Uniform Bank Performance Report - Anderson School of Management

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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 $97,491million in 2009. Liabilities JP Morgan’s deposits represent 46.29% of total liabilities and are the primary source of funds for loans and other assets. From these deposits, a majority of the deposits are located in core interest bearing accounts and savings/time deposits with average interest rates of 1.55% in 2008 and slightly lower rates in 2009 (figured from the massive drop in interest expenses). Other Liabilities are also borrowed to boost lendable funds. These include commercial paper, repurchase agreements (Repos), and federal funds. These liabilities are stated as current liabilities due to the fact that they mature in less than one year and trade in the money market. Therefore, they are highly liquid sources of funding. These liabilities are also volatile, as some mature in as little as three months. Accordingly, the overall/average level of these liabilities does not remain steady throughout the year. Borrowings from the sale of commercial Paper (short term unsecured promissory notes from
Page 1 and 2: Uniform Bank Performance Report Ale
Page 3 and 4: Performance Analysis……………
Page 5 and 6: 1915: J.P. Morgan arranges the bigg
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Page 13 and 14: Management Key Biographies James S.
Page 15 and 16: James E. Staley, Chief Executive Of
Page 17 and 18: At JPMC, deposit accounts are part
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Page 23 and 24: esponsible spending while decreasin
Page 25 and 26: JPMC has Investment Banking branche
Page 27 and 28: illion loss. Shortly after the acqu
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Page 31 and 32: other in exchange for the guarantee
Page 33 and 34: Troubled Assets Relief Program (TAR
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Page 37 and 38: ($million) 6/30/09 12/31/08 6/30/08
Page 39 and 40: Performance Analysis As one of the
Page 41: Expense The interest expense for JP
Page 45 and 46: The return on assets ratio (ROA) se
Page 47 and 48: The net interest margin (NIM) is an
Page 49 and 50: 2009, shows significant exposure to
Page 51 and 52: JPMC’s net income ratio has been
Page 53 and 54: A figure to consider when examining
Page 55 and 56: price of the company could increase
Page 57 and 58: Works Cited ACHIBUS. (2009, October
Page 59: Quinn, James. “JP Morgan Bags Bar

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