Earnings Corner

JPMorgan Chase reports second-quarter 2008 net income of $2.0 billion, or $0.54 per share; net income of $2.5 billion excluding losses of $540 million (after-tax) for Bear Stearns merger-related items

Increased credit reserves by $1.3 billion firmwide; loan loss allowance coverage of 2.86% for consumer businesses and 2.13% for wholesale businesses

• Recorded markdowns of $1.1 billion in the Investment Bank, related to leveraged lending and mortgage-related positions
• Continued to generate solid underlying business momentum:
• Commercial Banking and Treasury & Securities Services delivered record earnings and revenue, benefiting from continued double-digit growth in loans and deposits
• Investment Bank ranked #1 for Global Investment Banking Fees for the first half of 2008 and #1 for Global Debt, Equity & Equity-related volumes for the first half of 2008 and the second quarter of 2008⁽¹⁾
• Retail Financial Services grew revenue by 15%
• Completed acquisition of The Bear Stearns Companies Inc. on May 30, 2008; integration progressing well
• Tier 1 Capital remained strong at $98.7 billion, or 9.1% (estimated)

JPMorgan Chase & Co. (NYSE: JPM) reported 2008 second-quarter net income of $2.0 billion, compared with net income of $4.2 billion in the second quarter of 2007. Earnings per share of $0.54 were down 55%, compared with earnings per share of $1.20 in the second quarter of 2007. Current-quarter results include the effect of merger-related items amounting to a net loss of $540 million (after-tax) related to the acquisition of The Bear Stearns Companies Inc., which closed on May 30, 2008. Excluding these items, net income would have been $2.5 billion.

Jamie Dimon, chairman and chief executive officer, commented on the quarter: “Our earnings were down significantly due to the unfavorable credit environment and market conditions. The Investment Bank took additional markdowns on leveraged loans and mortgage-related positions. Retail Financial Services experienced further deterioration in its home lending portfolio, which resulted in higher charge-offs and an increase in the allowance for credit losses. However, the firm overall continued to maintain solid underlying business momentum. We had market share gains in Investment Banking fees and key product areas. Retail Financial Services posted organic revenue growth of 15%, and all of our major businesses produced growth in accounts, balances and volumes. Further positive results in the quarter included record performance from both Commercial Banking and Treasury & Securities Services.”

Mr. Dimon added, “We also completed the highly complex Bear Stearns acquisition as planned. Through the truly remarkable partnership and efforts of our people in extremely difficult times, we made great progress toward full integration, while also significantly reducing our combined risk positions. We now have an expanded platform to better serve our institutional clients—one which we fully expect will make our franchise stronger over time.”

Mr. Dimon further remarked, “I am pleased with the strength of our balance sheet and capital positions, particularly in the context of the market challenges we have faced during the past year. During the quarter, we added $1.3 billion to our allowance for credit losses (which now totals $13.9 billion) and maintained strong capital ratios.”

Discussing the firm’s outlook, Dimon said, “Our expectation is for the economic environment to continue to be weak—and to likely get weaker—and for the capital markets to remain under stress. We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer. However, the firm has delivered underlying growth across most of our businesses, and with our substantial capital base we can continue to invest for the future. In spite of the environment, we are confident that we are building an increasingly strong and profitable company.”