JP Morgan Chase 2010 Annual Report Download - page 114

Management’s discussion and analysis
114 JPMorgan Chase & Co./2010 Annual Report
For the year ended December 31, 2008, net cash of $283.7
billion was used in investing activities, primarily for: increased
deposits with banks as the result of the availability of excess cash
for short-term investment opportunities through interbank lend-
ing, and reserve balances held by the Federal Reserve (which
became an investing activity in 2008, reflecting a policy change
of the Federal Reserve to pay interest to depository institutions on
reserve balances); net purchases of investment securities in the
AFS portfolio to manage the Firm’s exposure to interest rate
movements; net additions to the wholesale loan portfolio from
organic growth in CB; additions to the consumer prime mortgage
portfolio as a result of the decision to retain, rather than sell, new
originations of nonconforming prime mortgage loans; an increase
in securities purchased under resale agreements reflecting growth
in demand from clients for liquidity; and net purchases of asset-
backed commercial paper from money market mutual funds in
connection with the Asset-Backed Commercial Paper Money
Market Mutual Fund Liquidity Facility (“AML facility”) of the Fed-
eral Reserve Bank of Boston. Partially offsetting these uses of
cash were proceeds from loan sales and securitization activities
as well as net cash received from acquisitions and the sale of an
investment. Additionally, in June 2008, in connection with the
Bear Stearns merger, the Firm sold assets acquired from Bear
Stearns to the FRBNY and received cash proceeds of $28.85
billion.
Cash flows from financing activities
The Firm’s financing activities primarily reflect cash flows related to
raising customer deposits, and issuing long-term debt (including trust
preferred capital debt securities) as well as preferred and common
stock. In 2010, net cash used in financing activities was $49.2 billion.
This resulted from net payments of long-term borrowings and trust
preferred capital debt securities as new issuances were more than
offset by payments primarily reflecting a decline in beneficial inter-
ests issued by consolidated VIEs due to maturities related to Firm-
sponsored credit card securitization trusts; a decline in deposits
associated with wholesale funding activities due to the Firm’s lower
funding needs; lower deposit levels in TSS, offset partially by net
inflows from existing customers and new business in AM, CB and
RFS; a decline in commercial paper and other borrowed funds due
to lower funding requirements; payments of cash dividends; and
repurchases of common stock. Cash was generated as a result of
an increase in securities sold under repurchase agreements largely
as a result of an increase in activity levels in IB partially offset by a
decrease in CIO reflecting repositioning activities.
In 2009, net cash used in financing activities was $153.1 billion; this
reflected a decline in wholesale deposits, predominantly in TSS, driven
by the continued normalization of wholesale deposit levels resulting
from the mitigation of credit concerns, compared with the heightened
market volatility and credit concerns in the latter part of 2008; a
decline in other borrowings, due to the absence of borrowings from
the Federal Reserve under the Term Auction Facility program; net
repayments of short-term advances from FHLBs and the maturity of
the nonrecourse advances under the Federal Reserve Bank of Boston
AML Facility; the June 17, 2009, repayment in full of the $25.0 billion
principal amount of Series K Preferred Stock issued to the U.S. Treas-
ury; and the payment of cash dividends on common and preferred
stock. Cash was also used for the net payment of long-term borrow-
ings and trust preferred capital debt securities, as issuances of FDIC-
guaranteed debt and non-FDIC guaranteed debt in both the U.S. and
European markets were more than offset by repayments including
long-term advances from FHLBs. Cash proceeds resulted from an
increase in securities loaned or sold under repurchase agreements,
partly attributable to favorable pricing and to financing the increased
size of the Firm’s AFS securities portfolio; and the issuance of $5.8
billion of common stock. There were no repurchases in the open
market of common stock or the warrants during 2009.
In 2008, net cash provided by financing activities was $247.0 billion
due to growth in wholesale deposits, in particular, interest- and
noninterest-bearing deposits in TSS (driven by both new and existing
clients, and due to the deposit inflows related to the heightened
volatility and credit concerns affecting the global markets that began
in the third quarter of 2008), as well as increases in AM and CB (due
to organic growth); proceeds of $25.0 billion from the issuance of
preferred stock and the Warrant to the U.S. Treasury under the Capi-
tal Purchase Program; additional issuances of common stock and
preferred stock used for general corporate purposes; an increase in
other borrowings due to nonrecourse secured advances under the
Federal Reserve Bank of Boston AML Facility to fund the purchase of
asset-backed commercial paper from money market mutual funds;
increases in federal funds purchased and securities loaned or sold
under repurchase agreements in connection with higher client de-
mand for liquidity and to finance growth in the Firm’s AFS securities
portfolio; and a net increase in long-term borrowings due to a combi-
nation of non-FDIC guaranteed debt and trust preferred capital debt
securities issued prior to December 4, 2008, and the issuance of
$20.8 billion of FDIC-guaranteed long-term debt issued during the
fourth quarter of 2008. The fourth-quarter FDIC-guaranteed debt
issuance was offset partially by maturities of non-FDIC guaranteed
long-term debt during the same period. The increase in long-term
borrowings and trust preferred capital debt securities was used
primarily to fund certain illiquid assets held by the parent holding
company and to build liquidity. Cash was also used to pay dividends
on common and preferred stock. The Firm did not repurchase any
shares of its common stock during 2008.