JP Morgan Chase Annual Report 2009

7/31/2019 JP Morgan Chase Annual Report 2009

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T h e Wa y F o r W a r d

annul rpt 2009


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As o or or the year ended December 31,

(in millions, except per share, ratio and headcount data) 2009 2008

Reported basis(a)

Net revenue $ 100,434 $ 67,252Noninterest expense 52,352 43,500

Pre-provision proft 48,082 23,752

Provision or credit losses 32,015 20,979

Income beore extraordinary gain 11,652 3,699

Extraordinary gain 76 1,906

Net income $ 11,728 $ 5,605

Per common share:

Basic earnings per share

Income beore extraordinary gain $ 2.25 $ 0.81

Net income 2.27 1.35

Diluted earnings per shareIncome beore extraordinary gain $ 2.24 $ 0.81

Net income 2.26 1.35

Cash dividends declared per share 0.20 1.52

Book value per share 39.88 36.15

Return on common equity

Income beore extraordinary gain 6% 2 %

Net income 6 4

Return on tangible common equity (b)

Income beore extraordinary gain 10% 4 %

Net income 10 6

Tier 1 capital ratio 11.1 10.9

Total capital ratio 14.8 14.8

Tier 1 common capital ratio (b) 8.8 7.0

Total assets $ 2,031,989 $ 2,175,052

Loans 633,458 744,898

Deposits 938,367 1,009,277

Total stockholders equity 165,365 166,884

Headcount 222,316 224,961

(a) Results are presented in accordance with accounting principles generally accepted in the United States o America,

except where otherwise noted.

(b) Non-GAAP fnancial measure. For urther discussion see Explanation and reconciliation o the frms use o

non-GAAP fnancial measures and Regulatory capital in this Annual Report.

Financial Highlights

JPMorgan Chase & Co. (NYSE: JPM) is a leading global fnancial services frm with

assets o $2.0 trillion and operations in more than 60 countries. The frm is a leader in

investment banking, fnancial services or consumers, small business and commercial

banking, fnancial transaction processing, asset management and private equity.

A component o the Dow Jones Industrial Average, JPMorgan Chase serves millions

o consumers in the United States and many o the worlds most prominent corporate,

institutional and government clients under its J.P. Morgan and Chase brands.

Inormation about J.P. Morgan capabilities can be ound at www.jpmorgan.com and

about Chase capabilities at www.chase.com. Inormation about the frm is available

at www.jpmorganchase.com.


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And we Are committed to stAying the course:

A JPma ca, pa la a a l .

wl a all aal

u sa a a l, aa a bala a a ll-p .

w a a ll v b b akl, a a v.

By continuing to lend to creditworthy businesses of all sizes l a a lal v, ala pa,universities and not-for-prots to help them create jobs, fundmedical research, and improve social services and job training.

By helping struggling homeowners stay in their homes byp aal la-l a b fa a.

By promoting responsible management of personal nancesthrough innovative services, like Chase Blueprint, and more-l pa, lk va pl.

By maintaining strong capital levels and always followingpbl b pa.

By continuing to provide grants to thousands of not-for-protorganizations around the world through the JPMorgan ChaseFa.

A v a, JPma ca a a l-p ab a . w av a pla p, a lk a k our customers and our stakeholders to seize the opportunitiesa l aa .


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2

The past two years have been among the most extraordinary and challenging in

recent history or JPMorgan Chase, the nancial services industry and the global

economy. We have endured a once-in-a-generation economic, political and social

storm, the impact o which will continue to be elt or years or even decades to come.

As we see signs o recovery and the debates about nancial reorm wage on, its

easy or us to orget the ear and panic we elt a year ago. The market was down an

astonishing 50% rom its 2008 highs to its low on March 9, 2009. More important,

as I write this letter, our country has lost 8.4 million jobs in what has turned out to

be a more serious, sustained economic crisis than most o us have ever experienced

beore or may experience again.

For JPMorgan Chase, these past two years have been part o a challenging, yet

dening, decade. We began it as three separate companies: Bank One, Chase and

J.P. Morgan, with each acing serious strategic and competitive challenges. Today, our

strategic position is clear, and JPMorgan Chase is a leader in all o its businesses.

I you had been a Bank One shareholder rom 2000 to year-end 2009 (this represents

approximately 40% o the current company) and you held on to your stock, you

would have received a total return on your investment o 131%. Over the same time

period, i you were a Chase or J.P. Morgan shareholder, your returns would have been

12% and 70%, respectively. By comparison, the Standard & Poors 500 Index was

down 9% over the same period.

Throughout this decade, we made and executed on many transormative decisions.

When the global nancial crisis unolded in 2008, the people o JPMorgan Chase

understood the vital role our rm needed to play and elt a deep responsibility to our

many stakeholders. It is this sense o responsibility that enables us to move beyond the

distractions o the moment and stay ocused on what really matters: taking care o ourclients, helping the communities in which we operate and protecting our company.

It is because o this ocus even amid the daunting and ongoing challenges that

we are able to weather this economic crisis and continue to play a central, i some-

times misunderstood, role in rebuilding the U.S. economy. This is a testimony to the

collective strength o character and commitment o our people. Since those rst

chaotic days in early 2008, many o our people have worked around the clock, seven

days a week, or months on end.

da Fll sal,


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3

On March 16, 2008, we announced our acquisition o Bear Stearns at the request

o the U.S. government; on September 25, 2008, 10 days ater the collapse o

Lehman Brothers, we bought Washington Mutual. We loaned $70 billion in the

global interbank market when it was needed the most. With markets in completeturmoil, we were the only bank willing to commit to lend $4 billion to the state o

Caliornia, $2 billion to the state o New Jersey and $1 billion to the state o Illinois.

Additionally and, requently, when no one else would we loaned or raised or

our clients $1.3 trillion, providing more than $100 billion to local governments,

municipalities, schools, hospitals and not-or-prots over the course o 2009.

Our industry and our country are continuing to ace some serious challenges, but

we believe that the strengths o our nation our resiliency, ability to reorm and

innovate, work ethic and culture will put us on the right track again to global

nancial soundness. JPMorgan Chase will remain ocused, and we will continue

doing our part.

In the ollowing sections o this letter, Ill talk about a range o issues that bear on

our company, our industry and our country:

I. How our company ared in 2009 with a ocus on what we actuallydo as a

bank to serve our clients and customers and what we did to respond to thecrisis and help the communities in which we operate

II. How we manage our people JPMorgan Chases most valuable asset

III. Our support o nancial reorm that will strengthen the nancial system

IV. Our responsibility and Americas success

Jamie Dimon,

Chairman and

Chie Executive Ofcer


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4

Overall results perormance improved rom

2008 but still was not great

o v a a a $100bll, p $67 bll 2008. t la

a v a pal

l ll a wa

mal (wam) a aa a

in revenue in our Investment Bank. Prots

$12 bll, p $6 bll

p a b $15 bll

a b a. wl l p

a la pv v 2008, ll a

an inadequate return on capital a return on

abl q l 10%. rlav

p, pa a xl

ll. w a l a l

qa v -a ( a av

been one of the few major global nancial

av ). i abl aal

, v, l .

Maintaining our ortress balance sheet and

commenting on our dividend

d l a, a pa-

v a av a

pa v ll. w

aa k aa;

-qal apal; la l v;

, apa p; a app-

pal vav a. w a-

a a xl t 1 c

a, a 8.8% a a-. w

al a la l v v

a $23.2 bll $31.6

bll, a xl 5.5% alla a. o ll

bala a ala abl pval

through tough times and seize opportunities

l v b.

i v xl ll v p.

eal 2009, aal v

from $1.52 to $0.20 per share a drastic move

p b ppa apl a pall bl .

w p b abl a v

a aal a $0.75 $1.00 p a. t

, l lk p

app: val aal pv-

u.s. pl; a a -

a- ( pv

a a a-

al la l v); a a

a la q bak

apal lvl. Pbl a apal alq q a ll a ax

ppal a a a a

apal . w p ll b

la a .

ma pa a aabl l

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. t l a aal

a k a -

vl a wam pa (a

aa v apal a). w alp b a p k b-

backs in the near future. But our rst priority

is and always has been to invest our

apal b aall a,

al, ak valabl aq. w

b bak k l k a

val al lav val

pp. A k

a aq, ba blv

val a la qal

val v.

Increasing our eciency

ovall, a a a pa

a v a a, ll

JPMorgan Chase-Bank One merger. Since then,

v la vall all p-

a pla, k a aa ,

a av xll l a b-

-la aal a k . w al

av xpal lal, a, pla,

k, a a a a. ta,

I . HOW OUR COMPANY FARED IN 20 09


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pv lvl pa

a v p lla v -

cantly lower than in the past. To give just

xapl, al l a pa-

a pa va l b

a $9 bll a a a p lla v

a 2005.

Continuing to invest

t pa a,

v pp v. t a l

acquisitions, foremost among them Bear

sa a wa mal; v

a, l a -

l; p, xapl ca

sv; a a bak aba a l. t v

p a .

Preparing or tougher global competition

t pv laap apl a.

ma pa ak a

b aaall . w xp

b u sa

a ep. w a vv

b ak a a ( a,

a ak a vall all

businesses). But we must be prepared for all

p a bak. w

a p a a pa

l, ala app. w

ak ll.

Protecting the company in uncertain times

y a ab v a: lbal

a bala, al

b v a l, a

a v a pal la-

a, a . i l

pa. r a, a pa v l

a l ll a.

Fll a ap l b

l. i , i ll b a a a bak actually ,

b .

A a l, i p ll l

as I do that we have excellent franchises,

focused on doing a great job for our customers

(v ak ak), a a

av b l a lbal

v .

Net revenue(in billions)

30

40

50

60

70

80

90

$100

20

10

20092005 20072006

$54.2

$71.4

2008

$67.3$62.0

$100.4

Pretax preprovision proft

Managed net revenue* by line o businessFull year 2009

(in millions)

InvestmentBank$28,109

Retail

FinancialServices$32,692

Card Services

$20,304

Commercial Banking$5,720

Treasury & SecuritiesServices$7,344

Asset Management$7,965

Corporate$6,513

26%

30%

19%

5%

7%

7%

6%

* For a discussion o managed basis presentation and a reconciliation

to reported net revenue, see pages 58-59 o this Annual Report.


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6

Results by line o business:

Great leadership amid great challenges

The Investment Bank reported net income of

$6.9 billion with an ROE of 21%

Overall results

The Investment Bank (IB) delivered record

pa a ba:

$6.9 bll v $28.1 bll. t

l l b b-v glbal mak

v $22 bll a v

banking fees of $7.2 billion. The IB generated

a q 21% $33 bll

alla apal, b l v a.

w lal b b-

pa a vl a la a vlabl pa

a. i ak a,

we achieved a #1 ranking in every major

lbal apal-a la abl a.

w , v, ak p

a a a a aa

a ak a ll b-

l b a. w blv

a a

25,000 pl, k a

v l v a.

What we do in Corporate Finance

glball, av a 2,000 v

bak, v pa a

5,000 a l. m

a 1,000 l a v v-

, a a pal v, -

aal qa-v a, pal,

l a --p; a -

all pa a aal .

Our job is to help these clients nd appropriate

a, ak a aq v-

, a lp aa bala a

other exposures such as exposure to interest

a, xa p.

i 2009, a a av,

v bak:

Advised on 322 mergers and acquisitions

globally more than any other bank.

Loaned or syndicated loans of more than$200 bll 295 pa, lp

grow and create jobs.

Raised $620 billion of equity or bonds in

pbl ak l a l.

Raised $178 billion for the nancial industry,

al 10% apal

bl aal .

Raised $102 billion for states, municipali-

, pal, l a --p to help build roads and bridges, improve

al v, va lal pal

a a ppl pl. t

a l $19 bll a-

tional organizations and $14 billion to

healthcare organizations.

Committed to provide nancing when others

abl ; xapl:

$4 billion to California;

$2 billion to New Jersey; and $1 billion to Illinois.

Arranged $60 billion to restructure stressed

pa a lp v (a kp

pl a k).

Invested in 58 U.S. wind farms spread across

16 states. This portfolio can produce 5,843

megawatts of capacity enough energy

p 1.6 ll u.s. . w

al a a la , vlp

a a - ,

pal v

claca a es.

i l , x lvl a

p xl k a

l. F xapl, 2008 a 2009,

v appxal

$8.9 bll -la l la

to IB lending activities.


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8

and trade execution largely was concentrated

u sa. w a

b ep a Aa. A b-

, ll v a

l, p $1 bll a

pa a va. w al axpa va k ak,

including China, India and Brazil essentially

b a v bak a a

pal a pv

p pp (.., a

) v pa a v

l ak. F xapl, la

v a ia, av v

36 pa 180 pa. w ll pl

.

Cazenove

A 2009, a a

U.K. joint venture with Cazenove Group

Limited would become a wholly owned part of

J.P. Morgan. Our initial investment in Cazenove

in 2005 was extremely successful among

, a u.K. v

bak ak a* 5% 13%. w

welcome all of these employees to J.P. Morgan

Cazenoves long tradition of integrity and client

v a aa all .

Commodities

w bl c

a. P a

lk l, a a l a a pa-

l. w lp p-

a l aa k b a

a a a apa. s

2006, c b a

a bl v v l.

i Fba 2010, a a-

ment to purchase a portion of RBS Sempras

b $1.7 bll. t

aq ll v abl ep

a l, a a l a x-

vl a a ; ll a all

p u.s. apabl; a ll a a

apabl a al l. i

al ll al bl b p-

a l v c,

a 2,000.

Retail Financial Services reported net income

of $97 million with an ROE of 0%

Overall results

ral Faal sv (rFs)

be a tale of two cities. Retail Banking, whichincludes Consumer and Business Banking,

a $3.9 bll, pal b v

bak ba 23 a.

Consumer Lending lost $3.8 billion because

a-

l b.

i a v v, pa

1,800 wa mal ba a

more than 40 million accounts to Chases

, p a ba. A a l v, a av

full access to 5,154 Chase branches across

( n yk a Fla

cala). F wam av

v a a b a

p, a a al

(appxal $2 bll

). w av

aav a ,

pp .

What we do in Retail Banking

Last year, our 61,000 people in 5,154 Chase

ba 23 a v a 30

ll u.s. a all b b

pv k a av a a

v, a ll a , b, a

a la. F rFs pal,

2009 a a a apl:

Retail operations teams processed 700

ll ll aa, 3.5 bll ba pa, 100 ll Atm p,

l 6 bll k a a

1.3 bll a.

Investment advisors oversaw $120 billion in

a aa lp

a al.

We added 4.2 million mobile banking

a a 5.2 ll

l bak .* Market share as measured

in total ees.


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9

We also added 2,400 branch sales sta last

year personal and business bankers, mort-

a a v pav

to better serve our customers.

i a, a vap va

pl la q,

ak la a pl, a v

l. c a

a va v

b a, a ll av a al-

abl bala v

a. t a a a

plx. w p pl

al p a ax

aa. wl l ( a

a ll a-ax bappxal $500 ll aall),

blv v ll l-

lap .

What we do in Small Business Banking

i 2009, al 2,000 b bak

pv appxal $2.3 bll

la ( al a la a $17

bll) a v lp 2 ll

b a aa

businesses. Loan origination in 2009 was 58%, a a a

al a a-

a ba pl. w xp a

baal a 2010, a, a,

ala a a a

qal .

w a

akpla, l a 375

all b bak k-

. i la 2009, blending to small businesses by $4 billion

2010 ( a al $10 bll)

a a k apal, la

xpa, al a, l

a b a.

What we do in Consumer Lending

Our Consumer Lending business includes

a a la . i

vall l, a a l a

for Consumer Lending, with losses of $3.8

bll, v b a a- aa la l v

l pl. A la a,

l l pa

aal (a ll-)

aa, apl all p a

p . wl a b

pv lq a

p ak, blv a -

a pv ll p lal a

pv .

As expected, charge-os in Home Lending

2009, a a

$5.2 bll v pl. w

apa a pl ll

l x a (xl

v a) a k a

bakl pbl la. t l

l a- b

aa lq a l

( abl b

a 12,700 2008

to 7,400 in 2009).

m pvl, k a lap l

lp Aa

l ak a a.

We added 6,000 people just to help home-

a pa a

a pv l. w al

opened 34 Chase Homeownership Centers

all l b alk

la l a a a av bp 17 al 2010. t

av all b a -

a p al 600,000

(appxal - a -

a v h

Aabl ma Pa, hAmP).

t a b all a

pl

a a a: 80% la--val a

a va. i 2009, -a a $150 bll


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10

la, a a all

l pa b

ak avaa all l

a. m la a a a

l Fa ma, F ma g

Mae. We still underwrite jumbo loans (those la a la a p

v pa), b av b

v a. t l b ll

one day return to being a good business it

al al pp

Americas nancial markets and we intend to

b a la .

i 2009, al ba la u.s. a

l, a a 1.1 ll a

la , p 25% 2008. oauto loans outstanding totaled $46 billion at

2009.

How we intend to grow

t pv b v ll

, pla add2,700 pal

bankers and more than 400 investment sales

pav 2010. t l

lp a a ba

lap x b

k a a ba v. ia, xp p a la 120

ba 2010 a ap p pa

openings in 2011 and 2012 especially in Cali-

a a Fla, a-

u.s. ak,

wam aq.

Card Services reported a net loss of

$2.2 billion

Overall results

By all measures, 2009 was a terrible year

a b. t v v a- a all-

. ca sv l $2.2 bll

(pa la a p $780

ll). wl i a

av vall l, p-

v. w abl ak a

a a p;

and our credit loss performance 8.5% on

Chase cards while poor, was better than our

p pa.

What we do in Card Services

o 23,000 ca sv pl a

l pv aal xbl a

v , 2009,

ca a a $328

bll p . w

than 145 million cards in circulation held by

appxal 50 ll

$163.4 billion in loan outstandings, Chase is

a la u.s. a , a

va al pp a val a all b.

w al a a b pa

organizations, such as the American Associa-

r P (AArP), cal

Al, ma, s Al, u

Al a wal d.

How we dealt with new regulation

i 2009, a bl v-

, u.s. a b a

al aa a ba a

la a b c ma. t

la abl a a

a pb a pa a

-l. t a

al a xp a-ax

b appxal $500 ll

$750 million but this could possibly change

a b a p a

bav.


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11

w blv a a, b all,

a a pll apppa.

i a, a vlal la a

of the targeted practices like double-cycle

bll, l a

a vlv a bala (2007); a val al

p,

l a

(2008). hv, ba la ak

a a a av

b a k a ba all pa

a -

a bala (v. l-a bala), a

p av a ak

al a a b:

We have substantially reduced very low

pal bala

a. t a al

a bala b $20 bll.

In the future, we no longer will be oering

a appxal 15%

l .

t l ba

k l la

our ability to make adjustments over time as l k pl a.

We reduced limits on credit lines, and we

al a

a b v a

x p.

i a, a a l l

from a peak of $4.7 trillion to $3.3 trillion.

wl blv a pp a

p b a a ,

a a lq ppl. ulal,

v, a a ak a b-

a abl a b b.


Av p va aal

vlp a b.

ev l ,

v pp v p

a v . i2009, ca la p a

a a . n p a

v l ca-ba a

pa, a a pla, a a

a lp b aa p a

b. h a l:

The Chase Sapphiresm a a vlp

p a

af , p a

a xpal v.

Inksm ca a b

a xbl pa p a

all b .

Our new Ultimate Rewardssm pa

l p p a

l b: .laa..

Blueprintsm a - a

pv a ca aa

p a b, l lp ak a a,

pa bala a aa p.

t p* a pa l

be considered major innovations at any time;

b a a la

-v u.s. v

especially noteworthy. By delivering conven-

ience, customization and great service, we will

bl lap. ev

a a b a a a l pa a,

blv p ll lp bl

. i a p a

ll ak , b lv

l p a ak a a

, ca sv ll

b a b a

a pabl pa.

* I you would like to review any

o our new products, go to

our website: ww w.chase.com.


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12

We helped nance the construction of a

$22.3 million healthcare center in the Bronx,

n yk, v a aal 18,000

pa p a.

As part of more than $384 million in new

a gnPh a

aal o, pv

K sa uv a.

We assisted Childrens Memorial Hospital

ca a

a $915 ll bl a

$196 ll al.


hav ll pl v-

al l a aq wa mal, cal

Banking is well-positioned to grow. The busi-

ala ak avaa ca

al ba k xpa

into ve new states California, Washington,

o, ga a Fla. wll v

ak b pp a ll a

l, l ak pa

la pa. w a av b

hiring exceptional commercial bankers more

than 50 employees by the end of 2010 alone

v aal ak. sval a

, xpa lal

pl, xp ll a

ll lla aal p

aall.

o a , JPma ca a

Bank One merged, we set a target of more than

$1 bll v v bak

products sold to Commercial Banking clients

(p $552 ll). t a, x

al a a p

b.

Commercial Banking reported net income of


Overall results

In 2009, Commercial Banking overcame many

all lv xpal aalpa. ev a baall

avl a qal

l, b x aal pla

b l l, ak

b avl, aa k

a xp, a xll l v.

hl l a 20% b v

$5.7 bll; a 25% pv pa

a $3.5 bll; bl- a

b ava labl bala, p 10%, a

ava la bala, p 30%; a a 20%jump in gross investment banking revenue

to $1.2 billion a full 25% above plan. These

fabulousl a v.

What we do in Commercial Banking

More than 1,400 bankers help fulll the

a al 25,000 l a

v 30,000 al a v a .

The average length of a Commercial Banking

l lap a 18 a.

i 2009, a v 1,700 calBanking clients and expanded more than 7,600

lap. w a a bak, a

a l v pal a lal

ak a a a a l,

Commercial Banking delivers nancial services

while steadfastly supporting communities. Last

year, Commercial Banking extended more than

$73 bll a, l

al $8 bll v, --

p a ala (gnPh) a a

. F xapl:


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13

Treasury & Securities Services reported net

income of $1.2 billion with an ROE of 25%

Overall results

ta & s sv (tss) lv

l b l l, p 2009 p $1.2 bll v. $1.8 bll p a.

t b lv v $7.3

bll, 10% pv a. w

describe TSS as our Warren Buett-style

b ba l

a a; lv xll a

a apal; a a

l-b p pla ba

lbal al, l- l lap

a plx l.

o 2009 pa lal a v

b ak ak a l

a. s l a

xa vl a pa, pa-

la, a a l. tss al a

p lvl a a xpal p

la 2008 a al 2009,

a ba ak

qal. dp a 2009,

l b v a

: iaal l avl 13%, a

a 13% a b lal

a 19%.

What we do in Treasury & Securities Services

m a 6,000 tss bak v a

40,000 clients from all of our other lines of

b 60 la a l.

tss pv l al p a

v, l lbal a

90 lbal ak, l al $15 ll a; pa a aa, v

a a $10 ll a a a a-

a a l l; pa

a v, pv 27 ll a

a 5,000 pa l a v-

a; a a v, aa-

aal pa l,

a a l la lbal

pa. Fll a p xa-

pl tss pp a a l:

We delivered unemployment and other

b a 12 ll val

2009, a aal la b

l bak v l-

l l b

a a b a -val a.

We were selected by the Federal Reserve

v a a pa

pa p $1.25 ll a-

bak pv pp

a a ak.

We are the leading cash management

pv u.s. Pal sv,

pv a a k p

v al - u.s.

Pal sv 80 .


tss all b ll l

a l, a p

ba a al pv

p. i 2009, tss p ba

ca, dak, Fla, na a

s; la v tk,

South Korea, Brazil and Mexico; and expanded

apabl Aala, ia, ep,

ml ea a Aa. w ll

xpa abl .

i a, a a a, tss

and the Investment Bank formed a joint

venture to create our Global Corporate Bank.

w a a a 100 pa

bankers, the Global Corporate Bank serves

laal l b v a

tss p a v a a

IB products, including derivatives, foreign

xa a b. w xpa

Global Corporate Bank aggressively over the

x val a b p 20-30 la

a a 150 pa bak, all

v appxal 1,000 l

(3,100 al, p 2,100).


16/260

14

Asset Management reported net income of


Overall results

A maa, a pv-

$1.7 ll, a a a b5% a a a ba av

a a a ak all.

ovall, a l val

, l v p-

mance, continued growth in Private Banking,

xll v pa h-

b capal maa a a bak

a u.s. al al b.

All a pv

all pa a.

What we do in Asset Management

o A maa a

pa b. t iv-

maa, 6,500 pl

lp a al v l

aa a; pv q, x

a alav v a; a

administer 401(k) services for large and mid-size

u.s. pl. ovall, aa a

$1.2 ll a l.

o pa b Pva

Banking. Our 1,900 private bankers help the

l al val a al

, aa a a al

v, pl , apal av-

, plap a bak v.

t 2009, A maa

pal av

p pla b

pl; av a 1.6 ll401(k) participants on achieving a secure

; x pv a-

al pla al p a b

; b a $100 ll

a bal a l; a

b ak a p-p

p aal av

ll val v l.

w A maa, Fx

i p l p a

#1 pv lbal lq ( aa

$590 bll), a u.s. eq pla

a 82% a aa

p qal p p v- pa v v a. o u.s.

al b a a xpal a p

l bal ba k av, b

a a ak

net new long-term ows in the industry due

ppall al -p

x p.

Private Banking experienced record revenue

l a l v,

l a bak av, a ll a a al 100 l av a v

Pva wal maa (

ma, Plalpa, sa Fa, sal

a wa, d.c.).

i -2009, J.P. ma a 100%

p hb capal maa,

la alav a aa

u sa, $21 bll l

assets. We acquired Highbridge in 2004 to

a alav v - l. hb lv b

v pa 2009,

and just ve years into our partnership, its

a av l.

ipal, k aa

abl A maa pv val-

abl pp l a av a

av vlp a a

aal a aa a

l b v.


o iv maa b

vlp lbal a, l

a v,

, b a ca. w

al pla a iv maa-

lbal b a

a 200 pl a a

b ak a l a.


17/260

15

In 2010, we plan to expand Private Banking

lball b a a 500 bak,

v a l v pl. i a-

, v

bka b aq

from Bear Stearns. We anticipate a slowlypv b vlal v v-

ment in 2010 yet, nonetheless, we expect

A maa v b

lp ll val, al a

av aal al.

The Corporate sector reported net income

of $3.7 billion

o cpa , xl -

la , p $3.7bll pa $768 ll

p a. t cpa p

: Pva eq, alla

pa xp a pa v-

pl. o Pva eq

p a l $78 ll v. a l

$690 ll 2008. rb, v,

2007, a a a a

pretax Private Equity gains of more than $4

bll. w k a Pva eq ,

b a, a lp, b xp

ava 20% v a.

o pa v pl,

aa x a,

llaal a a xp,

a l $91 bll ma 2008

to an average of $324 billion in 2009. Our

v pl p xpal

pa, l b aa

a xp a b

a xl a v- a a a la

fair value (e.g., mortgage ABS, Triple-A credit

card ABS and Triple-A CLOs). The pretax

unrealized gain of this portfolio went from a

loss of $3.4 billion at the beginning of 2009 to

a a $3.3 bll a a-. i p-

a a pa aa

a xp xl all a

blv a ak xp a-

all ak . A

investor can take on interest rate exposure a a b. w

borrow cheap from the Federal Reserve or

a ; b a ak a,

lk v l .

We may realize some of these Corporate

v a 2010, b xp

xpal l . ov

a, cpa qal

(xl Pva eq, -

la a a a ) xp l appxal

$300 ll.


18/260

16

n val l-

JPma ca a abl aa

a a al a a pl.o a pla b. maa

q plx , xv qa-

av kll a k pl. t p

can be enormous and wide-ranging from a

a al la p a all

pl lp a

a a la a l aabl.

Being smart is not enough; it also takes a high

lvl al ll a kll al

all p a all k

all a.

s a q a pl

a l a pll a

al a a val b

l: pal , ,

ak, v a aa.

e av b ppl, a a

lap q a a

, a a -

nizing, rewarding and developing leaders.

t a abl aa, a a

vlp b ppl.

Recruiting and training talent

t ba, plx a va

k ppl a pv b a

a b a ll-. w av

220,000 pl a l. wl

some of us have high-prole jobs and receive

great attention not always for the better

these days many others are not in the public. t val a al

lbal pa a l:

Nineteen thousand programmers, applica-

vlp a a l

pl ll kp 80 aa

, 55,000 v, 225,000 kp

and global network up and running and

who were a major part of completing the

Bear Stearns and WaMu conversions in

.

Eighty thousand employees fullling opera-

lball a a

v lla. i 2009,they responded to more than 245 million

phone calls to help customers stay in their

, a a pa

pla a av aal pbl

l .

Thirteen thousand people in Legal & Compli-

a, rk, A, ha r a

Fa 60 l

analyze facts and gures, thoughtfully

v pl av a a

a. F xapl, l p

k aa

va xp, l $2 bll

la ak ava v a.

Thousands more of our colleagues working

b kp pa a

a , l al aa,

a a , xv aa,

p, pl a

aa al l.

To ll these jobs, we hire thousands of

pl a a, all b

a p, v a p-

dures in order to do their jobs well. Annually,

1,800 ppl ava

(including M.B.A.s and Ph.D.s). Thousands of

ppl av ava a,

a p. wl a

people work in the Investment Bank, others

k A maa, c a rk

Analysis, Consumer Lending and Treasury &

s sv, a ll a aa

a .

epl JPma ca v

a a vlp a

ll-qpp aa plx ,

k aa pl a l la-

p a a al a.

Aall, a a ppa a

aaal a lap l v .

Our company has 94 management develop-

I I . HOW WE MANAGE OUR PEOPLE

JPMORGAN CHASES MOST VALUABLE ASSET


19/260

17

pa a a 20,000 a

pa (l l ) a

abl ppl a xpa

kll a apl a b.

Ongoing assessment and development

A JPma ca, a a aa

l-la al. w pl,

a al a

a v ppl a

b k. ta , blv

a a ak

a lal v a -

bak. Aall, k a

a pv

p, vlp xp-al la. t a a la a

a a ab ab

val aa. t qal

b all a

a al a p.

t p b a pa

pa. w al a vlp a al

management program for M.B.A. students to

lp a b a bl al

aa al a ba.

Encouraging mobility and multiple careers

Talent mobility and optimization are key to our

l- . w av lal l

a ppl v x

lvl a JPma ca. w a k

aa a a, m b

l b l

look at positions in other divisions. People

av xpl a

pp a ll a. wl al a val pbl

manage his or her own career, its our job to

lp ala a. w v b pav

a l a a.

Intense ocus on succession

w b a l ab

pal , palal

jobs. We have redoubled our eorts to

a av ppl ppl

a apabl a lvl

pbl , v v v a

aa a ( b a

truck emergency scenario). This is true for

my job as well.

P ceo a a a

pa. ceo a aa

lk a plal aa

a sakpaa a a a

a a p l b. i

b av aa.

i a a , al, a

your Board believes that we have within the

organization some outstanding people who

could do my job today; and we will continue to

a ppl a b-

a a ll vlp

take my job in the future. The Board of Direc-

l blv a a p b

a pa. A a

rest assured that your Board members are on

a. t pall k all op-

a c b pa (a

many others), and the Board members peri-

odically review with and without me your

pa k pla.

Getting compensation right

cpa plx

issues we confront it is important to our

pl, pa, al

a, al, pbl a la. A pl

v pa a a va-

a a pa b aa ppl

a

a. A JPma ca,

p a a al a

pa pla a aa

a va ppl a a

bav. o , pa a,

ala xp ppl .

A bal pa pla v

a x ba bav.

ma ppl a a a ab

pa pa a a-

cial services industry and many of these

a q la. s la

a pa a a a al


20/260

18

l pa al a,

p, lp b

our country. This angers me, too. But not all

companies were reckless and not all compa-

a ba pa pa.

i , i b

vall 2009 pa la

, p vall ppl

a a xpla appl

ppl pa ppl.

Comparing JPMorgan Chase with other

industries

i 2009, JPma ca al xp

$52 bll. t al pa (ala

a b a v) pa

pa a $27 bll.

JPMorgan Chase compensation 2009

Average per

Total employee

(in billions) (in thousands)

Salaries $ 12.5 $ 56

Benefts* 3.9 18

Incentive

compensation** 10.6 46

Total compensationand benefts*** $ 27.0 $ 120

A abv, pa ala a b

of approximately $74,000 per person and

incentive compensation on average of $46,000

p p a al $120,000 p p.

t ala a b b a -

ally in line with other major companies aal a -aal.

t v aa va

(a, , k, p,

.). Appxal 32% v

pa 2009 a k

a p a v v a b a.

A JPma ca, k p

is very restricted we only use stock options

for approximately 500 people a year and

represents just 1%-2% of the companys totalpa xp.

ma a, a ap a

a a aabl a pa

pa pa, av lk a al

pa a a pa v. o

ba, JPma ca al pa-

(ala, b a b) a 27% 2009; b ava 33% v

pv val a. F iv-

ment Bank alone the part of the company

receiving the most scrutiny compensation

a 33% v, a ava

of 44% over the last ve years.

t a x pa pa

a pa a x b-

. F ava u.s. b, al

pa a a pa v appxal 16%. i al, a b

a a ppl-v a apal-

llal pp-v, a p-

al v pa, a pa

pa v pa

employees. Law rms, for example (which

a l ll abl), pa

a 80% v

pl. i l apal-v pa-

, lk la a

aa pa, pa a a

abl l.

s a al av lk a al

pa a a p p. h

a lal a l.

eall, aal a a -

va b a v ,

a lk a a ala ll p

divergent conclusions they alone do not

val v .i al pa p a a a

pa, a a a v

pa all pa al

vall pa

ll. ma pa pa a val

ba p pa (al a

v pl) a al

pa pa.

JPma ca pl a b

l pa val, pbablmore than in many other industries but not

* This includes what JPMorgan

Chase contributes to various

benefts programs (i.e., 401(k)

match, pension, health and

welare, etc.) and employment-

related taxes.

** Represents 2009 expense based

on U.S. GAAP.

*** While we have 220,000

employees, our health plan

covers 400,000 people,

which includes covered

amily members.


21/260

all. We are unable to find real comparisons.

Much of the anger about highly compensated

individuals at banks relates to the argument

that all of these companies would have failed,

which we do not believe is true (more detail

on this in the next section). Finally, the more

highly paid the individual is at JPMorgan

Chase, the higher the percentage of compensa-

tion awarded in restricted stock and options.

Before we speak specifically about how we

compensate individuals at JPMorgan Chase,

its appropriate to outline our principles.

Some key compensation principles at

JPMorgan Chase

We believe the compensation principles we

use are best practices and compare favorably

with those outlined by outside authorities,

such as the G-20, the Financial Services

Authority, the Financial Stability Board, the

Federal Reserve and the U.S. Treasury. Our

principles are as follows:

Pay a significant percentage of our incentive

compensation in stock: at least 67% for the

Operating Committee members and approxi-

mately 50% for the remainder of our senior

management team.

Structure the stock we grant restricted stock

units or options to vest over multiple years.

Require Operating Committee members to

retain and hold approximately 75% of the

stock they receive from the company after

the stock vests.

Generally do not provide multi-year guar-

antees to new hires and almost never tocurrent employees.

Institute meaningful recoupment policies,

some of which we enhanced in 2008 and

2009 and are progressively more strin-

gent at higher levels of management. For

all employees, if anyone causes material

financial or reputational harm to the firm

or its business activities, we can recoup the

employees incentives, including stock.

For approximately 500 senior individuals,

unvested stock also can be recouped for

failure to properly identify, raise or assess, in

a timely manner and as reasonably expected,

material risks to the firm.

For the Operating Committee and for me,

unvested stock or options can be recouped

not only for the reasons mentioned above but

also if reasonable progress toward personal

and company goals is not met. This is at the

discretion of the Board of Directors.

1 Compensation/revenue based on

U.S. data only; JPMorgan Chase

data based on worldwide totals.

2 Net income margin based on

20042008 average for S&P 500

companies and adjusted for

exceptional losses/gains.

3 Compensation/sales based on

U.S. Census Bureau data.

4 Revenue based on 2009 gross

revenue before interest expense.

5 Includes investment banks,

asset management firms, capital

markets firms and other non-

lending financial institutions.

6 Includes regional banks, credit

card companies and other credit/

lending institutions.

NA Not applicable.

10% 20% 30% 40%

Healthcare providers and services

Professional, scientific and technical services

Newspapers

J.P. Morgan Investment Bank (gross revenue)

Transportation and warehousing

Securities and other finance

Fast food

JPMorgan Chase (gross revenue)

Construction

Nationwide average

Telecommunications

Traditional finance

Manufacturing

Retail

5.9%

4.7%

0.2%

NA

2.3%

2.2%

0.6%

NA

6.2%

NA

1.7%

4.6%

18.5%

13.6%

10.5 X

4.6 X

2.8 X

1.4 X

3.6 X

2.4 X

2.3 X

2.3 X

3.6 X

NA

2.0 X

1.0 X

1.3 X

2.4 X

4

5

4

6

Industry Compensation/revenue 1 % ofU.S. sales

3Compensation/

net income2

JPMorgan Chase 2009

reported compensation/

revenue ratio is 27%, which

reflects revenue net of interest

expense, unlike other industries.

Compensation ratios by industry

The industry compensation ratios in the table above reflect 2007 information contained in U.S. Census Bureau data, Capital IQ Compustat

records and company filings and are based on revenue before deducting interest expense, whereas JPMorgan Chase and other financial

services firms report their compensation ratios based on revenue net of interest expense.

19


22/260

20

Pay our people for performing well over

lpl a a lp bl

pa.

Ensure that nancial results a key metric

(b l ) pa

people always include prots adjusted

k; a , apal a b

, a a a

a apal.

Recognize revenue for complex and long-

a a p v lpl a

ppl k. t b a

vav a pbl a a

aiming not to recognize prots at all when

k apppa.

s pa ppl

b a la av ak b,

blv, a qall pa. F xapl:

We do not have change-of-control agree-

, pal xv pla

l paa, pal va pak-

a xv.

We do not pay bonuses for completing

a , a a pa

job. When the merger has proved to be

l, pa p.

We feel strongly that nancial outcomes

al p a pv

picture of performance. Broader contribu-

tions such as continually honing leadership

kll; aa a pla;

a a a v, a

k; bl b ; a

fostering innovation, to name just some

important qualities matter a great deal. In

a, b, ba pa

ll aal qaav a,

a qalav a, a b

a. g pa a pala

a al a a

individual did a good job.

We are mindful that a rising tide lifts all

ba ak a a

ak, a pp av

val p, b

l.

We must be highly competitive on compen-

a, abll al b

a a pa. wl a b a

pa a pa pl ll,

l b ba av b a ll-

p pa.

We want our employees to be shareholders.

All pl b abv av

b v a: o pl

own 488 million shares and options, a

signicant portion of which is unvested

.., val val

lav pa a p-

. op aa a

pl ll a lk , b

al pv .

How we pay individuals

o a p pa-

tion is, as it should be, risk-adjusted nancial

pa. w kp a p-a-

l a (b ba, b a k, .).

wl aa v pa-

pl a a ala lvl, av

pl; aa a

v pl appa la pa-

a ll a pbl pa.

hv, p . w ak

adjustments based on our own judgments

ab pa ( abl

a pv ) a v pb , a a a

la, v a a p. i

a, pa -

a a ll b lbl. i

a, x a av a

signicant eect on the size of an incentive

pa pl. i l pl a

a a, pa .


23/260

21

s val a pa v p-

a ba v p ;

xapl, ppl all , al

ba a pa . t

a b a a b

pa pa. t al aa ppl a pa p

. F xapl, bak aa

l av pa-

tion tightly tied to the kind of job they did for

l. i k l a a

pll apppa.

m ppl a notpa b

formula we use multiple metrics to assess

pa a appl a a al

judgment. In general, the more senior thexv, pa l

la pa pa vall.

t pall lap a

a b.

w a val, lk a

pa, l a

vall pa pa. s

all k val ll,

vala pa v a l-a

period. It is important that we recognize ourbest people many of those in senior posi-

av all pv lv v

a, a a.

w al a kl aa p-

a k a l ak pla

a p a . w

a pa a va.

Our most senior people members of our

Operating Committee have their compensa-

l pa pa,a al a vala lap

kll. i 2008, pa a

were down 64%, your senior managements

pa a 67% (

l ; i v a- v).

w k a ppl

who have been extraordinarily well-paid and,

a, vpa. s ppl

av b p a

b pal l x-

v lva . s b

x p p

al, a

b. wl a la

pa v , a

JPma ca k av allb pl -

. w blv av p-

a pa, b a l pa

bl a a pa. t pa

pa vlp a la.

Developing leaders

eal , i a

b p p a al a

pv p pla. A ill b al p,

i l lk a ab

al qal a la av, pa-

lal a la a la laal

pa lk JPma ca.

Leadership is an honor, a privilege and a deep

bla. w la ak ak, a l

of people can get hurt. Being true to oneself

a av l-p a a pa

a la a av ppl l, ba av. i blv al

intelligence and emotional quotient, or

eQ, a aa. eQ a l

pa, la , pa a

aa.

g ppl a k la.

Bad leaders can drive out almost anyone whos

ba a v a a-

zation; and since many are manipulative and

pv, a all

a .

A a b pa

, a a la

is what has enabled the organizations to stand

the true test of greatness the test of time.

Below are some essential hallmarks of a good

la. wl a b a a all

traits I know Im not to be successful, a

la .


24/260

22

Discipline

t a l la b v,

al v a a a

constantly striving for improvement from

av a k ak l a

doing real, detailed follow-up. Leadership islk x; a b a

a .

Fortitude

t ab la: t

av a lv a. i a

v a, baa a pl-

, a ak p a pbl.

High standards

Abraham Lincoln said, Things may come a b l l

by those who hustle. Leaders must set high

aa pa all , a a

al lvl a a al .

Leaders must compare themselves with the

b. h av a a

l , a a

la p a al. t la

aa

those standards are not embedded in the

b b q . saa a a a

a pl a l a b

a lv a l a

b a.

Ability to ace acts

i a l-bl, a, la pa-

size the negatives at management meetings

a a a b pv ( ,

ka lba , ). All

p b aa, a all lva

a b p, ll l a

bk.

Openness

Sharing information all the time is vital

l ba a alav

appa, a. t b la kll

bureaucracy it can cripple an organization

and watch for signs of politics, like sidebar

a al ba ppl

l pak a .

eqall pa, la l

lal a l . A a

l l pak

a a l.

i a b pa

of having at least one truth-teller at the table.Well, if there is just one truth-teller at the

table, youre in trouble everyone l b

a -ll.

Setup or success

A v la ak all

people are in the room from Legal, Systems

a opa ha r, Fa

a rk. i al a p

. w -a p -a,

all decisions become political a setup foral, .

Morale-building

h al vlp x

pbl, al l a l

, a p a . i

vpa ppl lv-

alk, p ava

a ak a pav-

av bav.

Loyalty, meritocracy and teamwork

wl i pl blv lal,

misused. Loyalty should be to the principles

a a -

tion: Loyalty to an individual frequently is

another form of cronyism. Leaders demand a

l pl a l b lal

to them but loyalty and mutual respect are

two-way streets. Loyalty to employees does not

a a a aa a pala

job. Loyalty to employees means building aal, vba pa; ll

; a v al k,

a a pp. i pl all

, l lp .

ma a ak al a al b

ql . ma a

putting the best person in the job, which

promotes a sense of justice in the organization

a a appaa : h

they go again, taking care of their friends.

Fall, l ak pa a


25/260

23

code for getting along, equally important is

a val abl av a

a al a .

Fair treatment

t b la a all ppl ppl apll, lk ceo. ev

lp v l a pa

ba v llv pp v

l. w la p

ppl, pk a p a

ak lv, Would I want to work for him?

Would I want my kid to report to her?

Humility

Leaders need to acknowledge those who came

b a lp ap p its not all their own doing. Theres a lot of

lk vlv a , a a ll

l pa. t vall al

be to help build a great company then we

a pl,

a .

The grey area of leadership

t a a ap lap

p a a p pa. t aa b plx

challenges that leaders and those who govern

them face. I would like to share with you where

i a a a .

Successul leaders are hard to fnd

t a xapl val av

b , ll ppa, p-

lap a aall p ll

I think of President Harry Truman, among

. i l b, v, a l lk a k pp. h

a ba xp la a p

a l. wl a pbl

a a pa lap (pap

ba ll a aal ),

pa a pl b al

val a val; xapl, k

ethic, integrity, knowledge and good judgment.

ma la av k lv

a, a l pap

av a a pl, a . A a

p a, v vall a

av k -

a ba al kll,

a kl a ak a la.

Successul leaders are working to build something

m la i k a k bl

a b p. t

all k a, ba

b ba a ;

aa ba a l a la a

, a b

a. t blv la a

lv, a bla

the team or the organization. Leaders demand

lal, lv b a

a.

Nonetheless, compensation does matter

wl i a a l b

pa va la,

al a a pa l

a a lvl. Ppl av pbl-

lv a al. t

al av a p pa

justice, which means they often are upset

l a al p-

a aa p b a pa. t a ak al,

just like products, and a company must pay a

aabl p p.

Big business needs entrepreneurs, too

t ppla pp a p

those who believe in free enterprise exist

l all pa a a p-

all pa l b

p app a a a app-

pa. F p, pp a p app al x

la p. A , al,

l . w apa

va, p a apl a

ak, a apa all,

la pa l a x. t

people who achieve these objectives want to

be compensated fairly, just as they would be if

a bl a l a-p.


26/260

24

Perormance isnt always easy to judge

maa pbl b

al vala val al a p-

a. d val a

? d a a ppl?

d bl a p awill strengthen the company, not just in the

a b a? d

vlp al aa a? i ,

a bl aabl,

l- val? mak a

requires courage and judgment.

Sometimes leaders should be supported and paid

even when a unit does poorly

i a pa la, a pap

pa, b a a, lkl a

al , a aa

might ask his best leader to take on the job.

This may be the toughest job in the company,

a ll ak a k b

p a b . w aa

ak a la ak pbl,

q apppal ll a k

ll b pp

of times: Will you make sure the organization

doesnt desert me? Will you stop the politics

ppl p pa

against me? Will you compensate me fairly?

m a all q l b

. A a l a i

the job well, I would want to pay her like our

b la, p a. cvl, all

k a a l all ba. w

a a, pa a la

possibly the worst thing one can do because

a ppl l.

Evaluating the CEO

t ceo l b l l aabl

by the Board of Directors. The Board should

all v ceo pa

and give feedback (and coaching). The Board

al l pa

the CEO. At every regularly scheduled Board

a JPma ca, al

av a pva . cp-

sation committees and the Board need to be

independent thinkers and yours are. They

v l aa vala pa

pa, l v p-

pa a pa

practices. Our Board members do not rely on

pa la ak for them. The Board members believe that

pa ceo (a

all aa) p-

bl a a b .

i la 10 a, i v b,

i a abll apppa. i

2000, Bank One was in terrible shape we had

la appxal 10,000 ppl, a i

pll apppa a i ak

a bonus. That year, my rst at Bank One, I hada guarantee I gave it up. The second time

was in 2008, and our nancial results were just

pla a b

ceo. s pa a ppl

a, al lv b ppl

a ceo av b

pa p pa.

i all a iv k a pa,

pa (appxal

65%) a b k. iv v l a a

a a l a i

job. In fact, when I joined Bank One, I bought

a l k , ba i

a ap ( a, i a vval)

b ba i a b l

pa a pa.


27/260

25

We need rational policies based on acts and

analysis

t aal a a a a a a

l, b al a pv a pa

a. t a bal

, a v - k

a, a a. dav

h a, ra lav pa

But if we rewrite the rules for banks out

a ppl, ll p

l a p ba a

. g pl a

aal b ba a a

aal a b pv, -

a, a lva.

A New York Timescolumnist Thomas L.

Fa al a, w a

bak la a

kl k-ak,

which is the key to capitalism. In striking

la bala, al a. w

should focus on building good regulation not

pl l . t la

a pl a v-la

a k a -pp

- k. n a a

a ba la.

wl akl a ak

ak , k pa

pl aal a. t

lak la la a pbl

for banks and for the entire economy. Busi-

a a (and to create jobs). Passing sensible nancial

ll pv a

b . w ,

i l lk al l

la a a al

la .

The crisis had many causes

i 2008 l al, i

aal a a b aal . i pa

al , b, bal pak,

a ll:

The burst of a major housing bubble, caused

b ba a , a a

la a b a

v pl.

Excessive, pervasive leverage across the

, l bak, v bak,

, a a

bak .

The dramatic growth of structural risks and

apa aa a (

a ak a p

system). Remember, we had a run on the

apal ak.

Regulatory lapses and mistakes: Basel capital

l a q ll apal a

a lq a l a a; s a

exa c all u.s. v-

bak lva; a p

la Fa ma a F ma,

a a l a aa, l

la . hv, l

a bla la al

of individual companies, ever management

ll bla.

The pro-cyclical nature of virtually allpl, a a v (.., la l

v, apal q a

ak l).

The impact of huge trade and nancing

bala a, p

a pla lvl.

I I I . OUR SUPPORT OF F INANCIAL REFORM THAT WILL

STRENGTHEN THE F INANCIAL SYSTEM


28/260

26

The heart of the problem across all sectors

was bad risk management. Many market

papa ppl val-a-k

(Var) a;

b ppa pbl a

l v; xvll a a;

a; a

a qkl ak ba.

A JPma ca, v vl l

Var, a lal a ak

ppa ba v.

o al a a a pabl

v qa.

wl p a ap-

goat banks, businesses, the government or

consumers it is pretty obvious that no one

a ll bla a a l b

pll ablv bla.

Yes, we made mistakes

a av a b

a al p a aa l.

o la ak ak

a lva la a l -

a aa. wl -a a abl b

a a ,

la--val a ba a,

v, . w ap pl

pbl a a all ak

a a av a.

t al a a ak a

ak, a : v

vl (siV), x lva, xv

reliance on short-term funding, collateralizedb bla a pp aa

vav bk.

s ak a a av

b . F , ,

we are sorry to both the public and our

al. hv, l b a

a a ak caused

. i a, a ,

avl k a a blv

lp a all

crisis and contributed to the stabilization and

recovery (e.g., our purchase of Bear Stearns

a wam a bak l; a ,

la a bak ak l a ).

Yes, we should thank the government or itsextraordinary actions

A la a l, k

v a bll a l

al a plx a apl a

a. w a a,

blv l av b

. A a b a a

ta a Fal rv k, l

a l, b a b -

a a av av a ala bakp.

Without these actions, however, not all banks

would have ailed

t p a all bak l av al

a b v a

. t p b

a a bak a pl

a a a a p

bak. w l akl a

a aal pa

l a x. A l

a vv bak l ,

, av vv, all bak l

av al. i k i pak a b

bak i a a ap

tbl A rl Pa (tArP)

apal ba vv b

ba blv

lp a .

w l v a v al bak ak tArP a

xapl all bak a ak a

ak ap apal

without being stigmatized. JPMorgan Chase

a a bak a p

lp, a a a .


29/260

27

At the worst point in the crisis, we

aggressively provided credit

t aal , JPma

ca v p a qal l. w v

a a a av p, k ll al v a a a

av l.

o bala abl b

Bear Stearns in March 2008, adding $289

bll a; aq wa

Mutual just six months later, adding a further

$264 billion of assets. Through it all, JPMorgan

ca abb

a lal l l aa

lq a apabl

apal. w aq wa maljust

10 days afterLehman Brothers collapse on

spb 15, 2008, a, aa

bala , al l

$11.5 bll k ll

morning. The takeover of Bear Stearns and

wam pv al a pp

to the system and minimized a potentially

a p a l av l

al. i val

after Lehmans failure, our interbank lending al a a $70

bll, a ava l a appx-

al $100 bll p , v

a a b p . w al

pa, a p, a $250 bll

, lp ala -

lq akpla.

We consistently maintained extremelyhigh capital levels

A a bl , 2008

t 1 c capal 7.0% ( al

a b Fal rv

bak ), a 2009

t 1 c capal 8.8%.

i ma 2009, u.s. v a a

19 bak. t a a av

environment of 10.4% unemployment and a

48% peak-to-trough decline in the housing price

x a a -a pa. up pl-

, l q 10 bak

to raise common equity to maintain 4% Tier 1

c capal

a. u v , JPma

Chase always had common equity of $40 billion

in excessof the 4% minimum (for the record,

$25 bll tArP apal ap a

p k a, , v a pa

alla). t b l a pa l.

2Q

2008

3Q

2008

4Q

2008

1Q

2009

2Q

2009

3Q

2009

4Q

2009

7.3%7.7%

8.2%8.8%

5.0

6.0

7.0

8.0

4.0

3.0

2.0

1.0

9.0%

7.1%6.8%

7.0%

Quarterly capital levels

* The Tier 1 Common ratio

is Tier 1 Common Capital

divided by risk-weighted

assets. Tier 1 Common

Capital is predominantly

Tier 1 Capital less preerred

equity, noncontrolling

interests and trust preerred

capital debt securities. Tier 1

Common Capital is the frst

element o capital to absorb

losses. See page 90 or

urther discussion.

Stress tests minimum

4% Tier 1 Common Capital

requirement

Tier 1 Common* ratio


30/260

28

Aug08

Jul08

Sep08

Oct08

Nov08

Dec08

Jan09

Feb09

Mar09

Apr09

May09

Jun09

Jul09

Aug09

Sep09

400

600

800

$1,000

900

700

500

Flightto quality

Return

to normalcy

We kept our liquidity extremely high

A l aal

ak ga dp, xp-

rienced the opposite of a run on the bank

a p ( a - p,

$150 billion owed in we barely knew what

). A JPma ca, p

ala x la; p ala

av b a a bak. t ava bak a

la a a all a a 110%

p. F JPma ca, la

appxal 75% p. i a,

x p al

a lv k lal ak.

i l- lal ak,

we borrowed on average $270 billion. Only $40

bll a b -

term credit markets an extraordinarily lowamount for a company of our size. When we

b ak,

ap a l av a

, all, a a .

w ala aa x lq a

bak l pa. w a a

av a a qval a

lv a a, v

v a a abl b

ak a all.

We were prepared for things to get even worse

wl v a b

a ba a a a v , l-

al ppa a ,

a pbl u.s. pl a

15% . s a av v

l av q a a: a la

a , la ak

a v, a a a l pv apal. sp lk

l av av a $12 bll

xp a a abl aal

apal. hv, al l av p

p ap a pl,

ppl a . Fal, v

a x a a pla. t a

pl a v a

av, a i blv a lp pv

a pa ak p lk

abv.

Government programs were a mixed blessing

wl pl appa v

actions and they clearly had benets for the

system and for JPMorgan Chase they also

a x bl.

i J 2009, pa bak tArP apal

ll. t $25 bll b

, ba v abl l $25 bll a a a a

Average

monthly

deposits

(in billions)WaMu deposits


31/260

29

a 5% p pa

p a. i a, av

government warrants worth almost $1 billion

a al.

w papa Fal dp

ia cpa (Fdic) aa

program, under which we issued $40 billion of

b a Fdic aa. ma bak a

pa l av a a

apal ak aa

a pbl l av al. F JPma

Chase, it was not a question of access or need

x , ak ala

were open to us but the program did save us

. A pa pa, av pa

Fdic $1.3 bll, a, a pa Fdic, ll av a a a

v x a.

Our company was highly criticized for

ap tArP apal a

Fdic pa. A Apl 1, 2009, v

lbl

Fdic pa, pp . t

a v pa (

acronyms such as TALF and PPIP) that we

blv bal apal ak,b a a ,

a av a. (w t

A Fal (tAF), a pal v-

p p al, b a

a q Fal rv

lp va .)

wl k a l av

app ab all v-

pa, a a

a a a p a av a b

at the expense of failing competitors but it is

a a a l av b

.

w apa a bakla

apa tArP apal l vk

from the public, politicians and the media

b, v , i k l

av a ap tArP apal ba

a b . i l av b pbl

b al a al bak

a a a aa

program so as not to create a situation where

pbl a l p a all

banks were bailed out. Last, I do regret having

Fdic aa ba

need it, and it just added to the argument that

all bak a b bal a l

a a bak.

The government runs the FDIC, but the banks

pay or it

wl Fdic a v

a bak p, al

l k a aa

al bak a b ll b bak,

b axpa. w k pll

apppa. ev Fdic pal tp-

rary Liquidity Guarantee Program (TLGP)

a l , l l av ba bak vv bak. t-

, vv bak a av pa

Fdic appxal

200 bak al b 2008.

o al, la , wam (

a x $260 bll), a

Fdic . ta ba JPma ca

b wam. All bak a av

al a all ( x la al

a ima, $32 bll). All al b av Fdic a -

a $55 bll.

Between deposit insurance and TLGP funding

2008 a 2009, pl a

a a v x a,

JPma ca al ll av v

Fdic a al appxal $6 bll

v al bak.


32/260

30

Banks are lending a little less but more

responsibly

A a al a a l a

a ll ak bak

l aa. t al a bak

v av pp l: A

Fba 2010, a la aa

la p, al la l

by commercial banks stood at $6.5 trillion

a a J 2007 a

than 30% higher than in 2004.

h a b a

lal l av l a bak

l bak la a ll l?

t a b xpla a ll:

1. t -bak l, a

a 65% ppl

u sa, p. ma -

bak l (k a bak

, siV, a-bak -

cial paper market and the securitization

ak) vall llap. t

of credit alone and they were funded by

a pa, p pla, a

corporate and foreign investors reduced

pv b al al a ll lla.

2. Bank lending did go up in the months

immediately after Lehmans collapse, but

2009, bak l

a l al. wl a

100 bak, l JPma ca,

pp p a aq al bak,

l a ll pla

x al bak a

b pv. F xapl, a JPmaca, bp

l a p-Arm a a

wam a b pv.

3. ma bak al la a-

a, la.

4. Additionally, customer demand for loans

a a la a all b.

i a, a JPma ca al, la

la pa pp ( $85 bll

$50 bll). t a

la ak la b a

la pa ak avaa

abl a a l a

p apal ak.

Banks have a responsibility to make sound

loans. Bad loans are one of the things that

pla. A,

al, ak la

a l appla la a

a a l a.

wl a bv a ,

a appla a al

a aall a b b

a l b . w av a

pbl l l aal b. ulk a b-

, p ppla p

a .

Banks are not ghting regulation

w a JPma ca a a bak av

l akl pp

la , a i al pk ab

p a al la a l.

Looking back, one of the surprising aspectsab a

p pbl aa (lbal

a bala, bbbl, x-

v lva, ak , .)

individually well-known and discussed. But

, a a a i k, p all

a a p x ba

would become and the crisis it would cause.

s a a lp x a-

a? w pbl: ba k aa. t l

a aal al, b al

val aal a

l. t a x a b a a lvl,

pla al

a a , a a lvl:

xapl, al pv Aig ak

xv, - p a va-

v a al l a a-

l l a a kp la--

val a a aabl 80%-90%.


33/260

31

ov la 50 a, av all

la b al

a. t aa a lav

ap . ta, Aa,

bak a l -

a, all k -bak aka a k a pv

. s a a bak

p-l aa a

pv. t al a

a range of sizes and categories from Bear

Stearns and Lehman Brothers to IndyMac and

wam Fa ma, F ma a Aig,

as well as local community banks proves that

la b a b p

a ba, b lal . w

av a a pl a

la , a, , ll

l b abl al plx al-

l a a b ll b abl

a a a ll b xbl -

l aap a l.

We support a systemic regulator

g a, ll a -

la a vl

pa a lvl k a aal . tk a a p

risk regulator. Such a regulator would not elim-

a all pbl, b l b abl

mitigate them. If we had eliminated just some

pbl, av pp

ba. c appa b

well on its way to creating just such a regulator,

a p .

s k la l

kp a ll:

Focusing the process on managing risk. This

l b a plal p. i l

lk a k aa

.

Eliminating gaps and overlaps in the system.

F xapl, a la

b lpl , a

terrible job, causing a race to the bottom

a v pa a ba

aa ak a.

Analyzing areas like the mortgage market

a l -a

a l a

, a a , a, v

a -l a ak.

Carefully tracking new products, as they

a a pbl.

Reviewing credit across the whole system

including hidden extensions of credit, sucha a ak a siV.

Aggressively monitoring nancial markets

a pal x, bbbl. i a b

a bbbl, a a b av-

abl, , x a -

a pl.

However, it is appropriate to try to minimize

llaal aa bbbl a a. i

al l b apppa aa

bbbl, b a pl b b p ak (..,

l av b apppa ak l

la--val a a

or to minimize speculation in the nancial

ak b lva

p ak).

Recognizing distortions as they develop in

ba (al , a

bala, al a b )

a pl b apa pbl a a l.

Encouraging international coordination as

much as possible not only so companies

p a lvl pla l b al

ba p a aal b.

These are just some of the ways a systemic

la l lp x a -

la ak a a a a

continually adapts and improves itself.


34/260

32

We support an enhanced resolution

authority and the elimination o

too big to ail

ev av pa al -

la aal pv

al, ll av v

b pl aa .

All l b all al a

b a

. ta a JPma ca av

a a a l a

a l l la al

rms in a controlled way that minimizes

aa a ll v

taxpayer anything. Fixing the too big to fail

pbl al l a l a alv a a a

. J v la a,

a l, l lkl

al a aa a ba l

recognize there is no safety net. Think of this

enhanced resolution as specialized bank-

ruptcy for nancial companies. The principles

a l b a ll:

A failure should be based on a companys

abl a l. The regulator (or specialized bankruptcy

) l b abl a aa-

a ba.

Shareholders shouldb p a

bank fails just like in a bankruptcy.

The regulator could operate the company

both to minimize damage to the company

a p l .

The regulator could liquidate assets or sellpa pa a .

Unsecured creditors shouldv

only after everyone else is paid like in a

bakp. (i a, l a

l kp a a a

v pa a

l.)

In essence, secured creditors should be

a lk a a a bakp.

The resolution fund should be paid for

b aal (lk Fdic

a).

All institutions under this regime should live

the exact same rules. Regulators should make sure that compa-

av q a b

pv l v

. t v a xapl,

while Lehman had $26 billion in equity, it

al a $128 bll b. A

l la, p, l

clearly have been able to let Lehman meet bla, a/ ll

a ll av pl l v

-

. ha b l,

l av b b .

If a rm fails, there should be enough clarity

ab aal, lal a ax

a all la, pa

a aal ba,

down in a controlled manner what somerefer to as living wills.

While there is no argument about who

l pa l (.., bak),

a al ab l

b . t l la

b abl pa l

a b , a a pl

apppa a apl .

o abl a a a al,

rms of all sizes and shapes should be allowed

v. i a a b

inherently are risky. Banks shouldnt be big for

ak b b, b al a a val

al a a

ba b p a a lv-

qkl a l xpvl. t

b x b val l

b a a bak l, palal

a a lbal al a a, a

a a l.


35/260

33

Many banks capabilities, size and diver-

abl a

a a . t

, , a pbl a

aq ak a v-

q a lp allva palaa .

Closing comments on regulation

wl pp al ppl

b a la vav,

securitizations and enhanced consumer protec-

, pp a a v pa

a b . t vl

al, a al a

aall pv pa aa al p al

vall aal .

w al blv a a

a a b a

al-a:

Repo markets could be better structured,

a ll.

Loan reserving could be made far less

p-lal. Securitization markets could be xed so that

b a a b av k

a.

A system could be put into place to prevent

a run on money market funds.

The ability to buy shareholder or creditor

v a b

xp k -

l l b xl l.

iv l av abl v

apal aall v a v al

pa a a a

p a l p.

Finally, we support strong controls on

so-called naked short selling.

d pa a a -

la a lla, a a av

been proposed or recommended from the

Vlk rl bak ax a

Basel capital. These ideas are all in varying

a vlp a a

. wa l

la a lla p

la a pp a av bal pal-

izing all rms alike regardless of whether

kl p.


36/260

34

A appl

a a, l

. Aa a llb ba

the past some much bigger than the current

one and I am optimistic about our ability to

aa.

Aa a a a q a

a . A a

q k v-

pl a a pva a

vav a ll a pbl. rpbl

businesses can be both small and large and,

a lbal , bv Aa

av la laal pa a a

pa a lbal a. ca a l

a all q a a

a pbl.

Americas success is not a God-given right

ala k a

av.

The need or a strong economy and good

government

Aa p p a

, l v (a

strength of our exceptional military). But it

a a al a vba

. ta a all a

a , a, a

l a bl a b .

A u.s. , abl

all pv a l, pon good government. Bureaucracy is lethal,

a a l a , al,

creativity, drive and goodwill of our citizens

a xapl,

a k a va

Aa. t v, a

:

Legal clarity and consistency.

The fair application and steadfast enforce-

l la.

Trade policies conducive to growing the

Aa a lbal p-

v u.s. pa. Immigration policies that allow America to

attract the worlds best and brightest an

al a a a.

Sensible and eective regulation that

p v a pbl.

A strong and ecient infrastructure (from

a a b lal , .).

The proactive promotion of economic

a l a u.s. apalala.

Policies facilitating job growth, as opposed to

a avl ak a .

c a av al val

and objectives (though I believe most coun-

tries and most citizens would like to reduce

poverty and suering). But countries should

not confuse values and objectives with main-

a a .

hal a a

l ppl. A -

a al a al

ql la ppl a

lvl pa a . ma

av p a lp ppl

b, a, av aa a

ppl. mab

al, b, v , a ll

pav .

Brazil is an example of a country that seems

b ll p- pl-

xpa l

al a a

pa al pa. ov la 20

years, Brazil has adopted many policies that

aaall . i

also bolstered its institutions, privatized its

b, pv l la, l

blk apal alla pva apal

ak a vlp l-la pa.

IV. OUR RESPONSIB ILITY A ND AMERI CAS SUCCESS


37/260

35

Eight years ago, Brazil elected a left-leaning

p, b pl

. h al

of the wealth to start a program called Bolsa

Familia that gave Brazils poorest citizens vacci-

a, a a $80 a .

t l la: g pl a

a al

progress they are the fuel for progress.

Businesses need to be responsible and

healthy and vibrant

A JPma ca, l a p p-

bl bl a pa a b

, pl, al a

pa a

l. t b pa ak -

- p. ca pbl

p, pa a b ll

to maximize quarterly earnings but rather to

v l a a v a l

p a, , a a a p.

P a a, , a a

a a bak a.

w ala av b pl

being good corporate citizens and adhering to ll pa:

Treating our customers and employees with

p v.

Building safe and useful products.

Maintaining ethical and responsible business

pa.

Meeting our duciary responsibilities and

a al val al. Developing a company for the long run

a a .

Making a meaningful dierence through

plap av pp

.

Acknowledging our mistakes (which are a

aal pa b), x

a la .

Supporting the economies in which we

work through job creation and appropriate

ax pa. JPma ca, ava,

pa a $12 bll a a ax

v a l.

Building a great company allows investment in

, pv pp pl,

bl b p a v

. cpa a a al

a vba a .

Businesses small to large are one o

Americas key strengths

A al b aal

: o 130 ll

ppl k v a u

sa, al 110 ll a pl b

pva b. t pva b

a a ala av b a pa

drivers of job creation and innovation.

t b

v, all a-p

alla la-

al pa.

i, lap b la aall b b. s

that for every one job created at a larger busi-

ness, ve jobs are created at smaller businesses

a pv pp a v. A

JPma ca, pala, p

a $15 bll p a appxal

40,000 vendors, who provide jobs to millions

pl.

We need global fagship companies

including banks

In the current political environment, size in

the business community has been demonized,

b a a b q

size in order to make necessary investments,

ak xaa k a pv val

pp lball. Aa la pa

pa a l a pl ll

ppl. t l pa a a

make huge investments as much as $10

billion to $20 billion a year and compete ina a a 50 100 a A-


38/260

36

a l- . cb, b a

all b p $1.5 ll p a

apal xp a $300 bll

a a vlp. i a a

a 70% apal xp a

a b la pa.

t pv k a

al pa (-

a a v a va)

a a lal v a

. epl a la pa

a a pv: cpa a

b pl a la pa a

baall a a all .*

i a a la p a la

laal av u

States have accounted for the majority of U.S.

pv 1995.

Companies such as Ford, Boeing, Pzer, Cater-

plla, Appl, m a gl a x-

pla av a va l.

c- pa lk hl-Paka

p vba k all a -

size suppliers and vendors. Academic research

a v aba aall

create more jobs in the United States.

Large companies such as the ones mentioned

abv bak pa la

bala a aa

around the world. And its not just multina-

al pa a l al:

sa a pal al p

apal a a lk JPma ca

a pv. t b , all bak pla a

val l a b a

ala pv p v, apal,ba p a p x

a l . ol la bak av

al a ak a

the globe, in places like China, India, Brazil,

s Aa a ra; x v

a la-al aa; a a

p a v, la

a k aa lal l ;

p ab aal aa; a

pv a bll.

u.s. bak aall a l la a

l, a aal

l a b la bak a

a al a a. F xapl,

2007, the three largest U.S. banks held 34% of

total U.S. bank assets the second-lowest gurea oaa e c-pa

and Development (OECD) nations, just ahead

of Luxembourg; the average for the rest of the

oecd a a a bl, a 69%.

n l bak pa-

lal a, b la bak a

relatively large compared with the size of the

U.S. economy. The arguments that big is bad

and that too consolidated is bad are refuted by

a xapl la, l-

a bak a av pb-

l a all (.., caaa).

Capping the size of Americas largest banks

a b b. ia,

ll pa

bak a a a .

JPMorgan Chases capabilities, size and diver-

al a aal

2008 a a a .

Everyone needs to be responsible

Aa a bl ppl

val a l-pbl. w

a pbl

all participants in the economy. Bad outcomes

are not always someone elses fault we need

lva a v ,

l, b, b a v all

ak pbl a a

lk l bla. w av p

lpp a ap -pa bla. A l ba a ala l

b p, al l a all

bl pbl. w

ll akl, xapl, a a -

val lv a l p

a a a b a al l

pl b l, a

l b a al a pll.

t pa pl a a a

a-a q, a l pbl a bak a bak.

* The U.S. Bureau o Labor

Statistics shows that

employees o large rms (with

500 or more employees) have

average hourly earnings ($25/

hour, including wages and

salaries) 46% higher than

employees o small rms (with

ewer than 50 employees).

Similarly, large rms provide

88% o their employees access

to medical benets compared

with 55% at small rms.


39/260

37

wl JPma ca al a

a ak l ,

ala a a

aal bak a pa a

pla pp l a .

o 220,000 ppl k v a a great job serving clients, whose trust we have

to earn over many years. The vast majority of

ppl, , pa a a-

holders are far from Wall Street they actually

a pa va l ma s,

vall v pa . A

a av a b b

a l.

V , pbl pla

ak pv aa bak lk , k a p l

aa a, , a, a

p a al a ll.

ca ppla pp, ma s

b bak a pa

av a . o

al p a

Aa, l a, a pbl

pl. w ba v

pbl a la pl a

aa , a ma s v. wall

s, b b v. all b b

bak v. all bak, a al

blaming the good and the bad this is simply

another form of ignorance and prejudice.

By extension, when we vilify whole industries

all b , a -

a lv a a a

l. w al l a

a bla a l p

ppl, l pla a. w a b l al a a pll

a bk a ll b a

b. w all l ak lv

, a ,

a a.

Conclusion

t u sa a a all. i

, v

a pl bak k

a pa. i l ,

al a a ;

vlp a al, bav pl;

a bl a .

w al la u.s. ,

b ab a a b all

responsible for ourselves it is dangerous to

a lbal ak p

a pl. t a all all,

b, k , a x .

y pa v

a, v k,

lp l v a qkl a pbl.

i 2009, a av a b,

ppl all, k a

a a al

a plal v. t al av

p a a

aal v . t all,

l a all :

v l a, , -

a l. o bal JPmaca a aa a al,

i xp p a ppl.

i a p b pa.

Ja d

caa a c exv o

ma 26, 2010


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38

Investment Bank

J.P. Morgan is a leading

global investment bank

with one o the largest

client bases in the world.

We serve more than 20,000

clients, including corpo-rations, governments,

states, municipalities,

healthcare organizations,

educational institutions,

banks and investors. Our

clients operate in more

than 100 countries. We

oer a complete range

o nancial services to

help clients achieve their

goals. We provide strate-gic advice, lend money,

raise capital, help manage

risk, make markets and

extend liquidity, and we

hold global leadership

positions in all o our

major business lines.

2009 HigHligHts and accomplisHments

Deliveredrecordnetincomeof$6.9billion

onrecordrevenueof$28.1billion,ledby

recordGlobalMarketsrevenueof$22billion

andrecordreportedIBfeesof$7.2billion.

Earnedareturnonequityof21%on$33billion

o average allocated capital.

Asthemarketleader,arrangedandraised

$204billionincorporateloansfor295issuer

clients globally.(a) The average size o loans led

byJ.P.Morganwasroughly$691million,more

than double the markets average size o

$316million.

Helpedclientsissue$620billionofstocks

andbonds,$170billionmorethananyother

bank in the world.(a)Asthetopunderwriterin

eachcategory,J.P.Morganraised$105billion

and$515billionintheglobalequityanddebt

markets, respectively.(a)Excludingself-ledbank

deals, J.P. Morgan was a lead underwriter on

eight o the 10 largest transactions in both the

equity and debt markets.

Arrangedandraised$178billionofcapital

or banks and nancial institutions around

theworld;thatamountstonearly10%

Documents

JP Morgan Chase Annual Report 2009