JP Morgan Chase 2010 Annual Report Download - page 9

7
could lose approximately $3 billion, after-tax.
But we are in the business of taking risks in
support of our clients and believe that this
is a risk worth bearing since we hope to be
growing our business in these countries for
decades to come.
Our broader perspective on geopolitical
uncertainty is that it is a constant state of
aairs, which has been and always will be
there, whether immediately visible or not.
Such uncertainty is one of the main reasons
we control our credit exposures and main-
tain extremely strong capital and liquidity
at all times.
Before turning to the economic impact of the
crisisintheMiddleEast,wehope,rstand
foremost, that the outcome of these historic
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 extraordi-
narily high oil prices, which then could cause
a global recession. As you know, however, we
always run this company to be prepared to
deal with the eects of a global recession.
How We View Our Legal Exposures
Unfortunately,wewillbedealingwithlegal
issues – the detritus of the storm – for years
to come. They range from mortgage-related
litigation to lawsuits concerning Bear Stearns
andthebankruptciesofWaMu,Lehman
Brothers and others.
Ourstrategyissimple:Whenweareright,
we will fight mightily to ensure a just
outcome.Whenwearenot,wewillsayso.
Some of the legal challenges we face stem
from our acquisitions of Bear Stearns and
WaMu,whereweinheritedsomeoftheir
exposures.Hadwenotacquiredthese
firms, there would be no lawsuits because
there would be no money to pay – our deep
pockets are an attractive target to plaintis.
WhiletheAmericanlegalsystemisoneof
the world’s best, it also is one of the only
legal systems that does not require the losing
party to pay the winning party’s legal costs.
Large actions against big companies, whether
justified or not, have the potential to deliver
large payos. This lack of balance and fair-
ness too often results in outrageous claims.
Whynot?Plaintishavelittletolose.Our
shareholders should know that we have set
aside significant reserves to handle many of
these exposures.
How We View the American Economy —
Short Term and Long Term
Five years ago, very few people seemed to
worry about outsized risk, black swans and
fat tails. Today, people see a black swan with
a fat tail behind every rock.
TheU.S.economywas,isandwillremain
for the foreseeable future the mightiest
economic machine on this planet. America
is home to many of the best universities and
companies in the world. It still is one of the
greatest innovators. The volume and varia-
tion of our inventions created in America
are extraordinary – from bold new technolo-
gies, like the Internet, to thousands of small,
incremental improvements in processes and
products that, in aggregate, dramatically
improve productivity. America also has an
exceptional legal system (notwithstanding
my many reservations about the class-action
andtortsystem)andthebestanddeepest
capital markets. The American people have
a great work ethic, from farmers and factory
workers to engineers and businessmen (even
bankersandCEOs).Anditstillhasthemost
entrepreneurial population on earth. Amer-
ican ingenuity is alive and well.
I mention all this because we need to put
our current problems – and they are real
– into proper context. Our problems may
be daunting, but they also are resolvable.
As a nation, we have overcome far worse
challenges,fromtheCivilWartotheGreat
DepressiontoWorldWarII.Evenamidour
current challenges, we have begun to see
clear signs of stability and growth returning
tothecapitalmarketsandtheU.S.economy.
Almost everything is better than it was a
year or two ago.
It’s conceivable that we are at the begin-
ning of a self-sustaining recovery that could
power through many of the negatives we’ve