10-QPeriod: Q3 FY2008

JPMORGAN CHASE & CO Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:JPMJPM-PCJPM-PDJPM-PKJPM-PLJPM-PMJPM-PJAMJBVYLD

Summary

JPMorgan Chase & Co. (JPM) reported a net loss of $54 million, or -$0.06 per diluted share, for the third quarter of 2008, a significant decline from the $3.37 billion net income, or $0.97 per diluted share, reported in the third quarter of 2007. This downturn was primarily driven by a substantial increase in the provision for credit losses, which rose to $3.81 billion from $1.79 billion in the prior year, largely due to higher losses in consumer portfolios like home equity, subprime, and prime mortgages, as well as credit cards. Additionally, markdowns in the Investment Bank related to mortgage-backed positions and leveraged lending, coupled with higher noninterest expenses stemming from the Bear Stearns merger integration, further impacted profitability. Despite the quarterly loss, the nine-month period ending September 30, 2008, saw a net income of $4.90 billion, or $1.32 per diluted share, down from $12.39 billion, or $3.52 per diluted share, in the comparable 2007 period. The company completed the acquisition of Washington Mutual's banking operations in late September, significantly expanding its retail branch network. JPM also participated in the U.S. Treasury's Capital Purchase Program, issuing $25 billion in preferred stock and a warrant to strengthen its capital position amidst the challenging market environment. The company highlighted underlying business momentum in four of its six principal lines of business, with the Investment Bank, Retail Financial Services (driven by branch production), Commercial Banking, and Treasury & Securities Services all showing positive trends despite broader market pressures.

Financial Highlights

21 data points
Beta

Revenue

$14.74B

Net Income

$527.00M

3.6% Net Margin

EPS (Diluted)

$0.09

Free Cash Flow

$8.43B

Financial Statements
Beta
Revenue$14.74B
Interest Expense$8.33B
Net Income$527.00M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)3.44B
Shares Outstanding (Diluted)3.44B

Key Highlights

  • 1Net loss of $54 million (-$0.06/share) in Q3 2008, compared to a net income of $3.37 billion ($0.97/share) in Q3 2007.
  • 2Provision for credit losses surged to $3.81 billion in Q3 2008 from $1.79 billion in Q3 2007, driven by increased consumer loan losses.
  • 3Total net revenue decreased by 9% year-over-year to $14.74 billion in Q3 2008, impacted by markdowns in the Investment Bank.
  • 4Acquisition of Washington Mutual's banking operations completed on September 25, 2008, significantly expanding the branch network.
  • 5Participated in the U.S. Treasury's Capital Purchase Program, issuing $25 billion in preferred stock and a warrant.
  • 6Noninterest expense increased by 19% year-over-year to $11.14 billion in Q3 2008, largely due to Bear Stearns merger integration costs.
  • 7Tier 1 capital ratio remained strong at 8.9% as of September 30, 2008, up from 8.4% at September 30, 2007.

Frequently Asked Questions

JPM's net income significantly declined in Q3 2008 primarily due to a sharp increase in the provision for credit losses, rising to $3.81 billion, up from $1.79 billion in the prior year. This was driven by higher estimated losses in consumer loan portfolios, including home equity, subprime and prime mortgages, and credit cards, reflecting deteriorating credit quality and economic conditions. Additionally, the Investment Bank experienced markdowns on mortgage-related positions and leveraged lending exposures, and noninterest expenses increased due to merger integration costs associated with Bear Stearns.

JPMorgan Chase acquired Washington Mutual's banking operations on September 25, 2008. While the operational results of Washington Mutual for the period September 26-30, 2008, did not materially affect the quarter's overall results, the transaction included a $1.2 billion after-tax charge to conform loan loss reserves and an extraordinary gain of $581 million related to negative goodwill. The acquisition significantly expanded JPM's consumer branch network and business reach.

JPM participated in the U.S. Treasury's Capital Purchase Program by issuing $25 billion of Series K Preferred Stock and a warrant. This issuance strengthened JPM's capital base, with the preferred stock qualifying as Tier 1 capital. The program was part of the government's broader efforts to stabilize the financial markets during the 2008 financial crisis.

JPM is managing increased credit risk by tightening underwriting standards, particularly in real estate lending and consumer credit in heavily impacted markets, and by employing loss mitigation strategies for home lending portfolios. The company is also actively managing its liquidity position and capital, maintaining strong capital ratios despite market volatility. Management anticipates continued deterioration in consumer credit trends and potential increases in wholesale credit provisions.