JP Morgan Chase 2010 Annual Report Download - page 61

JPMorgan Chase & Co./2010 Annual Report
61
Lending- and deposit-related fees rose from the prior year,
predominantly reflecting the impact of the Washington Mutual
transaction and organic growth in both lending- and deposit-
related fees in RFS, CB, IB and TSS. For a further discussion of
lending- and deposit-related fees, which are mostly recorded in
RFS, TSS and CB, see the RFS segment results on pages 72–78, the
TSS segment results on pages 84–85, and the CB segment results
on pages 82–83 of this Annual Report.
The decline in asset management, administration and commissions
revenue compared with the prior year was largely due to lower
asset management fees in AM from the effect of lower market
levels. Also contributing to the decrease were lower administration
fees in TSS, driven by the effect of market depreciation on certain
custody assets and lower securities lending balances; and lower
brokerage commissions revenue in IB, predominantly related to
lower transaction volume. For additional information on these fees
and commissions, see the segment discussions for TSS and AM on
pages 84–85 and pages 86–88, respectively, of this Annual Report.
Securities gains were lower in 2009 and included credit losses
related to other-than-temporary impairment and lower gains on
the sale of MasterCard shares totaling $241 million in 2009,
compared with $668 million in 2008. These decreases were
offset partially by higher gains from repositioning the Corporate
investment securities 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 income increased slightly from the prior
year, as higher net mortgage servicing revenue was largely offset by
lower production revenue. The increase in net mortgage servicing
revenue was driven by growth in average third-party loans serviced
as a result of the Washington Mutual transaction. Mortgage
production revenue declined from the prior year, reflecting an
increase in estimated losses from the repurchase of previously-sold
loans, offset partially by wider margins on new originations. For a
discussion of mortgage fees and related income, which is recorded
primarily in RFS, see RFS’s Mortgage Banking, Auto & Other
Consumer Lending discussion on pages 74–77 of this Annual
Report.
Credit card income, which includes the impact of the Washington
Mutual transaction, decreased slightly compared with the prior
year, due to lower servicing fees earned in connection with CS
securitization activities, largely as a result of higher credit losses.
The decrease was partially offset by wider loan margins on
securitized credit card loans; higher merchant servicing revenue
related to the dissolution of the Chase Paymentech Solutions joint
venture; and higher interchange income. For a further discussion of
credit card income, see the CS segment results on pages 79–81 of
this Annual Report.
Other income decreased from the prior year, due predominantly
to the absence of $1.5 billion in proceeds from the sale of Visa
shares as part of its initial public offering in the first quarter of
2008; a $1.0 billion gain on the dissolution of the Chase
Paymentech Solutions joint venture in the fourth quarter of 2008;
and lower net securitization income in CS. These items were
partially offset by a $464 million charge recognized in 2008
related to the repurchase of auction-rate securities at par; the
absence of a $423 million loss incurred in the second quarter of
2008, reflecting the Firm’s 49.4% share of Bear Stearns’s losses
from April 8 to May 30, 2008; and higher valuations on certain
investments, including seed capital in AM.
Net interest income increased from the prior year, driven by the
Washington Mutual transaction, which contributed to higher
average loans and deposits. The Firm’s interest-earning assets were
$1.7 trillion, and the net yield on those assets, on a fully taxable-
equivalent (“FTE”) basis, was 3.12%, an increase of 25 basis
points from 2008. Excluding the impact of the Washington Mutual
transaction, the increase in net interest income in 2009 was driven
by a higher level of investment securities, as well as a wider net
interest margin, which reflected the overall decline in market
interest rates during the year. Declining interest rates had a positive
effect on the net interest margin, as rates paid on the Firm’s
interest-bearing liabilities decreased faster relative to the decline in
rates earned on interest-earning assets. These increases in net
interest income were offset partially by lower loan balances, which
included the effect of lower customer demand, repayments and
charge-offs.