2 q09 earnings_presentation_final

FINANCIAL RESULTS

2Q09
July 16, 2009

2Q09 Financial highlights

Net income of $2.7B; EPS of $0.28
Earnings per share reduced by TARP repayment ($0.27) and FDIC special assessment ($0.10)
Record firmwide revenue of $27.7B, resulting in record revenue for the first half of 2009 (on a managed
basis1):
Reported record Investment Banking Fees and Fixed Income Markets revenue in the Investment Bank;
maintained #1 rankings for Global Debt, Equity and Equity-related, and Global Investment Banking Fees
Continued earnings and revenue growth in Commercial Banking; solid performance in Asset
Management, Treasury & Securities Services and Retail Banking
Maintained fortress balance sheet with Tier 1 Capital of $122.2B, resulting in 9.7% Tier 1 Capital ratio and
7.7% Tier 1 Common2 ratio:
Added $2B to credit reserves, bringing the total to $30B; firmwide loan loss coverage ratio of 5%3 as of
June 30, 2009
Repaid in full the $25B TARP preferred capital
Continued lending and foreclosure prevention efforts:

FINANCIAL RESULTS

Extended approximately $150B in new credit to consumers, corporations, small businesses,
municipalities, and non-profits
Approved 138,000 trial mortgage modifications in the second quarter, bringing total foreclosures prevented
since 2007 to 565,000
1

See notes 1 and 2 on slide 20
See note 3 on slide 20
3 Allowance for loan losses to end-of-period loans excludes purchased credit-impaired loans and loans from the WaMu Master Trust, which were consolidated on the Firm’s balance sheet at fair value during the
second quarter of 2009. No allowance for loan losses was recorded for these loans at June 30, 2009
2

1

2Q09 Managed results1

$ in millions
$ in millions

$ O/(U)
2Q09

1Q09

$27,791

$729

2Q08

Results excl. Merger-related items2
Revenue (FTE)1
Credit Costs1
Expense
Merger-related items2 (after-tax)

$7,693

9,695

(365)

5,420

13,346

210

1,350

76

382

(158)

Reported Net Income

$2,721

$580

$718

Net Income Applicable to Common

$1,072

($447)

($771)

$0.28

($0.12)

($0.25)

6%

5%

6%

ROE Net of GW 3

10%

7%

10%

ROTCE3,4

10%

8%

10%

Reported EPS

FINANCIAL RESULTS

ROE3

Managed basis presents revenue and credit costs without the effect of credit card securitizations. Revenue is on a fully taxableequivalent (FTE) basis. All references to credit costs refer to managed provision for credit losses. See notes 1 and 2 on slide 20
2 Merger-related items relate to the Bear Stearns and WaMu transactions
3 Actual numbers for all periods, not over/under. Net income applicable to common used to calculate ratios excludes the one-time, noncash negative adjustment of $1.1B resulting from repayment of TARP preferred capital
4 See note 4 on slide 20
2
1

Investment Bank

$ in millions
$ in millions
$ O/(U)
2Q09
Revenue

$7,301

1Q09
($1,070)

Net income of $1.5B on revenue of $7.3B
2Q08

$1,801

Investment Banking Fees

2,239

859

504

Fixed Income Markets

4,929

40

2,582

Equity Markets

708

Credit Portfolio

(914)

(339)

473

4,067

(707)

(667)

$1,471

Net Income

(904)

871

Expense

(371)

(575)

Credit Costs

(1,065)

($135)

$1,077

Record IB fees of $2.2B up 29% YoY, reflecting record
equity underwriting
Record Fixed Income Markets revenue of $4.9B, reflecting:
Strong performance across all products
Modest gains on legacy leveraged lending commitments
and mortgage-related positions
Loss of $773mm due to tightening of the firm’s credit
spread on certain structured liabilities
Equity Markets revenue of $708mm, reflecting:

1

Key Statistics ($B)
Overhead Ratio

56%

57%

86%

Strong client results across all products, particularly in
Prime Services

Comp/Revenue

37%

40%

57%

Weak trading results

$71.3

$77.5

$90.4

$5.1

$4.7

$2.4

$3.5

$1.8

$0.3

2.55%
7.91%

0.21%
7.04%

(0.04)%
3.44%

VAR ($mm)

18%
$267

20%
$336

7%
$149

EOP Equity

$33.0

$33.0

$26.0

EOP Loans
Allowance for Loan Losses
NPLs

FINANCIAL RESULTS

Net Charge-off Rate2
ALL / Loans2
ROE3
4

Actual numbers for all periods, not over/under
Loans held-for-sale and loans at fair value were excluded when calculating the loan loss
coverage ratio and net charge-off rate
3 Calculated based on average equity; 2Q09 average equity was $33B
4 Average Trading and Credit Portfolio VAR

Loss of $326mm due to tightening of the firm’s credit
spread on certain structured liabilities
Credit Portfolio revenue of ($575mm) includes mark-tomarket losses on hedges of retained loans, partially offset
by the positive net impact of credit spreads on derivative
assets and liabilities and net interest income on loans
Credit costs of $871mm include net charge-offs of $433mm
and an addition to allowance for loan losses of $438mm
Allowance for loan loss coverage ratio of 7.91%, up from
3.44% in 2Q08

1
2

3

IB league tables

League table results
League table results
YTD June 09
Rank

Share

2008

1

Ranked #1 in Global Fees for YTD June 2009, with
10.1% market share per Dealogic

Rank Share

Based on fees (per Dealogic):
Global IB fees

#1

10.1%

#2

Ranked #1 for YTD June 2009 per Thomson
Reuters in:

8.6%

Global Debt, Equity & Equity-related

Based on volumes (per Thomson Reuters):
Global Debt, Equity & Equity-related

#1

10.5%

#1

US Debt, Equity & Equity-related

#1

15.2%

#2

15.0%

#1

16.2%

#1

10.2%

#1

16.9%

#1

11.0%

#1

9.9%

#1

9.4%

#1

8.9%

#3

8.8%

#1

14.6%

#2

15.1%

#3

32.2%

#2

27.1%

#3

48.1%

#2

33.1%

Global Loan Syndications

#1

9.8%

#1

11.5%

US Loan Syndications

#1

24.8%

#1

Global Equity & Equity-related

9.5%

25.4%

Global Equity & Equity-related

2

Global Debt
Global Long-term Debt
Global Loan Syndications

US Equity & Equity-related
Global Debt

3

Global Long-term Debt
US Long-term Debt

3

3

Global M&A Announced

FINANCIAL RESULTS

US M&A Announced

1

4

5

Improved market share in Global Equity & EquityRelated by six percentage points during 1H 2009

Source: 2008 data is pro forma for merger with Bear Stearns

2 Global
3 Debt

4 Global
5 US

Equity & Equity-related includes rights offerings

& Long-term Debt tables include ABS, MBS and taxable municipal securities
M&A for 2008 for Thomson Reuters includes transactions withdrawn since 12/31/08

M&A for Thomson Reuters represents any US involvement; 2008 includes transactions withdrawn since 12/31/08

Note: Rankings for YTD June 30, 2009 run as of 07/02/09; 2008 represents Full Year

4

IB key risk exposures

Leveraged lending
Leveraged lending

Market value of $3.3B at 6/30/09 (gross markdowns of $4.6B, or 58%)
Exposure reduced by 31% or $3.6B in 2Q09
Modestly positive gains in 2Q09, net of hedges, on remaining legacy
commitments
Mortgage-related ($ in billions)
Mortgage-related ($ in billions)

Exposure as of
03/31/2009
Prime
Alt-A
Subprime
Subtotal Residential
Commercial
Mortgage Exposure

Change in
Exposure

Exposure as of
06/30/2009

$1.5
4.0

$0.5
(0.4)

$2.0
3.6

0.7
$6.2
6.5
$12.7

$0.1
(0.2)
($0.1)

0.7
$6.3
6.3
$12.6

FINANCIAL RESULTS

Modestly positive gains in 2Q09 on mortgage-related exposures

5

Retail Financial Services—drivers

Retail Banking ($ in billions)
Retail Banking ($ in billions)

Average deposits of $348B up 1% QoQ and checking
accounts up by ~300K
2Q09

1Q09

2Q08

Average Deposits

$348.1

$345.8

$213.9

Deposit Margin

2.92%
25.3

2.85%
25.0

2.88%
11.3

5,203

5,186

3,157

# of ATMs

14,144

14,159

9,310

Investment Sales ($mm)

$5,292

$4,398

$5,211

Key Statistics

Checking Accts (mm)
# of Branches

Margin expansion driven by a disciplined pricing
strategy and a shift to wider spread deposit products
Branch production statistics:
Checking accounts up 123% YoY and 1% QoQ
Credit card sales up 37% YoY and 2% QoQ
Mortgage originations up 39% YoY and 19% QoQ
Investment sales up 2% YoY and 20% QoQ

Consumer Lending ($ in billions)
Consumer Lending ($ in billions)

Total Consumer Lending originations of $47.4B:
2Q09

1Q09

2Q08

3.84%

3.12%

1.89%

4.34%

3.79%

2.33%

$0.6

$0.9

$5.3

$138.1

$141.8

$95.1

$41.1

$37.7

$56.1

$144.7

$148.3

$54.3

$1,118

$1,149

$659

Credit Metrics:
Net Charge-off Rate (excl. credit-impaired)
ALL / Loans (excl. credit-impaired)
Key Statistics
Home Equity Originations

FINANCIAL RESULTS

Avg Home Equity Loans Owned
Mortgage Loan Originations

1

Avg Mortgage Loans Owned1,2
3rd Party Mortgage Loans Svc'd
Auto Originations

1
2

$5.3

$5.6

$5.6

Avg Auto Loans

$43.1

$42.5

$44.9

Includes purchased credit-impaired loans acquired as part of the WaMu transaction
Does not include held-for-sale loans

6

Mortgage loan originations down 27% YoY and up 9%
QoQ
– Decrease YoY reflects a decline in servicing-only
(CNT) originations and the exit of the broker
business
– Increase QoQ reflects continued strong mortgage
refinancing demand
– For 2Q09, greater than 90% of mortgage originations
fall under agency and government programs
Auto originations down 5% YoY and QoQ
3rd party mortgage loans serviced up 70% YoY and down
3% QoQ

Retail Financial Services

$ in millions
$ in millions
$ O/(U)
2Q09

1Q09

2Q08

Retail Banking net income of $970mm up 44% YoY:

Net income

$15

($459)

($488)

-

8%

12%

$25

$25

$17

Net Interest Income

2,719

105

1,048

Noninterest Revenue

1,803

85

741

$4,522

$190

$1,789

361

36

299

Expense

2,557

(23)

1,000

Net Income

$970

$107

$296

Net Interest Income

2,311

(313)

832

Noninterest Revenue

1,137

(742)

239

$3,448

($1,055)

$1,071

Credit Costs

3,485

(67)

1,962

Expense

1,522

(69)

399

($955)

($566)

($784)

ROE1,2
1

EOP Equity ($B)

Retail Banking

Total Revenue
Credit Costs

Consumer Lending

FINANCIAL RESULTS

Total Revenue

Net Income
1
2

Retail Financial Services net income of $15mm down 97% from
the prior year

Calculated based on average equity; 2Q09 average equity was $25B

Total revenue of $4.5B increased 65% YoY reflecting the
impact of the WaMu transaction, wider deposit spreads, higher
deposit balances and higher deposit-related fees
– Total revenue up 4% QoQ due to higher deposit-related fees
and wider deposit spreads
Credit costs reflect higher estimated losses and an increase in
the allowance for loan losses for Business Banking loans
Expense growth of 64% YoY reflecting the impact of the WaMu
transaction and higher FDIC insurance premiums
– Expense down 1% QoQ due to efficiencies related to the
WaMu transaction
Consumer Lending net loss of $955mm compared with a net loss
of $171mm in the prior year:
Total revenue of $3.4B, up 45% YoY, reflecting the impact of
the WaMu transaction and wider loan spreads, offset largely by
lower balances in the heritage Chase portfolio
– Total revenue down 23% QoQ due to lower MSR risk
management results, narrower loan spreads and lower loan
balances
Credit costs reflect higher estimated losses and include a
$1.1B addition to the allowance for loan losses
Expense growth of 36% YoY reflecting higher servicing
expense due to increased delinquencies and defaults and the
impact of the WaMu transaction

7

Impact of foreclosure moratoriums and trial modifications on delinquencies

Foreclosure moratoriums
Foreclosure moratoriums

Trial modifications
Trial modifications

Two foreclosure moratoriums halted stages of the
foreclosure process while foreclosure prevention
programs were retooled

A customer must make three successful monthly trial
mod payments, and be successfully re-underwritten
with income verification, before their loan is officially
deemed modified

November, 2008 – January, 2009: Halted all breach
letters (initial customer notification) and foreclosure
referrals (beginning of legal process)

During the trial mod period, an account ages an
additional month of delinquency each month the
cumulative actual payments are less than the
contractual monthly payment

Mid-February – April, 2009: Halted all foreclosure
sales

For example, a customer that is current and has a
$1,000 contractual monthly payment and a $600
trial mod payment

Seriously delinquent accounts that would have otherwise
been moved to REO remained on book longer, causing
growth in late-stage delinquencies

If the customer makes the $600 trial mod payment
in both months 1 and 2, the loan:
– Becomes 30 days delinquent in month 1 since
$600 payment is less than $1,000 contractual
payment
– Remains 30 days delinquent in month 2 since
two trial payments ($1,200) only satisfy one full
month of contractual payment and not two

On average, the number of days from the initiation of
the foreclosure process to property sale is longer by
100+ days
We do not expect higher future losses resulting from
foreclosure moratoriums

FINANCIAL RESULTS

Accounts had previously been written down
Additional write-downs were taken to account for
longer sale timelines and additional depreciation

After a successful trial period and loan re-underwriting,
the loan is officially modified and brought current. A
Troubled Debt Restructuring (TDR) reserve is
established based on expected remaining life losses,
including an estimate of future re-default rates
8

Home Equity
Excluding credit-impaired loans

30+ day delinquency trend

Key statistics
Key statistics
2Q09

1Q09

2Q08

EOP owned portfolio ($B)

$108.2

$111.7

$95.1

Net charge-offs ($mm)

$1,265

$1,098

$511

Net charge-off rate

4.61%

3.93%

2.16%

Nonperforming loans ($mm)

$1,487

$1,591

$1,008

3.25%
1

Excluding credit-impaired
2.75%

2.25%

1 Excludes the impact of purchased credit-impaired loans acquired as part of the WaMu
transaction

1.75%
Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Note: 30+ day delinquencies prior to September 2008 are heritage Chase

Comments on Home Equity portfolio
Comments on Home Equity portfolio

Losses continue to come predominantly from high CLTV loans
30+ day delinquencies have begun to flatten out
FINANCIAL RESULTS

For new originations, maximum CLTV remains at 50-70% based on geographic location
Quarterly losses trending to approximately $1.4B over the next several quarters

Note: CLTV=Combined Loan to Value. This metric represents how much the borrower owes on the property against the value

9

Prime Mortgage


Key statistics
Key statistics
2Q09

11%

1Q09

2Q08

1

9%

EOP owned portfolio ($B)2

$62.1

$65.4

$40.1

7%

Net charge-offs ($mm)3

$481

$312

$104

3.07%

1.95%

1.08%

$3,474

$2,691

$1,229

Net charge-off rate
5%

3


transaction
2 Ending balances include all noncredit-impaired prime mortgage balances held by
Retail Financial Services, including loans repurchased from Government National
Mortgage Association (GNMA) pools that are insured by U.S. government agencies
3 Net charge-offs and nonperforming loans exclude loans repurchased from GNMA
pools that are insured by U.S. government agencies

3%
1%
Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09


Comments on Prime Mortgage portfolio
Comments on Prime Mortgage portfolio

30+ day delinquencies continue to grow, driven in part by foreclosure moratoriums and loss mitigation
efforts

FINANCIAL RESULTS

Losses coming predominantly from CA and FL (66% of losses) and 2006/2007 vintages (87% of losses)
New portfolio originations are subject to strict underwriting requirements, especially in areas with the most
severe expected home price deterioration and unemployment growth
Quarterly losses trending to approximately $600mm over the next several quarters

10

Subprime Mortgage


Key statistics
Key statistics
2Q09

1Q09

2Q08

EOP owned portfolio ($B)

$13.8

$14.6

$14.8

Net charge-offs ($mm)

$410

$364

$192

11.50%

9.91%

4.98%

$2,773

$2,545

$1,715

28%
1

24%

20%

Net charge-off rate

16%
transaction

12%
Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09


Comments on Subprime Mortgage portfolio
Comments on Subprime Mortgage portfolio

Eliminated new production and portfolio is in run-off
30+ day delinquency dollars are flat; rates continue to grow due to balance run-off
FINANCIAL RESULTS

Quarterly losses trending to approximately $500mm over the next several quarters

11

Card Services (Managed)

$ in millions
$ in millions
$ O/(U)
2Q09
Revenue

1Q09

2Q08

$4,868

($261)

$1,093

Credit Costs

4,603

(50)

2,409

Expense

1,333

(13)

148

Net Income

($672)

($125)

($922)

1

Key Statistics Incl. WaMu ($B)
ROO (pretax)

(2.46)%

(1.92)%

1.04%

2

(18)%

(15)%

7%

EOP Equity

$15.0

$15.0

$14.1

ROE

Key Statistics Excl. WaMu ($B)1
Avg Outstandings

$149.7

$155.8

$152.8

EOP Outstandings

$148.4

$150.2

$155.4

$78.3

$71.4

$93.6

2.4

2.2

3.6

Managed Margin

8.63%

8.75%

7.92%

Net Charge-Off Rate

8.97%

6.86%

4.98%

30+ Day Delinquency Rate

5.27%

5.34%

Credit costs of $4.6B are due to higher net charge-offs,
reflecting a continued deterioration in the credit
environment
Net charge-off rate (excluding the WaMu portfolio) of
8.97% in 2Q09 vs. 4.98% in 2Q08 and 6.86% in 1Q09
End-of-period outstandings (excluding the WaMu portfolio)
of $148.4B down 4% YoY and 1% QoQ
Sales volume (excluding the WaMu portfolio) declined 7%
YoY

3.46%

Charge Volume
Net Accts Opened (mm)

FINANCIAL RESULTS

Net loss of $672mm down $922mm YoY; decline in results
driven by higher credit costs, partially offset by an increase
in revenue

1
2

Revenue of $4.9B up 29% YoY due to the impact of the
WaMu transaction and down 5% QoQ driven by an
increase in the credit enhancement for securitizations
Managed margin (excluding the WaMu portfolio) of 8.63%
up from 7.92% in 2Q08 and down from 8.75% in 1Q09
Expense of $1.3B up 12% YoY due to the dissolution of
the Chase Paymentech Solutions joint venture and the
impact of the WaMu transaction


12

Commercial Banking

$ in millions
$ in millions
$ O/(U)
2Q09

Net income of $368mm up 4% YoY

1Q09

2Q08

$1,453

$51

$347

Middle Market Banking

772

20

Commercial Term Lending

224

(4)

Mid-Corporate Banking

305

63

70

Real Estate Banking

120

26

32

(28)

312

19

Revenue

Other
Credit Costs
Expense

535

Net Income
Key Statistics ($B)1

(18)

64
224

(37)
265
59

$368

Avg Loans & Leases

$30

$13

$109.0

$113.9

$71.1

EOP Loans & Leases

$105.9

$111.2

$71.4

Avg Liability Balances2

$105.8

$115.0

$99.4

Allowance for Loan Losses

$3.0

$2.9

$1.8

NPLs

$2.1

$1.5

$0.5

0.67%

0.48%
2.65%

2.59%

ROE4

18%

17%

20%

Overhead Ratio

37%

39%

43%

EOP Equity

$8.0

$8.0

$7.0

Net Charge-Off Rate
ALL / Loans

FINANCIAL RESULTS

Average loan balances were down 4% QoQ due to
reduced client demand
Revenue of $1.5B up 31% YoY due to the impact of
the WaMu transaction and record noninterest revenue
Credit costs of $312mm include net charge-offs of
$181mm and reflect continued deterioration in the
credit environment across all business segments

0.28%

2.87%

Excluding the WaMu portfolio, average loan balances
were down 8% YoY, while average liability balances
were up 6% YoY

3

3

Includes deposits and deposits swept to on-balance sheet liabilities
3 Loans held-for-sale and loans at fair value were excluded when calculating the loan loss
coverage ratio and net charge-off rate
1
2

13

Nonperforming loans of $2.1B up $580mm QoQ
Loan loss coverage ratio of 2.87% in 2Q09 up from
2.59% in 2Q08 and 2.65% in 1Q09
Expense up 12% YoY due to the impact of the WaMu
transaction and higher FDIC insurance premiums,
offset partially by lower headcount-related expense;
overhead ratio of 37%

Treasury & Securities Services

$ in millions
$ in millions
$ O/(U)
2Q09

Net income of $379mm down 11% YoY and up 23% QoQ

1Q09

2Q08

$1,900

$79

($119)

Treasury Services

934

3

29

Worldwide Securities Svcs

966

76

(148)

1,288

(31)

(29)

$379

$71

Revenue

Expense
Net Income
Key Statistics

($46)

1

Avg Liability Balances ($B)2

$234.2

Assets under Custody ($T)

$13.7

$276.5 $268.3
$13.5

$15.5

Pretax Margin

31%

26%

33%

ROE3

30%

25%

49%

TSS Firmwide Revenue

$2,642
$1,676

TS Firmwide Revenue
2

TSS Firmwide Avg Liab Bal ($B)

FINANCIAL RESULTS

EOP Equity ($B)

$2,529 $2,721
$1,639 $1,607

$340.0

$391.5 $367.7

$5.0

$5.0

$3.5

Includes deposits and deposits swept to on-balance sheet liabilities
1
2

14

Results include seasonal activity in securities lending
and depositary receipts
Pretax margin of 31%
Liability balances down 13% YoY and down 15% QoQ
QoQ decline driven by continued normalization following
flight-to-quality experienced in 4Q08
Assets under custody down 11% YoY and up 2% QoQ
Revenue of $1.9B down 6% YoY, primarily driven by:
WSS revenue of $966mm down 13% YoY due to effects
of market depreciation on assets under custody and
lower securities lending balances
TS revenue of $934mm up 3% YoY, reflecting growth
across cash management products and higher trade
revenue driven by wider spreads, partially offset by
spread compression on deposit products
Expense down 2% YoY, due to lower headcount-related
expense, partially offset by higher FDIC insurance
premiums

Asset Management

$ in millions
$ in millions
Net income of $352mm down 11% YoY and up 57% QoQ:

$ O/(U)
2Q09

1Q09

2Q08

$1,982

$279

($82)

Private Bank

640

57

(68)

Institutional

487

27

15

Retail

411

158

(79)

Private Wealth Management

334

22

(22)

Bear Stearns Private Client Services

110

15

72

59

26

42

1,354

56

(46)

$352

$128

($43)

Assets under Management

$1,171

$1,115

$1,185

Assets under Supervision

$1,543

$1,464

$1,611

Average Loans

$34.3

$34.6

$39.3

EOP Loans

$35.5

$33.9

$41.5

Average Deposits

$75.4

$81.7

$70.0

Revenue

Credit Costs
Expense
Net Income
1

Key Statistics ($B)

Pretax Margin
FINANCIAL RESULTS

QoQ increase driven by higher valuations of seed
capital investments, higher brokerage fees and the
effect of improved market levels

ROE

2

EOP Equity
1
2

29%

22%

31%

20%

13%

31%

$7.0

$7.0

$5.2


Pretax margin of 29%
Assets under management of $1.2T down 1% YoY:
Market level declines drove AUM down by $139B
Net AUM inflows of $3B for the quarter; $125B for the
past 12 months
Revenue of $2.0B down 4% YoY, primarily due to the effect
of lower market levels and lower placement fees, offset
partially by higher valuations of seed capital investments,
wider loan and deposit spreads and higher deposit
balances
Good global investment performance:
80% of mutual fund AUM ranked in the first or second
quartiles over past five years; 69% over past three
years; 62% over one year
Expense down 3% YoY, due to lower performance-based
compensation and lower headcount-related expense,
largely offset by the impact of the Bear Stearns merger and
higher FDIC insurance premiums
Provision for credit losses of $59mm, reflects continued
deterioration in the credit environment

15

Corporate/Private Equity

Net Income ($ in millions)
Net Income ($ in millions)

$ O/(U)

Private Equity

2Q09
Private Equity

1Q09

2Q08

($27)

$253

($126)

Private Equity losses of $20mm in 2Q09
EOP Private Equity portfolio of $6.6B
Represents 6.2% of shareholders’ equity less goodwill

Corporate
Merger-related items

993

741

871

(158)

76

382

Corporate
Net income of $993mm includes the following after-tax
items:
Treasury trading gains of $820mm

Net Income

$808

$1,070

$1,127

Gain on sale of MasterCard shares of $150mm

FINANCIAL RESULTS

FDIC special assessment expense of $419mm

16

Capital Management

$ in billions
$ in billions

2Q09

1Q09

2Q08

$122

$112

$99

$97

$88

$77

Risk-Weighted Assets 1

$1,264

$1,207

$1,079

Total Assets

$2,027

$2,079

$1,776

Tier 1 Capital Ratio1

9.7%

9.3%

9.2%

Tier 1 Common Ratio1,2

7.7%

7.3%

7.1%

Tier 1 Capital1
Tier 1 Common Capital1,2

Impact of credit enhancement actions on the Chase Issuance Trust and the consolidations of the WaMu
Trust and conduits are reflected in the RWA amounts above

FINANCIAL RESULTS

Actions to credit enhance the Chase Issuance Trust added $40B of RWA and decreased Tier 1 Capital
by 40bps in 2Q09
Consolidations of remaining QSPEs (Conduits, Mortgages and Other) are expected to add approximately
$30B+/- of RWA and decrease Tier 1 Capital by approximately 40bps in 1Q10
Ultimate impact could differ significantly due to on-going interpretations of the final rule and market
conditions
Estimated for 2Q09
See Note 3 on page 20
Note: Tier 1 Capital for 1Q09 does not include the $25B of TARP preferred capital. Firm-wide Level 3 assets are expected to be approximately 7% of total firm assets at 6/30/09

1
2

17

Substantially increased loan loss reserves, maintaining strong coverage ratios

$ in millions
$ in millions
Loan Loss Reserve/Total Loans
45000
5.25%

Loan Loss Reserve/NPLs
5%
500%

Loan Loss Reserve
Nonperforming Loans

29,072

36000
4.20%
27,381

27000
3.15%

18000
2.10%

19,052

9000
1.05%

11,746

9,234

8,113

1,907

2,490

3,282

4,401

5,273

2Q07
2Q07

3Q07
3Q07

4Q07
4Q07

1Q08
1Q08

2Q08
2Q08

2%
200%

23,164

6,933

8,953

11,401

14,785

1%
100%

0%
0%

Peer comparison
Peer comparison
2Q09

3%
300%

13,246

7,633
0
0.00%

4%
400%

JPM

Peer Avg.1

LLR/Total Loans

5.80%

5.20%

3.46%

LLR/NPLs

234%

252%

4Q08
4Q08

1Q09
1Q09

2Q09

$29.1B of loan loss reserves in 2Q09, up ~$21B
from $7.6B two years ago; loan loss coverage ratio
of 5.01%

1Q09

JPM

3Q08
3Q08

173%

FINANCIAL RESULTS

Consumer

Strong coverage ratios compared to peers
LLR/NPLs ratio naturally trends down as we move
through credit cycle

Wholesale
LLR/Total Loans

3.75%

3.43%

2.81%

LLR/NPLs

144%

219%

75%

LLR/Total Loans

5.01%

4.53%

3.08%

LLR/NPLs

198%

241%

138%

Note: Allowance for loan losses to end-of-period loans excludes purchased credit-impaired loans and loans from the
WaMu Master Trust, which were consolidated on the Firm’s balance sheet at fair value during the second quarter of
2009. No allowance for loan losses was recorded for these loans at June 30, 2009. If the purchased credit-impaired
loans and consolidated WaMu Master Trust loans were included, the loan loss reserve ratio at 2Q09, 1Q09, 4Q08 and
3Q08 would have been 4.33%, 3.95%, 3.18% and 2.56%, respectively
1 Peer average reflects equivalent metrics for key competitors. Consumer and Firmwide peers are defined as C, BAC
and WFC. Wholesale peers are defined as C and BAC

Firmwide

18

Outlook

Investment Bank
Investment Bank


Trading can be volatile

2Q09 results include benefit of dividend season

Uncertain environment, risks still remain

Performance will be affected by market levels and liability
balance flows


Asset Management
Asset Management

Home lending quarterly losses (incl. WaMu) over the next
several quarters trending to approximately:

Management and performance fees will be affected by
market levels

Home equity — $1.4B
Prime mortgage — $600mm
Subprime mortgage — $500mm

Solid underlying growth in Retail Banking

Private Equity
Card Services
Card Services

At current market levels, expect modest possible writedowns over near term

Chase losses could approach 10% +/- next quarter; highly
dependent on unemployment after that

Corporate
Investment portfolio remains sizable; continued strong
net interest income

FINANCIAL RESULTS

WaMu losses to approach 24% by the end of 2009
Expect continued pressure on charge volume and
outstandings growth

Level of gains in investment portfolio not likely to be
repeated

Commercial Banking
Commercial Banking

Overall
Overall

Good underlying growth; continuing to gain market share

If economy weakens further, additional reserving actions
may be required

Strong reserves, but credit expected to weaken
19

Notes on non-GAAP financial measures and forward-looking statements
This presentation includes non-GAAP financial measures.
Financial results are presented on a managed basis, as such basis is described in the firm’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2009 and Annual Report on Form 10-K for the year ended December 31, 2008

2.

All non-GAAP financial measures included in this presentation are provided to assist readers in understanding certain
trend information. Additional information concerning such non-GAAP financial measures can be found in the abovereferenced filings, to which reference is hereby made

3.

Tier 1 Common Capital ("Tier 1 Common") is calculated, for all purposes, as Tier 1 Capital less qualifying perpetual
preferred stock, qualifying trust preferred securities, and qualifying minority interest in subsidiaries

4.

FINANCIAL RESULTS

1.

Tangible Common Equity ("TCE") is calculated, for all purposes, as common stockholders equity (i.e., total
stockholders' equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill, net of
related deferred tax liabilities. The TCE measures used in this presentation are not necessarily comparable to
similarly titled measures provided by other firms due to differences in calculation methodologies

Forward looking statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are
subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking
statements. Factors that could cause JPMorgan Chase’s actual results to differ materially from those described in the
forward-looking statements can be found in JPMorgan Chase’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2009 and its Annual Report on Form 10-K for the year ended December 31, 2008, each of which has been filed with the
Securities and Exchange Commission and is available on JPMorgan Chase’s website (www.jpmorganchase.com) and on the
Securities and Exchange Commission’s website (www.sec.gov). JPMorgan Chase does not undertake to update the forwardlooking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking
statements.

20

Reconciliation of GAAP to Non-GAAP Results

$ in millions
$ in millions

2Q09

1Q09

2Q08

Revenue
Reported Revenue
Impact of Card Securitizations
Tax Equivalent Adjustments
Managed Revenue
Merger-related Items
Adjusted Revenue

$25,623
1,664
422
$27,709
82
$27,791

$25,025
1,464
433
$26,922
140
$27,062

Credit Costs
Provision for Credit Losses
Impact of Card Securitizations
Credit Costs
Adjusted Credit Costs

8,031
1,664
$9,695
$9,695

8,596
1,464
$10,060
$10,060

3,455
830
$4,285
(10)
$4,275

13,520
(174)
$13,346

13,373
(237)
$13,136

12,177
(181)
$11,996

FINANCIAL RESULTS

Expense
Reported Expense
Adjusted Expense

21

$18,399
830
449
$19,678
420
$20,098

Reconciliation of GAAP to Non-GAAP Results (cont’d.)

$ in millions
$ in millions

Reported

Average Tangible Common Equity
Average Common Equity
Average Goodwill
Average All Other Intangibles
Average DTL I and II

2Q08
$2,003
90
$1,913

5%
7%
8%

6%
10%
10%

$89,899
140,865
48,273
5,218
2,525

ROE
ROE Net of GW
ROTCE

1Q09
$2,141
529
$1,612

3%
5%
5%

Net Income
Less: One-time, non-cash negative adjustment of TARP repayment
Less: Preferred Dividend
Net Income applicable to common equity

2Q09
$2,721
1,112
473
$1,136

$85,588
136,493
48,071
5,443
2,609

$77,146
126,406
45,781
5,823
2,344

FINANCIAL RESULTS

Adjusted

ROE
ROE Net of GW
ROTCE
22

1Q09
$1,612
$1,612

2Q08
$1,913
$1,913

6%
10%
10%

Net Income applicable to common equity
Add: One-time, non-cash negative adjustment of TARP repayment
Adjusted Net Income applicable to common equity

2Q09
$1,136
1,112
$2,248

5%
7%
8%

6%
10%
10%

2 q09 earnings_presentation_final

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