JP Morgan Chase 2010 Annual Report Download - page 58

Management’s discussion and analysis
JPMorgan Chase & Co./2010 Annual Report
58
portfolio continues to run off, management anticipates that
approximately $1.0 billion of capital may become available for
redeployment each year, subject to the capital requirements
associated with the remaining portfolio.
Also, in RFS, management expects noninterest expense in 2011 to
remain modestly 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 continue to
decline in 2011. This decline may be as much as $10 billion in the
first quarter, reflecting both continued portfolio run-off and seasonal
activity. The decline in the Chase portfolio is expected to bottom out
in the third quarter of 2011, and by the end of 2011, outstandings in
the portfolio are anticipated to be approximately $120 billion and
reflect a better mix of customers. The Washington Mutual portfolio
declined to approximately $14 billion at the end of 2010, from $20
billion at the end of 2009. Management estimates that the
Washington Mutual portfolio could decline to $10 billion by the end
of 2011. The effect of such reductions in the Chase and Washington
Mutual portfolios is expected to reduce 2011 net interest income in
CS by approximately $1.4 billion from the 2010 level.
The net charge-off rates for both the Chase and Washington
Mutual credit card portfolios are anticipated to continue to
improve. If current delinquency trends continue, the net charge-off
rate for the Chase portfolio (excluding the Washington Mutual
portfolio) could be below 6.5% in the first quarter of 2011.
Despite these positive economic trends, results for RFS and CS will
depend on the economic environment. Although the positive
economic data seen in 2010 seemed to imply that the U.S.
economy was not falling back into recession, high unemployment
rates and the difficult housing market have been persistent. Even as
consumer lending net charge-offs and delinquencies have
improved, the consumer credit portfolio remains under stress.
Further declines in U.S. housing prices and increases in the
unemployment rate remain possible; if this were to occur, results
for both RFS and CS could be adversely affected.
In IB, TSS and AM, revenue will be affected by market levels,
volumes and volatility, which will influence client flows and assets
under management, supervision and custody. In addition, IB and
CB results will continue to be affected by the credit environment,
which will influence levels of charge-offs, repayments and provision
for credit losses.
In Private Equity (within the Corporate/Private Equity segment),
earnings will likely continue to be volatile and be influenced by
capital markets activity, market levels, the performance of the
broader economy and investment-specific issues. Corporate’s net
interest income levels will generally trend with the size and
duration of the investment securities portfolio. Corporate net
income (excluding Private Equity, and excluding merger-related
items, material litigation expenses and significant nonrecurring
items, if any) is anticipated to trend toward a level of approximately
$300 million per quarter.
Furthermore, continued repositioning of the investment securities
portfolio in Corporate could result in modest downward pressure
on the Firm’s net interest margin in the first quarter of 2011.
Regarding regulatory reform, JPMorgan Chase intends to continue
to work with the Firm’s regulators as they proceed with the
extensive rulemaking required to implement financial reform. The
Firm will continue to devote substantial resources to achieving
implementation of regulatory reforms in a way that preserves the
value the Firm delivers to its clients.
Management and the Firm’s Board of Directors continually evaluate
ways to deploy the Firm’s strong capital base in order to enhance
shareholder value. Such alternatives could include the repurchase of
common stock, increasing the common stock dividend and pursuing
alternative investment opportunities. Management and the Board
will continue to assess and make decisions regarding these
alternatives, as appropriate, over the course of the year.