- Net income was $249 million, a decrease of $912 million, or 79%, from the prior year. Results reflect the absence of a prior-year $622 million after-tax gain related to the sale of selected corporate trust businesses and the absence of a prior-year benefit of $359 million for tax audit resolutions.
- Net income for Private Equity was $356 million, compared with $136 million in the prior year.
- Net revenue was $688 million, an increase of $438 million. The increase was driven by Private Equity gains of $712 million, compared with $287 million, reflecting a higher level of gains and the change in classification of carried interest to compensation expense.
- Noninterest expense was $133 million, an increase of $94 million from the prior year. The increase was driven by higher compensation expense reflecting the change in the classification of carried interest.

- Net loss for Treasury and Other Corporate was $107 million, compared with net income of $405 million in the prior year.
- Treasury and Other Corporate net revenue was $226 million, an increase of $282 million.
- Noninterest expense was $528 million, an increase of $392 million from the prior year. The increase reflected higher net litigation expense driven by credit card-related litigation and the absence of prior-year insurance recoveries related to certain material litigation.

- Private Equity portfolio was $7.2 billion, up from $6.1 billion in the prior year and $6.6 billion in the prior quarter. The portfolio represented 9.2% of stockholders’ equity less goodwill, up from 8.6% in the prior year and 8.8% in the prior quarter.

JPMORGAN Chase

- Net income was $3 billion, down $1.6 billion from the prior year. The decrease in earnings was driven by a higher provision for credit losses and increased noninterest expense, primarily offset by growth in net managed revenue.

- Net managed revenue was $18.3 billion, up $1.2 billion, or 7%, from the prior year.
- Noninterest revenue of $9.5 billion was down $512 million, or 5%, due to lower principal transactions revenue, which reflected significantly lower trading results driven by markdowns on subprime positions, including subprime collateralized debt obligations (CDOs). The decrease was offset primarily by higher mortgage-related revenue, driven by a valuation adjustment to the MSR asset and an increase in asset management, administration and commissions revenue, reflecting growth in assets under management and higher brokerage commissions. Additional offsets to the lower level of noninterest revenue included an increase in private equity gains and higher lending and deposit-related fees. Net interest income was $8.8 billion, up $1.8 billion, or 25%, due to higher trading-related net interest income and growth in liability and deposit balances in the wholesale and consumer businesses. These increases were offset partially by a shift to narrower–spread deposit products.

- The managed provision for credit losses was $3.2 billion, up $1.4 billion, or 83%, from the prior year.
- The wholesale provision for credit losses was $308 million, compared with $184 million in the prior year, reflecting an increase in the allowance for credit losses, primarily related to portfolio growth.
- Wholesale net charge-offs were $25 million, compared with net charge-offs of $28 million, resulting in a net charge-off rate of 0.05% and 0.07%, respectively.

- The total consumer-managed provision for credit losses was $2.9 billion, compared with $1.5 billion in the prior year, reflecting increases in the allowance for credit losses largely related to home equity, credit card and subprime mortgage loans, and higher net charge-offs.
- Consumer-managed net charge-offs were $2 billion, compared with $1.5 billion, resulting in a managed net charge-off rate of 2.22% and 1.76%, respectively. The firm had total nonperforming assets of $4.2 billion at December 31, 2007, up $1.9 billion, or 81%, from the prior-year level of $2.3 billion.

- Noninterest expense was $10.7 billion, up $835 million, or 8%, from the prior year. Expense growth was driven by higher compensation expense and increased net litigation expense.
- Tier 1 capital ratio was 8.4% at December 31, 2007 (estimated), 8.4% at September 30, 2007, and 8.7% at December 31, 2006.

- During the quarter, $163 million of common stock was repurchased, reflecting 3.6 million shares purchased at an average price of $45.29 per share.
- Headcount of 180,667 increased by 6,307 since December 31, 2006.

- Approximately $750 million of merger savings have been realized, an annualized rate of $3 billion. Merger costs of $22 million were expensed during the fourth quarter of 2007 and the total amount of merger costs incurred were $3.6 billion (including costs associated with the Bank of New York transaction and capitalized costs) since the beginning of 2004.

Fiscal 2007 Highlights

- Income from continuing operations was $15.4 billion, or $4.38 per share, up 15% compared with $13.6 billion, or $3.82 per share, in 2006.
- Earnings were $15.4 billion and revenues were $75 billion. EPS were $4.38, up 15% from 2006 on a continuing operations basis. In the fourth quarter of 2006 the company had a $600 million or so gain related to the sale of corporate trust business, the Bank of New York, that was counted in discontinued ops, so no difference between continuing ops and reported ops for 2007.

- The company had a return on tangible common equity for the year of 23%. Looking at the wholesale side of the house, the investment bank, asset management, private equity, and treasury and security services, return on capital in those businesses for the year together was 30%.
- Through the P&L the company added $2.3 billion to bring credit reserves in total to $10.1 billion.

- Investment bank net income was $3.1 billion and a 15% return on equity.
- Investment banking fees were $6.6 billion.

Key questions from the fourth quarter earnings call conducted by JPMorgan Chase & Co. on January 16, 2007.

Glenn Schorr (UBS): There is 35% year-on-year increase in trading assets and you still have the same $21 billion equity allocated to the IB. Does that need to change or is that just inter-department accounting?

Michael J. Cavanagh: I would not get too caught up on. The leverage has increased. We look at that like a rating agency would and you have seen leverage of investment banks ticking up, so we take that into stock. As we look ahead, we will be looking at capital in a Basel II world against all our businesses. You know the scene, which is that hold the amount of capital in each business related to what each of them would need if they stood alone and needed to get a single A rating. That is still the framework that we think about, but as the environment evolves, that could lead to some changes. We did consider that in leaving the number flat this past quarter, these past few quarters.

Glenn Schorr (UBS): How do you think about timing given the outlook that you just described in terms of you too partaking in troubled but still good franchises?

James Dimon: In terms of either buying assets or buying companies, we are open minded and if we think we can do the right kind of due diligence and understand the values and that we are giving the value that we are getting, we would be happy to do it. This environment does not change that at all. It just may make it more likely.

Michael J. Cavanagh: The first priority is to use our capital and balance sheet to build our existing businesses, meeting client needs across the board.