JP Morgan Chase 2010 Annual Report Download - page 62

Management’s discussion and analysis
JPMorgan Chase & Co./2010 Annual Report
62
Provision for credit losses
Year ended December 31,
(in millions)
2010
2009 2008
Wholesale
$
(850
)
$ 3,974 $ 3,327
Consumer, excluding credit card
(a)
9,452 16,022 10,610
Credit card
(a)
8,037 12,019 7,042
Total provision for credit losses
$
16,639
$ 32,015 $ 20,979
(a) Includes adjustments to the provision for credit losses recognized in the
Corporate/Private Equity segment related to the Washington Mutual
transaction in 2008.
2010 compared with 2009
The provision for credit losses declined by $15.4 billion compared
with 2009, due to decreases in both the consumer and wholesale
provisions. The decreases in the consumer provisions reflected
reductions in the allowance for credit losses for mortgages and
credit cards as a result of improved delinquency trends and lower
estimated losses. This was partially offset by an increase in the
allowance for credit losses associated with the Washington Mutual
purchased credit-impaired loans portfolio, resulting from increased
estimated future credit losses. The decrease in the wholesale
provision in 2010 reflected a reduction in the allowance for credit
losses, predominantly as a result of continued improvement in the
credit quality of the commercial and industrial loan portfolio,
reduced net charge-offs, and net repayments and loan sales. For a
more detailed discussion of the loan portfolio and the allowance for
credit losses, see the segment discussions for RFS on pages 72–78,
CS on pages 79–81, IB on pages 69–71 and CB on pages 82–83,
and the Allowance for Credit Losses section on pages 139–141 of
this Annual Report.
2009 compared with 2008
The provision for credit losses in 2009 rose by $11.0 billion
compared with the prior year, predominantly due to a significant
increase in the consumer provision. The prior year included a
$1.5 billion charge to conform Washington Mutual’s allowance for
loan losses, which affected both the consumer and wholesale
portfolios. For the purpose of the following analysis, this charge is
excluded. The consumer provision reflected additions to the
allowance for loan losses for 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
to estimated deterioration in the Washington Mutual purchased
credit-impaired portfolio. The wholesale provision increased from
the prior year, reflecting continued weakness in the credit
environment in 2009 compared with the prior year. For a more
detailed discussion of the loan portfolio and the allowance for loan
losses, see the segment discussions for RFS on pages 72–78, CS on
pages 79–81, IB on pages 69–71 and CB on pages 82–83, and the
Allowance for Credit Losses section on pages 139–141 of this
Annual Report.
Noninterest expense
Year ended December 31,
(in millions)
2010
2009 2008
Compensation expense
(a)
$ 28,124 $ 26,928 $
22,746
Noncompensation expense:
Occupancy expense
3,681
3,666 3,038
Technology, communic
a
tions
and equipment 4,684 4,624 4,315
Professional and outside services
6,767
6,232 6,053
Marketing
2,446
1,777 1,913
Other expense
(b)(c)(d)
14,558 7,594 3,740
Amortization of intangibles
936
1,050 1,263
Total noncompensation e
x
pense
33,072
24,943 20,322
Merger costs
—
481 432
Total noninterest e
x
pense
$
61,196
$ 52,352 $ 43,500
(a) Expense for 2010 included a payroll tax expense related to the U.K. Bank
Payroll Tax on certain compensation awarded from December 9, 2009, to
April 5, 2010, to relevant banking employees.
(b) In 2010, 2009 and 2008, included litigation expense of $7.4 billion, $161
million and a net benefit of $781 million, respectively.
(c) In 2010, 2009 and 2008, included foreclosed property expense of $1.0
billion, $1.4 billion and $213 million, respectively. For additional information
regarding foreclosed property, see Note 11 on page 213 of this Annual
Report.
(d) Expense for 2009 included a $675 million FDIC special assessment.
2010 compared with 2009
Total noninterest expense for 2010 was $61.2 billion, up by
$8.8 billion, or 17%, from 2009. The increase was driven by higher
noncompensation expense, largely due to higher litigation expense,
and the effect of investments in the businesses.
Compensation expense increased from the prior year, predominantly
due to higher salary expense related to investments in the
businesses, including additional sales staff in RFS and client
advisors in AM, and the impact of the U.K. Bank Payroll Tax.
In addition to the aforementioned higher litigation expense, which
was largely for mortgage-related matters in Corporate and IB, the
increase in noncompensation expense was driven by higher
marketing expense in CS; higher professional services expense,
due to continued investments in new product platforms in the
businesses, including those related to international expansion;
higher default-related expense, including costs associated with
foreclosure affidavit-related suspensions (recorded in other
expense), for the serviced portfolio in RFS; and higher brokerage,
clearing and exchange transaction processing expense in IB.
Partially offsetting these increases was the absence of a $675
million FDIC special assessment recognized in 2009. For a further
discussion of litigation expense, see the Litigation reserve
discussion in Note 32 pages 282–289 of this Annual Report. For a
discussion of amortization of intangibles, refer to Note 17 on pages
260–263 of this Annual Report.
There were no merger costs recorded in 2010, compared with
merger costs of $481 million in 2009. For additional information on
merger costs, refer to Note 11 on page 213 of this Annual Report.