BAC-ML Banking and Financial Services Conference

Transcription

1 Doug Braunstein, Chief Financial Officer November 7, 00 BAC-ML Banking and Financial Services Conference

2 Agenda I. Financial results II. III. Key investor topics Mortgage-related issues Net interest margin Appendix

3 JPM s fundamentals remain extremely strong Excellent client franchises and businesses Excellent client franchises and businesses Each standalone business has a top, or 3 position Unparalleled client relationships in 0+ countries Culture of innovation; new products and programs launched during crisis Robust technology infrastructure to serve clients Significant earnings power Fortress balance sheet Continued investment across LOBs driving organic growth Consistent record of operating efficiency and delivering merger saves Businesses stronger together than apart; additional revenue streams generated Further strengthened balance sheet: Tier Capital of $39B or.9%, Tier Common at $B or 9.5% High quality capital and high level of reserves ($35.0B), loan loss reserve of 5.% Strong funding and liquidity profile: ~$900B deposits,.3x loan coverage Benefits from diversification funding, capital, lower volatility See note 3 on slide 3 See note on slide 3

4 3Q0 financial results ($ in millions) 3Q0 $ O/(U) Revenue (FTE) $78,0 $83,4 ($5,9) Credit Costs 3,596 9,557 (5,96) Expense 45,53 40,348 4,805 Reported Net Income $,539 $8,450 $4,089 Net Income Applicable to Common $,353 $5,85 $5,58 Reported EPS $.84 $.5 $.33 ROE 0% 7% ROE Net of GW 5% 0% ROTCE,3 5% % Tier Capital ($B) $39 $7 Tier Common ($B) $ $0 Tier Capital Ratio.9% 0.% Tier Common Ratio 9.5% 8.% Allowance for credit losses ($B) $35.0 $3.5 Global Liquidity Reserve ($B) 4 $73 NA See note on slide 3 Net income used to calculate the ratios for excludes the one-time, non-cash negative adjustment of $.B resulting from the repayment of TARP preferred capital 3 See note 4 on slide 3 4 The Global Liquidity Reserve represents consolidated sources of available liquidity to the Firm, including cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities such as government-issued debt, government and FDIC-guaranteed corporate debt, agency debt and agency mortgage-backed securities ( MBS ). For further discussion of the Global Liquidity Reserve please refer to JPMorgan Chase s 3Q0 Form 0-Q 3

5 Investment Bank ($ in millions) 3Q0 $ O/(U) Revenue $0,004 $3,80 ($3,76) Investment Banking Fees 4,353 5,77 (94) Fixed Income Markets,50 4,89 (,679) Equity Markets 3,635 3,4 3 Credit Portfolio (34) (348) 4 Credit Costs (99),460 (3,389) Expense 3,064 3,5 (5) Net Income $5,38 $4,998 $40 Key Statistics ($B) Overhead Ratio 65% 57% Comp/Revenue 37% 38% EOP Loans $53.6 $60.3 Allowance for Loan Losses $.0 $4.7 NPLs $.4 $4.9 Net Charge-off Rate.84%.45% ALL / Loans 3.85% 8.44% ROE 3 7% 0% VAR ($mm) $90 $77 EOP Equity $40.0 $33.0 3Q0 excludes payroll tax expense related to the U.K. Bank Payroll Tax on certain compensation awarded from /9/009 to 4/5/00 to relevant banking employees, which is a non-gaap financial measure. Including the U.K.Bank Payroll Tax the comp/revenue ratio for 3Q0 was 39% Loans held-for-sale and loans at fair value were excluded when calculating the loan loss coverage ratio and net charge-off rate 3 Calculated based on average equity; 3Q0 and average equity was $40B and $33B, respectively 4 Coalition Development Ltd. 4 Client franchise 5,000 issuers and 6,000 clients in 0+ countries Franchise strengths Global IB Fee market leader, # ranking for the past two years Top player in emerging markets over past 5 years 4 Ranked # 00 All-America Fixed Income and Equity Research team by Institutional Investor magazine Growth opportunities Commodities execute against unique physical/financial platform Extend top tier Emerging Markets franchise International expansion Equities and Prime Brokerage Global Corporate Bank Strategic technology investment program

6 Retail Financial Services ($ in millions) Client franchise Retail Financial Services 3Q0 $ O/(U) Net income $,88 $496 $,3 ROE 9% 3% EOP Equity ($B) $8 $5 Retail Banking Net Interest Income $8,09 $8,065 $7 Noninterest Revenue 5,077 5,365 (88) Total Revenue 3,69 3,430 (6) Credit Costs (360) Expense 7,989 7, Net Income $,660 $,876 ($6) Mortgage Banking & Other Consumer Lending Net Interest Income $,494 $,363 $3 Noninterest Revenue 3,350 4,56 (906) Total Revenue 5,844 6,69 (775) Credit Costs (45) Expense 3,837 3, Net Income $88 $,377 ($549) RFS Net Income Excl. Real Estate Portfolios $3,488 $4,53 ($765) ROE 5% 37% Real Estate Portfolios Net Interest Income $4,3 $4,994 ($88) Noninterest Revenue 05 (0) 5 Total Revenue 4,8 4,974 (756) Credit Costs 5,894 9,84 (3,930) Expense,4,8 (68) Net Income ($,670) ($3,757) $,087 EOP loans owned ($B) $30.7 $60.9 Calculated based on average equity; average equity for 3Q0 and was $8B and $5B, respectively Calculated based on average equity; average equity for 3Q0 and was $8.3B and $5.B, respectively 3 Deposit shares adjusted to exclude large branches (+$B) assumed to contain non-retail deposits 4 Source: Inside Mortgage Finance, 3Q0 5 Source: Autocount as of September 00 64,500 employees in 5,9 Chase branches in 3 states served nearly 3mm US consumers and small businesses in 3Q0 Total Retail Banking households served of 3mm Franchise strengths Attractive footprint: Tri-state Midwest California Top deposit shares 3 in: # New York # Chicago # Phoenix # Dallas/Ft. Worth Growth opportunities Northwest Florida Continue to execute in Chase footprint Southwest #3 in Mortgage Originations 4 with 0.4% market share 4 # non-captive in new/used vehicles sold at franchise dealers 5 Build out sales force across businesses Build out WaMu Business Banking Capture greater share of affluent # Houston # Seattle #3 Los Angeles Expand retail mortgage channel by increasing branch sales force 5

7 Retail Financial Services drivers Retail Banking ($ in billions) Key Statistics 3Q0 Average Deposits $335.7 $344.5 Deposit Margin 3.05%.9% Checking Accts (mm) # of Branches 5,9 5,6 # of ATMs 5,85 5,038 Investment Sales ($mm) $7,50 $5,933 Business Banking Originations $3.3 $.6 Avg Business Banking Loans $6.7 $8.0 Mortgage Banking & Other Consumer Lending ($ in billions) Key Statistics 3Q0 Mortgage Loan Originations $04.8 $5.9 3rd Party Mortgage Loans Svc'd $,03 $,099 Auto Originations $8. $7.8 Avg Loans $77.3 $67.8 Auto $47.4 $43.0 Mortgage $3.3 $8.3 Student Loans and Other $6.6 $6.5 Franchise strengths Strong checking account growth - 7% annually since 005; % organic Average deposits of $336B - annual growth rate of 5% since 005; 6% organic Branch network of 5,9 up,55 branches from annual growth rate of 5%; 5% organic Added over 4,000 Personal Bankers since annual growth rate of 6%; 4% organic Strong sales production per branch performance 7% growth annually since 005; 6% organic Real Estate Portfolio ($ in billions) 3Q0 Key Statistics ALL / Loans (excl. credit-impaired) 7.5% 5.7% Avg Home Equity Loans Owned $. $37.9 Avg Mortgage Loans Owned $9.6 $36.4 Predominantly represents loans repurchased from Government National Mortgage Associated (GNMA) pools, which are insured by U.S. government agencies Includes purchased credit-impaired loans acquired as part of the WaMu transaction 6

8 Economic/Housing/Credit environment Real Estate Portfolios NCOs Outlook as of 3Q0 Allowance as of 9/30/0 3Q0 NCOs of $.B $4.9B annualized 3Q0 losses Quarterly losses could be: $B for Home Equity $0.4B for Prime Mortgage $0.4B for Subprime Mortgage Non credit-impaired: $.3B Reserve and outlook considers possible further deterioration and reflects uncertainty If home prices and unemployment stay at current levels, losses will remain lower than our current guidance and consistent with 3Q0 run rate This could lead to reduction in reserves potentially beginning in the next couple of quarters Risks of outside influence remain today Credit-impaired portfolios will require more reserves if delinquencies and severities do not improve If delinquencies and severities remain flat - additional impairment over the next two years could be $3B+/- 7

9 Card Services (Managed) ($ in millions) Client franchise 3Q0 $ O/(U) Revenue $,97 $5,56 ($,39) Credit Costs 7,366 4,3 (6,857) Expense 4,83 3, Net Income $775 ($,99) $,694 Key Statistics Incl. WaMu ($B) ROO (pretax).5% (.3)% ROE 7% (7)% EOP Equity $5.0 $5.0 Key Statistics Excl. WaMu ($B) Avg Outstandings $30.6 $50.8 EOP Outstandings $.9 $44. Sales Volume $9. $03.5 New Accts Opened (mm) Net Interest Margin % 9.0% Net Charge-Off Rate % 9.4% 30+ Day Delinquency Rate 4.3% 5.38% See note on slide 3 Calculated based on average equity; 3Q0 and average equity was $5B 3 Represents 3Q0 and quarterly data 4 Excludes WaMu (based on Q0 data) 5 Based on internal JPM estimates More than 35mm cards in circulation held by approximately 50mm customers.3mm small business accounts Franchise strengths Chase is # Visa credit card issuer 8.8% market share of General Purpose Credit Card outstandings 4 8.5% market share of sales volume 4 # co-brand card issuer in the U.S. 5 # merchant acquirer in e-commerce payment processing 5 Growth opportunities Drive market share gains in the Affluent-High Net Worth, Mass Affluent, Business and T&E partner card segments Build world-class customer service capabilities Continued focus on new products and capabilities such as Blueprint and Ultimate Rewards 8

10 Commercial Banking ($ in millions) 3Q0 $ O/(U) Revenue $4,49 $4,34 $5 Middle Market Banking,79,95 (7) Commercial Term Lending Mid-Corporate Banking Real Estate Banking (8) Other Credit Costs (85) Expense,64,633 8 Net Income $,554 $,047 $507 Key Statistics ($B) Avg Loans & Leases $96.5 $08.9 EOP Loans & Leases $98. $0.9 Avg Liability Balances $35.9 $0.0 Allowance for Loan Losses $.7 $3. NPLs $.9 $.3 Net Charge-Off Rate % 0.75% ALL / Loans 3.7% 3.0% ROE 4 6% 7% Overhead Ratio 37% 38% EOP Equity $8.0 $8.0 See note on slide 3 Includes deposits and deposits swept to on-balance sheet liabilities 3 Loans held-for-sale and loans at fair value were excluded when calculating the loan loss coverage ratio and net charge-off rate 4 Calculated based on average equity; 3Q0 and average equity was $8B 5 Greenwich Research, 009 Client franchise More than 4,000 clients and over 35,000 real estate investors and owners Nearly,000 Middle Market Clients Middle Market supports 3,00+ small business lending relationships with less than $0mm in sales More than,600 Mid-Corporate clients Franchise strengths Strong liquidity only bank in peer group with a loan-to-deposit ratio under 00% Best of the top 5 banks 5 7% of Chase clients use Chase for their TS needs 87% of Chase clients say it is likely they will continue doing business with Chase 36% of Chase clients say they will increase the amount of business they award Chase going forward Growth opportunities Continue building out Middle Market business in the expanded WaMu branch network International capabilities Selective investment opportunities in Commercial Real Estate 9 Investment Bank product capabilities

11 Treasury & Securities Services ($ in millions) Client franchise 3Q0 $ O/(U) Revenue $5,468 $5,509 ($4) Treasury Services,745,784 (39) Worldwide Securities Services,73,75 () Expense 4,34 3, Net Income $8 $989 ($67) Key Statistics Avg Liability Balances ($B) $45.7 $47. Assets under Custody ($T) $5.9 $4.9 Pretax Margin 4% 8% ROE 7% 6% TSS Firmwide Revenue $7,63 $7,694 TS Firmwide Revenue $4,900 $4,969 TSS Firmwide Avg Liab Bal ($B) $38.6 $357. EOP Equity ($B) $6.5 $5.0 Includes deposits and deposits swept to on-balance sheet liabilities Calculated based on average equity; 3Q0 and average equity was $6.5B and $5.0B respectively 3 Represents TSS clients that meet certain revenue and credit thresholds. Includes clients of IB, CB and AM 4 Ernst & Young and Federal Reserve 5 JPM and peer 3Q0 company filings 6 Nilson Serving more than 40,000 corporations, financial institutions, governments and municipalities in over 48 countries and territories 3 Franchise strengths # clearer of U.S. dollars in the world and # Automated Clearing House for originations 4 Top provider of custody services leveraging significant scale and global footprint with $5.9T in AUC 5 # Visa/ MasterCard Commercial, Purchasing and Prepaid card issuer in the U.S. 6 Growth opportunities International expansion Strengthen and expand product capabilities Improve platform and drive efficiencies 0

12 Asset Management ($ in millions) Client franchise 3Q0 $ O/(U) Revenue $6,37 $5,770 $60 Private Banking 3,484 3, Institutional,505,48 4 Retail,38,35 47 Credit Costs (67) Expense 4,335 4, Net Income $,03 $,006 $97 Key Statistics ($B) Assets under Management $,57 $,59 Assets under Supervision $,770 $,670 Average Loans $37.8 $34.6 EOP Loans $4.4 $35.9 Average Deposits $85.0 $76.9 Pretax Margin 3% 8% ROE 5% 9% EOP Equity $6.5 $7.0 Private Banking is a combination of the previously disclosed clients segments: Private Bank, Private Wealth Management and JPMorgan Securities Calculated based on average equity; 3Q0 and average equity was $6.5B and $7.0B, respectively 3 imoney.net, 00 4 EuroMoney, 00 5 The Asset Magazine, October 00 6 Institutional Investor, 00 7 Incisive Media Providing over 00 investment strategies in more than 30 countries 6,500+ employees,400 Bankers and,800+ Investors Franchise strengths # Institutional Money Market Fund Manager Worldwide 3 # Ultra-High-Net-Worth Private Bank Globally 4 00 Asset Manager of the Year for Asia and Hong Kong 5 Institutional Hedge Fund Manager of the Year 6 Gold Standard Fund Management, UK 7 (consecutively for seven years, ) Growth opportunities Investment performance and product innovation Private banking expansion International presence Continued investment in technology, US retail and PB client advisors

13 Corporate/Private Equity ($ in millions) 3Q0 $ O/(U) Private Equity $40 ($9) $69 Corporate 89,05 (,33) Net Income $,9 $,833 ($604) Corporate results include litigation expense of $4.3B including those for mortgage-related matters Net income, excluding Private Equity, is anticipated to trend toward approximately $300mm per quarter

14 Agenda Page Key Investor Topics 3 Appendix 7 3

15 Repurchase liability roll forward and outlook Repurchase reserve roll forward ($ in millions) 4Q09 Q0 Q0 3Q0 FY 00 FY 0 Beginning RFS Balance $906 $,448 $,64 $,997 Provision ,464 Losses realized (30) (38) (3) (46) ($. B+/- ) ($.0B - $.B+/-) Ending RFS repurchase reserve $,448 $,64 $,997 $3,000 Plus: EMC $57 $340 $335 $307 Ending JPMC repurchase reserve $,705 $,98 $,33 $3,307 The Firm resolved and/or limited repurchase risks associated with certain hwamu GSE loan sales minimal future risk Focus of remaining GSE repurchase risk is hchase and EMC GSE loan sales 005 to 008 Credit standards and underwriting processes enhanced by mid-008 Numbers do not include litigation reserves Outlook Assessment of risk and liability is based on actual experience K E Y I N V E S T O R T O P I C S Reserve for both demands received and probable future demands Expect demands and realized losses to remain elevated through 0 Loss realization rate of $50-$350mm/quarter over next several quarters We will begin to reduce reserves when we have more confidence regarding potential future risks 4

16 Repurchase demands by vintage Repurchase demand characteristics and file requests ($ in millions, UPB) FY 08 FY Q09 Q0 Q0 3Q0 Pre 005 $ $99 $8 $6 $ $6 $35 $ , ,433, Post Total repurchase demands $,00 $3,04 $,97 $75 $86 $776 $,3 $,08 Total file requests $4,577 $9,49 $8,36 $,360 $,0 $,30 $,76 $3,0 Demands include hchase and hemc GSE and private whole loan sales. Demands are predominantly GSE driven. Demands do not include mortgage insurance rescissions which have not yet resulted in a repurchase demand File requests include hchase and hemc GSE and private whole loans. File requests are predominantly GSE driven. File requests exclude those from mortgage insurers ~ 90% of demands continue to come from vintages Demand levels in Q0 and 3Q0 increased vs. the trend over the previous several quarters - very high K E Y I N V E S T O R T O P I C S File requests increased during 00 5

17 Chase new GSE delinquencies Chase and hemc GSE new to 90 DPD by origination vintage ($ in billions, UPB) $ & Prior & 00 $4.7B $6.0 $5.0 $4.0 $3.0 $.B $.0 $.0 $0.0 Q08 Q08 3Q08 4Q08 Q09 Q09 4Q09 Q0 Q0 3Q0 Note: Excludes private whole loan sales New delinquencies have decreased significantly from 009 peaks, including reductions in the worst vintages K E Y I N V E S T O R T O P I C S We expect file requests and demands to reduce, on a lagged basis, as population of delinquent loans decreases and newer additions to delinquency have better seasoning 6

18 Chase new GSE delinquencies Months from origination that loans went delinquent, hchase and hemc GSE % = $47B $B $7.B DQ >36 months DQ 5-36 DQ -4 DQ < months Ever 90 DPD Already demanded September new to 90 DPD Of $7.B in life-to-date demands on hchase and hemc GSE loans, we have: Remaining demand pipeline of $.B from GSEs Cured $3.B or ~50% of finalized demands Repurchased $3.0B or ~50% of finalized demands; on which $.5B or ~50% of realized losses Already demanded includes all vintages Note: Excludes private whole loan sales K E Y I N V E S T O R T O P I C S More recent additions to 90 DPD have longer histories of payment; we believe loans going delinquent after 4 months of origination are at lower risk of repurchase 7

19 Repurchase risk GSE exposure Chase and hemc GSE exposure ($ in billions) hchase + hemc Loans Sold Ever 90+ Delinquencies to date Ever 90+ Delinquencies rate % Analyst research Low Average High Chase $383 $47 % Analyst estimates Projected Lifetime 90+ Delinquency Rate (%) Projected Demand Rate (%) Projected Repurchase Rate (%) Projected Severity (%) Projected lifetime losses NM 3% 9% 5% 30% 40% 40% 50% 55% 50% $ $4 $8 Realized Losses (through 3Q0) $ Reserves (as of 9/30/0) $3 Total Repurchase Losses + Reserves $5 Note: Five analyst reports were used to calculate the analyst average K E Y I N V E S T O R T O P I C S Analyst estimates do not explicitly contemplate recoveries from third parties ~40% of demands relate to loans originated by 3 rd parties, a portion of which we are able to recover from correspondents that are still in business and able to pay 8

20 Private label Repurchase risk exposure Firmwide private label securities issued ($ in billions) Total Securities Issued Issued Pre-005 Issued JPMC $39 $7 $ Bear Stearns WaMu Total $673 $6 $457 Source: Loan Performance System and Intex Private securities by product ($ in billions) Issued Ever 90+ Life-to-date Losses Prime Mortgage $ 3% $ Alt A 90 3% 7 Option ARM 0 35% 9 Subprime 35 4% 7 Total $457 30% $45 Source: Loan Performance System and Intex K E Y I N V E S T O R T O P I C S ~70% of loans underlying deals were low doc/no doc loans > 75% of losses-to-date are driven by low doc/no doc loans 45% of losses-to-date from loans that paid for 5+ months before delinquency Only 5% losses-to-date from Prime Mortgage loans 9

21 Private label Repurchase risk exposure K E Y I N V E S T O R T O P I C S Agency Two investors with direct access to loan files Large dedicated repurchase teams Specific and uniform conforming loan standards No materiality threshold for underwriting breach Warrant that loans are free from borrower fraud 0 Private Generally 5%, and sometimes 50%, of certificate holders sometimes by tranche must agree to instruct trustee to request loan files Trustees may require evidence of breaches in order to act Significant variation in underwriting standards and reps and warranties by deal Typically underwriting guidelines expressly contemplate exceptions Loan types disclosed in PSA and prospectus (e.g., documentation status, concentrations, non-owner occupied) In most cases, burden of proof that underwriting breach materially and adversely affected value of the loan Typically do not warrant that loans are free from borrower fraud Expensive to perform loan level reviews investors generally bear the cost Lengthy timeline to repurchase

22 Private label Analyst estimates of repurchase risk Analyst estimates ($ in billions) GSE Privates Medium High Low Medium High Projected Lifetime Delinquency Rate 3% 9% NM 3% 46% Projected Demand Rate 30% 40% 0% 4% 5% Projected Repurchase Rate 50% 55% 0% 33% 50% Projected Severity 50% 50% Implied Loss Range $4 - $8 $3 $6 $3 Note: Five analyst reports were used to calculate the analyst average for GSEs. Six analyst reports were used to calculate the analyst average for Privates The analyst medium was below actual delinquencies; actual delinquencies used as medium The private label analyses appear to assume processes and standards similar to GSE repurchase experience Processes and standards are very different K E Y I N V E S T O R T O P I C S

23 Net interest margin returning to historical average level Historical net interest margin trend Annual Quarterly Historical Average NIM:.97% 3.06%.7%.56%.73% 3.9% 3.4% 3.40% 3.33% 3.3% 3.06% 3.0% Q09 Q0 Q0 3Q0 3Q0 net interest margin of 3.0% in line with historical average of.97% K E Y I N V E S T O R T O P I C S Recent net interest margin compression due to: Sustained low rate environment Repositioning of investment portfolio Loan run-off Regulatory reform CARD Act Expect continued modest pressure in net interest margin in 4Q0, driven by Corporate Net interest margin for 004 presented on a pro-forma basis for the Bank One acquisition. Net interest margin for shown on a managed basis. BSC and WaMu included as of acquisition dates Historical average net interest margin based on managed quarterly net interest margin from Q04 3Q0

24 Historical relationship between steepness of yield curve and JPM net interest margin Q04 3Q0 6.0% JPM NIM Fed Funds 0 Year Swap 0 Year vs. Fed Funds 5.5% 5.0% 4.5% 4.0% 3.5% 3.0%.5% 3.% 3.% 3.% 3.0% 3.0% 3.0%.8%.6%.7%.7%.8%.8%.6%.5%.5%.5%.5% 3.% 3.% 3.6% 3.6% 3.4% 3.4% 3.3% 3.3% 3.% 3.0%.0%.5%.0% 0.5% 0.0% K E Y I N V E S T O R T O P I C S (0.5)% Q04 Q04 3Q04 4Q04 Q05 Q05 3Q05 4Q05 Q06 Q06 3Q06 4Q06 Note: Net interest margin for Q04 Q04 presented on a pro-forma basis for the Bank One acquisition. Net interest margin for Q04 4Q09 shown on a managed basis. BSC and WaMu included as of acquisition dates. Fed Funds Rate and Swap Rate calculated as the average monthly rate for the period Q07 3 Q07 3Q07 4Q07 Q08 Q08 3Q08 4Q08 Q09 Q09 4Q09 Q0 Q0 3Q0

25 Pressure on net interest income expected to continue Net Interest Income ($ in billions) EOP Loan Balances ($ in billions) Core NII 3 IB NII $59.4 Other RFS Card $830.5 $46.3 ~$5- $5 ~$47 - $48 $550. $59. 3% $78. $ % 0% ~$670.0 $7. $3.4 8% 39% 7% 3% 45% 48% 47% 33% 4% 3% 9% 33% Analyst Projection Analyst Projection Q0 0 Analyst Projection 5 3Q0 : $39. $30B decline in EOP loans through September 30, 00 driven by RFS and Card Loan run-off will continue to drive down net interest income, but will result in higher quality portfolios with better profitability, freeing up capital for other uses K E Y I N V E S T O R T O P I C S Net interest income shown on a managed, FTE basis. See note on slide 3 EOP loans shown on a managed basis 3 Core NII represents firmwide net interest income excluding IB net interest income 4 00 analyst projected net interest income based on 3Q0 actual results plus the average estimates for 4Q0 of analysts. JPM does not endorse these estimates 5 0 analyst projected net interest income and EOP loans are based on the average estimates of and 9 analysts, respectively. JPM does not endorse these estimates 4

26 NII upside in improving rate environment significantly exceeds potential downside in worsening rate environment Next months pretax impact relative to implied curve $.7B Implied curve will result in a decline in net interest income in 0 M Libor (bps) ($0.9)B Implied Curve 0Yr Swap (bps) $.3B $0.9B Potential increases in NII relative to the implied curve Potential decreases in NII relative to the implied curve As of 9/30/00. Implied curve represents the market expectation of rates over the next months All lines of business positioned to benefit in a rising rate environment Firmwide benefit of $.3B for a +00bps shock relative to implied curve largely due to recovery of deposit margins as shortterm rates rise (primarily T&SS, Commercial Banking, and Asset Management) A further flattening or lower rates relative to the implied curve would put increased pressure on NII of up to ~$900mm K E Y I N V E S T O R T O P I C S 5

27 JPM s fundamentals remain extremely strong Excellent client franchises and businesses Excellent client franchises and businesses Each standalone business has a top, or 3 position Unparalleled client relationships in 0+ countries Culture of innovation; new products and programs launched during crisis Robust technology infrastructure to serve clients Significant earnings power Fortress balance sheet Continued investment across LOBs driving organic growth Consistent record of operating efficiency and delivering merger saves Businesses stronger together than apart; additional revenue streams generated Further strengthened balance sheet: Tier Capital of $39B or.9%, Tier Common at $B or 9.5% High quality capital and high level of reserves ($35.0B), loan loss reserve of 5.% K E Y I N V E S T O R T O P I C S See note 3 on slide 3 See note on slide 3 Strong funding and liquidity profile: ~$900B deposits,.3x loan coverage Benefits from diversification funding, capital, lower volatility 6

28 Agenda Page Key Investor Topics 3 Appendix 7 7

29 Fortress balance sheet Tier Capital ($ in billions) Tier Common ($ in billions) $40 $5 $7 Tier Capital $33 $3 $37 Tier Ratio $39 4.0%.9%.0% $0 $90 Tier Common $0 $05 $04 $08 Tier Common Ratio $.0% 9.5% 0.0% $90 0.%.%.5%.% 0.0% $60 8.% 8.8% 9.% 9.6% 8.0% $65 8.0% $30 6.0% $40 4Q09 Q0 Q0 3Q0 6.0% $0 4Q09 Q0 Q0 3Q0 4.0% Firmwide total credit reserves of $35.0B; loan loss coverage ratio of 5.% Global liquidity reserve of $73B 3 Repurchased $.B and $3.0B of common stock in 3Q0 and 00, respectively A P P E N D I X See note 3 on slide 3 See note on slide 3 3 The Global Liquidity Reserve represents consolidated sources of available liquidity to the Firm, including cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities such as government-issued debt, government and FDIC-guaranteed corporate debt, agency debt and agency mortgage-backed securities ( MBS ). For further discussion of the Global Liquidity Reserve please refer to JPMorgan Chase s 3Q0 Form 0-Q Note: Firmwide Level 3 assets were 6% of total firm assets at September 30, 00 8

30 Consumer credit delinquency trends (Excl. purchased credit-impaired loans) Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions) $4, day delinquencies $6, day delinquencies day delinquencies $3,000 $,000 $,000 $5,00 $3,900 $,600 $,300 $0 Mar-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-0 Jun-0 Oct-0 $0 Mar-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-0 Jun-0 Oct-0 Subprime Mortgage delinquency trend ($ in millions) Card Services delinquency trend, Excl. WaMu ($ in millions) $5,000 $4,000 $3,000 $,000 $, day delinquencies day delinquencies $0, day delinquencies day delinquencies $8,000 $6,000 $4,000 $,000 $0 Mar-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-0 Jun-0 Oct-0 $0 Mar-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-0 Jun-0 Oct-0 A P P E N D I X Note: Delinquencies prior to September 008 are hchase Prime Mortgage excludes held-for-sale, Asset Management and Government Insured loans See note on slide 3 Payment holiday in Q09 impacted 30+ day and day delinquency trends in 9

31 Firmwide coverage ratio remains strong ($ in millions) Loan Loss Reserve/Total Loans Loan Loss Reserve Loan Loss Reserve/NPLs,4 6.00% 500% Nonperforming Loans 5.00% 4.00% 3.00%.00%.00% 38,86 34,6 30,633 3,60 35,836 9,07 7,38 3,64 9,05 7,767 4,785 7,564 7,050 6,79 5,503 8,953,40 6,933 3Q08 4Q08 Q09 Q09 4Q09 Q0 Q0 3Q0 400% 300% 00% 00% 0% A P P E N D I X Peer comparison 3 Q 0 JP M P eer A vg Consumer LLR/ Total Loa ns 6. 69% 5.87 % LLR/ NPLs 4 68% 84 % Whole sale LLR/ Total Loa ns. 8%.70 % LLR/ NPLs 95% 6 % Firmw ide LLR/ Total Loa ns 5. % 4.83 % LLR/ NPLs 4 08% 3 % 30 $34.B of loan loss reserves in 3Q0, up ~$5.B from $9.B two years ago; loan loss coverage ratio of 5.% $7.5B (pretax) addition in allowance for loan losses predominantly related to the consolidation of credit card receivables in Q0 3 See note on slide 3 Peer average reflects equivalent metrics for C, BAC and WFC 3 See note on slide 3 4 The Firm s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under guidance issued by the Federal Financial Institutions Examination Council, credit card loans are charged off by the end of the month in which the account becomes 80 days past due or within 60 days from receiving notification about a specific event (e.g., bankruptcy of the borrower), whichever is earlier

32 Notes on non-gaap financial measures. In addition to analyzing the Firm s results on a reported basis, management reviews the Firm s results and the results of the lines of business on a managed basis, which is a non-gaap financial measure. The Firm s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-gaap financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business. Prior to January, 00, the Firm s managed-basis presentation also included certain reclassification adjustments that assumed credit card loans securitized by CS remained on the balance sheet. Effective January, 00, the Firm adopted new accounting guidance that amended the accounting for the transfer of financial assets and the consolidation of VIEs. Additionally, the new guidance required the Firm to consolidate its Firm-sponsored credit card securitizations trusts. The income, expense and credit costs associated with these securitization activities are now recorded in the 00 Consolidated Statements of Income in the same classifications that were previously used to report such items on a managed basis. As a result of the consolidation of the credit card securitization trusts, reported and managed basis relating to credit card securitizations are comparable for periods beginning after January, 00. As noted above, the presentation in 009 of CS results on a managed basis assumed that credit card loans that had been securitized and sold in accordance with U.S. GAAP remained on the Consolidated Balance Sheets, and that the earnings on the securitized loans were classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase had used this managed basis information to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations were funded and decisions were made about allocating resources, such as employees and capital, based on managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated Balance Sheets and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer s credit performance affects both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase believed that this managed-basis information was useful to investors, as it enabled them to understand both the credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firm s retained interests in securitized loans.. The ratio for the allowance for loan losses to end-of-period loans excludes the following: loans accounted for at fair value and loans held-for-sale; purchased creditimpaired loans; the allowance for loan losses related to purchased credit-impaired loans; and, loans from the Washington Mutual Master Trust, which were consolidated on the Firm's balance sheet at fair value during the second quarter of 009. Additionally, Real Estate Portfolios net charge-off rates exclude the impact of purchased credit-impaired loans. The allowance for loan losses related to the purchased credit-impaired portfolio was $.8 billion, $.8 billion, and $. billion at September 30, 00, June 30, 00, and September 30, 009, respectively. 3. Tier common capital ("Tier common") is defined as Tier capital less elements of capital not in the form of common equity such as perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred capital debt securities. Tier common, a non-gaap financial measure, is used by banking regulators, investors and analysts to assess and compare the quality and composition of the Firm s capital with the capital of other financial services companies. The Firm uses Tier common along with the other capital measures to assess and monitor its capital position. 4. Tangible Common Equity ("TCE") is calculated, for all purposes, as common stockholders equity (i.e., total stockholders' equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill, net of related deferred tax liabilities. Return on tangible common equity, a non-gaap financial ratio, measures the Firm s earnings as a percentage of TCE, and is in management s view a meaningful measure to assess the Firm s use of equity. The TCE measures used in this presentation are not necessarily comparable to similarly titled measures provided by other firms due to differences in calculation methodologies. A P P E N D I X 5. Headcount-related expense includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees. 3

33 Forward-looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan Chase s actual results to differ materially from those described in the forward-looking statements can be found in JPMorgan Chase s Annual Report on Form 0-K for the year ended December 3, 009 and Quarterly Reports on Form 0-Q for the quarters ended March 3, 00, June 30, 00, and September 30, 00, each of which has been filed with the Securities and Exchange Commission and is available on JPMorgan Chase s website ( and on the Securities and Exchange Commission s website ( JPMorgan Chase does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. A P P E N D I X 3