Uniform Bank Performance Report - Anderson School of Management

Uniform Bank Performance Report
Alex Simon
Bernadine Sanchez
Gaurav Lalvani
Jesus Hernandez
Laura Dominguez
Martin Nee
Marquez Sampson

Table of Contents
Introduction and History………………………………………………………………………………….4
JPMorgan Chase Bank overview…………………………………………………………………..4
History and Key Moments…………………………………………………………………………4
Recent History……………………………………………………………………………………..8
Regulation………………………………………………………………………………………………...10
Banking Regulation History……………………………………………………………………...10
Regulation of JPMorgan Chase & Co…………………………………………………………….11
Management……………………………………………………………………………………………...13
Key Biographies…………………………………………………………………………………..13
Goals and Principles……………………………………………………………………………...15
Business Segments………………………………………………………………………………………..16
Retail Financial Services………………………………………………………………………….16
Commercial Banking……………………………………………………………………………..19
Loans……………………………………………………………………………………………...19
Card Services……………………………………………………………………………………..22
Investment Banking………………………………………………………………………………23
Asset Management………………………………………………………………………………..25
Competitive Analysis…………………………………………………………………………………….25
Bank of America………………………………………………………………………………….25
Wells Fargo & Co………………………………………………………………………………...27
The Banking System in Today’s Economy……………………………………………………………..28
Examining the Past……………………………………………………………………………….29
Implications in the Current System…………………………………………………………….…31
Troubled Assets Relief Program (TARP)………………………………………………………...33
Off-Balance Sheet Analysis……………………………………………………………………………...35
Standby Letters of Credit…………………………………………………………………………36
Assets Securitized or Sold with Recourse………………………………………………………..36
Credit Derivatives………………………………………………………………………………...37
Credit Losses and Reserves………………………………………………………………………37
Regulation………………………………………………………………………………………...38

Performance Analysis……………………………………………………………………………………39
Income Statement Analysis……………………………………………………………………….39
Revenue…………………………………………………………………………………..39
Expense…………………………………………………………………………………..41
Balance Sheet Analysis…………………………………………………………………………...42
Assets…………………………………………………………………………………….42
Liabilities………………………………………………………………………………...43
Return on Assets (ROA)…………………………………………………………………44
Return on Equity (ROE)…………………………………………………………………45
Net Interest Margin (NIM)……………………………………………………………….46
CAMELS………………………………………………………………………………………………….47
Capital Adequacy…………………………………………………………………………………47
Asset Quality……………………………………………………………………………………...48
Management Quality……………………………………………………………………………...49
Earnings…………………………………………………………………………………………..50
Liquidity……………………………………………………………………………………….….51
Sensitivity to Market Risk………………………………………………………………………..52
Analysis and Conclusion…………………………………………………………………………………53
Analysis…………………………………………………………………………………………...53
Conclusion………………………………………………………………………………………..56
Works Cited………………………………………………………………………………………………57

Introduction and History
JPMorgan Chase Bank Overview
JPMorgan Chase & Company is the second largest financial holding company in the world, incorporated
under Delaware law in 1968. Its corporate headquarters are in New York City. The company is a global
leader in investment banking, financial services for consumers and businesses, financial transaction
processing, and asset management. Under the J.P. Morgan and Chase brands, the company serves
millions of customers in more than 100 countries. JPMorgan Chase's principal bank subsidiaries are
JPMorgan Chase Bank, National Association, and Chase Bank USA, NA. JPMorgan Chase's principal nonbank
subsidiary is J.P. Morgan Securities, Inc. JPMorgan Chase Bank, National Association is a private
company categorized under State Commercial Banks and located in Columbus, OH with U.S. branches in
23 states. Current estimates show this company has annual revenue of $89,338,000,000 and employs a
staff of approximately 139,865.
History and Key Moments 1
2008: J.P. Morgan plays an important role in helping manage the credit crisis through the acquisition of
Bear Stearns
1996: The firm jointly leads the first "century" bond for a sovereign borrower ‐ a 100‐year, $100 million
issue for the People's Republic of China
1980: Predecessor firm Hambrecht & Quist (H&Q) takes Apple Computer public
1968: Chase Manhattan launches “Euroclear”, a system for the orderly settlement of transactions in
Eurobonds
1955: Chase National Bank merges with The Bank of the Manhattan Company to form Chase
Manhattan Bank
1929: Two Ohio institutions merge to form City National Bank & Trust, a predecessor of Banc One
1 http://www.jpmorgan.com/pages/jpmorgan

1915: J.P. Morgan arranges the biggest foreign loan in history – a $500 million Anglo/French loan
1906: J.P. Morgan is central to the creation of U.S. Steel, GE & AT&T
1895: J. Pierpont Morgan, Sr. becomes senior partner. The NY firm is renamed J.P. Morgan & Co.
1893: J.P. Morgan is primary financier of U.S. railroads
1848: The Waterbury Bank opens, a predecessor of the Chase Manhattan Bank
1824: The Chemical Bank is established
1799: The Manhattan Company, the firm's earliest predecessor institution, is chartered
Early Origins
The JPMorgan Chase story begins in 1799, with the founding of The Manhattan Company. This company,
designed by a man named Aaron Burr, is truly JPMorgan Chase & Co.’s earliest predecessor. It was
ostensibly founded to provide clean water to the city of New York. However, the true motives behind
the creation of the company were to use its residual capital to gain entry into the banking industry. In
the same year (1799), this was accomplished, and The Bank of Manhattan was founded. Following these
events, the Bank of Manhattan led the industry for many years alongside its competitor, The
Manufacturers Hanover Trust Co., which would later become part of the JPMorgan Chase family.
Around the same time, many other businesses that would eventually become significant contributors to
today’s JPMorgan Chase & Co. were in their infancy. One of these was a company called The New York
Chemical Manufacturing Company, which produced medicines, paints, and dyes at a plant in Greenwich
Village.
In a situation similar to that of The Manhattan Company, The New York Chemical Company used its
excess capital to open a bank called Chemical Bank in 1824. Over the next one hundred seventy‐three
years, Chemical Bank would grow to become the fourth largest bank holding company in the United
States, and eventually merge with the JPMorgan Chase family in 1996 2 .
2 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 5

Another important heritage institution of JPMorgan Chase was the Waterbury Bank, located in
Connecticut, founded in 1848. This bank would go on to evolve into Citytrust Bancorp, which would
merge with Chase Manhattan Bank in 1991, contributing greatly to the success of the Chase Bank.
The rise of JPMorgan & Co.
In 1871, JPMorgan Chase’s namesake predecessor, J.P. Morgan & Co., was founded in New York as
Drexel, Morgan & Co. by J. Pierpont Morgan and his partner Anthony Drexel. 3 Over the next decades,
Morgan would become well known throughout the financial world for his success in raising capital for
American development. Having become senior partner in Drexel Morgan & Co., Morgan renamed the
company JPMorgan & Co. in 1895. This Manhattan firm quickly became a major player in the rapidly
developing financial world, both domestically and internationally. The majority of JPMorgan & Co.’s
initial success stemmed from its substantial contributions to the growth of the United States by enabling
Europeans to invest in the country. It was also engaged as a primary financier for the booming US
Railroad developments.
During the last mercantile and credit crisis of the 19 th Century, JPMorgan & Co. was incremental in
rescuing the U.S. government from default, and salvaging the gold standard. Working with President
Cleveland and learning from European and American bankers, Morgan and his associates formed a
syndicate to buy gold in Europe and bring it back to America, briefly managing to control the flow of
gold in an out of the U.S. In 1901, JPMorgan & Co. created the world’s first billion‐dollar corporation by
buying out industrialist Andrew Carnegie and combining some 33 companies to create U.S. Steel 4 . In
1904 the company helped finance the Panama Canal by raising $40 million for the U.S. Government to
buy land rights from a bankrupt French company. 5
Needless to say, by 1906, J.P. Morgan had become a world‐class businessman. The world‐class bank he
owned, JPMorgan & Co., was growing faster than ever and had been a central player in the creation of
many American business giants, such as U.S. Steel, GE, and AT&T. During the financial panic of 1907,
JPMorgan & Co. saved several trust companies and a leading brokerage house from insolvency, bailed
3 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 7
4 http://www.fundinguniverse.com/company‐histories/JP‐Morgan‐Chase‐amp%3B‐Co‐Company‐History.html
5 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 8

out New York City, and rescued the New York Stock Exchange 6 . During WWI, he arranged the biggest
foreign loan in Wall Street history at the time, a $500 million dollar Anglo‐French loan. All of these great
achievements were giving JPMorgan & Co. an excellent reputation and trusted name around the world.
In 1968, JPMorgan & Co.’s Morgan Guaranty in Brussels launched Euroclear, a system that provided for
the orderly settlement of transactions in Eurobonds, a new form of international security at the time. In
1989, JPMorgan & Co. showed its commitment to social change and diversity by ranking among
Fortune’s 50 Best Companies for Minorities. The firm regularly recognized women, minorities, and LGBT
employees. In 1990 J.P. Morgan played an active role in negotiations with Mexico to restructure nearly
$50 billion in medium‐and long‐term commercial bank debt. A first in the market, these new bonds
become famously known as Brady Bonds. In 1996, the bank jointly led the first “century” bond for a
sovereign borrower, a 100 year, and $100 million issue to the People’s Republic of China.
History of Heritage Institutions
While JPMorgan & Co. continued to expand, the companies it would acquire in the future were busy as
well. In 1927, Guaranty Trust Company, a predecessor firm of J.P. Morgan, pioneered the concept of
American Depositary Receipts (ADRs), which would enable Americans to invest in foreign securities
directly on U.S. exchanges. In 1929, two Ohio banking institutions merged to form City National Bank &
Trust, a predecessor of Banc One, which JPMorgan Chase & Co. would acquire in 2000. In 1955 Chase
National Bank merged with The Bank of the Manhattan Company to form Chase Manhattan Bank. Then
in 1973, Chase Manhattan opened representative offices in Moscow and became U.S. correspondent to
the Bank of China. This was the first Russian presence for a U.S. bank since the 1920s, and the first
correspondence with a Chinese bank since the 1949 Chinese revolution 7 . Finally, in 1980, a San Francisco
based predecessor firm, Hambrecht & Quist Investment Bank, took legendary technology firm Apple
Computer Inc. public.
6 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 7
7 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 15

Recent History 8
Key Mergers 9
2008: JPMorgan Chase & Co. acquired two major failing banks, The Bear Stearns Companies Inc., and
Washington Mutual Inc. These acquisitions strengthened its capabilities across a broad range of
businesses, including prime brokerage, cash clearing and energy trading globally.
2004: Banc One Corp. merged with JPMorgan Chase & Co., keeping the name JPMorgan Chase & Co.
Fortune magazine said that “the combined bank will be big and strong in a panoply of
businesses,” adding that “the deal has been widely lauded” by investment analysts. The New York
Times said the merger “would realign the competitive landscape for banks” by uniting the
investment and commercial banking skills of JPMorgan Chase with the consumer banking
strengths of Banc One.
2000: J.P. Morgan & Co. merged with Chase Manhattan Corp., in effect combining four of the largest
and oldest money center banking institutions in New York City (J.P. Morgan, Chase, Chemical and
Manufacturers Hanover) into one firm called J.P. Morgan Chase & Co.
1998: Banc One Corp. merged with First Chicago NBD, taking the name Banc One Corp. Merging
subsequently with Louisiana's First Commerce Corp.; Banc One became the largest financial
services firm in the Midwest, the fourth‐largest bank in the U. S. and the world's largest Visa
credit card issuer.
1996: Chase Manhattan Corp. merged with Chemical Banking Corp., creating what was then the largest
bank holding company in the United States.
1995: First Chicago Corp. merged with National Bank of Detroit's parent NBD Bancorp., forming First
Chicago NBD, the largest banking company based in the Midwest
8 http://thewayforward.jpmorganchase.com/online/the‐way‐forward/community‐support.htm
9 "The History of JPMorgan Chase and Co.; 200 Years in Leadership.", pg. 21

1991: Chemical Banking Corp. combined with Manufacturers Hanover Corp., keeping the
name Chemical Banking Corp., then the second‐largest banking institution in the United States
Creation of Modern JPMorgan Chase & Co. (JPMC)
In 2000, J.P. Morgan & Co. merged with The Chase Manhattan Corporation, and was named JPMorgan
Chase and Co. (JPMC) 10 . Four years later, the company merged with Banc One. This merger established it
as a true global financial service leader by bringing on Banc One’s strong consumer banking expertise, an
aspect of banking which JPMC had previously lacked. In 2008 JPMC played an important role in helping
manage the credit crisis through the acquisition of Bear Stearns, a global investment banking, securities
trading, wealth management and brokerage firm founded in 1923. Soon after, on September 25, 2008,
JPMC bought most of the banking operations of Washington Mutual from the receivership of the FDIC.
These acquisitions further strengthened the already immense service base offered by the company. In a
ranking released by the Federal Financial Institutions Examination Council’s (FFIEC) on December 31,
2008, JPMC was named the largest bank holding company in the nation. 11
JPMorgan Chase & Co. Today / corporate personality
JP Morgan Chase and Co. is one of the Big Four Banks of the United States along with Bank of America,
Citigroup, and Wells Fargo. It has remained financially strong even during the most difficult economic
times. In light of the 2008 crisis, it has joined government efforts to continue lending and help stabilize
the recession, as well as introduced solutions to prevent home foreclosures. JPMC has provided billions
of dollars in new credit to consumers through credit cards, mortgages, auto and student loans, and to
small, mid‐sized, and large companies. It has invested billions of dollars into low and moderate‐income
communities through various organizations. It has also contributed millions of dollars and thousands of
employee volunteer hours to high‐need neighborhoods across the U.S., and supports hundreds of nonprofit
organizations aiming to strengthen communities. The company supports charity and humanitarian
10 http://www.fundinguniverse.com/company‐histories/JP‐Morgan‐Chase‐amp%3B‐Co‐Company‐History.html
11 "Top 50 BHC's."

efforts in 28 other countries, and has spent over a billion dollars with diverse suppliers to aid those in
need.
JP Morgan Chase & Co. has made environmental issues a huge priority by “going green” to express its
dedication towards corporate responsibility. In the future, the company expects to have billions invested
in renewable energy projects, and to implement means of raising billions more from other institutions
for future investment.
JPMorgan Chase & Co. has worked hard to maintain its Fortress Balance Sheet and strong capital
position in this challenging environment. It is committed to supporting healthy economic growth and to
taking an active approach towards helping the world through these tough times. In particular, it remains
committed to safe and sound lending and to being a responsible corporate citizen. JPMC is also working
with lawmakers and regulators to establish an improved regulatory structure that meets the needs of a
capital system that is global, interconnected, complex and highly dynamic.
Regulation
Banking Regulation History
Regulation in the banking industry was developed in order to ensure an effective, efficient, and fair
means for the country to conduct its economy. There are five goals of bank regulation:
To ensure the safety and soundness of depository institutions and financial securities.
To provide an efficient and competitive financial system.
To provide monetary stability.
To maintain the integrity of the nation’s payments system.
To protect consumers from abuses by credit‐granting institutions.
Over the years, regulation of the banking industry evolved largely through trial and error. Financial
innovation and increased complexity in the banking system resulted in various booms, busts, failures,

and successes. Each component of modern banking regulation is the result of a lesson learned by
bankers of the past. Unfortunately, as was demonstrated by the recent economic crisis, it is still an
evolving and imperfect system.
The five goals of banking regulation are what every financial regulatory act is based on. Some of the
most important acts attempting to uphold these ideals throughout history have been:
The National Currency Act of 1863, which established the charter system for national banks, as
well as created the Office of the Comptroller of the Currency (OCC).
McFadden Act of 1927, which gave states the right to individually regulate the ability of banks to
do business within and outside their territories.
The Glass‐Steagall Act of 1933, which split the financial services industry into three distinct
entities, commercial banks, investment banks, and insurance institutions. This act was designed
to decrease conflicts of interest and encourage the smooth flow of markets. It also created the
Federal Deposit Insurance Corporation (FDIC).
The Bank Holding Company Act of 1956, which limited the scope of services a specific type of
financial entity could provide. This act also introduced the legal concept of a “bank holding
company”, which lead to the existence of today’s “universal” banking giants such as JPMC.
The Gramm‐Leach‐Bliley Act of 1999, which repealed the Bank Holding Company Act and
loosened restrictions on banks that prohibited them from owning non‐banking subsidiaries.
And most recently, in 2002, the Sarbanes‐Oxley Act, which required public accountants to audit
financial institutions. This act was created in response to problems of corruption and accounting
fraud within financial institutions.
Regulation of JPMorgan Chase & Co.
After the repeal of the Glass‐Steagall Act by the Gramm‐Leach‐Bliley Act, JP Morgan & Co. was able to
acquire Chase Bank, creating what is now known as JP Morgan Chase & Co. Holding Company. Prior to
this, JPMorgan & Co. was simply a commercial bank, operating under the regulations set out by the
Glass‐Steagall Act. Now that it was a Financial Holding company it could branch its operations into new
lines of financial services such as: Insurance underwriting, securities dealing and underwriting, financial
and investment advisory services, merchant banking, issuing or selling securitized interests in bank‐

eligible assets, and generally engaging in any non‐banking activity authorized by the Bank Holding
Company Act. These capabilities allowed the new JPMC to expand and become the universal banking
giant it is today.
Like all Financial Holding companies, JPMC is regulated by three major entities: The Federal Reserve, the
OCC, and the FDIC. These organizations closely monitor and regulate the operations of JPMC’s banking
and non‐banking subsidiaries. The Federal Reserve (Fed) is the central bank of the United States and is in
charge of regulating lesser banks, even enormous financial holding companies like JPMC. The regulations
and regulatory duties imposed by the Fed include: Requiring banks to follow equal opportunity loan
practices, setting and enforcing capital reserve requirements, setting the Fed Funds rate (the rate at
which banks can borrow capital from the Central Bank), and (recently) implementing government
bailout plans such as TARP12.
The FDIC is a government owned corporation that provides deposit insurance. A financial institution may
only qualify for this insurance if it meets the FDIC’s regulations and requirements. Nowadays, since
uninsured bank deposits are considered as safe as deposits with Bernie Madoff, the FDIC’s regulations
have become standard for all banks. They include: Requiring banks to pay premiums into the deposit
insurance fund, requiring banks to meet capital adequacy requirements, and reserving the right to take
over banks who do not meet the requirements.
Another important regulatory agency is the Office of the Comptroller of the Currency (OCC). The OCC
regulates banks by monitoring management, operations, and competitive practices, and has the
authority to make forced changes in these areas13. It is also responsible for the granting and altering of
corporate charters for financial institutions. Since JPMC is a federally chartered corporation, it is subject
to all OCC regulations.
12 http://www.federalreserve.gov/bankinforeg/reglisting.htm
13 http://www.occ.treas.gov/aboutocc.htm

Management
Key Biographies
James S. Dimon: CEO Total Compensation: $ 18.19 M
Mr. Dimon became Chairman of the Board on December 31, 2006, and has been CEO and President
since December 31, 2005. He had been President and COO since JPMorgan Chase's merger with Banc
One Corporation in July 2004. At Banc One he had been Chairman and CEO since March 2000. Mr.
Dimon is a graduate of Tufts University and received an MBA from Harvard Business School. He is a
director of The College Fund/UNCF and serves on the Board of Directors of The Federal Reserve Bank of
New York, The National Center on Addiction and Substance Abuse, Harvard Business School and Catalyst.
He is on the Board of Trustees of New York University School of Medicine.
Michael J. Cavanagh: CFO
Total Compensation: $ 5.60 M
Michael J. Cavanagh, CFO since September 2004, prior to which he had been Head of Middle Market
Banking. Prior to the Merger, he had been Chief Administrative Officer of Commercial Banking and Chief
Operating Officer of Middle Market Banking from 2003, and Treasurer from 2001 until 2003 at Banc One
Corporation. He was head of Strategy and Planning from May 2000 until 2001 at Banc One Corporation.
Barry L. Zubrow: Chief Risk Officer Total Compensation: $ —
Barry L. Zubrow, Chief Risk Officer since November 2007. Prior to joining JPMorgan Chase, he was a
private investor and had been Chairman of the New Jersey Schools Development Authority since March
2006; from 1979 until November 2003 he held a variety of positions at The Goldman Sachs Group,
including Chief Administrative Officer from 1999.
Frank Bisignano: Chief Administrative Officer
Total Compensation: $ 6.63 M
Frank J. Bisignano, Chief Administrative Officer since December 2005. Prior to joining JPMorgan Chase,
he had been Chief Executive Officer of Citigroup Inc.'s Global Transaction Services from 2002 until

December 2005 and Chief Administrative Officer of Citigroup Inc.'s Global Corporate and Investment
Bank from 2000 until 2002.
Louis Rauchenberger: Chief Accounting Officer Total Compensation: $ —
Mr. Rauchenberger, 46, had been Deputy Controller of the Registrant since June 2005, prior to which he
had held several positions with the Registrant in accounting and financial reporting with supervisory
responsibility.
Gordon A. Smith: CEO, Divisional
Total Compensation: $ 8.14 M
Gordon A. Smith, Chief Executive Officer of Card Services since June 2007. Prior to joining JPMorgan
Chase, he was with American Express Company for more than 25 years. From August 2005 until June
2007, he was president of American Express' global commercial card business. Prior to that, he was
president of the consumer card services group and was responsible for all consumer card products in
the U.S.
Charles W. Scharf: CEO, Divisional
Total Compensation: $ 7.09 M
Charles W. Scharf, Chief Executive Officer of Retail Financial Services. Prior to the Merger, he had been
Head of Retail Banking from May 2002, prior to which he was Chief Financial Officer from June 2000 at
Banc One Corporation. Prior to joining Banc One Corporation, he had been Chief Financial Officer at
Citigroup Global Corporate and Investment Bank.
Heidi Miller: CEO, Divisional Total Compensation: $ —
Heidi Miller, Chief Executive Officer of Treasury & Securities Services. Prior to the Merger, she had been
Chief Financial Officer at Banc One Corporation since March 2002. Prior to joining Banc One Corporation,
she had been Vice Chairman of Marsh, Inc. from January 2001 until March 2002, prior to which she had
held several executive positions at Priceline.com and at Citigroup Inc., including Chief Financial Officer.
James E. Staley: CEO, Divisional Total Compensation: $ —

James E. Staley, Chief Executive Officer of Asset Management. Global Head of Asset & Wealth
Management since 2001, prior to which he had been Head of the Private Bank at J.P. Morgan & Co.
Incorporated.
Goals and Principles 14
The following are the Goals and principles of JPMorgan Chase & Co. as stated in an online publication
accessible through the JPMorgan Chase & Co. website (www.jpmorganchase.com).
Aspire to be the best
Develop a world‐class franchise in every business we operate
Be field‐ and client‐driven, consistently delivering the best products and services in a costeffective
way
Innovate, test and learn
Create powerful brands that carry a commitment of quality and integrity
Execute superbly
Demand and maintain strong financial discipline, building for good times and bad
Create and maintain a fortress balance sheet
Design and maintain the best systems and operations
Eliminate waste and bureaucracy
Maintain a strong system of internal governance and controls
Measure performance through a complete and balanced scorecard
Build a great team and a winning culture
Operate with the highest standards of integrity
14 https://careers.jpmorganchase.com/pages/jpmc/about/busprinciples

Train and retain great managers
Be open and honest with ourselves, our colleagues, our shareholders and our communities
Get incentives right
Foster an environment of respect and inclusiveness
Give back to our communities
The management of JPMorgan Chase & Co. does its best to manage and operate the company with a
consistent set of business principles and core values. First and foremost, this means always trying to do
the right thing.
Business Segments
JPMorgan Chase & Co. offers virtually every financial service available in the modern world to its
customers and clients. Its broad variety of operations can be divided into six segments, each providing
its own types of services and capital inflow. The main business segments of JPMC are: Retail Financial
Services, Commercial Banking, Card Services, Investment Banking, Asset Management, and Treasury &
Securities Services. Its wholesale business comprises the Investment Bank, Commercial Banking,
Treasury & Security Services, and Asset & Wealth Management. Its consumer business comprises Retail
Financial Services and Card Services. It also has a corporate segment, which includes Private Equity,
Treasury and Corporate operations 15 .
Retail Financial Services
JPMorgan Chase & Co.’s Retail Financial Services business segment encompasses all services offered to
the general public. These services include deposit services, loans, residential mortgages, equity credit
loans, and individual retirement accounts.
Deposit Accounts
15 http://www.google.com/finance?q=NYSE:JPM

At JPMC, deposit accounts are part of the Retail Financial Services segment. Deposit accounts are simply
accounts where customers can store their money while earning an interest rate for a period of time.
Examples of deposit accounts offered by JPMC are: checking accounts, savings accounts, and Certificate
of deposits (CD). Deposits held by the bank are recorded on the bank's books as liabilities 16 .
Checking Accounts
At JPMorgan Chase & Co., checking and savings accounts are forms of demand deposits, meaning that
account holders may demand withdrawal of funds at any time. JPMC checking accounts give customers
the convenience of using either checks or Visa debit cards to make purchases without the worry of
carrying cash. One of the checking account options offered by JPMC is the “Chase checking account”.
This account is useful for the majority of JPMC customers who use the account for personal needs.
Another type of checking account offered is the “Premier Platinum checking account”. This account is
useful for wealthier customers who carry large balances and are awarded top‐tier interest rates.
In 2008, NACHA, The Electronic Payments Association, announced that JPMC had the highest total
Automated Clearing House network transactions of any bank. Total deposits in the third quarter of 2009
at JPMC were $339.6 billion, up 62% from the prior year, and down 2% from the prior quarter. The large
increase for the year was primarily due to the acquisition of Washington Mutual on September 25, 2008,
which brought nearly 8 million additional consumer banking accounts to JPMC. The In the third quarter
of 2009, JPMC had 25.5 million new checking accounts. This high increase can be attributed to an
increasing use of debit, rather than credit cards, by customers.
Savings and Money Market
JPMorgan chase offers competitive savings accounts that pay depositors interest on a monthly basis.
One of the savings accounts offered by JPMC is the “Money Market savings account”. This account gives
customers a tiered interest rate depending on the balances they carry in it. As of Dec 31, 2008, JPMC
carried over $623 billion out of its total $1.1 trillion in assets in Money Market accounts. This makes
JPMC the largest institutional Money Market Fund provider in the United States. The vast size of JPMC’s
16 Brealey, R., Myers, S., & Marcus, A. (2007). Fundamentals of Corporate Finance. New York, NY: McGraw‐
Hill/Irwin.

deposits, as well as its 100 year plus experience in the banking industry, allows the bank to quickly
respond to and meet all of its clients’ cash requirements for demand deposit accounts, even throughout
the 2008 credit crisis.
Certificate of Deposit
Certificates of Deposit, or CDs, are a form of time deposit. This means that once deposited, a customer
will not be able to withdraw their funds until a pre‐determined amount of time has passed. In exchange
for this inconvenience, time deposits often carry higher interest rates than demand deposits. A CD
requires a contractual agreement be made between the account holder and the bank stating the
amount of time, interest rate, etc. of the deposit. CDs are insured by the FDIC in the same way as savings
and checking accounts, currently up to $250,000 per customer. Shortly after its acquisition of
Washington mutual in 2008, JPMC offered one year CDs paying 5% while the national average was just
slightly over 2%. Since then, JPMC has maintained competitive rates, but has not managed to
consistently exceed those of the national average. The graph below depicts CD rates as of October 2009.
4.000%
3.500%
3.000%
2.500%
2.000%
1.500%
1.000%
0.500%
0.000%
6 month 1yr 2yr 5yr
CD Rates
(Oct 2009)
national average
jpm

Commercial Banking
The Commercial Banking, or business banking, sector encompasses virtually the same services offered
under the Retail Financial Services segment. The only difference is that Commercial Banking services are
offered to businesses rather than the general public.
Business Accounts
JPMorgan Chase also offers deposit accounts for businesses. These accounts provide businesses and
business owners with the ability to deposit daily earnings, pay bills, pay employees (via direct deposit),
and gain tax processing assistance. Companies with yearly revenues of less than $10 million typically use
standard business accounts that are similar to individual accounts in retail financial services. Larger
companies typically hold accounts that are custom designed to meet their needs. These accounts are set
up to facilitate maximum control over capital movement and risk. The enhanced features of these
accounts allow managers to monitor and manipulate liquidity, operate internationally, streamline
payables and receivables, and obtain financing.
Loans
Loans, one of the most fundamental aspects of banking, are offered to both individuals and businesses
through the Retail Financial Services and Commercial banking segments. JPMC offers a variety of loans
to meet the needs of each individual or business. However, the majority of loans extended by JPMC can
be divided into three standard categories: Auto loans, Student loans, and mortgages.
Auto Loans
JPMorgan Chase & Co. takes great pride in offering its customers competitive interest rates on auto
loans. Below is a graph showing how JPM’s current auto loan interest rates compare to the national
average. As you can see, the national average for these loans is significantly higher, almost double those
offered by JPMC.

Interest Rate
0.1
0.08
0.06
0.04
0.02
0
New Car Auto Loan October 2009
National Average
JpMorgan Chae
36 month 48 month 60 month 72 month
Due to its superior rates, the Chase Bank subsidiary of JPMC was the largest auto lender in the United
States during the first half of 2009. During the second quarter, new auto loans and leases totaled $5.3
billion, towards more than 544,000 vehicles.
Student Loans
JP Morgan Chase offers student loans with payments deferrable until after graduation. JPMC’s Loan
officers work closely with financial aid departments at universities in order to negotiate loans that
require no origination or repayment fees. JPMC and Banc One are the primary student loan providers in
the nation. Combined, these two banks comprise 15% of the $45 billion student loan industry.
Mortgages
JPMC, specifically the Chase Bank subsidiary, provides mortgage loans to individuals through its “Chase
Mortgage” program 17 . These mortgages, as well as sub‐prime mortgages purchased by JPMC Investment
banking for securitization, have caused major problems on JPMC’s balance sheet. In 2009, JPMC
suffered losses of $389 million in Q1, $955 million in Q2, and $1 billion in Q3, totaling $2.057 billion so
far on its mortgage portfolio. This loss amounts to 29.59% of the company’s 2009 net income through
Q3 ($7.92 billion).
17 http://mortgage.chase.com/pages/shared/gateway.jsp*

In Q3, sub‐prime mortgages accounted for $433 million of JPMC’s assets, and carried a 12.31% Charge
off rate. To combat this tremendous charge‐off, JPMC has approved more than 262,000 new trial
modifications under the government’s “Making Home Affordable Program” and their own modification
program. Nearly 90% of these modifications include reduced payments for homeowners. Since 2007,
JPMC has helped families by initiating actions to prevent foreclosure on over 782,000 homes.
Despite the economic hardship, JPMC has not given up its pursuit of providing competitive mortgage
interest rates. The graph below depicts JPMC’s interest rates against the national average as of October
2009. These rates are based on conventional mortgage loans of $200,000 with a 10% down payment.
6.000%
5.000%
4.000%
3.000%
2.000%
Mortgage
Rates (2009)
National Average
JPM Chase
1.000%
0.000%
30yr 15yr 5/1arm

Home Equity Line of Credit (HELOC)
HELOCs provide a way for customers to enjoy the equity of their home without renegotiating their first
mortgage. Weak economic conditions and declines in housing prices continued to drive higher losses for
these home equity portfolios as well as mortgage loan portfolios. This forced JPMC to lose $1.4 billion in
the third quarter of 2009 on their home equity portfolio. This loss included a 4.25% net charge off rate
compared to just 2.78% one year prior.
Card Services
JPMorgan Chase & Co. acquired its Card Services segment in 2000 during its merger with Chase
Manhattan Corp. Chase credit cards allow customers to purchase items on credit and repay the balance
in monthly installments with interest. Credit cards with specially designed terms for customers with
various needs and credit ratings are offered. One promotional benefit offered through the credit card
line is the “Chase customer reward points” program. Chase points are acquired through the use of the
card, and can be redeemed for cash, merchandise, or air travel. Over the past year, promotional offers
such as these have been criticized for encouraging irresponsible consumer borrowing. Nonetheless,
Chase continues to offer this incentive program.
At the end of the third quarter of 2009, JPMC held $165.2 billion in credit card debt. Due to the
staggering size of this debt, and in light of the recent financial crisis, it is no surprise that many credit
customers are struggling to make their payments. JPMC has responded by dedicating much time and
effort towards helping these clients during this recession.
On September 15, 2009 JPMC implemented a plan to help credit card customers better manage their
debt. The plan, called “Blueprint”, gives card holders the ability to organize purchases into categories
such as food, rent, and entertainment. The client then has the option to pay a category in full, earning
an interest free‐grace period on expenses in that category in the future, even while accruing interest on
other purchases. This effort has been highly praised in the financial world for its innovative nature and
encouragement of responsible spending. In addition to benefitting card users, Blueprint may also
benefit JPMC. With an innovative and useful tool such as Blueprint, more consumers may choose Chase
credit cards for their needs rather than those of competitors. In another attempt to encourage

esponsible spending while decreasing its credit card liability, Chase recently increased the minimum
payment requirement on its credit cards from 2% to 5%.
Thanks in part to these actions; JPMC and Chase have experienced a decrease in losses from credit card
default. As of the third quarter of 2008, JPMC had reported credit card losses of $992 million. In the first
three quarters of 2009, this figure had dropped significantly to only $700 million. This was a 29.5%
decrease in losses amid an 18% decrease in credit card spending over the same time period. This
represents a successful loss reduction effort by JPMC and Chase credit card management.
Investment Banking
JP Morgan Chase prides itself in being one of the world’s premier investment banks. Its Investment
banking segment is one of the largest in the world and provides underwriting, securitization, and
investment services. Information on net income from Investment banking operations shows that JPMC’s
investment banking sector is making a quick and drastic recovery from the late 2008 crisis. In the 3 rd and
4 th quarters of 2008, net income from these operations fell from $1039 million to a mere $450 million.
However, in the first three quarters of 2009 the numbers were $882 million, $1471 million, and $1921
million respectively.

The investment banking aspects of JPMC boast a large presence not only in the United States, but also in
the Middle East, Latin America, and the Asia Pacific regions.
Asia Pacific
JPMC is by far one of the biggest foreign investment banks in Asia. It has 25 offices in 15 countries in the
Asia Pacific region. Its regional headquarters are in Hong Kong, with other major offices in Indonesia,
Taiwan, and the Philippines. JPMC’s Asia Pacific franchises operate in Investment Banking, Treasury and
Securities Services, Asset Management, and Private Banking. Asia’s leading financial publishing
company, “FinanceAsia”, has awarded many honors to JPMC, including: Best Foreign Investment Bank in
Hong Kong, Best Foreign Investment Bank in Korea, and Thailand Investment Bank of 2009 . .
Middle East & North Africa
JPMC has maintained a strong presence in the Middle East and North Africa (MENA) since the 1950s,
when the Chase Manhattan Bank, a forerunner of today's JPMC, opened an office in Beirut, Lebanon 18 .
Since then, the bank has expanded with branches and subsidiary offices in Beirut (opened in 1956),
Bahrain (1972), Cairo (1975), Riyadh (2006), and Dubai (April 2007). JPMC operates firms in Private
banking, Asset management, Treasury and Security services, and Worldwide Security services 19 in these
regions.
Latin America
JPMC achieved great success in Latin America in 2009. It was awarded the #1 Latin America Equity
Research Award, by “Institutional Investor”, and the #2 Investment Bank in Latin America Award, by
“LatinFinance” 20 . These were given for JPMC’s successful work in Investment banking, Equities, Private
banking, and Treasury and Security services in the region. The Latin American regional firm is located in
Brazil, and has smaller branches in Colombia, Mexico, Peru, Chile, and Argentina
North America
18 http://www.jpmorgan.com/cm/cs?pagename=JPM/DirectDoc&urlname=MENAbrochure.pdf
19 J.P. Morgan & Chase. (2009, October 27). J.P. Morgan Advances Commercial Card Expansion Initiative in Europe,
the Middle East and Africa.
20 J.P. Morgan & Chase. (2009, October 27). J.P. Morgan Expands Latin American Presence Offering Treasury
Management Solutions in Brazil.

JPMC has Investment Banking branches in 18 out of the 50 states in the U.S., as well as one in Canada. It
has become one of the most profitable companies in North America, and has won many awards. In 2009
alone, it acquired the following awards from respectable institutions and publications: #1 U.S. Equity
and Equity‐related Bank, #1 U.S. Common Stock, and #1 U.S. Debt Equity and Equity‐related institution.
Asset Management
Wealthy individuals and businesses may utilize JPMC’s Asset Management services. These services help
clients manage their money through investments. Analysts meet with clients to discuss investment
objectives, goals, and strategies. They then implement these through the investment of the account
holder’s money, and earn revenue by charging fees or taking a percentage.
Competitive Analysis
To gain a better understanding of JPMC’s stability in the industry, it is necessary to compare its
performance against that of its main competitors. JP Morgan Chase is part of the “Big Four U.S. Banks”,
along with Citigroup, Bank of America, and Wells Fargo & Co. These four institutions are the biggest
banking companies in the world, and own a highly dominant share of the market both in the U.S. and
globally. Since these are the only other institutions that are comparable in size and scope to JPMorgan
Chase & Co., they are the bank’s primary competition.
Bank of America (B of A) is the one of the leading
financial services companies not only in the United States, but also on a global scale. With its attention
to consumer, corporate, investment management, and international relationships, it implements a
concentration on diversity that has made it a direct competitor for JP Morgan Chase Company.

After having emerged from the Bank of Italy and expanded outside of California, Bank of America is now
one of the largest financial services companies and holds about 12% of U.S. deposits. It has 6,100
banking centers in the U.S., and 18,700 ATMs in 40 different countries including Asia, Europe, Latin
America, and Africa, totaling approximately 29 million users. It also provides support for clients in more
than 150 countries. B of A primarily focuses on banking operations, but also offers several non‐banking
financial products and services both nationally and internationally. The company’s operating segments
include Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and
Global Wealth and Investment Management, which includes investment banking, deposit products,
lending loans, capital markets, and leasing and financial advisory services.
Bank of America seeks to meet the needs of various individual consumers by providing products and
services that include not only checking, savings, CDs, and credit cards, but also mortgage, refinancing,
and auto loans. Other products and services include IRA’s, insurance, and investment services. These
address the needs of consumers ranging from personal banking to small business to corporate and
institutional.
Bank of America’s global consumer and small business banking account for the majority of its operations
with over four million small business owners under its support. It offers business credit solutions that
include business lines of credit, business loans, business leases, and SBA financing. Small businesses are
offered investment and retirement plans, as well as essentials like checking, savings, and business cards.
Other services that cater to small businesses include a resource center where small business owners can
find advice in starting, growing, and managing their business, as well as online payroll and invoicing. For
many small businesses, having access to all of these tools in one place makes the Bank of America their
main resource.
Kenneth D. Lewis became CEO of Bank of America in 2001. Prior to that, Lewis demonstrated a strong
capacity for leadership. In the same year, he was named Banker of the Year and honored Top CEO. On
January 1 2009, Bank of America’s acquisition of Merrill Lynch became final. Prior to this, Lewis
expressed disinterest in the acquisition, but later changed his mind. When Bank of America acquired
Merrill Lynch, its performance suffered in several ways. Between the bank’s debt, the subsequent
lawsuits, and the 78% fall in B of A shares brought upon by the acquisition, B of A had inherited a $15

illion loss. Shortly after the acquisition, Lewis was subpoenaed by the New York State Attorney
General's Office and underwent investigation for the bank’s violation of state law for withholding
information from investors. Lewis has announced he will retire at the end of 2009.
Another direct competitor of JPMC and member of the “Big Four Banks” is Wells Fargo & Co. Wells
Fargo runs 3,300 retail branches and 12,260 ATMs under the Wells Fargo and Wachovia names and
serves over 48 million customers. Its three main business segments are Retail Banking, Wholesale
Banking, and Consumer Finance.
Wells Fargo’s Consumer Finance segment lends in over 1,000 branches worldwide, and also participates
in indirect lending. It offers community banking that is composed of Regional Banking, Wealth
Management Groups, Diversified Products, and Consumer Deposits groups. It also includes about 9,400
mortgage branches and mortgage wholesale lending units.
Its Wholesale Banking segment provides services such as lending, Treasury management, Mutual funds,
Asset‐based lending, Commercial Real estate, Corporate & Institutional trust services, and Investment
banking to commercial companies and consumers on a wholesale basis.
The personal banking segment of Well Fargo also offers competitive services. Along with core banking
essentials, it offers Auto finance, Home Equity loans, Student loans, and Military banking. Its investment
and insurance services include investment solutions and health savings accounts. One of the specialized
accounts they offer is the “Triple Tax Savings” account, which pays for qualified medical expenses tax
free, allows tax‐deductible contributions, and offers tax‐free interest and investment earnings. Wells
Fargo’s flexible and fee‐free investment options like these are one of its major strengths.

Wells Fargo has been serving small businesses for over a century. It provides valuable services to the
small business market segment which include direct pay, online invoicing, and insurance policies. Wells
Fargo also offers Treasury management services to help monitor and control cash flows. It was recently
awarded the "Business & Industry Preparedness Award" by the International Association of Emergency
Managers.
A heated competition ensued in October of 2008, when Wells Fargo won a bid for the purchase of
Wachovia Bank over its rival, Citigroup. Wells ended up purchasing the institution with a $14.8 billion
bid, dwarfing Citigroup’s meager $2.1 billion offer. Citigroup protested the fairness of the bidding,
leading to a temporary delay of the transaction. However, in the end, Wells came out victorious thanks
to the help of Wachovia itself. Wachovia assisted Wells by handing over preferred stock holdings worth
39.9% voting power, tipping the scales in Wells’ favor.
Each of these banking behemoths has their own strengths that put them at an advantage against the
others. Through the crisis, all of them have managed to survive and grow through emergency
acquisitions, government support, and decreased competition. While JPMC has maintained perhaps the
best reputation out of the Big Four, it must still fight for market share among these institutions,
especially in the rapidly changing and unpredictable state of the economy.
See Performance analysis section for side‐by‐side comparison of ROA, ROE, and NIM, between
JPMC and competitors (pg.44).
THE BANKING SYSTEM IN TODAY’S ECONOMY
Today’s banking system is very different than it was prior to the financial crisis of 2008. Since then,
thousands of financial institutions have gone bankrupt or have been acquired by other companies. The
U.S. Government has rescued some of the biggest and most infallible firms in the world, in some cases
by taking direct ownership in them. Millions of homes have been foreclosed, and millions of jobs have

een lost. The investment banking model is gone, short‐term T‐Bills are returning close to 0%, and the
national debt is approaching $12 Trillion. It is clear to see that the financial system of yesteryear was
doing a few things wrong.
To understand the state of the current financial system, it is useful to examine some of the major forces
that have inspired these changes to occur. The most extreme changes to the banking system have
occurred as a result of the financial crisis that began in October of 2008. The following section examines
two of the main causes of the crisis, and shows how weaknesses in the system have affected, and will
continue to affect the modern banking environment.
Examining the Past
Mortgage Backed Securities
The first main factor is the securitization of mortgages to create Mortgage Backed Securities (MBS).
Securitization, in theory, is an ingenious system whereby risky assets can be rearranged to enable more
efficient risk distribution. However, recent history has shown that even in the highly calculated world of
finance, sound theories do not always translate into sound practices. The problem with securitizing
mortgages was that it changed the way risk was distributed among parties involved in the process.
Turning mortgages into MBS is a complicated process that requires the cooperation of many different
parties (i.e. Mortgage originator, investment bank, Ratings Agency). The more complicated a process,
the more likely it is that people will find ways to exploit it. This leads to the root of the problem with
MBS. Due to a lack of planning, oversight, and regulation, inefficiencies in the process of mortgage
securitization allowed individuals and groups to exploit the system for personal gain.
The advent of mortgage securitization turned the mortgage market into a game of hot‐potato. It was no
longer standard practice for loan originators (lenders) to hold loans on their books. Instead, the loans
they made could be sold to banks, which securitized them and sold the MBS to raise large amounts of
capital. This was a great deal for lenders as they were able to reap the cash flows from lending, yet pass
all of the risks on to banks. However, this also created a fundamental risk‐management problem. The
lenders did not have to carry the risk on the loans they made. Therefore, there was no incentive for
them to ensure the creditworthiness of the borrowers. In the years leading up to the crisis, the

attractive nature of the mortgage lending industry brought about many start‐up “sub‐prime lending
firms” whose entire business model consisted of making risky mortgage loans and selling them to banks.
Over the years, the financial system accumulated trillions of dollars worth of sub‐prime mortgages
whose inflated values were being used to guarantee MBS.
Helping banks inflate these values were the nation’s top Ratings Agencies. These agencies worked with
banks throughout the whole securitization process to ensure the maximum yield of Investment‐grade
securities from each asset pool. They earned hefty fees for rating securitized products, typically about
three times more than from rating bonds. Since they had to compete for this business, it is no surprise
that rating practices for securitized products began to become more lenient over time. In 2008, a bond
and a Collateralized Debt obligation (CDO), both rated “Baa” by a top national ratings agency, had
default rates of 2.2% and 24% respectively. With these kinds of absurd ratings practices, it was easy for
risky MBS to receive investment grade ratings. This allowed them to penetrate the portfolios of large
institutional investors such as conservative pension and retirement funds. By the time the system began
to collapse, holdings of these securities were worth trillions of dollars and were held by every type of
institution imaginable.
The fall of the MBS market began with the collapse of the U.S. housing bubble. This caused default rates
to skyrocket and home prices to plummet. Since the assets backing MBS were now worthless, so too
were the MBS themselves. These previously overvalued assets aptly referred to as “Toxic Waste”, now
posed a substantial liquidity risk to the banks and institutions that held them. Even investment grade
MBS proved to be toxic, destroying the value of large conservative portfolios and forcing millions of
people into financial ruin. These assets soon became impossible to sell. Banks and institutions had no
choice but to leave them sitting on the balance sheet serving no purpose other than to tie up valuable
capital.
Credit Default Swaps
At the same time as these MBS were establishing a substantial presence in every investment portfolio
on Wall Street, another beast was growing. This beast was the second factor among many which led to
the crisis, the Credit Default Swap (CDS) market. Credit default swaps are derivative instruments which
are essentially insurance policies for investments. One party to a CDS contract pays a premium to the

other in exchange for the guarantee of a payment contingent on the occurrence of a specified event in
the underlying security. There were two major problems with this market, the first being that neither
party was required to actually hold the underlying asset. This permitted extensive use of CDS for
speculative purposes rather than their intended use, hedging. The second problem was that they were
traded on an unregulated over the counter market. This meant that parties to CDS contracts were often
unknown to each other, and thus unable to gauge each other’s creditworthiness.
In late 2008, insurance giant “AIG” became a perfect example of how CDS played a part in the collapse
of the financial system. AIG had been the guarantor of billions of dollars worth of Credit Default Swaps
on Lehman Brothers securities. The company had actually guaranteed more CDS than it could actually
afford to pay out due to its overconfidence in the financial strength of Lehman. When Lehman failed,
AIG suddenly found itself in billions of dollars of debt which forced it into insolvency.
Implications in the current system
As months passed following the height of the crisis, it looked as though America was beginning to
emerge from hardship. The stock market was up, TARP funds had been repaid, and the remaining big
banks looked like they were here to stay. The panic was over, but the regulatory revolution had just
begun. Solutions for America’s biggest financial problems were beginning to bludgeon their way through
bureaucracy and into reality to create the system in which we currently reside.
The current system will not allow its players to engage in such irresponsible CDS practices as before. One
very viable solution to the problems surrounding CDS is currently in the planning stage and is expected
to be implemented soon. The proposed solution is to create a regulated exchange for CDS. This would
serve many functions such as: Creating standard terms and maturities for CDS contracts, setting capital
requirements for market participants, and requiring these participants to be licensed and registered
with the market’s oversight board. The creation of this exchange would allow speculation through CDS
to be monitored and controlled, and would also ensure transparency and trust among CDS traders. This
is an effective way to solve one of the problems that contributed to the near collapse of the global
economy.

The securitization of assets, specifically MBS, is another harmful component of the banking system the
financial world is trying to figure out how to regulate. The harm caused by mortgage securitization is due
largely to the ease by which individual entities involved in the process are able to pass the risk of the
underlying assets on to others. This essentially means that there is a flaw in the design of the overall
procedure that allows it to be easily corrupted. Therefore, changes to the structure of the process will
have to be made. One of these changes is that high‐risk loans, such as Alt‐A, Interest only, and NINJA will
be done away with. Also, since market forces alone no longer seem to provide sufficient incentive for
lenders to practice responsible lending, this responsibility may have to be delegated to another type of
regulatory entity with the ability to identify problems in specific firms’ lending practices. Perhaps the
standardization of lending criteria and the establishment of a government run lending clearinghouse is
something we may see in the near future.
Other differences in today’s banking system include:
The SEC and other regulatory agencies have been harshly criticized for their failure to catch
time‐bombs such as CDS and MBS before they got out of control. In today’s banking system,
participants can expect to be watched over more closely than ever.
Ratings agencies have shown their vulnerability to corruption. Accordingly, trust in these ratings
has diminished.
The credit market is tighter than it has been in previous years. Banks are still using capital that
would have previously been used for lending, to bulk up reserves for credit losses.
Systemic risk has been proven to be a very real threat.
The government has shown that it will provide bailout under emergency circumstances (see
pg.33). Moral hazard is now a threat.
Emerging markets in South America and Asia are growing rapidly and will continue to alter the
global financial environment and the balance of power among countries.
Changes in regulations regarding off‐balance sheet items and accounting practices are imminent.
(see pg. 38)

Troubled Assets Relief Program (TARP)
The Troubled Assets Relief Program (TARP) has also drastically changed the current banking
environment. TARP was announced by the US government on October 14 th , 2008. This program, which
was part of the Emergency Economic Stabilization Act of 2008, allowed the United States Treasury to
use up to $700 billion to purchase the toxic assets from financial institutions. In addition, it granted the
government the right to inject capital directly into banks by purchasing preferred stock.
The theory behind the TARP program was based on the government’s belief that toxic assets were
worth more than the market was willing to pay for them due to a panicked selloff. The plan was to
increase liquidity in the market by purchasing large amounts of these assets in the secondary market.
Subsequently, it was expected that the market would again take interest in trading the assets and force
them back up to their true value. In the meantime, the government’s purchase of these assets would
free them from the banks’ balance sheets, protecting them from further losses and helping to stabilize
their financial situations. The controversial capital injection aspect of the plan was designed to further
enhance banks’ abilities to continue borrowing and lending activities that would increase liquidity and
may lead to economic recovery.
JPMorgan Chase& Co. was one of the nine institutions originally awarded funds under TARP. Initially,
Jamie Dimon, CEO of JPMC, was unwilling to accept the government’s funds. He did not consider the
financial position of JPMC dire enough to warrant such a donation. Despite his aversion, on October 28,
2008, Dimon agreed to accept $25 billion. His reason was that it was to support the government’s goal
to obtain the participation of all major banks.
Tarp Hearings
On February 11, 2009, the House Financial Services Committee held TARP hearings to learn updates on
how the funds were being used. At this event, JPM CEO, Dimon, announced how the funds awarded to
his bank were being utilized towards meeting the government’s goals for the program. Some of the
highlights of his testimony were these statistics from the fourth quarter of 2008:
JPMC had made over $150 billion of new loans. These included over $50 billion in new consumer
loans, and $20 billion in small‐ business loans.

JPMC had increased interbank market presence, providing valuable liquidity in the banking
system. Interbank loans averaged $50 billion per day in the fourth quarter.
JPMC had purchased $60 billion in mortgage and asset backed securities promoting valuable
liquidity in these markets.
Overall consumer loan balances increased by 2.1%, even as consumer spending continued to fall.
JPMC made pay and bonus cuts to many senior management staff in order to maintain
responsible compensation practices.
JPMC had announced foreclosure prevention methods expected to prevent over 650,000 home
foreclosures by the end of 2010. These also included consumer credit counseling efforts 21 .
Overall, Dimon’s testimony was extremely positive and reinforced confidence in JPMC. The statistics
presented show that the funds had not been wasted and were put to good use towards the goals of the
program.
In addition to the news given at the hearing, JPMC also reported that it had been storing money for use
in reserves to cover bad loans in the future. In the first quarter of 2009, it had added $4.2 billion to
these reserves, bringing the total to $27.4 billion. At that time, JPMC’s reserve ratio to total loans was at
4.53%. This was a percentage increase of 3.62% from the previous quarter, and seems to have been a
very responsible precaution as the average for the other big four banks was 2.74%.
JPM repaid the borrowed funds in full on Jun 17, 2009. This repayment occurred synonymously with
several of the other banks that had received TARP funds including Goldman Sachs and Morgan Stanley.
The amount JPM repaid included the $25 billion principle, plus interest and dividends on the
government held equity totaling $1.48 billion. On the day of repayment, JPM’s share price fell 77 cents
(2.3%). JPM had estimated that the cost of the repayment in terms of second quarter, 2009, earnings
would be $0.27 per share. Between The date of repayment, June 17, 2009, and The time of this report,
Oct 21, 2009, the share price for JPM had risen 38%.
The overall consensus of the TARP funds’ effect on the performance and wellbeing of JPMorgan is
debatable. Many consider the funds to have been wasted on a healthy company. Dimon continued to
express his unwillingness to have accepted the funds even after the fact, and has expressed skepticism
21 http://www.house.gov/apps/list/hearing/financialsvcs_dem/jamiedimon021109.pdf

publicly about the effectiveness of the TARP program as a whole. It is likely that pressure from the
government to comply in order to save the dignity and credibility of other banks was to blame for
JPMorgan’s acceptance of the funds. Whether or not this is true, JPM continues to prove itself one of
the most financially stable banks amid the crisis.
Off­Balance Sheet Analysis
Off‐balance sheet items typically consist of liabilities whose payments are contingent upon future
circumstances. They include: Standby letters of Credit, assets sold with recourse to the buyer, derivative
contracts, etc. These are commitments the bank is responsible for, but which may expire without being
exercised. Since the future capital requirements for these is not known, they do not appear on the
bank’s balance sheet, nor does the total amount of these commitments accurately represent the
amount of capital required to settle them.
JP Morgan Chase & Co. holds many off‐balance sheet items. Its three most substantially held types are:
Standby Letters of Credit, Assets Securitized or sold with recourse, and Credit Derivatives. The chart
below shows total off‐balance sheet items held from12/31/2006, to 6/31/2009 (Information shown in
semi‐annual increments, except 12/2006 ‐12/2007, which is in one year increment)
($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Total Off BS
Items
7,856,074 9,466,954 9,026,151 9,156,834 5,603,626
As you can see, total off‐balance sheet items increased drastically from the end of 2006 to the end of
2007, and continued to increase steadily through the end of 2008. This is most likely due to the fact that
off‐balance sheet items tend to be some of the more risky items held by the bank. In the years prior and
up to 2008, before the crisis hit, JPMC seemed to be riding the upward trend of the housing and other

markets, entering into these risky holdings without fear. However, after the housing bubble burst in
2008 causing the crisis, a sharp decrease in the amount of total off‐balance sheet items can be seen.
This drop was due to an attempt to manage risk and avoid losses by cutting the amount of risky holdings.
Standby Letters of Credit
Standby letters of credit are guarantees for payment, issued by banks to parties of transactions. They
serve as “last resort payments” should the counterparty to the transaction fail to uphold a payment or
delivery commitment. These letters of credit are issued based upon buyers’ credit quality and
repayment abilities. If a party is in dire need of instant funding to make a due payment, notifications are
sent between both parties’ banks, and the process goes underway through good faith.
The table below shows that over time, JPMC’s holdings of standby letters of credit are maintained at a
steady rate. These amounts tend to fluctuate between 5% and 10% of total assets. The relationships
maintained by JPMC with third parties through standby letters of credit also serve as assets to the bank,
and contribute to the stability in these numbers.
($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Standby
Letters of
Credit
118,754 125,782 129,327 128,724 120,965
Assets Securitized or Sold with Recourse
Assets securitized or sold with recourse within JPMC are generally mortgage loans. These residential
loans have a high delinquency rate and are risky relative to most of the firm’s other assets. They are
generally originated through community development programs and sold to agencies within the U.S
government. Due to their high impact on performance, a section of a bank’s off‐balance sheet activities
is usually reserved for these risky ventures. As shown in the diagram below, JPMC’s holdings of these
risky assets have been increasing at alarming rates. The recent slack in mortgage lending practices may
be largely to blame for this effect.

($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Assets
Securitized or
sold with
recourse
266,759 284,236 142,520 141,089 112,031
Credit Derivatives
Credit derivatives make up a very large portion of JPMC’s off‐balance sheet items. These items are
derivative contracts such as credit default swaps (CDS) and collateralized debt obligations (CDO), whose
value depends on the credit risk of the underlying security. In this way, the credit risk is diverted to an
entity other than the counterparties to the transaction themselves. As the numbers below indicate,
credit derivatives have continued to increase through the second quarter of 2009.
($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Credit
Derivatives
(Bank as
Guarantor)
Credit
Derivatives
(Beneficiary)
3,329,164 4,107,265 3,821,391 3,866,701 2,303,579
3,488,624 4,284,364 4,028,873 4,033,869 2,350,703
Credit Losses and Reserves
Any time financial institutions take part in making loans, credit defaults and losses will inevitably occur.
Reserves are implemented for both on and off‐balance sheet items as a contingency to deal with these
losses. Management plays a vital role in regulating these reserves, as their size must be determined
through risk analysis and loss anticipation for each year. With JPMC’s credit costs reaching $9,809
million in 2008, reserves are a huge part of insuring the wellbeing its financial statements. The table
below shows the amount of losses incurred by JPMC as a result of losses from off‐balance sheet
derivative activities.

($million) 6/30/09 12/31/08 6/30/08 12/31/07 12/31/06
Credit Losses
Off BS
Derivatives
81 724 28 13 (35)
Regulation
Off‐balance sheet activities allow banks to bound securities, sell them, and post the profits on the
balance sheet during quarters of poor profits. This behavior is known as “financial statement
manipulation”. Though banks are currently able to avert some types of risk and inflate earnings using
these off‐balance sheet tactics, new accounting laws may soon change this fact. There are definitely
pros and cons for banks to carry high amounts of off‐balance sheet items. Off‐balance sheet items allow
banks to grow under the radar and avert some of the risks this growth would present if listed on the
balance sheet. They also allow banks to post slightly more or less profits than actually earned in the
period to smooth fluctuations that may influence other figures such as taxes and equity values.
However, due to the various problems caused by these activities, there has been a push for them to be
regulated with the same applied risk measures that all other acquisitions follow. The new rules being
implemented by the FDIC include FAS 166 and 167. These rules will prevent banks from hiding assets to
increase leverage. They will also encourage risk aversion by forcing higher minimum regulatory capital
requirements. The desired outcome of the FAS 166 and 167 as stated by the FDIC is to better align
regulatory capital alignments with the actual risks of disclosures. The expected date that these rules will
be put into effect is August 2010. This will be good news for investors who demand transparency in the
market. However, for banks, the new regulations will also take away a loophole that they have enjoyed
implementing.

Performance Analysis
As one of the major international financial institutions, JP Morgan has endured the financial meltdown
that plagued the global economy, and is beginning to show signs of recovery through its financial
statements. An analysis of the annual statements of 2007, 2008, and the first two quarters of 2009
show how the company has been affected through years of slow economic decline, sharp economic
decline, and one year of economic/financial uncertainty.
Income Statement Analysis
Revenue
The principal function of a bank is to facilitate the flow of
capital from those with excess funds (savers), to those
who are in need of additional funds (borrowers).
Therefore, the issuance of loans and the collection of
interest serve as the primary sources of income to any
commercial bank. However, due to the uncertainty of the
lending market, JP Morgan Chase & Co. has recently
decreased lending, and is instead using more of its
deposits as reserves for future defaults. This has in turn
decreased interest revenue from loans in recent quarters.
1
In the first two quarters of 2009, interest revenue had
accumulated to $34,475 million. This is a slow start for the year compared to 2007 and 2008, where
interest revenue was $71,387 million, and $73,018 million, respectively. Still, compared to other banks
in its peer group (Bank of America, Citibank) JP Morgan ranks higher in terms of taking in more deposits
and issuing more loans.
In addition to interest revenue, another revenue stream provided by deposit accounts and lending
activities is the fees they generate. In 2007, service charges accounted for $3,938 million in revenue.

In 2008, that number grew to $5,088 million. The first two quarters of 2009 show service charges of
$3,454 million combined, which is almost equal to the service charge revenue for the whole year of
2007. The drastic increase from 2007 to mid‐2009 can be attributed to a hike in late fees for loan
payments and overdraft fees from depositor accounts. These fee increases seem to contradict the
bank’s stated commitment to provide assistance for individuals facing hardship amid the economic
crisis. However, this controversial means to offset losses in other areas of operation has been
implemented by many banks in recent times.
The acquisition of Chase Bank in 2000 provided JPMC with enormous credit card service capabilities,
now one of their most important revenue streams. Revenues from credit card services come from the
accrual of interest on outstanding debt. The first two quarters of 2009 show credit card revenue of
$3,556 million, which closely match the figures from 2007 and 2008. This is evidence that credit card
revenue is currently steady, but is not experiencing growth. Card issuance capabilities are also an asset
to the bank in that they provide extra incentive to utilize its other services, as well as acting as a valuable
marketing tool.
JPMorgan Chase also generates revenue through investment banking services such as the underwriting,
issuance, and commissioning of securities and derivatives. JPMC is a major underwriter, rivaling other
prominent underwriting firms such as Morgan Stanley and Goldman Sachs.
In 2008, the investment banking sector of JPMC underwent significant expansion. As equity markets
started to fail and stock prices plummeted, investment banking giant Bear Stearns failed, and was
acquired by JPMC. At the same time, demand for safer securities, such as bonds, was growing rapidly.
This provided an increase in investment banking revenue to JPMC through fees received for bond
underwriting.
The investment banking segment of JPMC now provides a large portion of the bank’s non‐interest
revenues. In 2007, JP Morgan received $6,635 million in investment banking fees. In 2008, the figure
was heavily reduced to $5,526 million. The economic growth of 2009 resulted in a promising start to the
year, with $3,492 million in investment banking revenue over the first two quarters. This solid
foundation may be attributed to increased trade frequency in the markets.

Expense
The interest expense for JP Morgan has shown massive fluctuation in accordance with interest rates set
down by the bank’s dynamic policies and the Federal Reserve’s actions. In 2007, rates on interest
bearing deposits were relatively high, at an average of 2.91% for U.S. deposits and 3.29 % for foreign
deposits, with $657,220 million in total deposits. In 2008, the average interest rate decreased to 1.55%
(U.S.) and 1.85% (foreign), but showed an increase in total deposits to $785,807 million.
The increase in total deposits can be explained by two factors, the acquisition of Washington Mutual
and Bear Stearns, and the influx of capital from smaller and failing institutions. WaMu and Bear held
several kinds of time and savings deposits which were merged with those held by JPMC. The influx of
capital from smaller institutions can be attributed to depositors at small or failing banks transferring
their money into large banks due to the large bank’s relatively lower probability of failure.
A significant increase in saving deposits occurred from 2007 to 2008. They rose from $270,149 million to
$313,939 million. Time deposits over this period also increased from $147,503 million to $175,117
million. Even with this dramatic increase in deposits, overall interest expense decreased due to a sharp
drop in interest rates. In the first half of 2009, interest expense reached $8,438 million and with an
estimate of $17,000 million for the entire year, a relatively low figure compared to the interest expense
figure of 2007 ($44,981 million) and 2008 ($34,239 million).
50000
Interest expense ($ million)
40000
30000
20000
10000
Interest expense ($ million)
0
2007 2008 2009 (2nd Q) 2009 (yr end
est.)

JP Morgan’s total non‐interest expense has shown a steady increase over the past few years. The
acquisitions of Bear Stearns and Washington Mutual have without a doubt had a major effect on this
statistic. A major component of non‐interest expenses are operational overhead costs, such as expenses
related to technology, communication, equipment, personnel, etc. Many of these kinds of expenses
were heavily accrued during the rapid growth and merging of JP Morgan from 2007 to 2009. In addition
to operational overhead costs, another cost category, merger costs, have significantly and
understandably increased in 2008 due to the purchase of Bear, WaMu, and frequent acquisitions with
smaller banks.
Balance Sheet Analysis
Assets
As a major commercial and investment bank, JP Morgan has a multitude of assets at its disposal. From
loans (ranging from commercial to private) to investments (including derivatives), its assets are the basis
of its revenue. In light of current and recent economic developments, some assets have lost their ability
to generate revenue. These assets are harmful to the bank because they tie up useful capital. To make
matters worse, they have no market value, and therefore cannot be sold in order to untie the capital.
When debtors default on loans made or held by JPMC, those loans become useless assets. Since a
certain rate of default is inevitable for any bank, a special reserve of capital is set aside to absorb these
losses. It is a contra‐account called “Provision for credit losses”. Over the course of one and a half years,
JPMC’s provision for credit losses has risen over 200%. It went from $6,864 million in 2007 to $16,627
million at the end of the 2 nd quarter of 2009. The size of this account represents the future losses due to
default predicted by the bank.
The market for lending is not as free as it was in 2007. The policies regarding lending by all banks, large
and small, have become stricter. Loans by JPMC decreased largely as a result of declines across all areas
of business, reflecting lower customer demand in the wholesale market, as well as pay downs and
charge‐offs across all major loan portfolios. In the 2 nd quarter of 2009, the book value of JPMC’s loan
portfolio decreased to $680,601 million, from $744,898 million in 2008. The 2008 value had shown a

significant increase from the figure in 2007: $519,374 million. This was partly due to the acquisition of
Washington Mutual in 2008 and the retaining of their questionable assets.
As the faith of consumers towards the financial markets dwindled, JP Morgan’s investments segment
suffered from a lack of those willing to invest in the stock, bond, or derivative markets. In 2008, assets
bought and held for investing clients decreased. Debt and equity investments decreased from $347,357
million in 2008 to $298,135 million in 2009.
In addition to concrete securities, the trading of derivative securities such as options, forwards, futures,
and Swaps also decreased drastically. The overall account for derivative receivables fell over 40% in one
year as investors realized the uncertainty and high volatility of the derivative market. Derivative
receivables went from $162,626 million in 2008 to $97,491million in 2009.
Liabilities
JP Morgan’s deposits represent 46.29% of total liabilities and are the primary source of funds for loans
and other assets. From these deposits, a majority of the
deposits are located in core interest bearing accounts and
savings/time deposits with average interest rates of 1.55% in
2008 and slightly lower rates in 2009 (figured from the massive
drop in interest expenses).
Other Liabilities are also borrowed to boost lendable funds.
These include commercial paper, repurchase agreements
(Repos), and federal funds. These liabilities are stated as
current liabilities due to the fact that they mature in less than
one year and trade in the money market. Therefore, they are
highly liquid sources of funding. These liabilities are also
volatile, as some mature in as little as three months. Accordingly,
the overall/average level of these liabilities does not remain
steady throughout the year. Borrowings from the sale of
commercial Paper (short term unsecured promissory notes from

prime corporations) decreased from $49,595 million in 2007 to $37,845 million in 2008 but had risen to
$42,713 million at the end of the second quarter of that year. The cause of the decrease in 2008, as
well as the increase in 2009, was due to volatility in the market’s perceived creditworthiness of banks
and companies, even the largest and most historically stable ones like JPMC.
During 2008, the lack of funds received from the sale of commercial paper were made up for by JP
Morgan’s increased purchase of federal funds (overnight borrowings by banks to maintain required
reserves), as well as repurchase agreements (short‐term loans secured by government securities and
settled in immediately available funds). As these liabilities are more stable and secure, a greater
emphasis was made on their purchase throughout the financial collapse. These purchases increased
from $154,398 million in 2007 to $192,546 million in 2008, and again to $300,931 million in 2009 due to
the continued uncertainty of the economy.
Long term liabilities include securities such as bonds and notes. As bonds signify safety (opposed to
stocks that signify growth), bonds sold are generally safe investments due to the fact that bondholders
are paid before equity holders. Long term investments such as bonds had risen in value due to the
lowering of interest rates in 2008.
RETURN ON ASSETS (ROA)
1.6
1.4
1.2
1
0.8
0.6
JPMorgan Chase
Bank of Aerica
Wells Fargo
0.4
0.2
0
2007 2008 2009 2nd Q

The return on assets ratio (ROA) serves as a profitability measure to be used when analyzing or investing
in a bank. It is calculated by dividing the bank’s net income by total assets. It effectively shows how
much income a bank is able to generate from each dollar of assets.
JP Morgan and its competitors’ ROAs have been at a constant decline since 2007. Over these years, JP
Morgan’s ROA decreased from .86% to .67% to .24%, indicating that it is having difficulty earning income
relative to the amount of assets it holds. However, before coming to a conclusion about JPMC’s asset
management skills, it is important to consider any unusual factors that may have influenced the ratio.
One factor that has had a heavy influence on the amount of assets held by JPMC is the acquisition of
WaMu and Bear Stearns. When JPMC merged with these two large banks, their assets merged as well,
drastically skewing the ROA statistic. Considering this factor, JPMC’s ROA is not as bad as it seems. In the
future, this will be a closely watched ratio as it will be an indication of how well JPMC is able to utilize
the assets gained through these mergers.
RETURN ON EQUITY (ROE)
16
14
12
10
8
6
JPMorga Chase
Bank of America
Wells Fargo
4
2
0
2007 2008 2009 2nd Q

A very useful ratio when measuring bank profitability is the return on equity (ROE). In this ratio, the net
income is divided by the average total equity. This shows the amount of income a bank has earned for
every dollar of equity outstanding. It is a leading factor in investment decisions as it allows investors to
measure how well the banks are using money invested in equity. The more a bank is able to earn per
dollar of equity, the higher its ROE will be. ROE is also an indication of a bank’s solvency. If the bank has
a negative ROE, it means that it has lost money on shareholders’ investments, and may not be able to
repay interest and debt upon maturity.
JP Morgan as well as its competitors showed a decline in their ROEs from 2007 to 2008. During this year,
factors such as rising mortgage default rates began to hurt banks’ performances. These factors, as well
as the full‐blown credit crisis in late 2008, stunted the ability of banks to generate income, thus causing
ROE to fall. During this period, JPMC showed a small decrease in ROE from 10.9% to 8.8%, faring better
than B of A, and slightly better than Wells Fargo. From 2008 to 2 nd quarter 2009, JPMC’s ROE fell more
sharply and was inferior to that of Wells Fargo yet still slightly better than B of A.
NET INTEREST MARGIN (NIM)
5
4.5
4
3.5
3
2.5
2
1.5
JPMorga Chase
Bank of America
Wells Fargo
1
0.5
0
2007 2008 2009 2nd Q

The net interest margin (NIM) is an extremely important ratio for a bank. It represents the amount a
bank generates in interest compared to the amount of interests paid to its investors. This margin
represents the successfulness of a bank’s management to make a profit by carrying out banking’s most
basic functions, borrowing and lending. It also analyzes a bank’s ability to manage interest rate risk, and
shows insight into the bank’s ability to cover provisions for losses. This ratio is highly dependent on
interest expenses, therefore the lower the interest expenses are in comparison to the amount of returns
generated through investments, the more attractive the NIM, and the more efficient its investments are.
JP Morgan’s NIM has been increasing at a constant rate through 2007, 2008, and the second quarter of
2009. B of A shows a very similar NIM to JPMC, while Wells Fargo shows a much higher NIM than both of
them. The NIM of all three banks remains steady over the years indicating successful, but not
outstanding, management of interest rates.
CAMELS
CAMELS, is an acronym that stands for the six general categories of performance measured under the
Uniform Financial Institution Rating System. This is the official system used by federal regulators when
assessing the financial condition of banks. The categories are: Capital adequacy, Asset quality,
Management quality, Earnings, Liquidity, and Sensitivity to market risk. The examination of each of
these categories will provide a good understanding of the overall financial condition of a bank.
Capital Adequacy
This component looks into the capital of a bank, and brings out ratios that tell how well capitalized it is.
The function of bank capital is to reduce risk. It does so in three basic ways:
Provides a cushion that allows firms to absorb losses and remain solvent.
Provides ready access to financial markets and thus guards against liquidity problems
caused by deposit outflows.
Constrains growth and limits risk taking.
The Capital Adequacy ratio calculation is: (Tier 1 + Tier 2)/Risk weighted assets.

Tier 1 is considered to be the core capital of the bank, and is attained by taking common equity (+)
noncumulative preferred stock (+) minority interest in unconsolidated subsidiaries (‐) ineligible
intangibles. Tier 2 capital is secondary, and includes items such as undisclosed reserves, general loss
reserves, subordinated term debt, etc. After Tier 1 and Tier 2 are added together, they are divided by
the Risk Weighted Assets. Risk weighted assets are a bank's assets weighted according to credit risk.
Some assets, such as debentures, are assigned a higher risk than others, such as cash. This sort of asset
calculation is used in determining the capital requirement for a financial institution and is regulated by
the Federal Reserve Board. Below are the calculations for JPMC’s capital adequacy.
($ million)
(except ratios)
Tier 1
Capital
Total
Capital
Risk‐
Weighted
Assets
Adjusted
Weighted
Assets
Tier 1
Capital
Ratio
Total
Capital
Ratio
Tier 1
Leverage
Ratio
31‐Dec‐2008 $136,104 $184,720 $1,244,659 $1,966,895 10.90% 14.80% 6.90%
31‐Dec‐07 $88,746 $132,242 $1,051,879 $1,473,541 8.40% 12.60% 6.00%
31‐Dec‐06 $81,055 $115,265 $935,909 $1,308,699 8.70% 12.30% 6.20%
Looking at these numbers, we can see that the Tier 1 capital ratio for years 2006, 2007, and 2008 have
increased from 8.70%, to 8.40%, to 10.90%. The minimum requirement for Tier 1 capital ratio is 4%.
This means that JP Morgan has more than enough capital to cover its assets. The Total Capital Ratios for
JPMC in the years 2006, 2007, and 2008 are 12.30%, 12.60%, and 14.80%, meaning that the capital was
enough to cover the Risk‐Weighted Assets for the company. The minimal requirement for this ratio is
8%. The Tier Leverage Ratios for the years were 6.2.0% (2006), 6.00% (2007), and 6.90% (2008). This
ratio shows that JPMC possesses greater capital than liabilities, and that the riskiness (debt) is very low.
Asset Quality
A bank’s assets can be classified into two categories: Bank loans (mortgages, individual loans, and
commercial loans) and Investments (capital market and money market instruments). During these times
of economic failure and uncertainty, these assets have been questioned and their overall quality has
been scrutinized. JP Morgan’s losses from unprofitable assets, like all other financial institutions, are
significant. JP Morgan’s credit portfolio, which is fair market valued at $1,923,104 million as of June 30,

2009, shows significant exposure to risk and loss. This figure is comprised of loans (mortgages, individual,
and commercial), credit card receivables, and margin receivables (a credit account for investors) used
for derivative and security trading. Of these receivables and outstanding loans, $17,517 million are
labeled as non‐performing assets and $6,276 million are past due (delinquent over 90 days or more) and
still counting. While some of these loans are backed with collateral (auto‐loans with their respective
automobiles and mortgages with their respective homes), the defaults of these loans are increasing
providing an incentive to increase the Provision for credit losses accounts (an added expense) and
lowering overall interest income. As a result, higher interest rates are implemented on flexible rate loans
and credit cards (both for pre‐existing and new), which in turn leads to higher defaults and cancelation
of products. The lending branch exposes JP Morgan to risk and loss along with the investment branch
that trades in highly risky items (with an exception of U.S. Treasury items) such as securities rated below
Baa (substandard and junk securities), trading in risky credit derivatives, and participating in other
hedging/speculating activities.
Management quality
The success of any bank depends largely on the decision making skills and integrity of its management.
The top managers of banks have many responsibilities and are ultimately the ones who decide what
strategies and operations a bank will pursue. They are also responsible for managing risk through
various means such as the creation of loss reserves. Since the size of these reserves cannot always be
accurately determined through mathematical calculations, the intuition of management often comes
into play. The setting of loss reserves, however, is only one example of how subjectivity comes into play
when running a bank. Managers must be fully in tune and up to date on every aspect of their bank, and
the financial market as a whole. Needless to say, it takes a very driven and intelligent person to manage
a large bank such as JPMC.
See Management section (pg. 13) for management biographical overviews.
The ratio used to quantify the quality of a bank’s management is the “non‐interest expense ratio”. This
ratio represents how much money the bank is spending on things not directly related to investments
(payroll, workers compensation, training, etc.) per dollar of assets. The lower the ratio, the better able
management has been in keeping overhead costs down and utilizing its overhead assets efficiently.

12/31/02 12/31/03 6/30/07 6/30/08 6/30/09
Non‐Interest
expense ratio
3.03 2.62 2.96 2.61 2.74
Dimon becomes CEO July, 2004
The above chart gives the overhead ratios for two years prior to CEO Dimon’s leadership of the company
(starting in July, 2004), and the three most recent years. The industry par value for this ratio is 3.43. This
means that the management of JPMC has been able to consistently beat the industry par value.
Comparing the pre Dimon years to the post, it seems that both CEOs were very effective at managing
overhead, and did so with comparable skill.
Earnings
The main safeguards against bank losses are capital inflows. This is the “show me the money” theory on
which America runs. In 2009, JPMC has truly shown it is a show me the money bank. In the five most
recent quarters, which were coincidentally some of the roughest the banking industry has seen, JPMC
seems to be keeping up with business as usual. JPMC has also shown promising evidence that it will
continue to be profitable in the coming quarters.
Q3 2009
JP MORGAN CHASE
NET INCOME PAST 5 QUARTERS
Q2 2009
Q1 2009
Q4 2008
Q3 2008
0 500 1000 1500 2000 2500 3000 3500 4000
NET INCOME IN MILLIONS

JPMC’s net income ratio has been tainted slightly by the overall slump in the economic environment.
Credit cards and mortgages are experiencing a high rate of default and have really thrown off the
balance between the net income and net income ratio. A decline in earnings usually means a
subsequent decline in capital adequacy. However, in JPMC’s case the Net income ratio has been slowly
improving, even with a decline in net income. Regardless of the net income numbers, JPMC continues
to show that it is a one of the most profitable banks in the world.
Another useful ratio used when analyzing earnings is the Return on Assets (ROA). For a
full explanation of this ratio and analysis of JPMC’s ROA compared with its competitors
see pg. 44.
Q3 2009
Q2 2009
Q1 2009
Q4 2008
Q3 2008
JP MORGAN CHASE
NET INCOME RATIO PAST 5 QUARTERS
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
NET INCOME RATIO AS
A PERCENTAGE
Liquidity
Liquidity is the speed and extent to which securities or other non‐cash assets can be converted to cash
at reasonable cost and level of risk. Liquidity is essential for banks as liquid funds allow it to repay shortterm
debt obligations. The liquidity level of a bank is affected largely by what kinds of securities it holds.
While any asset that is not cash takes away from the liquidity of a bank, long‐term assets do so more
than short‐term assets. Banks must find a healthy balance between long‐term, short‐term, and cash
holdings in order to maintain adequate liquidity levels and avoid the inability to meet debt obligations.

One ratio used to calculate bank liquidity is the “Net Non‐Core Funding Dependence Ratio” (NNCFDR).
This ratio measures the degree to which a bank funds long‐term assets with non‐core funding. Non‐core
funding is funding that is sensitive to changes in interest rates such as large CDs, brokered deposits, and
borrowed funds. A higher ratio means that the bank is reliant on funding from sources that may not be
available during times of adverse change in markets or excessive financial stress. This is a useful ratio
because not only does it take into account the liquid assets available to a bank, but also the quality of
that liquidity.
JPMC’s Net non‐core funding dependence ratio is 54.31 as of the second quarter of 2009. This number is
down from 67.93 one year prior and 59.93 two years before. This means that JPMC is becoming less
reliant on unreliable or volatile sources of funding. While this is a good sign, JPMC’s NNCFDR is
disappointing compared to Bank of America whose NNCFDR has been in the in the low 40s through 2007
and 2008. JPMC’s ratio does however trump that of Citigroup, who has shown NNCFDRs of 83.42 and
92.14 in the second quarters of 2007 and 2008. The conclusion is that while it is not the most liquid of
banks in its peer group, it still possesses adequate liquidity levels, and is showing improvement.
Sensitivity to Market risk
This is a significant factor to examine in the case of JPMorgan Chase & Co. The bank holds an excessive
amount of assets and liabilities that are susceptible to changes in interest rates, currency values, and
equity prices. These changes affect the value of many assets and liabilities, especially fixed income
bonds, which gain or lose value relative to interest rates fluctuations. JPMC issues bonds as a large part
of its financing, which adds to its sensitivity to market risk. This kind of risk is especially relevant in
today’s economic environment. Due to the recovering state of the economy, the government is keeping
the risk‐free rate very close to 0% to prevent further damage. This means that interest rates will
eventually rise, causing JPMC’s bond rates to become less and less attractive relative to current interest
rates. Another factor to consider is JPMC’s involvement in consumer debt through credit cards. As a
large part of JPMC’s revenue comes from interest accrued on this debt, positive changes in interest rates
could adversely affect the bank’s profits. Perhaps most disturbingly, JPMC’s enormous holdings of
interest rate derivatives are some of the most volatile instruments in terms of Interest rate risk. These
holdings actually outweigh the total capital position of the bank.

A figure to consider when examining exposure to these kinds of risks in a bank is the beta of its stock.
The stock of a bank represents the market’s opinion of its future value, and generally considers all
aspects of its operations. Therefore, beta is a good indication of the extent to which a bank is
susceptible to market risk. JPMC’s stock (JPM) has a beta of 1.2. This means that the stock price moves
in positive correlation to the market at a factor of 1.2. This factor leads us to believe that JPMC is not
excessively exposed to market risk. Nonetheless, the bank will have to manage this risk carefully through
the manipulation of credit card rates, leverage ratios, derivative exposures, and interest rate margins.
Analysis
Analysis and Conclusion
All aspects of the above report must be taken into consideration when judging the overall financial
health and future profitability of JPMorgan Chase & Co. This section will provide an overall analysis of
crucial issues and their implications towards the financial health of JPMC.
The acquisitions of Washington Mutual and Bear Stearns are very important factors to examine. With
these acquisitions, JPMC attained billions of dollars worth of securitized assets and mortgage backed
securities, many of which are still sitting on its balance sheet. These pose a major risk to the bank’s
growth. Capital usually used to make loans is now being used to boost reserves for losses and writedowns
on these assets. However, with these acquisitions, JPMC has also gained an enormous amount of
market share in the financial services industry. Since the end of 2007 JPMC has seen an increase in total
assets of 26.61%. This should prove valuable in the bank’s effort to maintain its place among the big four
banks.
Evidence of JPMC’s relatively stable position maintained throughout the crisis can be seen by its
disinterest in accepting TARP funds from the government. The fact that JPMC seemed to have been
better prepared for the crisis than its competitors, tells us that JPMC was able to use the current system,
and possibly its weaknesses, to its advantage. Increased regulation in the financial system will likely have
the effect of making the banking industry a more even playing field, thus inhibiting JPMC’s ability to use

the savvy of its management to get ahead of the competition. On the other hand, these new regulations
will add much needed stability to the financial system in general, protecting JPMC from suffering due to
other institutions’ mistakes (systemic risk).
The management of JPMC has been stable throughout the years, through good times and bad. CEO
Dimon has been top‐dog at the bank since July of 2004, and has proven his competence through the
management of overhead costs and other strategic decisions including the acceptance of TARP funds.
Under his leadership, the company has experienced steadily growing profits since the inevitable drop in
2008. In addition, the stock price of JPMC has recovered fully, reaching levels similar to those in 2007.
JPMC’s retail and commercial banking segments provide the largest sources of capital intake. Therefore,
the bank is largely dependent on these to keep functioning successfully. This dependence could pose a
threat to the bank as both businesses and consumers are finding it harder and harder to save money in
today’s economic climate. In addition, the bank is not able to make as many loans as in years prior due
to the increase in reserves.
The Card Services division of the bank’s operations has also experienced contraction. However, as
discussed in the Card Services section, JPMC’s efforts to reduce irresponsible card use has resulted in
increased quality of credit card debt and reduced default rates nonetheless, which is a positive sign for
the future.
Overall, JPMC’s business segments have taken a hit from the downturn in the economy. However, most
segments have not shown any significant decrease in quality of operations. This indicates that the bank’s
profitability and expansion in these areas will likely accompany growth and recovery as it occurs in the
economy and markets.
JPMC has seen very significant losses due to off‐balance sheet activities in recent times. It has dealt
extensively in risky derivative instruments, such as credit default swaps, and has been forced to use
capital to increase reserves for credit losses. The off‐balance sheet derivative exposure continues to be a
threat to the bank. In addition, new regulations, such as those discussed in the off‐balance sheet
analysis section, may change the activities which the bank is allowed to perform off‐balance sheet. If
JPMC is no longer able to use financial‐statement manipulation tactics, volatility in confidence and share

price of the company could increase. This could result in larger capital reserve requirements, higher
interest rates, and many other factors that could negatively affect the company’s profits.
Income statement analysis of JPMC reveals that Interest revenue from loans in 2009 has been slow, yet
still above that of its competitors. Service charge revenue has been high, bringing in $3.5 billion in
revenue in the first half of 2009 alone. Card services are also successful and should prove to be an even
bigger source of revenue as the economy continues to grow. Interest expense was low in 2009
compared to prior years, while non‐interest expense has been increasing. However, the non‐interest
expense statistic has been skewed by the acquisition of Bear and WaMu. Overall analysis of the income
statement yields positive results.
Balance sheet analysis shows an abundance of toxic assets held by JPMC. These have caused the bank to
raise their provisions for credit losses account to over $16.6 billion, meaning that the bank anticipates
the continued growth of these losses. Loans made by JPMC have decreased as a result of tightened
credit markets and widespread declines in the economy. This will inhibit its future growth prospects. In
addition, JPMC’s investment and underwriting activities have suffered substantially. Debt and equity
investments held for clients decreased by 14%, while derivative investments decreased by 40% in the
most recent year. These drastic decreases reflect consumers’ loss in confidence in JPMC and the
financial markets in general. However, as the economy continues to recover, these numbers may
recover quickly as well.
JPMC’s ROA has been steadily declining, but is on par with competitors, and appears worse than it really
is due to the huge acquisition of assets from Bear Stearns and WaMu. ROE has also been in a steady
decline, but is similar to that of competing banks. The NIM for JPMC is a promising statistic. Not only has
it been steady and on par with competition, but has shown an increase in 2009 which shows JPMC’s
ability to manage interest rate risks during volatile times.
Asset quality figures do not look good, but are similar to what can be expected by a bank heavily
affected by the mortgage and asset backed securities crisis. The value of JPMC’s credit portfolio is $1.92
trillion, with non‐performing / past‐due receivables at $17.5 billion. However, this should not pose a
deadly threat to the bank as it is still well capitalized. Capital ratios, including Tier 1, Tier 2, and Total

Capital ratios, as well as Tier Leverage Ratio vastly exceeded par values. These show that the bank is well
able to cover its risk‐weighted assets with capital.
Another promising element of JPMC’s analysis is its Net Income figure. Net income for the bank suffered
briefly in the fourth quarter of 2008, but has since made an amazing recovery. Since the beginning of
2009, net income has been fluctuating at around 75% of the levels they were at prior to the crisis.
Liquidity is adequate in JPMC. Its Net non‐core funding dependence ratio has been steadily decreasing,
meaning it is becoming less dependent on volatile sources of funding to settle its short‐term debt
obligations. Compared to banks in its peer group, JPMC has an average NNCFDR.
One of the factors that contribute to negative confidence in the bank is its relatively significant
susceptibility to market risk. The fact that its interest rate sensitive derivatives outweigh its capital is
frightening. However, the probability that these will end up forcing the bank into insolvency are slim.
This risk is simply something to be taken into consideration when addressing the health of the bank, and
should not necessarily deter potential depositors/investors.
Conclusion
Although its financial situation is far from perfect, JPMorgan Chase & Co. is financially stable and shows
potential for growth in the future. It has maintained adequate ratios and numbers in almost every area
of analysis, with an additional few that stand out as excellent. It continues to grow in size and scope
through acquisitions and operations, and stands strong among competitors. The major problems faced
by the bank are the large amount of toxic assets on and off its balance sheet, and its significant exposure
to market risk. While these may inhibit growth and hurt profits in the short and medium‐terms, there is
little chance that these problems will cause the bank to become insolvent. This claim is backed by
evidence showing the bank’s strong liquidity and capital adequacy positions, as well as increased
stability and recovery in the financial markets as a whole. In addition, the management of the company
has shown that they are well‐able to manage all aspects of the bank and its ability to endure financial
hardship as well as prosper in times of growth.

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