John McDonald (Banc of America Securities): The comparable was up in the investment bank. You trued that up but it seemed like overall, expenses were up a decent amount in the fourth quarter. Were there any other true-ups across the company?

Michael J. Cavanagh: There was a couple hundred million dollars of litigation expense higher on the corporate side. You saw comparable expenses in the investment bank, in the asset management business, and no other big trends.

John McDonald (Banc of America Securities): How do you think about comp expense in the investment bank next year?

Michael J. Cavanagh: We talked about a 43%, 44% comp-to-revenue ratio in 2000. We ended the year with a difficult revenue environment, going up to 49, bringing us to 44% on average for 2007. A number in the similar range is the best way to think about 2008, 43% plus or minus. It is going to be dependent upon the revenue environment and the actual market environment when we get to the end of the year next year and look at what proper pay needs to be.

Betsy Graseck (Morgan Stanley): How far ahead of what you are experiencing can you be with the reserve?

Michael J. Cavanagh: With the recent trends we see in delinquencies and what is going on in various different geographies with weak home prices, you have seen us quarter to quarter taking that and factoring it in to our four expectation of losses that we have in the portfolios that are on the books as of now and topping up reserves to cover you for that. Then telling you what we think the amount of charge-off ratio that reserving covers us for. The 155 to 160 is an example in the home equity portfolio versus this quarter’s 105 rate. Everybody needs to take their own view about how bad housing conditions get versus the trends we already see and also what goes on in the broader economy that could affect just how deep we go in terms of credit pressures.

Betsy Graseck (Morgan Stanley): Is it reasonable to consider prior cycle peaks in the type of analysis that we need to do?

James Dimon: You can assume that we try to be as conservative as we can be on loan loss reserving. I can give you a lot of complaints about the pressures put on banks not to reserve, to reserve, the regulators want X, the SEC wants Y, et cetera. We try to be conservative and transparent. I would not go back to what the company did before about what are reasonable cycles, so we have shown in prior things what we think the cycle could be. In credit cards, we said the normal is X and the cycle could be 50% higher, and home equity the normal is X and that we thought we were below that. We told people that we thought we had the most benign consumer and wholesaler credit environment that we will ever see in our lifetimes in 2006 and early 2007. We were trying to prepare for that. Loan loss reserving simply follows charge-offs. If your loan losses are going to go to X, your reserves have to proportionally go up to X. One of the problems in the business has been that when charge-offs go up, you have a higher charge-off, you have got to add to loan loss reserves. We are almost 2% in the investment bank against loans. We are 2.6%, almost 2.7% in the commercial bank against loans. Most regional banks are 1.2, 1.3, and 1.4. We try to do everything we can to protect this company.

Betsy Graseck (Morgan Stanley): S&P revised down expectations as to how they are analyzing sub-prime RMBS and sub-prime CDOs. Does that have any implication for how you value your CDOs?

James Dimon: Yes. They lay the dollar short. We have our own underwriting and we know by the vintage, by the type, by the LTV, by the location, by the MSA, we make our own forecasts about what is going to happen to real delinquencies, real roll rates, real charge-offs, real recovery rates, and we do not have that much left anymore, so we do not have to talk about this much more in the future. We have been talking about the delinquencies being much higher for a long time. We take all that, we make our assumptions, we discount at high rates, and that is how we come up with our number. It already incorporates what you heard from S&P, but it is idiosyncratic. You have some sub-prime ABS out there that was well underwritten, not broker, et cetera, et cetera, with accumulative loss, 7% to 10%, which is much higher than originally estimated and you have some others out there where they are going to be north of 20%, and that is what S&P was saying. The market already priced a lot of that in.

Meredith Whitney (Oppenheimer): You had said that some of the problems were based on the overall lines of FICO and underlying property values. How much have you protected yourself Or is it too late to protect yourself from what you thought was a prime loan that has a prime FICO score that the LTV has just run away from you and the rest of the market?

Michael J. Cavanagh: You live with what goes on with what you have originated and address it as it relates to your new production, build it in tighter, bigger cushions and therefore willing to originate at lower LTVs than we were before, but once it is on the books, we just try to manage it through mitigation, that more than anything else.

Meredith Whitney (Oppenheimer): You take an incredibly detailed approach to your underwriting and your accounting, but it seems as the delta of loss rates has accelerated beyond anyone’s expectations and faster than your provision rate. Will you look back a quarter from now and say things have changed materially in terms of can you sequence what has gone on in the last three months?

James Dimon: What we have seen in the last three months we have built into the projections and why we put up the reserves.

Meredith Whitney (Oppenheimer): American Express said that it saw a rise in delinquencies across every bucket. You had said that the states that have the higher home price declines are showing evidence of the higher loss rates. Can you comment on general trends outside of those states?

James Dimon: There are few home markets now that are not down, so of the top 20, the latest numbers are 17 are down and three are up. Where home prices were not down, you did not see a lot of changes in delinquencies or loss rates. That does not mean it is not going to happen.

William Tanona (Goldman Sachs): What type of home price depreciation are you factoring into your loss assumptions that you are giving?

James Dimon: We are being conservative and assuming that they will continue to go down in terms of our reserve and I would use a number like 5% or 10%.

William Tanona (Goldman Sachs): You want to continue to grow the mortgage business. Is that something that you are going to continue to focus on in terms of organic growth or given some of the carnage out there, is that an area of focus for you as well in terms of inorganic growth?

James Dimon: No, it is organic because we have a boundary. We are putting jumbo loans in our balance sheet, the new sub-prime, which I would throw in the first quarter. This vintage will be good and so we are using our own balance sheet, we are building our own systems. The people in mortgage have hired a lot of and moved around a lot of sales people. We are doing far more production of our own retail branches and so we are just going to continue to build organically.