FEBRUARY 23, 2009
CAPITAL ACTION AND 1Q09 UPDATE
Overview
Given highly uncertain environment, we are acting with an abundance of caution in reducing quarterly dividend to $0.05 per share Provides maximum capital flexibility and allows us to maintain a fortress balance sheet even in a highly stressed economic environment — Through dividend action Firm retains $5B in equity per annum Effective for the dividend payable April 30th to shareholders of record on April 6th For 1Q09 QTD, the Firm is solidly profitable, even after significant additions to reserves The outlook for the quarter is roughly in line with Analyst expectations
U P D AT E
Excellent franchises with significant long-term earnings power Continue to feel great about future prospects of Company Fortress balance sheet remains firmly intact — 4Q08 Tier 1 ratio of 10.9%, TCE/RWA of 6.5%1 and tangible common equity of $81B1 — $24B in allowance for credit losses at 12/31/08
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See note on slide 6
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Why are we cutting the dividend?
Consistent management philosophy to meet obligations to shareholders, creditors, employees, and communities in which we operate Includes our quarterly dividend However, extraordinary times call for extraordinary measures. We must necessarily be prepared to handle a highly stressed environment (although we are not predicting this) A highly stressed environment would be: a 2-year recession , 10%+ unemployment and HPI decline of 40% peak-to-trough Legislative / government actions could also pose additional risk
U P D AT E
Even in this highly stressed environment we would maintain our fortress balance sheet and continue to invest in our businesses Highest obligation is to protect the Company and keep franchise healthy for the future
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Update on 1Q09 outlook
Investment Bank Strong QTD trading results Solid fee income Credit costs/marks of approximately $2B+/- possible Retail Financial Services Home Lending — modest deterioration Additional reserves likely — as expected WaMu earnings expectations are still on track
U P D AT E
Card Services Credit deterioration as expected, but risk of higher unemployment rate likely during year Additional reserves likely Commercial Banking and Treasury & Securities Services — revenue slightly down on market conditions Asset Management revenue in line with prior outlook Corporate/Private Equity Net interest income benefiting from more sizable investment portfolio Private Equity — approximately $400mm+ in write-downs likely
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A few comments on capital and TARP
This action provides maximum capital flexibility in order to protect our Company and continue to invest in our franchises Dividend action does not directly relate to TARP Reason that we accepted TARP capital in first place still holds — acceptance and use of capital meant to help overall banking system and economy Understand our responsibilities to global and U.S. economies and their recovery (e.g. focus on lending)
U P D AT E
Retaining capital does, however, help position us to repay TARP as soon as is prudent, while still maintaining a strong capital position Any future repayment schedule will be in consultation with Treasury, Federal Reserve and OCC
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Earnings power of franchise and fortress balance sheet position JPM well for the future
Excellent franchises Each standalone business has a top 1, 2, or 3 position — Leadership positions — very difficult to replicate — Significant market share and efficiency gains in each business — Continued investment to drive future earnings growth Businesses operate stronger together than apart — Creates additional revenue opportunities in each business Solid earnings power helps counter impact of economic environment: Substantial pretax preprovision profit of approximately $40B for 2009 per Analyst estimates
U P D AT E
$12-$14B of stable pretax earnings from Retail Banking, CB, TSS and AM (before any earnings contribution from IB, Consumer Lending or Card) On-going, but heightened operating discipline on expenses, balance sheet, etc. Fortress balance sheet 4Q08 Tier 1 ratio of 10.9%, TCE/RWA of 6.5%1 and tangible common equity of $81B1 $24B in allowance for credit losses as of 12/31/08 Long-term commitment to dividend Still view 30-40% payout ratio of normalized earnings as ultimately reasonable Need to ensure ongoing strength of capital base and more stable economic environment before reinstating Decision to reduce dividend was not taken lightly
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See note on slide 6
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Notes on non-GAAP financial measures and forward-looking statements
This presentation includes non-GAAP financial measures 1. Tangible Common Equity (“TCE”) as shown on slides 1 and 5, is defined as common stockholders' equity less identifiable intangible assets (other than MSRs) and goodwill. 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. Financial results are presented on a managed basis, as such basis is described in the firm’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and in the Annual Report on Form 10-K for the year ended December 31, 2007. All non-GAAP financial measures included in this presentation are provided to assist readers in understanding certain trend information. Additional information concerning such non-GAAP financial measures can be found in the above-referenced filings, to which reference is hereby made.
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U P D AT E
Forward looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 materially 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 Quarterly Reports on Form 10-Q for the quarters ended September 30, 2008, June 30, 2008, and March 31, 2008 and its Annual Report on Form 10-K for the year ended December 31, 2007, each of which has been filed with the Securities and Exchange Commission and is available on JPMorgan Chase’s website (www.jpmorganchase.com) and on the Securities and Exchange Commission’s website (www.sec.gov). 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.
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