10-QPeriod: Q2 FY2008

JPMORGAN CHASE & CO Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 11, 2008For Securities:JPMJPM-PCJPM-PDJPM-PKJPM-PLJPM-PMJPM-PJAMJBVYLD

Summary

JPMorgan Chase & Co. (JPM) filed its quarterly report for the period ending June 29, 2008, amidst significant market volatility and the ongoing integration of its acquisition of Bear Stearns. The company reported a net loss of $540 million in the second quarter of 2008 directly related to the Bear Stearns acquisition. This loss stems from potential future liabilities associated with Bear Stearns' assets and the costs of integrating the two businesses. Investors should note that JPM has committed to a $1.15 billion subordinated note to a Federal Reserve Bank of New York-backed asset pool from Bear Stearns, meaning it will absorb the first $1.15 billion in losses from that pool. The company's management affirmed the effectiveness of its disclosure controls and procedures. However, the report also details a substantial number of ongoing legal proceedings and investigations, many related to the financial crisis and the Bear Stearns acquisition. These include matters concerning Enron, IPO allocations, cash balance litigation, interchange litigation, GIC investigations, auction rate securities, and various lawsuits and investigations stemming from the Bear Stearns merger and its hedge fund activities. While the company believes it has defenses in many of these cases, the aggregate impact of these legal matters represents a significant ongoing risk.

Financial Statements
Beta
Revenue$18.40B
Interest Expense$8.23B
Net Income$2.00B
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Basic)3.43B
Shares Outstanding (Diluted)3.45B

Key Highlights

  • 1JPM reported a $540 million net loss in Q2 2008 specifically related to the acquisition of Bear Stearns, indicating immediate financial impact.
  • 2The company is exposed to up to $1.15 billion in potential losses from a pool of Bear Stearns assets managed by the Federal Reserve Bank of New York.
  • 3Management stated that its disclosure controls and procedures were effective as of the end of the reporting period.
  • 4The report details extensive ongoing legal proceedings and regulatory investigations, many connected to the financial crisis and the Bear Stearns acquisition.
  • 5A significant portion of the legal matters involve alleged violations related to auction rate securities, with customers holding approximately $5 billion in such securities.
  • 6JPMorgan Chase did not repurchase any of its common shares during the second quarter or the first half of 2008 under its $10 billion repurchase program.
  • 7Integration challenges with the Bear Stearns acquisition are highlighted as a risk, potentially leading to business disruptions, customer loss, and diversion of management attention.

Frequently Asked Questions

JPMorgan Chase incurred a net loss of $540 million (after-tax) in the second quarter of 2008 directly related to the acquisition of Bear Stearns. This loss reflects immediate costs and potential future liabilities associated with integrating the acquired assets and operations.

JPMorgan Chase has provided a $1.15 billion subordinated note to a pool of $30 billion in Bear Stearns assets. This note means JPMorgan Chase will bear the first $1.15 billion of any losses incurred by this asset pool, after the FRBNY loan is repaid. There is no assurance that these losses will not be incurred.

Yes, the report details numerous ongoing legal proceedings and investigations. These include matters related to Enron, IPO allocations, cash balance litigation, interchange litigation, GIC investigations, auction rate securities, and various lawsuits and investigations stemming from the Bear Stearns merger and its hedge fund activities. The company is cooperating with these investigations and believes it has defenses in many cases, but these represent significant ongoing risks.

No, JPMorgan Chase did not repurchase any of its common shares during the second quarter or the first half of 2008 under its $10 billion stock repurchase program. As of June 30, 2008, $6.2 billion of authorized repurchase capacity remained.