01—Abstract
Summary
Summary of the 10-K filed February 24, 2010. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase & Co. reported 2009 net income of $11.7 billiona, or $2.26 per diluted share, up sharply from $5.6 billion ($1.35) in 2008, on total net revenue of $100.4 billion (up 49%).
The rebound was driven by record Investment Bank revenue, including Fixed Income Markets of $17.6 billionb, and by the absence of the large 2008 markdowns on mortgage and leveraged lending positions. Results also reflected the Washington Mutual and Bear Stearns acquisitions, which added scale in consumer banking, cards and prime brokerage. Credit costs remained the key pressure point.
The provision for credit losses rose to $32.0 billionc from $21.0 billion, driven by consumer home lending and credit card losses, and nonperforming assets climbed to $19.7 billion. The total allowance for credit losses reached $32.5 billion, or 5.51% of loans excluding purchased credit-impaired loans. Management said the consumer credit outlook remained cautious and that quarterly charge-offs could stay elevated over the next several quarters.
Capital and liquidity improved. The firm repaid the $25 billiond of TARP Series K preferred stock in June 2009, funded in part by a $5.8 billion common stock issuance, and cut the quarterly dividend to $0.05 per share.
Tier 1 capital was 11.1% and Tier 1 common was 8.8%. Investors should weigh the strong earnings and capital position against ongoing credit normalization, the planned consolidation of about $88 billion of previously off-balance-sheet VIE assets in 2010, and continuing litigation and regulatory exposure.
02—Key points
Key Highlights
- Net income of $11.7 billion ($2.26 diluted EPS) versus $5.6 billion ($1.35) in 2008; ROE of 6% (7% excluding a $1.1 billion one-time TARP redemption charge).
- Total net revenue rose 49% to $100.4 billion, led by record Investment Bank results (net income $6.9 billion) and a swing from $10.6 billion of 2008 mortgage and leveraged lending markdowns to modest gains.
- Provision for credit losses increased to $32.0 billion from $21.0 billion; consumer managed net charge-off rate reached 5.85% and nonperforming assets rose to $19.7 billion.
- Total assets of $2.03 trillion and stockholders' equity of $165.4 billion; Tier 1 capital ratio 11.1%, Tier 1 common ratio 8.8%, Tier 1 leverage 6.9%.
- Raised $5.8 billion of common equity in June 2009 and redeemed the $25 billion Series K preferred stock issued to the U.S. Treasury.
- Common dividend cut to $0.05 per quarter in 2009 (from $0.38), retaining roughly $5 billion of common equity; management signaled a path back toward a 30%-40% payout over time.
- Ongoing legal exposure includes Bear Stearns shareholder and hedge fund litigation, municipal derivatives investigations, MBS litigation, and the Washington Mutual bankruptcy dispute over about $4 billion of deposits and other disputed assets.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 24, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $100.43B$67.25B | +49.3% |
| Interest Expense | $15.20B$34.24B | −55.6% |
| Net Income | $11.73B$5.61B | +109.2% |
| EPS (Basic) | $2.27$1.35 | +68.1% |
| EPS (Diluted) | $2.26$1.35 | +67.4% |
| Shares Outstanding (Basic) | 3.86B3.50B | +10.3% |
| Shares Outstanding (Diluted) | 3.88B3.52B | +10.2% |
05—Questions
Frequently Asked Questions
Why did JPMorgan's earnings recover so strongly in 2009?
Earnings rebounded because 2008 was depressed by large markdowns of about $10.6 billion on mortgage-related and leveraged lending positions, while 2009 produced modest gains on those positions. Trading revenue also improved sharply, with Fixed Income Markets revenue rising to $17.6 billion from $2.0 billion, and the Washington Mutual and Bear Stearns acquisitions contributed additional revenue and scale.
How significant are the rising credit losses?
Very significant. The provision for credit losses rose by about $11 billion to $32.0 billion, mainly from home equity, mortgage and credit card portfolios, and nonperforming assets increased to $19.7 billion. Management expects elevated charge-offs in several consumer portfolios over the next several quarters, and says losses could rise further if the economy deteriorates.
Is JPMorgan well capitalized after the crisis?
The filing reports strong capital ratios: a Tier 1 capital ratio of 11.1%, a Tier 1 common ratio of 8.8% (up from 7.0%), and a total capital ratio of 14.8%, all above well-capitalized standards. The firm repaid the $25 billion of government preferred stock and raised $5.8 billion of new common equity to support that position.
What is the dividend outlook for shareholders?
The quarterly dividend was reduced to $0.05 per share in 2009 to conserve capital, with a 2009 payout ratio of 9%. Management said an increase would depend on the Board's judgment that a severe downturn is unlikely and that earnings have stabilized. It indicated a potential move to an annual payout of $0.75 to $1.00 per share, with a longer-term goal of roughly 30% to 40% of normalized earnings.
What major accounting or regulatory changes affect future results?
Effective January 1, 2010, new consolidation rules required JPMorgan to consolidate credit card securitization trusts and certain other securitization vehicles, adding about $88 billion of assets and reducing stockholders' equity by about $4 billion, largely through an approximately $7 billion pretax loan loss reserve. Pending financial reform legislation could also add capital, liquidity, and derivatives requirements and change the credit card business, which management expects to reduce revenue and raise compliance costs.
06—Continue