This summary is based on the fourth quarter fiscal 2008 earnings call conducted by JP Morgan Chase & Co. (JPM) on 15 January, 2009.
Management:
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President & CEO: James Dimon
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CFO: Michael Cavanagh
Key Investors Issues
- Net income of $702 million or 7 cents a share, was down 92% compared with net income of $3.0 billion or 86 cents a share in 2007.
- Net revenue was down 1% from $17.4 billion in the prior year to $17.2 billion.
Full Year Highlights:
- Revenues fell 6% to $67 billion.
- Net income was $5.6 billion, or $1.37 per share, down 64% from $15.4 billion, or $4.38 per share, in 2007.
- The firm reported a Tier 1 capital ratio of 10.8%.
Fourth Quarter Highlights
Net income of $702 million or 7 cents a share, was down 92% compared with net income of $3.0 billion or 86 cents a share in the prior year due to higher credit costs.
- Earnings were impacted by $4 billion pre-tax increase to theloan loss reserves for $2.5 billion after-tax, bringing the total loan loss reserves to $24 billion from $10 billion a year ago.
- It also incurred $2.9 billion pre-tax of net markdowns on leveraged loans and mortgage exposures and $1.1 billion pre-tax of private equity write-downs shown in corporate.
- Net revenue was down 1% from $17.4 billion in the prior year to $17.2 billion.
- Tier 1 capital of $136 billion, was up from $89 billion a year ago, translating on a regulatory basis into a Tier 1 capital ratio of 10.8%, up from 8.4% a year ago and 8.9% last quarter.
Investment Banking:
- Net loss was $2.4 billion, a decrease of $2.5 billion from the prior year, reflecting a decrease in net revenue and a higher provision for credit losses, partially offset by lower noninterest expense.
- Net revenue was negative $302 million, a decrease of $3.5 billion from the prior year with investment banking fees of $1.4 billion, down 17% from the prior year.
- Advisory fees were $579 million, down 10% from the prior year, reflecting decreased levels of activity, partially offset by improved market share.
Debt underwriting fees were $464 million, down 1% from the prior year and equity underwriting fees were $330 million, down 39% from the prior year.
- Fixed Income Markets revenue was negative $1.7 billion, compared with $615 million in the prior year.
- The decrease was driven by $1.8 billion of net markdowns on leveraged lending funded and unfunded commitments; $1.1 billion of net markdowns on mortgage-related exposures.
- it was compounded by weak trading results in credit-related products; and losses of $367 million from the tightening of the firm’s credit spread on certain structured liabilities.
- These results were largely offset by record performance in rates and currencies and strong performance in commodities and emerging markets.
Equity Markets revenue was negative $94 million, down by $672 million from the prior year, reflecting weak trading results and losses of $354 million from the tightening of the firm’s credit spread.
- Credit Portfolio revenue was $90 million, down $232 million from the prior year. The provision for credit losses was $765 million, reflecting a higher allowance driven by a weakening credit environment.
- Net charge-offs were $87 million, compared with net recoveries of $9 million in the prior year.
- The allowance for loan losses to average loans retained was 4.71% for the current quarter, an increase from 1.93% in the prior year.
- Average loans retained were $73.1 billion, an increase of $4.2 billion, or 6%, from the prior year.
- Noninterest expense was $2.7 billion, down 9% from the prior year, reflecting lower performance-based compensation expense, largely offset by additional expenses relating to the Bear Stearns merger.
Retail Financial Services:
- Net income was $624 million, a decrease of $107 million, or 15%, as a significant increase in the provision for credit losses was predominantly offset by positive MSR risk management results and the positive impact of the Washington Mutual transaction.
- Net revenue was $8.7 billion, an increase of $3.9 billion, or 81%, from the prior year.
- Net interest income was $4.7 billion, up $2.0 billion, or 75%, benefiting from the Washington Mutual transaction, wider deposit and loan spreads, and higher loan and deposit balances.
Noninterest revenue was $4.0 billion, up $1.9 billion, or 88%, as positive MSR risk management results and the impact of the Washington Mutual transaction were offset partially by a decline in mortgage production revenue.
- The provision for credit losses was $3.6 billion, an increase of $2.5 billion from the prior year, as housing price declines continued to result in significant increases in estimated losses, particularly for high loan-to-value home equity and mortgage loans.
- The provision includes $1.6 billion in addition to the allowance for loan losses for the heritage Chase home equity and mortgage portfolios.
Home equity net charge-offs were $770 million (2.15% net charge-off rate; 2.67% excluding purchased credit impaired loans), compared with $248 million (1.05% net charge-off rate) in the prior year.
- Subprime mortgage net charge-offs were $319 million (5.64% net charge-off rate; 8.08% excluding purchased credit impaired loans), compared with $71 million (2.08% net charge-off rate) in the prior year.
- Noninterest expense was $4.0 billion, an increase of $1.5 billion, or 59%, from the prior year, reflecting the impact of the Washington Mutual transaction, higher mortgage reinsurance losses, and increased servicing expense.
