Uniform Bank Performance Report - Anderson School of Management

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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.
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
Page 7 and 8: out New York City, and rescued the
Page 9 and 10: 1991: Chemical Banking Corp. combin
Page 11 and 12: and successes. Each component of mo
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
Page 19 and 20: Commercial Banking The Commercial B
Page 21 and 22: In Q3, sub‐prime mortgages accoun
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
Page 29 and 30: een lost. The investment banking mo
Page 31 and 32: other in exchange for the guarantee
Page 33 and 34: Troubled Assets Relief Program (TAR
Page 35 and 36: publicly about the effectiveness of
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 and 42: Expense The interest expense for JP
Page 43 and 44: significant increase from the figur
Page 45 and 46: The return on assets ratio (ROA) se
Page 47: The net interest margin (NIM) is an
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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