan portfolio in Retail Financial Services (excluding purchased credit-impaired loans), and in the Investment Bank and Commercial Banking. Nevertheless, the allowance for loan losses associated with the Washington Mutual purchased credit-impaired loan portfolio in JPMorgan Chase...

  • Page 56
    ...Asset Management and solid results across most other businesses. For the year, the Investment Bank ranked #1 for Global Investment Banking Fees; Retail Financial Services added more than 150 new branches and 5,000 salespeople, and opened more than 1.5 million net new checking accounts; Card Services...

  • Page 57
    ... and quickly subject to change. In the Mortgage Banking, Auto & Other Consumer Lending business within RFS, management expects mortgage fees and related income to be $1 billion or less for the first quarter of 2011, given the levels of mortgage interest rates and production volumes experienced year...

  • Page 58
    ... above 2010 levels, reflecting investments in new branch builds and sales force hires, as well as continued elevated servicing-, default- and foreclosed asset-related costs. In CS, management expects end-of-period outstandings for the Chase portfolio (excluding the Washington Mutual portfolio) to...

  • Page 59
    ...in millions) Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains Mortgage fees and related income Credit card income Other income Noninterest revenue Net interest income Total net revenue $ 2010 2009 6,190...

  • Page 60
    ... related to improved performance across most fixed income and equity products, and the absence of net markdowns on legacy leveraged lending and mortgage positions in IB, as well as higher levels of trading gains and investment securities income in Corporate/Private Equity. Results also benefited...

  • Page 61
    ... portfolio in connection with managing the Firm's structural interest rate risk. For a further discussion of securities gains, which are mostly recorded in Corporate/Private Equity, see the Corporate/Private Equity segment discussion on pages 89-90 of this Annual Report. Mortgage fees and related...

  • Page 62
    ...the home equity, mortgage and credit card portfolios, as weak economic conditions, housing price declines and higher unemployment rates continued to drive higher estimated losses for these portfolios. Included in the 2009 addition to the allowance for loan losses was a $1.6 billion provision related...

  • Page 63
    ... September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual. This transaction was accounted for under the purchase method of accounting for business combinations. The adjusted net asset value of the banking operations after purchase accounting adjustments was higher than...

  • Page 64
    ... conformity loan loss reserve provision related to the acquisition of Washington Mutual's banking operations. (b) Based on income before extraordinary gain. (c) See pages 79-81 of this Annual Report for a discussion of the effect of credit card securitizations on CS results. NA: Not applicable 64...

  • Page 65
    ... tangible common equity Return on assets Reported net income / Total average assets Managed net income / Total average managed assets(e) (including average securitized credit card receivables) Overhead ratio Total noninterest expense / Total net revenue * Represents net income applicable to common...

  • Page 66
    ... of preferred stock issued to the U.S. Treasury Net income applicable to common equity Less: Dividends and undistributed earnings allocated to participating securities Net income applicable to common stockholders Total weighted average diluted shares outstanding Net income per share As reported $ 11...

  • Page 67
    ...Mortgage production and servicing - Auto, student and other loan originations and balances • Real Estate Portfolios: - Residential mortgage loans - Home equity loans and originations Treasury & Securities Services Businesses: • Treasury Services • Worldwide Securities Services Investment Bank...

  • Page 68
    ...ended December 31, (in millions) Investment Bank(b) Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity(b) Total 2010 $ 26,217 31,756 17,163 6,040 7,381 8,984 7,301 $ 104,842 Total net revenue 2009 2008 $ 28,109 $ 12,335...

  • Page 69
    ... and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capitalraising in equity and debt markets, sophisticated risk management, market-making in cash securities and...

  • Page 70
    ...investments purchased under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility ("AML Facility"). The amount of adjusted assets is presented to assist the reader in comparing IB's asset and capital levels to other investment banks in the securities industry. Asset-to-equity...

  • Page 71
    ...average loans Market risk-average trading and credit portfolio VaR - 95% confidence level(e) Trading activities: Fixed income Foreign exchange Equities Commodities and other Diversification(f) Total trading VaR(g) Credit portfolio VaR(h) Diversification(f) Total trading and credit portfolio VaR 2010...

  • Page 72
    ... the Real Estate Portfolios. Retail Banking, which includes branch banking and business banking activities, was not affected by these reporting revisions. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees Asset management...

  • Page 73
    ... coverage ratio and the net charge-off rate. (f) Excludes the impact of PCI loans that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management's estimate, as of that date, of credit losses...

  • Page 74
    ....7 Mortgage Banking, Auto & Other Consumer Lending Selected income statement data Year ended December 31, (in millions, except ratios) Noninterest revenue Net interest income Total net revenue Provision for credit losses Noninterest expense Income before income tax expense Net income Overhead ratio...

  • Page 75
    ...-related expense for the serviced portfolio, including costs associated with foreclosure affidavit-related suspensions. 2009 compared with 2008 Mortgage Banking, Auto & Other Consumer Lending reported net income of $1.6 billion, an increase of $357 million, or 28%, from the prior year. Net revenue...

  • Page 76
    ...the year ended December 31, (in millions) 2010 Net production revenue: Production revenue $ 3,440 Repurchase losses (2,912) Net production revenue 528 Net mortgage servicing revenue: Operating revenue: 4,575 Loan servicing revenue Other changes in MSR asset fair value (2,384) Total operating revenue...

  • Page 77
    ... Real Estate Portfolios are PCI loans that the Firm acquired in the Washington Mutual transaction. For PCI loans, the excess of the undiscounted gross cash flows expected to be collected over the carrying value of the loans ("the accretable yield") is accreted into interest income at a level rate...

  • Page 78
    ... in the Washington Mutual transaction for which a deterioration in credit quality occurred between the origination date and JPMorgan Chase's acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are...

  • Page 79
    ... its merchant acquiring business, Chase Paymentech Solutions, CS is a global leader in payment processing and merchant acquiring. Selected income statement data - managed basis(a) Year ended December 31, (in millions, except ratios) Revenue Credit card income All other income(b) 2010 $ 3,513 (236...

  • Page 80
    ... for credit losses Noninterest revenue Risk adjusted margin(b) Noninterest expense Pretax income/(loss) (ROO)(c) Net income/(loss) Business metrics Sales volume (in billions) New accounts opened Open accounts Merchant acquiring business(d) Bank card volume (in billions) Total transactions (in...

  • Page 81
    ... of purchase accounting adjustments related to the Washington Mutual transaction and the consolidation of the WMMT in the second quarter of 2009. The delinquency rates as of December 31, 2010, were not affected. (f) Total average loans includes loans held-for-sale of $148 million for full year 2010...

  • Page 82
    ... properties. Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate properties. Selected income statement data Year ended December 31, (in millions) 2010 Revenue Lending- and deposit-related fees $ 1,099 Asset management, administration and...

  • Page 83
    ... agreements) as part of customer cash management programs. (b) 2008 results reflect the partial year impact of the Washington Mutual transaction. (c) Other primarily includes lending activity within the Community Development Banking and Chase Capital segments. (d) Allowance for loan losses of $340...

  • Page 84
    ..., commercial card and trade finance loans. Selected income statement data Year ended December 31, (in millions, except ratio data) Revenue Lending- and deposit-related fees Asset management, administration and commissions All other income Noninterest revenue Net interest income Total net revenue...

  • Page 85
    ... Number of: U.S.$ ACH transactions originated Total U.S.$ clearing volume (in thousands) International electronic funds transfer volume (in thousands)(d) Wholesale check volume Wholesale cards issued (in thousands)(e) Credit data and quality statistics Net charge-offs/(recoveries) Nonaccrual loans...

  • Page 86
    ... global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity, including money market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations...

  • Page 87
    ...: Private Banking offers investment advice and wealth management services to high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide, including investment management, capital markets and risk management, tax and estate planning, banking...

  • Page 88
    ...International Total assets under supervision Mutual fund assets by asset class Liquidity Fixed income Equities and multi-asset Alternatives Total mutual fund assets Assets under management rollforward Year ended December 31, (in billions) Beginning balance, January 1 Net asset flows: Liquidity Fixed...

  • Page 89
    ... & Compliance, Corporate Real Estate and General Services, Risk Management, Corporate Responsibility and Strategy & Development. Other centrally managed expense includes the Firm's occupancy and pension-related expense, net of allocations to the business. Selected income statement data Year ended...

  • Page 90
    ... Mac, a $248 million charge related to the offer to repurchase auction-rate securities and $211 million net merger costs. Private Equity Portfolio Selected income statement and balance sheet data As of or for the year ended December 31, (in millions) 2009 2010 Private equity gains/(losses) $ 109...

  • Page 91
    ... of countries in each such region in which it operates, front office headcount, number of clients and selected revenue and balance sheet data. For additional information regarding international operations, see Note 33 on page 290 of this Annual Report. EMEA Latin America/ Caribbean • 2010 revenue...

  • Page 92
    Management's discussion and analysis BALANCE SHEET ANALYSIS Selected Consolidated Balance Sheets data December 31, (in millions) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt and equity ...

  • Page 93
    ... assets, see Note 17 on pages 260-263 of this Annual Report. Other assets Other assets consist of private equity and other investments, cash collateral pledged, corporate and bank-owned life insurance policies, assets acquired in loan satisfactions (including real estate owned) and all other assets...

  • Page 94
    ... Liquidity Risk Management discussion on pages 110-115, and Note 22 on pages 265-266 of this Annual Report. Stockholders' equity Total stockholders' equity increased, predominantly due to net income, and net issuances and commitments to issue under the Firm's employee stock-based compensation plans...

  • Page 95
    ... certain assets and distribute related cash flows to investors. The basic SPE structure involves a company selling assets to the SPE. The SPE funds the purchase of those assets by issuing securities to investors in the form of commercial paper, short-term asset-backed notes, medium-term notes and...

  • Page 96
    ...Annual Report. Off-balance sheet lending-related financial instruments and other guarantees By remaining maturity at December 31, (in millions) Lending-related Consumer, excluding credit card: Home equity - senior lien Home equity - junior lien Prime mortgage Subprime mortgage Auto Business banking...

  • Page 97
    ...) On-balance sheet obligations Deposits(a) Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Other borrowed funds(a) Beneficial interests issued by consolidated VIEs Long-term debt(a) Current income taxes payable(b) Other(c) Total on-balance sheet...

  • Page 98
    ... exposure related to Washington Mutual presents minimal future risk to the Firm's financial results. The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured by the Federal Housing Administration ("FHA") or the Rural Housing Administration ("RHA...

  • Page 99
    ... notices, excluding those related to Washington Mutual, at each of the five most recent quarter-end dates. Due to the rate at which developments have occurred in this area, management does not believe that it would be useful or meaningful to report quarterly information for periods prior to...

  • Page 100
    ... repurchases and "make-whole" settlements, excluding any related to Washington Mutual loans, currently average approximately 50%, but may vary from quarter to quarter based on the characteristics of the underlying loans and changes in home prices. 100 JPMorgan Chase & Co./2010 Annual Report

  • Page 101
    ...-require application of a significant level of management judgment. Estimating the repurchase liability is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors, including: (i) economic factors (e.g., further declines in home prices...

  • Page 102
    ...less elements of Tier 1 capital not in the form of common equity - such as perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred capital debt securities. Tier 1 common, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and...

  • Page 103
    ... the market risk related to applicable trading assets-debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets. JPMorgan Chase & Co./2010 Annual Report...

  • Page 104
    ...based on four risk factors: credit, market, operational and private equity risk. Economic risk capital Year ended December 31, (in billions) Credit risk Market risk Operational risk Private equity risk Economic risk capital Goodwill Other(a) Total common stockholders' equity Yearly Average 2010 2009...

  • Page 105
    ... expected returns are established as key measures of a business segment's performance. Line of business equity December 31, (in billions) Investment Bank Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total common...

  • Page 106
    ... used for general corporate purposes. For additional information regarding common stock, see Note 24 on page 268 of this Annual Report. Capital Purchase Program Pursuant to the U.S. Treasury's Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S. Treasury, for total proceeds of...

  • Page 107
    ... Risk Policy Committee. The Chief Risk Officer is also a member of the line of business risk committees. Within the Firm's Risk Management function are units responsible for credit risk, market risk, operational risk and private equity risk, as well as risk reporting, risk policy and risk technology...

  • Page 108
    ... plan. ALCO also reviews the Firm's funds transfer pricing policy (through which lines of business "transfer" interest rate and foreign exchange risk to Corporate Treasury in the Corporate/Private Equity segment), earnings at risk, overall interest rate position, funding requirements and strategy...

  • Page 109
    ...consolidated basis. This information is reported to management on a daily, weekly and monthly basis, as appropriate. There are eight major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, private equity risk, operational risk...

  • Page 110
    ... markets as needed during 2010 and throughout the recent financial crisis. Governance The Firm's governance process is designed to ensure that its liquidity position remains strong. The Asset-Liability Committee reviews and approves the Firm's liquidity policy and contingency funding plan. Corporate...

  • Page 111
    ... federal funds and Eurodollars purchased, certificates of deposit, time deposits, commercial paper and bank notes. Long-term unsecured funding sources include long-term debt, trust preferred capital debt securities, preferred stock and common stock. JPMorgan Chase & Co./2010 Annual Report 111

  • Page 112
    ... global balance of unsecured and secured funding at favorable rates. Short-term funding The Firm's reliance on short-term unsecured funding sources such as federal funds and Eurodollars purchased, certificates of deposit, time deposits, commercial paper and bank notes is limited. Total commercial...

  • Page 113
    ... asset-backed commercial paper issued by money market mutual funds in connection with the AML facility of the Federal Reserve Bank of Boston. Largely offsetting these cash proceeds were net purchases of AFS securities associated with the Firm's management of interest rate risk and investment of cash...

  • Page 114
    ... capital debt securities as new issuances were more than offset by payments primarily reflecting a decline in beneficial interests issued by consolidated VIEs due to maturities related to Firmsponsored credit card securitization trusts; a decline in deposits associated with wholesale funding...

  • Page 115
    ... of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm's credit ratings, financial ratios, earnings, or stock price. Several rating agencies have announced...

  • Page 116
    ...) to a variety of customers, from large corporate and institutional clients to the individual consumer. Loans originated or acquired by the Firm's wholesale businesses are generally retained on the balance sheet. Credit risk management actively monitors the wholesale portfolio to ensure that it is...

  • Page 117
    ... portfolio includes mortgage, home equity, certain business banking and auto loans, student loans, as well as credit card loans. Probable losses inherent in the portfolio are estimated using sophisticated portfolio modeling, credit scoring and decision-support tools, which take into account...

  • Page 118
    ...and IB. During the year and particularly in the second half of 2010, customer demand for credit improved, loan origination activity and market liquidity improved and credit spreads tightened from 2009. In the wholesale portfolio, criticized assets, nonperforming assets and charge-offs decreased from...

  • Page 119
    ... Annual Report. Average retained loan balances are used for the net charge-off rate calculations. Total credit portfolio As of or for the year ended December 31, (in millions, except ratios) Total credit portfolio Loans retained(a) Loans held-for-sale Loans at fair value Loans - reported(a) Loans...

  • Page 120
    ... from customers(a) Interests in purchased receivables(b) Total wholesale credit-related assets Lending-related commitments(c) Total wholesale credit exposure Net credit derivative hedges notional(d) Liquid securities and other cash collateral held against derivatives(e) Credit exposure 2010 2009...

  • Page 121
    ... The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased to $22.4 billion at December 31, 2010, from $33.2 billion at year-end 2009. The decrease was primarily related to net repayments and loan sales. JPMorgan Chase & Co./2010 Annual Report...

  • Page 122
    ...improved in line with the broader real estate portfolio. For further discussion on commercial real estate loans, see Note 14 on pages 220-238 of this Annual Report. • State and municipal governments: Exposure to this segment increased by $1.1 billion or 3% in 2010 to $35.8 billion. Lending-related...

  • Page 123
    ... relative to total industry exposure due to continued pressure on the traditional media business model from expanding digital and online technology. • All other: All other at December 31, 2010 (excluding loans heldfor-sale and loans at fair value), included $140.9 billion of credit exposure to...

  • Page 124
    ...2010 and 2009. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower. Credit exposure Lending-related commitments $ 58,418 15,002 12,170 6,149 91,739 254,340 - - - $ 346,079 Assets Nonperforming acquired Total Lending-related in loan...

  • Page 125
    ... the change in the nonaccrual loan portfolio for the years ended December 31, 2010 and 2009. Wholesale nonaccrual loan activity(a) Year ended December 31, (in millions) Beginning balance Additions Reductions: Paydowns and other Gross charge-offs Returned to performing Sales Total reductions Net...

  • Page 126
    ... quality. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity derivative transactions. The accompanying graph shows exposure profiles to derivatives over the next 10 years as calculated by...

  • Page 127
    ... dealer/client business, the Firm actively manages credit derivatives by buying and selling credit protection, predominantly on corporate debt obligations, according to client demand. For further information, see Note 6 on pages 191-199 of this Annual Report. At December 31, 2010, the total notional...

  • Page 128
    ...'s wholesale portfolio includes country risk exposures to both developed and emerging markets. The Firm seeks to diversify its country exposures, including its credit-related lending, trading and investment activities, whether cross-border or locally funded. 128 JPMorgan Chase & Co./2010 Annual...

  • Page 129
    ... loans and business banking loans. The Firm's primary focus is on serving the prime consumer credit market. For further information on the consumer loans, see Note 14 on pages 220- 238 of this Annual Report. A substantial portion of the consumer loans acquired in the Washington Mutual transaction...

  • Page 130
    ...for-sale Total loans - reported Securitized(c)(j) Total loans - managed(c) Lending-related commitments(g) Total credit card exposure Total consumer credit portfolio - reported Total consumer credit portfolio - managed(c) Credit exposure 2009 2010 Nonaccrual loans(k)(l) 2009 2010 Net charge-offs 2009...

  • Page 131
    ... portfolio, related delinquency information and other credit quality indicators, see Note 14 on pages 220-238 of this Annual Report. It is the Firm's policy to charge down residential real estate loans to net realizable value at no later than 180 days past due. During the fourth quarter of 2010...

  • Page 132
    ... The auto loan portfolio reflected a high concentration of prime quality credits. Business banking: Business banking loans at December 31, 2010, were $16.8 billion, compared with $17.0 billion at December 31, 2009. The decrease was primarily a result of run-off of the Washington Mutual portfolio and...

  • Page 133
    ... New York New York Texas 5.4% Illinois Florida 16.4% 6.3% 6.7% 15.8% Illinois Florida 5.4% 5.9% 6.9% (a) Represents residential real estate loans retained, excluding purchased credit-impaired loans acquired in the Washington Mutual transaction and loans insured by U.S. government agencies...

  • Page 134
    ...payments on homes with negative equity, as well as on the cost of alternative housing. For further information on the geographic composition and current estimated LTVs of residential real estate - non PCI and PCI loans, see Note 14 on pages 220-238 of this Annual Report. Loan modification activities...

  • Page 135
    ... real estate loans - excluding PCI loans Restructured PCI loans(c) Home equity Prime mortgage Subprime mortgage Option ARMs Total restructured PCI loans On-balance sheet loans $ 226 283 2,084 2,751 5,344 Nonaccrual on-balance sheet loans(d) $ 38 63 534 632 $ 1,267 NA NA NA NA NA 2009 On-balance...

  • Page 136
    ...millions) 2010 Nonaccrual loans(b) Home equity - senior lien $ 479 Home equity - junior lien 784 Prime mortgage, including option ARMs 4,320 Subprime mortgage 2,210 Auto 141 Business banking 832 Student and other 67 Total nonaccrual loans 8,833 Assets acquired in loan satisfactions Real estate owned...

  • Page 137
    .... The 30-day delinquency rate, excluding the Washington Mutual portfolio, was 3.66% at December 31, 2010, down from 5.52% at December 31, 2009, while the net charge-off rate increased to 8.72% in 2010 from 8.45% in 2009 due largely to the decrease in outstanding loans. Credit card receivables in the...

  • Page 138
    ... with low or moderate incomes. JPMorgan Chase is a national leader in community development by providing loans, investments and community development services in communities across the United States. At December 31, 2010 and 2009, the Firm's CRA loan portfolio was approximately $16 billion...

  • Page 139
    ... the continued improvement in the credit quality of the wholesale commercial and industrial loan portfolio. The credit ratios in the table below are based on retained loan balances, which exclude loans held-for-sale and loans accounted for at fair value. JPMorgan Chase & Co./2010 Annual Report 139

  • Page 140
    ... associated with the consolidation of these entities. For further discussion, see Note 16 on pages 244-259 of this Annual Report. (b) Other predominantly includes a reclassification in 2009 related to the issuance and retention of securities from the Chase Issuance Trust. (c) Includes risk-rated...

  • Page 141
    ... Corporate/Private Equity segment related to the Washington Mutual transaction in 2008. (b) Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. As a result of the consolidation of the credit card securitization trusts, reported and managed basis relating to credit card...

  • Page 142
    ... makes markets and trades its products across the fixed income, foreign exchange, equities and commodities markets. This trading activity may lead to a potential decline in net income due to adverse changes in market rates. In addition to these trading risks, there are risks in IB's credit portfolio...

  • Page 143
    ... risk type Fixed income Foreign exchange Equities Commodities and other Diversification benefit to IB trading VaR IB trading VaR Credit portfolio VaR Diversification benefit to IB trading and credit portfolio VaR Total IB trading and credit portfolio VaR Mortgage Banking VaR Chief Investment Office...

  • Page 144
    ...value of: principal transactions revenue for IB and CIO (less Private Equity gains/losses and revenue from longer-term CIO investments); trading-related net interest income for IB, CIO and Mortgage Banking; IB brokerage commissions, underwriting fees or other revenue; revenue from syndicated lending...

  • Page 145
    ... the total economic sensitivity of the Firm's Consolidated Balance Sheets to changes in market variables. The effect of interest rate exposure on reported net income is also important. Interest rate risk exposure in the Firm's core nontrading business activities (i.e., asset/liability management...

  • Page 146
    ... of client business and management experience. Market risk management regularly reviews and updates risk limits. Senior management, including the Firm's Chief Executive Officer and Chief Risk Officer, is responsible for reviewing and approving cetain risk limits on an ongoing basis. Risk reporting...

  • Page 147
    ... differentiates private equity risk from the risk of positions held in the trading portfolios. The Firm's approach to managing private equity risk is consistent with the Firm's general risk governance structure. Controls are in place establishing expected levels for total and annual investment in...

  • Page 148
    ... performance and risks that may arise in the delivery of products or services to clients that give rise to such fiduciary duties, as well as those stemming from any of the Firm's fiduciary responsibilities under the Firm's various employee benefit plans. 148 JPMorgan Chase & Co./2010 Annual Report

  • Page 149
    ... the credit quality of its wholesale loans. Wholesale loans are reviewed for information affecting the obligor's ability to fulfill its obligations. In assessing the risk rating of a particular loan, among the factors considered are the obligor's debt capacity and financial flexibility, the level of...

  • Page 150
    ... downturn, as well as its potential impact on housing prices and the labor market. While the allowance for credit losses is highly sensitive to both home prices and unemployment rates, in the current market it is difficult to estimate how potential changes in one or both of these factors might...

  • Page 151
    ... level 3 of the valuation hierarchy. December 31, (in billions, except ratio data) Trading debt and equity instruments(a) Derivative receivables - gross Netting adjustment Derivative receivables - net AFS securities Loans MSRs Private equity investments Other(b) Total assets measured at fair value...

  • Page 152
    ... that all applicable inputs are appropriately calibrated to market data, including but not limited to yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. In addition to market information, models also incorporate transaction details, such...

  • Page 153
    ...dependent on portfolio outstanding balances, net interest margin, operating expense, credit losses, and the amount of capital necessary given the risk of business activities to meet regulatory capital requirements), (b) the cost of equity used to discount those cash flows to a present value. Each of...

  • Page 154
    ...tax assets in connection with certain net operating losses. The Firm performs regular reviews to ascertain whether deferred tax assets are realizable. These reviews include management's estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies...

  • Page 155
    ... results of operations. For additional information about the impact of the adoption of the new guidance, see Note 6 on pages 191- 199 of this Annual Report. Accounting for troubled debt restructurings of purchased credit-impaired loans that are part of a pool In April 2010, the FASB issued guidance...

  • Page 156
    ...internal models with significant observable market parameters. The Firm's nonexchangetraded commodity derivative contracts are primarily energy-related. The following table summarizes the changes in fair value for nonexchange-traded commodity derivative contracts for the year ended December 31, 2010...

  • Page 157
    ...'s power generation facilities and the Firm's other commodity-related activities; • the other risks and uncertainties detailed in Part 1, Item 1A: Risk Factors in the Firm's Annual Report on Form 10-K for the year ended December 31, 2010. Any forward-looking statements made by or on behalf of the...

  • Page 158
    ... LLP, an independent registered public accounting firm, as stated in their report which appears herein. James Dimon Chairman and Chief Executive Officer Douglas L. Braunstein Executive Vice President and Chief Financial Officer February 28, 2011 158 JPMorgan Chase & Co./2010 Annual Report

  • Page 159
    ... statements of income, changes in stockholders' equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries (the "Firm") at December 31, 2010 and 2009, and the results of their operations and their cash...

  • Page 160
    Consolidated statements of income Year ended December 31, (in millions, except per share data) Revenue Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains(a) Mortgage fees and related income Credit card ...

  • Page 161
    ... balance sheets December 31, (in millions, except share data) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements (included $20,299 and $20,536 at fair value) Securities borrowed (included $13,961 and $7,032 at fair value) Trading...

  • Page 162
    ... stock Preferred stock issue cost Shares issued and commitments to issue common stock for employee stock-based compensation awards and related tax effects Net change from the Bear Stearns merger: Reissuance of treasury stock and the Share Exchange agreement Employee stock awards Other Balance...

  • Page 163
    ... interest and accounts receivable Other assets Trading liabilities Accounts payable and other liabilities Other operating adjustments Net cash (used in)/provided by operating activities Investing activities Net change in: Deposits with banks Federal funds sold and securities purchased under resale...

  • Page 164
    ... in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. For a discussion of the Firm's business segment information, see Note 34 on pages 290-293 of this Annual Report. The accounting and...

  • Page 165
    ... employee benefit plans Employee stock-based incentives Securities Securities financing activities Loans Allowance for credit losses Variable interest entities Goodwill and other intangible assets Premises and equipment Long-term debt Income taxes Off-balance sheet lending-related financial...

  • Page 166
    ...) of an acquired business to be recorded at their respective fair values as of the effective date of the acquisition and consolidated with those of JPMorgan Chase. The fair value of the net assets of Washington Mutual's banking operations exceeded the $1.9 billion purchase price, resulting in...

  • Page 167
    ... statement of net assets acquired reflects the final value assigned to the Washington Mutual net assets as of September 25, 2008. (in millions) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements Trading assets Securities Loans (net...

  • Page 168
    ... share(a) Total fair value of JPMorgan Chase common stock issued Bear Stearns common stock acquired for cash in the open market (24 million shares at an average share price of $12.37 per share) Fair value of employee stock awards (largely to be settled by shares held in the RSU Trust(b)) Direct...

  • Page 169
    ...securities and obligations relating to trust preferred capital debt securities. Subsequently, on July 15, 2008, JPMorgan Chase completed an internal merger transaction, which resulted in each series of outstanding preferred stock of Bear Stearns being automatically exchanged into newly-issued shares...

  • Page 170
    ... is based on internally developed models that primarily use, as inputs, market-based or independently sourced market parameters, including but not limited to yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. In addition to market information...

  • Page 171
    ... discounted using the appropriate market rates for the applicable maturity. As the inputs into the valuation are primarily based on readily observable pricing information, such resale agreements are classified within level 2 of the valuation hierarchy. Loans and unfunded lending-related commitments...

  • Page 172
    ... prices (where applicable) and expectations about changes in the economic environment (e.g., unemployment rates). The fair value of credit card receivables is determined using a discounted expected cash flow methodology. Key estimates and assumptions include: projected interest income and late fee...

  • Page 173
    ... composition and cash flow structure of each deal; key inputs to the model are market spread data for each credit rating, collateral type and other relevant contractual features. Asset-backed securities are valued based on external prices or market spread data, using current market assumptions on...

  • Page 174
    ...calculating the present value of future expected cash flows using modeling techniques. Such models incorporate management's best estimates of key variables, such as expected credit losses, prepayment speeds and the appropriate discount rates, considering the risk involved. Changes in the assumptions...

  • Page 175
    ... are classified within level 3 of the valuation hierarchy. Deposits, other borrowed funds and long-term debt To estimate the fair value of long-term debt, cash flows are discounted using the appropriate market rates for the applicable maturities, with an adjustment to reflect the credit quality of...

  • Page 176
    ... government debt securities Corporate debt securities Asset-backed securities: Credit card receivables Collateralized loan obligations Other Equity securities Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments(g) All other Total other assets...

  • Page 177
    ... value hierarchy December 31, 2010 (in millions) Deposits Federal funds purchased and securities loaned or sold under repurchase agreements Other borrowed funds Trading liabilities: Debt and equity instruments(d) Derivative payables: Interest rate Credit(e) Foreign exchange Equity Commodity Total...

  • Page 178
    ... government debt securities Corporate debt securities Asset-backed securities: Credit card receivables Collateralized debt and loan obligations Other Equity securities Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments(g) All other(j) Total...

  • Page 179
    ... investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $10.0 billion and $8.8 billion at December 31, 2010 and 2009, respectively. (h) At December 31, 2010 and 2009, balances included investments valued at net asset value...

  • Page 180
    ... rate Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair value at January 1, 2010 Total...

  • Page 181
    ...of level 3(e) Change in unrealized gains/(losses) related to financial instruments held at December 31, 2009 Year ended December 31, 2009 (in millions) Assets: Trading assets: Debt instruments: Mortgage-backed securities: U.S. government agencies Residential - nonagency Commercial - nonagency Total...

  • Page 182
    ...) related to financial instruments held at December 31, 2008 Year ended December 31, 2008 (in millions) Assets: Trading assets: Debt and equity instruments Total net derivative receivables Available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All...

  • Page 183
    ... portfolio, trading loans, asset-backed trading securities and private equity investments. • Derivative receivables included $35.3 billion of interest rate, credit, foreign exchange, equity and commodity contracts classified within level 3 at December 31, 2010. Included within this balance...

  • Page 184
    ... managed by credit portfolio and other lines of business within IB. (b) Structured notes are recorded within long-term debt, other borrowed funds or deposits on the Consolidated Balance Sheets, based on the tenor and legal form of the note. (c) Structured notes are measured at fair value based...

  • Page 185
    ... DVA Structured note DVA(b) 2010 $ (665) 41 468 2009 $ 5,869 (548)(c) (1,748)(c) 2008 $ (7,561) 789 1,211 the fair value of JPMorgan Chase's assets and liabilities. For example, the Firm has developed long-term relationships with its customers through its deposit base and credit card accounts...

  • Page 186
    ...-238 of this Annual Report. (b) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and key inputs, including expected lifetime credit losses, interest...

  • Page 187
    ... to be separately accounted for as a derivative instrument. Certain tax credits and other equity investments acquired as part of the Washington Mutual transaction. Structured notes issued as part of IB's client-driven activities. (Structured notes are financial instruments that contain embedded...

  • Page 188
    ...risk associated with the structured notes is actively managed, the gains reported in this table do not include the income statement impact of such risk management instruments. (c) Reported in mortgage fees and related income. (d) Reported in other income. Determination of instrument-specific credit...

  • Page 189
    ... off-balance sheet lending-related financial instruments by major product, see Note 30 on pages 275-280 of this Annual Report. Customer receivables representing primarily margin loans to prime and retail brokerage clients of $32.5 billion and $15.7 billion at December 31, 2010 and 2009, respectively...

  • Page 190
    ... from customers 32,541 Interests in purchased receivables 391 Total wholesale 687,125 Consumer, excluding credit card Home equity - senior lien 40,436 Home equity - junior lien 92,690 Prime mortgage, including option ARMs(a) 75,805 Subprime mortgage(a) 11,287 Auto(a) 53,613 Business banking 26...

  • Page 191
    ... portfolios to meet the needs of customers (both dealers and clients) and to generate revenue through this trading activity ("client derivatives"). Customers use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks...

  • Page 192
    ... net interest income and principal transactions revenue. JPMorgan Chase uses cash flow hedges to hedge the exposure to variability in cash flows from floating-rate financial instruments and forecasted transactions, primarily the rollover of short-term assets and liabilities, and foreign currency...

  • Page 193
    ... 31, 2010 (in millions) Trading assets and liabilities Interest rate Credit Foreign exchange(b) Equity Commodity Gross fair value of trading assets and liabilities Netting adjustment(c) Carrying value of derivative trading assets and trading liabilities on the Consolidated Balance Sheets Derivative...

  • Page 194
    ... Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income. (b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates...

  • Page 195
    ...-tax) of net losses recorded in AOCI at December 31, 2010, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such transactions primarily relate to core lending and borrowing activities. Net investment...

  • Page 196
    ... market risk exposures arising from banking activities other than trading activities, which are discussed separately below. Year ended December 31, (in millions) Contract type Interest rate(a) Credit(b) Foreign exchange(c) Equity(b) Commodity(b) Total Derivatives gains/(losses) recorded in income...

  • Page 197
    ... purposes. First, in its capacity as a market-maker in the dealer/client business, the Firm actively risk manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. As a seller of protection, the...

  • Page 198
    .... For a further discussion of credit-related notes, see Note 16 on pages 244-259 of this Annual Report. Effective July 1, 2010, the Firm adopted new accounting guidance prospectively related to credit derivatives embedded in beneficial interests in securitized financial assets, which resulted in the...

  • Page 199
    ... fair value option was elected, and loans held-for-sale within the wholesale lines of business. Principal transactions revenue also includes private equity gains and losses. (a) Includes fees for custody, securities lending, funds services and securities clearance. JPMorgan Chase & Co./2010 Annual...

  • Page 200
    ... mortgage-related risk management activities, are recorded in interest income and securities gains/(losses), respectively. For a further discussion of MSRs, see Note 17 on pages 260-263 of this Annual Report. Credit card income This revenue category includes interchange income from credit and debit...

  • Page 201
    ... to tax-deferred investment portfolios. The JPMorgan Chase Common Stock Fund, which is an investment option under the 401(k) Savings Plan, is a nonleveraged employee stock ownership plan. The Firm matched eligible employee contributions up to 5% of benefits-eligible compensation (e.g., base pay) on...

  • Page 202
    ... year Actual return on plan assets Firm contributions Employee contributions Benefits paid Settlements Foreign exchange impact and other Fair value of plan assets, end of year Funded/(unfunded) status(a) Accumulated benefit obligation, end of year U.S. 2010 $ (7,977) (230) (468) - - NA (249) 604 NA...

  • Page 203
    ... in plan assets and benefit obligations recognized in other comprehensive income Net (gain)/loss arising during the year Prior service credit arising during the year Amortization of net loss Amortization of prior service (cost)/credit Curtailment (gain)/loss Settlement loss/(gain) Foreign exchange...

  • Page 204
    Notes to consolidated financial statements Plan assumptions JPMorgan Chase's expected long-term rate of return for U.S. defined benefit pension and OPEB plan assets is a blended average of the investment advisor's projected long-term (10 years or more) returns for the various asset classes, weighted...

  • Page 205
    ... company and are invested in equity and fixed income index funds. The investment policy for the Firm's U.S. defined benefit pension plan assets is to optimize the risk-return relationship as appropriate to the needs and goals using a global portfolio of various asset classes diversified by market...

  • Page 206
    ... into cash (i.e., investments with original maturities of three months or less). Due to the highly liquid nature of these assets, they are classified within level 1 of the valuation hierarchy. Equity securities Common and preferred stocks are valued at the closing price reported on the major market...

  • Page 207
    ... plans December 31, 2010 (in millions) Cash and cash equivalents Equity securities: Capital equipment Consumer goods Banks and finance companies Business services Energy Materials Real Estate Other Total equity securities Common/collective trust funds(a) Limited partnerships: Hedge funds Private...

  • Page 208
    ... plans December 31, 2009 (in millions) Cash and cash equivalents Equity securities: Capital equipment Consumer goods Banks and finance companies Business services Energy Materials Real estate Other Total equity securities Common/collective trust funds(a) Limited partnerships: Hedge funds Private...

  • Page 209
    ... Private equity funds Real estate Total limited partnerships Corporate debt securities Other Total U.S. plans Non-U.S. defined benefit pension plans Other Total non-U.S. plans OPEB plans COLI Total OPEB plans Fair value, January 1, 2010 Total realized/ unrealized gains/(losses)(a) Purchases, sales...

  • Page 210
    ... of employee stock-based incentive awards is to issue either new shares of common stock or treasury shares. During 2010, 2009 and 2008, the Firm settled all of its employee stock-based awards by issuing treasury shares. In January 2008, the Firm awarded to its Chairman and Chief Executive Officer up...

  • Page 211
    ... the treatment for treasury stock. The related obligation to issue stock under these employee stock plans is reported in capital surplus. The issuance of shares held in the RSU Trust to employees has no effect on the Firm's total stockholders' equity, net income or earnings per share. Shares held in...

  • Page 212
    ... does not capitalize any compensation cost related to share-based compensation awards to employees. Cash flows and tax benefits Income tax benefits related to stock-based incentive arrangements recognized in the Firm's Consolidated Statements of Income for the years ended December 31, 2010, 2009 and...

  • Page 213
    ... in the merger costs caption of the Consolidated Statements of Income. For a further discussion of the Bear Stearns merger and the Washington Mutual transaction, see Note 2 on pages 166-170 of this Annual Report. A summary of merger-related costs is shown in the following table. Year ended December...

  • Page 214
    ... a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Firm estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and, where applicable for...

  • Page 215
    ... bank debt. (c) Consists primarily of mortgage-backed securities issued by U.S. government-sponsored enterprises. (d) Includes a total of $133 million and $368 million (before tax) of unrealized losses related to prime mortgage-backed securities for which credit losses have been recognized in income...

  • Page 216
    ... of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Credit card receivables Collateralized loan obligations Other Total available-for-sale debt securities Available-for-sale equity securities Total securities with gross unrealized losses Total gross...

  • Page 217
    ... home purchases. The unrealized loss of $250 million is considered temporary, based on management's assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm's investment. The credit enhancements associated...

  • Page 218
    ... deposit: Amortized cost Fair value Average yield(b) Non-U.S. government debt securities: Amortized cost Fair value Average yield(b) Corporate debt securities: Amortized cost Fair value Average yield(b) Asset-backed securities: Amortized cost Fair value Average yield(b) Total available-for-sale debt...

  • Page 219
    ... of the market value of the underlying securities. Margin levels are established initially based upon the counterparty and type of collateral and monitored on an ongoing basis to protect against declines in collateral value in the event of default. JPMorgan Chase typically enters into master netting...

  • Page 220
    ... price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the life of the loan to produce a level rate of return. Nonaccrual loans Nonaccrual loans are those on which the accrual of interest has been suspended. Loans (other than credit card...

  • Page 221
    ... portfolio that management decides to sell are transferred to the held-for-sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; losses due to changes in interest rates or foreign currency exchange rates...

  • Page 222
    ... Washington Mutual (a) Includes loans reported in Investment Bank, Commercial Banking, Treasury & Securities Services, Asset Management and Corporate/Private Equity segments. (b) Includes RFS and residential real estate loans reported in the Corporate/Private Equity segment. (c) Includes risk-rated...

  • Page 223
    ... card Credit Card Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a) (a) Excludes sales related to loans accounted for at fair value. 2010 2009 2008 $ 215 265 (16) $ 464 $ 291 127 21 $ 439 $ (2,647 ) (11 ) 150 $ (2,508 ) Wholesale loan portfolio...

  • Page 224
    ... information by class of receivable for the retained loans in the Wholesale portfolio segment. As of or for the year ended December 31, (in millions, except ratios) Loans by risk ratings Investment grade Noninvestment grade: Noncriticized Criticized performing Criticized-total nonaccrual Total...

  • Page 225
    ... 200,077 (table continued from previous page) Commercial construction and development 2009 2010 $ 3,395 $ 4,599 619 1,359 18.23% 29.55% $ 174 $ 313 5.13% 6.81% Other $ 2010 3,840 696 18.13% 198 5.16% $ 2009 6,349 1,591 25.06% 779 12.27% $ Total real estate loans 2009 2010 53,635 $ 57,195 8,706 10...

  • Page 226
    ... value; net deferred loan fees or costs; and discount or premiums on purchased loans. The following table presents the Firm's average impaired loans for the years ended 2010, 2009 and 2008. For the year ended December 31, (in millions) Commercial and industrial Real estate Financial institutions...

  • Page 227
    ... of residential mortgages, home equity loans, auto loans, business banking loans, and student and other loans, with a primary focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens and mortgage loans with interest-only payment options...

  • Page 228
    ... credit card portfolio segment. Home equity As of or for the year ended December 31, (in millions, except ratios) Net charge-offs % of net charge-offs to retained loans Loan delinquency Current and less than 30 days past due 30-149 days past due 150 or more days past due Total retained loans...

  • Page 229
    ...page) Mortgages Prime, including option ARMs 2009 2010 $ 1,627 2.15% $ 1,957 2.51% $ Subprime 2010 1,374 10.82% 2009 $ 1,648 11.86% $ Total residential real estate (excluding PCI) 2010 6,445 3.52% $ 2009 8,287 ...909 4,051 6,024 5,221 52,478 $ 174,211 JPMorgan Chase & Co./2010 Annual Report 229

  • Page 230
    ... average impaired loans and the related interest income reported by the Firm. For the year ended December 31, (in millions) Home equity Senior lien Junior lien Mortgages Prime, including option ARMs Subprime Total residential real estate (excluding PCI) Impaired loans (average) 2010 2009 2008 $ 207...

  • Page 231
    ...more days past due and still accruing $ Nonaccrual loans(a) Geographic region California New York Texas Florida Illinois Ohio New Jersey Michigan Arizona Washington All other Total retained loans Loans by risk ratings(b) Noncriticized Criticized performing Criticized nonaccrual Auto(c) 2009 2010 298...

  • Page 232
    ... $ 30 137 Business banking 2010 2009 $ 774 - $ 774 $ 248 899 $ 500 - $ 500 $ 129 577 $ $ $ Total other consumer(c) 2010 2009 876 - 876 264 1,031 $ 618 - $ 618 $ 159 714 (a) When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then the...

  • Page 233
    ... yield. This amount is not reported on the Firm's Consolidated Balance Sheets but is accreted into interest income at a level rate of return over the remaining estimated lives of the underlying pools of loans. For variable-rate loans, expected future cash flows were initially based on the rate...

  • Page 234
    ...value(a) Related allowance for loan losses(b) Loan delinquency (based on unpaid principal balance) Home equity $ 2010 24,459 1,583 $ 2009 26,520 - Prime mortgage 2010 $ 17,322 1,766 2009 $ 19,693 1,090 Current and less than 30 days past due 30-149 days past due 150 or more days past due Total loans...

  • Page 235
    (table continued from previous page) Subprime mortgage 2009 2010 $ 5,993 5,398 - 98 Option ARMs $ 2010 25,584 1,494 $ 2009 29,039 491 $ 2010 72,763 4,941 Total PCI $ 2009 81,245 1,581 $ $ $ 4,312 1,020 2,710 8,042 46.... 1,113 1,993 3,376 16,816 101,330 JPMorgan Chase & Co./2010 Annual Report 235

  • Page 236
    Notes to consolidated financial statements The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31, 2010, 2009 and 2008. Year ended December 31, (in millions, except ratios) Balance, January 1 Washington Mutual acquisition Accretion ...

  • Page 237
    ... accounting adjustments related to the Washington Mutual transaction and the consolidation of the WMMT in the second quarter of 2009. (b) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under guidance issued...

  • Page 238
    ...to be troubled debt restructurings. If the cardholder does not comply with the modified payment terms, then the credit card loan agreement reverts back to its premodification payment terms. Assuming that the cardholder does Chase, excluding Washington Mutual portfolio 2010 2009 $ 6,685 1,439 $ 8,124...

  • Page 239
    ... of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model. For residential real estate loans, collateral values are based upon external...

  • Page 240
    Notes to consolidated financial statements recognized on defaulted loans, market-specific real estate appraisals and property sales activity. Real estate broker price opinions are obtained when the loan is being evaluated for charge-off and at least every six months thereafter. When foreclosure is ...

  • Page 241
    ... in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm and discussed with the Risk Policy and...

  • Page 242
    ... for credit losses recognized in Corporate/Private Equity related to the Washington Mutual transaction in 2008. (c) The 2009 amount predominantly represents a reclassification related to the issuance and retention of securities from the Chase Issuance Trust. For further information, see Note 16...

  • Page 243
    ...2009 Consumer, excluding credit card Credit card $ 25 - (10) - (10) - (3) 12 Total 659 - 280 - 280 - - 939 Wholesale $ 835 - (214) 5 (209) - 8 634 2008 Consumer, excluding credit card $ 15 - (1) (48) (49) 66 (7) 25 Credit card Total... $ 146 1,065 JPMorgan Chase & Co./2010 Annual Report 243

  • Page 244
    ... the activities of these entities and does not consolidate these entities. • Corporate/Private Equity: Corporate uses VIEs to issue guaranteed capital debt securities. See Note 22 on pages 265-266 of this Annual Report for further information. The Private Equity business, within Corporate/Private...

  • Page 245
    ... securities and maintaining escrow accounts. As servicer, the Firm receives contractual servicing fees based on the securitized loan balance plus excess servicing fees, which are recorded in credit card income as discussed in Note 7 on page 200 of this Annual Report. Effective January 1, 2010...

  • Page 246
    ... interests (trading assets and AFS securities) are reflected at their fair values. See Securitization activity on pages 255-258 of this Note for further information regarding the Firm's cash flows with and interests retained in nonconsolidated VIEs. 246 JPMorgan Chase & Co./2010 Annual Report

  • Page 247
    ... Chase December 31, 2009(a) (in billions) Securitization-related Residential mortgage: Prime(b) Subprime Option ARMs Commercial and other(c) Student Auto Total Total assets held by securitization VIEs Assets held in consolidated securitization VIEs Trading assets AFS securities Other assets...

  • Page 248
    ... the mortgage-backed securities issued by the trust. However, for a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 30 on pages 275-280 of this Annual Report for additional information on loans sold...

  • Page 249
    ... and loans through the issuance of highly rated commercial paper to third-party investors. The primary source of repayment of the commercial paper is the cash flows from the pools of assets. In most instances, the assets are structured with deal-specific credit enhancements provided by the customers...

  • Page 250
    ...billions) Consolidated Non-consolidated(a) Total assets funded $ 5.1 17.8 Commercial paper issued $ 5.1 17.8 Municipal bond vehicles The Firm has created a series of trusts that provide short-term investors with qualifying tax-exempt investments, and that allow investors in tax-exempt securities to...

  • Page 251
    ...the form of letters of credit, of $10 million at both December 31, 2010 and 2009. (c) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn. (d) The ratings scale is based on the Firm's internal risk ratings and is presented...

  • Page 252
    Notes to consolidated financial statements Credit-related note vehicles The Firm structures transactions with credit-related note vehicles in which the VIE purchases highly rated assets, such as asset-backed securities, and enters into a credit derivative contract with the Firm to obtain exposure to...

  • Page 253
    ... vehicles. (b) Trading assets principally comprise notes issued by VIEs, which from time to time are held as part of the termination of a deal or to support limited market-making. (c) On-balance sheet exposure that includes net derivative receivables and trading assets - debt and equity instruments...

  • Page 254
    ... related to VIEs that are consolidated by the Firm as of December 31, 2010 and 2009. Assets December 31, 2010 (in billions) VIE program type Firm-sponsored credit card trusts Firm-administered multi-seller conduits Mortgage securitization entities Other Total Trading assets - debt and equity...

  • Page 255
    ... activities for the years ended December 31, 2010, 2009 and 2008, related to assets held in JPMorgan Chase- Year ended December 31, 2010 (in millions, except rates) Principal securitized Pretax gains All cash flows during the period(a) Proceeds from new securitizations(b) Servicing fees...

  • Page 256
    Notes to consolidated financial statements Residential mortgage Year ended December 31, 2009 (in millions, except rates) Principal securitized Pretax gains All cash flows during the period(a) Proceeds from new securitizations(b) Servicing fees collected Other cash flows received Proceeds from ...

  • Page 257
    ... a servicing asset at the time of sale. The following table summarizes these loan sale activities. Year ended December 31, (in millions) 2010 Carrying value of loans sold(a)(b) $ 156,615 Proceeds received from loan sales as cash 3,887 Proceeds received from loan sales as securities(c) 149,786 Total...

  • Page 258
    ... 260-263 of this Annual Report. Residential mortgage December 31, 2010 (in millions, except rates and where otherwise noted) JPMorgan Chase interests in securitized assets(a)(c) Weighted-average life (in years) Weighted-average constant prepayment rate(d) Impact of 10% adverse change Impact of 20...

  • Page 259
    ...: Prime mortgage(b) Subprime mortgage Option ARMs Commercial and other Credit card Student Automobile Total loans securitized(c) Credit exposure 2010 2009 90 days past due and still accruing 2010 2009 Nonaccrual loans 2010 2009 Net loan charge-offs(d) 2010 2009 $ 143,764 40,721 35,786 106,245 NA NA...

  • Page 260
    ...attributed to the business segments. December 31, (in millions) Investment Bank Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total goodwill $ 2010 5,278 16,813 14,205 2,866 1,680 7,635 377 $ 48,854 2009 $ 4,959 16...

  • Page 261
    ...conditions (including new unemployment claims and home prices), and regulatory and legislative changes that may affect consumer credit card use. The assumptions used in the discounted cash flow model were determined using management's best estimates. The cost of equity reflected the related risk and...

  • Page 262
    ... servicing revenue All other(c) Mortgage fees and related income 2009 2008 Changes in level 3 recurring fair value measurements tables in Note 3 on pages 170-187 of this Annual Report include these amounts. (c) Primarily represents risk management activities performed by the Chief Investment Office...

  • Page 263
    ... certain trust accounts. (b) Includes Money Market Deposit Accounts ("MMDAs"). (c) See Note 4 on pages 187-189 of this Annual Report for further information on structured notes classified as deposits for which the fair value option has been elected. JPMorgan Chase & Co./2010 Annual Report 263

  • Page 264
    ... of $9.9 billion and $5.6 billion accounted for at fair value at December 31, 2010 and 2009, respectively. See Note 3 on pages 170-187 of this Annual Report for further information. (c) Includes other borrowed funds of $37.8 billion and $30.4 billion secured by assets totaling $95.3 billion and $144...

  • Page 265
    ... contract on the Consolidated Balance Sheets. Changes in fair value are recorded in principal transactions revenue in the Consolidated Statements of Income. The following table is a summary of long-term debt carrying values (including unamortized original issue discount, valuation adjustments and...

  • Page 266
    ... information, see Note 2 on pages 166-170 of this Annual Report. in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm's credit ratings, financial ratios, earnings or stock price. Junior...

  • Page 267
    ...28, 2008, pursuant to the U.S. Treasury's Capital Purchase Program, the Firm issued to the U.S. Treasury, for total proceeds of $25.0 billion, (i) 2.5 million shares of the Firm's Fixed Rate Cumulative Perpetual Preferred Stock, Series K, par value $1 per share and liquidation preference $10,000 per...

  • Page 268
    ...: Open market issuance Bear Stearns Share Exchange Agreement Total newly issued Canceled shares Total issued - balance at December 31 Treasury - balance at January 1 Purchase of treasury stock Share repurchases related to employee stock-based awards(a) Issued from treasury: Net change from the Bear...

  • Page 269
    ... were options issued under employee benefit plans and the warrants originally issued in 2008 under the U.S. Treasury's Capital Purchase Program to purchase shares of the Firm's common stock aggregating 233 million, 266 million and 209 million for the full years ended December 31, 2010, 2009 and 2008...

  • Page 270
    ... income/(loss) includes the after-tax change in unrealized gains/(losses) on AFS securities, foreign currency translation adjustments (including the impact of related derivatives), cash flow hedging activities and net loss and prior service costs/(credit) related to the Firm's defined benefit...

  • Page 271
    ...several years. Thus, the Firm's final tax-related assets and liabilities may ultimately be different from those currently reported. The components of income tax expense/(benefit) included in the Consolidated Statements of Income were as follows for each of the years ended December 31, 2010, 2009 and...

  • Page 272
    ... related to AFS securities, cash flows hedging activities and other portfolio investments. JPMorgan Chase has recorded deferred tax assets of $1.4 billion at December 31, 2010, in connection with U.S. federal, state and local and non-U.S. subsidiary net operating loss carryforwards and foreign tax...

  • Page 273
    ... located outside the U.S. Note 28 - Restrictions on cash and intercompany funds transfers The business of JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A.") is subject to examination and regulation by the Office of the Comptroller of the Currency ("OCC"). The Bank is a member...

  • Page 274
    ... market risk related to applicable trading assets-debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets. (c) Includes off-balance sheet risk-weighted...

  • Page 275
    .... Off-balance sheet lending-related financial instruments, guarantees and other commitments December 31, (in millions) Lending-related Consumer, excluding credit card: Home equity - senior lien Home equity - junior lien Prime mortgage Subprime mortgage Auto Business banking Student and other Total...

  • Page 276
    ... valued at net asset value as discussed in Note 3 on pages 170-187 of this Annual Report; and $1.4 billion and $897 million, respectively, to other equity investments. (i) Amounts include letters of credit hedged by derivative transactions and managed on a market risk basis. (j) Represents estimated...

  • Page 277
    ... 2,127 Other letters of credit $ 3,861 1,306 5,167 1 1,315 (a) The ratings scale is based on the Firm's internal ratings which generally correspond to ratings as defined by S&P and Moody's. (b) At December 31, 2010 and 2009, represents the contractual amount net of risk participations totaling $22...

  • Page 278
    ... of December 31, 2010, relating to unresolved and future demands on the Washington Mutual portfolio. The primary reasons for repurchase demands from the GSEs relate to alleged misrepresentations primarily driven by: (i) credit quality and/or undisclosed debt of the borrower; (ii) income level and/or...

  • Page 279
    ... million at December 31, 2010 and 2009, respectively. Credit card charge-backs Prior to November 1, 2008, the Firm was a partner with one of the leading companies in electronic payment services in a joint venture operating under the name of Chase Paymentech Solutions, LLC (the "joint venture"). The...

  • Page 280
    Notes to consolidated financial statements Under the rules of Visa USA, Inc., and MasterCard International, JPMorgan Chase Bank, N.A., is liable primarily for the amount of each processed credit card sales transaction that is the subject of a dispute between a cardmember and a merchant. If a dispute...

  • Page 281
    ...certain accounts transferred to The Bank of New York Mellon Corporation ("BNYM") in connection with the Firm's sale to BNYM of its corporate trust business. The resolution of these issues did not have a material effect on the Firm. (a) Total assets pledged do not include assets of consolidated VIEs...

  • Page 282
    ... the New York Attorney General's Office which provided, among other things, that the Firm would offer to purchase at par certain auction-rate securities purchased from J.P. Morgan Securities LLC ("JPMorgan Securities"; formerly J.P. Morgan Securities Inc.), Chase Investment Services Corp. and Bear...

  • Page 283
    ...of all persons who purchased or otherwise acquired common stock of Bear Stearns between December 14, 2006 and March 14, 2008 (the "Class Period"). During the Class Period Bear Stearns had between 115 and 120 million common shares outstanding, and the price of those securities declined from a high of...

  • Page 284
    ... respective bank holding companies, conspired to set the price of credit and debit card interchange fees, enacted respective association rules in violation of anti-trust laws, and engaged in tying/bundling and exclusive dealing. The complaint seeks unspecified damages and injunctive relief based on...

  • Page 285
    ...courts around the country; and certain JPMorgan Chase, Bear Stearns and Washington Mutual entities are also among the defendants named in separate individual actions commenced by Cambridge Place Investment Management Inc. in Massachusetts state court, by The Charles Schwab Corporation in state court...

  • Page 286
    ... with the Internal Revenue Service), the Securities and Exchange Commission ("SEC"), a group of state attorneys general and the Office of the Comptroller of the Currency ("OCC") have been investigating JPMorgan Chase and Bear Stearns for possible antitrust, securities and tax-related violations in...

  • Page 287
    ... by order dated December 27, 2010. Overdraft Fee/Debit Posting Order Litigation. JPMorgan Chase Bank, N.A. has been named as a defendant in several purported class actions relating to its practices in posting debit card transactions to customers' deposit accounts. Plaintiffs allege that the Firm...

  • Page 288
    Notes to consolidated financial statements with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. ington Mutual Bank"), in September 2008, Washington Mutual Bank's parent holding company, Washington Mutual...

  • Page 289
    ...Action") by certain holders of WMI common stock and debt of WMI and Washington Mutual Bank who seek unspecified damages alleging that JPMorgan Chase acquired substantially all of the assets of Washington Mutual Bank from the FDIC at an allegedly too-low price. The Texas Action was transferred to the...

  • Page 290
    ... and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, sophisticated risk management, marketmaking in cash securities and...

  • Page 291
    ... the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and...

  • Page 292
    ...) Investment Bank Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity $ 2009 27 228 40 6 11 6 163 $ 2008 183 90 20 4 - 3 132 (d) On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual...

  • Page 293
    ...in the Corporate/Private Equity segment as the action related to the acquisition of Washington Mutual's banking operations. For further discussion of credit card securitizations, see Note 16 on pages 244-259 of this Annual Report. (i) Segment managed results reflect revenue on a tax-equivalent basis...

  • Page 294
    ... 14,329 Income tax benefit 511 Equity in undistributed net income of subsidiaries 2,530 Net income $ 17,370 $ Parent company - balance sheets December 31, (in millions) Assets Cash and due from banks Deposits with banking subsidiaries Trading assets Available-for-sale securities Loans Advances to...

  • Page 295
    ... assets Income before extraordinary gain Net income Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio(e) Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(f) Selected balance sheet data (period-end)(e) Trading assets Securities Loans Total assets Deposits Long-term debt...

  • Page 296
    ... monitor its capital position. The Tier 1 common ratio is Tier 1 common divided by riskweighted assets. For further discussion, see Regulatory capital on pages 102-104 of this Annual Report. (g) Excludes the impact of home lending PCI loans and loans held by the Washington Mutual Master Trust. For...

  • Page 297
    ...assets Income from continuing operations Net income Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio(g) Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(h) Selected balance sheet data (period-end)(g) Trading assets Securities Loans Total assets Deposits Long-term debt...

  • Page 298
    ... provision related to the acquisition of Washington Mutual Bank's banking operations. (c) On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust businesses for the consumer, business-banking and middle-market banking businesses of The Bank of New York Company Inc...

  • Page 299
    .... Commercial paper generally is issued in amounts not less than $100,000, and with maturities of 270 days or less. Other borrowed funds consist of demand notes, term federal funds purchased, and various other borrowings that generally have maturities of one year or less. JPMorgan Chase & Co./2010...

  • Page 300
    ... postretirement benefit obligation for OPEB plans. CAGR: Compound annual growth rate. Corporate/Private Equity: Includes Private Equity, Treasury and Chief Investment Office, and Corporate Other, which includes other centrally managed expense and discontinued operations. Credit card securitizations...

  • Page 301
    ... value of the collateral (i.e., residential real estate) securing the loan. collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract. Merger costs: Reflects costs associated with the Bear Stearns merger and the Washington Mutual...

  • Page 302
    .... Personal bankers: Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services. Portfolio activity: Describes changes to the risk profile of existing lending...

  • Page 303
    ... U.S. government. U.S. Treasury: U.S. Department of the Treasury. Value-at-risk ("VaR"): A measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment. Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired the banking operations...

  • Page 304
    ... Allen & Company, LLC New York, New York Franz B. Humer Chairman Roche Holding Ltd. Basel, Switzerland Cees J.A. van Lede Former Chairman and Chief Executive Officer, Board of Management Akzo Nobel Arnhem, The Netherlands Michael A. Chaney Chairman National Australia Bank Limited Perth, Western...

  • Page 305
    ...cer LeFrak Organization Samuel I. Newhouse III General Manager Advance Publications Inc. Stanley Fleishman Chief Executive Officer Jetro Cash & Carry Enterprises, LLC Richard B. Leventhal Chairman and Chief Executive Officer Fedway Associates, Inc. JPMorgan Chase & Co./2010 Annual Report 305

  • Page 306
    ... Commercial Banking/ Risk Management Strategy & Marketing Charles W. Scharf* Retail Financial Services Matthew E. Zames Investment Bank Guy Chiarello Chief Information Officer Mel R. Martinez Florida, Mexico, Central America and Caribbean Peter L. Scher Global Government Relations & Public...

  • Page 307
    JPMorgan Chase & Co. Corporate headquarters 270 Park Avenue New York, NY 10017-2070 Telephone: 212-270-6000 jpmorganchase.com Principal subsidiaries JPMorgan Chase Bank, National Association Chase Bank USA, National Association J.P. Morgan Securities LLC Annual Report on Form 10-K The Annual Report ...

  • Page 308
    jpmorganchase.com