For the fiscal year ended December 31, 2008 |
Commission file number 1-5805 |
Delaware (State
or other jurisdiction of
incorporation or organization) |
13-2624428 (I.R.S. employer identification no.) |
270 Park Avenue, New York, NY (Address of principal executive
offices)
|
10017 (Zip code) |
Title of each class | Name of each exchange on which registered | |
Common stock
|
The New York Stock Exchange |
|
The London Stock Exchange |
||
The Tokyo Stock Exchange |
||
Depositary Shares each representing a one-fourth interest in a share of 6.15% Cumulative Preferred Stock, Series E
|
The New York Stock Exchange |
|
Depositary Shares each representing a one-fourth interest in a share of 5.72% Cumulative Preferred Stock, Series F
|
The New York Stock Exchange |
|
Depositary Shares each representing a one-fourth interest in a share of 5.49% Cumulative Preferred Stock, Series G
|
The New York Stock Exchange |
|
Depositary Shares each representing a one-four hundredth interest in a share of 8.625% Non-Cumulative Preferred
Stock, Series J
|
The New York Stock Exchange |
|
Guarantee of 7.00% Capital Securities, Series J, of J.P. Morgan Chase Capital X
|
The New York Stock Exchange |
|
Guarantee of 5 7/8% Capital Securities, Series K, of J.P. Morgan Chase Capital XI
|
The New York Stock Exchange |
|
Guarantee of 6.25% Capital Securities, Series L, of J.P. Morgan Chase Capital XII
|
The New York Stock Exchange |
|
Guarantee of 6.20% Capital Securities, Series N, of J.P. Morgan Chase Capital XIV
|
The New York Stock Exchange |
|
Guarantee of 6.35% Capital Securities, Series P, of J.P. Morgan Chase Capital XVI
|
The New York Stock Exchange |
|
Guarantee of 6.625% Capital Securities, Series S, of J.P. Morgan Chase Capital XIX
|
The New York Stock Exchange |
|
Guarantee of 6.875% Capital Securities, Series X, of J.P. Morgan Chase Capital XXIV
|
The New York Stock Exchange |
|
Guarantee of Fixed-to-Floating Rate Capital Securities, Series Z, of JPMorgan Chase Capital XXVI
|
The New York Stock Exchange |
|
Guarantee of 7.20% Preferred Securities of BANK ONE Capital VI
|
The New York Stock Exchange |
|
Guarantee of 7.8% Preferred Securities of Bear Stearns Capital Trust III
|
The New York Stock Exchange |
|
JPMorgan
Market Participation Notes Linked to S&P
500® Index due March 31, 2009
|
The NYSE Alternext U.S. LLC |
|
Capped Quarterly Observation Notes Linked to S&P 500® Index due July 7, 2009
|
The NYSE Alternext U.S. LLC |
|
Capped Quarterly Observation Notes Linked to S&P 500® Index due September 21, 2009
|
The NYSE Alternext U.S. LLC |
|
Consumer Price Indexed Securities due January 15, 2010
|
The NYSE Alternext U.S. LLC |
|
Principal Protected Notes Linked to S&P 500® Index due September 30, 2010
|
The NYSE Alternext U.S. LLC |
|
KEYnotes Exchange Traded Notes Linked to the First Trust Enhanced 130/30 Large Cap Index
|
NYSE Arca, Inc. |
|
BearLinxSM Alerian MLP Select Index ETN
|
NYSE Arca, Inc. |
|
Euro Floating Rate Global Notes due July 27, 2012
|
The NYSE Alternext U.S. LLC |
|
Principal Protected Notes Linked to the Nasdaq-100 Index® Due December 22, 2009
|
The NYSE Alternext U.S. LLC |
|
Principal Protected Notes Linked to the S&P 500® Index Due November 30, 2009
|
The NYSE Alternext U.S. LLC |
|
Principal Protected Notes Linked to the Dow Jones Industrial AverageSM due March 23, 2011
|
The NYSE Alternext U.S. LLC |
|
Medium Term Notes Linked to a Basket of Three International Equity Indices Due August 2, 2010
|
The NYSE Alternext U.S. LLC |
x Large accelerated filer | o Accelerated filer | o Non-accelerated filer (Do not check if a smaller reporting company) | o Smaller reporting company |
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Name | Age (at
December 31, 2008) |
Positions and offices |
||
James Dimon | 52 | Chairman of the Board since December 31, 2006, and President and Chief
Executive Officer since December 31, 2005. He had been President and Chief
Operating Officer from July 1, 2004, until December 31, 2005. Prior to the
merger between JPMorgan Chase & Co. and Bank One Corporation (the
Merger), he had been Chairman and Chief Executive Officer of Bank One
Corporation. |
||
Frank J. Bisignano | 49 | Chief Administrative Officer since December 2005. Prior to joining JPMorgan
Chase, he had been Chief Executive Officer of Citigroup Inc.s Global
Transaction Services. |
||
Steven D. Black | 56 | Co-Chief Executive Officer of the Investment Bank since March 2004, prior to
which he had been Deputy Head of the Investment Bank. |
||
Michael J. Cavanagh | 42 | Chief Financial Officer since September 2004, prior to which he had been Head
of Middle Market Banking. Prior to the Merger, he had been Chief
Administrative Officer of Commercial Banking and Chief Operating Officer of
Middle Market Banking at Bank One Corporation. |
||
Stephen M. Cutler | 47 | General Counsel since February 2007. Prior to joining JPMorgan Chase, he was
a partner and co-chair of the Securities Department at the law firm of
WilmerHale since October 2005. Prior to joining WilmerHale, he had been
Director of the Division of Enforcement at the U.S. Securities and Exchange
Commission since October 2001. |
||
William M. Daley | 60 | Head of Corporate Responsibility since June 2007 and Chairman of the
Midwest Region since May 2004. Prior to joining JPMorgan Chase, he had been
President of SBC Communications. |
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Ina R. Drew | 52 | Chief Investment Officer since February 2005, prior to which she was Head of
Global Treasury. |
||
Samuel Todd Maclin | 52 | Head of Commercial Banking since July 2004, prior to which he had been
Chairman and CEO of the Texas Region and Head of Middle Market Banking. |
||
Jay Mandelbaum | 46 | Head of Strategy and Business Development. Prior to the Merger, he had been
Head of Strategy and Business Development since September 2002 at Bank
One Corporation. |
||
Heidi Miller | 55 | Chief Executive Officer of Treasury & Securities Services. Prior to the Merger, she
had been Chief Financial Officer at Bank One Corporation. |
||
Charles W. Scharf | 43 | Chief Executive Officer of Retail Financial Services. Prior to the Merger, he had
been Head of Retail Banking at Bank One Corporation. |
||
Gordon A. Smith | 50 | Chief Executive Officer of Card Services since June 2007. Prior to joining
JPMorgan Chase, he was with American Express Company for more than 25
years. From August 2005 until June 2007, he was president of American
Express global commercial card business. Prior to that, he was president of the
consumer card services group and was responsible for all consumer card products in the U.S. |
||
James E. Staley | 52 | Chief Executive Officer of Asset Management. |
||
William T. Winters | 47 | Co-Chief Executive Officer of the Investment Bank since March 2004, prior to
which he had been Deputy Head of the Investment Bank and Head of Credit &
Rate Markets. |
||
Barry L. Zubrow | 55 | Chief Risk Officer since November 2007. Prior to joining JPMorgan Chase, he
was a private investor and has been Chairman of the New Jersey Schools
Development Authority since March 2006; prior to November 2003 he held a
variety of positions at The Goldman Sachs Group, including Chief Administrative
Officer from 1999. |
17
Year ended | Total shares | Average price | ||||||
December 31, 2008 | repurchased | paid per share | ||||||
First quarter |
2,043 | $ | 45.61 | |||||
Second quarter |
7,041 | 47.57 | ||||||
Third quarter |
24,214 | 31.05 | ||||||
October |
362 | 39.89 | ||||||
November |
369 | 44.17 | ||||||
December |
460,896 | 44.29 | ||||||
Fourth quarter |
461,627 | 44.29 | ||||||
Total for 2008 |
494,925 | $ | 43.69 | |||||
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Number of shares to be | Weighted-average | Number of shares remaining | ||||||||||
December 31, 2008 | issued upon exercise of | exercise price of | available for future issuance under | |||||||||
(Shares in thousands) | outstanding options/SARs | outstanding options/SARs | stock compensation plans | |||||||||
Plan category |
||||||||||||
Employee stock-based incentive plans approved |
||||||||||||
by shareholders |
191,679 | $ | 47.91 | 347,956 | (a) | |||||||
Employee stock-based incentive plans not approved |
||||||||||||
by shareholders |
90,731 | 45.16 | | |||||||||
Total |
282,410 | $ | 47.02 | 347,956 | ||||||||
(a) | Represents future shares available under the shareholder-approved 2005 Long-Term Incentive Plan, as amended and restated effective May 20, 2008. |
1. | Financial statements | |
The Consolidated financial statements, the Notes thereto and the report thereon listed in Item 8 are set forth commencing on page 18. | ||
2. | Financial statement schedules |
3. | Exhibits | |
3.1 | Restated Certificate of Incorporation of JPMorgan Chase & Co., effective April 5, 2006 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 7, 2006). | |
3.2 | Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series I (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008). | |
3.3 | Certificate of Designations of 6.15% Cumulative Preferred Stock, Series E (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 16, 2008). |
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3.4 | Certificate of Designations of 5.72% Cumulative Preferred Stock, Series F (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 16, 2008). | |
3.5 | Certificate of Designations of 5.49% Cumulative Preferred Stock, Series G (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 16, 2008). | |
3.6 | Certificate of Designations of 8.625% Non-Cumulative Preferred Stock, Series J (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K/A of JPMorgan Chase & Co. (File No. 1-5805) filed September 17, 2008). | |
3.7 | Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series K (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed October 31, 2008). | |
3.8 | By-laws of JPMorgan Chase & Co., effective July 15, 2008 (incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 16, 2008). | |
4.1(a) | Indenture, dated as of December 1, 1989, between Chemical Banking Corporation (now known as JPMorgan Chase & Co.) and The Chase Manhattan Bank (National Association) (succeeded by Deutsche Bank Trust Company Americas), as Trustee. | |
4.1(b) | First Supplemental Indenture, dated as of November 1, 2007, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of December 1, 1989 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed November 7, 2007). | |
4.1(c) | Fifth Supplemental Indenture, dated as of December 22, 2008, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of December 1, 1989. | |
4.2(a) | Indenture, dated as of April 1, 1987, as amended and restated as of December 15, 1992, between Chemical Banking Corporation (now known as JPMorgan Chase & Co.) and Morgan Guaranty Trust Company of New York (succeeded by U.S. Bank Trust National Association), as Trustee (incorporated by reference to Exhibit 4.3(a) to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). | |
4.2(b) | Third Supplemental Indenture, dated as of December 29, 2000, between The Chase Manhattan Corporation (now known as JPMorgan Chase & Co.) and U.S. Bank Trust National Association, as Trustee, to the Indenture, dated as of April 1, 1987, as amended and restated as of December 15, 1992 (incorporated by reference to Exhibit 4.3(c) to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). | |
4.3(a) | Indenture, dated as of May 25, 2001, between J.P. Morgan Chase & Co. and Bankers Trust Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference to Exhibit 4(a)(1) to the Registration Statement on Form S-3 of J.P. Morgan Chase & Co. (File No. 333-52826) filed June 13, 2001). |
4.3(b) | First Supplemental Indenture, dated as of April 9, 2008, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee to the Indenture, dated as of May 25, 2001 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File no. 1-5805) filed October 31, 2008). | |
4.4(a) | Junior Subordinated Indenture, dated as of December 1, 1996, between The Chase Manhattan Corporation (now known as JPMorgan Chase & Co.) and The Bank of New York (succeeded by The Bank of New York Mellon), as Trustee. | |
4.4(b) | Supplemental Indenture (First), dated as of September 23, 2004, between JPMorgan Chase & Co. and The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to the Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-126750) filed September 23, 2004). | |
4.4(c) | Supplemental Indenture (Second), dated as of May 19, 2005, between JPMorgan Chase & Co. and The Bank of New York (succeeded by The Bank of New York Mellon), as Debenture Trustee, to the Junior Subordinated Indenture, dated as of December 1, 1996 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-126750) filed July 21, 2005. | |
4.5 | Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008). | |
4.6 | Form of Deposit Agreement (incorporated by reference to Exhibit 4(d) to the Registration Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). | |
4.7 | Form of Deposit Agreement (incorporated by reference to Exhibit 4(e) to the Registration Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). | |
4.8 | Form of Deposit Agreement (incorporated by reference to Exhibit 4(f) to the Registration Statement on Form S-4 of JPMorgan Chase & Co. (File No. 333-152214) filed July 9, 2007). | |
4.9 | Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed August 21, 2008). |
10.1 | Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., as amended and restated July 2001 and as of December 31, 2004 (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). * | |
10.2 | 2005 Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., effective as of January 1, 2005 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). * |
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10.3 | Post-Retirement Compensation Plan for Non-Employee Directors of The Chase Manhattan Corporation, as amended and restated, effective May 21, 1996. * | |
10.4 | 2005 Deferred Compensation Program of JPMorgan Chase & Co., restated effective as of December 31, 2008. * | |
10.5 | JPMorgan Chase & Co. 2005 Long-Term Incentive Plan as amended and restated effective May 20, 2008 (incorporated by reference to Appendix B of Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed March 31, 2008). * | |
10.6 | Key Executive Performance Plan of JPMorgan Chase & Co., restated as of January 1, 2005 (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). * | |
10.7 | Excess Retirement Plan of JPMorgan Chase & Co., restated and amended as of December 31, 2008. * | |
10.8 | 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies, as amended, dated December 11, 1996. * | |
10.9 | Executive Retirement Plan of JPMorgan Chase & Co., as amended and restated December 31, 2008.* | |
10.10 | Amendment to Bank One Corporation Director Stock Plan, as amended and restated effective February 1, 2003. * | |
10.11 | Summary of Bank One Corporation Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). * | |
10.12 | Bank One Corporation Stock Performance Plan, as amended and restated effective February 20, 2001. * | |
10.13 | Bank One Corporation Supplemental Savings and Investment Plan, as amended and restated effective December 31, 2008. * | |
10.14 | Revised and Restated Banc One Corporation 1989 Stock Incentive Plan, effective January 18, 1989. * | |
10.15 | Banc One Corporation Revised and Restated 1995 Stock Incentive Plan, effective April 17, 1995. * |
10.16 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 2005 stock appreciation rights (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). * | |
10.17 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of October 2005 stock appreciation rights (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2005). * | |
10.18 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). * | |
10.19 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 restricted stock units (incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). * | |
10.20 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights, dated as of January 20, 2009. * | |
10.21 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member stock appreciation rights, dated as of January 20, 2009. * | |
10.22 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted stock units, dated as of January 20, 2009. * | |
10.23 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member restricted stock units, dated as of January 20, 2009. * | |
10.24 | Form of JPMorgan Chase & Co. Long-Term Incentive Plan Award Agreement of January 22, 2008 stock appreciation rights for James Dimon (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007). * |
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10.25 | Letter Agreement, including the Securities Purchase Agreement-Standard Terms incorporated therein, dated October 26, 2008, between JPMorgan Chase & Co. and the United States Department of the Treasury (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed October 31, 2008). | |
10.26 | Warrant to purchase up to 88,401,697 shares of Common Stock, issued on October 28, 2008 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed October 31, 2008). | |
12.1 | Computation of ratio of earnings to fixed charges. | |
12.2 | Computation of ratio of earnings to fixed charges and preferred stock dividend requirements. | |
21.1 | List of Subsidiaries of JPMorgan Chase & Co. | |
22.1 | Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended December 31, 2008 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934). | |
23.1 | Consent of independent registered public accounting firm. | |
31.1 | Certification. | |
31.2 | Certification. | |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | This exhibit is a management contract or compensatory plan or arrangement. |
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JPMorgan Chase & Co. / 2008 Annual Report | 25 |
(unaudited) | ||||||||||||||||||||
(in millions, except per share, headcount and ratio data) | ||||||||||||||||||||
As of or for the year ended December 31, | 2008(f) | 2007 | 2006 | 2005 | 2004(g) | |||||||||||||||
Selected income statement data |
||||||||||||||||||||
Total net revenue |
$ | 67,252 | $ | 71,372 | $ | 61,999 | $ | 54,248 | $ | 42,736 | ||||||||||
Provision for credit losses |
19,445 | 6,864 | 3,270 | 3,483 | 1,686 | |||||||||||||||
Provision
for credit losses accounting conformity(a) |
1,534 | | | | 858 | |||||||||||||||
Total noninterest expense |
43,500 | 41,703 | 38,843 | 38,926 | 34,336 | |||||||||||||||
Income from continuing operations before income tax expense (benefit) |
2,773 | 22,805 | 19,886 | 11,839 | 5,856 | |||||||||||||||
Income tax expense (benefit)(b) |
(926 | ) | 7,440 | 6,237 | 3,585 | 1,596 | ||||||||||||||
Income from continuing operations |
3,699 | 15,365 | 13,649 | 8,254 | 4,260 | |||||||||||||||
Income from discontinued operations(c) |
| | 795 | 229 | 206 | |||||||||||||||
Income before extraordinary gain |
3,699 | 15,365 | 14,444 | 8,483 | 4,466 | |||||||||||||||
Extraordinary gain(d) |
1,906 | | | | | |||||||||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | $ | 8,483 | $ | 4,466 | ||||||||||
Per common share |
||||||||||||||||||||
Basic earnings per share |
||||||||||||||||||||
Income from continuing operations |
$ | 0.86 | $ | 4.51 | $ | 3.93 | $ | 2.36 | $ | 1.51 | ||||||||||
Net income |
1.41 | 4.51 | 4.16 | 2.43 | 1.59 | |||||||||||||||
Diluted earnings per share |
||||||||||||||||||||
Income from continuing operations |
$ | 0.84 | $ | 4.38 | $ | 3.82 | $ | 2.32 | $ | 1.48 | ||||||||||
Net income |
1.37 | 4.38 | 4.04 | 2.38 | 1.55 | |||||||||||||||
Cash dividends declared per share |
1.52 | 1.48 | 1.36 | 1.36 | 1.36 | |||||||||||||||
Book value per share |
36.15 | 36.59 | 33.45 | 30.71 | 29.61 | |||||||||||||||
Common shares outstanding |
||||||||||||||||||||
Average: Basic |
3,501 | 3,404 | 3,470 | 3,492 | 2,780 | |||||||||||||||
Diluted |
3,605 | 3,508 | 3,574 | 3,557 | 2,851 | |||||||||||||||
Common shares at period-end |
3,733 | 3,367 | 3,462 | 3,487 | 3,556 | |||||||||||||||
Share price(e) |
||||||||||||||||||||
High |
$ | 50.63 | $ | 53.25 | $ | 49.00 | $ | 40.56 | $ | 43.84 | ||||||||||
Low |
19.69 | 40.15 | 37.88 | 32.92 | 34.62 | |||||||||||||||
Close |
31.53 | 43.65 | 48.30 | 39.69 | 39.01 | |||||||||||||||
Market capitalization |
117,695 | 146,986 | 167,199 | 138,387 | 138,727 | |||||||||||||||
Selected ratios |
||||||||||||||||||||
Return on common equity (ROE): |
||||||||||||||||||||
Income from continuing operations |
2 | % | 13 | % | 12 | % | 8 | % | 6 | % | ||||||||||
Net income |
4 | 13 | 13 | 8 | 6 | |||||||||||||||
Return on assets (ROA): |
||||||||||||||||||||
Income from continuing operations |
0.21 | 1.06 | 1.04 | 0.70 | 0.44 | |||||||||||||||
Net income |
0.31 | 1.06 | 1.10 | 0.72 | 0.46 | |||||||||||||||
Overhead ratio |
65 | 58 | 63 | 72 | 80 | |||||||||||||||
Tier 1 capital ratio |
10.9 | 8.4 | 8.7 | 8.5 | 8.7 | |||||||||||||||
Total capital ratio |
14.8 | 12.6 | 12.3 | 12.0 | 12.2 | |||||||||||||||
Tier 1 leverage ratio |
6.9 | 6.0 | 6.2 | 6.3 | 6.2 | |||||||||||||||
Selected balance sheet data (period-end) |
||||||||||||||||||||
Trading assets |
$ | 509,983 | $ | 491,409 | $ | 365,738 | $ | 298,377 | $ | 288,814 | ||||||||||
Securities |
205,943 | 85,450 | 91,975 | 47,600 | 94,512 | |||||||||||||||
Loans |
744,898 | 519,374 | 483,127 | 419,148 | 402,114 | |||||||||||||||
Total assets |
2,175,052 | 1,562,147 | 1,351,520 | 1,198,942 | 1,157,248 | |||||||||||||||
Deposits |
1,009,277 | 740,728 | 638,788 | 554,991 | 521,456 | |||||||||||||||
Long-term debt |
252,094 | 183,862 | 133,421 | 108,357 | 95,422 | |||||||||||||||
Common stockholders equity |
134,945 | 123,221 | 115,790 | 107,072 | 105,314 | |||||||||||||||
Total stockholders equity |
166,884 | 123,221 | 115,790 | 107,211 | 105,653 | |||||||||||||||
Headcount |
224,961 | 180,667 | 174,360 | 168,847 | 160,968 | |||||||||||||||
(a) | Results for 2008 and 2004 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Banks banking operations and the merger with Bank One Corporation, respectively. | |
(b) | The income tax benefit in 2008 is the result of the release of previously established deferred tax liabilities on non-U.S. earnings and business tax credits. | |
(c) | On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust businesses for the consumer, business banking and middle-market banking businesses of The Bank of New York Company Inc. The results of operations of these corporate trust businesses are being reported as discontinued operations for each of the periods presented. | |
(d) | Effective September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain in 2008. | |
(e) | JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange Limited and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chases common stock are from The New York Stock Exchange Composite Transaction Tape. | |
(f) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. | |
(g) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
26 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, | ||||||||||||||||||||||||
(in dollars) | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||
JPMorgan Chase |
$ | 100.00 | $ | 109.92 | $ | 116.02 | $ | 145.36 | $ | 134.91 | $ | 100.54 | ||||||||||||
S&P Financial Index |
100.00 | 110.89 | 118.07 | 140.73 | 114.51 | 51.17 | ||||||||||||||||||
S&P500 |
100.00 | 110.88 | 116.33 | 134.70 | 142.10 | 89.53 | ||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 27 |
28 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except per share and ratio data) | 2008 | (c) | 2007 | Change | ||||||||
Selected income statement data |
||||||||||||
Total net revenue |
$ | 67,252 | $ | 71,372 | (6 | )% | ||||||
Provision for credit losses(a) |
20,979 | 6,864 | 206 | |||||||||
Total noninterest expense |
43,500 | 41,703 | 4 | |||||||||
Income before extraordinary gain |
3,699 | 15,365 | (76 | ) | ||||||||
Extraordinary gain(b) |
1,906 | | NM | |||||||||
Net income |
5,605 | 15,365 | (64 | ) | ||||||||
Diluted earnings per share |
||||||||||||
Income before extraordinary gain |
$ | 0.84 | $ | 4.38 | (81 | ) | ||||||
Net income |
1.37 | 4.38 | (69 | ) | ||||||||
Return on common equity |
||||||||||||
Income before extraordinary gain |
2 | % | 13 | % | ||||||||
Net income |
4 | % | 13 | % | ||||||||
(a) | Includes an accounting conformity provision for credit losses of $1.5 billion related to the acquisition of Washington Mutuals banking operations in 2008. | |
(b) | JPMorgan Chase acquired the banking operations of Washington Mutual Bank from the Federal Deposit Insurance Corporation (FDIC) for $1.9 billion. The fair value of the net assets acquired from the FDIC exceeded the purchase price which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain in 2008. The allocation of the purchase price to the net assets acquired (based on their respective fair values at September 25, 2008) and the resulting negative goodwill may be modified through September 25, 2009, as more information is obtained about the fair value of assets acquired and liabilities assumed. | |
(c) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. |
JPMorgan Chase & Co. / 2008 Annual Report | 29 |
30 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 31 |
32 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | (a) | 2007 | 2006 | ||||||||
Investment banking fees
|
$ | 5,526 | $ | 6,635 | $ | 5,520 | ||||||
Principal transactions
|
(10,699 | ) | 9,015 | 10,778 | ||||||||
Lending & deposit-related fees
|
5,088 | 3,938 | 3,468 | |||||||||
Asset
management, administration and |
||||||||||||
commissions
|
13,943 | 14,356 | 11,855 | |||||||||
Securities gains (losses)
|
1,560 | 164 | (543 | ) | ||||||||
Mortgage fees and related income
|
3,467 | 2,118 | 591 | |||||||||
Credit card income
|
7,419 | 6,911 | 6,913 | |||||||||
Other income
|
2,169 | 1,829 | 2,175 | |||||||||
Noninterest revenue
|
28,473 | 44,966 | 40,757 | |||||||||
Net interest income
|
38,779 | 26,406 | 21,242 | |||||||||
Total net revenue
|
$ | 67,252 | $ | 71,372 | $ | 61,999 | ||||||
(a) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. |
JPMorgan Chase & Co. / 2008 Annual Report | 33 |
34 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions) | 2008(b) | 2007 | 2006 | |||||||||
Wholesale: |
||||||||||||
Provision for credit losses |
$ | 2,681 | $ | 934 | $ | 321 | ||||||
Provision
for credit losses accounting conformity(a) |
646 | | | |||||||||
Total wholesale provision for
credit losses |
3,327 | 934 | 321 | |||||||||
Consumer: |
||||||||||||
Provision for credit losses |
16,764 | 5,930 | 2,949 | |||||||||
Provision for credit losses
accounting conformity(a) |
888 | | | |||||||||
Total consumer provision for
credit losses |
17,652 | 5,930 | 2,949 | |||||||||
Total provision for credit losses |
$ | 20,979 | $ | 6,864 | $ | 3,270 | ||||||
(a) | 2008 included adjustments to the provision for credit losses to conform the Washington Mutual loan loss reserve methodologies to the Firms methodologies in connection with the Washington Mutual transaction. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. |
JPMorgan Chase & Co. / 2008 Annual Report | 35 |
Year ended December 31, | ||||||||||||
(in millions) | 2008(a) | 2007 | 2006 | |||||||||
Compensation expense |
$ | 22,746 | $ | 22,689 | $ | 21,191 | ||||||
Noncompensation expense: |
||||||||||||
Occupancy expense |
3,038 | 2,608 | 2,335 | |||||||||
Technology, communications
and equipment expense |
4,315 | 3,779 | 3,653 | |||||||||
Professional & outside services |
6,053 | 5,140 | 4,450 | |||||||||
Marketing |
1,913 | 2,070 | 2,209 | |||||||||
Other expense |
3,740 | 3,814 | 3,272 | |||||||||
Amortization of intangibles |
1,263 | 1,394 | 1,428 | |||||||||
Total
noncompensation expense |
20,322 | 18,805 | 17,347 | |||||||||
Merger costs |
432 | 209 | 305 | |||||||||
Total noninterest expense |
$ | 43,500 | $ | 41,703 | $ | 38,843 | ||||||
(a) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. |
36 | JPMorgan Chase & Co./2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except rate) | 2008 | (a) | 2007 | 2006 | ||||||||
Income from continuing operations
before income tax expense (benefit) |
$ | 2,773 | $ | 22,805 | $ | 19,886 | ||||||
Income tax expense (benefit) |
(926 | ) | 7,440 | 6,237 | ||||||||
Effective tax rate |
(33.4 | )% | 32.6 | % | 31.4 | % | ||||||
(a) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123128 of this Annual Report. |
JPMorgan Chase & Co. / 2008 Annual Report | 37 |
2008 | 2007 | |||||||||||||||||||||||||||||||
Fully | Fully | |||||||||||||||||||||||||||||||
Year ended December 31, | tax- | tax- | ||||||||||||||||||||||||||||||
(in millions, except | Reported | equivalent | Managed | Reported | equivalent | Managed | ||||||||||||||||||||||||||
per share and ratio data) | results | Credit card(c) | adjustments | basis | results | Credit card(c) | adjustments | basis | ||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||||||
Investment banking fees |
$ | 5,526 | $ | | $ | | $ | 5,526 | $ | 6,635 | $ | | $ | | $ | 6,635 | ||||||||||||||||
Principal transactions |
(10,699 | ) | | | (10,699 | ) | 9,015 | | | 9,015 | ||||||||||||||||||||||
Lending & deposit-related fees |
5,088 | | | 5,088 | 3,938 | | | 3,938 | ||||||||||||||||||||||||
Asset management, administration
and commissions |
13,943 | | | 13,943 | 14,356 | | | 14,356 | ||||||||||||||||||||||||
Securities gains (losses) |
1,560 | | | 1,560 | 164 | | | 164 | ||||||||||||||||||||||||
Mortgage fees and related income |
3,467 | | | 3,467 | 2,118 | | | 2,118 | ||||||||||||||||||||||||
Credit card income |
7,419 | (3,333 | ) | | 4,086 | 6,911 | (3,255 | ) | | 3,656 | ||||||||||||||||||||||
Other income |
2,169 | | 1,329 | 3,498 | 1,829 | | 683 | 2,512 | ||||||||||||||||||||||||
Noninterest revenue |
28,473 | (3,333 | ) | 1,329 | 26,469 | 44,966 | (3,255 | ) | 683 | 42,394 | ||||||||||||||||||||||
Net interest income |
38,779 | 6,945 | 579 | 46,303 | 26,406 | 5,635 | 377 | 32,418 | ||||||||||||||||||||||||
Total net revenue |
67,252 | 3,612 | 1,908 | 72,772 | 71,372 | 2,380 | 1,060 | 74,812 | ||||||||||||||||||||||||
Provision for credit losses |
19,445 | 3,612 | | 23,057 | 6,864 | 2,380 | | 9,244 | ||||||||||||||||||||||||
Provision for credit losses
accounting conformity(a) |
1,534 | | | 1,534 | | | | | ||||||||||||||||||||||||
Noninterest expense |
43,500 | | | 43,500 | 41,703 | | | 41,703 | ||||||||||||||||||||||||
Income from continuing operations
before income tax expense |
2,773 | | 1,908 | 4,681 | 22,805 | | 1,060 | 23,865 | ||||||||||||||||||||||||
Income tax expense (benefit) |
(926 | ) | | 1,908 | 982 | 7,440 | | 1,060 | 8,500 | |||||||||||||||||||||||
Income from continuing operations |
3,699 | | | 3,699 | 15,365 | | | 15,365 | ||||||||||||||||||||||||
Income from discontinued operations |
| | | | | | | | ||||||||||||||||||||||||
Income before extraordinary gain |
3,699 | | | 3,699 | 15,365 | | | 15,365 | ||||||||||||||||||||||||
Extraordinary gain |
1,906 | | | 1,906 | | | | | ||||||||||||||||||||||||
Net income |
$ | 5,605 | $ | | $ | | $ | 5,605 | $ | 15,365 | $ | | $ | | $ | 15,365 | ||||||||||||||||
Diluted earnings
per share(b) |
$ | 0.84 | $ | | $ | | $ | 0.84 | $ | 4.38 | $ | | $ | | $ | 4.38 | ||||||||||||||||
Return on common equity(b) |
2 | % | | % | | % | 2 | % | 13 | % | | % | | % | 13 | % | ||||||||||||||||
Return on common equity less goodwill(b) |
4 | | | 4 | 21 | | | 21 | ||||||||||||||||||||||||
Return on assets(b) |
0.21 | NM | NM | 0.20 | 1.06 | NM | NM | 1.01 | ||||||||||||||||||||||||
Overhead ratio |
65 | NM | NM | 60 | 58 | NM | NM | 56 | ||||||||||||||||||||||||
LoansPeriod-end |
$ | 744,898 | $ | 85,571 | $ | | $ | 830,469 | $ | 519,374 | $ | 72,701 | $ | | $ | 592,075 | ||||||||||||||||
Total assets average |
1,791,617 | 76,904 | | 1,868,521 | 1,455,044 | 66,780 | | 1,521,824 | ||||||||||||||||||||||||
(a) | 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutuals banking operations. | |
(b) | Based on income from continuing operations. | |
(c) | Credit card securitizations affect CS. See pages 5153 of this Annual Report for further information. |
38 | JPMorgan Chase & Co. / 2008 Annual Report |
2006 | ||||||||||||||
Fully | ||||||||||||||
Reported | tax-equivalent | Managed | ||||||||||||
results | Credit card (c) | adjustments | basis | |||||||||||
$ | 5,520 | $ | | $ | | $ | 5,520 | |||||||
10,778 | | | 10,778 | |||||||||||
3,468 | | | 3,468 | |||||||||||
11,855 | | | 11,855 | |||||||||||
(543 | ) | | | (543 | ) | |||||||||
591 | | | 591 | |||||||||||
6,913 | (3,509 | ) | | 3,404 | ||||||||||
2,175 | | 676 | 2,851 | |||||||||||
40,757 | (3,509 | ) | 676 | 37,924 | ||||||||||
21,242 | 5,719 | 228 | 27,189 | |||||||||||
61,999 | 2,210 | 904 | 65,113 | |||||||||||
3,270 | 2,210 | | 5,480 | |||||||||||
| | | | |||||||||||
38,843 | | | 38,843 | |||||||||||
19,886 | | 904 | 20,790 | |||||||||||
6,237 | | 904 | 7,141 | |||||||||||
13,649 | | | 13,649 | |||||||||||
795 | | | 795 | |||||||||||
14,444 | | | 14,444 | |||||||||||
| | | | |||||||||||
$ | 14,444 | $ | | $ | | $ | 14,444 | |||||||
$ | 3.82 | $ | | $ | | $ | 3.82 | |||||||
12 | % | | % | | % | 12 | % | |||||||
20 | | | 20 | |||||||||||
1.04 | NM | NM | 1.00 | |||||||||||
63 | NM | NM | 60 | |||||||||||
$ | 483,127 | $ | 66,950 | $ | | $ | 550,077 | |||||||
1,313,794 | 65,266 | | 1,379,060 | |||||||||||
* Represents net income applicable to common stock | ||
(d) | The Firm uses return on common equity less goodwill, a non-GAAP financial measure, to evaluate the operating performance of the Firm and to facilitate comparisons to competitors. | |
(e) | The Firm uses return on managed assets, a non-GAAP financial measure, to evaluate the overall performance of the managed credit card portfolio, including securitized credit card loans. |
JPMorgan Chase & Co. / 2008 Annual Report | 39 |
40 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | Total net revenue | Noninterest expense | ||||||||||||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
Investment Bank |
$ | 12,214 | $ | 18,170 | $ | 18,833 | $ | 13,844 | $ | 13,074 | $ | 12,860 | ||||||||||||
Retail Financial Services |
23,520 | 17,305 | 14,825 | 12,077 | 9,905 | 8,927 | ||||||||||||||||||
Card Services |
16,474 | 15,235 | 14,745 | 5,140 | 4,914 | 5,086 | ||||||||||||||||||
Commercial Banking |
4,777 | 4,103 | 3,800 | 1,946 | 1,958 | 1,979 | ||||||||||||||||||
Treasury & Securities Services |
8,134 | 6,945 | 6,109 | 5,223 | 4,580 | 4,266 | ||||||||||||||||||
Asset Management |
7,584 | 8,635 | 6,787 | 5,298 | 5,515 | 4,578 | ||||||||||||||||||
Corporate/Private Equity |
69 | 4,419 | 14 | (28 | ) | 1,757 | 1,147 | |||||||||||||||||
Total |
$ | 72,772 | $ | 74,812 | $ | 65,113 | $ | 43,500 | $ | 41,703 | $ | 38,843 | ||||||||||||
Year ended December 31, | Net income (loss) | Return on equity | ||||||||||||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
Investment Bank |
$ | (1,175 | ) | $ | 3,139 | $ | 3,674 | (5 | )% | 15 | % | 18 | % | |||||||||||
Retail Financial Services |
880 | 2,925 | 3,213 | 5 | 18 | 22 | ||||||||||||||||||
Card Services |
780 | 2,919 | 3,206 | 5 | 21 | 23 | ||||||||||||||||||
Commercial Banking |
1,439 | 1,134 | 1,010 | 20 | 17 | 18 | ||||||||||||||||||
Treasury & Securities Services |
1,767 | 1,397 | 1,090 | 47 | 47 | 48 | ||||||||||||||||||
Asset Management |
1,357 | 1,966 | 1,409 | 24 | 51 | 40 | ||||||||||||||||||
Corporate/Private Equity(c) |
557 | 1,885 | 842 | NM | NM | NM | ||||||||||||||||||
Total |
$ | 5,605 | $ | 15,365 | $ | 14,444 | 4 | % | 13 | % | 13 | % | ||||||||||||
(a) | Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. | |
(c) | Net income included an extraordinary gain of $1.9 billion related to the Washington Mutual transaction for 2008 and income from discontinued operations of $795 million for 2006. |
JPMorgan Chase & Co. / 2008 Annual Report | 41 |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008(g) | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Investment banking fees |
$ | 5,907 | $ | 6,616 | $ | 5,537 | ||||||
Principal transactions(a) |
(7,042 | ) | 4,409 | 9,512 | ||||||||
Lending & deposit-related fees |
463 | 446 | 517 | |||||||||
Asset management, administration
and commissions |
3,064 | 2,701 | 2,240 | |||||||||
All other income(b) |
(462 | ) | (78 | ) | 528 | |||||||
Noninterest revenue |
1,930 | 14,094 | 18,334 | |||||||||
Net interest income(c) |
10,284 | 4,076 | 499 | |||||||||
Total net revenue(d) |
12,214 | 18,170 | 18,833 | |||||||||
Provision for credit losses |
2,015 | 654 | 191 | |||||||||
Credit reimbursement from TSS(e) |
121 | 121 | 121 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense |
7,701 | 7,965 | 8,190 | |||||||||
Noncompensation expense |
6,143 | 5,109 | 4,670 | |||||||||
Total noninterest expense |
13,844 | 13,074 | 12,860 | |||||||||
Income (loss) before income tax
expense (benefit) |
(3,524 | ) | 4,563 | 5,903 | ||||||||
Income tax expense (benefit)(f) |
(2,349 | ) | 1,424 | 2,229 | ||||||||
Net income (loss) |
$ | (1,175 | ) | $ | 3,139 | $ | 3,674 | |||||
Financial ratios |
||||||||||||
ROE |
(5 | )% | 15 | % | 18 | % | ||||||
ROA |
(0.14 | ) | 0.45 | 0.57 | ||||||||
Overhead ratio |
113 | 72 | 68 | |||||||||
Compensation expense as
% of total net revenue |
63 | 44 | 41 | |||||||||
(a) | The 2008 results include net markdowns on mortgage-related exposures and leveraged lending funded and unfunded commitments of $5.9 billion and $4.7 billion, respectively, compared with $1.4 billion and $1.3 billion, respectively, in 2007. | |
(b) | All other income for 2008 decreased from the prior year due to increased revenue sharing agreements with other business segments. All other income for 2007 decreased from the prior year due mainly to losses on loan sales and lower gains on sales of assets. | |
(c) | Net interest income for 2008 increased from the prior year due to an increase in interest-earning assets, including the addition of the Bear Stearns Prime Services business combined with wider spreads on certain fixed income products. The increase in 2007 from the prior year was due primarily to an increase in interest-earning assets. | |
(d) | Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing investments and tax-exempt income from municipal bond investments of $1.7 billion, $927 million and $802 million for 2008, 2007 and 2006,respectively. | |
(e) | TSS is charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. |
(f) | The income tax benefit in 2008 includes the result of reduced deferred tax liabilities on overseas earnings. | |
(g) | Results for 2008 include seven months of the combined Firms (JPMorgan Chases and Bear Stearns) results and five months of heritage JPMorgan Chase results. All prior periods reflect heritage JPMorgan Chase results. |
Year ended December 31, | ||||||||||||
(in millions) | 2008(d) | 2007 | 2006 | |||||||||
Revenue by business |
||||||||||||
Investment banking fees: |
||||||||||||
Advisory |
$ | 2,008 | $ | 2,273 | $ | 1,659 | ||||||
Equity underwriting |
1,749 | 1,713 | 1,178 | |||||||||
Debt underwriting |
2,150 | 2,630 | 2,700 | |||||||||
Total investment banking fees |
5,907 | 6,616 | 5,537 | |||||||||
Fixed income markets(a) |
1,957 | 6,339 | 8,736 | |||||||||
Equity markets(b) |
3,611 | 3,903 | 3,458 | |||||||||
Credit portfolio(c) |
739 | 1,312 | 1,102 | |||||||||
Total net revenue |
$ | 12,214 | $ | 18,170 | $ | 18,833 | ||||||
Revenue by region |
||||||||||||
Americas |
$ | 2,530 | $ | 8,165 | $ | 9,601 | ||||||
Europe/Middle East/Africa |
7,681 | 7,301 | 7,421 | |||||||||
Asia/Pacific |
2,003 | 2,704 | 1,811 | |||||||||
Total net revenue |
$ | 12,214 | $ | 18,170 | $ | 18,833 | ||||||
(a) | Fixed income markets include client and portfolio management revenue related to both market-making and proprietary risk-taking across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets. | |
(b) | Equities markets include client and portfolio management revenue related to market-making and proprietary risk-taking across global equity products, including cash instruments, derivatives and convertibles. | |
(c) | Credit portfolio revenue includes net interest income, fees and the impact of loan sales activity, as well as gains or losses on securities received as part of a loan restructuring, for IBs credit portfolio. Credit portfolio revenue also includes the results of risk management related to the Firms lending and derivative activities, and changes in the credit valuation adjustment, which is the component of the fair value of a derivative that reflects the credit quality of the counterparty. Additionally, credit portfolio revenue incorporates an adjustment to the valuation of the Firms derivative liabilities as a result of the adoption of SFAS 157 on January 1, 2007. See pages 8099 of the Credit Risk Management section of this Annual Report for further discussion. | |
(d) | Results for 2008 include seven months of the combined Firms (JPMorgan Chases and Bear Stearns) results and five months of heritage JPMorgan Chase results. All prior periods reflect heritage JPMorgan Chase results. |
42 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except headcount) | 2008 | 2007 | 2006 | |||||||||
Selected balance sheet data
(period-end) |
||||||||||||
Equity |
$ | 33,000 | $ | 21,000 | $ | 21,000 | ||||||
Selected balance sheet data
(average) |
||||||||||||
Total assets |
$ | 832,729 | $ | 700,565 | $ | 647,569 | ||||||
Trading assetsdebt and
equity instruments(a) |
350,812 | 359,775 | 275,077 | |||||||||
Trading assetsderivative
receivables |
112,337 | 63,198 | 54,541 | |||||||||
Loans: |
||||||||||||
Loans retained(b) |
73,108 | 62,247 | 58,846 | |||||||||
Loans held-for-sale and loans
at fair value(a) |
18,502 | 17,723 | 21,745 | |||||||||
Total loans |
91,610 | 79,970 | 80,591 | |||||||||
Adjusted assets(c) |
679,780 | 611,749 | 527,753 | |||||||||
Equity |
26,098 | 21,000 | 20,753 | |||||||||
Headcount |
27,938 | 25,543 | 23,729 | |||||||||
(a) | As a result of the adoption of SFAS 159 in the first quarter of 2007, $11.7 billion of loans were reclassified to trading assets. Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off (recovery) rate. | |
(b) | Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans at fair value. | |
(c) | Adjusted assets, a non-GAAP financial measure, equals total assets minus (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of variable interest entities (VIEs) consolidated under FIN 46R; (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral; and (6) investments purchased under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The amount of adjusted assets is presented to assist the reader in comparing IBs asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a companys capital adequacy. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry. |
JPMorgan Chase & Co. / 2008 Annual Report | 43 |
Year ended December 31, | ||||||||||||
(in millions, except ratio data) | 2008 | 2007 | 2006 | |||||||||
Credit data and quality
statistics |
||||||||||||
Net charge-offs (recoveries) |
$ | 105 | $ | 36 | $ | (31 | ) | |||||
Nonperforming assets: |
||||||||||||
Nonperforming loans(a) |
1,175 | 353 | 231 | |||||||||
Other nonperforming assets |
1,326 | 100 | 38 | |||||||||
Total nonperforming assets |
2,501 | 453 | 269 | |||||||||
Allowance for credit losses: |
||||||||||||
Allowance for loan losses |
3,444 | 1,329 | 1,052 | |||||||||
Allowance for lending-related
commitments |
360 | 560 | 305 | |||||||||
Total allowance for credit losses |
3,804 | 1,889 | 1,357 | |||||||||
Net charge-off (recovery) rate(a)(b)(c) |
0.14 | % | 0.06 | % | (0.05 | )% | ||||||
Allowance for loan losses to
average loans(a)(b)(c) |
4.71 | (h) | 2.14 | (h) | 1.79 | |||||||
Allowance for loan losses to
nonperforming loans(a) |
301 | 439 | 461 | |||||||||
Nonperforming loans to average
loans |
1.28 | 0.44 | 0.29 | |||||||||
Market riskaverage trading
and credit portfolio VaR
99% confidence level(d) |
||||||||||||
Trading activities: |
||||||||||||
Fixed income |
$ | 181 | $ | 80 | $ | 56 | ||||||
Foreign exchange |
34 | 23 | 22 | |||||||||
Equities |
57 | 48 | 31 | |||||||||
Commodities and other |
32 | 33 | 45 | |||||||||
Diversification(e) |
(108 | ) | (77 | ) | (70 | ) | ||||||
Total trading VaR(f) |
196 | 107 | 84 | |||||||||
Credit portfolio VaR(g) |
69 | 17 | 15 | |||||||||
Diversification(e) |
(63 | ) | (18 | ) | (11 | ) | ||||||
Total trading and credit
portfolio VaR |
$ | 202 | $ | 106 | $ | 88 | ||||||
(a) | Nonperforming loans included loans held-for-sale and loans at fair value of $32 million, $50 million and $3 million at December 31, 2008, 2007 and 2006, respectively, which were excluded from the allowance coverage ratios. Nonperforming loans at December 31, 2006, excluded distressed loans held-for-sale that were purchased as part of IBs proprietary activities. As a result of the adoption of SFAS 159 in the first quarter of 2007, these loans were reclassified to trading assets. | |
(b) | As a result of the adoption of SFAS 159 in the first quarter of 2007, $11.7 billion of loans were reclassified to trading assets. | |
(c) | Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off (recovery) rate. | |
(d) | Results for 2008 include seven months of the combined Firms (JPMorgan Chases and Bear Stearns) results and five months of heritage JPMorgan Chase results. All prior periods reflect heritage JPMorgan Chase results. For a more complete description of value-at-risk (VaR), see pages 100103 of this Annual Report. | |
(e) | Average VaRs were less than the sum of the VaRs of their market risk components, which was due to risk offsets resulting from portfolio diversification. The diversification effect reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is usually less than the sum of the risks of the positions themselves. | |
(f) | Trading VaR includes predominantly all trading activities in IB; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include VaR related to held-for-sale funded loans and unfunded commitments, nor the debit valuation adjustments (DVA) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See the DVA Sensitivity table on page 103 of this Annual Report for further details. Trading VaR also does not include the MSR portfolio or VaR related to other corporate functions, such as Corporate/Private Equity. Beginning in the fourth quarter of 2008, trading VaR includes the estimated credit spread sensitivity of certain mortgage products. | |
(g) | Included VaR on derivative credit valuation adjustments (CVA), hedges of the CVA and mark-to-market hedges of the retained loan portfolio, which were all reported in principal transactions revenue. This VaR does not include the retained loan portfolio. | |
(h) | Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio would be 4.84% for 2008. The average balance of the loan extended to Bear Stearns was $1.9 billion for 2008. The allowance for loan losses to period-end loans was 4.83% and 1.92% at December 31, 2008 and 2007, respectively. |
2008 | 2007 | 2006 | ||||||||||||||||||||||
Market | Market | Market | ||||||||||||||||||||||
December 31, | share | Rankings | share | Rankings | share | Rankings | ||||||||||||||||||
Global debt, equity
and equity-related |
10% | #1 | 8% | #2 | 7% | #2 | ||||||||||||||||||
Global syndicated loans |
12 | 1 | 13 | 1 | 14 | 1 | ||||||||||||||||||
Global long-term debt (b) |
9 | 2 | 7 | 3 | 6 | 3 | ||||||||||||||||||
Global equity and
equity-related(c) |
12 | 1 | 9 | 2 | 7 | 6 | ||||||||||||||||||
Global announced
M&A(d) |
27 | 2 | 27 | 4 | 26 | 4 | ||||||||||||||||||
U.S. debt, equity and
equity-related |
16 | 1 | 10 | 2 | 9 | 2 | ||||||||||||||||||
U.S. syndicated loans |
26 | 1 | 24 | 1 | 26 | 1 | ||||||||||||||||||
U.S. long-term debt(b) |
15 | 1 | 10 | 2 | 9 | 2 | ||||||||||||||||||
U.S. equity and
equity-related(c) |
16 | 1 | 11 | 5 | 8 | 6 | ||||||||||||||||||
U.S. announced M&A(d) |
33 | 3 | 28 | 3 | 29 | 3 | ||||||||||||||||||
(a) | Source: Thomson Reuters. The results for 2008 are pro forma for the Bear Stearns merger. The results for 2007 and 2006 represent heritage JPMorgan Chase only. | |
(b) | Includes asset-backed securities, mortgage-backed securities and municipal securities. | |
(c) | Includes rights offerings; U.S. domiciled equity and equity-related transactions. | |
(d) | Global announced M&A is based upon rank value; all other rankings are based upon proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. Global and U.S. announced M&A market share and rankings for 2007 and 2006 include transactions withdrawn since December 31, 2007 and 2006. U.S. announced M&A represents any U.S. involvement ranking. |
44 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Lending & deposit-related fees |
$ | 2,546 | $ | 1,881 | $ | 1,597 | ||||||
Asset management, administration
and commissions |
1,510 | 1,275 | 1,422 | |||||||||
Securities gains (losses) |
| 1 | (57 | ) | ||||||||
Mortgage fees and related income(a) |
3,621 | 2,094 | 618 | |||||||||
Credit card income |
939 | 646 | 523 | |||||||||
Other income |
739 | 882 | 557 | |||||||||
Noninterest revenue |
9,355 | 6,779 | 4,660 | |||||||||
Net interest income |
14,165 | 10,526 | 10,165 | |||||||||
Total net revenue |
23,520 | 17,305 | 14,825 | |||||||||
Provision for credit losses |
9,905 | 2,610 | 561 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense(a) |
5,068 | 4,369 | 3,657 | |||||||||
Noncompensation expense(a) |
6,612 | 5,071 | 4,806 | |||||||||
Amortization of intangibles |
397 | 465 | 464 | |||||||||
Total noninterest expense |
12,077 | 9,905 | 8,927 | |||||||||
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Income before income
tax expense |
1,538 | 4,790 | 5,337 | |||||||||
Income tax expense |
658 | 1,865 | 2,124 | |||||||||
Net income |
$ | 880 | $ | 2,925 | $ | 3,213 | ||||||
Financial ratios |
||||||||||||
ROE |
5 | % | 18 | % | 22 | % | ||||||
Overhead ratio |
51 | 57 | 60 | |||||||||
Overhead ratio excluding core
deposit intangibles(b) |
50 | 55 | 57 | |||||||||
(a) | The Firm adopted SFAS 159 in the first quarter of 2007. As a result, beginning in the first quarter of 2007, certain loan-origination costs have been classified as expense. | |
(b) | Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation results in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes Retail Bakings core deposit intangible amortization expense related to the Bank of New York transaction and the Bank One merger of $394 million, $460 million and $458 million for the years ended December 31, 2008, 2007 and 2006, respectively. |
JPMorgan Chase & Co. / 2008 Annual Report | 45 |
Year ended December 31, | ||||||||||||
(in millions, except headcount | ||||||||||||
and ratios) | 2008 | 2007 | 2006 | |||||||||
Selected
balance sheet data period-end |
||||||||||||
Assets |
$ | 419,831 | $ | 256,351 | $ | 237,887 | ||||||
Loans: |
||||||||||||
Loans retained |
368,786 | 211,324 | 180,760 | |||||||||
Loans held-for-sale and loans
at fair value(a) |
9,996 | 16,541 | 32,744 | |||||||||
Total loans |
378,782 | 227,865 | 213,504 | |||||||||
Deposits |
360,451 | 221,129 | 214,081 | |||||||||
Equity |
25,000 | 16,000 | 16,000 | |||||||||
Selected balance sheet data
(average) |
||||||||||||
Assets |
$ | 304,442 | $ | 241,112 | $ | 231,566 | ||||||
Loans: |
||||||||||||
Loans retained |
257,083 | 191,645 | 187,753 | |||||||||
Loans held-for-sale and loans
at fair value(a) |
17,056 | 22,587 | 16,129 | |||||||||
Total loans |
274,139 | 214,232 | 203,882 | |||||||||
Deposits |
258,362 | 218,062 | 201,127 | |||||||||
Equity |
19,011 | 16,000 | 14,629 | |||||||||
Headcount |
102,007 | 69,465 | 65,570 | |||||||||
Credit data and quality
statistics |
||||||||||||
Net charge-offs |
$ | 4,877 | $ | 1,350 | $ | 576 | ||||||
Nonperforming loans(b)(c)(d)(e) |
6,784 | 2,828 | 1,677 | |||||||||
Nonperforming assets(b)(c)(d)(e) |
9,077 | 3,378 | 1,902 | |||||||||
Allowance for loan losses |
8,918 | 2,668 | 1,392 | |||||||||
Net charge-off rate(f) |
1.90 | % | 0.70 | % | 0.31 | % | ||||||
Net charge-off rate excluding
credit-impaired loans(f)(g) |
2.08 | 0.70 | 0.31 | |||||||||
Allowance for loan losses to
ending loans(f) |
2.42 | 1.26 | 0.77 | |||||||||
Allowance for loan losses to ending
loans excluding purchased
credit-impaired loans(f)(g) |
3.19 | 1.26 | 0.77 | |||||||||
Allowance for loan losses to
nonperforming loans(f) |
136 | 97 | 89 | |||||||||
Nonperforming loans to total loans |
1.79 | 1.24 | 0.79 | |||||||||
(a) | Loans included prime mortgage loans originated with the intent to sell, which, for new originations on or after January 1, 2007, were accounted for at fair value under SFAS 159. These loans, classified as trading assets on the Consolidated Balance Sheets, totaled $8.0 billion and $12.6 billion at December 31, 2008 and 2007, respectively. Average loans included prime mortgage loans, classified as trading assets on the Consolidated Balance Sheets, of $14.2 billion and $11.9 billion for the years ended December 31, 2008 and 2007, respectively. | |
(b) | Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans were accounted for on a pool basis and the pools are considered to be performing under SOP 03-3. | |
(c) | Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair value of $236 million, $69 million and $116 million at December 31, 2008, 2007 and 2006, respectively. Certain of these loans are classified as trading assets on the Consolidated Balance Sheets. | |
(d) | Nonperforming loans and assets excluded (1) loans eligible for repurchase as well as loans repurchased from Governmental National Mortgage Association (GNMA) pools that are insured by U.S. government agencies of $3.3 billion, $1.5 billion and $1.2 billion at December 31, 2008, 2007 and 2006, respectively, and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $437 million, $417 million and $387 million at December 31, 2008, 2007 and 2006, respectively. These amounts were excluded, as reimbursement is proceeding normally. |
46 | JPMorgan Chase & Co. / 2008 Annual Report |
(e) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Amounts for 2006 have not been revised as the impact was not material. | |
(f) | Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratio and the net charge-off rate. | |
(g) | Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction at December 31, 2008. These loans were accounted for at fair value on the acquisition date, which included the impact of credit losses over the remaining life of the portfolio. Accordingly, no allowance for loan losses has been recorded for these loans. |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Noninterest revenue |
$ | 4,951 | $ | 3,763 | $ | 3,259 | ||||||
Net interest income |
7,659 | 6,193 | 5,698 | |||||||||
Total net revenue |
12,610 | 9,956 | 8,957 | |||||||||
Provision for credit losses |
449 | 79 | 114 | |||||||||
Noninterest expense |
7,232 | 6,166 | 5,667 | |||||||||
Income before income
tax expense |
4,929 | 3,711 | 3,176 | |||||||||
Net income |
$ | 2,982 | $ | 2,245 | $ | 1,922 | ||||||
Overhead ratio |
57 | % | 62 | % | 63 | % | ||||||
Overhead ratio excluding core
deposit intangibles(a) |
54 | 57 | 58 | |||||||||
(a) | Retail Banking uses the overhead ratio (excluding the amortization of core deposit intangibles (CDI)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation results in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would result in an improving overhead ratio over time, all things remaining equal. This ratio excludes Retail Bakings core deposit intangible amortization expense related to the Bank of New York transaction and the Bank One merger of $394 million, $460 million and $458 million for the years ended December 31, 2008, 2007 and 2006, respectively. |
Year ended December 31, | ||||||||||||
(in billions, except ratios and | ||||||||||||
where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Business metrics |
||||||||||||
Selected ending balances |
||||||||||||
Business banking origination
volume |
$ | 5.5 | $ | 6.9 | $ | 5.7 | ||||||
End-of-period loans owned |
18.4 | 15.6 | 14.0 | |||||||||
End-of-period deposits |
||||||||||||
Checking |
$ | 109.2 | $ | 66.9 | $ | 67.1 | ||||||
Savings |
144.0 | 96.0 | 91.5 | |||||||||
Time and other |
89.1 | 48.6 | 43.2 | |||||||||
Total end-of-period deposits |
342.3 | 211.5 | 201.8 | |||||||||
Average loans owned |
$ | 16.7 | $ | 14.9 | $ | 13.4 | ||||||
Average deposits |
||||||||||||
Checking |
$ | 77.1 | $ | 65.8 | $ | 62.7 | ||||||
Savings |
114.3 | 97.1 | 89.7 | |||||||||
Time and other |
53.2 | 43.8 | 37.5 | |||||||||
Total average deposits |
244.6 | 206.7 | 189.9 | |||||||||
Deposit margin |
2.89 | % | 2.72 | % | 2.74 | % | ||||||
Average assets |
$ | 26.3 | $ | 25.0 | $ | 20.5 | ||||||
Credit data and quality statistics
(in millions, except ratio) |
||||||||||||
Net charge-offs |
$ | 346 | $ | 163 | $ | 114 | ||||||
Net charge-off rate |
2.07 | % | 1.09 | % | 0.85 | % | ||||||
Nonperforming assets |
$ | 424 | $ | 294 | $ | 244 | ||||||
Retail branch business metrics
|
||||||||||||
Year ended December 31, | 2008 | 2007 | 2006 | |||||||||
Investment sales volume
(in millions) |
$ | 17,640 | $ | 18,360 | $ | 14,882 | ||||||
Number of: |
||||||||||||
Branches |
5,474 | 3,152 | 3,079 | |||||||||
ATMs |
14,568 | 9,186 | 8,506 | |||||||||
Personal bankers(a) |
15,825 | 9,650 | 7,573 | |||||||||
Sales specialists(a) |
5,661 | 4,105 | 3,614 | |||||||||
Active online customers
(in thousands) |
11,710 | 5,918 | 4,909 | |||||||||
Checking accounts
(in thousands) |
24,499 | 10,839 | 9,995 | |||||||||
(a) | Employees acquired as part of the Bank of New York transaction are included beginning in 2007. |
Year ended December 31, | ||||||||||||
(in millions, except ratio) | 2008 | 2007 | 2006 | |||||||||
Noninterest revenue |
$ | 4,404 | $ | 3,016 | $ | 1,401 | ||||||
Net interest income |
6,506 | 4,333 | 4,467 | |||||||||
Total net revenue |
10,910 | 7,349 | 5,868 | |||||||||
Provision for credit losses |
9,456 | 2,531 | 447 | |||||||||
Noninterest expense |
4,845 | 3,739 | 3,260 | |||||||||
Income (loss) before income
tax expense |
(3,391 | ) | 1,079 | 2,161 | ||||||||
Net income (loss) |
$ | (2,102 | ) | $ | 680 | $ | 1,291 | |||||
Overhead ratio |
44 | % | 51 | % | 56 | % | ||||||
JPMorgan Chase & Co. / 2008 Annual Report | 47 |
Year ended December 31, | ||||||||||||
(in billions) | 2008 | 2007 | 2006 | |||||||||
Business metrics |
||||||||||||
Selected ending balances |
||||||||||||
Loans
excluding purchased credit-impaired |
||||||||||||
End-of-period loans owned |
||||||||||||
Home equity |
$ | 114.3 | $ | 94.8 | $ | 85.7 | ||||||
Prime mortgage |
65.2 | 34.0 | 46.5 | |||||||||
Subprime mortgage |
15.3 | 15.5 | 13.2 | |||||||||
Option ARMs |
9.0 | | | |||||||||
Student loans |
15.9 | 11.0 | 10.3 | |||||||||
Auto |
42.6 | 42.3 | 41.0 | |||||||||
Other |
1.3 | 2.1 | 2.8 | |||||||||
Total end-of-period loans |
$ | 263.6 | $ | 199.7 | $ | 199.5 | ||||||
Average loans owned |
||||||||||||
Home equity |
$ | 99.9 | $ | 90.4 | $ | 78.3 | ||||||
Prime mortgage |
45.0 | 30.4 | 43.3 | |||||||||
Subprime mortgage |
15.3 | 12.7 | 15.4 | |||||||||
Option ARMs |
2.3 | | | |||||||||
Student loans |
13.6 | 10.5 | 8.3 | |||||||||
Auto |
43.8 | 41.1 | 42.7 | |||||||||
Other loans |
1.1 | 2.3 | 2.4 | |||||||||
Total average loans |
$ | 221.0 | $ | 187.4 | $ | 190.4 | ||||||
Year ended December 31, | ||||||||||||
(in billions) | 2008 | 2007 | 2006 | |||||||||
Purchased credit-impaired loans(a) | ||||||||||||
End-of-period loans owned |
||||||||||||
Home equity |
$ | 28.6 | $ | | $ | | ||||||
Prime mortgage |
21.8 | | | |||||||||
Subprime mortgage |
6.8 | | | |||||||||
Option ARMs |
31.6 | | | |||||||||
Total end-of-period loans |
$ | 88.8 | $ | | $ | | ||||||
Average loans owned |
||||||||||||
Home equity |
$ | 7.1 | $ | | $ | | ||||||
Prime mortgage |
5.4 | | | |||||||||
Subprime mortgage |
1.7 | | | |||||||||
Option ARMs |
8.0 | | | |||||||||
Total average loans |
$ | 22.2 | $ | | $ | | ||||||
48 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in billions) | 2008 | 2007 | 2006 | |||||||||
Total consumer lending portfolio |
||||||||||||
End-of-period loans owned |
||||||||||||
Home equity |
$ | 142.9 | $ | 94.8 | $ | 85.7 | ||||||
Prime mortgage |
87.0 | 34.0 | 46.5 | |||||||||
Subprime mortgage |
22.1 | 15.5 | 13.2 | |||||||||
Option ARMs |
40.6 | | | |||||||||
Student loans |
15.9 | 11.0 | 10.3 | |||||||||
Auto loans |
42.6 | 42.3 | 41.0 | |||||||||
Other |
1.3 | 2.1 | 2.8 | |||||||||
Total end-of-period loans |
$ | 352.4 | $ | 199.7 | $ | 199.5 | ||||||
Average loans owned |
||||||||||||
Home equity |
$ | 107.0 | $ | 90.4 | $ | 78.3 | ||||||
Prime mortgage |
50.4 | 30.4 | 43.3 | |||||||||
Subprime mortgage |
17.0 | 12.7 | 15.4 | |||||||||
Option ARMs |
10.3 | | | |||||||||
Student loans |
13.6 | 10.5 | 8.3 | |||||||||
Auto loans |
43.8 | 41.1 | 42.7 | |||||||||
Other |
1.1 | 2.3 | 2.4 | |||||||||
Total average loans owned(b) |
$ | 243.2 | $ | 187.4 | $ | 190.4 | ||||||
(a) | Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction that are accounted for under SOP 03-3. | |
(b) | Total average loans owned includes loans held-for-sale of $2.8 billion, $10.6 billion and $16.1 billion for the years ended December 31, 2008, 2007 and 2006, respectively. |
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Net charge-offs excluding
purchased credit-impaired(a) |
||||||||||||
Home equity |
$ | 2,391 | $ | 564 | $ | 143 | ||||||
Prime mortgage |
526 | 33 | 9 | |||||||||
Subprime mortgage |
933 | 157 | 47 | |||||||||
Option ARMs |
| | | |||||||||
Auto loans |
568 | 354 | 238 | |||||||||
Other |
113 | 79 | 25 | |||||||||
Total net
charge-offs |
$ | 4,531 | 1,187 | 462 | ||||||||
Net charge-off rate excluding
purchased credit-impaired(a) |
||||||||||||
Home equity |
2.39 | % | 0.62 | % | 0.18 | % | ||||||
Prime mortgage |
1.18 | 0.13 | 0.03 | |||||||||
Subprime mortgage |
6.10 | 1.55 | 0.34 | |||||||||
Option ARMs |
| | | |||||||||
Auto loans |
1.30 | 0.86 | 0.56 | |||||||||
Other |
0.93 | 0.88 | 0.31 | |||||||||
Total net charge-off rate
excluding purchased
credit-impaired(b) |
2.08 | 0.67 | 0.27 | |||||||||
Net charge-off rate reported |
||||||||||||
Home equity |
2.23 | % | 0.62 | % | 0.18 | % | ||||||
Prime mortgage |
1.05 | 0.13 | 0.03 | |||||||||
Subprime mortgage |
5.49 | 1.55 | 0.34 | |||||||||
Option ARMs |
| | | |||||||||
Auto loans |
1.30 | 0.86 | 0.56 | |||||||||
Other |
0.93 | 0.88 | 0.31 | |||||||||
Total net charge-off rate(b) |
1.89 | 0.67 | 0.27 | |||||||||
30+ day
delinquency rate excluding purchased credit-impaired(c)(d)(e) |
4.21 | % | 3.10 | % | 1.80 | % | ||||||
Nonperforming assets(f)(g)(h) |
$ | 8,653 | $ | 3,084 | $ | 1,658 | ||||||
Allowance for loan losses to
ending loans |
2.36 | % | 1.24 | % | 0.64 | % | ||||||
Allowance for loan losses to
ending loans excluding purchased
credit-impaired loans(a) |
3.16 | 1.24 | 0.64 | |||||||||
(a) | Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. Under SOP 03-3, these loans were accounted for at fair value on the acquisition date, which includes the impact of estimated credit losses over the remaining lives of the loans. Accordingly, no charge-offs and no allowance for loan losses has been recorded for these loans. | |
(b) | Average loans included loans held-for-sale of $2.8 billion, $10.6 billion and $16.1 billion for the years ended December 31, 2008, 2007 and 2006, respectively. These amounts were excluded when calculating the net charge-off rate. | |
(c) | Excluded loans eligible for repurchase as well as loans repurchased from GNMA pools that are insured by U.S. government agencies of $3.2 billion, $1.2 billion and $960 million, at December 31, 2008 ,2007 and 2006, respectively. These amounts were excluded, as reimbursement is proceeding normally. | |
(d) | Excluded loans that are 30 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $824 million, $663 million and $464 million at December 31, 2008, 2007 and 2006, respectively. These amounts are excluded as reimbursement is proceeding normally. | |
(e) | Excludes purchased credit-impaired loans. The 30+ day delinquency rate for these loans was 17.89% at December 31, 2008. There were no purchased credit-impaired loans at December 31, 2007 and 2006. | |
(f) | Nonperforming assets excluded (1) loans eligible for repurchase as well as loans repurchased from Governmental National Mortgage Association (GNMA) pools that are insured by U.S. government agencies of $3.3 billion, $1.5 billion and $1.2 billion at December 31, 2008, 2007 and 2006, respectively, and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $437 million, $417 million and $387 million at December 31, 2008, 2007 and 2006, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally. | |
(g) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Amounts for 2006 have not been revised as the impact was not material. | |
(h) | Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and the pools are considered to be performing under SOP 03-3. |
JPMorgan Chase & Co. / 2008 Annual Report | 49 |
Consumer Lending (continued) | ||||||||||||
(in billions, except ratios and where | ||||||||||||
otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Origination volume |
||||||||||||
Mortgage origination volume
by channel |
||||||||||||
Retail |
$ | 41.1 | $ | 45.5 | $ | 40.5 | ||||||
Wholesale |
29.4 | 42.7 | 32.8 | |||||||||
Correspondent |
55.5 | 27.9 | 13.3 | |||||||||
CNT (negotiated transactions) |
43.0 | 43.3 | 32.6 | |||||||||
Total mortgage origination
volume |
169.0 | 159.4 | 119.2 | |||||||||
Home equity |
16.3 | 48.3 | 51.9 | |||||||||
Student loans |
6.9 | 7.0 | 8.1 | |||||||||
Auto |
19.4 | 21.3 | 19.3 | |||||||||
Avg. mortgage loans held-for-sale
and loans at fair value(a) |
14.6 | 18.8 | 12.9 | |||||||||
Average assets |
278.1 | 216.1 | 211.1 | |||||||||
Third-party mortgage loans serviced
(ending) |
1,172.6 | 614.7 | 526.7 | |||||||||
MSR net carrying value (ending) |
9.3 | 8.6 | 7.5 | |||||||||
Supplemental mortgage fees and
related income details (in millions) |
||||||||||||
Production revenue |
$ | 898 | $ | 880 | $ | 304 | ||||||
Net mortgage servicing revenue: |
||||||||||||
Loan servicing revenue |
3,258 | 2,334 | 2,139 | |||||||||
Changes in MSR asset fair value: |
||||||||||||
Due to inputs or assumptions
in model |
(6,849 | ) | (516 | ) | 165 | |||||||
Other changes in fair value |
(2,052 | ) | (1,531 | ) | (1,440 | ) | ||||||
Total changes in MSR asset
fair value |
(8,901 | ) | (2,047 | ) | (1,275 | ) | ||||||
Derivative valuation adjustments
and other |
8,366 | 927 | (550 | ) | ||||||||
Total net mortgage servicing
revenue |
2,723 | 1,214 | 314 | |||||||||
Mortgage fees and related income |
3,621 | 2,094 | 618 | |||||||||
(a) | Included $14.2 billion and $11.9 billion of prime mortgage loans at fair value for the years ended December 31, 2008 and 2007, respectively. |
50 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Credit card income |
$ | 2,768 | $ | 2,685 | $ | 2,587 | ||||||
All other income |
(49 | ) | 361 | 357 | ||||||||
Noninterest revenue |
2,719 | 3,046 | 2,944 | |||||||||
Net interest income |
13,755 | 12,189 | 11,801 | |||||||||
Total net revenue |
16,474 | 15,235 | 14,745 | |||||||||
Provision for credit losses |
10,059 | 5,711 | 4,598 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense |
1,127 | 1,021 | 1,003 | |||||||||
Noncompensation expense |
3,356 | 3,173 | 3,344 | |||||||||
Amortization of intangibles |
657 | 720 | 739 | |||||||||
Total noninterest expense |
5,140 | 4,914 | 5,086 | |||||||||
Income before income tax
expense |
1,275 | 4,610 | 5,061 | |||||||||
Income tax expense |
495 | 1,691 | 1,855 | |||||||||
Net income |
$ | 780 | $ | 2,919 | $ | 3,206 | ||||||
Memo: Net securitization
gains (amortization) |
$ | (183 | ) | $ | 67 | $ | 82 | |||||
Financial ratios |
||||||||||||
ROE |
5 | % | 21 | % | 23 | % | ||||||
Overhead ratio |
31 | 32 | 34 | |||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 51 |
| Charge volume Represents the dollar amount of cardmember purchases, balance transfers and cash advance activity. | |
| Net accounts opened Includes originations, purchases and sales. | |
| Merchant acquiring business Represents a business that processes bank card transactions for merchants. |
Bank card volume Represents the dollar amount of transactions processed for merchants. | |
Total transactions Represents the number of transactions and authorizations processed for merchants. |
52 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except headcount, ratios | ||||||||||||
and where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Financial metrics |
||||||||||||
% of average managed outstandings: |
||||||||||||
Net interest income |
8.45 | % | 8.16 | % | 8.36 | % | ||||||
Provision for credit losses |
6.18 | 3.82 | 3.26 | |||||||||
Noninterest revenue |
1.67 | 2.04 | 2.09 | |||||||||
Risk adjusted margin(a) |
3.94 | 6.38 | 7.19 | |||||||||
Noninterest expense |
3.16 | 3.29 | 3.60 | |||||||||
Pretax income (ROO)(b) |
0.78 | 3.09 | 3.59 | |||||||||
Net income |
0.48 | 1.95 | 2.27 | |||||||||
Business metrics |
||||||||||||
Charge volume (in billions) |
$ | 368.9 | $ | 354.6 | $ | 339.6 | ||||||
Net accounts opened (in millions)(c) |
27.9 | 16.4 | 45.9 | |||||||||
Credit cards issued (in millions) |
168.7 | 155.0 | 154.4 | |||||||||
Number of registered Internet
customers (in millions) |
35.6 | 28.3 | 22.5 | |||||||||
Merchant acquiring business(d) |
||||||||||||
Bank card volume (in billions) |
$ | 713.9 | $ | 719.1 | $ | 660.6 | ||||||
Total transactions (in billions) |
21.4 | 19.7 | 18.2 | |||||||||
Selected balance sheet data
(period-end) |
||||||||||||
Loans: |
||||||||||||
Loans on balance sheets |
$ | 104,746 | $ | 84,352 | $ | 85,881 | ||||||
Securitized loans |
85,571 | 72,701 | 66,950 | |||||||||
Managed loans |
$ | 190,317 | $ | 157,053 | $ | 152,831 | ||||||
Equity |
$ | 15,000 | $ | 14,100 | $ | 14,100 | ||||||
Selected balance sheet data
(average) |
||||||||||||
Managed assets |
$ | 173,711 | $ | 155,957 | $ | 148,153 | ||||||
Loans: |
||||||||||||
Loans on balance sheets |
$ | 83,293 | $ | 79,980 | $ | 73,740 | ||||||
Securitized loans |
79,566 | 69,338 | 67,367 | |||||||||
Managed average loans |
$ | 162,859 | $ | 149,318 | $ | 141,107 | ||||||
Equity |
$ | 14,326 | $ | 14,100 | $ | 14,100 | ||||||
Headcount |
24,025 | 18,554 | 18,639 | |||||||||
Managed credit quality
statistics |
||||||||||||
Net charge-offs |
$ | 8,159 | $ | 5,496 | $ | 4,698 | ||||||
Net charge-off rate(e) |
5.01 | % | 3.68 | % | 3.33 | % | ||||||
Managed delinquency ratios |
||||||||||||
30+ day(e) |
4.97 | % | 3.48 | % | 3.13 | % | ||||||
90+ day(e) |
2.34 | 1.65 | 1.50 | |||||||||
Allowance for loan losses(f)(i) |
$ | 7,692 | $ | 3,407 | $ | 3,176 | ||||||
Allowance for loan losses to
period-end
loans(f) |
7.34 | % | 4.04 | % | 3.70 | % | ||||||
Key stats Washington Mutual only(g) |
||||||||||||
Managed loans |
$ | 28,250 | ||||||||||
Managed average loans |
6,964 | |||||||||||
Net interest income(h) |
14.87 | % | ||||||||||
Risk adjusted margin(a)(h) |
4.18 | |||||||||||
Net charge-off rate(e) |
7.11 | |||||||||||
30+ day delinquency rate(e) |
8.50 | |||||||||||
90+ day delinquency rate(e) |
3.75 | |||||||||||
Year ended December 31, | ||||||||||||
(in millions, except headcount, ratios | ||||||||||||
and where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Key stats excluding Washington Mutual |
||||||||||||
Managed loans |
$ | 162,067 | $ | 157,053 | $ | 152,831 | ||||||
Managed average loans |
155,895 | 149,318 | 141,107 | |||||||||
Net interest income(h) |
8.16 | % | 8.16 | % | 8.36 | % | ||||||
Risk adjusted margin(a)(h) |
3.93 | 6.38 | 7.19 | |||||||||
Net charge-off rate |
4.92 | 3.68 | 3.33 | |||||||||
30+ day delinquency rate |
4.36 | 3.48 | 3.13 | |||||||||
90+ day delinquency rate |
2.09 | 1.65 | 1.50 | |||||||||
(a) | Represents total net revenue less provision for credit losses. | |
(b) | Pretax return on average managed outstandings. | |
(c) | Results for 2008 included approximately 13 million credit card accounts acquired in the Washington Mutual transaction. Results for 2006 included approximately 30 million accounts from loan portfolio acquisitions. | |
(d) | The Chase Paymentech Solutions joint venture was dissolved effective November 1, 2008. For the period January 1, 2008 through October 31, 2008, the data presented represent activity for the Chase Paymentech Solutions joint venture and for the period November 1, 2008 through December 31, 2008, the data presented represent activity for Chase Paymentech Solutions. | |
(e) | Results for 2008 reflect the impact of purchase accounting adjustments related to the Washington Mutual transaction. | |
(f) | Based on loans on a reported basis. | |
(g) | Statistics are only presented for periods after September 25, 2008, the date of the Washington Mutual transaction. | |
(h) | As a percentage of average managed outstandings. | |
(i) | The 2008 allowance for loan losses included an amount related to loans acquired in the Washington Mutual transaction. |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Income statement data(a) |
||||||||||||
Credit card income |
||||||||||||
Reported |
$ | 6,082 | $ | 5,940 | $ | 6,096 | ||||||
Securitization adjustments |
(3,314 | ) | (3,255 | ) | (3,509 | ) | ||||||
Managed credit card income |
$ | 2,768 | $ | 2,685 | $ | 2,587 | ||||||
Net interest income |
||||||||||||
Reported |
$ | 6,838 | $ | 6,554 | $ | 6,082 | ||||||
Securitization adjustments |
6,917 | 5,635 | 5,719 | |||||||||
Managed net interest income |
$ | 13,755 | $ | 12,189 | $ | 11,801 | ||||||
Total net revenue |
||||||||||||
Reported |
$ | 12,871 | $ | 12,855 | $ | 12,535 | ||||||
Securitization adjustments |
3,603 | 2,380 | 2,210 | |||||||||
Managed total net revenue |
$ | 16,474 | $ | 15,235 | $ | 14,745 | ||||||
Provision for credit losses |
||||||||||||
Reported |
$ | 6,456 | $ | 3,331 | $ | 2,388 | ||||||
Securitization adjustments |
3,603 | 2,380 | 2,210 | |||||||||
Managed provision for
credit losses |
$ | 10,059 | $ | 5,711 | $ | 4,598 | ||||||
Balance sheet average
balances(a) |
||||||||||||
Total average assets |
||||||||||||
Reported |
$ | 96,807 | $ | 89,177 | $ | 82,887 | ||||||
Securitization adjustments |
76,904 | 66,780 | 65,266 | |||||||||
Managed average assets |
$ | 173,711 | $ | 155,957 | $ | 148,153 | ||||||
Credit quality statistics(a) |
||||||||||||
Net charge-offs |
||||||||||||
Reported |
$ | 4,556 | $ | 3,116 | $ | 2,488 | ||||||
Securitization adjustments |
3,603 | 2,380 | 2,210 | |||||||||
Managed net charge-offs |
$ | 8,159 | $ | 5,496 | $ | 4,698 | ||||||
(a) | For a discussion of managed basis, see the non-GAAP financial measures discussion on pages 3839 of this Annual Report. |
JPMorgan Chase & Co. / 2008 Annual Report | 53 |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Lending & deposit-related fees
|
$ | 854 | $ | 647 | $ | 589 | ||||||
Asset management, administration
and commissions
|
113 | 92 | 67 | |||||||||
All other income(a)
|
514 | 524 | 417 | |||||||||
Noninterest revenue
|
1,481 | 1,263 | 1,073 | |||||||||
Net interest income
|
3,296 | 2,840 | 2,727 | |||||||||
Total net revenue
|
4,777 | 4,103 | 3,800 | |||||||||
Provision for credit losses
|
464 | 279 | 160 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense
|
692 | 706 | 740 | |||||||||
Noncompensation expense
|
1,206 | 1,197 | 1,179 | |||||||||
Amortization of intangibles
|
48 | 55 | 60 | |||||||||
Total noninterest expense
|
1,946 | 1,958 | 1,979 | |||||||||
Income before income tax expense
|
2,367 | 1,866 | 1,661 | |||||||||
Income tax expense
|
928 | 732 | 651 | |||||||||
Net income
|
$ | 1,439 | $ | 1,134 | $ | 1,010 | ||||||
Financial ratios |
||||||||||||
ROE
|
20 | % | 17 | % | 18 | % | ||||||
Overhead ratio
|
41 | 48 | 52 | |||||||||
(a) | Revenue from investment banking products sold to CB clients and commercial card revenue is included in all other income. |
54 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except | ||||||||||||
headcount) | 2008 | 2007 | 2006 | |||||||||
Revenue by product: |
||||||||||||
Lending |
$ | 1,743 | $ | 1,419 | $ | 1,344 | ||||||
Treasury services |
2,648 | 2,350 | 2,243 | |||||||||
Investment banking |
334 | 292 | 253 | |||||||||
Other |
52 | 42 | (40 | ) | ||||||||
Total Commercial Banking
revenue |
$ | 4,777 | $ | 4,103 | $ | 3,800 | ||||||
IB revenue, gross(a) |
$ | 966 | $ | 888 | $ | 716 | ||||||
Revenue by business: |
||||||||||||
Middle Market Banking |
$ | 2,939 | $ | 2,689 | $ | 2,535 | ||||||
Commercial Term Lending(b) |
243 | | | |||||||||
Mid-Corporate Banking |
921 | 815 | 656 | |||||||||
Real Estate Banking(b) |
413 | 421 | 458 | |||||||||
Other(b) |
261 | 178 | 151 | |||||||||
Total Commercial Banking
revenue |
$ | 4,777 | $ | 4,103 | $ | 3,800 | ||||||
Selected balance sheet data
(period-end) |
||||||||||||
Equity |
$ | 8,000 | $ | 6,700 | $ | 6,300 | ||||||
Selected balance sheet data
(average) |
||||||||||||
Total assets |
$ | 114,299 | $ | 87,140 | $ | 57,754 | ||||||
Loans: |
||||||||||||
Loans retained |
81,931 | 60,231 | 53,154 | |||||||||
Loans held-for-sale and loans at
fair value |
406 | 863 | 442 | |||||||||
Total loans |
$ | 82,337 | $ | 61,094 | $ | 53,596 | ||||||
Liability balances(c) |
103,121 | 87,726 | 73,613 | |||||||||
Equity |
$ | 7,251 | $ | 6,502 | $ | 5,702 | ||||||
Average loans by business: |
||||||||||||
Middle Market Banking |
$ | 42,193 | $ | 37,333 | $ | 33,225 | ||||||
Commercial Term Lending(b) |
9,310 | | | |||||||||
Mid-Corporate Banking |
16,297 | 12,481 | 8,632 | |||||||||
Real Estate Banking(b) |
9,008 | 7,116 | 7,566 | |||||||||
Other(b) |
5,529 | 4,164 | 4,173 | |||||||||
Total Commercial Banking
loans |
$ | 82,337 | $ | 61,094 | $ | 53,596 | ||||||
Headcount |
5,206 | 4,125 | 4,459 |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Credit data and quality
statistics: |
||||||||||||
Net charge-offs
|
$ | 288 | $ | 44 | $ | 27 | ||||||
Nonperforming loans(d)
|
1,026 | 146 | 121 | |||||||||
Nonperforming assets
|
1,142 | 148 | 122 | |||||||||
Allowance for credit losses: |
||||||||||||
Allowance for loan losses(e)
|
2,826 | 1,695 | 1,519 | |||||||||
Allowance for lending-related
commitments
|
206 | 236 | 187 | |||||||||
Total allowance for credit losses
|
3,032 | 1,931 | 1,706 | |||||||||
Net charge-off rate(f)
|
0.35 | % | 0.07 | % | 0.05 | % | ||||||
Allowance for loan losses to average loans(d)(f)
|
3.04 | (g) | 2.81 | 2.86 | ||||||||
Allowance for loan losses to
nonperforming
loans(d)
|
275 | 1,161 | 1,255 | |||||||||
Nonperforming loans to average loans(d)
|
1.10 | (g) | 0.24 | 0.23 | ||||||||
(a) | Represents the total revenue related to investment banking products sold to CB clients. | |
(b) | Results for 2008 include total net revenue and average loans acquired in the Washington Mutual transaction. | |
(c) | Liability balances include deposits and deposits swept to on-balance sheet liabilities such as commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements. | |
(d) | Purchased credit-impaired wholesale loans accounted for under SOP 03-3 that were acquired in the Washington Mutual transaction are considered nonperforming loans because the timing and amount of expected cash flows are not reasonably estimable. These nonperforming loans were included when calculating the allowance coverage ratio, the allowance for loan losses to nonperforming loans ratio, and the nonperforming loans to average loans ratio. The carrying amount of these purchased credit- impaired loans was $224 million at December 31, 2008. | |
(e) | Beginning in 2008, the allowance for loan losses included an amount related to loans acquired in the Washington Mutual transaction and the Bear Stearns merger. | |
(f) | Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratio and the net charge-off rate. | |
(g) | The September 30, 2008, ending loan balance of $44.5 billion acquired in the Washington Mutual transaction is treated as if it had been part of the loan balance for the entire third quarter of 2008. |
JPMorgan Chase & Co. / 2008 Annual Report | 55 |
Year ended December 31, | ||||||||||||
(in millions, except ratio data) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Lending & deposit-related fees |
$ | 1,146 | $ | 923 | $ | 735 | ||||||
Asset management, administration |
||||||||||||
and commissions |
3,133 | 3,050 | 2,692 | |||||||||
All other income |
917 | 708 | 612 | |||||||||
Noninterest revenue |
5,196 | 4,681 | 4,039 | |||||||||
Net interest income |
2,938 | 2,264 | 2,070 | |||||||||
Total net revenue |
8,134 | 6,945 | 6,109 | |||||||||
Provision for credit losses |
82 | 19 | (1 | ) | ||||||||
Credit reimbursement to IB(a) |
(121 | ) | (121 | ) | (121 | ) | ||||||
Noninterest expense |
||||||||||||
Compensation expense |
2,602 | 2,353 | 2,198 | |||||||||
Noncompensation expense |
2,556 | 2,161 | 1,995 | |||||||||
Amortization of intangibles |
65 | 66 | 73 | |||||||||
Total noninterest expense |
5,223 | 4,580 | 4,266 | |||||||||
Income before income tax
expense |
2,708 | 2,225 | 1,723 | |||||||||
Income tax expense |
941 | 828 | 633 | |||||||||
Net income |
$ | 1,767 | $ | 1,397 | $ | 1,090 | ||||||
Revenue by business |
||||||||||||
Treasury Services |
$ | 3,555 | $ | 3,013 | $ | 2,792 | ||||||
Worldwide Securities Services |
4,579 | 3,932 | 3,317 | |||||||||
Total net revenue |
$ | 8,134 | $ | 6,945 | $ | 6,109 | ||||||
Financial ratios |
||||||||||||
ROE |
47 | % | 47 | % | 48 | % | ||||||
Overhead ratio |
64 | 66 | 70 | |||||||||
Pretax margin ratio(b) |
33 | 32 | 28 | |||||||||
Year ended December 31, | ||||||||||||||||||||
(in millions, except headcount) | 2008 | 2007 | 2006 | |||||||||||||||||
Selected balance sheet data
(period-end) |
||||||||||||||||||||
Equity |
$ | 4,500 | $ | 3,000 | $ | 2,200 | ||||||||||||||
Selected balance sheet data
(average) |
||||||||||||||||||||
Total assets |
$ | 54,563 | $ | 53,350 | $ | 31,760 | ||||||||||||||
Loans(c) |
26,226 | 20,821 | 15,564 | |||||||||||||||||
Liability balances(d) |
279,833 | 228,925 | 189,540 | |||||||||||||||||
Equity |
3,751 | 3,000 | 2,285 | |||||||||||||||||
Headcount |
27,070 | 25,669 | 25,423 | |||||||||||||||||
(a) | TSS is charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. Beginning in first quarter 2009, income statement and balance sheet items for credit portfolio activity related to joint IB/TSS clients will be reflected proportionally in the respective IB and TSS financials. This will replace the previous approach whereby a credit reimbursement was charged to TSS by IB. | |
(b) | Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors. | |
(c) | Loan balances include wholesale overdrafts, commercial card and trade finance loans. | |
(d) | Liability balances include deposits and deposits swept to on-balance sheet liabilities such as commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements. |
56 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||||||||||
(in millions, except ratio data) | 2008 | 2007 | 2006 | |||||||||||||||||
TSS firmwide disclosures |
||||||||||||||||||||
Treasury Services revenue
reported |
$ | 3,555 | $ | 3,013 | $ | 2,792 | ||||||||||||||
Treasury Services revenue
reported in Commercial Banking |
2,648 | 2,350 | 2,243 | |||||||||||||||||
Treasury Services revenue
reported in other lines of business |
299 | 270 | 207 | |||||||||||||||||
Treasury Services firmwide
revenue(a) |
6,502 | 5,633 | 5,242 | |||||||||||||||||
Worldwide Securities Services revenue |
4,579 | 3,932 | 3,317 | |||||||||||||||||
Treasury & Securities Services
firmwide revenue(a) |
$ | 11,081 | $ | 9,565 | $ | 8,559 | ||||||||||||||
Treasury Services firmwide liability
balances (average)(b) |
$ | 242,706 | $ | 199,077 | $ | 162,020 | ||||||||||||||
Treasury & Securities Services
firmwide liability balances
(average)(b) |
382,947 | 316,651 | 262,678 | |||||||||||||||||
TSS firmwide financial ratios |
||||||||||||||||||||
Treasury Services firmwide overhead
ratio(c) |
51 | % | 56 | % | 56 | % | ||||||||||||||
Treasury & Securities Services
firmwide overhead ratio(c) |
57 | 60 | 62 | |||||||||||||||||
Year ended December 31, | ||||||||||||
(in millions, except ratio data | ||||||||||||
and where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Firmwide business metrics |
||||||||||||
Assets under custody (in billions)
|
$ | 13,205 | $ | 15,946 | $ | 13,903 | ||||||
Number of: |
||||||||||||
U.S.$ ACH transactions originated
(in millions)
|
4,000 | 3,870 | 3,503 | |||||||||
Total U.S.$ clearing volume
(in thousands)
|
115,742 | 111,036 | 104,846 | |||||||||
International electronic funds transfer
volume (in thousands)(d)
|
171,036 | 168,605 | 145,325 | |||||||||
Wholesale check volume
(in millions)
|
2,408 | 2,925 | 3,409 | |||||||||
Wholesale cards issued
(in thousands)(e)
|
22,784 | 18,722 | 17,228 | |||||||||
Credit data and quality
statistics |
||||||||||||
Net charge-offs (recoveries)
|
$ | (2 | ) | $ | | $ | 1 | |||||
Nonperforming loans
|
30 | | | |||||||||
Allowance for loan losses
|
74 | 18 | 7 | |||||||||
Allowance for lending-related
commitments
|
63 | 32 | 1 | |||||||||
Net charge-off (recovery) rate
|
(0.01 | )% | | % | 0.01 | % | ||||||
Allowance for loan losses to
average loans
|
0.28 | 0.09 | 0.04 | |||||||||
Allowance for loan losses to
nonperforming loans
|
247 | NM | NM | |||||||||
Nonperforming loans to average
loans
|
0.11 | | | |||||||||
(a) | TSS firmwide FX revenue, which includes FX revenue recorded in TSS and FX revenue associated with TSS customers who are FX customers of IB, was $880 million, $552 million and $445 million for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(b) | Firmwide liability balances include TS liability balances recorded in the Commercial Banking line of business. | |
(c) | Overhead ratios have been calculated based upon firmwide revenue and TSS and TS expense, respectively, including those allocated to certain other lines of business. FX revenue and expense recorded in IB for TSS-related FX activity are not included in this ratio. | |
(d) | International electronic funds transfer includes non-U.S. dollar ACH and clearing volume. | |
(e) | Wholesale cards issued include domestic commercial card, stored value card, prepaid card and government electronic benefit card products. |
JPMorgan Chase & Co. / 2008 Annual Report | 57 |
Year ended December 31, | ||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Asset management, administration
and commissions |
$ | 6,004 | $ | 6,821 | $ | 5,295 | ||||||
All other income |
62 | 654 | 521 | |||||||||
Noninterest revenue |
6,066 | 7,475 | 5,816 | |||||||||
Net interest income |
1,518 | 1,160 | 971 | |||||||||
Total net revenue |
7,584 | 8,635 | 6,787 | |||||||||
Provision for credit losses |
85 | (18 | ) | (28 | ) | |||||||
Noninterest expense |
||||||||||||
Compensation expense |
3,216 | 3,521 | 2,777 | |||||||||
Noncompensation expense |
2,000 | 1,915 | 1,713 | |||||||||
Amortization of intangibles |
82 | 79 | 88 | |||||||||
Total noninterest expense |
5,298 | 5,515 | 4,578 | |||||||||
Income before income tax
expense |
2,201 | 3,138 | 2,237 | |||||||||
Income tax expense |
844 | 1,172 | 828 | |||||||||
Net income |
$ | 1,357 | $ | 1,966 | $ | 1,409 | ||||||
Revenue by client segment |
||||||||||||
Private Bank(a) |
$ | 2,565 | $ | 2,362 | $ | 1,686 | ||||||
Institutional |
1,775 | 2,525 | 1,972 | |||||||||
Retail |
1,620 | 2,408 | 1,885 | |||||||||
Private Wealth Management(a) |
1,387 | 1,340 | 1,244 | |||||||||
Bear Stearns
Brokerage |
237 | | | |||||||||
Total net revenue |
$ | 7,584 | $ | 8,635 | $ | 6,787 | ||||||
Financial ratios |
||||||||||||
ROE |
24 | % | 51 | % | 40 | % | ||||||
Overhead ratio |
70 | 64 | 67 | |||||||||
Pretax margin ratio(b) |
29 | 36 | 33 | |||||||||
(a) | In 2008, certain clients were transferred from Private Bank to Private Wealth Management. Prior periods have been revised to conform to this change. | |
(b) | Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors. |
58 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except headcount, ranking | ||||||||||||
data, and where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Business metrics |
||||||||||||
Number of: |
||||||||||||
Client advisors |
1,705 | 1,729 | 1,506 | |||||||||
Retirement planning services
participants |
1,531,000 | 1,501,000 | 1,362,000 | |||||||||
Bear Stearns brokers |
324 | | | |||||||||
% of customer assets in 4 & 5 Star
Funds(a) |
42 | % | 55 | % | 58 | % | ||||||
% of AUM in 1st and 2nd quartiles:(b) |
||||||||||||
1 year |
54 | % | 57 | % | 83 | % | ||||||
3 years |
65 | % | 75 | % | 77 | % | ||||||
5 years |
76 | % | 76 | % | 79 | % | ||||||
Selected balance sheet data
(period-end) |
||||||||||||
Equity |
$ | 7,000 | $ | 4,000 | $ | 3,500 | ||||||
Selected balance sheet data
(average) |
||||||||||||
Total assets |
$ | 65,550 | $ | 51,882 | $ | 43,635 | ||||||
Loans(c) |
38,124 | 29,496 | 26,507 | |||||||||
Deposits |
70,179 | 58,863 | 50,607 | |||||||||
Equity |
5,645 | 3,876 | 3,500 | |||||||||
Headcount |
15,339 | 14,799 | 13,298 | |||||||||
Credit data and quality
statistics |
||||||||||||
Net charge-offs (recoveries) |
$ | 11 | $ | (8 | ) | $ | (19 | ) | ||||
Nonperforming loans |
147 | 12 | 39 | |||||||||
Allowance for loan losses |
191 | 112 | 121 | |||||||||
Allowance for lending-related
commitments |
5 | 7 | 6 | |||||||||
Net charge-off (recovery) rate |
0.03 | % | (0.03 | )% | (0.07 | )% | ||||||
Allowance for loan losses to
average loans |
0.50 | 0.38 | 0.46 | |||||||||
Allowance for loan losses to
nonperforming loans |
130 | 933 | 310 | |||||||||
Nonperforming loans to average loans |
0.39 | 0.04 | 0.15 | |||||||||
(a) | Derived from following rating services: Morningstar for the United States; Micropal for the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. | |
(b) | Derived from following rating services: Lipper for the United States and Taiwan; Micropal for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. | |
(c) | Reflects the transfer in 2007 of held-for-investment prime mortgage loans transferred from AM to Corporate within the Corporate/Private Equity segment. |
| Percentage of assets under management in funds rated 4 and 5 stars (3 year). Mutual fund rating services rank funds based on their risk-adjusted performance over various periods. A 5 star rating is the best and represents the top 10% of industry wide ranked funds. A 4 star rating represents the next 22% of industry wide ranked funds. The worst rating is a 1 star rating. | |
| Percentage of assets under management in first- or second- quartile funds (one, three and five years). Mutual fund rating services rank funds according to a peer-based performance system, which measures returns according to specific time and fund classification (small, mid, multi and large cap). |
JPMorgan Chase & Co. / 2008 Annual Report | 59 |
Assets under supervision(a) | ||||||||||||
As of or for the year | ||||||||||||
ended December 31, (in billions) | 2008 | 2007 | 2006 | |||||||||
Assets by asset class |
||||||||||||
Liquidity |
$ | 613 | $ | 400 | $ | 311 | ||||||
Fixed income |
180 | 200 | 175 | |||||||||
Equities & balanced |
240 | 472 | 427 | |||||||||
Alternatives |
100 | 121 | 100 | |||||||||
Total assets under
management |
1,133 | 1,193 | 1,013 | |||||||||
Custody/brokerage/ |
||||||||||||
administration/deposits |
363 | 379 | 334 | |||||||||
Total assets under supervision |
$ | 1,496 | $ | 1,572 | $ | 1,347 | ||||||
Assets by client segment |
||||||||||||
Institutional |
$ | 681 | $ | 632 | $ | 538 | ||||||
Private Bank(b) |
181 | 183 | 142 | |||||||||
Retail |
194 | 300 | 259 | |||||||||
Private Wealth Management(b) |
71 | 78 | 74 | |||||||||
Bear Stearns Brokerage |
6 | | | |||||||||
Total assets under management |
$ | 1,133 | $ | 1,193 | $ | 1,013 | ||||||
Institutional |
$ | 682 | $ | 633 | $ | 539 | ||||||
Private Bank(b) |
378 | 403 | 328 | |||||||||
Retail |
262 | 394 | 343 | |||||||||
Private Wealth Management(b) |
124 | 142 | 137 | |||||||||
Bear Stearns Brokerage |
50 | | | |||||||||
Total assets under supervision |
$ | 1,496 | $ | 1,572 | $ | 1,347 | ||||||
Assets by geographic region | ||||||||||||
As of or for the year | ||||||||||||
ended December 31, (in billions) | 2008 | 2007 | 2006 | |||||||||
U.S./Canada |
$ | 798 | $ | 760 | $ | 630 | ||||||
International |
335 | 433 | 383 | |||||||||
Total assets under management |
$ | 1,133 | $ | 1,193 | $ | 1,013 | ||||||
U.S./Canada |
$ | 1,084 | $ | 1,032 | $ | 889 | ||||||
International |
412 | 540 | 458 | |||||||||
Total assets under supervision |
$ | 1,496 | $ | 1,572 | $ | 1,347 | ||||||
Mutual fund assets by asset class |
||||||||||||
Liquidity |
$ | 553 | $ | 339 | $ | 255 | ||||||
Fixed income |
41 | 46 | 46 | |||||||||
Equities |
99 | 224 | 206 | |||||||||
Total mutual fund assets |
$ | 693 | $ | 609 | $ | 507 | ||||||
Assets under management
rollforward |
||||||||||||
Beginning balance, January 1 |
$ | 1,193 | $ | 1,013 | $ | 847 | ||||||
Net asset flows: |
||||||||||||
Liquidity |
210 | 78 | 44 | |||||||||
Fixed income |
(12 | ) | 9 | 11 | ||||||||
Equities, balanced and alternative |
(47 | ) | 28 | 34 | ||||||||
Market/performance/other impacts(c) |
(211 | ) | 65 | 77 | ||||||||
Ending balance, December 31 |
$ | 1,133 | $ | 1,193 | $ | 1,013 | ||||||
Assets under supervision
rollforward |
||||||||||||
Beginning balance, January 1 |
$ | 1,572 | $ | 1,347 | $ | 1,149 | ||||||
Net asset flows |
181 | 143 | 102 | |||||||||
Market/performance/other impacts(c) |
(257 | ) | 82 | 96 | ||||||||
Ending balance, December 31 |
$ | 1,496 | $ | 1,572 | $ | 1,347 | ||||||
(a) | Excludes assets under management of American Century Companies, Inc., in which the Firm had a 43%, 44% and 43% ownership at December 31, 2008, 2007 and 2006, respectively. | |
(b) | In 2008, certain clients were transferred from Private Bank to Private Wealth Management. Prior periods have been revised to conform to this change. | |
(c) | Includes $15 billion for assets under management and $68 billion for assets under supervision from the Bear Stearns merger in the second quarter of 2008. |
60 | JPMorgan Chase & Co./2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Principal transactions(a)(b) |
$ | (3,588 | ) | $ | 4,552 | $ | 1,181 | |||||
Securities gains (losses)(c) |
1,637 | 39 | (608 | ) | ||||||||
All other income(d) |
1,673 | 465 | 485 | |||||||||
Noninterest revenue |
(278 | ) | 5,056 | 1,058 | ||||||||
Net interest income (expense) |
347 | (637 | ) | (1,044 | ) | |||||||
Total net revenue |
69 | 4,419 | 14 | |||||||||
Provision for credit losses |
447 | (j)(k) | (11 | ) | (1 | ) | ||||||
Provision for credit losses
accounting conformity(e) |
1,534 | | | |||||||||
Noninterest expense |
||||||||||||
Compensation expense |
2,340 | 2,754 | 2,626 | |||||||||
Noncompensation expense(f) |
1,841 | 3,025 | 2,357 | |||||||||
Merger costs |
432 | 209 | 305 | |||||||||
Subtotal |
4,613 | 5,988 | 5,288 | |||||||||
Net expense allocated to other
businesses |
(4,641 | ) | (4,231 | ) | (4,141 | ) | ||||||
Total noninterest expense |
(28 | ) | 1,757 | 1,147 | ||||||||
Income (loss) from continuing
operations before income
tax expense (benefit) |
(1,884 | ) | 2,673 | (1,132 | ) | |||||||
Income tax expense (benefit)(g) |
(535 | ) | 788 | (1,179 | ) | |||||||
Income (loss) from continuing
operations |
(1,349 | ) | 1,885 | 47 | ||||||||
Income from discontinued
operations(h) |
| | 795 | |||||||||
Income before extraordinary gain |
(1,349 | ) | 1,885 | 842 | ||||||||
Extraordinary gain(i) |
1,906 | | | |||||||||
Net income |
$ | 557 | $ | 1,885 | $ | 842 | ||||||
(a) | Included losses on preferred equity interests in Fannie Mae and Freddie Mac in 2008. | |
(b) | The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages 129143 of this Annual Report for additional information. | |
(c) | Included gain on sale of MasterCard shares in 2008. | |
(d) | Included a gain from the dissolution of the Chase Paymentech Solutions joint venture and proceeds from the sale of Visa shares in its initial public offering in 2008. | |
(e) | Represents an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Banks banking operations. For a further discussion, see Consumer Credit Portfolio on page 99 of this Annual Report. | |
(f) | Included a release of credit card litigation reserves in 2008 and insurance recoveries related to settlement of the Enron and WorldCom class action litigations and for certain other material legal proceedings of $512 million for full year 2006. |
(g) | Includes tax benefits recognized upon resolution of tax audits. | |
(h) | Included a $622 million gain from the sale of selected corporate trust businesses in 2006. | |
(i) | Effective September 25, 2008, JPMorgan Chase acquired Washington Mutuals banking operations from the FDIC for $1.9 billion. The fair value of the Washington Mutual net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain in 2008. | |
(j) | In November 2008, the Firm transferred $5.8 billion of higher quality credit card loans from the legacy Chase portfolio to a securitization trust previously established by Washington Mutual (the Trust). As a result of converting higher credit quality Chase-originated on-book receivables to the Trusts sellers interest which has a higher overall loss rate reflective of the total assets within the Trust, approximately $400 million of incremental provision expense was recorded during the fourth quarter. This incremental provision expense was recorded in the Corporate segment as the action related to the acquisition of Washington Mutuals banking operations. For further discussion of credit card securitizations, see Note 16 on pages 169170 of this Annual Report. | |
(k) | Includes $9 million for credit card securitizations related to the Washington Mutual transaction. |
JPMorgan Chase & Co. / 2008 Annual Report | 61 |
Year ended December 31, | ||||||||||||
(in millions, except headcount) | 2008 | 2007 | 2006 | |||||||||
Total net revenue |
||||||||||||
Private equity(a) |
$ | (963 | ) | $ | 3,967 | $ | 1,142 | |||||
Corporate |
1,032 | 452 | (1,128 | ) | ||||||||
Total net revenue |
$ | 69 | $ | 4,419 | $ | 14 | ||||||
Net
income (loss) |
||||||||||||
Private equity(a) |
$ | (690 | ) | $ | 2,165 | $ | 627 | |||||
Corporate(b)(c) |
1,458 | (150 | ) | (391 | ) | |||||||
Merger-related items(d) |
(2,117 | ) | (130 | ) | (189 | ) | ||||||
Income (loss) from continuing
operations |
(1,349 | ) | 1,885 | 47 | ||||||||
Income from discontinued
operations (after-tax)(e) |
| | 795 | |||||||||
Income before extraordinary gain |
(1,349 | ) | 1,885 | 842 | ||||||||
Extraordinary gain |
1,906 | | | |||||||||
Total net income |
$ | 557 | $ | 1,885 | $ | 842 | ||||||
Headcount |
23,376 | 22,512 | 23,242 | |||||||||
(a) | The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages 129143 of this Annual Report for additional information. | |
(b) | Included a release of credit card litigation reserves in 2008 and insurance recoveries related to settlement of the Enron and WorldCom class action litigations and for certain other material legal proceedings of $512 million for full year 2006. | |
(c) | Includes tax benefits recognized upon resolution of tax audits. | |
(d) | Includes an accounting conformity loan loss reserve provision related to the Washington Mutual transaction in 2008. 2008 also reflects items related to the Bear Stearns merger, which included Bear Stearns losses, merger costs, Bear Stearns asset management liquidation costs and Bear Stearns private client services broker retention expense. Prior periods represent costs related to the Bank One transaction in 2004 and the Bank of New York transaction in 2006. | |
(e) | Included a $622 million gain from the sale of selected corporate trust business in 2006. |
62 | JPMorgan Chase & Co./2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Corporate |
||||||||||||
Securities gains (losses)(a) |
$ | 1,652 | $ | 37 | $ | (619 | ) | |||||
Investment securities portfolio
(average)(b) |
106,801 | 85,517 | 63,361 | |||||||||
Investment
securities portfolio (ending)(b) |
166,662 | 76,200 | 82,091 | |||||||||
Mortgage loans (average)(c) |
7,059 | 5,639 | | |||||||||
Mortgage loans (ending)(c) |
7,292 | 6,635 | | |||||||||
Private equity |
||||||||||||
Realized gains |
$ | 1,717 | $ | 2,312 | $ | 1,223 | ||||||
Unrealized gains (losses)(d)(e) |
(2,480 | ) | 1,607 | (1 | ) | |||||||
Total direct investments |
(763 | ) | 3,919 | 1,222 | ||||||||
Third-party fund investments |
(131 | ) | 165 | 77 | ||||||||
Total private equity gains
(losses)(f) |
$ | (894 | ) | $ | 4,084 | $ | 1,299 | |||||
Private equity portfolio
information(g) |
||||||||||||
Direct investments |
||||||||||||
Publicly held securities |
||||||||||||
Carrying value |
$ | 483 | $ | 390 | $ | 587 | ||||||
Cost |
792 | 288 | 451 | |||||||||
Quoted public value |
543 | 536 | 831 | |||||||||
Privately held direct securities |
||||||||||||
Carrying value |
5,564 | 5,914 | 4,692 | |||||||||
Cost |
6,296 | 4,867 | 5,795 | |||||||||
Third-party fund investments(h) |
||||||||||||
Carrying value |
805 | 849 | 802 | |||||||||
Cost |
1,169 | 1,076 | 1,080 | |||||||||
Total private equity
portfolio Carrying value |
$ | 6,852 | $ | 7,153 | $ | 6,081 | ||||||
Total private equity portfolio Cost |
$ | 8,257 | $ | 6,231 | $ | 7,326 | ||||||
(a) | Results for 2008 included a gain on the sale of MasterCard shares. All periods reflect repositioning of the Corporate investment securities portfolio and exclude gains/losses on securities used to manage risk associated with MSRs. | |
(b) | Includes Chief Investment Office investment securities only. | |
(c) | Held-for-investment prime mortgage loans were transferred from AM to the Corporate/Private Equity segment for risk management and reporting purposes. The initial transfer in 2007 had no material impact on the financial results of Corporate/Private Equity. | |
(d) | Unrealized gains (losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized. | |
(e) | The Firm adopted SFAS 157 in the first quarter of 2007. For additional information, see Note 4 on pages 129143 of this Annual Report. | |
(f) | Included in principal transactions revenue in the Consolidated Statements of Income. | |
(g) | For more information on the Firms policies regarding the valuation of the private equity portfolio, see Note 4 on pages 129143 of this Annual Report. | |
(h) | Unfunded commitments to third-party equity funds were $1.4 billion, $881 million and $589 million at December 31, 2008, 2007 and 2006, respectively. |
JPMorgan Chase & Co./2008 Annual Report | 63 |
December 31, (in millions) | 2008 | 2007 | ||||||
Assets |
||||||||
Cash and due from banks |
$ | 26,895 | $ | 40,144 | ||||
Deposits with banks |
138,139 | 11,466 | ||||||
Federal funds sold and securities purchased
under resale agreements |
203,115 | 170,897 | ||||||
Securities borrowed |
124,000 | 84,184 | ||||||
Trading assets: |
||||||||
Debt and equity instruments |
347,357 | 414,273 | ||||||
Derivative receivables |
162,626 | 77,136 | ||||||
Securities |
205,943 | 85,450 | ||||||
Loans |
744,898 | 519,374 | ||||||
Allowance for loan losses |
(23,164 | ) | (9,234 | ) | ||||
Loans, net of allowance for loan losses |
721,734 | 510,140 | ||||||
Accrued interest and accounts receivable |
60,987 | 24,823 | ||||||
Goodwill |
48,027 | 45,270 | ||||||
Other intangible assets |
14,984 | 14,731 | ||||||
Other assets |
121,245 | 83,633 | ||||||
Total assets |
$ | 2,175,052 | $ | 1,562,147 | ||||
Liabilities |
||||||||
Deposits |
$ | 1,009,277 | $ | 740,728 | ||||
Federal funds purchased and securities loaned
or sold under repurchase agreements |
192,546 | 154,398 | ||||||
Commercial paper and other borrowed funds |
170,245 | 78,431 | ||||||
Trading liabilities: |
||||||||
Debt and equity instruments |
45,274 | 89,162 | ||||||
Derivative payables |
121,604 | 68,705 | ||||||
Accounts payable and other liabilities |
187,978 | 94,476 | ||||||
Beneficial interests issued by consolidated VIEs |
10,561 | 14,016 | ||||||
Long-term debt and trust preferred capital
debt securities |
270,683 | 199,010 | ||||||
Total liabilities |
2,008,168 | 1,438,926 | ||||||
Stockholders equity |
166,884 | 123,221 | ||||||
Total liabilities and stockholders
equity |
$ | 2,175,052 | $ | 1,562,147 | ||||
64 | JPMorgan Chase & Co./2008 Annual Report |
JPMorgan Chase & Co./2008 Annual Report | 65 |
66 | JPMorgan Chase & Co./2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 67 |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
VIEs:(a) |
||||||||||||
Multi-seller conduits |
$ | 314 | $ | 187 | (b) | $ | 160 | |||||
Investor intermediation |
18 | 33 | 49 | |||||||||
Total VIEs |
332 | 220 | 209 | |||||||||
QSPEs(c) |
1,746 | 1,420 | 1,131 | |||||||||
Total |
$ | 2,078 | $ | 1,640 | $ | 1,340 | ||||||
(a) | Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs. | |
(b) | Excludes the markdown on subprime CDO assets that was recorded in principal transactions revenue in 2007. | |
(c) | Excludes servicing revenue from loans sold to and securitized by third parties. Prior period amounts have been revised to conform to the current period presentation. |
Year ended December 31, (in millions) | 2008 | |||
Loan modifications |
$ | 2,384 | ||
Other loss mitigation activities |
865 | |||
Prepayments |
219 | |||
68 | JPMorgan Chase & Co. / 2008 Annual Report |
By remaining maturity at December 31, | 2008 | 2007 | ||||||||||||||||||||||
(in millions) | 2009 | 2010-2011 | 2012-2013 | After 2013 | Total | Total | ||||||||||||||||||
Lending-related |
||||||||||||||||||||||||
Consumer(a) |
$ | 642,978 | $ | 4,098 | $ | 9,916 | $ | 84,515 | $ | 741,507 | $ | 815,936 | ||||||||||||
Wholesale: |
||||||||||||||||||||||||
Other unfunded commitments to extend
credit(b)(c)(d)(e) |
93,307 | 69,479 | 53,567 | 9,510 | 225,863 | 250,954 | ||||||||||||||||||
Asset purchase agreements(f) |
16,467 | 25,574 | 9,983 | 1,705 | 53,729 | 90,105 | ||||||||||||||||||
Standby letters of credit and guarantees(c)(g)(h) |
25,998 | 35,288 | 30,650 | 3,416 | 95,352 | 100,222 | ||||||||||||||||||
Other letters of credit(c) |
3,889 | 718 | 240 | 80 | 4,927 | 5,371 | ||||||||||||||||||
Total wholesale |
139,661 | 131,059 | 94,440 | 14,711 | 379,871 | 446,652 | ||||||||||||||||||
Total lending-related |
$ | 782,639 | $ | 135,157 | $ | 104,356 | $ | 99,226 | $ | 1,121,378 | $ | 1,262,588 | ||||||||||||
Other guarantees |
||||||||||||||||||||||||
Securities lending guarantees(i) |
$ | 169,281 | $ | | $ | | $ | | $ | 169,281 | $ | 385,758 | ||||||||||||
Residual value guarantees |
| 670 | | | 670 | NA | ||||||||||||||||||
Derivatives qualifying as guarantees(j) |
9,537 | 28,970 | 15,452 | 29,876 | 83,835 | 85,262 | ||||||||||||||||||
Contractual cash obligations |
||||||||||||||||||||||||
By remaining maturity at December 31, |
||||||||||||||||||||||||
(in millions) |
||||||||||||||||||||||||
Time deposits |
$ | 278,520 | $ | 11,414 | $ | 8,139 | $ | 1,028 | $ | 299,101 | $ | 249,877 | ||||||||||||
Advances
from the Federal Home Loan Banks |
47,406 | 21,089 | 738 | 954 | 70,187 | 450 | ||||||||||||||||||
Long-term debt |
36,026 | 78,199 | 51,275 | 86,594 | 252,094 | 183,862 | ||||||||||||||||||
Trust preferred capital debt securities |
| | | 18,589 | 18,589 | 15,148 | ||||||||||||||||||
FIN 46R long-term beneficial interests(k) |
67 | 199 | 1,289 | 3,450 | 5,005 | 7,209 | ||||||||||||||||||
Operating leases(l) |
1,676 | 3,215 | 2,843 | 9,134 | 16,868 | 10,908 | ||||||||||||||||||
Contractual purchases and capital expenditures |
1,356 | 878 | 219 | 234 | 2,687 | 2,434 | ||||||||||||||||||
Obligations under affinity and co-brand programs |
1,174 | 2,086 | 1,999 | 2,879 | 8,138 | 5,477 | ||||||||||||||||||
Other liabilities(m) |
666 | 809 | 865 | 2,665 | 5,005 | 5,656 | ||||||||||||||||||
Total |
$ | 366,891 | $ | 117,889 | $ | 67,367 | $ | 125,527 | $ | 677,674 | $ | 481,021 | ||||||||||||
(a) | Includes credit card and home equity lending-related commitments of $623.7 billion and $95.7 billion, respectively, at December 31, 2008; and $714.8 billion and $74.2 billion, respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. | |
(b) | Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with the Federal Reserve, unused advised lines are not reportable. See the Glossary of terms, on page 218 of this Annual Report, for the Firms definition of advised lines of credit. | |
(c) | Represents contractual amount net of risk participations totaling $28.3 billion at both December 31, 2008 and 2007. | |
(d) | Excludes unfunded commitments to third-party private equity funds of $1.4 billion and $881 million at December 31, 2008 and 2007, respectively. Also excluded unfunded commitments for other equity investments of $1.0 billion and $903 million at December 31, 2008 and 2007, respectively. | |
(e) | Includes commitments to investment and noninvestment grade counterparties in connection with leveraged acquisitions of $3.6 billion and $8.2 billion at December 31, 2008 and 2007, respectively. | |
(f) | Largely represents asset purchase agreements to the Firms administered multi-seller, asset-backed commercial paper conduits. The maturity is based upon the weighted-average life of the underlying assets in the SPE, which are based upon the remainder of each conduit transactions committed liquidity plus either the expected weighted average life of the assets should the committed liquidity expire without renewal, or the expected time to sell the underlying assets in the securitization market. It also includes $96 million and $1.1 billion of asset purchase agreements to other third-party entities at December 31, 2008 and 2007, respectively. | |
(g) | JPMorgan Chase held collateral relating to $31.0 billion and $31.5 billion of these arrangements at December 31, 2008 and 2007, respectively. Prior periods have been revised to conform to the current presentation. | |
(h) | Includes unissued standby letters of credit commitments of $39.5 billion and $50.7 billion at December 31, 2008 and 2007, respectively. | |
(i) | Collateral held by the Firm in support of securities lending indemnification agreements was $170.1 billion and $390.5 billion at December 31, 2008 and 2007, respectively. Securities lending collateral comprises primarily cash, securities issued by governments that are members of the Organisation for Economic Co-operation and Development and U.S. government agencies. | |
(j) | Represents notional amounts of derivatives qualifying as guarantees. For further discussion of guarantees, see Note 33 on pages 206210 of this Annual Report. | |
(k) | Included on the Consolidated Balance Sheets in beneficial interests issued by consolidated variable interest entities. | |
(l) | Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service agreements. Excludes the benefit of noncancelable sublease rentals of $2.3 billion and $1.3 billion at December 31, 2008 and 2007, respectively. | |
(m) | Includes deferred annuity contracts. Excludes the $1.3 billion discretionary contribution to the Firms U.S. defined benefit pension plan that was made on January 15, 2009 (for further discussion, see Note 9 on pages 149155), and contributions to the U.S. and non-U.S. other postretirement benefits plans, if any, as these contributions are not reasonably estimable at this time. Also excluded are unrecognized tax benefits of $5.9 billion and $4.8 billion at December 31, 2008 and 2007, respectively, as the timing and amount of future cash payments are not determinable at this time. |
JPMorgan Chase & Co. / 2008 Annual Report | 69 |
| integrate firmwide capital management activities with capital management activities within each of the lines of business |
| measure performance consistently across all lines of business |
| provide comparability with peer firms for each of the lines of business |
Line of business equity | ||||||||
December 31, (in billions) | 2008 | 2007 | ||||||
Investment Bank |
$ | 33.0 | $ | 21.0 | ||||
Retail Financial Services |
25.0 | 16.0 | ||||||
Card Services |
15.0 | 14.1 | ||||||
Commercial Banking |
8.0 | 6.7 | ||||||
Treasury & Securities Services |
4.5 | 3.0 | ||||||
Asset Management |
7.0 | 4.0 | ||||||
Corporate/Private Equity |
42.4 | 58.4 | ||||||
Total common stockholders equity |
$ | 134.9 | $ | 123.2 | ||||
Line of business equity | Yearly Average | |||||||
(in billions) | 2008 | 2007 | ||||||
Investment Bank |
$ | 26.1 | $ | 21.0 | ||||
Retail Financial Services |
19.0 | 16.0 | ||||||
Card Services |
14.3 | 14.1 | ||||||
Commercial Banking |
7.3 | 6.5 | ||||||
Treasury & Securities Services |
3.8 | 3.0 | ||||||
Asset Management |
5.6 | 3.9 | ||||||
Corporate/Private Equity(a) |
53.0 | 54.2 | ||||||
Total common stockholders equity |
$ | 129.1 | $ | 118.7 | ||||
(a) | 2008 and 2007 include $41.9 billion and $41.7 billion, respectively, of equity to off-set goodwill, and $11.1 billion and $12.5 billion, respectively, of equity, primarily related to Treasury, Private Equity and the Corporate pension plan. |
Economic risk capital | Yearly Average | |||||||
(in billions) | 2008 | 2007 | ||||||
Credit risk |
$ | 37.8 | $ | 30.0 | ||||
Market risk |
10.5 | 9.5 | ||||||
Operational risk |
6.3 | 5.6 | ||||||
Private equity risk |
5.3 | 3.7 | ||||||
Economic risk capital |
59.9 | 48.8 | ||||||
Goodwill |
46.1 | 45.2 | ||||||
Other(a) |
23.1 | 24.7 | ||||||
Total common stockholders equity |
$ | 129.1 | $ | 118.7 | ||||
(a) | Reflects additional capital required, in the Firms view, to meet its regulatory and debt rating objectives. |
70 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions) | 2008 | 2007 | ||||||
Total Tier 1
capital(a) |
$ | 136,104 | $ | 88,746 | ||||
Total Tier 2 capital |
48,616 | 43,496 | ||||||
Total capital |
$ | 184,720 | $ | 132,242 | ||||
Risk-weighted assets |
$ | 1,244,659 | $ | 1,051,879 | ||||
Total adjusted average assets |
1,966,895 | 1,473,541 | ||||||
(a) | The FASB has been deliberating certain amendments to both SFAS 140 and FIN 46R that may impact the accounting for transactions that involve QSPEs and VIEs. Based on the provisions of the current proposal and the Firm's interpretation of the proposal, the Firm estimates that the impact of consolidation could be up to $70 billion of credit card receivables, $40 billion of assets related to Firm-sponsored multi-seller conduits, and $50 billion of other loans (including residential mortgages); the decrease in the Tier 1 capital ratio could be approximately 80 basis points. The ultimate impact could differ significantly due to the FASB's continuing deliberations on the final requirements of the rule and market conditions. |
JPMorgan Chase & Co. / 2008 Annual Report | 71 |
Tier 1
capital, December 31, 2007 (in millions) |
$ | 88,746 | ||
Net income |
5,605 | |||
Issuance of cumulative perpetual preferred stock to
U.S. Treasury |
23,750 | |||
Warrant issued to U.S. Treasury in connection with
issuance of preferred stock |
1,250 | |||
Issuance of noncumulative perpetual preferred stock |
7,800 | |||
Issuance of preferred stock conversion of Bear Stearns
preferred stock |
352 | |||
Net issuance of common stock |
11,485 | |||
Net issuance of common stock under employee stock-based
compensation plans |
3,317 | |||
Net issuance of common stock in connection with the
Bear Stearns merger |
1,198 | |||
Dividends declared |
(6,307 | ) | ||
Net issuance of qualifying trust preferred capital debt
securities |
2,619 | |||
DVA on structured debt and derivative liabilities |
(1,475 | ) | ||
Goodwill and other nonqualifying intangibles (net of
deferred tax liabilities) |
(1,357 | ) | ||
Other |
(879 | ) | ||
Increase in Tier 1 capital |
47,358 | |||
Tier 1 capital, December 31, 2008 |
$ | 136,104 | ||
72 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | 2008 | 2007 | 2006 | |||||||||
Common dividend payout ratio |
114 | % | 34 | % | 34 | % | ||||||
JPMorgan Chase & Co. / 2008 Annual Report | 73 |
| Risk identification: The Firms exposure to risk through its daily business dealings, including lending, trading and capital markets activities, is identified and aggregated through the Firms risk management infrastructure. In addition, individuals who manage risk positions, particularly those positions that are complex, are responsible for identifying and estimating potential losses that could arise from specific or unusual events, that may not be captured in other models, and those risks are communicated to senior management. |
| Risk measurement: The Firm measures risk using a variety of methodologies, including calculating probable loss, unexpected loss and value-at-risk, and by conducting stress tests and making comparisons to external benchmarks. Measurement models and related assumptions are routinely reviewed with the goal of ensuring that the Firms risk estimates are reasonable and reflect underlying positions. |
| Risk monitoring/control: The Firms risk management policies and procedures incorporate risk mitigation strategies and include approval limits by customer, product, industry, country and business. These limits are monitored on a daily, weekly and monthly basis, as appropriate. |
| Risk reporting: Risk reporting is executed on a line of business and consolidated basis. This information is reported to management on a daily, weekly and monthly basis, as appropriate. There are eight major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, private equity risk, operational risk, legal and fiduciary risk, and reputation risk. |
74 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 75 |
76 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 77 |
78 | JPMorgan Chase & Co. / 2008 Annual Report |
Short-term debt | Senior long-term debt | |||||||||||||||||||||||
Moodys | S&P | Fitch | Moodys | S&P | Fitch | |||||||||||||||||||
JPMorgan Chase & Co. |
P-1 | A-1 | F1+ | Aa3 | A+ | AA- | ||||||||||||||||||
JPMorgan Chase
Bank, N.A. |
P-1 | A-1+ | F1+ | Aa1 | AA- | AA- | ||||||||||||||||||
Chase Bank USA, N.A. |
P-1 | A-1+ | F1+ | Aa1 | AA- | AA- | ||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 79 |
| establishing a comprehensive credit risk policy framework |
| monitoring and managing credit risk across all portfolio segments, including transaction and line approval |
| assigning and managing credit authorities in connection with the approval of all credit exposure |
| managing criticized exposures |
| calculating the allowance for credit losses and ensuring appropriate credit risk-based capital management |
80 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 81 |
Nonperforming | 90 days past due | Average annual | ||||||||||||||||||||||||||||||||||||||
As of or for the year ended December 31, | Credit exposure | assets(h)(i)(j)(k) | and still accruing | Net charge-offs | net charge-off rate | |||||||||||||||||||||||||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||||||||||
Total credit portfolio |
||||||||||||||||||||||||||||||||||||||||
Loans retained(a) |
$ | 728,915 | $ | 491,736 | $ | 8,921 | (j) | $ | 3,232 | (j) | $ | 3,275 | $ | 2,043 | $ | 9,835 | $ | 4,538 | 1.73 | % | 1.00 | % | ||||||||||||||||||
Loans held-for-sale |
8,287 | 18,899 | 12 | 45 | | | | | | NA | ||||||||||||||||||||||||||||||
Loans at fair value |
7,696 | 8,739 | 20 | 5 | | | | | | NA | ||||||||||||||||||||||||||||||
Loans reported(a) |
$ | 744,898 | $ | 519,374 | $ | 8,953 | $ | 3,282 | $ | 3,275 | $ | 2,043 | $ | 9,835 | $ | 4,538 | 1.73 | % | 1.00 | % | ||||||||||||||||||||
Loans securitized(b) |
85,571 | 72,701 | | | 1,802 | 1,050 | 3,612 | 2,380 | 4.53 | 3.43 | ||||||||||||||||||||||||||||||
Total managed loans |
830,469 | 592,075 | 8,953 | 3,282 | 5,077 | 3,093 | 13,447 | 6,918 | 2.08 | 1.33 | ||||||||||||||||||||||||||||||
Derivative receivables |
162,626 | 77,136 | 1,079 | 29 | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Receivables from customers(c) |
16,141 | | | | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Total managed credit-related assets |
1,009,236 | 669,211 | 10,032 | 3,311 | 5,077 | 3,093 | 13,447 | 6,918 | 2.08 | 1.33 | ||||||||||||||||||||||||||||||
Lending-related commitments(d)(e) |
1,121,378 | 1,262,588 | NA | NA | NA | NA | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Assets acquired in loan satisfactions |
||||||||||||||||||||||||||||||||||||||||
Real estate owned |
NA | NA | 2,533 | (k) | 546 | NA | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||
Other |
NA | NA | 149 | (k) | 76 | NA | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||
Total assets acquired in loan
satisfactions |
NA | NA | 2,682 | 622 | NA | NA | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Total credit portfolio |
$ | 2,130,614 | $ | 1,931,799 | $ | 12,714 | $ | 3,933 | $ | 5,077 | $ | 3,093 | $ | 13,447 | $ | 6,918 | 2.08 | % | 1.33 | % | ||||||||||||||||||||
Net credit derivative hedges
notional(f) |
$ | (91,451 | ) | $ | (67,999 | ) | $ | | $ | (3 | ) | NA | NA | NA | NA | NA | NA | |||||||||||||||||||||||
Collateral held against
derivatives(g) |
(19,816 | ) | (9,824 | ) | NA | NA | NA | NA | NA | NA | NA | NA | ||||||||||||||||||||||||||||
(a) | Loans (other than those for which the SFAS 159 fair value option has been elected) are presented net of unearned income and net deferred loan fees of $694 million and $1.0 billion at December 31, 2008 and 2007, respectively. | |
(b) | Represents securitized credit card receivables. For further discussion of credit card securitizations, see Card Services on pages 5153 of this Annual Report. | |
(c) | Primarily represents margin loans to prime and retail brokerage customers included in accrued interest and accounts receivable on the Consolidated Balance Sheets. | |
(d) | Includes credit card and home equity lending-related commitments of $623.7 billion and $95.7 billion, respectively, at December 31, 2008, and $714.8 billion and $74.2 billion, respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, nor does it anticipate, all available lines of credit being used at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. | |
(e) | Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with the Federal Reserve, unused advised lines are not reportable. See the Glossary of Terms on page 218 of this Annual Report for the Firms definition of advised lines of credit. | |
(f) | Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For additional information, see page 89 of this Annual Report. | |
(g) | Represents other liquid securities collateral held by the Firm as of December 31, 2008 and 2007, respectively. | |
(h) | Excludes nonperforming assets related to (1) loans eligible for repurchase as well as loans repurchased from GNMA pools that are insured by U.S. government agencies of $3.3 billion and $1.5 billion at December 31, 2008, and 2007, respectively, and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $437 million and $417 million at December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally. | |
(i) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. | |
(j) | Excludes home lending purchased credit-impaired home loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis and the pools are considered to be performing under SOP 03-3. Also excludes loans held-for-sale and loans at fair value. | |
(k) | Includes $1.5 billion of assets acquired in the Washington Mutual transaction. |
82 | JPMorgan Chase & Co./2008 Annual Report |
90 days past due | ||||||||||||||||||||||||
As of or for the year ended December 31, | Credit exposure | Nonperforming loans(f) | and accruing | |||||||||||||||||||||
(in millions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Loans retained(a) |
$ | 248,089 | $ | 189,427 | $ | 2,350 | $ | 464 | $ | 163 | $ | 75 | ||||||||||||
Loans held-for-sale |
6,259 | 14,910 | 12 | 45 | | | ||||||||||||||||||
Loans at fair value |
7,696 | 8,739 | 20 | 5 | | | ||||||||||||||||||
Loans reported |
$ | 262,044 | $ | 213,076 | $ | 2,382 | $ | 514 | $ | 163 | $ | 75 | ||||||||||||
Derivative receivables |
162,626 | 77,136 | 1,079 | 29 | | | ||||||||||||||||||
Receivables from customers(b) |
16,141 | | | | | | ||||||||||||||||||
Total wholesale credit-related assets |
440,811 | 290,212 | 3,461 | 543 | 163 | 75 | ||||||||||||||||||
Lending-related commitments(c) |
379,871 | 446,652 | NA | NA | NA | NA | ||||||||||||||||||
Total wholesale credit exposure |
$ | 820,682 | $ | 736,864 | $ | 3,461 | $ | 543 | $ | 163 | $ | 75 | ||||||||||||
Credit derivative hedges notional(d) |
$ | (91,451 | ) | $ | (67,999 | ) | $ | | $ | (3 | ) | NA | NA | |||||||||||
Collateral held against derivatives(e) |
(19,816 | ) | (9,824 | ) | NA | NA | NA | NA | ||||||||||||||||
(a) | Includes $224 million of purchased credit-impaired loans at December 31, 2008, which are accounted for in accordance with SOP 03-3. They are considered nonperforming loans because the timing and amount of expected future cash flows is not reasonably estimable. For additional information, see Note 14 on pages 163166 of this Annual Report. | |
(b) | Primarily represents margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets. | |
(c) | Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with the Federal Reserve, unused advised lines are not reportable. | |
(d) | Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. For additional information, see page 89 of this Annual Report. | |
(e) | Represents other liquid securities collateral held by the Firm as of December 31, 2008 and 2007, respectively. | |
(f) | Assets acquired in loan satisfactions have been excluded in this presentation. See the wholesale nonperforming assets by line of business segment table for additional information. |
Wholesale | ||||||||
Year ended December 31, | ||||||||
(in millions, except ratios) | 2008 | 2007 | ||||||
Loans reported |
||||||||
Net charge-offs |
$ | 402 | $ | 72 | ||||
Average annual net charge-off rate(a) |
0.18 | % | 0.04 | % | ||||
(a) | Excludes average wholesale loans held-for-sale and loans at fair value of $18.9 billion and $18.6 billion for the years ended December 31, 2008 and 2007, respectively. |
Wholesale | ||||||||
Year ended December 31, | ||||||||
(in millions) | 2008 | 2007 | ||||||
Beginning balance |
$ | 514 | $ | 391 | ||||
Additions |
3,381 | 1,107 | ||||||
Reductions: |
||||||||
Paydowns and other |
859 | 576 | ||||||
Charge-offs |
521 | 185 | ||||||
Returned to performing |
93 | 136 | ||||||
Sales |
40 | 87 | ||||||
Total reductions |
1,513 | 984 | ||||||
Net additions |
1,868 | 123 | ||||||
Ending balance |
$ | 2,382 | $ | 514 | ||||
JPMorgan Chase & Co./2008 Annual Report | 83 |
2008 | 2007 | |||||||||||||||||||||||||||||||
Assets acquired in | Assets acquired in | |||||||||||||||||||||||||||||||
loan satisfactions | loan satisfactions | |||||||||||||||||||||||||||||||
As of December 31, | Nonperforming | Real estate | Nonperforming | Nonperforming | Real estate | Nonperforming | ||||||||||||||||||||||||||
(in millions) | loans | owned | Other | assets | loans | owned | Other | assets | ||||||||||||||||||||||||
Investment Bank |
$ | 1,175 | $ | 247 | $ | 1,079 | (a) | $ | 2,501 | $ | 353 | $ | 67 | $ | 33 | (a) | $ | 453 | ||||||||||||||
Commercial Banking |
1,026 | 102 | 14 | 1,142 | 146 | 2 | | 148 | ||||||||||||||||||||||||
Treasury &
Securities
Services |
30 | | | 30 | | | | | ||||||||||||||||||||||||
Asset Management |
147 | | 25 | 172 | 12 | | | 12 | ||||||||||||||||||||||||
Corporate/Private
Equity |
4 | | | 4 | 3 | | | 3 | ||||||||||||||||||||||||
Total |
$ | 2,382 | $ | 349 | $ | 1,118 | $ | 3,849 | $ | 514 | $ | 69 | $ | 33 | $ | 616 | ||||||||||||||||
(a) | Includes derivative receivables of $1.1 billion and $29 million as of December 31, 2008 and 2007, respectively. |
Maturity profile(c) | Ratings profile | |||||||||||||||||||||||||||||||
December 31, 2008 | Due in 1 year | Due after 1 year | Due after | Investment-grade (IG) | Noninvestment-grade | Total % | ||||||||||||||||||||||||||
(in billions, except ratios) | or less | through 5 years | 5 years | Total | AAA/Aaa to BBB-/Baa3 | BB+/Ba1 & below | Total | of IG | ||||||||||||||||||||||||
Loans |
32 | % | 43 | % | 25 | % | 100 | % | $ | 161 | $ | 87 | $ | 248 | 65 | % | ||||||||||||||||
Derivative receivables |
31 | 36 | 33 | 100 | 127 | 36 | 163 | 78 | ||||||||||||||||||||||||
Lending-related commitments |
37 | 59 | 4 | 100 | 317 | 63 | 380 | 83 | ||||||||||||||||||||||||
Total excluding loans
held-for-sale and
loans at fair value |
34 | % | 50 | % | 16 | % | 100 | % | $ | 605 | $ | 186 | 791 | 77 | % | |||||||||||||||||
Loans held-for-sale and loans at fair value(a) |
14 | |||||||||||||||||||||||||||||||
Receivables from customers |
16 | |||||||||||||||||||||||||||||||
Total exposure |
$ | 821 | ||||||||||||||||||||||||||||||
Net credit derivative
hedges notional(b) |
47 | % | 47 | % | 6 | % | 100 | % | $ | (82 | ) | $ | (9 | ) | $ | (91 | ) | 90 | % | |||||||||||||
Maturity profile(c) | Ratings profile | |||||||||||||||||||||||||||||||
December 31, 2007 | Due in 1 year | Due after 1 year | Due after | Investment-grade (IG) | Noninvestment-grade | Total % | ||||||||||||||||||||||||||
(in billions, except ratios) | or less | through 5 years | 5 years | Total | AAA/Aaa to BBB-/Baa3 | BB+/Ba1 & below | Total | of IG | ||||||||||||||||||||||||
Loans |
44 | % | 45 | % | 11 | % | 100 | % | $ | 127 | $ | 62 | $ | 189 | 67 | % | ||||||||||||||||
Derivative receivables |
17 | 39 | 44 | 100 | 64 | 13 | 77 | 83 | ||||||||||||||||||||||||
Lending-related commitments |
35 | 59 | 6 | 100 | 380 | 67 | 447 | 85 | ||||||||||||||||||||||||
Total excluding loans
held-for-sale and
loans at fair value |
36 | % | 53 | % | 11 | % | 100 | % | $ | 571 | $ | 142 | 713 | 80 | % | |||||||||||||||||
Loans held-for-sale and
loans at fair value(a) |
24 | |||||||||||||||||||||||||||||||
Total exposure |
$ | 737 | ||||||||||||||||||||||||||||||
Net credit derivative
hedges notional(b) |
39 | % | 56 | % | 5 | % | 100 | % | $ | (68 | ) | $ | | $ | (68 | ) | 100 | % | ||||||||||||||
(a) | Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio. | |
(b) | Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. | |
(c) | The maturity profile of loans and lending-related commitments is based upon the remaining contractual maturity. The maturity profile of derivative receivables is based upon the maturity profile of average exposure. See page 87 of this Annual Report for a further discussion of average exposure. |
84 | JPMorgan Chase & Co. / 2008 Annual Report |
Collateral | ||||||||||||||||||||||||||||
Net | held against | |||||||||||||||||||||||||||
December 31, 2008 | Credit | Investment | Noninvestment-grade | charge-offs/ | Credit | derivative | ||||||||||||||||||||||
(in millions, except ratios) | exposure(d) | grade | Noncriticized | Criticized | (recoveries) | derivative hedges(e) | receivables(f) | |||||||||||||||||||||
Exposure by industry(a) |
||||||||||||||||||||||||||||
Real estate |
$ | 83,799 | 68 | % | $ | 19,346 | $ | 7,737 | $ | 212 | $ | (2,677 | ) | $ | (48 | ) | ||||||||||||
Banks and finance companies |
75,577 | 79 | 12,953 | 2,849 | 28 | (5,016 | ) | (9,457 | ) | |||||||||||||||||||
Asset managers |
49,256 | 85 | 6,418 | 819 | 15 | (115 | ) | (5,303 | ) | |||||||||||||||||||
Healthcare |
38,032 | 83 | 6,092 | 436 | 2 | (5,338 | ) | (199 | ) | |||||||||||||||||||
State and municipal governments |
35,954 | 94 | 1,278 | 847 | | (677 | ) | (134 | ) | |||||||||||||||||||
Utilities |
34,246 | 83 | 5,844 | 114 | 3 | (9,007 | ) | (65 | ) | |||||||||||||||||||
Retail and consumer services |
32,714 | 67 | 9,546 | 1,311 | (6 | ) | (6,120 | ) | (1,214 | ) | ||||||||||||||||||
Consumer products |
29,766 | 65 | 9,504 | 792 | 32 | (8,114 | ) | (54 | ) | |||||||||||||||||||
Securities firms and exchanges |
25,590 | 81 | 4,744 | 138 | | (151 | ) | (898 | ) | |||||||||||||||||||
Oil and gas |
24,746 | 75 | 5,940 | 231 | 15 | (6,627 | ) | (7 | ) | |||||||||||||||||||
Insurance |
17,744 | 78 | 3,138 | 712 | | (5,016 | ) | (846 | ) | |||||||||||||||||||
Technology |
17,555 | 68 | 5,420 | 230 | | (4,209 | ) | (3 | ) | |||||||||||||||||||
Media |
17,254 | 56 | 5,994 | 1,674 | 26 | (4,238 | ) | (7 | ) | |||||||||||||||||||
Central government |
15,259 | 98 | 276 | | | (4,548 | ) | (35 | ) | |||||||||||||||||||
Metals/mining |
14,980 | 61 | 5,579 | 262 | (7 | ) | (3,149 | ) | (3 | ) | ||||||||||||||||||
All other(b) |
278,114 | 77 | 57,307 | 7,845 | 82 | (26,449 | ) | (1,543 | ) | |||||||||||||||||||
Subtotal |
$ | 790,586 | 77 | % | $ | 159,379 | $ | 25,997 | $ | 402 | $ | (91,451 | ) | $ | (19,816 | ) | ||||||||||||
Loans held-for-sale and loans at
fair value(c) |
13,955 | |||||||||||||||||||||||||||
Receivables from customers |
16,141 | |||||||||||||||||||||||||||
Total |
$ | 820,682 | ||||||||||||||||||||||||||
Net | Collateral held | |||||||||||||||||||||||||||
December 31, 2007 | Credit | Investment | Noninvestment-grade | charge-offs/ | Credit | against derivative | ||||||||||||||||||||||
(in millions, except ratios) | exposure(d) | grade | Noncriticized | Criticized | (recoveries) | derivative hedges(e) | receivables(f) | |||||||||||||||||||||
Exposure by industry(a) |
||||||||||||||||||||||||||||
Real estate |
$ | 38,295 | 54 | % | $ | 16,626 | $ | 1,070 | $ | 36 | $ | (2,906 | ) | $ | (73 | ) | ||||||||||||
Banks and finance companies |
65,288 | 83 | 10,385 | 498 | 5 | (6,368 | ) | (1,793 | ) | |||||||||||||||||||
Asset managers |
38,554 | 90 | 3,518 | 212 | | (293 | ) | (2,148 | ) | |||||||||||||||||||
Healthcare |
30,746 | 84 | 4,741 | 246 | | (4,241 | ) | (10 | ) | |||||||||||||||||||
State and municipal governments |
31,425 | 98 | 591 | 12 | 10 | (193 | ) | (3 | ) | |||||||||||||||||||
Utilities |
28,679 | 89 | 3,021 | 212 | 1 | (6,371 | ) | (43 | ) | |||||||||||||||||||
Retail and consumer services |
23,969 | 68 | 7,149 | 550 | 3 | (3,866 | ) | (55 | ) | |||||||||||||||||||
Consumer products |
29,941 | 74 | 7,492 | 239 | 5 | (4,710 | ) | (13 | ) | |||||||||||||||||||
Securities firms and exchanges |
23,274 | 87 | 3,083 | 1 | | (467 | ) | (1,321 | ) | |||||||||||||||||||
Oil and gas |
26,082 | 72 | 7,166 | 125 | | (4,007 | ) | | ||||||||||||||||||||
Insurance |
16,782 | 93 | 1,104 | 17 | | (4,277 | ) | (1,000 | ) | |||||||||||||||||||
Technology |
18,335 | 70 | 5,418 | 77 | 1 | (3,636 | ) | (1 | ) | |||||||||||||||||||
Media |
16,253 | 58 | 6,561 | 303 | 3 | (2,707 | ) | (31 | ) | |||||||||||||||||||
Central government |
9,075 | 99 | 112 | | | (2,536 | ) | (7 | ) | |||||||||||||||||||
Metals/mining |
17,714 | 70 | 5,119 | 111 | | (2,486 | ) | | ||||||||||||||||||||
All other(b) |
298,803 | 80 | 52,897 | 3,165 | 8 | (18,935 | ) | (3,326 | ) | |||||||||||||||||||
Subtotal |
$ | 713,215 | 80 | % | $ | 134,983 | $ | 6,838 | $ | 72 | $ | (67,999 | ) | $ | (9,824 | ) | ||||||||||||
Loans held-for-sale and loans at
fair value(c) |
23,649 | |||||||||||||||||||||||||||
Receivables from customers |
| |||||||||||||||||||||||||||
Total |
$ | 736,864 | ||||||||||||||||||||||||||
JPMorgan Chase & Co./2008 Annual Report | 85 |
(a) | Rankings are based upon exposure at December 31, 2008. The industries presented in 2007 table reflect the rankings in the 2008 table. | |
(b) | For more information on exposures to SPEs included in all other, see Note 17 on pages 177186 of this Annual Report. | |
(c) | Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio. | |
(d) | Credit exposure is net of risk participations and excludes the benefit of credit derivative hedges and collateral held against derivative receivables or loans. | |
(e) | Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under SFAS 133. | |
(f) | Represents other liquid securities collateral held by the Firm as of December 31, 2008 and 2007, respectively. |
2008 | 2007 | |||||||||||||||
December 31, | Credit | % of | Credit | % of | ||||||||||||
(in millions, except ratios) | exposure | portfolio | exposure | portfolio | ||||||||||||
Exposure by industry(a) |
||||||||||||||||
Real estate |
$ | 7,737 | 30 | % | $ | 1,070 | 16 | % | ||||||||
Banks and finance companies |
2,849 | 11 | 498 | 7 | ||||||||||||
Automotive |
1,775 | 7 | 1,338 | 20 | ||||||||||||
Media |
1,674 | 6 | 303 | 4 | ||||||||||||
Building materials/construction |
1,363 | 5 | 345 | 5 | ||||||||||||
Retail and consumer services |
1,311 | 5 | 550 | 8 | ||||||||||||
State and municipal government |
847 | 3 | 12 | | ||||||||||||
Asset managers |
819 | 3 | 212 | 3 | ||||||||||||
Consumer products |
792 | 3 | 239 | 4 | ||||||||||||
Agriculture/paper manufacturing |
726 | 3 | 138 | 2 | ||||||||||||
Insurance |
712 | 3 | 17 | | ||||||||||||
Chemicals/plastics |
591 | 2 | 288 | 4 | ||||||||||||
Healthcare |
436 | 2 | 246 | 4 | ||||||||||||
Transportation |
319 | 1 | 74 | 1 | ||||||||||||
Metals/mining |
262 | 1 | 111 | 2 | ||||||||||||
All other |
3,784 | 15 | 1,397 | 20 | ||||||||||||
Total excluding loans
held-for-sale and loans at fair
value |
$ | 25,997 | 100 | % | $ | 6,838 | 100 | % | ||||||||
Loans held-for-sale and
loans at fair value(b) |
2,258 | 205 | ||||||||||||||
Receivables from customers |
| | ||||||||||||||
Total |
$ | 28,255 | $ | 7,043 | ||||||||||||
(a) | Rankings are based upon exposure at December 31, 2008. The industries presented in the 2007 table reflect the rankings in the 2008 table. | |
(b) | Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio. |
| Real estate: Exposure to this industry grew in 2008 due to the Washington Mutual transaction, with approximately 70% of this increase consisting of exposure to multi-family lending. Approximately 45% of the real estate exposure is to large real estate companies and institutions (e.g. REITS), professional real estate developers, owners, or service providers, and generally involves real estate leased to third-party tenants. Commercial construction and development accounted for approximately 13% of the real estate portfolio at 2008 year-end. Exposure to national and regional single family homebuilders decreased by 31% from 2007 and represented 5% of the portfolio at 2008 year-end. The increase in criticized exposure was largely a result of downgrades to select names within the portfolio, primarily in IB, reflecting the weakening credit environment. The remaining increase in criticized exposure reflected exposures acquired in the Washington Mutual transaction. |
| Banks and finance companies: Exposure to this industry increased primarily as a result of higher derivative exposure to commercial banks due to higher volatility and greater trade volume and to the addition of derivative positions from the Bear Stearns merger. The percentage of the portfolio that is investment grade has declined slightly from 2007 as a result of the impact of the weakening credit environment on financial counterparties. The growth in criticized exposure was primarily a result of downgrades to specialty finance companies, reflected in loans and lending-related commitments. |
| Automotive: Industry conditions deteriorated significantly in 2008, particularly in North America, and are expected to remain under pressure in 2009. The largest percentage of the Firms wholesale criticized exposure in this segment is related to Original Equipment Manufacturers. However, a majority of the year-over-year increase in criticized exposure related to automotive suppliers which were negatively affected by significant declines in automotive production. Most of the Firms criticized exposure in this segment remains performing and is substantially secured. |
| Asset Managers: Exposure in this industry grew from 2007 as a result of increased derivative exposure to primarily investment grade funds and the acquisition of loans and lending-related commitments to this industry due to the Bear Stearns merger. |
| All other: All other in the wholesale credit exposure concentration table on page 85 of this Annual Report at December 31, 2008 included $278.1 billion of credit exposure to 17 industry segments. Exposures related to SPEs and high-net-worth individuals were 37% and 19%, respectively, of this category. SPEs provide secured financing (generally backed by receivables, loans or |
86 | JPMorgan Chase & Co. / 2008 Annual Report |
bonds on a bankruptcy-remote, nonrecourse or limited-recourse basis) originated by a diverse group of companies in industries that are not highly correlated. For further discussion of SPEs, see Note 17 on pages 177186 of this Annual Report. The remaining all other exposure is well-diversified across industries and none comprise more than 2% of total exposure. |
December 31, | Notional amounts(a) | |||||||
(in billions) | 2008 | 2007 | ||||||
Interest rate contracts |
||||||||
Interest rate and currency swaps(b) |
$ | 56,206 | $ | 53,458 | ||||
Future and forwards |
6,277 | 4,548 | ||||||
Written options(c) |
4,803 | 5,742 | ||||||
Purchased options |
4,656 | 5,349 | ||||||
Total interest rate contracts |
71,942 | 69,097 | ||||||
Credit derivatives |
$ | 8,388 | $ | 7,967 | ||||
Foreign exchange contracts |
||||||||
Future and forwards |
$ | 3,354 | $ | 3,424 | ||||
Foreign exchange spot contracts |
389 | 40 | ||||||
Written options(c) |
972 | 909 | ||||||
Purchased options |
959 | 906 | ||||||
Total foreign exchange contracts |
5,674 | 5,279 | ||||||
Commodity contracts |
||||||||
Swaps |
$ | 234 | $ | 275 | ||||
Future and forwards |
115 | 91 | ||||||
Written options(c) |
206 | 228 | ||||||
Purchased options |
198 | 233 | ||||||
Total commodity contracts |
753 | 827 | ||||||
Equity contracts |
||||||||
Swaps |
$ | 77 | $ | 105 | ||||
Future and forwards |
56 | 72 | ||||||
Written options(c) |
628 | 739 | ||||||
Purchased options |
652 | 821 | ||||||
Total equity contracts |
1,413 | 1,737 | ||||||
Total derivative notional amounts |
$ | 88,170 | $ | 84,907 | ||||
(a) | Represents the sum of gross long and gross short third-party notional derivative contracts. | |
(b) | Includes cross currency swap contract notional amounts of $1.7 trillion and $1.4 trillion at December 31, 2008 and 2007, respectively. | |
(c) | Written options do not result in counterparty credit risk. |
December 31, | Derivative receivables MTM | |||||||
(in millions) | 2008 | 2007 | ||||||
Interest rate contracts |
$ | 64,101 | $ | 36,020 | ||||
Credit derivatives |
44,695 | 22,083 | ||||||
Foreign exchange contracts |
24,715 | 5,616 | ||||||
Commodity contracts |
14,830 | 9,419 | ||||||
Equity contracts |
14,285 | 3,998 | ||||||
Total, net of cash collateral |
162,626 | 77,136 | ||||||
Liquid securities collateral held against
derivative receivables |
(19,816 | ) | (9,824 | ) | ||||
Total, net of all collateral |
$ | 142,810 | $ | 67,312 | ||||
JPMorgan Chase & Co. / 2008 Annual Report | 87 |
Rating equivalent | 2008 | 2007 | ||||||||||||||
December 31, | Exposure net of | % of exposure net | Exposure net of | % of exposure net | ||||||||||||
(in millions, except ratios) | all collateral | of all collateral | all collateral | of all collateral | ||||||||||||
AAA/Aaa to AA-/Aa3 |
$ | 68,708 | 48 | % | $ | 38,314 | 57 | % | ||||||||
A+/A1 to A-/A3 |
24,748 | 17 | 9,855 | 15 | ||||||||||||
BBB+/Baa1 to BBB-/Baa3 |
15,747 | 11 | 9,335 | 14 | ||||||||||||
BB+/Ba1 to B-/B3 |
28,186 | 20 | 9,451 | 14 | ||||||||||||
CCC+/Caa1 and below |
5,421 | 4 | 357 | | ||||||||||||
Total |
$ | 142,810 | 100 | % | $ | 67,312 | 100 | % | ||||||||
88 | JPMorgan Chase & Co. / 2008 Annual Report |
Notional amount | ||||||||||||||||||||
Dealer/client | Credit portfolio | |||||||||||||||||||
December 31, | Protection | Protection | Protection | Protection | ||||||||||||||||
(in billions) | purchased(a) | sold(a) | purchased(b) | sold | Total | |||||||||||||||
2008 |
$ | 4,097 | $ | 4,198 | $ | 92 | $ | 1 | $ | 8,388 | ||||||||||
2007 |
$ | 3,999 | $ | 3,896 | $ | 70 | $ | 2 | $ | 7,967 | ||||||||||
(a) | Includes $3.9 trillion at December 31, 2008, of notional exposure within protection purchased and protection sold where the underlying reference instrument is identical. The remaining exposure includes single name and index CDS which the Firm purchased to manage the remaining net protection sold. For a further discussion on credit derivatives, see Note 32 on pages 202205 of this Annual Report. | |
(b) | Includes $34.9 billion and $31.1 billion at December 31, 2008 and 2007, respectively, that represented the notional amount for structured portfolio protection; the Firm retains a minimal first risk of loss on this portfolio. |
JPMorgan Chase & Co. / 2008 Annual Report | 89 |
December 31, | Notional amount of protection purchased | |||||||
(in millions) | 2008 | 2007 | ||||||
Credit derivatives used to manage: |
||||||||
Loans and lending-related commitments |
$ | 81,227 | $ | 63,645 | ||||
Derivative receivables |
10,861 | 6,462 | ||||||
Total(a) |
$ | 92,088 | $ | 70,107 | ||||
(a) | Included $34.9 billion and $31.1 billion at December 31, 2008 and 2007, respectively, that represented the notional amount for structured portfolio protection; the Firm retains a first risk of loss on this portfolio. |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Hedges of lending-related commitments(a) |
$ | 2,216 | $ | 350 | $ | (246 | ) | |||||
CVA and hedges of CVA(a) |
(2,359 | ) | (363 | ) | 133 | |||||||
Net gains (losses)(b) |
$ | (143 | ) | $ | (13 | ) | $ | (113 | ) | |||
(a) | These hedges do not qualify for hedge accounting under SFAS 133. | |
(b) | Excludes gains of $530 million, $373 million and $56 million for the years ended December 31, 2008, 2007 and 2006, respectively, of other principal transactions revenue that are not associated with hedging activities. The amount for 2008 and 2007 incorporates an adjustment to the valuation of the Firms derivative liabilities as a result of the adoption of SFAS 157 on January 1, 2007. |
90 | JPMorgan Chase & Co. / 2008 Annual Report |
At December 31, 2008 | Cross-border | Total | |||||||||||||||||||||
(in billions) | Lending(a) | Trading(b) | Other(c) | Total | Local(d) | exposure | |||||||||||||||||
South Korea |
$ | 2.9 | $ | 1.6 | $ | 0.9 | $ | 5.4 | $ | 2.3 | $ | 7.7 | |||||||||||
India |
2.2 | 2.8 | 0.9 | 5.9 | 0.6 | 6.5 | |||||||||||||||||
China |
1.8 | 1.6 | 0.3 | 3.7 | 0.8 | 4.5 | |||||||||||||||||
Brazil |
1.8 | | 0.5 | 2.3 | 1.3 | 3.6 | |||||||||||||||||
Taiwan |
0.1 | 0.2 | 0.3 | 0.6 | 2.5 | 3.1 | |||||||||||||||||
At December 31, 2007 | Cross-border | Total | |||||||||||||||||||||
(in billions) | Lending(a) | Trading(b) | Other(c) | Total | Local(d) | exposure | |||||||||||||||||
South Korea |
$ | 3.2 | $ | 2.6 | $ | 0.7 | $ | 6.5 | $ | 3.4 | $ | 9.9 | |||||||||||
Brazil |
1.1 | (0.7 | ) | 1.2 | 1.6 | 5.0 | 6.6 | ||||||||||||||||
Russia |
2.9 | 1.0 | 0.2 | 4.1 | 0.4 | 4.5 | |||||||||||||||||
India |
1.9 | 0.8 | 0.8 | 3.5 | 0.6 | 4.1 | |||||||||||||||||
China |
2.2 | 0.3 | 0.4 | 2.9 | 0.3 | 3.2 | |||||||||||||||||
(a) | Lending includes loans and accrued interest receivable, interest-bearing deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit. | |
(b) | Trading includes: (1) issuer exposure on cross-border debt and equity instruments, held both in trading and investment accounts, adjusted for the impact of issuer hedges, including credit derivatives; and (2) counterparty exposure on derivative and foreign exchange contracts as well as security financing trades (resale agreements and securities borrowed). | |
(c) | Other represents mainly local exposure funded cross-border. | |
(d) | Local exposure is defined as exposure to a country denominated in local currency, booked and funded locally. Any exposure not meeting these criteria is defined as cross-border exposure. |
JPMorgan Chase & Co. / 2008 Annual Report | 91 |
Credit | Nonperforming | 90 days past due | Average annual | |||||||||||||||||||||||||||||||||||||
As of or for the year ended December 31, | exposure | loans(g)(h)(i) | and still accruing | Net charge-offs | net charge-off rate(j) | |||||||||||||||||||||||||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||||||||||
Consumer
loans excluding purchased credit-impaired(a) |
||||||||||||||||||||||||||||||||||||||||
Home equity |
$ | 114,335 | $ | 94,832 | $ | 1,394 | $ | 786 | $ | | $ | | $ | 2,391 | $ | 564 | 2.39 | % | 0.62 | % | ||||||||||||||||||||
Prime mortgage |
72,266 | 39,988 | 1,895 | 501 | | | 526 | 33 | 1.02 | 0.10 | ||||||||||||||||||||||||||||||
Subprime mortgage |
15,330 | 15,473 | 2,690 | 1,017 | | | 933 | 157 | 6.10 | 1.55 | ||||||||||||||||||||||||||||||
Option ARMs |
9,018 | | 10 | | | | | | | | ||||||||||||||||||||||||||||||
Auto loans(b) |
42,603 | 42,350 | 148 | 116 | | | 568 | 354 | 1.30 | 0.86 | ||||||||||||||||||||||||||||||
Credit card reported |
104,746 | 84,352 | 4 | 7 | 2,649 | 1,547 | 4,556 | 3,116 | 5.47 | 3.90 | ||||||||||||||||||||||||||||||
All other loans |
33,715 | 25,314 | 430 | 341 | 463 | 421 | 459 | 242 | 1.58 | 1.01 | ||||||||||||||||||||||||||||||
Loans held-for-sale(c) |
2,028 | 3,989 | | | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Total consumer loans excluding
purchased credit-impaired(d) |
394,041 | 306,298 | 6,571 | 2,768 | 3,112 | 1,968 | 9,433 | 4,466 | 2.90 | 1.61 | ||||||||||||||||||||||||||||||
Consumer loans purchased credit
impaired(d) |
||||||||||||||||||||||||||||||||||||||||
Home equity |
28,555 | NA | NA | NA | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Prime mortgage |
21,855 | NA | NA | NA | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Subprime mortgage |
6,760 | NA | NA | NA | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Option ARMs |
31,643 | NA | NA | NA | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Total purchased credit-impaired |
88,813 | NA | NA | NA | | | NA | NA | NA | NA | ||||||||||||||||||||||||||||||
Total consumer loans reported |
482,854 | 306,298 | 6,571 | 2,768 | 3,112 | 1,968 | 9,433 | 4,466 | 2.71 | 1.61 | ||||||||||||||||||||||||||||||
Credit card securitized(e) |
85,571 | 72,701 | | | 1,802 | 1,050 | 3,612 | 2,380 | 4.53 | 3.43 | ||||||||||||||||||||||||||||||
Total consumer loans managed |
568,425 | 378,999 | 6,571 | 2,768 | 4,914 | 3,018 | 13,045 | 6,846 | 3.06 | 1.97 | ||||||||||||||||||||||||||||||
Consumer lending-related commitments: |
||||||||||||||||||||||||||||||||||||||||
Home
equity(f) |
95,743 | 74,191 | ||||||||||||||||||||||||||||||||||||||
Prime mortgage |
5,079 | 7,394 | ||||||||||||||||||||||||||||||||||||||
Subprime mortgage |
| 16 | ||||||||||||||||||||||||||||||||||||||
Option ARMs |
| | ||||||||||||||||||||||||||||||||||||||
Auto loans |
4,726 | 8,058 | ||||||||||||||||||||||||||||||||||||||
Credit
card(f) |
623,702 | 714,848 | ||||||||||||||||||||||||||||||||||||||
All other loans |
12,257 | 11,429 | ||||||||||||||||||||||||||||||||||||||
Total lending-related commitments |
741,507 | 815,936 | ||||||||||||||||||||||||||||||||||||||
Total consumer credit portfolio |
$ | 1,309,932 | $ | 1,194,935 | ||||||||||||||||||||||||||||||||||||
Memo: Credit card managed |
$ | 190,317 | $ | 157,053 | $ | 4 | $ | 7 | $ | 4,451 | $ | 2,597 | $ | 8,168 | $ | 5,496 | 5.01 | % | 3.68 | % | ||||||||||||||||||||
(a) | Includes RFS, CS and residential mortgage loans reported in the Corporate/Private Equity segment, as well as approximately $80.0 billion in non-credit-impaired consumer loans acquired in the Washington Mutual transaction. | |
(b) | Excludes operating lease-related assets of $2.2 billion and $1.9 billion for December 31, 2008 and 2007, respectively. | |
(c) | Includes loans for prime mortgage and other (largely student loans) of $206 million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4 billion at December 31, 2007, respectively. | |
(d) | Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction that were considered credit-impaired under SOP 03-3, and include $6.4 billion of loans that were considered nonperforming by Washington Mutual prior to the transaction closing. Under SOP 03-3, these loans are considered to be performing loans as of the transaction date and accrete interest income over the estimated life of the loan when cash flows are reasonably estimable, even if the underlying loans are contractually past due. For additional information, see Note 14 on pages 163166 of this Annual Report. | |
(e) | Represents securitized credit card receivables. For a further discussion of credit card securitizations, see CS on pages 5153 of this Annual Report. | |
(f) | The credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit will be utilized at the same time. For credit card commitments and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. | |
(g) | Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis and the pools are considered to be performing under SOP 03-3. | |
(h) | Excludes nonperforming assets related to: (1) loans eligible for repurchase, as well as loans repurchased from Governmental National Mortgage Association (GNMA) pools that are insured by U.S. government agencies of $3.3 billion for December 31, 2008 and $1.5 billion for December 31, 2007; and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $437 million and $417 million as of December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally. | |
(i) | During the second quarter of 2008, the Firms policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all the other home lending products. Amounts for 2007 have been revised to reflect this change. | |
(j) | Net charge-off rates exclude average loans held-for-sale of $2.8 billion and $10.6 billion for 2008 and 2007, respectively. |
92 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||||||||||
Assets acquired | Assets acquired in | |||||||||||||||||||||||||||||||
loan satisfactions | loan satisfactions | |||||||||||||||||||||||||||||||
As of December 31, | Nonperforming | Real estate | Nonperforming | Nonperforming | Real estate | Nonperforming | ||||||||||||||||||||||||||
(in millions) | loans | owned | Other | assets | loans | owned | Other | assets | ||||||||||||||||||||||||
Retail Financial
Services |
$ | 6,548 | $ | 2,183 | $ | 110 | $ | 8,841 | $ | 2,760 | $ | 477 | $ | 72 | $ | 3,309 | ||||||||||||||||
Card Services |
4 | | | 4 | 7 | | | 7 | ||||||||||||||||||||||||
Corporate/Private
Equity |
19 | 1 | | 20 | 1 | | | 1 | ||||||||||||||||||||||||
Total |
$ | 6,571 | $ | 2,184 | $ | 110 | $ | 8,865 | $ | 2,768 | $ | 477 | $ | 72 | $ | 3,317 | ||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 93 |
94 | JPMorgan Chase & Co. / 2008 Annual Report |
Total | Total | |||||||||||||||||||||||||||||||||||||||||||
Total | consumer | consumer | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2008 | Home | Prime | Subprime | Option | home loan | Card | All | loans | Card | loans | ||||||||||||||||||||||||||||||||||
(in billions) | equity | mortgage | mortgage | ARMs | portfolio | Auto | reported | other loans | reported | securitized | managed | |||||||||||||||||||||||||||||||||
Excluding purchased
credit-impaired |
||||||||||||||||||||||||||||||||||||||||||||
California |
$ | 23.2 | $ | 22.8 | $ | 2.2 | $ | 3.8 | $ | 52.0 | $ | 4.7 | $ | 14.8 | $ | 2.0 | $ | 73.5 | $ | 12.5 | $ | 86.0 | ||||||||||||||||||||||
New York |
16.3 | 10.4 | 1.7 | 0.9 | 29.3 | 3.7 | 8.3 | 4.7 | 46.0 | 6.6 | 52.6 | |||||||||||||||||||||||||||||||||
Texas |
8.1 | 2.7 | 0.4 | 0.2 | 11.4 | 3.8 | 7.4 | 4.1 | 26.7 | 6.1 | 32.8 | |||||||||||||||||||||||||||||||||
Florida |
6.3 | 6.0 | 2.3 | 0.9 | 15.5 | 1.5 | 6.8 | 0.9 | 24.7 | 5.2 | 29.9 | |||||||||||||||||||||||||||||||||
Illinois |
7.2 | 3.3 | 0.7 | 0.3 | 11.5 | 2.2 | 5.3 | 2.5 | 21.5 | 4.6 | 26.1 | |||||||||||||||||||||||||||||||||
Ohio |
4.6 | 0.7 | 0.4 | | 5.7 | 3.3 | 4.1 | 3.3 | 16.4 | 3.4 | 19.8 | |||||||||||||||||||||||||||||||||
New Jersey |
5.0 | 2.5 | 0.8 | 0.3 | 8.6 | 1.6 | 4.2 | 0.9 | 15.3 | 3.6 | 18.9 | |||||||||||||||||||||||||||||||||
Michigan |
3.6 | 1.3 | 0.4 | | 5.3 | 1.5 | 3.4 | 2.8 | 13.0 | 2.8 | 15.8 | |||||||||||||||||||||||||||||||||
Arizona |
5.9 | 1.6 | 0.4 | 0.2 | 8.1 | 1.6 | 2.3 | 1.9 | 13.9 | 1.8 | 15.7 | |||||||||||||||||||||||||||||||||
Pennsylvania |
1.6 | 0.7 | 0.5 | 0.1 | 2.9 | 1.7 | 3.9 | 0.7 | 9.2 | 3.2 | 12.4 | |||||||||||||||||||||||||||||||||
Washington |
3.8 | 2.3 | 0.3 | 0.5 | 6.9 | 0.6 | 2.0 | 0.4 | 9.9 | 1.6 | 11.5 | |||||||||||||||||||||||||||||||||
Colorado |
2.4 | 1.9 | 0.3 | 0.3 | 4.9 | 0.9 | 2.1 | 0.9 | 8.8 | 2.1 | 10.9 | |||||||||||||||||||||||||||||||||
All other |
26.3 | 16.3 | 4.9 | 1.5 | 49.0 | 15.5 | 40.1 | 10.5 | 115.1 | 32.1 | 147.2 | |||||||||||||||||||||||||||||||||
Total
excluding
purchased credit-impaired |
114.3 | 72.5 | 15.3 | 9.0 | 211.1 | 42.6 | 104.7 | 35.6 | 394.0 | 85.6 | 479.6 | |||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||||||||||
Total | consumer | consumer | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2007 | Home | Prime | Subprime | Option | home loan | Card | All | loans | Card | loans | ||||||||||||||||||||||||||||||||||
(in billions) | equity | mortgage | mortgage | ARMs | portfolio | Auto | reported | other loans | reported | securitized | managed | |||||||||||||||||||||||||||||||||
Excluding purchased
credit-impaired |
||||||||||||||||||||||||||||||||||||||||||||
California |
$ | 14.9 | $ | 11.4 | $ | 2.0 | $ | | $ | 28.3 | $ | 5.0 | $ | 11.0 | $ | 1.0 | $ | 45.3 | $ | 9.6 | $ | 54.9 | ||||||||||||||||||||||
New York |
14.4 | 6.4 | 1.6 | | 22.4 | 3.6 | 6.6 | 4.2 | 36.8 | 5.6 | 42.4 | |||||||||||||||||||||||||||||||||
Texas |
6.1 | 1.7 | 0.3 | | 8.1 | 3.7 | 5.8 | 3.5 | 21.1 | 5.4 | 26.5 | |||||||||||||||||||||||||||||||||
Florida |
5.3 | 3.9 | 2.5 | | 11.7 | 1.6 | 4.7 | 0.5 | 18.5 | 4.2 | 22.7 | |||||||||||||||||||||||||||||||||
Illinois |
6.7 | 2.2 | 0.8 | | 9.7 | 2.2 | 4.5 | 1.9 | 18.3 | 3.9 | 22.2 | |||||||||||||||||||||||||||||||||
Ohio |
4.9 | 0.5 | 0.5 | | 5.9 | 2.9 | 3.3 | 2.6 | 14.7 | 3.1 | 17.8 | |||||||||||||||||||||||||||||||||
New Jersey |
4.4 | 1.4 | 0.8 | | 6.6 | 1.7 | 3.3 | 0.5 | 12.1 | 3.1 | 15.2 | |||||||||||||||||||||||||||||||||
Michigan |
3.7 | 1.0 | 0.6 | | 5.3 | 1.3 | 2.9 | 2.3 | 11.8 | 2.5 | 14.3 | |||||||||||||||||||||||||||||||||
Arizona |
5.7 | 1.1 | 0.4 | | 7.2 | 1.8 | 1.7 | 1.8 | 12.5 | 1.4 | 13.9 | |||||||||||||||||||||||||||||||||
Pennsylvania |
1.6 | 0.4 | 0.5 | | 2.5 | 1.7 | 3.2 | 0.5 | 7.9 | 2.9 | 10.8 | |||||||||||||||||||||||||||||||||
Washington |
1.6 | 0.4 | 0.3 | | 2.3 | 0.6 | 1.4 | 0.2 | 4.5 | 1.3 | 5.8 | |||||||||||||||||||||||||||||||||
Colorado |
2.3 | 1.0 | 0.3 | | 3.6 | 1.0 | 2.0 | 0.8 | 7.4 | 1.7 | 9.1 | |||||||||||||||||||||||||||||||||
All other |
23.2 | 9.2 | 4.8 | | 37.2 | 15.3 | 34.0 | 8.9 | 95.4 | 28.0 | 123.4 | |||||||||||||||||||||||||||||||||
Total
excluding
purchased credit-impaired |
$ | 94.8 | $ | 40.6 | $ | 15.4 | $ | | $ | 150.8 | $ | 42.4 | $ | 84.4 | $ | 28.7 | $ | 306.3 | $ | 72.7 | $ | 379.0 | ||||||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 95 |
(a) | Excluding the purchased credit-impaired loans acquired in the Washington Mutual transaction. |
96 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | 2008 | 2007 | |||||||||||||||||||||||
(in millions) | Wholesale | Consumer | Total | Wholesale | Consumer | Total | |||||||||||||||||||
Loans: |
|||||||||||||||||||||||||
Beginning balance at January 1, |
$ | 3,154 | $ | 6,080 | $ | 9,234 | $ | 2,711 | $ | 4,568 | $ | 7,279 | |||||||||||||
Cumulative effect of change in
accounting principles(a) |
| | | (56 | ) | | (56 | ) | |||||||||||||||||
Beginning balance at January 1, adjusted |
3,154 | 6,080 | 9,234 | 2,655 | 4,568 | 7,223 | |||||||||||||||||||
Gross charge-offs |
521 | 10,243 | 10,764 | 185 | 5,182 | 5,367 | |||||||||||||||||||
Gross recoveries |
(119 | ) | (810 | ) | (929 | ) | (113 | ) | (716 | ) | (829 | ) | |||||||||||||
Net charge-offs |
402 | 9,433 | 9,835 | 72 | 4,466 | 4,538 | |||||||||||||||||||
Provision for loan losses: |
|||||||||||||||||||||||||
Provision excluding accounting conformity |
2,895 | 16,765 | 19,660 | 598 | 5,940 | 6,538 | |||||||||||||||||||
Accounting conformity(b) |
641 | 936 | 1,577 | | | | |||||||||||||||||||
Total provision for loan losses |
3,536 | 17,701 | 21,237 | 598 | 5,940 | 6,538 | |||||||||||||||||||
Acquired allowance resulting from
Washington Mutual
transaction |
229 | 2,306 | 2,535 | | | | |||||||||||||||||||
Other |
28 | (c) | (35 | )(c) | (7 | ) | (27 | )(i) | 38 | (i) | 11 | ||||||||||||||
Ending balance at December 31 |
$ | 6,545 | $ | 16,619 | $ | 23,164 | $ | 3,154 | $ | 6,080 | $ | 9,234 | |||||||||||||
Components: |
|||||||||||||||||||||||||
Asset-specific |
$ | 712 | $ | 74 | $ | 786 | $ | 108 | $ | 80 | $ | 188 | |||||||||||||
Formula-based |
5,833 | 16,545 | 22,378 | 3,046 | 6,000 | 9,046 | |||||||||||||||||||
Total allowance for loan losses |
$ | 6,545 | $ | 16,619 | $ | 23,164 | $ | 3,154 | $ | 6,080 | $ | 9,234 | |||||||||||||
Lending-related commitments: |
|||||||||||||||||||||||||
Beginning balance at January 1, |
$ | 835 | $ | 15 | $ | 850 | $ | 499 | $ | 25 | $ | 524 | |||||||||||||
Provision for lending-related commitments |
|||||||||||||||||||||||||
Provision excluding accounting conformity |
(214 | ) | (1 | ) | (215 | ) | 336 | (10 | ) | 326 | |||||||||||||||
Accounting conformity(b) |
5 | (48 | ) | (43 | ) | | | | |||||||||||||||||
Total provision for lending-related
commitments |
(209 | ) | (49 | ) | (258 | ) | 336 | (10 | ) | 326 | |||||||||||||||
Acquired allowance resulting from
Washington Mutual
transaction |
| 66 | 66 | | | | |||||||||||||||||||
Other |
8 | (c) | (7) | (c) | 1 | | | | |||||||||||||||||
Ending balance at December 31 |
$ | 634 | $ | 25 | $ | 659 | $ | 835 | $ | 15 | $ | 850 | |||||||||||||
Components: |
|||||||||||||||||||||||||
Asset-specific |
$ | 29 | $ | | $ | 29 | $ | 28 | $ | | $ | 28 | |||||||||||||
Formula-based |
605 | 25 | 630 | 807 | 15 | 822 | |||||||||||||||||||
Total allowance for
lending-related commitments |
$ | 634 | $ | 25 | $ | 659 | $ | 835 | $ | 15 | $ | 850 | |||||||||||||
Total allowance for credit losses |
$ | 7,179 | $ | 16,644 | $ | 23,823 | $ | 3,989 | $ | 6,095 | $ | 10,084 | |||||||||||||
Allowance for loan losses to loans |
2.64 | %(d) | 3.46 | %(e)(h) | 3.18 | %(d)(e)(h) | 1.67 | %(d) | 2.01 | %(e) | 1.88 | %(d)(e) | |||||||||||||
Allowance for loan losses to loans
excluding
purchased credit-impaired loans |
2.64 | (d) | 4.24 | (e) | 3.62 | (d)(e) | 1.67 | (d) | 2.01 | (e) | 1.88 | (d)(e) | |||||||||||||
Net charge-off rates |
0.18 | (f) | 2.71 | (g)(h) | 1.73 | (f)(g)(h) | 0.04 | (f) | 1.61 | (g) | 1.00 | (f)(g) | |||||||||||||
Net charge-off rates excluding purchased
credit-impaired loans |
0.18 | (f) | 2.90 | (g) | 1.81 | (f)(g) | 0.04 | (f) | 1.61 | (g) | 1.00 | (f)(g) | |||||||||||||
(a) | Reflects the effect of the adoption of SFAS 159 at January 1, 2007. For a further discussion of SFAS 159, see Note 5 on pages 144146 of this Annual Report. | |
(b) | Related to the Washington Mutual transaction in 2008. | |
(c) | Primarily related to the transfer of loans and lending-related commitments from RFS to CB during the first quarter of 2008. | |
(d) | Wholesale loans held-for-sale and loans at fair value were $14.0 billion and $23.6 billion at December 31, 2008 and 2007, respectively. These amounts were excluded when calculating the allowance coverage ratios. | |
(e) | Consumer loans held-for-sale were $2.0 billion and $4.0 billion at December 31, 2008 and 2007, respectively. These amounts were excluded when calculating the allowance coverage ratios. | |
(f) | Average wholesale loans held-for-sale and loans at fair value were $18.9 billion and $18.6 billion for the years ended December 31, 2008 and 2007, respectively. These amounts were excluded when calculating the net charge-off rates. | |
(g) | Average consumer (excluding card) loans held-for-sale and loans at fair value were $2.8 billion and $10.6 billion for the years ended December 31, 2008 and 2007, respectively. These amounts were excluded when calculating the net charge-off rates. | |
(h) | Includes $88.8 billion of home lending credit-impaired loans acquired in the Washington Mutual transaction and accounted for under SOP 03-3 at December 31, 2008. These loans were accounted for at fair value on the acquisition date, which reflected expected cash flows (including credit losses) over the remaining life of the portfolio. No allowance for loan losses has been recorded for these loans as of December 31, 2008. | |
(i) | Partially related to the transfer of allowance between wholesale and consumer in conjunction with prime mortgages transferred to the Corporate/Private Equity sector. |
JPMorgan Chase & Co. / 2008 Annual Report | 97 |
Net charge-offs (recoveries) | ||||||||||||||||
December 31, | Allowance for loan losses | year ended | ||||||||||||||
(in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Investment Bank |
$ | 3,444 | $ | 1,329 | $ | 105 | $ | 36 | ||||||||
Commercial Banking |
2,826 | 1,695 | 288 | 44 | ||||||||||||
Treasury & Securities Services |
74 | 18 | (2 | ) | | |||||||||||
Asset Management |
191 | 112 | 11 | (8 | ) | |||||||||||
Corporate/Private Equity |
10 | | | | ||||||||||||
Total Wholesale |
6,545 | 3,154 | 402 | 72 | ||||||||||||
Retail Financial Services |
8,918 | 2,668 | 4,877 | 1,350 | ||||||||||||
Card Services |
7,692 | 3,407 | 4,556 | 3,116 | ||||||||||||
Corporate/Private Equity |
9 | 5 | | | ||||||||||||
Total Consumer reported |
16,619 | 6,080 | 9,433 | 4,466 | ||||||||||||
Credit card securitized |
| | 3,612 | 2,380 | ||||||||||||
Total Consumer managed |
16,619 | 6,080 | 13,045 | 6,846 | ||||||||||||
Total |
$ | 23,164 | $ | 9,234 | $ | 13,477 | $ | 6,918 | ||||||||
98 | JPMorgan Chase & Co. / 2008 Annual Report |
Provision for | ||||||||||||||||||||||||||||||||||||
Year ended December 31, | Provision for loan losses | lending-related commitments | Total provision for credit losses | |||||||||||||||||||||||||||||||||
(in millions) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||
Investment Bank |
$ | 2,216 | $ | 376 | $ | 112 | $ | (201 | ) | $ | 278 | $ | 79 | $ | 2,015 | $ | 654 | $ | 191 | |||||||||||||||||
Commercial Banking |
505 | 230 | 133 | (41 | ) | 49 | 27 | 464 | 279 | 160 | ||||||||||||||||||||||||||
Treasury & Securities
Services |
52 | 11 | (1 | ) | 30 | 8 | | 82 | 19 | (1 | ) | |||||||||||||||||||||||||
Asset Management |
87 | (19 | ) | (30 | ) | (2 | ) | 1 | 2 | 85 | (18 | ) | (28 | ) | ||||||||||||||||||||||
Corporate/Private
Equity(a)(b) |
676 | | (1 | ) | 5 | | | 681 | | (1 | ) | |||||||||||||||||||||||||
Total Wholesale |
3,536 | 598 | 213 | (209 | ) | 336 | 108 | 3,327 | 934 | 321 | ||||||||||||||||||||||||||
Retail Financial Services |
9,906 | 2,620 | 552 | (1 | ) | (10 | ) | 9 | 9,905 | 2,610 | 561 | |||||||||||||||||||||||||
Card Services reported |
6,456 | 3,331 | 2,388 | | | | 6,456 | 3,331 | 2,388 | |||||||||||||||||||||||||||
Corporate/Private
Equity(a)(c)(d) |
1,339 | (11 | ) | | (48 | ) | | | 1,291 | (11 | ) | | ||||||||||||||||||||||||
Total Consumer |
17,701 | 5,940 | 2,940 | (49 | ) | (10 | ) | 9 | 17,652 | 5,930 | 2,949 | |||||||||||||||||||||||||
Total provision for credit losses reported |
21,237 | 6,538 | 3,153 | (258 | ) | 326 | 117 | 20,979 | 6,864 | 3,270 | ||||||||||||||||||||||||||
Credit card securitized |
3,612 | 2,380 | 2,210 | | | | 3,612 | 2,380 | 2,210 | |||||||||||||||||||||||||||
Total provision for credit losses managed |
$ | 24,849 | $ | 8,918 | $ | 5,363 | $ | (258 | ) | $ | 326 | $ | 117 | $ | 24,591 | $ | 9,244 | $ | 5,480 | |||||||||||||||||
(a) | Includes accounting conformity provisions related to the Washington Mutual transaction in 2008. | |
(b) | Includes provision expense related to loans acquired in the Bear Stearns merger in the second quarter of 2008. | |
(c) | Includes amounts related to held-for-investment prime mortgages transferred from AM to the Corporate/Private Equity segment. | |
(d) | In November 2008, the Firm transferred $5.8 billion of higher quality credit card loans from the legacy Chase portfolio to a securitization trust previously established by Washington Mutual (the Trust). As a result of converting higher credit quality Chase-originated on-book receivables to the Trusts sellers interest which has a higher overall loss rate reflective of the total assets within the Trust, approximately $400 million of incremental provision expense was recorded during the fourth quarter. This incremental provision expense was recorded in the Corporate segment as the action related to the acquisition of Washington Mutuals banking operations. For further discussion of credit card securitizations, see Note 16 on pages 169170 of this Annual Report. |
| Establishment of a comprehensive market risk policy framework | |
| Independent measurement, monitoring and control of business segment market risk | |
| Definition, approval and monitoring of limits | |
| Performance of stress testing and qualitative risk assessments |
JPMorgan Chase & Co. / 2008 Annual Report | 99 |
| Nonstatistical risk measures | |
| Value-at-risk (VaR) | |
| Loss advisories | |
| Drawdowns | |
| Economic value stress testing | |
| Earnings-at-risk stress testing | |
| Risk identification for large exposures (RIFLE) |
100 | JPMorgan Chase & Co. / 2008 Annual Report |
As of or for the year ended | 2008 | 2007 | At December 31, | |||||||||||||||||||||||||||||
December 31,(a) (in millions) | Average | Minimum | Maximum | Average | Minimum | Maximum | 2008 | 2007 | ||||||||||||||||||||||||
By risk type: |
||||||||||||||||||||||||||||||||
Fixed income |
$ | 181 | $ | 99 | $ | 409 | $ | 80 | $ | 25 | $ | 135 | $ | 253 | $ | 106 | ||||||||||||||||
Foreign exchange |
34 | 13 | 90 | 23 | 9 | 44 | 70 | 22 | ||||||||||||||||||||||||
Equities |
57 | 19 | 187 | 48 | 22 | 133 | 69 | 27 | ||||||||||||||||||||||||
Commodities and other |
32 | 24 | 53 | 33 | 21 | 66 | 26 | 27 | ||||||||||||||||||||||||
Diversification |
(108 | )(b) | NM | (c) | NM | (c) | (77 | )(b) | NM | (c) | NM | (c) | (152 | )(b) | (82 | )(b) | ||||||||||||||||
Trading VaR |
$ | 196 | $ | 96 | $ | 420 | $ | 107 | $ | 50 | $ | 188 | $ | 266 | $ | 100 | ||||||||||||||||
Credit portfolio VaR |
69 | 20 | 218 | 17 | 8 | 31 | 171 | 22 | ||||||||||||||||||||||||
Diversification |
(63 | )(b) | NM | (c) | NM | (b) | (18 | )(b) | NM | (c) | NM | (c) | (120 | )(b) | (19 | )(b) | ||||||||||||||||
Total trading and credit
portfolio VaR |
$ | 202 | $ | 96 | $ | 449 | $ | 106 | $ | 50 | $ | 178 | $ | 317 | $ | 103 | ||||||||||||||||
(a) | The results for the year ended December 31, 2008, include five months of heritage JPMorgan Chase only results and seven months of results for the combined JPMorgan Chase and Bear Stearns; 2007 reflects heritage JPMorgan Chase results only. | |
(b) | Average and period-end VaRs were less than the sum of the VaRs of its market risk components, which is due to risk offsets resulting from portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves. | |
(c) | Designated as not meaningful (NM) because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio diversification effect. |
JPMorgan Chase & Co. / 2008 Annual Report | 101 |
(a) Includes seven months of Bear Stearns results. |
Six months ended December 31, 2008 | ||||||||
(in millions) | Average | At December 31 | ||||||
IB VaR by risk type: |
||||||||
Fixed income |
$ | 162 | $ | 180 | ||||
Foreign exchange |
23 | 38 | ||||||
Equities |
47 | 39 | ||||||
Commodities and other |
23 | 25 | ||||||
Diversification benefit to IB trading VaR |
(88 | ) | (108 | ) | ||||
IB Trading VaR |
$ | 167 | $ | 174 | ||||
Credit portfolio VaR |
45 | 77 | ||||||
Diversification benefit to IB trading and credit portfolio VaR |
(36 | ) | (57 | ) | ||||
Total IB trading and credit portfolio VaR |
$ | 176 | $ | 194 | ||||
Consumer
Lending VaR |
37 | 112 | ||||||
Corporate Risk Management VaR |
48 | 114 | ||||||
Diversification benefit to total other VaR |
(19 | ) | (48 | ) | ||||
Total other VaR |
$ | 66 | $ | 178 | ||||
Diversification benefit to total IB and other VaR |
(40 | ) | (86 | ) | ||||
Total IB and other VaR |
$ | 202 | $ | 286 | ||||
102 | JPMorgan Chase & Co. / 2008 Annual Report |
1 Basis Point Increase in | ||||
(in millions) | JPMorgan Chase Credit Spread | |||
December 31, 2008 |
$ | 32 | ||
December 31, 2007 |
$ | 38 | ||
| Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments. For example, if liabilities reprice quicker than assets and funding interest rates are declining, earnings will increase initially. |
| Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time. For example, if more deposit liabilities are repricing than assets when general interest rates are declining, earnings will increase initially. |
| Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve because the Firm has the ability to lend at long-term fixed rates and borrow at variable or short-term fixed rates. Based upon these scenarios, the Firms earnings would be affected negatively by a sudden and unanticipated increase in short-term rates paid on its liabilities (e.g., deposits) without a corresponding increase in long-term rates received on its assets (e.g., loans). Conversely, higher long-term rates received on assets generally are beneficial to earnings, particularly when the increase is not accompanied by rising short-term rates paid on liabilities. |
| The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change. For example, if more borrowers than forecasted pay down higher rate loan balances when general interest rates are declining, earnings may decrease initially. |
JPMorgan Chase & Co. / 2008 Annual Report | 103 |
Immediate change in rates | ||||||||||||||||
(in millions) | +200bp | +100bp | -100bp | -200bp | ||||||||||||
December 31, 2008 |
$ | 336 | $ | 672 | $ | NM(a) | $ | NM(a) | ||||||||
December 31, 2007 |
$ | (26 | ) | $ | 55 | $ | (308 | ) | $ | (664 | ) | |||||
(a) | Down 100 and 200 basis point parallel shocks result in a Fed Funds target rate of zero, and negative three- and six-month Treasury rates. The earnings-at-risk results of such a low probability scenario are not meaningful (NM). |
104 | JPMorgan Chase & Co. / 2008 Annual Report |
| Client service and selection | |
| Business practices | |
| Fraud, theft and malice | |
| Execution, delivery and process management | |
| Employee disputes | |
| Disasters and public safety | |
| Technology and infrastructure failures |
JPMorgan Chase & Co. / 2008 Annual Report | 105 |
106 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 107 |
108 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, | 2008 | 2007 | ||||||||||||||
(in billions) | Total at fair value | Level 3 total | Total at fair value | Level 3 total | ||||||||||||
Trading debt and equity securities(a) |
$ | 347.4 | $ | 41.4 | $ | 414.3 | $ | 24.1 | ||||||||
Derivative receivables gross |
2,741.7 | 53.0 | 909.8 | 20.2 | ||||||||||||
Netting adjustment |
(2,579.1 | ) | | (832.7 | ) | | ||||||||||
Derivative receivables net |
162.6 | 53.0 | (e) | 77.1 | 20.2 | (e) | ||||||||||
AFS Securities |
205.9 | 12.4 | 85.4 | 0.1 | ||||||||||||
Loans |
7.7 | 2.7 | 8.7 | 8.4 | ||||||||||||
MSRs |
9.4 | 9.4 | 8.6 | 8.6 | ||||||||||||
Private equity investments |
6.9 | 6.4 | 7.2 | 6.8 | ||||||||||||
Other(b) |
46.5 | 5.0 | 34.2 | 3.1 | ||||||||||||
Total assets carried at fair value
on a recurring basis |
786.4 | 130.3 | 635.5 | 71.3 | ||||||||||||
Total assets carried at fair value
on a nonrecurring basis(c) |
11.0 | 4.3 | 14.9 | 11.8 | ||||||||||||
Total assets carried at fair value |
$ | 797.4 | $ | 134.6 | (f) | $ | 650.4 | $ | 83.1 | |||||||
Less: level 3 assets for which the Firm does not
bear economic
exposure(d) |
21.2 | |||||||||||||||
Total level 3 assets for which the Firm bears
economic exposure |
$ | 113.4 | ||||||||||||||
Total Firm assets |
$ | 2,175.1 | $ | 1,562.1 | ||||||||||||
Level 3 assets as a percentage of total Firm assets |
6 | % | 5 | % | ||||||||||||
Level 3 assets for which the Firm bears economic
exposure
as a percentage of total Firm assets |
5 | |||||||||||||||
Level 3 assets as a percentage of total Firm
assets at fair value |
17 | 13 | ||||||||||||||
Level 3 assets for which the Firm bears economic
exposure
as a percentage of total assets at fair value |
14 | |||||||||||||||
(a) | Includes physical commodities carried at the lower of cost or fair value. | |
(b) | Includes certain securities purchased under resale agreements, certain securities borrowed and certain other investments. | |
(c) | Predominantly consists of debt financing and other loan warehouses held-for-sale and other assets. | |
(d) | Balances for which the Firm did not bear economic exposure at December 31, 2007, were not significant. | |
(e) | The Firm does not allocate the FIN 39 netting adjustment across the levels of the fair value hierarchy. As such, the level 3 derivative receivables balance included in the level 3 total balance is reported gross of any netting adjustments. | |
(f) | Included in the table above are $95.1 billion of level 3 assets, consisting of recurring and nonrecurring assets, carried by IB at December 31, 2008. This includes $21.2 billion of assets for which the Firm serves as an intermediary between two parties and does not bear economic exposure. |
JPMorgan Chase & Co. / 2008 Annual Report | 109 |
110 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 111 |
112 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 113 |
For the year ended | ||||||||
December 31, 2008 (in millions) | Asset position | Liability position | ||||||
Net fair value of contracts
outstanding at January 1, 2008 |
$ | 8,090 | $ | 5,809 | ||||
Effect of legally enforceable master
netting agreements |
26,108 | 25,957 | ||||||
Gross fair value of contracts
outstanding at January 1, 2008 |
34,198 | 31,766 | ||||||
Contracts realized or otherwise settled |
(12,773 | ) | (12,802 | ) | ||||
Fair value of new contracts |
40,916 | 39,194 | ||||||
Changes in fair values attributable to
changes in valuation techniques
and assumptions |
| | ||||||
Other changes in fair value |
(6,818 | ) | (4,293 | ) | ||||
Gross fair value of contracts
outstanding at December 31, 2008 |
55,523 | 53,865 | ||||||
Effect of legally enforceable master
netting agreements |
(48,091 | ) | (48,726 | ) | ||||
Net fair value of contracts
outstanding at December 31, 2008 |
$ | 7,432 | $ | 5,139 | ||||
December 31, 2008 (in millions) | Asset position | Liability position | ||||||
Maturity less than 1 year |
$ | 27,282 | $ | 24,381 | ||||
Maturity 13 years |
22,463 | 20,047 | ||||||
Maturity 45 years |
3,954 | 3,609 | ||||||
Maturity in excess of 5 years |
1,824 | 5,828 | ||||||
Gross fair value of contracts
outstanding at December 31, 2008 |
55,523 | 53,865 | ||||||
Effects of legally enforceable master
netting agreements |
(48,091 | ) | (48,726 | ) | ||||
Net fair value of contracts
outstanding at December 31, 2008 |
$ | 7,432 | $ | 5,139 | ||||
114 | JPMorgan Chase & Co. / 2008 Annual Report |
| local, regional and international business, economic and political conditions and geopolitical events; | |
| changes in trade, monetary and fiscal policies and laws; | |
| securities and capital markets behavior, including changes in market liquidity and volatility; | |
| changes in investor sentiment or consumer spending or saving behavior; | |
| ability of the Firm to manage effectively its liquidity; | |
| credit ratings assigned to the Firm or its subsidiaries; | |
| the Firms reputation; | |
| ability of the Firm to deal effectively with an economic slowdown or other economic or market difficulty; | |
| technology changes instituted by the Firm, its counterparties or competitors; | |
| mergers and acquisitions, including the Firms ability to integrate acquisitions; | |
| ability of the Firm to develop new products and services; | |
| acceptance of the Firms new and existing products and services by the marketplace and the ability of the Firm to increase market share; | |
| ability of the Firm to attract and retain employees; | |
| ability of the Firm to control expense; | |
| competitive pressures; | |
| changes in the credit quality of the Firms customers and counterparties; |
| adequacy of the Firms risk management framework; | |
| changes in laws and regulatory requirements or adverse judicial proceedings; | |
| changes in applicable accounting policies; | |
| ability of the Firm to determine accurate values of certain assets and liabilities; | |
| occurrence of natural or man-made disasters or calamities or conflicts, including any effect of any such disasters, calamities or conflicts on the Firms power generation facilities and the Firms other commodity-related activities; | |
| the other risks and uncertainties detailed in Part 1, Item 1A: Risk Factors in the Firms Annual Report on Form 10-K for the year ended December 31, 2008. |
JPMorgan Chase & Co. / 2008 Annual Report | 115 |
116 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 117 |
Year ended December 31, (in millions, except per share data) | 2008 | 2007 | 2006 | |||||||||
Revenue |
||||||||||||
Investment banking fees
|
$ | 5,526 | $ | 6,635 | $ | 5,520 | ||||||
Principal transactions
|
(10,699 | ) | 9,015 | 10,778 | ||||||||
Lending & deposit-related fees
|
5,088 | 3,938 | 3,468 | |||||||||
Asset management, administration and commissions
|
13,943 | 14,356 | 11,855 | |||||||||
Securities gains (losses)
|
1,560 | 164 | (543 | ) | ||||||||
Mortgage fees and related income
|
3,467 | 2,118 | 591 | |||||||||
Credit card income
|
7,419 | 6,911 | 6,913 | |||||||||
Other income
|
2,169 | 1,829 | 2,175 | |||||||||
Noninterest revenue
|
28,473 | 44,966 | 40,757 | |||||||||
Interest income
|
73,018 | 71,387 | 59,107 | |||||||||
Interest expense
|
34,239 | 44,981 | 37,865 | |||||||||
Net interest income
|
38,779 | 26,406 | 21,242 | |||||||||
Total net revenue
|
67,252 | 71,372 | 61,999 | |||||||||
Provision for credit losses
|
20,979 | 6,864 | 3,270 | |||||||||
Noninterest expense |
||||||||||||
Compensation expense
|
22,746 | 22,689 | 21,191 | |||||||||
Occupancy expense
|
3,038 | 2,608 | 2,335 | |||||||||
Technology, communications and equipment expense
|
4,315 | 3,779 | 3,653 | |||||||||
Professional & outside services
|
6,053 | 5,140 | 4,450 | |||||||||
Marketing
|
1,913 | 2,070 | 2,209 | |||||||||
Other expense
|
3,740 | 3,814 | 3,272 | |||||||||
Amortization of intangibles
|
1,263 | 1,394 | 1,428 | |||||||||
Merger costs
|
432 | 209 | 305 | |||||||||
Total noninterest expense
|
43,500 | 41,703 | 38,843 | |||||||||
Income from continuing operations before income tax expense (benefit)
|
2,773 | 22,805 | 19,886 | |||||||||
Income tax expense (benefit)
|
(926 | ) | 7,440 | 6,237 | ||||||||
Income from continuing operations
|
3,699 | 15,365 | 13,649 | |||||||||
Income from discontinued operations
|
| | 795 | |||||||||
Income before extraordinary gain
|
3,699 | 15,365 | 14,444 | |||||||||
Extraordinary gain
|
1,906 | | | |||||||||
Net income
|
$ | 5,605 | $ | 15,365 | $ | 14,444 | ||||||
Net income applicable to common stock
|
$ | 4,931 | $ | 15,365 | $ | 14,440 | ||||||
Per common share data |
||||||||||||
Basic earnings per share: |
||||||||||||
Income from continuing operations
|
$ | 0.86 | $ | 4.51 | $ | 3.93 | ||||||
Net income
|
1.41 | 4.51 | 4.16 | |||||||||
Diluted earnings per share: |
||||||||||||
Income from continuing operations
|
0.84 | 4.38 | 3.82 | |||||||||
Net income
|
1.37 | 4.38 | 4.04 | |||||||||
Average basic shares
|
3,501 | 3,404 | 3,470 | |||||||||
Average diluted shares
|
3,605 | 3,508 | 3,574 | |||||||||
Cash dividends per common share
|
$ | 1.52 | $ | 1.48 | $ | 1.36 | ||||||
118 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions, except share data) | 2008 | 2007 | ||||||
Assets |
||||||||
Cash and due from banks |
$ | 26,895 | $ | 40,144 | ||||
Deposits with banks |
138,139 | 11,466 | ||||||
Federal funds sold and securities purchased under resale agreements (included $20,843 and
$19,131 at fair value
at December 31, 2008 and 2007, respectively) |
203,115 | 170,897 | ||||||
Securities borrowed (included $3,381 and zero at fair value at December 31, 2008 and 2007,
respectively) |
124,000 | 84,184 | ||||||
Trading
assets (included assets pledged of $75,063 and $79,229 at December 31, 2008 and 2007,
respectively) |
509,983 | 491,409 | ||||||
Securities (included $205,909 and $85,406 at fair value at December 31, 2008 and 2007,
respectively,
and assets pledged of $25,942 and $3,958 at December 31, 2008 and 2007, respectively) |
205,943 | 85,450 | ||||||
Loans (included $7,696 and $8,739 at fair value at December 31, 2008 and 2007, respectively) |
744,898 | 519,374 | ||||||
Allowance for loan losses |
(23,164 | ) | (9,234 | ) | ||||
Loans, net of allowance for loan losses |
721,734 | 510,140 | ||||||
Accrued interest and accounts receivable |
60,987 | 24,823 | ||||||
Premises and equipment |
10,045 | 9,319 | ||||||
Goodwill |
48,027 | 45,270 | ||||||
Other intangible assets: |
||||||||
Mortgage servicing rights |
9,403 | 8,632 | ||||||
Purchased credit card relationships |
1,649 | 2,303 | ||||||
All other intangibles |
3,932 | 3,796 | ||||||
Other assets
(included $29,199 and $22,151 at fair value at December 31, 2008 and 2007,
respectively) |
111,200 | 74,314 | ||||||
Total assets |
$ | 2,175,052 | $ | 1,562,147 | ||||
Liabilities |
||||||||
Deposits (included $5,605 and $6,389 at fair value at December 31, 2008 and 2007, respectively) |
$ | 1,009,277 | $ | 740,728 | ||||
Federal funds purchased and securities loaned or sold under repurchase agreements (included
$2,993 and $5,768 at
fair value at December 31, 2008 and 2007, respectively) |
192,546 | 154,398 | ||||||
Commercial paper |
37,845 | 49,596 | ||||||
Other borrowed funds (included $14,713 and $10,777 at fair value at December 31, 2008 and
2007, respectively) |
132,400 | 28,835 | ||||||
Trading liabilities |
166,878 | 157,867 | ||||||
Accounts payable and other liabilities (including the allowance for lending-related
commitments of $659 and $850 at December 31, 2008 and 2007, respectively, and zero and $25 at
fair value at
December 31, 2008 and 2007, respectively) |
187,978 | 94,476 | ||||||
Beneficial interests issued by consolidated variable interest entities (included $1,735 and
$3,004 at fair value at
December 31, 2008 and 2007, respectively) |
10,561 | 14,016 | ||||||
Long-term debt (included $58,214 and $70,456 at fair value at December 31, 2008 and 2007,
respectively) |
252,094 | 183,862 | ||||||
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed
capital debt securities |
18,589 | 15,148 | ||||||
Total liabilities |
2,008,168 | 1,438,926 | ||||||
Commitments and contingencies (see Note 31 on page 201 of this Annual Report) |
||||||||
Stockholders equity |
||||||||
Preferred stock ($1 par value; authorized 200,000,000 shares at December 31, 2008 and 2007;
issued
5,038,107 and 0 shares at December 31, 2008 and 2007, respectively) |
31,939 | | ||||||
Common stock ($1 par value; authorized 9,000,000,000 shares at December 31, 2008 and 2007;
issued 3,941,633,895 shares and 3,657,671,234 shares at December 31, 2008 and 2007,
respectively) |
3,942 | 3,658 | ||||||
Capital surplus |
92,143 | 78,597 | ||||||
Retained earnings |
54,013 | 54,715 | ||||||
Accumulated other comprehensive income (loss) |
(5,687 | ) | (917 | ) | ||||
Shares held in RSU Trust, at cost (4,794,723 shares at December 31, 2008) |
(217 | ) | | |||||
Treasury stock, at cost (208,833,260 shares and 290,288,540 shares at December 31, 2008 and
2007, respectively) |
(9,249 | ) | (12,832 | ) | ||||
Total stockholders equity |
166,884 | 123,221 | ||||||
Total liabilities and stockholders equity |
$ | 2,175,052 | $ | 1,562,147 | ||||
JPMorgan Chase & Co. / 2008 Annual Report | 119 |
Year ended December 31, (in millions, except per share data) | 2008 | 2007 | 2006 | |||||||||
Preferred stock |
||||||||||||
Balance at beginning of year |
$ | | $ | | $ | 139 | ||||||
Issuance of preferred stock |
31,550 | | | |||||||||
Issuance of preferred stock conversion of the Bear Stearns preferred stock |
352 | | | |||||||||
Accretion of preferred stock discount on issuance to U.S. Treasury |
37 | | | |||||||||
Redemption of preferred stock |
| | (139 | ) | ||||||||
Balance at end of year |
31,939 | | | |||||||||
Common stock |
||||||||||||
Balance at beginning of year |
3,658 | 3,658 | 3,618 | |||||||||
Issuance of common stock |
284 | | 40 | |||||||||
Balance at end of year |
3,942 | 3,658 | 3,658 | |||||||||
Capital surplus |
||||||||||||
Balance at beginning of year |
78,597 | 77,807 | 74,994 | |||||||||
Issuance of common stock |
11,201 | | | |||||||||
Shares issued and commitments to issue common stock for employee stock-based
compensation awards and related tax effects |
859 | 790 | 2,813 | |||||||||
Net change from the Bear Stearns merger: |
||||||||||||
Reissuance of treasury stock and the Share Exchange agreement |
48 | | | |||||||||
Employee stock awards |
242 | | | |||||||||
Warrant issued to U.S. Treasury in connection with issuance of preferred stock |
1,250 | | | |||||||||
Preferred stock issue cost |
(54 | ) | | | ||||||||
Balance at end of year |
92,143 | 78,597 | 77,807 | |||||||||
Retained earnings |
||||||||||||
Balance at beginning of year |
54,715 | 43,600 | 33,848 | |||||||||
Cumulative effect of change in accounting principles |
| 915 | 172 | |||||||||
Balance at beginning of year, adjusted |
54,715 | 44,515 | 34,020 | |||||||||
Net income |
5,605 | 15,365 | 14,444 | |||||||||
Dividends declared: |
||||||||||||
Preferred stock |
(674 | ) | | (4 | ) | |||||||
Common stock ($1.52, $1.48 and $1.36 per share for the years ended
December 31, 2008, 2007 and 2006, respectively) |
(5,633 | ) | (5,165 | ) | (4,860 | ) | ||||||
Balance at end of year |
54,013 | 54,715 | 43,600 | |||||||||
Accumulated other comprehensive income (loss) |
||||||||||||
Balance at beginning of year |
(917 | ) | (1,557 | ) | (626 | ) | ||||||
Cumulative effect of change in accounting principles |
| (1 | ) | | ||||||||
Balance at beginning of year, adjusted |
(917 | ) | (1,558 | ) | (626 | ) | ||||||
Other comprehensive income (loss) |
(4,770 | ) | 641 | 171 | ||||||||
Adjustment to initially apply SFAS 158 |
| | (1,102 | ) | ||||||||
Balance at end of year |
(5,687 | ) | (917 | ) | (1,557 | ) | ||||||
Shares held in RSU Trust |
||||||||||||
Balance at beginning of year |
| | | |||||||||
Resulting from the Bear Stearns merger |
(269 | ) | | | ||||||||
Reissuance from RSU Trust |
52 | | | |||||||||
Balance at end of year |
(217 | ) | | | ||||||||
Treasury stock, at cost |
||||||||||||
Balance at beginning of year |
(12,832 | ) | (7,718 | ) | (4,762 | ) | ||||||
Purchase of treasury stock |
| (8,178 | ) | (3,938 | ) | |||||||
Reissuance from treasury stock |
2,454 | 3,199 | 1,334 | |||||||||
Share repurchases related to employee stock-based compensation awards |
(21 | ) | (135 | ) | (352 | ) | ||||||
Net change from the Bear Stearns merger as a result of the reissuance of
treasury stock and the
Share Exchange agreement |
1,150 | | | |||||||||
Balance at end of year |
(9,249 | ) | (12,832 | ) | (7,718 | ) | ||||||
Total stockholders equity |
$ | 166,884 | $ | 123,221 | $ | 115,790 | ||||||
Comprehensive income |
||||||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | ||||||
Other comprehensive income (loss) |
(4,770 | ) | 641 | 171 | ||||||||
Comprehensive income |
$ | 835 | $ | 16,006 | $ | 14,615 | ||||||
120 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Operating activities |
||||||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | ||||||
Adjustments to reconcile net income to net cash (used in) provided by
operating activities: |
||||||||||||
Provision for credit losses |
20,979 | 6,864 | 3,270 | |||||||||
Depreciation and amortization |
3,143 | 2,427 | 2,149 | |||||||||
Amortization of intangibles |
1,263 | 1,394 | 1,428 | |||||||||
Deferred tax (benefit) expense |
(2,637 | ) | 1,307 | (1,810 | ) | |||||||
Investment securities (gains) losses |
(1,560 | ) | (164 | ) | 543 | |||||||
Proceeds on sale of investment |
(1,540 | ) | | | ||||||||
Gains on disposition of businesses |
(199 | ) | | (1,136 | ) | |||||||
Stock-based compensation |
2,637 | 2,025 | 2,368 | |||||||||
Originations and purchases of loans held-for-sale |
(34,902 | ) | (116,471 | ) | (178,355 | ) | ||||||
Proceeds from sales, securitizations and paydowns of loans held-for-sale |
38,036 | 107,350 | 173,448 | |||||||||
Net change in: |
||||||||||||
Trading assets |
(12,787 | ) | (121,240 | ) | (61,664 | ) | ||||||
Securities borrowed |
15,408 | (10,496 | ) | 916 | ||||||||
Accrued interest and accounts receivable |
10,221 | (1,932 | ) | (1,170 | ) | |||||||
Other assets |
(33,629 | ) | (21,628 | ) | (7,193 | ) | ||||||
Trading liabilities |
24,061 | 12,681 | (4,521 | ) | ||||||||
Accounts payable and other liabilities |
1,012 | 4,284 | 7,815 | |||||||||
Other operating adjustments |
(12,013 | ) | 7,674 | (111 | ) | |||||||
Net cash provided by (used in) operating activities |
23,098 | (110,560 | ) | (49,579 | ) | |||||||
Investing activities |
||||||||||||
Net change in: |
||||||||||||
Deposits with banks |
(118,929 | ) | 2,081 | 8,168 | ||||||||
Federal funds sold and securities purchased under resale agreements |
(44,597 | ) | (29,814 | ) | (6,939 | ) | ||||||
Held-to-maturity securities: |
||||||||||||
Proceeds |
10 | 14 | 19 | |||||||||
Available-for-sale securities: |
||||||||||||
Proceeds from maturities |
44,414 | 31,143 | 24,909 | |||||||||
Proceeds from sales |
96,806 | 98,450 | 123,750 | |||||||||
Purchases |
(248,599 | ) | (122,507 | ) | (201,530 | ) | ||||||
Proceeds from sales and securitizations of loans held-for-investment |
27,531 | 34,925 | 20,809 | |||||||||
Other changes in loans, net |
(59,123 | ) | (83,437 | ) | (70,837 | ) | ||||||
Net cash received (used) in business acquisitions or dispositions |
2,128 | (70 | ) | 185 | ||||||||
Proceeds from assets sale to the FRBNY |
28,850 | | | |||||||||
Net purchases of asset-backed commercial paper guaranteed by the FRBB |
(11,228 | ) | | | ||||||||
All other investing activities, net |
(3,609 | ) | (3,903 | ) | 1,839 | |||||||
Net cash used in investing activities |
(286,346 | ) | (73,118 | ) | (99,627 | ) | ||||||
Financing activities |
||||||||||||
Net change in: |
||||||||||||
Deposits |
177,331 | 113,512 | 82,105 | |||||||||
Federal funds purchased and securities loaned or sold under repurchase
agreements |
15,250 | (7,833 | ) | 36,248 | ||||||||
Commercial paper and other borrowed funds |
9,186 | 41,412 | 12,657 | |||||||||
Proceeds from the issuance of long-term debt and capital debt securities |
72,407 | 95,141 | 56,721 | |||||||||
Repayments of long-term debt and capital debt securities |
(62,691 | ) | (49,410 | ) | (34,267 | ) | ||||||
Excess tax benefits related to stock-based compensation |
148 | 365 | 302 | |||||||||
Proceeds from issuance of common stock |
11,969 | 1,467 | 1,659 | |||||||||
Proceeds from issuance of preferred stock and warrant to the U.S. Treasury |
25,000 | | | |||||||||
Proceeds from issuance of preferred stock |
7,746 | | | |||||||||
Redemption of preferred stock |
| | (139 | ) | ||||||||
Repurchases of treasury stock |
| (8,178 | ) | (3,938 | ) | |||||||
Cash dividends paid |
(5,911 | ) | (5,051 | ) | (4,846 | ) | ||||||
All other financing activities, net |
71 | 1,561 | 6,247 | |||||||||
Net cash provided by financing activities |
250,506 | 182,986 | 152,749 | |||||||||
Effect of exchange rate changes on cash and due from banks |
(507 | ) | 424 | 199 | ||||||||
Net (decrease) increase in cash and due from banks |
(13,249 | ) | (268 | ) | 3,742 | |||||||
Cash and due from banks at the beginning of the year |
40,144 | 40,412 | 36,670 | |||||||||
Cash and due from banks at the end of the year |
$ | 26,895 | $ | 40,144 | $ | 40,412 | ||||||
Cash interest paid |
$ | 37,267 | $ | 43,472 | $ | 36,415 | ||||||
Cash income taxes paid |
2,280 | 7,472 | 5,563 | |||||||||
Note: | In 2008, the fair values of noncash assets acquired and liabilities assumed in the merger with Bear Stearns were $288.2 billion and $287.7 billion, respectively; approximately 26 million shares of common stock, valued at approximately $1.2 billion, were issued in connection with the Bear Stearns merger. Also, in 2008 the fair values of noncash assets acquired and liabilities assumed in the Washington Mutual transaction were $260.0 billion and $259.8 billion, respectively. In 2006, the Firm exchanged selected corporate trust businesses for The Bank of New Yorks consumer, business banking and middle-market banking businesses. The fair values of the noncash assets exchanged were $2.15 billion. |
JPMorgan Chase & Co. / 2008 Annual Report | 121 |
122 | JPMorgan Chase & Co. / 2008 Annual Report |
Fair value measurement |
Note 4 | Page 129 | ||||||
Fair value option |
Note 5 | Page 144 | ||||||
Principal transactions activities |
Note 6 | Page 146 | ||||||
Other noninterest revenue |
Note 7 | Page 148 | ||||||
Pension and other postretirement employee
benefit plans |
Note 9 | Page 149 | ||||||
Employee stock-based incentives |
Note 10 | Page 155 | ||||||
Noninterest expense |
Note 11 | Page 158 | ||||||
Securities |
Note 12 | Page 158 | ||||||
Securities financing activities |
Note 13 | Page 162 | ||||||
Loans |
Note 14 | Page 163 | ||||||
Allowance for credit losses |
Note 15 | Page 166 | ||||||
Loan securitizations |
Note 16 | Page 168 | ||||||
Variable interest entities |
Note 17 | Page 177 | ||||||
Goodwill and other intangible assets |
Note 18 | Page 186 | ||||||
Premises and equipment |
Note 19 | Page 189 | ||||||
Other borrowed funds |
Note 21 | Page 190 | ||||||
Accounts payable and other liabilities |
Note 22 | Page 190 | ||||||
Income taxes |
Note 28 | Page 197 | ||||||
Commitments and contingencies |
Note 31 | Page 201 | ||||||
Accounting for derivative instruments
and hedging activities |
Note 32 | Page 202 | ||||||
Off-balance sheet lending-related financial
instruments and guarantees |
Note 33 | Page 206 | ||||||
JPMorgan Chase & Co. / 2008 Annual Report | 123 |
(in millions) | ||||||||
Purchase price |
||||||||
Purchase price |
$ | 1,938 | ||||||
Direct acquisition costs |
3 | |||||||
Total purchase price |
1,941 | |||||||
Net assets acquired |
||||||||
Washington Mutuals net assets before fair value adjustments |
$ | 38,766 | ||||||
Washington Mutuals goodwill and other intangible assets |
(7,566 | ) | ||||||
Subtotal |
31,200 | |||||||
Adjustments to reflect assets acquired at fair value: |
||||||||
Securities |
(20 | ) | ||||||
Trading assets |
(591 | ) | ||||||
Loans |
(31,018 | ) | ||||||
Allowance for loan losses |
8,216 | |||||||
Premises and equipment |
680 | |||||||
Accrued interest and accounts receivable |
(295 | ) | ||||||
Other assets |
4,125 | |||||||
Adjustments to reflect liabilities assumed at fair value: |
||||||||
Deposits |
(683 | ) | ||||||
Other borrowed funds |
68 | |||||||
Accounts payable and other liabilities |
(900 | ) | ||||||
Long-term debt |
1,127 | |||||||
Fair value of net assets acquired |
11,909 | |||||||
Negative goodwill before allocation to nonfinancial assets |
(9,968 | ) | ||||||
Negative goodwill allocated to nonfinancial assets(a) |
8,062 | |||||||
Negative goodwill resulting from the acquisition(b) |
$ | (1,906 | ) | |||||
(a) | The acquisition was accounted for as a purchase business combination in accordance with SFAS 141. SFAS 141 requires the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of an acquired business as of the effective date of the acquisition to be recorded at their respective fair values and consolidated with those of JPMorgan Chase. The fair value of the net assets of Washington Mutuals banking operations exceeded the $1.9 billion purchase price, resulting in negative goodwill. In accordance with SFAS 141, noncurrent, nonfinancial assets not held-for-sale, such as premises and equipment and other intangibles, were written down against the negative goodwill. The negative goodwill that remained after writing down transaction related core deposit intangibles of approximately $4.9 billion and premises and equipment of approximately $3.2 billion was recognized as an extraordinary gain of $1.9 billion. | |
(b) | The extraordinary gain was recorded in Corporate/Private Equity. |
(in millions) | September 25, 2008 | |||
Assets |
||||
Cash and due from banks |
$ | 3,680 | ||
Deposits with banks |
3,517 | |||
Federal funds sold and securities purchased under resale agreements |
1,700 | |||
Trading assets |
5,691 | |||
Securities |
17,220 | |||
Loans (net of allowance for loan losses) |
206,436 | |||
Accrued interest and accounts receivable |
3,201 | |||
Mortgage servicing rights |
5,874 | |||
All other assets |
16,330 | |||
Total assets |
$ | 263,649 | ||
Liabilities |
||||
Deposits |
$ | 159,869 | ||
Federal funds purchased and securities loaned or sold under repurchase agreements |
4,549 | |||
Other borrowed funds |
81,622 | |||
Trading liabilities |
585 | |||
Accounts payable and other liabilities |
6,523 | |||
Long-term debt |
6,654 | |||
Total liabilities |
259,802 | |||
Washington Mutual net assets acquired |
$ | 3,847 | ||
124 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 125 |
(in millions, except for shares (in thousands), per share amounts and where otherwise noted) | ||||||||
Purchase price |
||||||||
Shares exchanged in the Share Exchange transaction (April 8, 2008) |
95,000 | |||||||
Other Bear Stearns shares outstanding |
145,759 | |||||||
Total Bear Stearns stock outstanding |
240,759 | |||||||
Cancellation of shares issued in the Share Exchange transaction |
(95,000 | ) | ||||||
Cancellation of shares acquired by JPMorgan Chase for cash in the open market |
(24,061 | ) | ||||||
Bear Stearns common stock exchanged as of May 30, 2008 |
121,698 | |||||||
Exchange ratio |
0.21753 | |||||||
JPMorgan Chase common stock issued |
26,473 | |||||||
Average purchase price per JPMorgan Chase common share(a) |
$ | 45.26 | ||||||
Total fair value of JPMorgan Chase common stock issued |
$ | 1,198 | ||||||
Bear Stearns common stock acquired for cash in the open market (24 million
shares at an
average share price of $12.37 per share) |
298 | |||||||
Fair value of employee stock awards (largely to be settled by shares held in
the RSU Trust(b)) |
242 | |||||||
Direct acquisition costs |
27 | |||||||
Less: Fair value of Bear Stearns common stock held in the RSU Trust and
included in
the exchange of common stock |
(269 | )(b) | ||||||
Total purchase price |
1,496 | |||||||
Net assets acquired |
||||||||
Bear Stearns common stockholders equity |
$ | 6,052 | ||||||
Adjustments to reflect assets acquired at fair value: |
||||||||
Trading assets |
(3,831 | ) | ||||||
Premises and equipment |
497 | |||||||
Other assets |
(235 | ) | ||||||
Adjustments to reflect liabilities assumed at fair value: |
||||||||
Long-term debt |
504 | |||||||
Other liabilities |
(2,252 | ) | ||||||
Fair value of net assets acquired excluding goodwill |
735 | |||||||
Goodwill resulting from the merger(c) |
$ | 761 | ||||||
(a) | The value of JPMorgan Chase common stock was determined by averaging the closing prices of JPMorgan Chases common stock for the four trading days during the period March 19, 2008, through March 25, 2008. | |
(b) | Represents shares of Bear Stearns common stock held in an irrevocable grantor trust (the RSU Trust) to be used to settle stock awards granted to selected employees and certain key executives under certain heritage Bear Stearns employee stock plans. Shares in the RSU Trust were exchanged for 6 million shares of JPMorgan Chase common stock at the merger exchange ratio of 0.21753. For further discussion of the RSU trust, see Note 10 on pages 155158 of this Annual Report. | |
(c) | The goodwill was recorded in the Investment Bank. |
126 | JPMorgan Chase & Co. / 2008 Annual Report |
(in millions) | May 30, 2008 | |||
Assets |
||||
Cash and due from banks |
$ | 534 | ||
Federal funds sold and securities purchased under |
||||
resale agreements |
21,204 | |||
Securities borrowed |
55,195 | |||
Trading assets |
136,535 | |||
Loans |
4,407 | |||
Accrued interest and accounts receivable |
34,677 | |||
Goodwill |
761 | |||
All other assets |
35,418 | |||
Total assets |
$ | 288,731 | ||
Liabilities |
||||
Federal funds purchased and securities loaned or sold |
||||
under repurchase agreements |
$ | 54,643 | ||
Other borrowings |
16,166 | |||
Trading liabilities |
24,267 | |||
Beneficial interests issued by consolidated VIEs |
47,042 | |||
Long-term debt |
67,015 | |||
Accounts payable and other liabilities |
78,532 | |||
Total liabilities |
287,665 | |||
Bear Stearns net assets(a) |
$ | 1,066 | ||
(a) | Reflects the fair value assigned to 49.4% of the Bear Stearns net assets acquired on April 8, 2008 (net of related amortization), and the fair value assigned to the remaining 50.6% of the Bear Stearns net assets acquired on May 30, 2008. The difference between the Bear Stearns net assets acquired as presented above and the fair value of the net assets acquired (including goodwill) presented in the previous table represents JPMorgan Chases net losses recorded under the equity method of accounting. |
Year ended December 31, | ||||||||
(in millions, except per share data) | 2008 | 2007 | ||||||
Total net revenue |
$ | 68,071 | $ | 92,052 | ||||
Income (loss) before extraordinary gain |
(14,141 | ) | 17,733 | |||||
Net income (loss) |
(12,235 | ) | 17,733 | |||||
Net income per common share data: |
||||||||
Basic earnings per share |
||||||||
Income (loss) before extraordinary gain |
$ | (4.22 | ) | $ | 5.16 | |||
Net income (loss) |
(3.68 | ) | 5.16 | |||||
Diluted earnings per share(a) |
||||||||
Income (loss) before extraordinary gain |
(4.22 | ) | 5.01 | |||||
Net income (loss) |
(3.68 | ) | 5.01 | |||||
Average common shares issued and outstanding |
||||||||
Basic |
3,511 | 3,430 | ||||||
Diluted(a) |
3,511 | 3,534 | ||||||
(a) | Common equivalent shares have been excluded from the pro forma computation of diluted loss per share for the year ended December 31, 2008, as the effect would be antidilutive. |
JPMorgan Chase & Co. / 2008 Annual Report | 127 |
128 | JPMorgan Chase & Co. / 2008 Annual Report |
Selected income statements data(a) | ||||
Year ended December 31, (in millions) | 2006 | |||
Other noninterest revenue |
$ | 407 | ||
Net interest income |
264 | |||
Gain on sale of discontinued operations |
1,081 | |||
Total net revenue |
1,752 | |||
Noninterest expense |
385 | |||
Income from discontinued operations |
||||
before income taxes |
1,367 | |||
Income tax expense |
572 | |||
Income from discontinued operations |
$ | 795 | ||
(a) | There was no income from discontinued operations during 2008 or 2007. |
Selected balance sheet data | ||||
(in millions) | October 1, 2006 | |||
Goodwill and other intangibles |
$ | 838 | ||
Other assets |
547 | |||
Total assets |
$ | 1,385 | ||
Deposits |
$ | 24,011 | ||
Other liabilities |
547 | |||
Total liabilities |
$ | 24,558 | ||
| Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value; | |
| Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date; | |
| Nullifies the guidance in EITF 02-3, which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique; | |
| Eliminates large position discounts for financial instruments quoted in active markets and requires consideration of the Firms creditworthiness when valuing liabilities; and | |
| Expands disclosures about instruments measured at fair value. |
| Credit valuation adjustments (CVA) are necessary when the market price (or parameter) is not indicative of the credit quality of the counterparty. As few classes of derivative contracts are listed on an exchange, the majority of derivative positions are valued using internally developed models that use as their basis observable market parameters. Market practice is to quote parameters equivalent to a AA credit rating whereby all counterparties are assumed to have the same credit quality. Therefore, an adjustment is necessary to reflect the credit quality of each derivative counterparty to arrive at fair value. The adjustment also takes into account contractual factors designed to reduce the Firms credit exposure to each counterparty, such as collateral and legal rights of offset. | |
| Debit valuation adjustments (DVA) are necessary to reflect the credit quality of the Firm in the valuation of liabilities measured at fair value. This adjustment was incorporated into the Firms valuations commencing January 1, 2007, in accordance with SFAS 157. The methodology to determine the adjustment is consistent with CVA and incorporates JPMorgan Chases credit spread as observed through the credit default swap market. | |
| Liquidity valuation adjustments are necessary when the Firm may not be able to observe a recent market price for a financial instrument that trades in inactive (or less active) markets or to reflect the cost of exiting larger-than-normal market-size risk positions (liquidity adjustments are not taken for positions classified within level 1 of the fair value hierarchy). The Firm tries to ascertain the amount of uncertainty in the initial valuation based upon the degree of liquidity of the market in which the financial |
JPMorgan Chase & Co. / 2008 Annual Report | 129 |
instrument trades and makes liquidity adjustments to the carrying value of the financial instrument. The Firm measures the liquidity adjustment based upon the following factors: (1) the amount of time since the last relevant pricing point; (2) whether there was an actual trade or relevant external quote; and (3) the volatility of the principal risk component of the financial instrument. Costs to exit larger-than-normal market-size risk positions are determined based upon the size of the adverse market move that is likely to occur during the period required to bring a position down to a nonconcentrated level. | ||
| Unobservable parameter valuation adjustments are necessary when positions are valued using internally developed models that use as their basis unobservable parameters that is, parameters that must be estimated and are, therefore, subject to management judgment. These positions are normally traded less actively. Examples include certain credit products where parameters such as correlation and recovery rates are unobservable. Unobservable parameter valuation adjustments are applied to mitigate the possibility of error and revision in the estimate of the market price provided by the model. |
| Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. For a level 3 analysis, see pages 138139 of this Note. |
130 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 131 |
| For MSRs, the Firm uses an option-adjusted spread (OAS) valuation model in conjunction with the Firms proprietary prepayment model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates to estimate an expected fair value of the MSRs. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. The Firm reassesses and periodically adjusts the underlying inputs and assumptions used in the OAS model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. Due to the nature of the valuation inputs, MSRs are classified within level 3 of the valuation hierarchy. | |
| For certain retained interests in securitizations (such as interest-only strips), a single interest rate path discounted cash flow model is used and generally includes assumptions based upon projected finance charges related to the securitized assets, estimated net credit losses, prepayment assumptions and contractual interest paid to third-party investors. Changes in the assumptions used may have a significant impact on the Firms valuation of retained interests, and such interests are therefore typically classified within level 3 of the valuation hierarchy. |
132 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 133 |
Internal models with | |||||||||||||||||||||
Quoted market | significant observable | Internal models with | Total carrying value | ||||||||||||||||||
prices in active | market parameters | significant unobservable | FIN 39 | in the Consolidated | |||||||||||||||||
December 31, 2008 (in millions) | markets (Level 1) | (Level 2) | market parameters (Level 3) | netting(d) | Balance Sheets | ||||||||||||||||
Federal
funds sold and securities purchased under resale agreements |
$ | | $ | 20,843 | $ | | $ | | $ | 20,843 | |||||||||||
Securities borrowed |
| 3,381 | | | 3,381 | ||||||||||||||||
Trading assets: |
|||||||||||||||||||||
Debt and equity instruments: |
|||||||||||||||||||||
U.S. government, agency,
sponsored enterprise and
non-U.S. governments |
98,393 | 29,597 | 870 | | 128,860 | ||||||||||||||||
State and municipal securities |
| 10,361 | 2,641 | | 13,002 | ||||||||||||||||
Certificates of deposit,
bankers acceptances and
commercial paper |
1,180 | 6,312 | | | 7,492 | ||||||||||||||||
Corporate debt and other |
5 | 61,230 | 6,506 | | 67,741 | ||||||||||||||||
Equity securities |
73,174 | 3,992 | 1,380 | | 78,546 | ||||||||||||||||
Loans |
| 14,711 | 17,091 | | 31,802 | ||||||||||||||||
Mortgage- and asset-backed securities |
| 3,401 | 12,932 | | 16,333 | ||||||||||||||||
Physical commodities(a) |
| 3,581 | | | 3,581 | ||||||||||||||||
Total debt and equity instruments: |
172,752 | 133,185 | 41,420 | | 347,357 | ||||||||||||||||
Derivative receivables |
3,630 | 2,685,101 | 52,991 | (2,579,096 | ) | 162,626 | |||||||||||||||
Total trading assets |
176,382 | 2,818,286 | 94,411 | (2,579,096 | ) | 509,983 | |||||||||||||||
Available-for-sale securities |
118,823 | 74,695 | 12,391 | | 205,909 | ||||||||||||||||
Loans |
| 5,029 | 2,667 | | 7,696 | ||||||||||||||||
Mortgage servicing rights |
| | 9,403 | | 9,403 | ||||||||||||||||
Other assets: |
|||||||||||||||||||||
Private equity investments |
151 | 332 | 6,369 | | 6,852 | ||||||||||||||||
All other |
5,977 | 11,355 | 5,015 | | 22,347 | ||||||||||||||||
Total other assets |
6,128 | 11,687 | 11,384 | | 29,199 | ||||||||||||||||
Total assets at fair value |
$ | 301,333 | $ | 2,933,921 | $ | 130,256 | $ | (2,579,096 | ) | $ | 786,414 | ||||||||||
Less: Level 3 assets for which the
Firm does not bear economic
exposure(b) |
21,169 | ||||||||||||||||||||
Total level 3 assets for which the
Firm bears economic
exposure |
$ | 109,087 | |||||||||||||||||||
Deposits |
$ | | $ | 4,370 | $ | 1,235 | $ | | $ | 5,605 | |||||||||||
Federal funds purchased and
securities loaned or sold
under repurchase agreements |
| 2,993 | | | 2,993 | ||||||||||||||||
Other borrowed funds |
| 14,612 | 101 | | 14,713 | ||||||||||||||||
Trading liabilities: |
|||||||||||||||||||||
Debt and equity instruments |
34,568 | 10,418 | 288 | | 45,274 | ||||||||||||||||
Derivative payables |
3,630 | 2,622,371 | 43,484 | (2,547,881 | ) | 121,604 | |||||||||||||||
Total trading liabilities |
38,198 | 2,632,789 | 43,772 | (2,547,881 | ) | 166,878 | |||||||||||||||
Accounts
payable and other liabilities |
| | | | | ||||||||||||||||
Beneficial
interests issued by consolidated VIEs |
| 1,735 | | | 1,735 | ||||||||||||||||
Long-term debt |
| 41,666 | 16,548 | | 58,214 | ||||||||||||||||
Total liabilities at fair value |
$ | 38,198 | $ | 2,698,165 | $ | 61,656 | $ | (2,547,881 | ) | $ | 250,138 | ||||||||||
134 | JPMorgan Chase & Co. / 2008 Annual Report |
Internal models with | ||||||||||||||||||||
Quoted market | significant observable | Internal models with | Total carrying value | |||||||||||||||||
prices in active | market parameters | significant unobservable | FIN 39 | in the Consolidated | ||||||||||||||||
December 31, 2007 (in millions) | markets (Level 1) | (Level 2) | market parameters (Level 3) | netting(d) | Balance Sheets | |||||||||||||||
Federal
funds sold and securities purchased under resale agreements |
$ | | $ | 19,131 | $ | | $ | | $ | 19,131 | ||||||||||
Trading assets: |
||||||||||||||||||||
Debt and equity instruments: |
||||||||||||||||||||
U.S. government, agency, sponsored
enterprise and non-U.S. governments |
106,572 | 40,362 | 258 | | 147,192 | |||||||||||||||
State and municipal securities |
7,230 | 5,860 | | | 13,090 | |||||||||||||||
Certificates of deposit, bankers
acceptances and commercial paper |
3,019 | 5,233 | | | 8,252 | |||||||||||||||
Corporate debt and other |
6 | 52,137 | 7,972 | | 60,115 | |||||||||||||||
Equity securities |
82,499 | 9,552 | 1,197 | | 93,248 | |||||||||||||||
Loans |
| 46,038 | 11,776 | | 57,814 | |||||||||||||||
Mortgage- and asset-backed securities |
| 27,209 | 2,863 | | 30,072 | |||||||||||||||
Physical commodities(a) |
| 4,490 | | | 4,490 | |||||||||||||||
Total debt and equity instruments: |
199,326 | 190,881 | 24,066 | | 414,273 | |||||||||||||||
Derivative receivables |
18,574 | 871,105 | 20,188 | (832,731 | ) | 77,136 | ||||||||||||||
Total trading assets |
217,900 | 1,061,986 | 44,254 | (832,731 | ) | 491,409 | ||||||||||||||
Available-for-sale securities |
71,941 | 13,364 | 101 | | 85,406 | |||||||||||||||
Loans |
| 359 | 8,380 | | 8,739 | |||||||||||||||
Mortgage servicing rights |
| | 8,632 | | 8,632 | |||||||||||||||
Other assets: |
||||||||||||||||||||
Private equity investments |
68 | 322 | 6,763 | | 7,153 | |||||||||||||||
All other |
10,784 | 1,054 | 3,160 | | 14,998 | |||||||||||||||
Total other assets |
10,852 | 1,376 | 9,923 | | 22,151 | |||||||||||||||
Total assets at fair value |
$ | 300,693 | $ | 1,096,216 | $ | 71,290 | $ | (832,731 | ) | $ | 635,468 | |||||||||
Deposits |
$ | | $ | 5,228 | $ | 1,161 | $ | | $ | 6,389 | ||||||||||
Federal funds purchased and
securities
loaned or sold under repurchase
agreements |
| 5,768 | | | 5,768 | |||||||||||||||
Other borrowed funds |
| 10,672 | 105 | | 10,777 | |||||||||||||||
Trading liabilities: |
||||||||||||||||||||
Debt and equity instruments |
73,023 | 15,659 | 480 | | 89,162 | |||||||||||||||
Derivative payables |
19,553 | 852,055 | 19,555 | (822,458 | ) | 68,705 | ||||||||||||||
Total trading liabilities |
92,576 | 867,714 | 20,035 | (822,458 | ) | 157,867 | ||||||||||||||
Accounts payable and
other liabilities(c) |
| | 25 | | 25 | |||||||||||||||
Beneficial interests issued by
consolidated VIEs |
| 2,922 | 82 | | 3,004 | |||||||||||||||
Long-term debt |
| 48,518 | 21,938 | | 70,456 | |||||||||||||||
Total liabilities at fair value |
$ | 92,576 | $ | 940,822 | $ | 43,346 | $ | (822,458 | ) | $ | 254,286 | |||||||||
(a) | Physical commodities inventories are accounted for at the lower of cost or fair value. | |
(b) | Includes assets for which the Firm serves as an intermediary between two parties and does not bear market risk. The assets are predominantly reflected within derivative receivables. | |
(c) | Includes the fair value adjustment for unfunded lending-related commitments accounted for at fair value. | |
(d) | As permitted under FIN 39, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. The increase in FIN 39 netting from December 31, 2007, primarily relates to the decline in interest rates, widening credit spreads and volatile foreign exchange rates reflected in interest rate, credit and foreign exchange derivatives, respectively. |
JPMorgan Chase & Co. / 2008 Annual Report | 135 |
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||
unrealized | ||||||||||||||||||||||||
gains | ||||||||||||||||||||||||
and (losses) | ||||||||||||||||||||||||
related to | ||||||||||||||||||||||||
Total | financial | |||||||||||||||||||||||
Fair | realized/ | Purchases, | Transfers | Fair | instruments | |||||||||||||||||||
For the year ended | value, | unrealized | issuances | into and/or | value, | held at | ||||||||||||||||||
December 31, 2008 | January 1, | gains/ | settlements, | out of | December 31, | December 31, | ||||||||||||||||||
(in millions) | 2008 | (losses)(c) | net | level 3(c) | 2008 | 2008 | ||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||
Debt and equity instruments |
$ | 24,066 | $ | (12,805 | )(d)(e) | $ | 6,201 | $ | 23,958 | $ | 41,420 | $ | (9,860 | )(d)(e) | ||||||||||
Net derivative receivables |
633 | 4,556 | (d) | 2,290 | 2,028 | 9,507 | 1,814 | (d) | ||||||||||||||||
Available-for-sale securities |
101 | (1,232 | )(f) | 3,772 | 9,750 | 12,391 | (422 | )(f) | ||||||||||||||||
Loans |
8,380 | (1,547 | )(d) | 12 | (4,178 | ) | 2,667 | (1,324 | )(d) | |||||||||||||||
Mortgage servicing rights |
8,632 | (6,933 | )(e) | 7,704 | | 9,403 | (6,933 | )(e) | ||||||||||||||||
Other assets: |
||||||||||||||||||||||||
Private equity
investments(a) |
6,763 | (638 | )(d) | 320 | (76 | ) | 6,369 | (1,089 | )(d) | |||||||||||||||
All other |
3,160 | (930 | )(g) | 2,802 | (17 | ) | 5,015 | (742 | )(g) | |||||||||||||||
Liabilities(b): |
||||||||||||||||||||||||
Deposits |
$ | (1,161 | ) | $ | 57 | (d) | $ | (79 | ) | $ | (52 | ) | $ | (1,235 | ) | $ | 69 | (d) | ||||||
Other borrowed funds |
(105 | ) | 7 | (d) | (53 | ) | 50 | (101 | ) | 24 | (d) | |||||||||||||
Trading liabilities: |
||||||||||||||||||||||||
Debt and equity instruments |
(480 | ) | 73 | (d) | 33 | 86 | (288 | ) | 125 | (d) | ||||||||||||||
Accounts
payable and other liabilities |
(25 | ) | 25 | (d) | | | | | (d) | |||||||||||||||
Beneficial
interests issued by consolidated VIEs |
(82 | ) | 24 | (d) | 603 | (545 | ) | | | (d) | ||||||||||||||
Long-term debt |
(21,938 | ) | 4,502 | (d) | 1,717 | (829 | ) | (16,548 | ) | 3,682 | (d) | |||||||||||||
136 | JPMorgan Chase & Co. / 2008 Annual Report |
Fair value measurements using significant unobservable inputs | ||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||
unrealized | ||||||||||||||||||||||||
gains | ||||||||||||||||||||||||
and (losses) | ||||||||||||||||||||||||
related to | ||||||||||||||||||||||||
Total | financial | |||||||||||||||||||||||
Fair | realized/ | Purchases, | Transfers | Fair | instruments | |||||||||||||||||||
For the year ended | value, | unrealized | issuances | into and/or | value, | held at | ||||||||||||||||||
December 31, 2007 | January 1, | gains/ | settlements, | out of | December 31, | December 31, | ||||||||||||||||||
(in millions) | 2007 | (losses)(c) | net | level 3(c) | 2007 | 2007 | ||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||
Debt and equity instruments |
$ | 9,320 | $ | (916 | )(d)(e) | $ | 5,902 | $ | 9,760 | $ | 24,066 | $ | (912 | )(d)(e) | ||||||||||
Net derivative receivables |
(2,800 | ) | 1,674 | (d) | 257 | 1,502 | 633 | 1,979 | (d) | |||||||||||||||
Available-for-sale securities |
177 | 38 | (f) | (21 | ) | (93 | ) | 101 | (5 | )(f) | ||||||||||||||
Loans |
643 | (346 | )(d) | 8,013 | 70 | 8,380 | (36 | )(d) | ||||||||||||||||
Mortgage servicing rights |
7,546 | (516 | )(e) | 1,602 | | 8,632 | (516 | )(e) | ||||||||||||||||
Other assets: |
||||||||||||||||||||||||
Private equity investments(a) |
5,493 | 4,051 | (d) | (2,764 | ) | (17 | ) | 6,763 | 1,711 | (d) | ||||||||||||||
All other |
1,591 | 37 | (g) | 1,059 | 473 | 3,160 | (19 | )(g) | ||||||||||||||||
Liabilities(b): |
||||||||||||||||||||||||
Deposits |
$ | (385 | ) | $ | (42 | )(d) | $ | (667 | ) | $ | (67 | ) | $ | (1,161 | ) | $ | (38 | )(d) | ||||||
Other borrowed funds |
| (67 | )(d) | (34 | ) | (4 | ) | (105 | ) | (135 | )(d) | |||||||||||||
Trading liabilities: |
||||||||||||||||||||||||
Debt and equity instruments |
(32 | ) | 383 | (d) | (125 | ) | (706 | ) | (480 | ) | (734 | )(d) | ||||||||||||
Accounts
payable and other liabilities |
| (460 | )(d) | 435 | | (25 | ) | (25 | )(d) | |||||||||||||||
Beneficial
interests issued by consolidated VIEs |
(8 | ) | 6 | (d) | 1 | (81 | ) | (82 | ) | | ||||||||||||||
Long-term debt |
(11,386 | ) | (1,142 | )(d) | (6,633 | ) | (2,777 | ) | (21,938 | ) | (468 | )(d) | ||||||||||||
(a) | Private equity instruments represent investments within the Corporate/Private Equity line of business. | |
(b) | Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities carried at fair value on a nonrecurring basis) were 25% and 17% at December 31, 2008 and 2007, respectively. The Firm does not allocate the FIN 39 netting adjustment across the levels of the fair value hierarchy. As such, the level 3 derivative payables balance included in the level 3 total balance is gross of any netting adjustments. | |
(c) | Beginning January 1, 2008, all transfers in and out of level 3 are assumed to occur at the beginning of the reporting period. | |
(d) | Reported in principal transactions revenue. | |
(e) | Changes in fair value for Retail Financial Services mortgage loans originated with the intent to sell and MSRs are measured at fair value and reported in mortgage fees and related income. | |
(f) | Realized gains (losses) are reported in securities gains (losses). Unrealized gains (losses) are reported in accumulated other comprehensive income (loss). | |
(g) | Reported in other income. |
JPMorgan Chase & Co. / 2008 Annual Report | 137 |
Internal models with | Internal models with | |||||||||||||||
Quoted market prices | significant observable | significant unobservable | Total carrying value | |||||||||||||
in active markets | market parameters | market parameters | in the Consolidated | |||||||||||||
December 31, 2008 (in millions) | (Level 1) | (Level 2) | (Level 3) | Balance Sheets | ||||||||||||
Loans(a) |
$ | | $ | 4,991 | $ | 3,999 | $ | 8,990 | ||||||||
Other assets |
| 1,763 | 291 | 2,054 | ||||||||||||
Total assets at fair value on a nonrecurring basis |
$ | | $ | 6,754 | $ | 4,290 | $ | 11,044 | ||||||||
Accounts payable and other liabilities(b) |
$ | | $ | 212 | $ | 98 | $ | 310 | ||||||||
Total liabilities at fair value on a nonrecurring
basis |
$ | | $ | 212 | $ | 98 | $ | 310 | ||||||||
Internal models with | Internal models with | |||||||||||||||
Quoted market prices | significant observable | significant unobservable | Total carrying value | |||||||||||||
in active markets | market parameters | market parameters | in the Consolidated | |||||||||||||
December 31, 2007 (in millions) | (Level 1) | (Level 2) | (Level 3) | Balance Sheets | ||||||||||||
Loans(a)(c) |
$ | | $ | 2,818 | $ | 16,196 | $ | 19,014 | ||||||||
Other assets |
| 267 | 126 | 393 | ||||||||||||
Total assets at fair value on a nonrecurring basis |
$ | | $ | 3,085 | $ | 16,322 | $ | 19,407 | ||||||||
Accounts payable and other liabilities(b) |
$ | | $ | | $ | 103 | $ | 103 | ||||||||
Total liabilities at fair value on a nonrecurring
basis |
$ | | $ | | $ | 103 | $ | 103 | ||||||||
(a) | Includes leveraged lending and other loan warehouses held-for-sale. | |
(b) | Represents the fair value adjustment associated with $1.5 billion and $3.2 billion of unfunded held-for-sale lending-related commitments within the leveraged lending portfolio at December 31, 2008 and 2007, respectively. | |
(c) | Includes $4.5 billion of level 3 held-for-sale loans reclassified to held-for-investment during 2007. |
Year ended December 31, (in millions) | 2008 | 2007 | ||||||
Loans |
$ | (3,887 | ) | $ | (720 | ) | ||
Other assets |
(685 | ) | (161 | ) | ||||
Accounts payable and other liabilities |
(285 | ) | 2 | |||||
Total nonrecurring fair value gains (losses) |
$ | (4,857 | ) | $ | (879 | ) | ||
| Acquisition of $41.5 billion of level 3 assets as a result of the merger with Bear Stearns. | |
| Acquisition of $5.9 billion of MSRs related to the Washington Mutual transaction. | |
| Purchase of approximately $4.4 billion of reverse mortgages in the first quarter of 2008, for which there is limited pricing information and a lack of market liquidity. | |
| Transfers of $14.0 billion of AAA-rated CLOs backed by corporate loans, based upon a significant reduction in new deal issuance and price transparency; $10.5 billion of mortgage-related assets, including commercial mortgage-backed securities with a rating below AAA, other noninvestment grade mortgage securities and certain prime mortgages; and $2.8 billion of auction-rate securities, in each case due to a significant reduction in market liquidity. |
| Approximately $20.0 billion of sales and markdowns of residential mortgage-backed securities, prime residential mortgage loans and Alt-A residential mortgage loans. | |
| $11.5 billion of sales and markdowns of leveraged loans, as well as transfers of similar loans to level 2 due to the increased price transparency for such assets. |
138 | JPMorgan Chase & Co. / 2008 Annual Report |
| $3.5 billion of transfers of bridge loans to level 2 due to increased price transparency for such assets. |
| Losses on trading debt and equity instruments of approximately $12.8 billion, principally from mortgage-related transactions and auction-rate securities. | |
| A $6.9 billion decline in the fair value of the MSR asset. | |
| Losses of approximately $3.9 billion on leveraged loans. Leveraged loans are typically classified as held-for-sale and measured at the lower of cost or fair value and therefore included in the nonrecurring fair value assets. | |
| Gains of $4.5 billion related to structured notes, principally due to significant volatility in the equity markets. | |
| Net gains of $4.6 billion related to derivatives, principally due to changes in credit spreads and rate curves. |
Year ended December 31, (in millions) | 2008 | 2007 | ||||||
Derivatives receivables balance |
$ | 162,626 | $ | 77,136 | ||||
Derivatives
CVA(a) |
(9,566 | ) | (1,265 | ) | ||||
Derivatives payable balance |
121,604 | 68,705 | ||||||
Derivatives DVA |
1,389 | 518 | ||||||
Structured notes balance |
67,340 | 87,622 | ||||||
Structured
notes DVA(b) |
2,413 | 896 | ||||||
(a) | Derivative CVA, gross of hedges, includes results managed by Credit Portfolio and other lines of business within IB. | |
(b) | Structured notes are carried at fair value based upon the Firms election under SFAS 159. For further information on these elections, see Note 5 on page 144 of this Annual Report. |
Year ended December 31, (in millions) | 2008 | 2007 | ||||||
Credit adjustments: |
||||||||
Derivatives CVA(a) |
$ | (7,561 | ) | $ | (803 | ) | ||
Derivatives DVA |
789 | 514 | ||||||
Structured Notes DVA(b) |
1,211 | 806 | ||||||
(a) | Derivative CVA, gross of hedges, includes results managed by Credit Portfolio and other lines of business within IB. | |
(b) | Structured notes are carried at fair value based upon the Firms election under SFAS 159. For further information on these elections, see Note 5 on page 144 of this Annual Report. |
Exposure as of | Net | |||||||||||
December 31, 2008 | gains/(losses)(e) | |||||||||||
Net of risk | reported in income | |||||||||||
management | year ended | |||||||||||
(in millions) | Gross | activities(d) | December 31, 2008 | |||||||||
U.S.
Residential Mortgage:(a)(b)(c) |
||||||||||||
Prime |
$ | 11,221 | $ | 5,044 | ||||||||
Alt-A |
3,934 | 3,917 | ||||||||||
15,155 | 8,961 | $ | (1,468 | ) | ||||||||
Subprime |
941 | (28 | ) | (369 | ) | |||||||
Non-U.S.
Residential |
1,591 | 951 | (292 | ) | ||||||||
Commercial
Mortgage: |
||||||||||||
Securities |
2,836 | 1,438 | (792 | ) | ||||||||
Loans |
4,338 | 2,179 | (752 | ) | ||||||||
(a) | Included exposures in IB and Retail Financial Services segments. | |
(b) | Excluded from the table above are certain mortgage-related assets that are carried at fair value and recorded in trading assets, such as: (i) U.S. government agency and U.S. government-sponsored enterprise securities that are liquid and of high credit quality of $58.9 billion at December 31, 2008; and (ii) reverse mortgages of $4.3 billion at December 31, 2008, for which the principal risk is mortality risk. Also excluded are mortgage servicing rights, which are reported in Note 18 on pages 187188 of this Annual Report. | |
(c) | Also excluded from the table above are certain mortgage-related financing transactions, which are collateralized by mortgage-related assets, of $5.7 billion at December 31, 2008. These financing transactions are excluded from the table as they are accounted for on an accrual basis of accounting. For financings deemed to be impaired, impairment is measured and recognized based upon the fair value of the collateral. Of these financing transactions, $1.2 billion at December 31, 2008, was considered impaired. | |
(d) | The amounts presented reflect the effects of derivatives utilized to risk manage the gross exposures arising from cash-based instruments and are presented on a bond or loan equivalent (notional) basis. Derivatives are excluded from the gross exposure as they are principally used for risk management purposes. | |
(e) | Net gains and losses include all revenue related to the positions (i.e., interest income, changes in fair value of the assets, changes in fair value of the related risk management positions, and interest expense related to the liabilities funding the positions). |
JPMorgan Chase & Co. / 2008 Annual Report | 139 |
140 | JPMorgan Chase & Co. / 2008 Annual Report |
Unrealized gains/(losses) | ||||||||||||
included in other | ||||||||||||
Net gains/(losses) | comprehensive income | |||||||||||
reported in income | (pretax) | |||||||||||
Exposures as of | year ended | year ended | ||||||||||
(in millions) | December 31, 2008 | December 31, 2008(a) | December 31, 2008 | |||||||||
U.S. residential mortgage: |
||||||||||||
Prime |
$ | 6,027 | $ | (32 | ) | $ | (1,769 | ) | ||||
Alt-A |
868 | | (196 | ) | ||||||||
Subprime |
194 | (89 | ) | (32 | ) | |||||||
Non-U.S. residential |
2,075 | 2 | (156 | ) | ||||||||
Commercial mortgage |
3,939 | | (684 | ) | ||||||||
U.S. government and federal agency obligations: |
||||||||||||
Mortgage-backed securities |
$ | 6,424 | $ | 23 | $ | 165 | ||||||
Collateralized mortgage obligations |
558 | (5 | ) | (4 | ) | |||||||
U.S. government-sponsored enterprise
obligations: |
||||||||||||
Mortgage-backed securities |
110,403 | 458 | 1,915 | |||||||||
Direct
obligations |
9,657 | 11 | (54 | ) | ||||||||
(a) | Excludes related net interest income. |
| $6.9 billion of prime and Alt-A securities, principally rated AAA. The fair value of these securities is determined based upon independent pricing services supported by relevant and observable market data for similar securities. The Firm classifies these securities in level 2 of the valuation hierarchy. |
| $3.9 billion of commercial mortgage-backed securities, principally rated AAA. The fair value of these securities is determined using a third party pricing service that uses relevant and observable market data. The Firm classifies these securities in level 2 of the valuation hierarchy. | |
| $127.0 billion of U.S. government agencies or U.S. government-sponsored enterprise mortgage-backed securities. Where these securities trade in active markets and there is market-observable pricing, they are classified in level 1 of the valuation hierarchy. Where the determination of fair value is based on broker quotes and independent pricing services, supported by relevant and observable market data, the Firm classifies such securities in level 2 of the valuation hierarchy. |
JPMorgan Chase & Co. / 2008 Annual Report | 141 |
| a cumulative effect increase to retained earnings of $287 million, primarily related to the release of profit previously deferred in accordance with EITF 02-3; |
| an increase to pretax income of $166 million ($103 million after-tax) related to the incorporation of the Firms creditworthiness in the valuation of liabilities recorded at fair value; and |
| an increase to pretax income of $464 million ($288 million after-tax) related to valuations of nonpublic private equity investments. |
142 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||
Carrying | Estimated | Appreciation/ | Carrying | Estimated | Appreciation/ | |||||||||||||||||||
December 31, (in billions) | value | fair value | (depreciation) | value | fair value | (depreciation) | ||||||||||||||||||
Financial assets |
||||||||||||||||||||||||
Assets for which fair value approximates carrying value |
$ | 226.0 | $ | 226.0 | $ | | $ | 76.4 | $ | 76.4 | $ | | ||||||||||||
Federal funds sold and securities purchased under resale
agreements (included $20.8 and $19.1 at fair value at
December 31, 2008 and 2007, respectively) |
203.1 | 203.1 | | 170.9 | 170.9 | | ||||||||||||||||||
Securities
borrowed (included $3.4 and zero at fair value at December 31, 2008 and 2007, respectively) |
124.0 | 124.0 | | 84.2 | 84.2 | | ||||||||||||||||||
Trading assets |
510.0 | 510.0 | | 491.4 | 491.4 | | ||||||||||||||||||
Securities |
205.9 | 205.9 | | 85.4 | 85.4 | | ||||||||||||||||||
Loans (included $7.7 and $8.7 at fair value at
December 31, 2008 and 2007, respectively) |
721.7 | 700.0 | (21.7 | ) | 510.1 | 510.7 | 0.6 | |||||||||||||||||
Mortgage servicing rights at fair value |
9.4 | 9.4 | | 8.6 | 8.6 | | ||||||||||||||||||
Other (included $29.2 and $22.2 at fair value at
December 31, 2008 and 2007, respectively) |
104.6 | 104.7 | 0.1 | 66.6 | 67.1 | 0.5 | ||||||||||||||||||
Total financial assets |
$ | 2,104.7 | $ | 2,083.1 | $ | (21.6 | ) | $ | 1,493.6 | $ | 1,494.7 | $ | 1.1 | |||||||||||
Financial liabilities |
||||||||||||||||||||||||
Deposits (included $5.6 and $6.4 at fair value at
December 31, 2008 and 2007, respectively)(a) |
$ | 1,009.3 | $ | 1,010.2 | $ | (0.9 | ) | $ | 740.7 | $ | 741.3 | $ | (0.6 | ) | ||||||||||
Federal funds purchased and securities loaned or sold
under
repurchase agreements (included $3.0 and $5.8 at fair
value at
December 31, 2008 and 2007, respectively) |
192.5 | 192.5 | | 154.4 | 154.4 | | ||||||||||||||||||
Commercial paper |
37.8 | 37.8 | | 49.6 | 49.6 | | ||||||||||||||||||
Other borrowed funds (included $14.7 and $10.8 at fair
value at
December 31, 2008 and 2007, respectively) |
132.4 | 134.1 | (1.7 | ) | 28.8 | 28.8 | | |||||||||||||||||
Trading liabilities |
166.9 | 166.9 | | 157.9 | 157.9 | | ||||||||||||||||||
Accounts payable and other liabilities |
183.3 | 183.3 | | 89.0 | 89.0 | | ||||||||||||||||||
Beneficial interests issued by consolidated VIEs
(included $1.7 and
$3.0 at fair value at December 31, 2008 and 2007,
respectively) |
10.6 | 10.5 | 0.1 | 14.0 | 13.9 | 0.1 | ||||||||||||||||||
Long-term debt and junior subordinated deferrable
interest debentures
(included $58.2 and $70.5 at fair value at December 31,
2008
and 2007, respectively)(b) |
270.7 | 262.1 | 8.6 | 199.0 | 198.7 | 0.3 | ||||||||||||||||||
Total financial liabilities |
$ | 2,003.5 | $ | 1,997.4 | $ | 6.1 | $ | 1,433.4 | $ | 1,433.6 | $ | (0.2 | ) | |||||||||||
Net (depreciation) appreciation |
$ | (15.5 | ) | $ | 0.9 | |||||||||||||||||||
(a) | The fair value of interest-bearing deposits are estimated by discounting cash flows using the appropriate market rates for the applicable maturity. | |
(b) | Fair value for long-term debt, including junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities, is based upon current market rates and adjusted for JPMorgan Chases credit quality. |
JPMorgan Chase & Co. / 2008 Annual Report | 143 |
| Loans and unfunded lending-related commitments that are extended as part of IBs principal investing activities. The transition amount related to these loans included a reversal of the allowance for loan losses of $56 million. |
| Certain loans held-for-sale. These loans were reclassified to trading assets debt and equity instruments. This election enabled the Firm to record loans purchased as part of the Investment Banks commercial mortgage securitization activity and proprietary activities at fair value and discontinue SFAS 133 fair value hedge relationships for certain originated loans. |
| Loans purchased or originated as part of IBs securitization warehousing activities. |
| Prime mortgage loans originated with the intent to sell within Retail Financial Services (RFS). |
144 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||
Principal | Other | Total changes in | Principal | Other | Total changes in | |||||||||||||||||||
December 31, (in millions) | transactions(c) | income(c) | fair value recorded | transactions(c) | income(c) | fair value recorded | ||||||||||||||||||
Federal funds sold and securities purchased under
resale agreements |
$ | 1,139 | $ | | $ | 1,139 | $ | 580 | $ | | $ | 580 | ||||||||||||
Securities borrowed |
29 | | 29 | | | | ||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||
Debt and equity instruments, excluding loans |
(870 | ) | (58 | )(d) | (928 | ) | 421 | (1 | )(d) | 420 | ||||||||||||||
Loans reported as trading assets: |
||||||||||||||||||||||||
Changes in instrument-specific credit risk |
(9,802 | ) | (283 | )(d) | (10,085 | ) | (517 | ) | (157 | )(d) | (674 | ) | ||||||||||||
Other changes in fair value |
696 | 1,178 | (d) | 1,874 | 188 | 1,033 | (d) | 1,221 | ||||||||||||||||
Loans: |
||||||||||||||||||||||||
Changes in instrument-specific credit risk |
(1,991 | ) | | (1,991 | ) | 102 | | 102 | ||||||||||||||||
Other changes in fair value |
(42 | ) | | (42 | ) | 40 | | 40 | ||||||||||||||||
Other assets |
| (660 | )(e) | (660 | ) | | 30 | (e) | 30 | |||||||||||||||
Deposits(a) |
(132 | ) | | (132 | ) | (906 | ) | | (906 | ) | ||||||||||||||
Federal funds purchased and securities loaned or
sold under repurchase agreements |
(127 | ) | | (127 | ) | (78 | ) | | (78 | ) | ||||||||||||||
Other borrowed funds(a) |
1,888 | | 1,888 | (412 | ) | | (412 | ) | ||||||||||||||||
Trading liabilities |
35 | | 35 | (17 | ) | | (17 | ) | ||||||||||||||||
Accounts payable and other liabilities |
| | | (460 | ) | | (460 | ) | ||||||||||||||||
Beneficial interests issued by consolidated VIEs |
355 | | 355 | (228 | ) | | (228 | ) | ||||||||||||||||
Long-term debt: |
||||||||||||||||||||||||
Changes in instrument-specific credit risk(a) |
1,174 | | 1,174 | 771 | | 771 | ||||||||||||||||||
Other changes in fair value(b) |
16,202 | | 16,202 | (2,985 | ) | | (2,985 | ) | ||||||||||||||||
(a) | Total changes in instrument-specific credit risk related to structured notes were $1.2 billion and $806 million for the years ended December 31, 2008 and 2007, respectively, which includes adjustments for structured notes classified within deposits and other borrowed funds, as well as long-term debt. | |
(b) | Structured notes are debt instruments with embedded derivatives that are tailored to meet a clients need for derivative risk in funded form. The embedded derivative is the primary driver of risk. The 2008 gain included in Other changes in fair value results from a significant decline in the value of certain structured notes where the embedded derivative is principally linked to either equity indices or commodity prices, both of which declined sharply during the second half of 2008. Although the risk associated with the structured notes is actively managed, the balance reported in this table does not include the income statement impact of such risk management instruments. | |
(c) | Included in the amounts are gains and losses related to certain financial instruments previously carried at fair value by the Firm, such as structured liabilities elected pursuant to SFAS 155 and loans purchased as part of the Investment Banks trading activities. | |
(d) | Reported in mortgage fees and related income. | |
(e) | Reported in other income. |
| Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based upon an analysis of borrower-specific credit spread and recovery information, where available, or benchmarking to similar entities or industries. |
| Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firms credit spread. The gain for 2008 and 2007 was attributable to the widening of the Firms credit spread. |
| Resale and repurchase agreements, securities borrowed agreements and securities lending agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements. |
JPMorgan Chase & Co. / 2008 Annual Report | 145 |
2008 | 2007 | |||||||||||||||||||||||
Fair value | Fair value | |||||||||||||||||||||||
Remaining | over (under) | Remaining | over (under) | |||||||||||||||||||||
aggregate | remaining | aggregate | remaining | |||||||||||||||||||||
contractual | aggregate | contractual | aggregate | |||||||||||||||||||||
principal | contractual | principal | contractual | |||||||||||||||||||||
amount | principal amount | amount | principal amount | |||||||||||||||||||||
December 31, (in millions) | outstanding | Fair value | outstanding | outstanding | Fair value | outstanding | ||||||||||||||||||
Loans |
||||||||||||||||||||||||
Performing loans 90 days or more past due |
||||||||||||||||||||||||
Loans reported as trading assets |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Loans |
| | | 11 | 11 | | ||||||||||||||||||
Nonaccrual loans |
||||||||||||||||||||||||
Loans reported as trading assets |
7,454 | 1,519 | (5,935 | ) | 3,044 | 1,176 | (1,868 | ) | ||||||||||||||||
Loans |
189 | 51 | (138 | ) | 15 | 5 | (10 | ) | ||||||||||||||||
Subtotal |
7,643 | 1,570 | (6,073 | ) | 3,070 | 1,192 | (1,878 | ) | ||||||||||||||||
All other performing loans |
||||||||||||||||||||||||
Loans reported as trading assets |
34,038 | 30,283 | (3,755 | ) | 56,164 | 56,638 | 474 | |||||||||||||||||
Loans |
10,206 | 7,441 | (2,765 | ) | 9,011 | 8,580 | (431 | ) | ||||||||||||||||
Total loans |
$ | 51,887 | $ | 39,294 | $ | (12,593 | ) | $ | 68,245 | $ | 66,410 | $ | (1,835 | ) | ||||||||||
Long-term debt |
||||||||||||||||||||||||
Principal protected debt |
$ | (27,043 | )(b) | $ | (26,241 | ) | $ | (802 | ) | $ | (24,262 | )(b) | $ | (24,033 | ) | $ | (229 | ) | ||||||
Nonprincipal protected debt(a) |
NA | (31,973 | ) | NA | NA | (46,423 | ) | NA | ||||||||||||||||
Total long-term debt |
NA | $ | (58,214 | ) | NA | NA | $ | (70,456 | ) | NA | ||||||||||||||
FIN 46R long-term beneficial interests |
||||||||||||||||||||||||
Principal protected debt |
$ | | $ | | $ | | $ | (58 | ) | $ | (58 | ) | $ | | ||||||||||
Nonprincipal protected debt(a) |
NA | (1,735 | ) | NA | NA | (2,946 | ) | NA | ||||||||||||||||
Total FIN 46R long-term beneficial
interests |
NA | $ | (1,735 | ) | NA | NA | $ | (3,004 | ) | NA | ||||||||||||||
(a) | Remaining contractual principal is not applicable to nonprincipal protected notes. Unlike principal protected notes for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal protected notes do not obligate the Firm to return a stated amount of principal at maturity but to return an amount based upon the performance of an underlying variable or derivative feature embedded in the note. | |
(b) | Where the Firm issues principal protected zero coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Trading revenue |
$ | (9,791 | ) | $ | 4,736 | $ | 9,418 | |||||
Private
equity gains (losses)(a) |
(908 | ) | 4,279 | 1,360 | ||||||||
Principal transactions |
$ | (10,699 | ) | $ | 9,015 | $ | 10,778 | |||||
(a) | Includes revenue on private equity investments held in the Private Equity business within Corporate/Private Equity and those held in other business segments. |
146 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions) | 2008 | 2007 | ||||||
Trading assets |
||||||||
Debt and equity instruments:(a) |
||||||||
U.S. government and federal agency obligations: |
||||||||
U.S. treasuries |
$ | 22,121 | $ | 32,378 | ||||
Mortgage-backed securities |
6,037 | 791 | ||||||
Agency obligations |
35 | 2,264 | ||||||
U.S. government-sponsored enterprise obligations: |
||||||||
Mortgage-backed securities |
52,871 | 33,910 | ||||||
Direct obligations |
9,149 | 9,928 | ||||||
Obligations of state and political subdivisions |
13,002 | 13,090 | ||||||
Certificates of deposit, bankers acceptances
and commercial paper |
7,492 | 8,252 | ||||||
Debt securities issued by non-U.S. governments |
38,647 | 67,921 | ||||||
Corporate debt securities |
60,323 | 53,941 | ||||||
Equity securities |
78,546 | 93,248 | ||||||
Loans |
31,802 | 57,814 | ||||||
Mortgage-backed securities: |
||||||||
Prime |
1,725 | 6,136 | ||||||
Alt-A |
787 | 3,572 | ||||||
Subprime |
680 | 1,459 | ||||||
Non-U.S. residential |
805 | 974 | ||||||
Commercial |
2,816 | 8,256 | ||||||
Asset-backed securities: |
||||||||
Credit card receivables |
1,296 | 321 | ||||||
Automobile loans |
722 | 605 | ||||||
Other consumer loans |
1,343 | 2,675 | ||||||
Commercial and industrial loans |
1,604 | 169 | ||||||
Collateralized debt obligations |
3,868 | 4,879 | ||||||
Other |
687 | 1,026 | ||||||
Physical commodities |
3,581 | 4,490 | ||||||
Other |
7,418 | 6,174 | ||||||
Total debt and equity instruments |
347,357 | 414,273 | ||||||
Derivative receivables: |
||||||||
Interest rate |
64,101 | 36,020 | ||||||
Credit |
44,695 | 22,083 | ||||||
Commodity |
14,830 | 9,419 | ||||||
Foreign exchange |
24,715 | 5,616 | ||||||
Equity |
14,285 | 3,998 | ||||||
Total derivative receivables |
162,626 | 77,136 | ||||||
Total trading assets |
$ | 509,983 | $ | 491,409 | ||||
December 31, (in millions) |
2008 | 2007 | ||||||
Trading liabilities |
||||||||
Debt and equity instruments(b) |
$ | 45,274 | $ | 89,162 | ||||
Derivative payables: |
||||||||
Interest rate |
48,449 | 25,542 | ||||||
Credit |
23,566 | 11,613 | ||||||
Commodity |
11,921 | 6,942 | ||||||
Foreign exchange |
20,352 | 7,552 | ||||||
Equity |
17,316 | 17,056 | ||||||
Total derivative payables |
121,604 | 68,705 | ||||||
Total trading liabilities |
$ | 166,878 | $ | 157,867 | ||||
(a) | Prior periods have been revised to reflect the current presentation. | |
(b) | Primarily represents securities sold, not yet purchased. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Trading assets debt and equity instruments |
$ | 384,102 | $ | 381,415 | $ | 280,079 | ||||||
Trading assets derivative receivables |
121,417 | 65,439 | 57,368 | |||||||||
Trading liabilities debt and equity instruments(a) |
$ | 78,841 | $ | 94,737 | $ | 102,794 | ||||||
Trading liabilities derivative payables |
93,200 | 65,198 | 57,938 | |||||||||
(a) | Primarily represent securities sold, not yet purchased. |
December 31, | 2008 | 2007 | ||||||||||||||
(in millions) | Carrying value | Cost | Carrying value | Cost | ||||||||||||
Total private equity
investments |
$ | 6,852 | $ | 8,257 | $ | 7,153 | $ | 6,231 | ||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 147 |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Underwriting: |
||||||||||||
Equity |
$ | 1,477 | $ | 1,713 | $ | 1,179 | ||||||
Debt |
2,094 | 2,650 | 2,703 | |||||||||
Total underwriting |
3,571 | 4,363 | 3,882 | |||||||||
Advisory |
1,955 | 2,272 | 1,638 | |||||||||
Total investment banking fees |
$ | 5,526 | $ | 6,635 | $ | 5,520 | ||||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Asset management: |
||||||||||||
Investment management fees |
$ | 5,562 | $ | 6,364 | $ | 4,429 | ||||||
All other asset management fees |
432 | 639 | 567 | |||||||||
Total asset management fees |
5,994 | 7,003 | 4,996 | |||||||||
Total administration fees(a) |
2,452 | 2,401 | 2,430 | |||||||||
Commission and other fees: |
||||||||||||
Brokerage commissions |
3,141 | 2,702 | 2,184 | |||||||||
All other commissions and fees |
2,356 | 2,250 | 2,245 | |||||||||
Total commissions and fees |
5,497 | 4,952 | 4,429 | |||||||||
Total asset management,
administration and commissions |
$ | 13,943 | $ | 14,356 | $ | 11,855 | ||||||
(a) | Includes fees for custody, securities lending, funds services and broker-dealer clearance. |
148 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Interest income(a) |
||||||||||||
Loans(b)
|
$ | 38,347 | $ | 36,660 | $ | 33,121 | ||||||
Securities(b)
|
6,344 | 5,232 | 4,147 | |||||||||
Trading assets
|
17,236 | 17,041 | 10,942 | |||||||||
Federal funds sold and securities
purchased under resale agreements
|
5,983 | 6,497 | 5,578 | |||||||||
Securities borrowed
|
2,297 | 4,539 | 3,402 | |||||||||
Deposits with banks
|
1,916 | 1,418 | 1,265 | |||||||||
Interests in purchased receivables(b)
|
| | 652 | |||||||||
Other assets(c)
|
895 | | | |||||||||
Total interest income
|
73,018 | 71,387 | 59,107 | |||||||||
Interest expense(a) |
||||||||||||
Interest-bearing deposits
|
14,546 | 21,653 | 17,042 | |||||||||
Short-term and other liabilities(d)
|
10,933 | 16,142 | 14,086 | |||||||||
Long-term debt
|
8,355 | 6,606 | 5,503 | |||||||||
Beneficial interests issued by consolidated VIEs |
405 | 580 | 1,234 | |||||||||
Total interest expense
|
34,239 | 44,981 | 37,865 | |||||||||
Net interest income
|
38,779 | 26,406 | 21,242 | |||||||||
Provision for credit losses
|
19,445 | 6,864 | 3,270 | |||||||||
Provision for credit losses
accounting conformity(e)
|
1,534 | | | |||||||||
Total provision for credit losses
|
$ | 20,979 | $ | 6,864 | $ | 3,270 | ||||||
Net interest income after provision
for credit losses
|
$ | 17,800 | $ | 19,542 | $ | 17,972 | ||||||
(a) | Interest income and interest expense include the current period interest accruals for financial instruments measured at fair value except for financial instruments containing embedded derivatives that would be separately accounted for in accordance with SFAS 133 absent the SFAS 159 fair value election; for those instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue. |
(b) | As a result of restructuring certain multi-seller conduits the Firm administers, JPMorgan Chase deconsolidated $29 billion of interests in purchased receivables, $3 billion of loans and $1 billion of securities and recorded $33 billion of lending-related commitments during 2006. | |
(c) | Predominantly margin loans. | |
(d) | Includes brokerage customer payables. | |
(e) | Includes accounting conformity loan loss reserve provision related to the acquisition of Washington Mutuals banking operations. |
JPMorgan Chase & Co. / 2008 Annual Report | 149 |
150 | JPMorgan Chase & Co. / 2008 Annual Report |
Defined benefit pension plans | ||||||||||||||||||||||||
As of or for the year ended December 31, | U.S. | Non-U.S. | OPEB plans(d) | |||||||||||||||||||||
(in millions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Change in benefit obligation |
||||||||||||||||||||||||
Benefit obligation, beginning of year |
$ | (7,556 | ) | $ | (8,098 | ) | $ | (2,743 | ) | $ | (2,917 | ) | $ | (1,204 | ) | $ | (1,443 | ) | ||||||
Benefits earned during the year |
(278 | ) | (270 | ) | (29 | ) | (36 | ) | (5 | ) | (7 | ) | ||||||||||||
Interest cost on benefit obligations |
(488 | ) | (468 | ) | (142 | ) | (144 | ) | (74 | ) | (74 | ) | ||||||||||||
Plan amendments |
| | | 2 | | | ||||||||||||||||||
Business combinations |
| | | | (1 | )(e) | | |||||||||||||||||
Liabilities of newly material plans |
| | | (5 | ) | | | |||||||||||||||||
Employee contributions |
NA | NA | (3 | ) | (3 | ) | (61 | ) | (57 | ) | ||||||||||||||
Net gain (loss) |
(147 | ) | 494 | 214 | 327 | 99 | 231 | |||||||||||||||||
Benefits paid |
673 | 789 | 105 | 90 | 154 | 165 | ||||||||||||||||||
Expected Medicare Part D subsidy receipts |
NA | NA | NA | NA | (10 | ) | (11 | ) | ||||||||||||||||
Curtailments |
| | | 4 | (6 | ) | (6 | ) | ||||||||||||||||
Settlements |
| | | 24 | | | ||||||||||||||||||
Special termination benefits |
| | (3 | ) | (1 | ) | | (1 | ) | |||||||||||||||
Foreign exchange impact and other |
| (3 | ) | 594 | (84 | ) | 13 | (1 | ) | |||||||||||||||
Benefit obligation, end of year |
$ | (7,796 | ) | $ | (7,556 | ) | $ | (2,007 | ) | $ | (2,743 | ) | $ | (1,095 | ) | $ | (1,204 | ) | ||||||
Change in plan assets |
||||||||||||||||||||||||
Fair value of plan assets, beginning of year |
$ | 9,960 | $ | 9,955 | $ | 2,933 | $ | 2,813 | $ | 1,406 | $ | 1,351 | ||||||||||||
Actual return on plan assets |
(2,377 | ) | 753 | (298 | ) | 57 | (246 | ) | 87 | |||||||||||||||
Firm contributions |
38 | 37 | 88 | 92 | 3 | 3 | ||||||||||||||||||
Employee contributions |
| | 3 | 3 | | | ||||||||||||||||||
Assets of newly material plans |
| | | 3 | | | ||||||||||||||||||
Benefits paid |
(673 | ) | (789 | ) | (105 | ) | (90 | ) | (37 | ) | (35 | ) | ||||||||||||
Settlements |
| | | (24 | ) | | | |||||||||||||||||
Foreign exchange impact and other |
| 4 | (613 | ) | 79 | | | |||||||||||||||||
Fair value of plan assets, end of year |
$ | 6,948 | (c) | $ | 9,960 | (c) | $ | 2,008 | $ | 2,933 | $ | 1,126 | $ | 1,406 | ||||||||||
Funded (unfunded) status(a)(b) |
$ | (848 | ) | $ | 2,404 | $ | 1 | $ | 190 | $ | 31 | $ | 202 | |||||||||||
Accumulated benefit obligation, end of
year |
$ | (7,413 | ) | $ | (7,184 | ) | $ | (1,977 | ) | $ | (2,708 | ) | NA | NA | ||||||||||
(a) | Represents overfunded plans with an aggregate balance of $122 million and $3.3 billion at December 31, 2008 and 2007, respectively, and underfunded plans with an aggregate balance of $938 million and $491 million at December 31, 2008 and 2007, respectively. | |
(b) | The table above does not include any amounts attributable to the Washington Mutual Pension and OPEB plans. The disposition of those plans has not been determined. | |
(c) | At December 31, 2008 and 2007, approximately $313 million and $299 million, respectively, of U.S. plan assets included participation rights under participating annuity contracts. | |
(d) | Includes an unfunded accumulated postretirement benefit obligation of $32 million and $49 million at December 31, 2008 and 2007, respectively, for the U.K. plan. | |
(e) | Represents change resulting from the Bear Stearns merger. |
Defined benefit pension plans | ||||||||||||||||||||||||
As of the year ended December 31, | U.S. | Non-U.S. | OPEB plans | |||||||||||||||||||||
(in millions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Net loss |
$ | (3,493 | ) | $ | (250 | ) | $ | (492 | ) | $ | (434 | ) | $ | (349 | ) | $ | (98 | ) | ||||||
Prior service cost (credit) |
(26 | ) | (31 | ) | 2 | 2 | 40 | 58 | ||||||||||||||||
Accumulated other comprehensive
income
(loss), pretax, end of year |
$ | (3,519 | ) | $ | (281 | ) | $ | (490 | ) | $ | (432 | ) | $ | (309 | ) | $ | (40 | ) | ||||||
JPMorgan Chase & Co. / 2008 Annual Report | 151 |
Defined benefit pension plans | ||||||||||||||||||||||||||||||||||||
U.S. | Non-U.S. | OPEB plans | ||||||||||||||||||||||||||||||||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||
Components of net periodic benefit cost |
||||||||||||||||||||||||||||||||||||
Benefits earned during the year |
$ | 278 | $ | 270 | $ | 281 | $ | 29 | $ | 36 | $ | 37 | $ | 5 | $ | 7 | $ | 9 | ||||||||||||||||||
Interest cost on benefit obligations |
488 | 468 | 452 | 142 | 144 | 120 | 74 | 74 | 78 | |||||||||||||||||||||||||||
Expected return on plan assets |
(719 | ) | (714 | ) | (692 | ) | (152 | ) | (153 | ) | (122 | ) | (98 | ) | (93 | ) | (93 | ) | ||||||||||||||||||
Amortization: |
||||||||||||||||||||||||||||||||||||
Net loss |
| | 12 | 25 | 55 | 45 | | 14 | 29 | |||||||||||||||||||||||||||
Prior service cost (credit) |
4 | 5 | 5 | | | | (16 | ) | (16 | ) | (19 | ) | ||||||||||||||||||||||||
Curtailment (gain) loss |
1 | | 2 | | | 1 | 4 | 2 | 2 | |||||||||||||||||||||||||||
Settlement (gain) loss |
| | | | (1 | ) | 4 | | | | ||||||||||||||||||||||||||
Special termination benefits |
| | | 3 | 1 | 1 | | 1 | 2 | |||||||||||||||||||||||||||
Net periodic benefit cost |
52 | 29 | 60 | 47 | 82 | 86 | (31 | ) | (11 | ) | 8 | |||||||||||||||||||||||||
Other defined benefit pension plans(a) |
11 | 4 | 2 | 14 | 27 | 36 | NA | NA | NA | |||||||||||||||||||||||||||
Total defined benefit plans |
63 | 33 | 62 | 61 | 109 | 122 | (31 | ) | (11 | ) | 8 | |||||||||||||||||||||||||
Total defined contribution plans |
263 | 268 | 254 | 286 | 219 | 199 | NA | NA | NA | |||||||||||||||||||||||||||
Total pension and OPEB cost included in
compensation expense |
$ | 326 | $ | 301 | $ | 316 | $ | 347 | $ | 328 | $ | 321 | $ | (31 | ) | $ | (11 | ) | $ | 8 | ||||||||||||||||
Changes in plan assets and benefit
obligations recognized in other
comprehensive income |
||||||||||||||||||||||||||||||||||||
Net (gain) loss arising during the year |
$ | 3,243 | $ | (533 | ) | NA | $ | 235 | $ | (176 | ) | NA | $ | 248 | $ | (223 | ) | NA | ||||||||||||||||||
Prior service credit arising during the year |
| | NA | | (2 | ) | NA | | | NA | ||||||||||||||||||||||||||
Amortization of net loss |
| | NA | (27 | ) | (55 | ) | NA | | (14 | ) | NA | ||||||||||||||||||||||||
Amortization of prior service (cost) credit |
(5 | ) | (5 | ) | NA | | | NA | 15 | 16 | NA | |||||||||||||||||||||||||
Curtailment (gain) loss |
| | NA | | (5 | ) | NA | 3 | 3 | NA | ||||||||||||||||||||||||||
Settlement loss |
| | NA | | 1 | NA | | | NA | |||||||||||||||||||||||||||
Foreign exchange impact and other |
| | NA | (150 | ) | | NA | 3 | | NA | ||||||||||||||||||||||||||
Total recognized in other
comprehensive income |
3,238 | (538 | ) | NA | 58 | (237 | ) | NA | 269 | (218 | ) | NA | ||||||||||||||||||||||||
Total recognized in net periodic benefit cost
and other comprehensive income |
$ | 3,290 | $ | (509 | ) | NA | $ | 105 | $ | (155 | ) | NA | $ | 238 | $ | (229 | ) | NA | ||||||||||||||||||
(a) | Includes various defined benefit pension plans, which are individually immaterial. |
Defined benefit pension plans | OPEB plans | |||||||||||||||
Year ended December 31, 2009 (in millions) | U.S. | Non-U.S. | U.S. | Non-U.S. | ||||||||||||
Net loss |
$ | 301 | $ | 42 | $ | | $ | | ||||||||
Prior service cost (credit) |
4 | | (14 | ) | | |||||||||||
Total |
$ | 305 | $ | 42 | $ | (14 | ) | $ | | |||||||
152 | JPMorgan Chase & Co. / 2008 Annual Report |
U.S. | Non-U.S. | |||||||||||||||
December 31, | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Discount rate: |
||||||||||||||||
Defined benefit pension plans |
6.65 | % | 6.60 | % | 2.00-6.20 | % | 2.25-5.80 | % | ||||||||
OPEB plans |
6.70 | 6.60 | 6.20 | 5.80 | ||||||||||||
Rate of compensation increase |
4.00 | 4.00 | 3.00-4.00 | 3.00-4.25 | ||||||||||||
Health care cost trend rate: |
||||||||||||||||
Assumed for next year |
8.50 | 9.25 | 7.00 | 5.75 | ||||||||||||
Ultimate |
5.00 | 5.00 | 5.50 | 4.00 | ||||||||||||
Year when rate will reach ultimate |
2014 | 2014 | 2012 | 2010 | ||||||||||||
U.S. | Non-U.S. | |||||||||||||||||||||||
Year ended December 31, | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
Discount rate: |
||||||||||||||||||||||||
Defined benefit pension plans |
6.60 | % | 5.95 | % | 5.70 | % | 2.25-5.80 | % | 2.25-5.10 | % | 2.00-4.70 | % | ||||||||||||
OPEB plans |
6.60 | 5.90 | 5.65 | 5.80 | 5.10 | 4.70 | ||||||||||||||||||
Expected long-term rate of return on plan assets: |
||||||||||||||||||||||||
Defined benefit pension plans |
7.50 | 7.50 | 7.50 | 3.25-5.75 | 3.25-5.60 | 3.25-5.50 | ||||||||||||||||||
OPEB plans |
7.00 | 7.00 | 6.84 | NA | NA | NA | ||||||||||||||||||
Rate of compensation increase |
4.00 | 4.00 | 4.00 | 3.00-4.25 | 3.00-4.00 | 3.00-3.75 | ||||||||||||||||||
Health care cost trend rate: |
||||||||||||||||||||||||
Assumed for next year |
9.25 | 10.00 | 10.00 | 5.75 | 6.63 | 7.50 | ||||||||||||||||||
Ultimate |
5.00 | 5.00 | 5.00 | 4.00 | 4.00 | 4.00 | ||||||||||||||||||
Year when rate will reach ultimate |
2014 | 2014 | 2013 | 2010 | 2010 | 2010 | ||||||||||||||||||
For the year ended | 1-Percentage- | 1-Percentage- | ||||||
December 31, 2008 | point | point | ||||||
(in millions) | increase | decrease | ||||||
Effect on total service and interest cost |
$ | 3 | $ | (3 | ) | |||
Effect on accumulated postretirement
benefit obligation |
45 | (40 | ) | |||||
JPMorgan Chase & Co. / 2008 Annual Report | 153 |
Defined benefit pension plans | ||||||||||||||||||||||||||||||||||||
U.S. | Non-U.S. | OPEB plans(a) | ||||||||||||||||||||||||||||||||||
Target | % of plan assets | Target | % of plan assets | Target | % of plan assets | |||||||||||||||||||||||||||||||
December 31, | Allocation | 2008 | 2007 | Allocation | 2008 | 2007 | Allocation | 2008 | 2007 | |||||||||||||||||||||||||||
Asset category |
||||||||||||||||||||||||||||||||||||
Debt securities |
10-30 | % | 25 | % | 28 | % | 68 | % | 73 | % | 70 | % | 50 | % | 50 | % | 50 | % | ||||||||||||||||||
Equity securities |
25-60 | 36 | 45 | 27 | 21 | 25 | 50 | 50 | 50 | |||||||||||||||||||||||||||
Real estate |
5-20 | 7 | 9 | 1 | 1 | 1 | | | | |||||||||||||||||||||||||||
Alternatives |
15-50 | 32 | 18 | 4 | 5 | 4 | | | | |||||||||||||||||||||||||||
Total |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
(a) | Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded. |
154 | JPMorgan Chase & Co. / 2008 Annual Report |
U.S. | Non-U.S. | |||||||||||||||||||||||
December 31, | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
Actual rate of return: |
||||||||||||||||||||||||
Defined benefit pension plans |
(25.17 | )% | 7.96 | % | 13.40 | % | (21.58)-5.06 | % | 0.06-7.51 | % | 2.80-7.30 | % | ||||||||||||
OPEB plans |
(17.89 | ) | 6.51 | 9.30 | NA | NA | NA | |||||||||||||||||
U.S. | Non-U.S. | |||||||||||||||
Year ended December 31, | defined benefit | defined benefit | OPEB before | Medicare | ||||||||||||
(in millions) | pension plans | pension plans | Medicare Part D subsidy | Part D subsidy | ||||||||||||
2009 |
$ | 917 | $ | 88 | $ | 109 | $ | 11 | ||||||||
2010 |
928 | 94 | 111 | 12 | ||||||||||||
2011 |
597 | 99 | 112 | 13 | ||||||||||||
2012 |
616 | 102 | 110 | 14 | ||||||||||||
2013 |
629 | 107 | 109 | 15 | ||||||||||||
Years 20142018 |
3,333 | 571 | 513 | 87 | ||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 155 |
Weighted- | ||||||||
(in thousands, except weighted | Number of | average grant | ||||||
average data) | Shares | date fair value | ||||||
Outstanding, January 1 |
99,017 | $ | 43.11 | |||||
Granted |
85,890 | 40.37 | ||||||
Bear Stearns conversion |
5,975 | 42.24 | ||||||
Vested |
(36,606 | ) | 38.95 | |||||
Forfeited |
(6,232 | ) | 42.90 | |||||
Outstanding, December 31 |
148,044 | $ | 42.53 | |||||
156 | JPMorgan Chase & Co. / 2008 Annual Report |
(in thousands, except | Number of | Weighted-average | Weighted-average | Aggregate | ||||||||||||
weighted-average data) | options/SARs | exercise price | remaining contractual life (in years) | intrinsic value | ||||||||||||
Outstanding, January 1 |
325,931 | $ | 41.70 | |||||||||||||
Granted |
9,341 | 41.37 | ||||||||||||||
Bear Stearns conversion |
3,906 | 399.91 | ||||||||||||||
Exercised |
(34,761 | ) | 33.73 | |||||||||||||
Forfeited |
(3,382 | ) | 44.13 | |||||||||||||
Canceled |
(17,666 | ) | 47.61 | |||||||||||||
Outstanding, December 31 |
283,369 | $ | 47.21 | 3.5 | $ | 224,632 | ||||||||||
Exercisable, December 31 |
242,653 | 47.85 | 2.7 | 224,632 | ||||||||||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Cash received for options exercised |
$ | 1,026 | $ | 2,023 | $ | 1,924 | ||||||
Tax benefit realized |
72 | 238 | 211 | |||||||||
Year ended December 31, | 2008 | 2007 | 2006 | |||||||||
Weighted-average annualized
valuation assumptions |
||||||||||||
Risk-free interest rate |
3.90 | % | 4.78 | % | 5.11 | % | ||||||
Expected dividend yield |
3.57 | 3.18 | 2.89 | |||||||||
Expected common stock
price volatility |
34 | 33 | 23 | |||||||||
Expected life (in years) |
6.8 | 6.8 | 6.8 | |||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 157 |
2008 | ||||||||||||||||||||
Year ended December 31, (in millions) | Bear Stearns | Washington Mutual | Total | 2007(b) | 2006(b) | |||||||||||||||
Expense category |
||||||||||||||||||||
Compensation |
$ | 181 | $ | 113 | $ | 294 | $ | (19 | ) | $ | 26 | |||||||||
Occupancy |
42 | | 42 | 17 | 25 | |||||||||||||||
Technology and communications and other |
85 | 11 | 96 | 188 | 239 | |||||||||||||||
The Bank of New York transaction |
| | | 23 | 15 | |||||||||||||||
Total(a) |
$ | 308 | $ | 124 | $ | 432 | $ | 209 | $ | 305 | ||||||||||
(a) | With the exception of occupancy and technology-related write-offs, all of the costs in the table required the expenditure of cash. | |
(b) | The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation and the Bank of New York transaction. |
2008 | ||||||||||||||||||||
Year ended December 31, (in millions) | Bear Stearns | Washington Mutual | Total | 2007(a) | 2006(a) | |||||||||||||||
Merger reserve balance, beginning of period |
$ | | $ | | $ | | $ | 155 | $ | 311 | ||||||||||
Recorded as merger costs |
308 | 124 | 432 | 186 | 290 | |||||||||||||||
Included in net assets acquired |
1,112 | 435 | 1,547 | (60 | ) | | ||||||||||||||
Utilization of merger reserve |
(1,093 | ) | (118 | ) | (1,211 | ) | (281 | ) | (446 | ) | ||||||||||
Merger reserve balance, end of period |
$ | 327 | $ | 441 | $ | 768 | $ | | (b) | $ | 155 | (b) | ||||||||
(a) | The 2007 and 2006 activity reflect the 2004 merger with Bank One Corporation. | |
(b) | Excludes $10 million and $21 million at December 31, 2007 and 2006, respectively, related to the Bank of New York transaction. |
Year ended December 31, | ||||||||||||
(in millions) | 2008 | 2007 | 2006 | |||||||||
Realized gains |
$ | 1,890 | $ | 667 | $ | 399 | ||||||
Realized losses |
(330 | )(b) | (503 | ) | (942 | ) | ||||||
Net realized securities
gains (losses)(a) |
$ | 1,560 | $ | 164 | $ | (543 | ) | |||||
(a) | Proceeds from securities sold were within approximately 2% of amortized cost. | |
(b) | 2008 includes $76 million of losses due to the other-than-temporary impairment of subprime mortgage-backed securities. |
158 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | |||||||||||||||||||||||||
December 31, (in millions) | cost | gains | losses | value | cost | gains | losses | value | ||||||||||||||||||||||||
Available-for-sale securities |
||||||||||||||||||||||||||||||||
U.S. government and federal agency
obligations: |
||||||||||||||||||||||||||||||||
U.S. treasuries |
$ | 616 | $ | 2 | $ | 7 | $ | 611 | $ | 2,470 | $ | 14 | $ | 2 | $ | 2,482 | ||||||||||||||||
Mortgage-backed securities |
6,281 | 148 | 5 | 6,424 | 8 | 1 | | 9 | ||||||||||||||||||||||||
Agency obligations |
69 | 13 | | 82 | 73 | 9 | | 82 | ||||||||||||||||||||||||
Collateralized mortgage obligations |
557 | 9 | 8 | 558 | | | | | ||||||||||||||||||||||||
U.S. government-sponsored enterprise obligations: |
||||||||||||||||||||||||||||||||
Mortgage-backed securities |
108,360 | 2,257 | 214 | 110,403 | 62,505 | 641 | 55 | 63,091 | ||||||||||||||||||||||||
Direct obligations(a) |
9,717 | 37 | 90 | 9,664 | 6 | 2 | | 8 | ||||||||||||||||||||||||
Obligations of state and political
subdivisions |
3,479 | 94 | 238 | 3,335 | 92 | 1 | 2 | 91 | ||||||||||||||||||||||||
Certificates of deposit |
17,226 | 64 | 8 | 17,282 | 2,040 | | | 2,040 | ||||||||||||||||||||||||
Debt securities issued by non-U.S.
governments |
8,173 | 173 | 2 | 8,344 | 6,804 | 18 | 28 | 6,794 | ||||||||||||||||||||||||
Corporate debt securities |
9,358 | 257 | 61 | 9,554 | 1,927 | 1 | 4 | 1,924 | ||||||||||||||||||||||||
Equity securities |
3,073 | 2 | 7 | 3,068 | 4,124 | 55 | 1 | 4,178 | ||||||||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||||||||||
Prime |
7,762 | 4 | 1,739 | 6,027 | 3,551 | 7 | 5 | 3,553 | ||||||||||||||||||||||||
Subprime |
213 | | 19 | 194 | 384 | 41 | 28 | 397 | ||||||||||||||||||||||||
Alt-A |
1,064 | | 196 | 868 | | | | | ||||||||||||||||||||||||
Non-U.S. residential |
2,233 | 24 | 182 | 2,075 | | | | | ||||||||||||||||||||||||
Commercial |
4,623 | | 684 | 3,939 | | | | | ||||||||||||||||||||||||
Asset-backed securities: |
||||||||||||||||||||||||||||||||
Credit card receivables |
13,651 | 8 | 2,268 | 11,391 | 775 | | 47 | 728 | ||||||||||||||||||||||||
Other consumer loans |
1,008 | 4 | 134 | 878 | | | | | ||||||||||||||||||||||||
Commercial and industrial loans |
11,847 | 168 | 820 | 11,195 | | | | | ||||||||||||||||||||||||
Other |
18 | | 1 | 17 | 29 | | | 29 | ||||||||||||||||||||||||
Total available-for-sale securities |
$ | 209,328 | $ | 3,264 | $ | 6,683 | $ | 205,909 | $ | 84,788 | $ | 790 | $ | 172 | $ | 85,406 | ||||||||||||||||
Held-to-maturity securities(b) |
$ | 34 | $ | 1 | $ | | $ | 35 | $ | 44 | $ | 1 | $ | | $ | 45 | ||||||||||||||||
(a) | Consists primarily of mortgage-related obligations. | |
(b) | Consists primarily of mortgage-backed securities issued by U.S. government-sponsored entities. |
JPMorgan Chase & Co. / 2008 Annual Report | 159 |
Securities with gross unrealized losses | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | |||||||||||||||||||||||
Gross | Gross | Total Gross | ||||||||||||||||||||||
unrealized | Fair | unrealized | Total Fair | unrealized | ||||||||||||||||||||
2008 (in millions) | Fair value | losses | value | losses | value | losses | ||||||||||||||||||
Available-for-sale securities |
||||||||||||||||||||||||
U.S. government and federal agency obligations: |
||||||||||||||||||||||||
U.S. treasuries |
$ | 249 | $ | 7 | $ | | $ | | $ | 249 | $ | 7 | ||||||||||||
Mortgage-backed securities |
2,042 | 5 | 1 | | 2,043 | 5 | ||||||||||||||||||
Agency obligations |
| | | | | | ||||||||||||||||||
Collateralized mortgage obligations |
427 | 8 | | | 427 | 8 | ||||||||||||||||||
U.S. government-sponsored enterprise
obligations: |
||||||||||||||||||||||||
Mortgage-backed securities |
3,547 | 211 | 468 | 3 | 4,015 | 214 | ||||||||||||||||||
Direct obligations |
7,410 | 90 | | | 7,410 | 90 | ||||||||||||||||||
Obligations of state and political subdivisions |
1,129 | 232 | 16 | 6 | 1,145 | 238 | ||||||||||||||||||
Certificates of deposit |
382 | 8 | | | 382 | 8 | ||||||||||||||||||
Debt securities issued by non-U.S. governments |
308 | 1 | 74 | 1 | 382 | 2 | ||||||||||||||||||
Corporate debt securities |
558 | 54 | 30 | 7 | 588 | 61 | ||||||||||||||||||
Equity securities |
19 | 7 | | | 19 | 7 | ||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||
Prime |
5,386 | 1,642 | 333 | 97 | 5,719 | 1,739 | ||||||||||||||||||
Subprime |
| | 151 | 19 | 151 | 19 | ||||||||||||||||||
Alt-A |
868 | 196 | | | 868 | 196 | ||||||||||||||||||
Non-U.S. residential |
1,908 | 182 | | | 1,908 | 182 | ||||||||||||||||||
Commercial |
3,939 | 684 | | | 3,939 | 684 | ||||||||||||||||||
Asset-backed
securities: |
||||||||||||||||||||||||
Credit card receivables |
10,267 | 1,964 | 472 | 304 | 10,739 | 2,268 | ||||||||||||||||||
Other consumer loans |
813 | 134 | | | 813 | 134 | ||||||||||||||||||
Commercial and industrial loans |
9,059 | 820 | | | 9,059 | 820 | ||||||||||||||||||
Other |
| | 17 | 1 | 17 | 1 | ||||||||||||||||||
Total securities with gross unrealized losses |
$ | 48,311 | $ | 6,245 | $ | 1,562 | $ | 438 | $ | 49,873 | $ | 6,683 | ||||||||||||
160 | JPMorgan Chase & Co. / 2008 Annual Report |
Securities with gross unrealized losses | ||||||||||||||||||||||||
Less than 12 months | 12 months or more | |||||||||||||||||||||||
Gross | Gross | Total | Total Gross | |||||||||||||||||||||
Fair | unrealized | Fair | unrealized | Fair | unrealized | |||||||||||||||||||
2007 (in millions) | value | losses | value | losses | value | losses | ||||||||||||||||||
Available-for-sale securities |
||||||||||||||||||||||||
U.S. government and federal agency obligations: |
||||||||||||||||||||||||
U.S. treasuries |
$ | 175 | $ | 2 | $ | | $ | | $ | 175 | $ | 2 | ||||||||||||
Mortgage-backed securities |
| | | | | | ||||||||||||||||||
Agency obligations |
| | | | | | ||||||||||||||||||
Collateralized mortgage obligations |
| | | | | | ||||||||||||||||||
U.S. government-sponsored enterprise
obligations: |
||||||||||||||||||||||||
Mortgage-backed securities |
| | 1,345 | 55 | 1,345 | 55 | ||||||||||||||||||
Direct obligations |
| | | | | | ||||||||||||||||||
Obligations of state and political subdivisions |
21 | 2 | | | 21 | 2 | ||||||||||||||||||
Certificates of deposit |
1,102 | | | | 1,102 | | ||||||||||||||||||
Debt securities issued by non-U.S. governments |
335 | 3 | 1,928 | 25 | 2,263 | 28 | ||||||||||||||||||
Corporate debt securities |
1,126 | 3 | 183 | 1 | 1,309 | 4 | ||||||||||||||||||
Equity securities |
| | 4 | 1 | 4 | 1 | ||||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||
Prime |
1,313 | 5 | | | 1,313 | 5 | ||||||||||||||||||
Subprime |
306 | 28 | | | 306 | 28 | ||||||||||||||||||
Alt-A |
| | | | | | ||||||||||||||||||
Non-U.S. residential |
| | | | | | ||||||||||||||||||
Commercial |
| | | | | | ||||||||||||||||||
Asset-backed securities: |
||||||||||||||||||||||||
Credit card receivables |
443 | 31 | 285 | 16 | 728 | 47 | ||||||||||||||||||
Other consumer loans |
| | | | | | ||||||||||||||||||
Commercial and industrial loans |
| | | | | | ||||||||||||||||||
Other |
29 | | | | 29 | | ||||||||||||||||||
Total securities with gross unrealized losses |
$ | 4,850 | $ | 74 | $ | 3,745 | $ | 98 | $ | 8,595 | $ | 172 | ||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 161 |
By remaining maturity at | Available-for-sale securities | Held-to-maturity securities | ||||||||||||||||||||||
December 31, 2008 | Amortized | Fair | Average | Amortized | Fair | Average | ||||||||||||||||||
(in millions, except ratios) | cost | value | yield(b) | cost | value | yield(b) | ||||||||||||||||||
Due in one year or less |
$ | 24,163 | $ | 24,056 | 2.80 | % | $ | | $ | | | % | ||||||||||||
Due after one year through five years |
26,115 | 25,075 | 2.46 | | | | ||||||||||||||||||
Due after five years through ten years |
13,105 | 12,436 | 3.78 | 31 | 32 | 6.89 | ||||||||||||||||||
Due after ten years(a) |
145,945 | 144,342 | 5.19 | 3 | 3 | 5.69 | ||||||||||||||||||
Total securities |
$ | 209,328 | $ | 205,909 | 4.49 | % | $ | 34 | $ | 35 | 6.78 | % | ||||||||||||
(a) | Includes securities with no stated maturity. Substantially all of the Firms mortgage-backed securities and collateralized mortgage obligations are due in ten years or more based upon contractual maturity. The estimated duration, which reflects anticipated future prepayments based upon a consensus of dealers in the market, is approximately four years for mortgage-backed securities and collateralized mortgage obligations. | |
(b) | The average yield is based upon amortized cost balances at year-end. Yields are derived by dividing interest income by total amortized cost. Taxable-equivalent yields are used where applicable. |
162 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions) | 2008 | 2007 | ||||||
Securities purchased under resale agreements(a) |
$ | 200,265 | $ | 169,305 | ||||
Securities borrowed(b) |
124,000 | 84,184 | ||||||
Securities sold under repurchase agreements(c) |
$ | 174,456 | $ | 126,098 | ||||
Securities loaned |
6,077 | 10,922 | ||||||
(a) | Includes resale agreements of $20.8 billion and $19.1 billion accounted for at fair value at December 31, 2008 and 2007, respectively. | |
(b) | Includes securities borrowed of $3.4 billion accounted for at fair value at December 31, 2008. | |
(c) | Includes repurchase agreements of $3.0 billion and $5.8 billion accounted for at fair value at December 31, 2008 and 2007, respectively. |
| At the principal amount outstanding, net of the allowance for loan losses, unearned income and any net deferred loan fees or costs, for loans held for investment (other than purchased credit-impaired loans); |
| At the lower of cost or fair value, with valuation changes recorded in noninterest revenue, for loans that are classified as held-for-sale; or |
| At fair value, with changes in fair value recorded in noninterest revenue, for loans classified as trading assets or risk managed on a fair value basis; |
| Purchased credit-impaired loans held for investment are accounted for under SOP 03-3 and initially measured at fair value, which includes estimated future credit losses. Accordingly, an allowance for loan losses related to these loans is not recorded at the acquisition date. |
JPMorgan Chase & Co. / 2008 Annual Report | 163 |
December 31, (in millions) | 2008 | 2007 | ||||||
U.S. wholesale loans: |
||||||||
Commercial and industrial |
$ | 68,709 | $ | 55,655 | ||||
Real estate |
64,214 | 16,748 | ||||||
Financial institutions |
20,615 | 14,757 | ||||||
Government agencies |
5,918 | 5,770 | ||||||
Other |
22,330 | 25,883 | ||||||
Loans held-for-sale and at fair value |
4,990 | 14,440 | ||||||
Total U.S. wholesale loans |
186,776 | 133,253 | ||||||
Non-U.S. wholesale loans: |
||||||||
Commercial and industrial |
27,941 | 27,659 | ||||||
Real estate |
2,667 | 3,527 | ||||||
Financial institutions |
16,381 | 16,740 | ||||||
Government agencies |
603 | 720 | ||||||
Other |
18,711 | 21,968 | ||||||
Loans held-for-sale and at fair value |
8,965 | 9,209 | ||||||
Total non-U.S. wholesale loans |
75,268 | 79,823 | ||||||
Total wholesale loans:(a)(b) |
||||||||
Commercial and industrial |
96,650 | 83,314 | ||||||
Real estate(c) |
66,881 | 20,275 | ||||||
Financial institutions |
36,996 | 31,497 | ||||||
Government agencies |
6,521 | 6,490 | ||||||
Other |
41,041 | 47,851 | ||||||
Loans held-for-sale and at fair value(d) |
13,955 | 23,649 | ||||||
Total wholesale loans |
262,044 | 213,076 | ||||||
Total consumer loans:(e) |
||||||||
Home equity |
114,335 | 94,832 | ||||||
Prime mortgage |
72,266 | 39,988 | ||||||
Subprime mortgage |
15,330 | 15,473 | ||||||
Option ARMs |
9,018 | | ||||||
Auto loans |
42,603 | 42,350 | ||||||
Credit card(f) |
104,746 | 84,352 | ||||||
Other |
33,715 | 25,314 | ||||||
Loans held-for-sale(g) |
2,028 | 3,989 | ||||||
Total
consumer loans excluding
purchased credit-impaired |
394,041 | 306,298 | ||||||
Consumer
loans purchased credit-impaired |
88,813 | NA | ||||||
Total consumer loans |
482,854 | 306,298 | ||||||
Total
loans(b)(h) |
$ | 744,898 | $ | 519,374 | ||||
(a) | Includes Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management. | |
(b) | Includes purchased credit-impaired loans of $224 million at December 31, 2008, acquired in the Washington Mutual transaction. | |
(c) | Represents credits extended for real estate-related purposes to borrowers who are primarily in the real estate development or investment businesses and which the repayment is predominantly from the sale, lease, management, operations or refinancing of the property. | |
(d) | Includes loans for commercial & industrial, real estate, financial institutions and other of $11.0 billion, $428 million, $1.5 billion and $995 million at December 31, 2008, respectively, and $19.6 billion, $548 million, $862 million and $2.7 billion at December 31, 2007 respectively. | |
(e) | Includes Retail Financial Services, Card Services and the Corporate/Private Equity segment. | |
(f) | Includes billed finance charges and fees net of an allowance for uncollectible amounts. | |
(g) | Includes loans for prime mortgage and other (largely student loans) of $206 million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4 billion at December 31, 2007, respectively. | |
(h) | Loans (other than purchased loans and those for which the SFAS 159 fair value option has been elected) are presented net of unearned income and net deferred loan fees of $694 million and $1.0 billion at December 31, 2008 and 2007, respectively. |
164 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Net gains/(losses) on sales of loans (including
lower of cost or fair value adjustments)(a) |
$ | (2,508 | ) | $ | 99 | $ | 672 | |||||
(a) | Excludes sales related to loans accounted for at fair value. |
(in millions) | September 25, 2008(a)(b) | |||
Contractually required payments receivable |
||||
(including interest) |
$ | 168,460 | ||
Less: Nonaccretable difference |
(45,690 | ) | ||
Cash flows expected to be collected(c) |
122,770 | |||
Less: Accretable yield(d) |
(32,662 | ) | ||
Fair value of loans acquired |
$ | 90,108 | ||
(a) | Date of the Washington Mutual transaction. | |
(b) | The amounts in the table above were revised in the fourth quarter of 2008 due to the Firms refinement of both estimates and its application of certain provisions of SOP 03-3. | |
(c) | Represents undiscounted principal and interest cash flows expected at acquisition. | |
(d) | This amount is recognized into interest income over the estimated life of the underlying loans. |
December 31, (in millions) | 2008 | |||
Outstanding balance(a) |
$ | 118,180 | ||
Carrying amount |
88,813 | |||
(a) | Represents the sum of principal and earned interest at the reporting date. |
Accretable Yield Activity | ||||
(in millions) | ||||
Balance, September 30, 2008 |
$ | 32,662 | ||
Accretion into interest income |
(1,292 | ) | ||
Changes in interest rates on variable rate loans |
(4,877 | ) | ||
Balance, December 31, 2008 |
$ | 26,493 | ||
JPMorgan Chase & Co. / 2008 Annual Report | 165 |
December 31, (in millions) | 2008 | 2007 | ||||||||||
Impaired loans with an allowance: |
||||||||||||
Wholesale |
$ | 2,026 | $ | 429 | ||||||||
Consumer(a) |
2,252 | 322 | ||||||||||
Total impaired loans with an allowance(b) |
4,278 | 751 | ||||||||||
Impaired loans without an allowance:(c) |
||||||||||||
Wholesale |
62 | 28 | ||||||||||
Consumer(a) |
| | ||||||||||
Total impaired loans without an allowance |
62 | 28 | ||||||||||
Total impaired loans(b) |
$ | 4,340 | $ | 779 | ||||||||
Allowance for impaired loans under SFAS 114: |
||||||||||||
Wholesale |
$ | 712 | $ | 108 | ||||||||
Consumer(a) |
379 | 116 | ||||||||||
Total allowance for impaired loans under
SFAS 114(d) |
$ | 1,091 | $ | 224 | ||||||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Average balance of impaired loans
during the period: |
||||||||||||
Wholesale |
$ | 896 | $ | 316 | $ | 697 | ||||||
Consumer(a) |
1,211 | 317 | 300 | |||||||||
Total impaired loans(b) |
$ | 2,107 | $ | 633 | $ | 997 | ||||||
Interest income recognized on impaired
loans during the period: |
||||||||||||
Wholesale |
$ | | $ | | $ | 2 | ||||||
Consumer(a) |
57 | | | |||||||||
Total interest income recognized on
impaired loans during the period |
$ | 57 | $ | | $ | 2 | ||||||
(a) | Excludes credit card loans. | |
(b) | In 2008, methodologies for calculating impaired loans have changed. Prior periods have been revised to conform to current presentation. | |
(c) | When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under SFAS 114. | |
(d) | The allowance for impaired loans under SFAS 114 is included in JPMorgan Chases allowance for loan losses. The allowance for certain consumer impaired loans has been categorized in the allowance for loan losses as formula-based. |
166 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Allowance for loan losses at
January 1 |
$ | 9,234 | $ | 7,279 | $ | 7,090 | ||||||
Cumulative effect of change in
accounting principles(a) |
| (56 | ) | | ||||||||
Allowance for loan losses at
January 1, adjusted |
9,234 | 7,223 | 7,090 | |||||||||
Gross charge-offs |
10,764 | 5,367 | 3,884 | |||||||||
Gross (recoveries) |
(929 | ) | (829 | ) | (842 | ) | ||||||
Net charge-offs |
9,835 | 4,538 | 3,042 | |||||||||
Provision for loan losses |
||||||||||||
Provision excluding accounting
conformity |
19,660 | 6,538 | 3,153 | |||||||||
Provision
for loan losses accounting
conformity(b) |
1,577 | | | |||||||||
Total provision for loan losses |
21,237 | 6,538 | 3,153 | |||||||||
Addition resulting from
Washington Mutual transaction |
2,535 | | | |||||||||
Other(c) |
(7 | ) | 11 | 78 | ||||||||
Allowance for loan losses at
December 31 |
$ | 23,164 | $ | 9,234 | $ | 7,279 | ||||||
Components: |
||||||||||||
Asset-specific |
$ | 786 | $ | 188 | $ | 118 | ||||||
Formula-based |
22,378 | 9,046 | 7,161 | |||||||||
Total Allowance for loan losses |
$ | 23,164 | $ | 9,234 | $ | 7,279 | ||||||
(a) | Reflects the effect of the adoption of SFAS 159 at January 1, 2007. For a further discussion of SFAS 159, see Note 5 on pages 144146 of this Annual Report. | |
(b) | Relates to the Washington Mutual transaction in 2008. | |
(c) | The 2008 amount represents foreign-exchange translation. The 2007 amount represents assets acquired of $5 million and $5 million of foreign-exchange translation. The 2006 amount represents the Bank of New York transaction. |
JPMorgan Chase & Co. / 2008 Annual Report | 167 |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Allowance for lending-related
commitments at January 1 |
$ | 850 | $ | 524 | $ | 400 | ||||||
Provision for lending-related commitments |
||||||||||||
Provision excluding accounting
conformity |
(215 | ) | 326 | 117 | ||||||||
Provision for lending-related commitments
accounting
conformity(a) |
(43 | ) | | | ||||||||
Total provision for lending-related
commitments |
(258 | ) | 326 | 117 | ||||||||
Addition resulting from Washington Mutual |
66 | | | |||||||||
Other(b) |
1 | | 7 | |||||||||
Allowance for lending-related
commitments at December 31 |
$ | 659 | $ | 850 | $ | 524 | ||||||
Components: |
||||||||||||
Asset-specific |
$ | 29 | $ | 28 | $ | 33 | ||||||
Formula-based |
630 | 822 | 491 | |||||||||
Total allowance for lending-
related commitments |
$ | 659 | $ | 850 | $ | 524 | ||||||
(a) | Related to the Washington Mutual transaction. | |
(b) | The 2006 amount represents the Bank of New York transaction. |
168 | JPMorgan Chase & Co. / 2008 Annual Report |
Principal amount outstanding | JPMorgan Chase interest in securitized assets(f)(g)(h)(i) | |||||||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||||||
assets held | Assets held | interests | ||||||||||||||||||||||||||||||||||
by Firm- | in QSPEs | held by | ||||||||||||||||||||||||||||||||||
December 31, 2008 | sponsored | with continuing | Trading | AFS | Other | JPMorgan | ||||||||||||||||||||||||||||||
(in billions) | QSPEs | involvement | assets | securities | Loans | assets | Chase | |||||||||||||||||||||||||||||
Securitized related: |
||||||||||||||||||||||||||||||||||||
Credit card |
$ | 121.6 | $ | 121.6 | (e) | $ | 0.5 | $ | 5.6 | $ | 33.3 | $ | 5.6 | $ | 45.0 | |||||||||||||||||||||
Residential mortgage: |
||||||||||||||||||||||||||||||||||||
Prime(a) |
233.9 | 212.3 | 1.7 | 0.7 | | | 2.4 | |||||||||||||||||||||||||||||
Subprime |
61.0 | 58.6 | | 0.1 | | | 0.1 | |||||||||||||||||||||||||||||
Option ARMs |
48.3 | 48.3 | 0.1 | 0.3 | | | 0.4 | |||||||||||||||||||||||||||||
Commercial
and other(b) |
174.1 | 45.7 | 2.0 | 0.5 | | | 2.5 | |||||||||||||||||||||||||||||
Student loans |
1.1 | 1.1 | | | | 0.1 | 0.1 | |||||||||||||||||||||||||||||
Auto |
0.8 | 0.8 | | | | | | |||||||||||||||||||||||||||||
Total(c)(d) |
$ | 640.8 | $ | 488.4 | $ | 4.3 | $ | 7.2 | $ | 33.3 | $ | 5.7 | $ | 50.5 | ||||||||||||||||||||||
Principal amount outstanding | JPMorgan Chase interest in securitized assets(f)(i)(j) | |||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||
assets held | Assets held | interests | ||||||||||||||||||||||||||
by Firm- | in QSPEs | held by | ||||||||||||||||||||||||||
December 31, 2007 | sponsored | with continuing | Trading | AFS | Other | JPMorgan | ||||||||||||||||||||||
(in billions) | QSPEs | involvement | assets | securities | Loans | assets | Chase | |||||||||||||||||||||
Securitized related: |
||||||||||||||||||||||||||||
Credit card |
$ | 92.7 | $ | 92.7 | (e) | $ | | $ | 0.3 | $ | 18.6 | $ | 4.6 | $ | 23.5 | |||||||||||||
Residential mortgage: |
||||||||||||||||||||||||||||
Prime(a) |
78.3 | 77.7 | 0.4 | | | | 0.4 | |||||||||||||||||||||
Subprime |
23.7 | 22.7 | 0.3 | 0.1 | | | 0.4 | |||||||||||||||||||||
Option ARMs |
| | | | | | | |||||||||||||||||||||
Commercial
and other(b) |
109.6 | 3.4 | | | | | | |||||||||||||||||||||
Student loans |
1.1 | 1.1 | | | | 0.1 | 0.1 | |||||||||||||||||||||
Auto |
2.3 | 2.3 | | | | 0.1 | 0.1 | |||||||||||||||||||||
Total(c) |
$ | 307.7 | $ | 199.9 | $ | 0.7 | $ | 0.4 | $ | 18.6 | $ | 4.8 | $ | 24.5 | ||||||||||||||
(a) | Includes Alt-A loans. | |
(b) | Includes co-sponsored commercial securitizations and, therefore, includes non-JPMorgan Chase originated commercial mortgage loans. Commercial and other consists of securities backed by commercial loans (predominantly real estate) and non-mortgage related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in the Firms sponsored commercial mortgage securitization transactions. | |
(c) | Includes securitized loans where the Firm owns less than a majority of the subordinated or residual interests in the securitizations. | |
(d) | Includes securitization-related QSPEs sponsored by heritage Bear Stearns and heritage Washington Mutual at December 31, 2008. | |
(e) | Includes credit card loans, accrued interest and fees, and cash amounts on deposit. | |
(f) | Excludes retained servicing (for a discussion of MSRs, see Note 18 on pages 187188 of this Annual Report). | |
(g) | Excludes senior and subordinated securities of $974 million at December 31, 2008, that the Firm purchased in connection with IBs secondary market-making activities. | |
(h) | Includes investments acquired in the secondary market, but predominantly held-for-investment purposes of $1.8 billion as of December 31, 2008. This is comprised of $1.4 billion of investments classified as available-for-sale, including $172 million in credit cards, $693 million of residential mortgages and $495 million of commercial and other; and $452 million of investments classified as trading, including $112 million of credit cards, $303 million of residential mortgages, and $37 million of commercial and other. | |
(i) | Excludes interest rate and foreign exchange derivatives that are primarily used to manage the interest rate and foreign exchange risks of the securitization entities. See Note 6 and Note 32 on pages 146147 and 202205, respectively, of this Annual Report for further information on derivatives. | |
(j) | Excludes senior and subordinated securities of $9.8 billion at December 31, 2007, that were retained at the time of securitization in connection with IBs underwriting activity or that are purchased in connection with IBs secondary market-making activities. |
JPMorgan Chase & Co. / 2008 Annual Report | 169 |
170 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, 2008 | Residential mortgage(g) | |||||||||||||||||||||||||||
(in millions, except for ratios and where | Option | Commercial | Student | |||||||||||||||||||||||||
otherwise noted) | Credit card | Prime(h) | Subprime | ARMs | and other | loans | Auto | |||||||||||||||||||||
Principal securitized |
$ | 21,390 | $ | | $ | | $ | | $ | 1,023 | $ | | $ | | ||||||||||||||
Pretax gains |
151 | | | | | | | |||||||||||||||||||||
All cash flows during the period: |
||||||||||||||||||||||||||||
Proceeds from new securitizations |
$ | 21,389 | (f) | $ | | $ | | $ | | $ | 989 | $ | | $ | | |||||||||||||
Servicing fees collected |
1,162 | 279 | 146 | 129 | 11 | 4 | 15 | |||||||||||||||||||||
Other cash flows received(a) |
4,985 | 23 | 16 | | | | | |||||||||||||||||||||
Proceeds from collections reinvested
in revolving securitizations |
152,399 | | | | | | | |||||||||||||||||||||
Purchases of previously transferred
financial assets (or the underlying
collateral)(b)(c) |
| 217 | 13 | 6 | | | 359 | |||||||||||||||||||||
Cash flows received on the interests
that continue to be held by the
Firm(d) |
117 | 267 | 23 | 53 | 455 | | 43 | |||||||||||||||||||||
Key assumptions used to measure retained interests
originated during the year
(rates per annum): |
||||||||||||||||||||||||||||
Prepayment
rate(e) |
17.9-20.0 | % | 1.5 | % | ||||||||||||||||||||||||
PPR | CPR | |||||||||||||||||||||||||||
Weighted-average life (in years) |
0.4-0.5 | 2.1 | ||||||||||||||||||||||||||
Expected credit losses |
4.2-4.8 | % | 1.5 | % | ||||||||||||||||||||||||
Discount rate |
12.0-13.0 | % | 25.0 | % | ||||||||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 171 |
Year ended December 31, 2007 | Residential mortgage | |||||||||||||||||||||||||||
(in millions, except for ratios and where | Option | Commercial | Student | |||||||||||||||||||||||||
otherwise noted) | Credit card | Prime(h) | Subprime | ARMs | and other | loans | Auto | |||||||||||||||||||||
Principal securitized |
$ | 21,160 | $ | 32,084 | $ | 6,763 | $ | | $ | 12,797 | $ | 1,168 | $ | | ||||||||||||||
Pretax gains |
177 | 28 | (i) | 43 | | | 51 | | ||||||||||||||||||||
All cash flows during the period: |
||||||||||||||||||||||||||||
Proceeds from new securitizations |
$ | 21,160 | $ | 31,791 | $ | 6,844 | $ | | $ | 13,038 | $ | 1,168 | $ | | ||||||||||||||
Servicing fees collected |
1,005 | 124 | 246 | | 7 | 2 | 36 | |||||||||||||||||||||
Other cash flows received(a) |
4,963 | | | | | | | |||||||||||||||||||||
Proceeds from collections reinvested
in revolving securitizations |
148,946 | | | | | | | |||||||||||||||||||||
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
| 58 | 598 | | | | 431 | |||||||||||||||||||||
Cash flows received on the interests
that continue to be held by the
Firm(d) |
18 | 140 | 278 | | 256 | | 89 | |||||||||||||||||||||
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
||||||||||||||||||||||||||||
Prepayment
rate(e) |
20.4 | % | 13.7-37.2 | % | 30.0-48.0 | % | 0.0-8.0 | % | 1.0-8.0 | % | ||||||||||||||||||
PPR | CPR | CPR | CPR | CPR | ||||||||||||||||||||||||
Weighted-average life (in years) |
0.4 | 1.3-5.4 | 2.3-2.8 | 1.3-10.2 | 9.3 | |||||||||||||||||||||||
Expected credit losses |
3.5-3.9 | % | 0.0-1.6 | %(j) | 1.2-2.2 | % | 0.0-1.0 | %(j) | | %(j) | ||||||||||||||||||
Discount rate |
12.0 | % | 5.8-20.0 | % | 12.1-26.7 | % | 10.0-14.0 | % | 9.0 | % | ||||||||||||||||||
Year ended December 31, 2006 | Residential mortgage | |||||||||||||||||||||||||||
(in millions, except for ratios and where | Option | Commercial | Student | |||||||||||||||||||||||||
otherwise noted) | Credit card | Prime(h) | Subprime | ARMs | and other | loans | Auto | |||||||||||||||||||||
Principal securitized |
$ | 9,735 | $ | 30,254 | $ | 17,359 | $ | | $ | 13,858 | $ | | $ | 2,405 | ||||||||||||||
Pretax gains |
67 | 53 | 193 | | 129 | | | |||||||||||||||||||||
All cash flows during the period: |
||||||||||||||||||||||||||||
Proceeds from new securitizations |
$ | 9,735 | $ | 30,167 | $ | 17,635 | $ | | $ | 14,248 | $ | | $ | 1,745 | ||||||||||||||
Servicing fees collected |
973 | 76 | 29 | | 1 | | 52 | |||||||||||||||||||||
Other cash flows received(a) |
5,281 | 35 | | | 95 | | | |||||||||||||||||||||
Proceeds from collections reinvested
in revolving securitizations |
151,186 | | | | | | | |||||||||||||||||||||
Purchases of previously transferred
financial assets (or the underlying
collateral)(b) |
| 31 | 31 | | | | 138 | |||||||||||||||||||||
Cash flows received on the interests
that continue to be held by the
Firm(d) |
76 | 48 | 258 | | 73 | | 96 | |||||||||||||||||||||
Key assumptions used to measure retained
interests originated during the year
(rates per annum): |
||||||||||||||||||||||||||||
Prepayment
rate(e) |
20.0-22.2 | % | 10.0-41.3 | % | 36.0-45.0 | % | 0.0-36.2 | % | 1.4-1.5 | % | ||||||||||||||||||
PPR | CPR | CPR | CPR | ABS | ||||||||||||||||||||||||
Weighted-average life (in years) |
0.4 | 1.7-4.0 | 1.5-2.4 | 1.5-6.1 | 1.4-1.9 | |||||||||||||||||||||||
Expected credit losses |
3.3-4.2 | % | 0.1-3.3 | %(j) | 1.1-2.1 | % | 0.0-0.9% | (j) | 0.3-0.7 | % | ||||||||||||||||||
Discount rate |
12.0 | % | 8.4-26.2 | % | 15.1-22.0 | % | 3.8-14.0 | % | 7.6-7.8 | % | ||||||||||||||||||
(a) | Other cash flows received include excess servicing fees and other ancillary fees received. | |
(b) | Includes cash paid by the Firm to reacquire assets from the QSPEs, for example, servicer clean-up calls. | |
(c) | Excludes a random removal of $6.2 billion of credit card loans from a securitization trust previously established by Washington Mutual and an account addition of $5.8 billion of higher quality credit card loans from the legacy Chase portfolio to the legacy Washington Mutual trust in November 2008. These are noncash transactions that are permitted by the trust documents in order to maintain the appropriate level of undivided sellers interest. | |
(d) | Includes cash flows received on retained interests including, for example, principal repayments, and interest payments. | |
(e) | PPR: principal payment rate; CPR: constant prepayment rate; ABS: absolute prepayment speed. | |
(f) | Includes $5.5 billion of securities retained by the Firm. | |
(g) | Includes securitizations sponsored by Bear Stearns and Washington Mutual as of their respective acquisition dates. | |
(h) | Includes Alt-A loans. | |
(i) | As of January 1, 2007, the Firm adopted the fair value election for IB warehouse and the RFS prime mortgage warehouse. The carrying value of these loans accounted for at fair value approximates the proceeds received from securitization. | |
(j) | Expected credit losses for consumer prime residential mortgage, and student and certain other securitizations are minimal and are incorporated into other assumptions. |
172 | JPMorgan Chase & Co. / 2008 Annual Report |
Ratings profile of retained interests(c)(d) | ||||||||||||
2008 | ||||||||||||
Investment | Noninvestment | Retained | ||||||||||
December 31, (in billions) | Grade | grade | interest | |||||||||
Asset types: |
||||||||||||
Credit card(a) |
$ | 5.5 | $ | 3.8 | $ | 9.3 | ||||||
Residential mortgage: |
||||||||||||
Prime(b) |
1.1 | 0.3 | 1.4 | |||||||||
Subprime |
| 0.1 | 0.1 | |||||||||
Option ARMs |
0.4 | | 0.4 | |||||||||
Commercial and other |
1.7 | 0.3 | 2.0 | |||||||||
Student loans |
| 0.1 | 0.1 | |||||||||
Auto |
| | | |||||||||
Total |
$ | 8.7 | $ | 4.6 | $ | 13.3 | ||||||
(a) | Includes retained subordinated interests carried at fair value, including CS accrued interests and fees, escrow accounts, and other residual interests. Excludes undivided seller interest in the trusts of $33.3 billion at December 31, 2008, which is carried at historical cost, and unencumbered cash amounts on deposit of $2.1 billion at December 31, 2008. | |
(b) | Includes Alt-A loans. | |
(c) | The ratings scale is presented on an S&P-equivalent basis. | |
(d) | Excludes $1.8 billion of investments acquired in the secondary market, but predominantly held for investment purposes. Of this amount $1.7 billion is classified as investment grade. |
December 31, 2008 | Residential mortgage | |||||||||||||||||||||||||||
(in millions, except rates and where | Option | Commercial | Student | |||||||||||||||||||||||||
otherwise noted) | Credit card | Prime(c) | Subprime | ARMs | and other | loans | Auto | |||||||||||||||||||||
Retained interests |
$ | 3,463 | (b) | $ | 1,420 | $ | 68 | $ | 436 | $ | 1,966 | $ | 55 | $ | 40 | |||||||||||||
Weighted-average life (in
years) |
0.5 | 5.3 | 1.5 | 7.3 | 3.5 | 8.2 | 0.7 | |||||||||||||||||||||
Prepayment
rates(a) |
15.4-16.7 | % | 0.0-50.6 | %(d) | 1.0-53.1 | % | 5.0-15.0 | % | 0.0-100.0 | %(g) | 5.0 | % | 1.2-1.4 | % | ||||||||||||||
Weighted-average
prepayment rate |
16.6 | 17.7 | 25.1 | 7.6 | 0.7 | 5.0 | 1.3 | |||||||||||||||||||||
PPR | CPR | CPR | CPR | CPR | CPR | ABS | ||||||||||||||||||||||
Impact of 10% adverse change |
$ | (42 | ) | $ | (31 | ) | $ | (5 | ) | $ | (4 | ) | $ | (1 | ) | $ | (1 | ) | $ | | ||||||||
Impact of 20% adverse change |
(85 | ) | (57 | ) | (6 | ) | (11 | ) | (1 | ) | (2 | ) | (1 | ) | ||||||||||||||
Loss
assumptions |
4.7-7.6 | % | 0.0-78.1 | %(d) | 0.0-78.1 | %(f) | 0.0-26.3 | % | 0.0-5.0 | % | | %(e) | 0.4-0.7 | % | ||||||||||||||
Weighted-average
loss assumption |
7.0 | 4.4 | 3.4 | 0.3 | 0.3 | | 0.5 | |||||||||||||||||||||
Impact of 10% adverse change |
$ | (235 | ) | $ | (25 | ) | $ | (7 | ) | $ | | $ | (12 | ) | $ | | $ | | ||||||||||
Impact of 20% adverse change |
(426 | ) | (49 | ) | (13 | ) | (1 | ) | (24 | ) | | (1 | ) | |||||||||||||||
Discount
rates |
18.0 | % | 9.9-67.7 | %(d) | 10.6-30.0 | % | 3.6-71.7 | % | 3.3-47.8 | %(g) | 9.0 | % | 4.1-4.2 | % | ||||||||||||||
Weighted-average
discount rate |
18.0 | 14.5 | 21.5 | 17.3 | 12.4 | 9.0 | 4.1 | |||||||||||||||||||||
Impact of 10% adverse change |
$ | (10 | ) | $ | (52 | ) | $ | (3 | ) | $ | (16 | ) | $ | (26 | ) | $ | (2 | ) | $ | | ||||||||
Impact of 20% adverse change |
(20 | ) | (102 | ) | (5 | ) | (28 | ) | (49 | ) | (4 | ) | | |||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 173 |
December 31, 2007 | Residential mortgage | |||||||||||||||||||||||||||
(in millions, except rates and where | Option | Commercial | Student | |||||||||||||||||||||||||
otherwise noted) | Credit card | Prime(c) | Subprime | ARMs | and other | loans | Auto | |||||||||||||||||||||
Retained interests |
$ | 3,324 | $ | 381 | $ | 387 | $ | | $ | 42 | $ | 58 | $ | 106 | ||||||||||||||
Weighted-average life (in
years) |
0.4-0.5 | 2.9-4.9 | 2.9 | | 0.3-11.0 | 8.8 | 0.9 | |||||||||||||||||||||
Prepayment
rates(a) |
15.6-18.9 | % | 19.0-25.3 | % | 25.7 | % | | % | 0.0-50.0 | % | 1.0-8.0 | % | 1.4 | % | ||||||||||||||
PPR | CPR | CPR | CPR | CPR | ABS | |||||||||||||||||||||||
Impact of 10% adverse change |
$ | (59 | ) | $ | (14 | ) | $ | (30 | ) | $ | | $ | (1 | ) | $ | (1 | ) | $ | (1 | ) | ||||||||
Impact of 20% adverse change |
(118 | ) | (25 | ) | (54 | ) | | (2 | ) | (2 | ) | (1 | ) | |||||||||||||||
Loss
assumptions |
3.3-4.6 | % | 0.0-3.0 | %(e) | 3.3 | % | | % | 0.0-0.9 | % | | %(e) | 0.6 | % | ||||||||||||||
Impact of 10% adverse change |
$ | (117 | ) | $ | (13 | ) | $ | (68 | ) | $ | | $ | (1 | ) | $ | | $ | (2 | ) | |||||||||
Impact of 20% adverse change |
(234 | ) | (25 | ) | (120 | ) | | (1 | ) | | (3 | ) | ||||||||||||||||
Discount
rates |
12.0 | % | 11.0-23.9 | % | 15.0-30.0 | % | | % | 1.0-18.0 | % | 9.0 | % | 6.8 | % | ||||||||||||||
Impact of 10% adverse change |
$ | (2 | ) | $ | (18 | ) | $ | (16 | ) | $ | | $ | | $ | (3 | ) | $ | | ||||||||||
Impact of 20% adverse change |
(4 | ) | (36 | ) | (31 | ) | | (1 | ) | (5 | ) | (1 | ) | |||||||||||||||
(a) | PPR: principal payment rate; ABS: absolute prepayment speed; CPR: constant prepayment rate. | |
(b) | Excludes certain interests that are not valued using modeling techniques. | |
(c) | Includes Alt-A loans. | |
(d) | Including the valuation assumptions used to determine the fair value for a limited amount of retained interests resulted in a wider range than those used for the majority of the portfolio. Excluding these retained interests, the range of assumptions used to value the prime/Alt A mortgage retained interests would have been 0.0-29.4% for prepayment rates; 0.0-25.0% for loss assumptions; and 9.9%-21.4% for the discount rates. | |
(e) | Expected losses for prime residential mortgage, student loans and certain wholesale securitizations are minimal and are incorporated into other assumptions. | |
(f) | Including the loss assumptions used to determine the fair value for a limited amount of retained interests resulted in a wider range than those used for the majority of the portfolio. Excluding these retained interests, the range of loss assumption used to value the subprime mortgage retained interests would have been 0.2-43.5%. | |
(g) | The valuation assumptions used to determine the fair value for a limited amount of retained interests were higher than the majority of the portfolio. Excluding these retained interests, the range of assumptions used to value the commercial and other retained interests would have been 0.0% to 22.0% for prepayment rates and 3.3%-30.4% for the discount rates. |
174 | JPMorgan Chase & Co. / 2008 Annual Report |
90 days past due | Nonaccrual | Net loan charge-offs | ||||||||||||||||||||||||||||||
Total Loans | and still accruing | assets(g)(h) | Year ended | |||||||||||||||||||||||||||||
December 31, (in millions) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||||||||
Home Equity |
$ | 114,335 | $ | 94,832 | $ | | $ | | $ | 1,394 | $ | 786 | $ | 2,391 | $ | 564 | ||||||||||||||||
Prime mortgage(a) |
72,266 | 39,988 | | | 1,895 | 501 | 526 | 33 | ||||||||||||||||||||||||
Subprime mortgage |
15,330 | 15,473 | | | 2,690 | 1,017 | 933 | 157 | ||||||||||||||||||||||||
Option ARMs |
9,018 | | | | 10 | | | | ||||||||||||||||||||||||
Auto loans |
42,603 | 42,350 | | | 148 | 116 | 568 | 354 | ||||||||||||||||||||||||
Credit card |
104,746 | 84,352 | 2,649 | 1,547 | 4 | 7 | 4,556 | 3,116 | ||||||||||||||||||||||||
All other loans |
33,715 | 25,314 | 463 | 421 | 430 | 341 | 459 | 242 | ||||||||||||||||||||||||
Loans held-for-sale(b) |
2,028 | 3,989 | | | | | NA | NA | ||||||||||||||||||||||||
Total
consumer loans
excluding purchased
credit-impaired |
394,041 | 306,298 | 3,112 | 1,968 | 6,571 | 2,768 | 9,433 | 4,466 | ||||||||||||||||||||||||
Consumer
loans purchased credit-impaired(c) |
88,813 | | | | | | | | ||||||||||||||||||||||||
Total consumer loans |
482,854 | 306,298 | 3,112 | 1,968 | 6,571 | 2,768 | 9,433 | 4,466 | ||||||||||||||||||||||||
Total wholesale loans |
262,044 | 213,076 | 163 | 75 | 2,382 | (i) | 514 | (i) | 402 | 72 | ||||||||||||||||||||||
Total loans reported |
744,898 | 519,374 | 3,275 | 2,043 | 8,953 | 3,282 | 9,835 | 4,538 | ||||||||||||||||||||||||
Securitized loans: |
||||||||||||||||||||||||||||||||
Residential mortgage: |
||||||||||||||||||||||||||||||||
Prime
mortgages(a) |
212,274 | 77,582 | | | 21,130 | 1,215 | 5,645 | 7 | ||||||||||||||||||||||||
Subprime mortgage |
58,607 | 22,692 | | | 13,301 | 3,238 | 4,797 | 413 | ||||||||||||||||||||||||
Option ARMs |
48,328 | | | | 6,440 | | 270 | | ||||||||||||||||||||||||
Automobile |
791 | 2,276 | | | 2 | 6 | 15 | 13 | ||||||||||||||||||||||||
Credit card |
85,571 | 72,701 | 1,802 | 1,050 | | | 3,612 | 2,380 | ||||||||||||||||||||||||
Student |
1,074 | 1,141 | 66 | | | | 1 | | ||||||||||||||||||||||||
Commercial and other |
45,677 | 3,419 | 28 | | 166 | | 8 | 11 | ||||||||||||||||||||||||
Total loans securitized(d) |
$ | 452,322 | $ | 179,811 | $ | 1,896 | $ | 1,050 | $ | 41,039 | $ | 4,459 | $ | 14,348 | $ | 2,824 | ||||||||||||||||
Total loans
reported and
securitized(e) |
$ | 1,197,220 | (f) | $ | 699,185 | (f) | $ | 5,171 | $ | 3,093 | $ | 49,992 | $ | 7,741 | $ | 24,183 | $ | 7,362 | ||||||||||||||
(a) | Includes Alt-A loans. | |
(b) | Includes loans for prime mortgage and other (largely student loans) of $206 million and $1.8 billion at December 31, 2008, respectively, and $570 million and $3.4 billion at December 31, 2007, respectively. | |
(c) | Purchased credit-impaired loans represent loans acquired in the Washington Mutual acquisition that were considered credit-impaired under SOP 03-3, and include $6.4 billion of loans that were nonperforming immediately prior to the acquisition. Under SOP 03-3, these loans are considered to be performing loans as of the acquisition date; they accrete interest income over the estimated life of the loan when cash flows are reasonably estimable, even if the underlying loans are contractually past due. For additional information, see Note 14 on pages 163166 of this Annual Report. | |
(d) | Total assets held in securitization-related SPEs were $640.8 billion and $307.7 billion at December 31, 2008 and 2007, respectively. The $452.3 billion and $179.8 billion of loans securitized at December 31, 2008 and 2007, respectively, excludes $152.4 billion and $107.8 billion of securitized loans, respectively, in which the Firm has no continuing involvement; $33.3 billion and $18.6 billion of sellers interests in credit card master trusts, respectively; and $2.8 billion and $1.5 billion of cash amounts on deposit and escrow accounts. | |
(e) | Represents both loans on the Consolidated Balance Sheets and loans that have been securitized. | |
(f) | Includes securitized loans that were previously recorded at fair value and classified as trading assets. | |
(g) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. | |
(h) | Excludes nonperforming assets related to (i) loans eligible for repurchase, as well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of $3.3 billion and $1.5 billion at December 31, 2008 and 2007, respectively, and (ii) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $437 million and $417 million at December 31, 2008 and 2007, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally. | |
(i) | Includes nonperforming loans held-for-sale and loans at fair value of $32 million and $50 million at December 31, 2008 and 2007, respectively. |
JPMorgan Chase & Co. / 2008 Annual Report | 175 |
December 31, | 2008 | 2007 | ||||||||||||||
(in millions, except ratios) | Amount | % | Amount | % | ||||||||||||
Segment 1 |
$ | 1,940 | 15 | % | $ | 1,940 | 20 | % | ||||||||
Segment 2 |
2,930 | 23 | 970 | 10 | ||||||||||||
Segment 3 |
7,806 | 62 | 6,790 | 70 | ||||||||||||
Total |
$ | 12,676 | 100 | % | $ | 9,700 | 100 | % | ||||||||
December 31, (in millions) | 2008 | 2007 | ||||||
Third-party |
$ | 44,401 | $ | 19,636 | ||||
Retained interest |
99 | 412 | ||||||
Total |
$ | 44,500 | $ | 20,048 | ||||
For the year ended | ||||
December 31, (in millions) | 2008 | |||
Loan modifications |
$ | 2,384 | ||
Other loss mitigation activities |
865 | |||
Prepayments |
219 | |||
176 | JPMorgan Chase & Co. / 2008 Annual Report |
| Investment Bank: Utilizes VIEs to assist clients in accessing the financial markets in a cost-efficient manner. IB is involved with VIEs through multi-seller conduits and for investor intermediation purposes, as discussed below. IB also securitizes loans through QSPEs, to create asset-backed securities, as further discussed in Note 16 on pages 168176 of this Annual Report. |
| Asset Management (AM): Provides investment management services to a limited number of the Firms funds deemed VIEs. AM earns a fixed fee based upon assets managed; the fee varies with each funds investment objective and is competitively priced. For the limited number of funds that qualify as VIEs, AMs relationships with such funds are not considered significant variable interests under FIN 46(R). |
| Treasury & Securities Services: Provides services to a number of VIEs that are similar to those provided to non-VIEs. TSS earns market-based fees for the services it provides. The relationships resulting from TSS services are not considered to be significant variable interests under FIN 46(R). |
| Commercial Banking (CB): Utilizes VIEs to assist clients in accessing the financial markets in a cost-efficient manner. This is often accomplished through the use of products similar to those offered in IB. CB may assist in the structuring and/or ongoing administration of these VIEs and may provide liquidity, letters of credit and/or derivative instruments in support of the VIE. The relationships resulting from CBs services are not considered to be significant variable interests under FIN 46(R). |
| Corporate/Private Equity: Corporate utilizes VIEs to issue guaranteed capital debt securities. See Note 23 on page 191 for further information. The Private Equity business, also included in Corporate, may be involved with entities that could be deemed VIEs. Private equity activities are accounted for in accordance with the AICPA Audit and Accounting Guide Investment Companies (the Guide). In June 2007, the AICPA issued SOP 07-1, which provides guidance for determining whether an entity is within the scope of the Guide, and therefore qualifies to use the Guides specialized accounting principles (referred to as investment company accounting). In May 2007, the FASB issued FSP FIN 46(R)-7, which amends FIN 46(R) to permanently exempt entities within the scope of the Guide from applying the provisions of FIN 46(R) to their investments. In February 2008, the FASB agreed to an indefinite delay of the effective date of SOP 07-1 in order to address implementation issues, which effectively delays FSP FIN 46(R)-7 as well for those companies, such as the Firm, that have not adopted SOP 07-1. Had FIN 46(R) been applied to VIEs subject to this deferral, the impact would have been immaterial to the Firms consolidated financial statements as of December 31, 2008. |
JPMorgan Chase & Co. / 2008 Annual Report | 177 |
December 31, (in billions) | 2008 | 2007 | ||||||
Total assets held by conduits |
$ | 42.9 | $ | 61.2 | ||||
Total
commercial paper issued by conduits |
43.1 | 62.6 | ||||||
Liquidity and credit enhancements(a) |
||||||||
Deal-specific liquidity facilities |
||||||||
(primary asset purchase agreements) |
55.4 | 87.3 | ||||||
Program-wide liquidity facilities |
17.0 | 13.2 | ||||||
Program-wide credit enhancements |
3.0 | 2.5 | ||||||
Maximum exposure to loss(b) |
56.9 | 88.9 | ||||||
(a) | The accounting for these agreements is further discussed in Note 33 on pages 206210. The carrying value related to asset purchase agreements was $147 million at December 31, 2008, of which $138 million represented the remaining fair value of the guarantee under FIN 45. The Firm has recognized this guarantee in other liabilities with an offsetting entry recognized in other assets for the net present value of the future premium receivable under the contracts. | |
(b) | The Firms maximum exposure to loss is limited to the amount of drawn commitments (i.e., sellers assets held by the multi-seller conduits for which the Firm provides liquidity support) of $42.9 billion and $61.2 billion at December 31, 2008 and 2007, respectively, plus contractual but undrawn commitments of $14.0 billion and $27.7 billion at December 31, 2008 and 2007, respectively. Since the Firm provides credit enhancement and liquidity to Firm-administered, multi-seller conduits, the maximum exposure is not adjusted to exclude exposure that would be absorbed by third- party liquidity providers. |
2008 | 2007 | |||||||||||||||||||||||||||||||
Unfunded | Commercial | Liquidity | Liquidity | Unfunded | Commercial | Liquidity | Liquidity | |||||||||||||||||||||||||
December 31, | commitments to | paper funded | provided by | provided | commitments to | paper funded | provided by | provided | ||||||||||||||||||||||||
(in billions) | Firms clients | assets | third parties | by Firm | Firms clients | assets | third parties | by Firm | ||||||||||||||||||||||||
Asset types: |
||||||||||||||||||||||||||||||||
Credit card |
$ | 3.0 | $ | 8.9 | $ | 0.1 | $ | 11.8 | $ | 3.3 | $ | 14.2 | $ | | $ | 17.5 | ||||||||||||||||
Vehicle loans and
leases |
1.4 | 10.0 | | 11.4 | 4.5 | 10.2 | | 14.7 | ||||||||||||||||||||||||
Trade receivables |
3.8 | 5.5 | | 9.3 | 6.0 | 6.6 | | 12.6 | ||||||||||||||||||||||||
Student loans |
0.7 | 4.6 | 5.3 | 0.8 | 9.2 | | 10.0 | |||||||||||||||||||||||||
Commercial |
1.5 | 4.0 | 0.4 | 5.1 | 2.1 | 4.8 | 0.4 | 6.5 | ||||||||||||||||||||||||
Residential mortgage |
| 0.7 | | 0.7 | 4.6 | 3.1 | | 7.7 | ||||||||||||||||||||||||
Capital commitments |
1.3 | 3.9 | 0.6 | 4.6 | 2.0 | 5.1 | 0.6 | 6.5 | ||||||||||||||||||||||||
Rental car finance |
0.2 | 0.4 | | 0.6 | 0.6 | 0.7 | | 1.3 | ||||||||||||||||||||||||
Equipment loans and
leases |
0.7 | 1.6 | | 2.3 | 1.1 | 2.5 | | 3.6 | ||||||||||||||||||||||||
Floorplan
vehicle |
0.7 | 1.8 | | 2.5 | 1.3 | 1.3 | | 2.6 | ||||||||||||||||||||||||
Floorplan
other |
| | | | | 0.5 | | 0.5 | ||||||||||||||||||||||||
Consumer |
0.1 | 0.7 | 0.1 | 0.7 | 0.7 | 1.7 | 0.2 | 2.2 | ||||||||||||||||||||||||
Other |
0.6 | 0.8 | 0.3 | 1.1 | 0.7 | 1.3 | 0.4 | 1.6 | ||||||||||||||||||||||||
Total |
$ | 14.0 | $ | 42.9 | $ | 1.5 | $ | 55.4 | $ | 27.7 | $ | 61.2 | $ | 1.6 | $ | 87.3 | ||||||||||||||||
178 | JPMorgan Chase & Co. / 2008 Annual Report |
Ratings profile of VIE assets of the multi-seller conduits(a) | Commercial | Wt. avg. | ||||||||||||||||||||||||||
December 31, 2008 | Investment-grade | Noninvestment-grade | paper funded | expected | ||||||||||||||||||||||||
(in billions) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB to BBB- | BB+ and below | assets | life (years)(b) | |||||||||||||||||||||
Asset types: |
||||||||||||||||||||||||||||
Credit card |
$ | 4.8 | $ | 3.9 | $ | 0.1 | $ | 0.1 | $ | | $ | 8.9 | 1.5 | |||||||||||||||
Vehicle loans and leases |
4.1 | 4.1 | 1.8 | | | 10.0 | 2.5 | |||||||||||||||||||||
Trade receivables |
| 4.0 | 1.5 | | | 5.5 | 1.0 | |||||||||||||||||||||
Student loans |
3.6 | 0.9 | | 0.1 | | 4.6 | 1.8 | |||||||||||||||||||||
Commercial |
1.1 | 2.0 | 0.6 | 0.3 | | 4.0 | 2.7 | |||||||||||||||||||||
Residential mortgage |
| 0.6 | | 0.1 | | 0.7 | 4.0 | |||||||||||||||||||||
Capital commitments |
| 3.6 | 0.3 | | | 3.9 | 2.4 | |||||||||||||||||||||
Rental car finance |
| | 0.4 | | | 0.4 | 1.5 | |||||||||||||||||||||
Equipment loans and leases |
0.4 | 1.2 | | | | 1.6 | 2.2 | |||||||||||||||||||||
Floorplan
vehicle |
0.1 | 1.0 | 0.7 | | | 1.8 | 1.1 | |||||||||||||||||||||
Floorplan
other |
| | | | | | | |||||||||||||||||||||
Consumer |
0.1 | 0.4 | 0.2 | | | 0.7 | 1.6 | |||||||||||||||||||||
Other |
0.5 | 0.3 | | | | 0.8 | 3.7 | |||||||||||||||||||||
Total |
$ | 14.7 | $ | 22.0 | $ | 5.6 | $ | 0.6 | $ | | $ | 42.9 | 2.0 | |||||||||||||||
Ratings profile of VIE assets of the multi-seller conduits(a) | Commercial | Wt. avg. | ||||||||||||||||||||||||||
December 31, 2007 | Investment-grade | Noninvestment-grade | paper funded | expected | ||||||||||||||||||||||||
(in billions) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB to BBB- | BB+ and below | assets | life (years)(b) | |||||||||||||||||||||
Asset types: |
||||||||||||||||||||||||||||
Credit card |
$ | 4.2 | $ | 9.4 | $ | 0.6 | $ | | $ | | $ | 14.2 | 1.5 | |||||||||||||||
Vehicle loans and leases |
1.8 | 6.9 | 1.4 | | 0.1 | 10.2 | 2.3 | |||||||||||||||||||||
Trade receivables |
| 4.7 | 1.7 | 0.2 | | 6.6 | 1.3 | |||||||||||||||||||||
Student loans |
1.0 | 8.1 | 0.1 | | | 9.2 | 0.5 | |||||||||||||||||||||
Commercial |
0.5 | 3.5 | 0.7 | 0.1 | | 4.8 | 2.8 | |||||||||||||||||||||
Residential mortgage |
1.5 | 0.8 | 0.8 | | | 3.1 | 1.5 | |||||||||||||||||||||
Capital commitments |
| 5.1 | | | | 5.1 | 3.4 | |||||||||||||||||||||
Rental car finance |
| 0.7 | | | | 0.7 | 1.1 | |||||||||||||||||||||
Equipment loans and leases |
0.4 | 1.9 | | 0.2 | | 2.5 | 2.2 | |||||||||||||||||||||
Floorplan
vehicle |
0.4 | 0.7 | 0.2 | | | 1.3 | 0.8 | |||||||||||||||||||||
Floorplan
other |
| 0.5 | | | | 0.5 | 0.7 | |||||||||||||||||||||
Consumer |
| 1.4 | 0.2 | | 0.1 | 1.7 | 1.8 | |||||||||||||||||||||
Other |
1.2 | 0.1 | | | | 1.3 | 3.7 | |||||||||||||||||||||
Total |
$ | 11.0 | $ | 43.8 | $ | 5.7 | $ | 0.5 | $ | 0.2 | $ | 61.2 | 1.8 | |||||||||||||||
(a) | The ratings scale is presented on an S&P equivalent basis. | |
(b) | Weighted average expected life for each asset type is based upon the remaining term of each conduit transactions committed liquidity plus either the expected weighted average life of the assets should the committed liquidity expire without renewal or the expected time to sell the underlying assets in the securitization market. |
JPMorgan Chase & Co. / 2008 Annual Report | 179 |
| New deals, including the issuance of new or additional variable interests (credit support, liquidity facilities, etc); |
| Changes in usage, including the change in the level of outstanding variable interests (credit support, liquidity facilities, etc); |
| Modifications of asset purchase agreements; and |
| Sales of interests held by the primary beneficiary. |
December 31, 2008 | ||||||||
(in billions, except ratios) | Reported | Pro forma(a)(b) | ||||||
Assets |
$2,175.1 | $2,218.2 | ||||||
Liabilities |
2,008.2 | 2,051.3 | ||||||
Tier 1 capital ratio |
10.9 | % | 10.9 | % | ||||
Tier 1 leverage ratio |
6.9 | 6.8 | ||||||
(a) | The table shows the impact of consolidating the assets and liabilities of the multi-seller conduits at their current carrying value; as such, there would be no income statement or capital impact at the date of consolidation. If the Firm were required to consolidate the assets and liabilities of the conduits at fair value, the Tier 1 capital ratio would be approximately 10.8%. The fair value of the assets is primarily based upon pricing for comparable transactions. The fair value of these assets could change significantly because the pricing of conduit transactions is renegotiated with the client, generally, on an annual basis and due to changes in current market conditions. | |
(b) | Consolidation is assumed to occur on the first day of the quarter, at the quarter-end levels, in order to provide a meaningful adjustment to average assets in the denominator of the leverage ratio. |
180 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 181 |
2008 | 2007 | |||||||||||||||||||||||||||||||
Fair value of | Fair value of | |||||||||||||||||||||||||||||||
December 31, | assets held | Liquidity | Excess/ | Maximum | assets held | Liquidity | Excess/ | Maximum | ||||||||||||||||||||||||
(in billions) | by VIEs | facilities(d) | (deficit)(e) | exposure | by VIEs | facilities(d) | (deficit)(e) | exposure | ||||||||||||||||||||||||
Nonconsolidated |
||||||||||||||||||||||||||||||||
Municipal bond
vehicles(a)(b)(c) |
$ | 10.0 | $ | 6.9 | $ | 3.1 | $ | 6.9 | $ | 19.2 | $ | 18.1 | $ | 1.1 | $ | 18.1 | ||||||||||||||||
Fair value | Wt. avg. | |||||||||||||||||||||||||||
Ratings profile of VIE assets(f) | of assets | expected | ||||||||||||||||||||||||||
December 31, | Investment-grade | Noninvestment-grade | held by | life of assets | ||||||||||||||||||||||||
(in billions) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB to BBB- | BB+ and below | VIEs | (years) | |||||||||||||||||||||
Nonconsolidated municipal bond
vehicles(a) |
||||||||||||||||||||||||||||
2008 |
$ | 3.8 | $ | 5.9 | $ | 0.2 | $ | 0.1 | $ | | $ | 10.0 | 22.3 | |||||||||||||||
2007 |
14.6 | 4.4 | 0.2 | | | 19.2 | 10.0 | |||||||||||||||||||||
(a) | Excluded $6.0 billion and $6.9 billion at December 31, 2008 and 2007, respectively, which were consolidated due to the Firm owning the residual interests. | |
(b) | Certain of the municipal bond vehicles are structured to meet the definition of a QSPE (as discussed in Note 1 on page 122 of this Annual Report); accordingly, the assets and liabilities of QSPEs are not reflected in the Firms Consolidated Balance Sheets (except for retained interests that are reported at fair value). Excluded nonconsolidated amounts of $603 million and $7.1 billion at December 31, 2008 and 2007, respectively, related to QSPE municipal bond vehicles in which the Firm owned the residual interests. | |
(c) | The decline in balances at December 31, 2008, compared with December 31, 2007, was due to third-party residual interest holders exercising their right to terminate the municipal bond vehicles. The proceeds from the sales of municipal bonds were sufficient to repay the putable floating-rate certificates, and the Firm did not incur losses as a result of these terminations. | |
(d) | The Firm may serve as credit enhancement provider in municipal bond vehicles in which it serves as liquidity provider. The Firm provided insurance on underlying municipal bonds in the form of letters of credit of $10 million and $103 million at December 31, 2008 and 2007, respectively. | |
(e) | Represents the excess (deficit) of municipal bond asset fair value available to repay the liquidity facilities, if drawn. | |
(f) | The ratings scale is based upon the Firms internal risk ratings and presented on an S&P equivalent basis. |
182 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||||||||||
Par value of | Par value of | |||||||||||||||||||||||||||||||
December 31, | Derivative | Trading | Total | collateral held | Derivative | Trading | Total | collateral held | ||||||||||||||||||||||||
(in billions) | receivables | assets(c) | exposure(d) | by VIEs(e) | receivables | assets(c) | exposure(d) | by VIEs(e) | ||||||||||||||||||||||||
Credit-linked notes(a) |
||||||||||||||||||||||||||||||||
Static structure |
$ | 3.6 | $ | 0.7 | $ | 4.3 | $ | 14.5 | $ | 0.8 | $ | 0.4 | $ | 1.2 | $ | 13.5 | ||||||||||||||||
Managed structure(b) |
7.7 | 0.3 | 8.0 | 16.6 | 4.5 | 0.9 | 5.4 | 12.8 | ||||||||||||||||||||||||
Total |
$ | 11.3 | $ | 1.0 | $ | 12.3 | $ | 31.1 | $ | 5.3 | $ | 1.3 | $ | 6.6 | $ | 26.3 | ||||||||||||||||
(a) | Excluded fair value of collateral of $2.1 billion and $2.5 billion at December 31, 2008 and 2007, respectively, which was consolidated as the Firm, in its role as secondary market maker, held a majority of the issued CLNs of certain vehicles. | |
(b) | Includes synthetic collateralized debt obligation vehicles, which have similar risk characteristics to managed credit-linked note vehicles. At December 31, 2008 and 2007, trading assets included $7 million and $291 million, respectively, of transactions with subprime collateral. | |
(c) | Trading assets principally comprise notes issued by VIEs, which from time to time are held as part of the termination of a deal or to support limited market-making. | |
(d) | On-balance sheet exposure that includes derivative receivables and trading assets. | |
(e) | The Firms maximum exposure arises through the derivatives executed with the VIEs; the exposure varies over time with changes in the fair value of the derivatives. The Firm relies upon the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are structured at inception so that the par value of the collateral is expected to be sufficient to pay amounts due under the derivative contracts. |
JPMorgan Chase & Co. / 2008 Annual Report | 183 |
2008 | 2007 | |||||||||||||||||||||||||||||||
Par value of | Par value of | |||||||||||||||||||||||||||||||
December 31, | Derivative | Trading | Total | collateral held | Derivative | Trading | Total | collateral held | ||||||||||||||||||||||||
(in billions) | receivables (payables) | assets(a) | exposure(b) | by VIEs(c) | receivables (payables) | assets(a) | exposure(b) | by VIEs(c) | ||||||||||||||||||||||||
Nonconsolidated |
||||||||||||||||||||||||||||||||
Asset swap vehicles(d) |
$ | (0.2 | ) | $ | | $ | (0.2 | ) | $ | 7.3 | $ | 0.2 | $ | | $ | 0.2 | $ | 5.6 | ||||||||||||||
(a) | Trading assets principally comprise notes issued by VIEs, which from time to time are held as part of the termination of a deal or to support limited market-making. | |
(b) | On-balance sheet exposure that includes derivative receivables (payables) and trading assets. | |
(c) | The Firms maximum exposure arises through the derivatives executed with the VIEs; the exposure varies over time with changes in the fair value of the derivatives. The Firm relies upon the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are structured at inception so that the par value of the collateral is expected to be sufficient to pay amounts due under the derivative contracts. | |
(d) | Excluded fair value of collateral of $1.0 billion and $976 million at December 31, 2008 and 2007, respectively, which was consolidated as the Firm, in its role as secondary market maker, held a majority of the issued notes of certain vehicles. |
184 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, 2008 | Funded | Unfunded | Maximum | |||||||||
(in billions) | loans | commitments(a) | exposure(b) | |||||||||
CDO warehouse VIEs |
||||||||||||
Consolidated |
$ | 0.4 | $ | | $ | 0.4 | ||||||
Nonconsolidated |
0.4 | 0.7 | 1.1 | |||||||||
Total |
$ | 0.8 | $ | 0.7 | $ | 1.5 | ||||||
December 31, 2007 | Funded | Unfunded | Maximum | |||||||||
(in billions) | loans | commitments(a) | exposure(b) | |||||||||
CDO warehouse VIEs |
||||||||||||
Consolidated |
$ | 2.4 | $ | 1.9 | $ | 4.3 | ||||||
Nonconsolidated |
2.7 | 3.4 | 6.1 | |||||||||
Total |
$ | 5.1 | $ | 5.3 | $ | 10.4 | ||||||
Ratings profile of VIE assets(c) | ||||||||||||||||||||||||
December 31, | Investment-grade | Noninvestment-grade | Total | |||||||||||||||||||||
(in billions) | AAA to AAA- | AA+ to AA- | A+ to A- | BBB to BBB- | BB+ and below | exposure | ||||||||||||||||||
Nonconsolidated CDO warehouse VIEs |
||||||||||||||||||||||||
2008 |
$ | | $ | | $ | | $ | | $ 0.4 | $ | 0.4 | |||||||||||||
2007 |
| | | | 2.7 | 2.7 | ||||||||||||||||||
(a) | Typically contingent upon certain asset-quality conditions being met by asset managers. | |
(b) | The aggregate of the fair value of loan exposure and any unfunded, contractually committed financing. | |
(c) | The ratings scale is based upon JPMorgan Chases internal risk ratings and presented on an S&P equivalent basis. |
JPMorgan Chase & Co. / 2008 Annual Report | 185 |
Consolidated VIEs | ||||||||||||||||
Assets | ||||||||||||||||
December 31, | ||||||||||||||||
2008 | Trading debt | Total | ||||||||||||||
(in billions) | and equity | Loans | Other (b) | assets (c) | ||||||||||||
VIE program type |
||||||||||||||||
Municipal bond |
||||||||||||||||
vehicles |
$ | 5.9 | $ | | $ | 0.1 | $ | 6.0 | ||||||||
Credit-linked notes |
1.9 | | 0.2 | 2.1 | ||||||||||||
CDO warehouses(a) |
0.2 | | 0.1 | 0.3 | ||||||||||||
Student loans |
| 4.0 | 0.1 | 4.1 | ||||||||||||
Employee funds |
| | 0.5 | 0.5 | ||||||||||||
Energy investments |
| | 0.4 | 0.4 | ||||||||||||
Other |
2.8 | 1.3 | 1.1 | 5.2 | ||||||||||||
Total |
$ | 10.8 | $ | 5.3 | $ | 2.5 | $ | 18.6 | ||||||||
Liabilities | ||||||||||||
December 31, | ||||||||||||
2008 | Beneficial interests | Total | ||||||||||
(in billions) | in VIE Assets(d) | Other(e) | liabilities | |||||||||
VIE program type |
||||||||||||
Municipal bond |
||||||||||||
vehicles |
$ | 5.5 | $ | 0.4 | $ | 5.9 | ||||||
Credit-linked notes |
1.3 | 0.6 | 1.9 | |||||||||
CDO warehouses |
| | | |||||||||
Student loans |
2.8 | 1.1 | 3.9 | |||||||||
Employee funds |
0.1 | | 0.1 | |||||||||
Energy investments |
0.2 | | 0.2 | |||||||||
Other |
0.7 | 1.8 | 2.5 | |||||||||
Total |
$ | 10.6 | $ | 3.9 | $ | 14.5 | ||||||
Consolidated VIEs | ||||||||||||||||
Assets | ||||||||||||||||
December 31, | ||||||||||||||||
2007 | Trading debt | Total | ||||||||||||||
(in billions) | and equity | Loans | Other(b) | assets(c) | ||||||||||||
VIE program type |
||||||||||||||||
Municipal bond |
||||||||||||||||
vehicles |
$ | 6.8 | $ | | $ | 0.1 | $ | 6.9 | ||||||||
Credit-linked notes |
2.3 | | 0.2 | 2.5 | ||||||||||||
CDO warehouses(a) |
2.2 | 0.3 | 0.1 | 2.6 | ||||||||||||
Student loans |
| 4.1 | | 4.1 | ||||||||||||
Employee funds |
| | | | ||||||||||||
Energy investments |
| | | | ||||||||||||
Other |
3.0 | | 0.5 | 3.5 | ||||||||||||
Total |
$ | 14.3 | $ | 4.4 | $ | 0.9 | $ | 19.6 | ||||||||
Liabilities | ||||||||||||
December 31, | ||||||||||||
2007 | Beneficial interests | Total | ||||||||||
(in billions) | in VIE Assets(d) | Other(e) | liabilities | |||||||||
VIE program type |
||||||||||||
Municipal bond |
||||||||||||
vehicles |
$ | 6.2 | $ | 0.6 | $ | 6.8 | ||||||
Credit-linked notes |
2.3 | 0.5 | 2.8 | |||||||||
CDO warehouses |
| | | |||||||||
Student loans |
4.1 | | 4.1 | |||||||||
Employee funds |
| | | |||||||||
Energy investments |
| | | |||||||||
Other |
1.4 | 0.5 | 1.9 | |||||||||
Total |
$ | 14.0 | $ | 1.6 | $ | 15.6 | ||||||
(a) | Excluded from total assets was $1.9 billion of unfunded commitments at December 31, 2007. There were no unfunded commitments at December 31, 2008. | |
(b) | Included assets classified as resale agreements and other assets within the Consolidated Balance Sheets. | |
(c) | Assets of each consolidated VIE included in the program types above are generally used to satisfy the liabilities to third parties. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firms interest in the consolidated VIEs for each program type. | |
(d) | The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item titled, Beneficial interests issued by consolidated variable interest entities on the Consolidated Balance Sheets. The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $5.0 billion and $7.2 billion at December 31, 2008 and 2007, respectively. See Note 23 on page 191 of this Annual Report for the maturity profile of FIN 46 long-term beneficial interests. | |
(e) | Included liabilities classified as other borrowed funds, long-term debt and other liabilities in the Consolidated Balance Sheets. |
186 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions) | 2008 | 2007 | ||||||
Goodwill |
$ | 48,027 | $ | 45,270 | ||||
Mortgage servicing rights |
9,403 | 8,632 | ||||||
Purchased credit card relationships |
1,649 | 2,303 | ||||||
All other intangibles: |
||||||||
Other credit
cardrelated intangibles |
$ | 743 | $ | 346 | ||||
Core deposit intangibles |
1,597 | 2,067 | ||||||
Other intangibles |
1,592 | 1,383 | ||||||
Total all other intangible assets |
$ | 3,932 | $ | 3,796 | ||||
December 31, (in millions) | 2008 | 2007 | ||||||
Investment Bank |
$ | 4,765 | $ | 3,578 | ||||
Retail Financial Services |
16,840 | 16,848 | ||||||
Card Services |
13,977 | 12,810 | ||||||
Commercial Banking |
2,870 | 2,873 | ||||||
Treasury & Securities Services |
1,633 | 1,660 | ||||||
Asset Management |
7,565 | 7,124 | ||||||
Corporate/Private Equity |
377 | 377 | ||||||
Total goodwill |
$ | 48,027 | $ | 45,270 | ||||
JPMorgan Chase & Co. / 2008 Annual Report | 187 |
Year ended December 31, | ||||||||||||
(in millions, except where otherwise noted) | 2008 | 2007 | 2006 | |||||||||
Balance at beginning of period after
valuation allowance |
$ | 8,632 | $ | 7,546 | $ | 6,452 | ||||||
Cumulative effect of change in
accounting principle |
| | 230 | |||||||||
Fair value at beginning of period |
8,632 | 7,546 | 6,682 | |||||||||
MSR activity |
||||||||||||
Originations of MSRs |
3,061 | 2,335 | 1,512 | |||||||||
Purchase of MSRs |
6,755 | (c) | 798 | 627 | ||||||||
Total additions |
9,816 | 3,133 | 2,139 | |||||||||
Change in valuation due to inputs
and assumptions(a) |
(6,933 | ) | (516 | ) | 165 | |||||||
Other changes in fair value(b) |
(2,112 | ) | (1,531 | ) | (1,440 | ) | ||||||
Total change in fair value of MSRs |
(9,045 | )(d) | (2,047 | ) | (1,275 | ) | ||||||
Fair value at December 31 |
$ | 9,403 | $ | 8,632 | $ | 7,546 | ||||||
Change in unrealized gains (losses)
included in income related to MSRs
held at December 31 |
$ | (6,933 | ) | $ | (516 | ) | NA | |||||
Contractual service fees, late fees
and other ancillary fees included
in income |
$ | 3,353 | $ | 2,429 | $ | 2,038 | ||||||
Third-party mortgage loans
serviced at December 31, (in billions) |
$ | 1,185.0 | $ | 614.7 | $ | 526.7 | ||||||
(a) | Represents MSR asset fair value adjustments due to changes in inputs, such as interest rates and volatility, as well as updates to assumptions used in the valuation model. This caption also represents total realized and unrealized gains (losses) included in net income per the SFAS 157 disclosure for fair value measurement using significant unobservable inputs (level 3). | |
(b) | Includes changes in the MSR value due to modeled servicing portfolio runoff (or time decay). This caption represents the impact of cash settlements per the SFAS 157 disclosure for fair value measurement using significant unobservable inputs (level 3). | |
(c) | Includes MSRs acquired as a result of the Washington Mutual transaction (of which, $59 million related to commercial real estate) and the Bear Stearns merger. For further discussion, see Note 2 on pages 123128 of this Annual Report. | |
(d) | Includes $4 million related to commercial real estate. |
Year ended December 31 | ||||||||
(in millions, except rates) | 2008 | 2007 | ||||||
Weighted-average prepayment speed assumption (CPR) |
35.21 | % | 12.49 | % | ||||
Impact on fair value of 10% adverse change |
$ | (1,039 | ) | $ | (481 | ) | ||
Impact on fair value of 20% adverse change |
(1,970 | ) | (926 | ) | ||||
Weighted-average option adjusted spread |
3.80 | % | 3.00 | % | ||||
Impact on fair value of 100 basis points
adverse change |
$ | (311 | ) | $ | (311 | ) | ||
Impact on fair value of 200 basis points
adverse change |
(606 | ) | (599 | ) | ||||
CPR: | Constant prepayment rate. |
188 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||
Net | Net | |||||||||||||||||||||||
Gross | Accumulated | carrying | Gross | Accumulated | carrying | |||||||||||||||||||
December 31, (in millions) | amount | amortization | value | amount | amortization | value | ||||||||||||||||||
Purchased credit card relationships |
$ | 5,765 | $ | 4,116 | $ | 1,649 | $ | 5,794 | $ | 3,491 | $ | 2,303 | ||||||||||||
All other intangibles: |
||||||||||||||||||||||||
Other credit
card-related intangibles |
$ | 852 | $ | 109 | $ | 743 | $ | 422 | $ | 76 | $ | 346 | ||||||||||||
Core deposit intangibles |
4,280 | 2,683 | 1,597 | 4,281 | 2,214 | 2,067 | ||||||||||||||||||
Other intangibles |
2,376 | 784 | (a) | 1,592 | 2,026 | 643 | (a) | 1,383 | ||||||||||||||||
(a) | Includes amortization expense related to servicing assets on securitized automobile loans, which is recorded in lending & deposit-related fees, of $5 million and $9 million for the years ended December 31, 2008 and 2007, respectively. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Purchased credit card relationships |
$ | 625 | $ | 710 | $ | 731 | ||||||
All other intangibles: |
||||||||||||
Other credit
card-related intangibles |
33 | 11 | 6 | |||||||||
Core deposit intangibles |
469 | 554 | 568 | |||||||||
Other intangibles |
136 | 119 | 123 | (a) | ||||||||
Total amortization expense |
$ | 1,263 | $ | 1,394 | $ | 1,428 | ||||||
(a) | Amortization expense related to the aforementioned selected corporate trust businesses were reported in income from discontinued operations for 2006. |
Other credit | ||||||||||||||||||||
Purchased credit | card-related | Core deposit | All other | |||||||||||||||||
Year ended December 31, (in millions) | card relationships | intangibles | intangibles | intangible assets | Total | |||||||||||||||
2009 |
$ | 419 | $ | 93 | $ | 390 | $ | 123 | $ | 1,025 | ||||||||||
2010 |
350 | 98 | 329 | 106 | 883 | |||||||||||||||
2011 |
287 | 97 | 285 | 96 | 765 | |||||||||||||||
2012 |
249 | 98 | 239 | 93 | 679 | |||||||||||||||
2013 |
210 | 97 | 196 | 90 | 593 | |||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 189 |
December 31, (in millions) | 2008 | 2007 | ||||||
U.S. offices: |
||||||||
Noninterest-bearing |
$ | 210,899 | $ | 129,406 | ||||
Interest-bearing (included $1,849 and
$1,909 at fair value at December 31,
2008 and 2007, respectively) |
511,077 | 376,194 | ||||||
Non-U.S. offices: |
||||||||
Noninterest-bearing |
7,697 | 6,342 | ||||||
Interest-bearing (included $3,756 and
$4,480 at fair value at December 31,
2008 and 2007, respectively) |
279,604 | 228,786 | ||||||
Total |
$ | 1,009,277 | $ | 740,728 | ||||
December 31, (in millions) | 2008 | 2007 | ||||||
U.S. |
$ | 147,493 | $ | 134,529 | ||||
Non-U.S. |
58,247 | 69,171 | ||||||
Total |
$ | 205,740 | $ | 203,700 | ||||
December 31, 2008 | ||||||||||||
(in millions) | U.S. | Non-U.S. | Total | |||||||||
2009 |
$ | 200,586 | $ | 77,934 | $ | 278,520 | ||||||
2010 |
5,388 | 916 | 6,304 | |||||||||
2011 |
4,299 | 811 | 5,110 | |||||||||
2012 |
4,418 | 429 | 4,847 | |||||||||
2013 |
2,767 | 525 | 3,292 | |||||||||
After 5 years |
802 | 226 | 1,028 | |||||||||
Total |
$ | 218,260 | $ | 80,841 | $ | 299,101 | ||||||
December 31, (in millions) | 2008 | 2007 | ||||||
Advances from Federal Home Loan Banks(a) |
$ | 70,187 | $ | 450 | ||||
Nonrecourse
advances FRBB(b) |
11,192 | | ||||||
Other |
51,021 | (c) | 28,385 | |||||
Total |
$ | 132,400 | $ | 28,835 | ||||
(a) | Maturities of advances from the Federal Home Loan Banks were $47.4 billion, $18.5 billion, $2.6 billion, and $714 million in each of the 12-month periods ending December 31, 2009, 2010, 2011, and 2013, respectively, and $1.0 billion maturing after December 31, 2013. Maturities for the 12-month period ending December 31, 2012 were not material. | |
(b) | On September 19, 2008, the Federal Reserve Board established a temporary lending facility, the AML Facility, to provide liquidity to eligible U.S. money market mutual funds (MMMFs). Under the AML Facility, banking organizations must use the loan proceeds to finance their purchases of eligible high-quality asset-backed commercial paper (ABCP) investments from MMMFs, which are pledged to secure nonrecourse advances from the Federal Reserve Bank of Boston (FRBB). Participating banking organizations do not bear any credit or market risk related to the ABCP investments they hold under this facility; therefore, the ABCP investments held are not assessed any regulatory capital. The AML Facility will be in effect until October 30, 2009. The nonrecourse advances from the FRBB were elected under the fair value option and recorded in other borrowed funds; the corresponding ABCP investments were also elected under the fair value option and recorded in other assets. | |
(c) | Includes $30.0 billion of advances from the Federal Reserve under the Federal Reserves Term Auction Facility (TAF), pursuant to which the Federal Reserve auctions term funds to depository institutions that are eligible to borrow under the primary credit program. The TAF allows all eligible depository institutions to place a bid for an advance from its local Federal Reserve Bank at an interest rate set by an auction. All advances are required to be fully collateralized. The TAF is designed to improve liquidity by making it easier for sound institutions to borrow when the markets are not operating efficiently. The TAF does not have a fixed expiration date. |
December 31, (in millions) | 2008 | 2007 | ||||||
Accounts payable and other liabilities: |
||||||||
Accounts payable |
$ | 48,019 | $ | 39,785 | ||||
Brokerage payables(a) |
88,585 | 14,612 | ||||||
Other liabilities |
51,374 | 40,079 | ||||||
Total |
$ | 187,978 | $ | 94,476 | ||||
(a) | Includes payables to customers, brokers, dealers and clearing organizations, and securities fails. |
190 | JPMorgan Chase & Co. / 2008 Annual Report |
By remaining maturity at | 2008 | |||||||||||||||||||||||
December 31, | Under | After | 2007 | |||||||||||||||||||||
(in millions, except rates) | 1 year | 1 5 years | 5 years | Total | Total | |||||||||||||||||||
Parent company |
||||||||||||||||||||||||
Senior debt:(a) |
Fixed rate | $ | 5,030 | $ | 47,606 | (f) | $ | 27,272 | $ | 79,908 | $ | 29,386 | ||||||||||||
Variable rate | 16,999 | 39,050 | (g) | 9,185 | 65,234 | 47,546 | ||||||||||||||||||
Interest rates | (b) | 0.207.63 | % | 0.427.00 | % | 1.407.50 | % | 0.207.63 | % | 0.757.43 | % | |||||||||||||
Subordinated debt: |
Fixed rate | $ | 3,732 | $ | 8,296 | $ | 16,938 | $ | 28,966 | $ | 27,761 | |||||||||||||
Variable rate | | 37 | 1,749 | 1,786 | 1,888 | |||||||||||||||||||
Interest rates | (b) | 6.009.88 | % | 5.2510.00 | % | 1.929.88 | % | 1.9210.00 | % | 1.9210.00 | % | |||||||||||||
Subtotal | $ | 25,761 | $ | 94,989 | $ | 55,144 | $ | 175,894 | $ | 106,581 | ||||||||||||||
Subsidiaries |
||||||||||||||||||||||||
Senior debt:(a) |
Fixed rate | $ | 1,052 | $ | 4,433 | $ | 2,885 | $ | 8,370 | $ | 6,406 | |||||||||||||
Variable rate | (c) | 9,213 | 30,050 | 18,717 | 57,980 | 60,556 | ||||||||||||||||||
Interest rates | (b) | 0.034.45 | % | 0.055.75 | % | 0.4414.21 | % | 0.0314.21 | % | 3.7014.21 | % | |||||||||||||
Subordinated debt: |
Fixed rate | $ | | $ | 2 | $ | 8,698 | $ | 8,700 | $ | 9,169 | |||||||||||||
Variable rate | | | 1,150 | 1,150 | 1,150 | |||||||||||||||||||
Interest rates | (b) | | 6.25 | % | 2.338.25 | % | 2.338.25 | % | 4.388.25 | % | ||||||||||||||
Subtotal | $ | 10,265 | $ | 34,485 | $ | 31,450 | $ | 76,200 | $ | 77,281 | ||||||||||||||
Total long-term debt(d) |
$ | 36,026 | $ | 129,474 | $ | 86,594 | $ | 252,094 | (h)(i)(j) | $ | 183,862 | (j) | ||||||||||||
FIN 46R long-term beneficial interests: | ||||||||||||||||||||||||
Fixed rate | $ | 16 | $ | 486 | $ | 69 | $ | 571 | $ | 701 | ||||||||||||||
Variable rate | 51 | 1,002 | 3,381 | 4,434 | 6,508 | |||||||||||||||||||
Interest rates | 3.517.75 | % | 3.058.75 | % | 3.409.16 | % | 3.059.16 | % | 1.7312.79 | % | ||||||||||||||
Total FIN 46R long-term beneficial interests(e) | $ | 67 | $ | 1,488 | $ | 3,450 | $ | 5,005 | $ | 7,209 | ||||||||||||||
(a) | Included are various equity-linked or other indexed instruments. Embedded derivatives, separated from hybrid securities in accordance with SFAS 133, are reported at fair value and shown net with the host contract on the Consolidated Balance Sheets. Changes in fair value of separated derivatives are recorded in principal transactions revenue. Hybrid securities which the Firm has elected to measure at fair value are classified in the line item of the host contract on the Consolidated Balance Sheets; changes in fair value are recorded in principal transactions revenue in the Consolidated Statements of Income. | |
(b) | The interest rates shown are the range of contractual rates in effect at year-end, including non U.S. dollar fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in SFAS 133 hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firms exposure to the contractual interest rates disclosed in the table above. Including the effects of the SFAS 133 hedge accounting derivatives, the range of modified rates in effect at December 31, 2008, for total long-term debt was 0.18% to 14.21%, versus the contractual range of 0.03% to 14.21% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value under SFAS 155 or SFAS 159. | |
(c) | Included $7.8 billion principal amount of U.S. dollar-denominated floating-rate mortgage bonds issued to an unaffiliated statutory trust, which in turn issued 6.0 billion in covered bonds secured by mortgage loans at December 31, 2008. | |
(d) | Included $58.2 billion and $70.5 billion of outstanding structured notes accounted for at fair value at December 31, 2008 and 2007, respectively. | |
(e) | Included on the Consolidated Balance Sheets in beneficial interests issued by consolidated VIEs. Also included $1.7 billion and $3.0 billion of outstanding structured notes accounted for at fair value at December 31, 2008 and 2007, respectively. | |
(f) | Included $14.1 billion as of December 31, 2008, guaranteed under the TLG Program whereby newly issued senior, unsecured debt is guaranteed by the FDIC, which is discussed below. | |
(g) | Included $6.9 billion as of December 31, 2008, guaranteed by the FDIC under the TLG Program, which is discussed below. | |
(h) | At December 31, 2008, long-term debt aggregating $7.4 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based upon the terms specified in the respective notes. | |
(i) | The aggregate principal amount of debt that matures in each of the five years subsequent to 2008 is $36.0 billion in 2009, $38.5 billion in 2010, $39.7 billion in 2011, $32.7 billion in 2012 and $18.6 billion in 2013. | |
(j) | Included $3.4 billion and $4.6 billion of outstanding zero-coupon notes at December 31, 2008 and 2007, respectively. The aggregate principal amount of these notes at their respective maturities was $7.1 billion and $7.7 billion, respectively. |
JPMorgan Chase & Co. / 2008 Annual Report | 191 |
Amount of | Principal | Stated maturity | ||||||||||||||||||||||||||
capital debt | amount of | of capital | ||||||||||||||||||||||||||
securities | debenture | securities | Earliest | Interest rate of | Interest | |||||||||||||||||||||||
issued | issued | Issue | and | redemption | capital securities | payment/ | ||||||||||||||||||||||
December 31, 2008 (in millions) | by trust(a) | to trust(b) | date | debentures | date | and debentures | distribution dates | |||||||||||||||||||||
Bank One Capital III |
$ | 474 | $ | 764 | 2000 | 2030 | Any time(c) | 8.75 | % | Semiannually | ||||||||||||||||||
Bank One Capital VI |
525 | 554 | 2001 | 2031 | Any time(c) | 7.20 | % | Quarterly | ||||||||||||||||||||
Bear Stearns Capital Trust III |
263 | 262 | 2001 | 2031 | Any time(c) | 7.80 | % | Quarterly | ||||||||||||||||||||
Chase Capital II |
496 | 511 | 1997 | 2027 | Any time(c) | LIBOR + 0.50% | Quarterly | |||||||||||||||||||||
Chase Capital III |
297 | 306 | 1997 | 2027 | Any time(c) | LIBOR + 0.55% | Quarterly | |||||||||||||||||||||
Chase Capital VI |
249 | 256 | 1998 | 2028 | Any time(c) | LIBOR + 0.625% | Quarterly | |||||||||||||||||||||
First Chicago NBD Capital I |
248 | 256 | 1997 | 2027 | Any time(c) | LIBOR + 0.55% | Quarterly | |||||||||||||||||||||
J.P. Morgan Chase Capital X |
1,000 | 1,014 | 2002 | 2032 | Any time(c) | 7.00 | % | Quarterly | ||||||||||||||||||||
J.P. Morgan Chase Capital XI |
1,075 | 995 | 2003 | 2033 | Any time(c) | 5.88 | % | Quarterly | ||||||||||||||||||||
J.P. Morgan Chase Capital XII |
400 | 388 | 2003 | 2033 | Any time(c) | 6.25 | % | Quarterly | ||||||||||||||||||||
JPMorgan Chase Capital XIII |
472 | 487 | 2004 | 2034 | 2014 | LIBOR + 0.95% | Quarterly | |||||||||||||||||||||
JPMorgan Chase Capital XIV |
600 | 583 | 2004 | 2034 | 2009 | 6.20 | % | Quarterly | ||||||||||||||||||||
JPMorgan Chase Capital XV |
995 | 1,370 | 2005 | 2035 | Any time(c) | 5.88 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XVI |
500 | 490 | 2005 | 2035 | 2010 | 6.35 | % | Quarterly | ||||||||||||||||||||
JPMorgan Chase Capital XVII |
496 | 696 | 2005 | 2035 | Any time(c) | 5.85 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XVIII |
748 | 749 | 2006 | 2036 | Any time(c) | 6.95 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XIX |
562 | 564 | 2006 | 2036 | 2011 | 6.63 | % | Quarterly | ||||||||||||||||||||
JPMorgan Chase Capital XX |
995 | 996 | 2006 | 2036 | Any time(c) | 6.55 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XXI |
845 | 846 | 2007 | 2037 | 2012 | LIBOR + 0.95% | Quarterly | |||||||||||||||||||||
JPMorgan Chase Capital XXII |
996 | 997 | 2007 | 2037 | Any time(c) | 6.45 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XXIII |
746 | 746 | 2007 | 2047 | 2012 | LIBOR + 1.00% | Quarterly | |||||||||||||||||||||
JPMorgan Chase Capital XXIV |
700 | 700 | 2007 | 2047 | 2012 | 6.88 | % | Quarterly | ||||||||||||||||||||
JPMorgan Chase Capital XXV |
1,492 | 2,244 | 2007 | 2037 | 2037 | 6.80 | % | Semiannually | ||||||||||||||||||||
JPMorgan Chase Capital XXVI |
1,815 | 1,815 | 2008 | 2048 | 2013 | 8.00 | % | Quarterly | ||||||||||||||||||||
Total |
$ | 16,989 | $ | 18,589 | ||||||||||||||||||||||||
(a) | Represents the amount of capital securities issued to the public by each trust, including unamortized original issue discount. | |
(b) | Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firms Consolidated Financial Statements. | |
(c) | Subject to Series K Preferred Stock restrictions, which are discussed in Note 24 below. |
192 | JPMorgan Chase & Co. / 2008 Annual Report |
Share value | Outstanding at | Earliest | Contractual rate | |||||||||||||||||
and redemption | December 31, 2008 | redemption | in effect at | |||||||||||||||||
price per share(b) | Shares | (in millions) | date | December 31, 2008 | ||||||||||||||||
Cumulative Preferred Stock, Series
E(a) |
$ | 200 | 818,113 | $ | 164 | Any time(d) | 6.15 | % | ||||||||||||
Cumulative Preferred Stock, Series
F(a) |
200 | 428,825 | 86 | Any time(d) | 5.72 | |||||||||||||||
Cumulative Preferred Stock, Series
G(a) |
200 | 511,169 | 102 | Any time(d) | 5.49 | |||||||||||||||
Fixed to Floating Rate Noncumulative
Perpetual Preferred Stock, Series I(a) |
10,000 | 600,000 | 6,000 | 4/30/2018 | 7.90 | |||||||||||||||
Noncumulative Perpetual Preferred
Stock, Series J(a) |
10,000 | 180,000 | 1,800 | 9/1/2013 | 8.63 | |||||||||||||||
Fixed Rate Cumulative Perpetual
Preferred Stock, Series K |
10,000 | 2,500,000 | 23,787 | (c) | 12/1/2011 | (e) | 5.00 | |||||||||||||
Total preferred stock |
5,038,107 | $ | 31,939 | |||||||||||||||||
(a) | Represented by depositary shares. | |
(b) | Redemption price includes amount shown in the table plus any accrued but unpaid dividends. | |
(c) | Represents the carrying value as of December 31, 2008. The redemption value is $25.0 billion. | |
(d) | Subject to Series K Preferred Stock restrictions, which are discussed below. | |
(e) | Generally, the Firm may not redeem Series K Preferred Stock prior to the first dividend payment date falling on or after October 28, 2011. However, prior to this date, the Firm may redeem the securities up to the amount of the aggregate gross proceeds from a qualified equity offering if it has received aggregate gross proceeds from such offerings above an amount agreed with the U.S. Treasury and received approval from the applicable federal banking agencies. |
JPMorgan Chase & Co. / 2008 Annual Report | 193 |
December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Issued balance at January 1 |
3,657.7 | 3,657.8 | 3,618.2 | |||||||||
Newly issued: |
||||||||||||
Common stock: |
||||||||||||
Open market issuance |
283.9 | | | |||||||||
Bear Stearns Share Exchange Agreement |
20.7 | | | |||||||||
Employee benefits and compensation plans |
| | 39.3 | |||||||||
Employee stock purchase plans |
| | 0.6 | |||||||||
Total newly issued |
304.6 | | 39.9 | |||||||||
Canceled shares |
(20.7 | ) | (0.1 | ) | (0.3 | ) | ||||||
Total
issued balance at
December 31 |
3,941.6 | 3,657.7 | 3,657.8 | |||||||||
Treasury
balance at January 1 |
(290.3 | ) | (196.1 | ) | (131.5 | ) | ||||||
Purchases of treasury stock |
| (168.2 | ) | (90.7 | ) | |||||||
Share repurchases related to employee
stock-based awards(a) |
(0.5 | ) | (2.7 | ) | (8.8 | ) | ||||||
Issued from treasury: |
||||||||||||
Change from the Bear Stearns merger
as a result of the reissuance of
Treasury stock and the Share
Exchange Agreement |
26.5 | | | |||||||||
Employee benefits and
compensation plans |
54.4 | 75.7 | 34.4 | |||||||||
Employee stock purchase plans |
1.1 | 1.0 | 0.5 | |||||||||
Total issued from treasury |
82.0 | 76.7 | 34.9 | |||||||||
Total
treasury balance at
December 31 |
(208.8 | ) | (290.3 | ) | (196.1 | ) | ||||||
Outstanding |
3,732.8 | 3,367.4 | 3,461.7 | |||||||||
(a) | Participants in the Firms stock-based incentive plans may have shares withheld to cover income taxes. The shares withheld amounted to 0.5 million, 2.7 million and 8.1 million for 2008, 2007 and 2006, respectively. |
194 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, | ||||||||||||
(in millions, except per share amounts) | 2008 | 2007 | 2006 | |||||||||
Basic earnings per share |
||||||||||||
Income from continuing operations |
$ | 3,699 | $ | 15,365 | $ | 13,649 | ||||||
Income from discontinued operations |
| | 795 | |||||||||
Income before extraordinary gain |
$ | 3,699 | $ | 15,365 | $ | 14,444 | ||||||
Extraordinary gain |
1,906 | | | |||||||||
Net income |
5,605 | 15,365 | 14,444 | |||||||||
Less: preferred stock dividends |
674 | | 4 | |||||||||
Net income applicable to
common stock |
$ | 4,931 | $ | 15,365 | $ | 14,440 | ||||||
Weighted-average basic
shares outstanding |
3,501 | 3,404 | 3,470 | |||||||||
Income from continuing
operations per share |
$ | 0.86 | $ | 4.51 | $ | 3.93 | ||||||
Discontinued operations per share |
| | 0.23 | |||||||||
Extraordinary gain per share |
0.55 | | | |||||||||
Net income per share |
$ | 1.41 | $ | 4.51 | $ | 4.16 | ||||||
Year ended December 31, |
||||||||||||
(in millions, except per share amounts) |
2008 | 2007 | 2006 | |||||||||
Diluted earnings per share |
||||||||||||
Net income applicable to
common stock |
$ | 4,931 | $ | 15,365 | $ | 14,440 | ||||||
Weighted-average basic
shares outstanding |
3,501 | 3,404 | 3,470 | |||||||||
Add: Employee restricted stock,
RSUs, stock options and SARs |
104 | 104 | 104 | |||||||||
Weighted-average diluted
shares outstanding(a) |
3,605 | 3,508 | 3,574 | |||||||||
Income from continuing
operations per share |
$ | 0.84 | $ | 4.38 | $ | 3.82 | ||||||
Discontinued operations per share |
| | 0.22 | |||||||||
Extraordinary gain per share |
0.53 | | | |||||||||
Net income per share |
$ | 1.37 | $ | 4.38 | $ | 4.04 | ||||||
(a) | Options issued under employee benefit plans and, in 2008, the warrant issued under the U.S. Treasurys Capital Purchase Program to purchase an aggregate 209 million, 129 million and 150 million shares of common stock were outstanding for the years ended December 31, 2008, 2007 and 2006, respectively, but were not included in the computation of diluted EPS, because the options and warrant were antidilutive. |
JPMorgan Chase & Co. / 2008 Annual Report | 195 |
Net loss and prior | Accumulated | |||||||||||||||||||
Translation | service costs (credit) of | other | ||||||||||||||||||
Unrealized gains (losses) | adjustments, | Cash | defined benefit pension | comprehensive | ||||||||||||||||
(in millions) | on AFS securities(a) | net of hedges | flow hedges | and OPEB plans(e) | income (loss) | |||||||||||||||
Balance at December 31, 2005 |
$ | (224 | ) | $ | (8 | ) | $ | (394 | ) | $ | | $ | (626 | ) | ||||||
Net change |
253 | (b) | 13 | (95 | ) | | 171 | |||||||||||||
Adjustment to initially apply
SFAS 158, net of taxes |
| | | (1,102 | ) | (1,102 | ) | |||||||||||||
Balance at December 31, 2006 |
29 | 5 | (489 | ) | (1,102 | ) | (1,557 | ) | ||||||||||||
Cumulative effect of changes in
accounting principles (SFAS
159) |
(1 | ) | | | | (1 | ) | |||||||||||||
Balance at January 1, 2007,
adjusted |
28 | 5 | (489 | ) | (1,102 | ) | (1,558 | ) | ||||||||||||
Net change |
352 | (c) | 3 | (313 | ) | 599 | 641 | |||||||||||||
Balance at |
||||||||||||||||||||
December 31, 2007 |
380 | 8 | (802 | ) | (503 | ) | (917 | ) | ||||||||||||
Net change |
(2,481 | )(d) | (606 | ) | 600 | (2,283 | ) | (4,770 | ) | |||||||||||
Balance at
December 31, 2008 |
$ | (2,101 | ) | $ | (598 | ) | $ | (202 | ) | $ | (2,786 | ) | $ | (5,687 | ) | |||||
(a) | Represents the after-tax difference between the fair value and amortized cost of the AFS securities portfolio and retained interests in securitizations recorded in other assets. | |
(b) | The net change during 2006 was due primarily to the reversal of unrealized losses from securities sales. | |
(c) | The net change during 2007 was due primarily to a decline in interest rates. | |
(d) | The net change during 2008 was due primarily to spread widening in credit card asset-backed securities, non-agency mortgage-backed securities and collateralized loan obligations. | |
(e) | For further discussion of SFAS 158, see Note 9 on pages 149155 of this Annual Report. |
196 | JPMorgan Chase & Co. / 2008 Annual Report |
2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
Before | Tax | After | Before | Tax | After | Before | Tax | After | ||||||||||||||||||||||||||||
Year ended December 31, (in millions) | tax | effect | tax | tax | effect | tax | tax | effect | tax | |||||||||||||||||||||||||||
Unrealized gains (losses) on AFS securities: |
||||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) arising during
the period |
$ | (3,071 | ) | $ | 1,171 | $ | (1,900 | ) | $ | 759 | $ | (310 | ) | $ | 449 | $ | (403 | ) | $ | 144 | $ | (259 | ) | |||||||||||||
Reclassification adjustment for realized (gains)
losses included in net income |
(965 | ) | 384 | (581 | ) | (164 | ) | 67 | (97 | ) | 797 | (285 | ) | 512 | ||||||||||||||||||||||
Net change |
(4,036 | ) | 1,555 | (2,481 | ) | 595 | (243 | ) | 352 | 394 | (141 | ) | 253 | |||||||||||||||||||||||
Translation adjustments: |
||||||||||||||||||||||||||||||||||||
Translation |
(1,781 | ) | 682 | (1,099 | ) | 754 | (281 | ) | 473 | 590 | (236 | ) | 354 | |||||||||||||||||||||||
Hedges |
820 | (327 | ) | 493 | (780 | ) | 310 | (470 | ) | (563 | ) | 222 | (341 | ) | ||||||||||||||||||||||
Net change |
(961 | ) | 355 | (606 | ) | (26 | ) | 29 | 3 | 27 | (14 | ) | 13 | |||||||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||||||||||||||||||||
Net unrealized gains (losses) arising during
the period |
584 | (226 | ) | 358 | (737 | ) | 294 | (443 | ) | (250 | ) | 98 | (152 | ) | ||||||||||||||||||||||
Reclassification adjustment for realized (gains)
losses
included in net income |
402 | (160 | ) | 242 | 217 | (87 | ) | 130 | 93 | (36 | ) | 57 | ||||||||||||||||||||||||
Net change |
986 | (386 | ) | 600 | (520 | ) | 207 | (313 | ) | (157 | ) | 62 | (95 | ) | ||||||||||||||||||||||
Net loss and prior service cost (credit) of defined
benefit pension and OPEB plans:(a) |
||||||||||||||||||||||||||||||||||||
Net gains (losses) and prior service credits arising
during the period |
(3,579 | ) | 1,289 | (2,290 | ) | 934 | (372 | ) | 562 | NA | NA | NA | ||||||||||||||||||||||||
Reclassification adjustment for net loss and prior
service
credit included in net income |
14 | (7 | ) | 7 | 59 | (22 | ) | 37 | NA | NA | NA | |||||||||||||||||||||||||
Net change |
(3,565 | ) | 1,282 | (2,283 | ) | 993 | (394 | ) | 599 | NA | NA | NA | ||||||||||||||||||||||||
Total other comprehensive income (loss) |
$ | (7,576 | ) | $ | 2,806 | $ | (4,770 | ) | $ | 1,042 | $ | (401 | ) | $ | 641 | $ | 264 | $ | (93 | ) | $ | 171 | ||||||||||||||
Net loss and prior service cost (credit) of defined
benefit pension and OPEB plans: |
||||||||||||||||||||||||||||||||||||
Adjustments to initially apply SFAS 158(a) |
NA | NA | NA | NA | NA | NA | $ | (1,746 | ) | $ | 644 | $ | (1,102 | ) | ||||||||||||||||||||||
(a) | For further discussion of SFAS 158 and details of changes to accumulated other comprehensive income (loss), see Note 9 on pages 149155 of this Annual Report. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Current income tax expense |
||||||||||||
U.S. federal |
$ | 395 | $ | 2,805 | $ | 5,512 | ||||||
Non-U.S. |
1,009 | 2,985 | 1,656 | |||||||||
U.S. state and local |
307 | 343 | 879 | |||||||||
Total current income tax expense |
1,711 | 6,133 | 8,047 | |||||||||
Deferred income tax expense (benefit) |
||||||||||||
U.S. federal |
(3,015 | ) | 1,122 | (1,628 | ) | |||||||
Non-U.S. |
1 | (185 | ) | 194 | ||||||||
U.S. state and local |
377 | 370 | (376 | ) | ||||||||
Total deferred income tax
expense (benefit) |
(2,637 | ) | 1,307 | (1,810 | ) | |||||||
Total income tax expense (benefit)
from continuing operations |
(926 | ) | 7,440 | 6,237 | ||||||||
Total income tax expense
from discontinued operations |
| | 572 | |||||||||
Total income tax expense (benefit) |
$ | (926 | ) | $ | 7,440 | $ | 6,809 | |||||
JPMorgan Chase & Co. / 2008 Annual Report | 197 |
Year ended December 31, | 2008 | 2007 | 2006 | |||||||||
Statutory U.S. federal tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Increase (decrease) in tax rate resulting from: |
||||||||||||
U.S. state and local income taxes, net
of federal income tax benefit |
16.0 | 2.0 | 2.1 | |||||||||
Tax-exempt income |
(14.8 | ) | (2.4 | ) | (2.2 | ) | ||||||
Non-U.S. subsidiary earnings |
(53.6 | ) | (1.1 | ) | (0.5 | ) | ||||||
Business tax credits |
(24.5 | ) | (2.5 | ) | (2.5 | ) | ||||||
Bear Stearns equity losses |
5.7 | | | |||||||||
Other, net |
2.8 | 1.6 | (0.5 | ) | ||||||||
Effective tax rate |
(33.4 | )% | 32.6 | % | 31.4 | % | ||||||
December 31, (in millions) | 2008 | 2007 | ||||||
Deferred tax assets |
||||||||
Allowance for loan losses |
$ | 8,029 | $ | 3,800 | ||||
Employee benefits |
4,841 | 3,391 | ||||||
Allowance for other than loan losses |
3,686 | 3,635 | ||||||
Fair value adjustments |
2,565 | | ||||||
Non-U.S. operations |
2,504 | 285 | ||||||
Tax attribute carryforwards |
1,383 | | ||||||
Gross deferred tax assets |
$ | 23,008 | $ | 11,111 | ||||
Deferred tax liabilities |
||||||||
Depreciation and amortization |
$ | 4,681 | $ | 2,966 | ||||
Leasing transactions |
1,895 | 2,304 | ||||||
Fee income |
1,015 | 548 | ||||||
Non-U.S. operations |
946 | 1,790 | ||||||
Fair value adjustments |
| 570 | ||||||
Other, net |
202 | 207 | ||||||
Gross deferred tax liabilities |
$ | 8,739 | $ | 8,385 | ||||
Valuation allowance |
1,266 | 220 | ||||||
Net deferred tax asset |
$ | 13,003 | $ | 2,506 | ||||
198 | JPMorgan Chase & Co. / 2008 Annual Report |
Unrecognized tax benefits | ||||||||
Year ended December 31, (in millions) | 2008 | 2007 | ||||||
Balance at January 1, |
$ | 4,811 | $ | 4,677 | ||||
Increases based on tax positions related to
the current period |
890 | 434 | ||||||
Decreases based on tax positions related to the
current period |
(109 | ) | (241 | ) | ||||
Increases
associated with the Bear Stearns merger |
1,387 | | ||||||
Increases based on tax positions related to
prior periods |
501 | 903 | ||||||
Decreases based on tax positions related to
prior periods |
(1,386 | ) | (791 | ) | ||||
Decreases related to settlements with taxing
authorities |
(181 | ) | (158 | ) | ||||
Decreases related to a lapse of applicable
statute of limitations |
(19 | ) | (13 | ) | ||||
Balance at December 31, |
$ | 5,894 | $ | 4,811 | ||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
U.S. |
$ | (2,094 | ) | $ | 13,720 | $ | 12,934 | |||||
Non-U.S.(a) |
4,867 | 9,085 | 6,952 | |||||||||
Income from continuing operations
before income tax
expense (benefit) |
$ | 2,773 | $ | 22,805 | $ | 19,886 | ||||||
(a) | For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. |
JPMorgan Chase & Co. / 2008 Annual Report | 199 |
Tier 1 | Total | Risk-weighted | Adjusted | Tier 1 | Total | Tier 1 | ||||||||||||||||||||||
(in millions, except ratios) | capital | capital | assets(c) | average assets(d) | capital ratio | capital ratio | leverage ratio | |||||||||||||||||||||
December 31, 2008(a) |
||||||||||||||||||||||||||||
JPMorgan Chase & Co. |
$ | 136,104 | $ | 184,720 | $ | 1,244,659 | $ | 1,966,895 | 10.9 | % | 14.8 | % | 6.9 | % | ||||||||||||||
JPMorgan Chase Bank, N.A. |
100,594 | 143,854 | 1,153,039 | 1,705,750 | 8.7 | 12.5 | 5.9 | |||||||||||||||||||||
Chase Bank USA, N.A. |
11,190 | 12,901 | 101,472 | 87,286 | 11.0 | 12.7 | 12.8 | |||||||||||||||||||||
December 31, 2007(a) |
||||||||||||||||||||||||||||
JPMorgan Chase & Co. |
$ | 88,746 | $ | 132,242 | $ | 1,051,879 | $ | 1,473,541 | 8.4 | % | 12.6 | % | 6.0 | % | ||||||||||||||
JPMorgan Chase Bank, N.A. |
78,453 | 112,253 | 950,001 | 1,268,304 | 8.3 | 11.8 | 6.2 | |||||||||||||||||||||
Chase Bank USA, N.A. |
9,407 | 10,720 | 73,169 | 60,905 | 12.9 | 14.7 | 15.5 | |||||||||||||||||||||
Well-capitalized ratios(b) |
6.0 | % | 10.0 | % | 5.0 | %(e) | ||||||||||||||||||||||
Minimum capital ratios(b) |
4.0 | 8.0 | 3.0 | (f) | ||||||||||||||||||||||||
(a) | Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions. | |
(b) | As defined by the regulations issued by the Federal Reserve, OCC and FDIC. | |
(c) | Includes off-balance sheet risk-weighted assets in the amounts of $357.5 billion, $332.2 billion and $18.6 billion, respectively, at December 31, 2008, and $352.7 billion, $336.8 billion and $13.4 billion, respectively, at December 31, 2007, for JPMorgan Chase, JPMorgan Bank, N.A. and Chase Bank USA, N.A. | |
(d) | Adjusted average assets, for purposes of calculating the leverage ratio, include total average assets adjusted for unrealized gains/losses on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital. | |
(e) | Represents requirements for banking subsidiaries pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company. | |
(f) | The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending on factors specified in regulations issued by the Federal Reserve and OCC. | |
Note: | Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities which have resulted from both nontaxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $1.1 billion at December 31, 2008, and $2.0 billion at December 31, 2007. Additionally, the Firm had deferred tax liabilities resulting from tax-deductible goodwill of $1.6 billion at December 31, 2008, and $939 million at December 31, 2007. |
200 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, (in millions) | 2008 | 2007 | ||||||
Tier 1 capital |
||||||||
Total stockholders equity |
$ | 166,884 | $ | 123,221 | ||||
Effect of certain items in accumulated
other comprehensive income (loss) |
||||||||
excluded from Tier 1 capital |
5,084 | 925 | ||||||
Adjusted stockholders equity |
171,968 | 124,146 | ||||||
Minority interest(a) |
17,257 | 15,005 | ||||||
Less: Goodwill |
48,027 | 45,270 | ||||||
SFAS 157 DVA |
2,358 | 882 | ||||||
Investments in certain subsidiaries |
679 | 782 | ||||||
Nonqualifying intangible assets |
2,057 | 3,471 | ||||||
Tier 1 capital |
136,104 | 88,746 | ||||||
Tier 2 capital |
||||||||
Long-term debt and other instruments
qualifying as Tier 2 |
31,659 | 32,817 | ||||||
Qualifying allowance for credit losses |
17,187 | 10,084 | ||||||
Adjustment for investments in certain
subsidiaries and other |
(230 | ) | 595 | |||||
Tier 2 capital |
48,616 | 43,496 | ||||||
Total qualifying capital |
$ | 184,720 | $ | 132,242 | ||||
(a) | Primarily includes trust preferred capital debt securities of certain business trusts. |
Year ended December 31, (in millions) | ||||
2009 |
$ | 1,676 | ||
2010 |
1,672 | |||
2011 |
1,543 | |||
2012 |
1,456 | |||
2013 |
1,387 | |||
After 2013 |
9,134 | |||
Total minimum payments required(a) |
16,868 | |||
Less: Sublease rentals under noncancelable subleases |
(2,266 | ) | ||
Net minimum payment required |
$ | 14,602 | ||
(a) | Lease restoration obligations are accrued in accordance with SFAS 13, and are not reported as a required minimum lease payment. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Gross rental expense |
$ | 1,917 | $ | 1,380 | $ | 1,266 | ||||||
Sublease rental income |
(415 | ) | (175 | ) | (194 | ) | ||||||
Net rental expense |
$ | 1,502 | $ | 1,205 | $ | 1,072 | ||||||
December 31, (in billions) | 2008 | 2007 | ||||||
Reverse repurchase/securities borrowing |
||||||||
agreements |
$ | 456.6 | $ | 333.7 | ||||
Securities |
31.0 | 4.5 | ||||||
Loans |
342.3 | 160.4 | ||||||
Trading assets and other |
98.0 | 102.2 | ||||||
Total
assets
pledged(a) |
$ | 927.9 | $ | 600.8 | ||||
(a) | Total assets pledged do not include assets of consolidated VIEs. These assets are generally used to satisfy liabilities to third parties. See Note 17 on pages 177186 of this Annual Report for additional information on assets and liabilities of consolidated VIEs. |
JPMorgan Chase & Co. / 2008 Annual Report | 201 |
202 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Fair value hedge ineffective net
gains(a) |
$ | 434 | $ | 111 | $ | 51 | ||||||
Cash flow hedge ineffective net
gains(a) |
18 | 29 | 2 | |||||||||
Cash flow hedging net gains on
forecasted transactions that failed to occur |
| 15 | (b) | | ||||||||
(a) | Includes ineffectiveness and the components of hedging instruments that have been excluded from the assessment of hedge effectiveness. | |
(b) | During the second half of 2007, the Firm did not issue short-term fixed rate Canadian dollar denominated notes due to the weak credit market for Canadian short-term debt. |
JPMorgan Chase & Co. / 2008 Annual Report | 203 |
204 | JPMorgan Chase & Co. / 2008 Annual Report |
Maximum payout/Notional amount | ||||||||||||||||
Protection purchased with | Net protection | Other protection | ||||||||||||||
December 31, 2008 (in millions) | Protection sold | identical underlyings(b) | (sold)/purchased(c) | purchased(d) | ||||||||||||
Credit derivatives |
||||||||||||||||
Credit default swaps |
$ | (4,194,707 | ) | $ | 3,876,890 | $ | (317,817 | ) | $ | 302,160 | ||||||
Other credit derivatives(a) |
(4,026 | ) | | (4,026 | ) | 10,096 | ||||||||||
Total credit derivatives |
(4,198,733 | ) | 3,876,890 | (321,843 | ) | 312,256 | ||||||||||
Credit-linked notes |
(1,263 | ) | 141 | (1,122 | ) | 1,792 | ||||||||||
Total |
$ | (4,199,996 | ) | $ | 3,877,031 | $ | (322,965 | ) | $ | 314,048 | ||||||
(a) | Primarily consists of total return swaps and options to enter into credit default swap contracts. | |
(b) | Represents the notional amount of purchased credit derivatives where the underlying reference instrument is identical to the reference instrument on which the Firm has sold credit protection. | |
(c) | Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value. | |
(d) | Represents single-name and index CDS protection the Firm purchased primarily to risk manage the net protection sold. |
Total | ||||||||||||||||||||
December 31, 2008 (in millions) | < 1 year | 1-5 years | > 5 years | notional amount | Fair value(c) | |||||||||||||||
Risk rating of reference entity |
||||||||||||||||||||
Investment grade (AAA to BBB-)(b) |
$ | (177,404 | ) | $ | (1,767,004 | ) | $ | (713,555 | ) | $ | (2,657,963 | ) | $ | (215,217 | ) | |||||
Noninvestment grade (BB+ and below)(b) |
(121,040 | ) | (992,098 | ) | (428,895 | ) | (1,542,033 | ) | (244,975 | ) | ||||||||||
Total |
$ | (298,444 | ) | $ | (2,759,102 | ) | $ | (1,142,450 | ) | $ | (4,199,996 | ) | $ | (460,192 | ) | |||||
(a) | The contractual maturity for single-name CDS contract generally ranges from three months to ten years and the contractual maturity for index CDS is generally five years. The contractual maturity for CLNs typically ranges from three to five years. | |
(b) | Ratings scale is based upon the Firms internal ratings, which generally correspond to ratings defined by S&P and Moodys. | |
(c) | Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral held by the Firm. |
JPMorgan Chase & Co. / 2008 Annual Report | 205 |
Allowance for | ||||||||||||||||
Contractual amount | lending-related commitments | |||||||||||||||
December 31, (in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Lending-related |
||||||||||||||||
Consumer(a) |
$ | 741,507 | $ | 815,936 | $ | 25 | $ | 15 | ||||||||
Wholesale: |
||||||||||||||||
Other unfunded commitments to extend credit(b)(c)(d)(e) |
225,863 | 250,954 | 349 | 571 | ||||||||||||
Asset purchase agreements(f) |
53,729 | 90,105 | 9 | 9 | ||||||||||||
Standby letters of credit and financial guarantees(c)(g)(h) |
95,352 | 100,222 | 274 | 254 | ||||||||||||
Other letters of credit(c) |
4,927 | 5,371 | 2 | 1 | ||||||||||||
Total wholesale |
379,871 | 446,652 | 634 | 835 | ||||||||||||
Total lending-related |
$ | 1,121,378 | $ | 1,262,588 | $ | 659 | $ | 850 | ||||||||
Other guarantees |
||||||||||||||||
Securities lending guarantees(i) |
$ | 169,281 | $ | 385,758 | NA | NA | ||||||||||
Residual value guarantees |
670 | NA | NA | NA | ||||||||||||
Derivatives qualifying as guarantees(j) |
83,835 | 85,262 | NA | NA | ||||||||||||
(a) | Includes credit card and home equity lending-related commitments of $623.7 billion and $95.7 billion, respectively, at December 31, 2008; and $714.8 billion and $74.2 billion, respectively, at December 31, 2007. These amounts for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. | |
(b) | Includes unused advised lines of credit totaling $36.3 billion and $38.4 billion at December 31, 2008 and 2007, respectively, which are not legally binding. In regulatory filings with the Federal Reserve, unused advised lines are not reportable. | |
(c) | Represents contractual amount net of risk participations totaling $28.3 billion at both December 31, 2008 and 2007. | |
(d) | Excludes unfunded commitments to third-party private equity funds of $1.4 billion and $881 million at December 31, 2008 and 2007, respectively. Also excludes unfunded commitments for other equity investments of $1.0 billion and $903 million at December 31, 2008 and 2007, respectively. | |
(e) | Includes commitments to investment and noninvestment grade counterparties in connection with leveraged acquisitions of $3.6 billion and $8.2 billion at December 31, 2008 and 2007, respectively. | |
(f) | Largely represents asset purchase agreements with the Firms administered multi-seller, asset-backed commercial paper conduits. It also includes $96 million and $1.1 billion of asset purchase agreements to other third-party entities at December 31, 2008 and 2007, respectively. | |
(g) | JPMorgan Chase held collateral relating to $31.0 billion and $31.5 billion of these arrangements at December 31, 2008 and 2007, respectively. Prior periods have been revised to conform to the current presentation. | |
(h) | Includes unissued standby letters of credit commitments of $39.5 billion and $50.7 billion at December 31, 2008 and 2007, respectively. | |
(i) | Collateral held by the Firm in support of securities lending indemnification agreements was $170.1 billion and $390.5 billion at December 31, 2008 and 2007, respectively. Securities lending collateral comprises primarily cash, securities issued by governments that are members of the Organisation for Economic Co-operation and Development and U.S. government agencies. | |
(j) | Represents notional amounts of derivatives qualifying as guarantees. |
206 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co./2008 Annual Report | 207 |
2008 | 2007 | |||||||||||||||
Standby letters | Standby letters | |||||||||||||||
of credit and | of credit and | |||||||||||||||
other financial | Other letters | other financial | Other letters | |||||||||||||
December 31, (in millions) | guarantees | of credit | guarantees | of credit | ||||||||||||
Investment-grade(a) |
$ | 73,394 | $ | 4,165 | $ | 71,904 | $ | 4,153 | ||||||||
Noninvestment-grade(a) |
21,958 | 762 | 28,318 | 1,218 | ||||||||||||
Total contractual amount |
$ | 95,352 | (b) | $ | 4,927 | $ | 100,222 | (b) | $ | 5,371 | ||||||
Allowance
for lending-related commitments |
$ | 274 | $ | 2 | $ | 254 | $ | 1 | ||||||||
Commitments with collateral |
30,972 | 1,000 | 31,502 | 809 | ||||||||||||
(a) | Ratings scale is based upon the Firms internal ratings which generally correspond to ratings defined by S&P and Moodys. | |
(b) | Represents contractual amount net of risk participations totaling $28.3 billion at both December 31, 2008 and 2007. |
208 | JPMorgan Chase & Co./2008 Annual Report |
JPMorgan Chase & Co./2008 Annual Report | 209 |
210 | JPMorgan Chase & Co./2008 Annual Report |
2008 | 2007 | |||||||||||||||||||||||||||||||
On-balance sheet | On-balance sheet | |||||||||||||||||||||||||||||||
Credit | Off-balance | Credit | Off-balance | |||||||||||||||||||||||||||||
December 31, (in millions) | exposure | Loans | Derivatives | sheet(c) | exposure | Loans | Derivatives | sheet(c) | ||||||||||||||||||||||||
Wholesale-related: |
||||||||||||||||||||||||||||||||
Real estate |
$ | 83,799 | $ | 66,881 | $ | 2,289 | $ | 14,629 | $ | 38,295 | $ | 20,274 | $ | 893 | $ | 17,128 | ||||||||||||||||
Banks and finance companies |
75,577 | 19,055 | 33,457 | 23,065 | 65,288 | 16,776 | 12,502 | 36,010 | ||||||||||||||||||||||||
Asset managers |
49,256 | 9,640 | 18,806 | 20,810 | 38,554 | 8,534 | 7,763 | 22,257 | ||||||||||||||||||||||||
Healthcare |
38,032 | 7,004 | 3,723 | 27,305 | 30,746 | 5,644 | 885 | 24,217 | ||||||||||||||||||||||||
State & municipal governments |
35,954 | 5,873 | 9,427 | 20,654 | 31,425 | 5,699 | 3,205 | 22,521 | ||||||||||||||||||||||||
Utilities |
34,246 | 9,184 | 4,664 | 20,398 | 28,679 | 5,840 | 1,870 | 20,969 | ||||||||||||||||||||||||
Retail & consumer services |
32,714 | 8,433 | 3,079 | 21,202 | 23,969 | 6,665 | 517 | 16,787 | ||||||||||||||||||||||||
Consumer products |
29,766 | 10,081 | 2,225 | 17,460 | 29,941 | 8,915 | 1,084 | 19,942 | ||||||||||||||||||||||||
Securities firms & exchanges |
25,590 | 6,360 | 14,111 | 5,119 | 23,274 | 5,120 | 11,022 | 7,132 | ||||||||||||||||||||||||
Oil & gas |
24,746 | 8,796 | 2,220 | 13,730 | 26,082 | 10,348 | 1,570 | 14,164 | ||||||||||||||||||||||||
Insurance |
17,744 | 1,942 | 5,494 | 10,308 | 16,782 | 1,067 | 2,442 | 13,273 | ||||||||||||||||||||||||
Technology |
17,555 | 5,028 | 1,361 | 11,166 | 18,335 | 4,674 | 1,309 | 12,352 | ||||||||||||||||||||||||
Media |
17,254 | 7,535 | 1,248 | 8,471 | 16,253 | 4,909 | 1,268 | 10,076 | ||||||||||||||||||||||||
Central government |
15,259 | 555 | 10,537 | 4,167 | 9,075 | 583 | 3,989 | 4,503 | ||||||||||||||||||||||||
Metals/mining |
14,980 | 6,470 | 1,991 | 6,519 | 17,714 | 7,282 | 2,673 | 7,759 | ||||||||||||||||||||||||
All other wholesale |
278,114 | 75,252 | 47,994 | 154,868 | 298,803 | 77,097 | 24,144 | 197,562 | ||||||||||||||||||||||||
Loans held-for-sale and loans at
fair value |
13,955 | 13,955 | | | 23,649 | 23,649 | | | ||||||||||||||||||||||||
Receivables from customers(a) |
16,141 | | | | | | | | ||||||||||||||||||||||||
Total wholesale-related |
820,682 | 262,044 | 162,626 | 379,871 | 736,864 | 213,076 | 77,136 | 446,652 | ||||||||||||||||||||||||
Consumer-related: |
||||||||||||||||||||||||||||||||
Home equity |
238,633 | 142,890 | | 95,743 | 169,023 | 94,832 | | 74,191 | ||||||||||||||||||||||||
Prime mortgage |
99,200 | 94,121 | | 5,079 | 47,382 | 39,988 | | 7,394 | ||||||||||||||||||||||||
Subprime mortgage |
22,090 | 22,090 | | | 15,489 | 15,473 | | 16 | ||||||||||||||||||||||||
Option ARMs |
40,661 | 40,661 | | | | | | | ||||||||||||||||||||||||
Auto loans |
47,329 | 42,603 | | 4,726 | 50,408 | 42,350 | | 8,058 | ||||||||||||||||||||||||
Credit card(b) |
728,448 | 104,746 | | 623,702 | 799,200 | 84,352 | | 714,848 | ||||||||||||||||||||||||
All other loans |
45,972 | 33,715 | | 12,257 | 36,743 | 25,314 | | 11,429 | ||||||||||||||||||||||||
Loans held-for-sale |
2,028 | 2,028 | | | 3,989 | 3,989 | | | ||||||||||||||||||||||||
Total consumer-related |
1,224,361 | 482,854 | | 741,507 | 1,122,234 | 306,298 | | 815,936 | ||||||||||||||||||||||||
Total exposure |
$ | 2,045,043 | $ | 744,898 | $ | 162,626 | $ | 1,121,378 | $ | 1,859,098 | $ | 519,374 | $ | 77,136 | $ | 1,262,588 | ||||||||||||||||
(a) | Primarily represents margin loans to prime and retail brokerage customers which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets. | |
(b) | Excludes $85.6 billion and $72.7 billion of securitized credit card receivables at December 31, 2008 and 2007, respectively. | |
(c) | Represents lending-related financial instruments. |
JPMorgan Chase & Co./2008 Annual Report | 211 |
Income (loss) from continuing | ||||||||||||||||
operations before | ||||||||||||||||
Year ended December 31, (in millions) | Revenue(a) | Expense(b) | income tax expense (benefit) | Net income | ||||||||||||
2008 |
||||||||||||||||
Europe/Middle East and Africa |
$ | 11,449 | $ | 8,403 | $ | 3,046 | $ | 2,483 | ||||||||
Asia and Pacific |
4,097 | 3,580 | 517 | 672 | ||||||||||||
Latin America and the Caribbean |
1,353 | 903 | 450 | 274 | ||||||||||||
Other |
499 | 410 | 89 | 21 | ||||||||||||
Total international |
17,398 | 13,296 | 4,102 | 3,450 | ||||||||||||
Total U.S. |
49,854 | 51,183 | (1,329 | ) | 2,155 | |||||||||||
Total |
$ | 67,252 | $ | 64,479 | $ | 2,773 | $ | 5,605 | ||||||||
2007 |
||||||||||||||||
Europe/Middle East and Africa |
$ | 12,070 | $ | 8,445 | $ | 3,625 | $ | 2,585 | ||||||||
Asia and Pacific |
4,730 | 3,117 | 1,613 | 945 | ||||||||||||
Latin America and the Caribbean |
2,028 | 975 | 1,053 | 630 | ||||||||||||
Other |
407 | 289 | 118 | 79 | ||||||||||||
Total international |
19,235 | 12,826 | 6,409 | 4,239 | ||||||||||||
Total U.S. |
52,137 | 35,741 | 16,396 | 11,126 | ||||||||||||
Total |
$ | 71,372 | $ | 48,567 | $ | 22,805 | $ | 15,365 | ||||||||
2006 |
||||||||||||||||
Europe/Middle East and Africa |
$ | 11,342 | $ | 7,471 | $ | 3,871 | $ | 2,774 | ||||||||
Asia and Pacific |
3,227 | 2,649 | 578 | 400 | ||||||||||||
Latin America and the Caribbean |
1,342 | 820 | 522 | 333 | ||||||||||||
Other |
381 | 240 | 141 | 90 | ||||||||||||
Total international |
16,292 | 11,180 | 5,112 | 3,597 | ||||||||||||
Total U.S. |
45,707 | 30,933 | 14,774 | 10,847 | ||||||||||||
Total |
$ | 61,999 | $ | 42,113 | $ | 19,886 | $ | 14,444 | ||||||||
(a) | Revenue is composed of net interest income and noninterest revenue. | |
(b) | Expense is composed of noninterest expense and provision for credit losses. |
212 |
JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Income |
||||||||||||
Dividends from bank and bank
holding company subsidiaries |
$ | 3,085 | $ | 5,834 | $ | 2,935 | ||||||
Dividends from nonbank subsidiaries(a) |
1,687 | 2,463 | 1,999 | |||||||||
Interest income from subsidiaries |
4,539 | 5,082 | 3,612 | |||||||||
Other interest income |
212 | 263 | 273 | |||||||||
Other income from subsidiaries, primarily fees: |
||||||||||||
Bank and bank holding company |
244 | 182 | 220 | |||||||||
Nonbank |
95 | 960 | 739 | |||||||||
Other income (loss) |
(1,038 | ) | (131 | ) | (206 | ) | ||||||
Total income |
8,824 | 14,653 | 9,572 | |||||||||
Expense |
||||||||||||
Interest expense to subsidiaries(a) |
1,302 | 1,239 | 1,025 | |||||||||
Other interest expense |
6,879 | 6,427 | 4,536 | |||||||||
Compensation expense |
43 | 125 | 519 | |||||||||
Other noninterest expense(b) |
732 | 329 | 295 | |||||||||
Total expense |
8,956 | 8,120 | 6,375 | |||||||||
Income (loss) before income tax benefit
and undistributed net income of subsidiaries |
(132 | ) | 6,533 | 3,197 | ||||||||
Income tax benefit(b) |
2,582 | 589 | 982 | |||||||||
Equity in undistributed net income
of subsidiaries(b) |
3,155 | 8,243 | 10,265 | |||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | ||||||
Parent company balance sheets | ||||||||
December 31, (in millions) | 2008 | 2007 | ||||||
Assets |
||||||||
Cash and due from banks |
$ | 35 | $ | 110 | ||||
Deposits with banking subsidiaries |
60,551 | 52,972 | ||||||
Trading assets |
12,487 | 9,563 | ||||||
Available-for-sale securities |
1,587 | 43 | ||||||
Loans |
1,525 | 1,423 | ||||||
Advances to, and receivables from, subsidiaries: |
||||||||
Bank and bank holding company |
33,293 | 28,705 | ||||||
Nonbank |
131,032 | 52,895 | ||||||
Investments (at equity) in subsidiaries: |
||||||||
Bank and bank holding company |
153,140 | 128,711 | ||||||
Nonbank(a) |
27,968 | 25,710 | ||||||
Goodwill and other intangibles |
1,616 | 850 | ||||||
Other assets |
12,934 | 13,241 | ||||||
Total assets |
$ | 436,168 | $ | 314,223 | ||||
Liabilities and stockholders equity |
||||||||
Borrowings from, and payables to,
subsidiaries(a) |
$ | 44,467 | $ | 23,938 | ||||
Other borrowed funds, primarily commercial
paper |
39,560 | 52,440 | ||||||
Other liabilities |
9,363 | 8,043 | ||||||
Long-term debt(c) |
175,894 | 106,581 | ||||||
Total liabilities |
269,284 | 191,002 | ||||||
Stockholders equity |
166,884 | 123,221 | ||||||
Total liabilities and stockholders equity |
$ | 436,168 | $ | 314,223 | ||||
Parent company statements of cash flows | ||||||||||||
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Operating activities |
||||||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | ||||||
Less: Net income of subsidiaries(a)(b) |
7,927 | 16,540 | 15,199 | |||||||||
Parent company net loss |
(2,322 | ) | (1,175 | ) | (755 | ) | ||||||
Add: Cash dividends from subsidiaries(a) |
4,648 | 8,061 | 4,934 | |||||||||
Other, net |
1,920 | 3,496 | (185 | ) | ||||||||
Net cash provided by operating
activities |
4,246 | 10,382 | 3,994 | |||||||||
Investing activities |
||||||||||||
Net change in: |
||||||||||||
Deposits with banking subsidiaries |
(7,579 | ) | (34,213 | ) | (9,307 | ) | ||||||
Securities purchased under resale
agreements, primarily with nonbank
subsidiaries |
| | 24 | |||||||||
Loans |
(102 | ) | (452 | ) | (633 | ) | ||||||
Advances to subsidiaries |
(82,725 | ) | (24,553 | ) | (3,032 | ) | ||||||
Investments (at equity)
in subsidiaries(a)(b) |
(26,212 | ) | (4,135 | ) | 579 | |||||||
Other, net |
| | (1 | ) | ||||||||
Available-for-sale securities: |
||||||||||||
Purchases |
(1,475 | ) | (104 | ) | | |||||||
Proceeds from sales and maturities |
| 318 | 29 | |||||||||
Net cash used in investing
activities |
(118,093 | ) | (63,139 | ) | (12,341 | ) | ||||||
Financing activities |
||||||||||||
Net change in borrowings
from subsidiaries(a) |
20,529 | 4,755 | 2,672 | |||||||||
Net change in other borrowed funds |
(12,880 | ) | 31,429 | 5,336 | ||||||||
Proceeds from the issuance of
long-term debt (d) |
89,791 | 38,986 | 18,153 | |||||||||
Repayments of long-term debt |
(22,972 | ) | (11,662 | ) | (10,557 | ) | ||||||
Excess tax benefits related to
stock-based compensation |
148 | 365 | 302 | |||||||||
Proceeds from issuance of
common stock |
11,969 | 1,467 | 1,659 | |||||||||
Proceeds from issuance of preferred
stock and warrant to the U.S. Treasury |
25,000 | | | |||||||||
Proceeds from issuance of
preferred stock (e) |
8,098 | | | |||||||||
Redemption of preferred stock |
| | (139 | ) | ||||||||
Repurchases of treasury stock |
| (8,178 | ) | (3,938 | ) | |||||||
Cash dividends paid |
(5,911 | ) | (5,051 | ) | (4,846 | ) | ||||||
Net cash provided by financing
activities |
113,772 | 52,111 | 8,642 | |||||||||
Net (decrease) increase in cash and due
from banks |
(75 | ) | (646 | ) | 295 | |||||||
Cash and due from banks
at the beginning of the year, primarily
with bank subsidiaries |
110 | 756 | 461 | |||||||||
Cash and due from banks at the end
of the year, primarily with bank
subsidiaries |
$ | 35 | $ | 110 | $ | 756 | ||||||
Cash interest paid |
$ | 7,485 | $ | 7,470 | $ | 5,485 | ||||||
Cash income taxes paid |
156 | 5,074 | 3,599 | |||||||||
(a) | Subsidiaries include trusts that issued guaranteed capital debt securities (issuer trusts). As a result of FIN 46R, the Parent Company deconsolidated these trusts in 2003. The Parent Company received dividends of $15 million, $18 million and $23 million from the issuer trusts in 2008, 2007 and 2006, respectively. For further discussion on these issuer trusts, see Note 23 on page 191 of this Annual Report. | |
(b) | Amounts for 2007 have been revised to reflect the pushdown of certain litigation expense, which had previously been recorded at the parent company level, to the bank subsidiary level. There was no change to net income as the increase in Parent Company profitability was offset by a decrease in the net income of subsidiaries. | |
(c) | At December 31, 2008, debt that contractually matures in 2009 through 2013 totaled $25.8 billion, $28.6 billion, $29.3 billion, $25.3 billion and $11.8 billion, respectively. | |
(d) | Includes $39.8 billion of Bear Stearns long-term debt assumed by JPMorgan Chase & Co. | |
(e) | Includes the conversion of Bear Stearns preferred stock into JPMorgan Chase preferred stock. |
JPMorgan Chase & Co. / 2008 Annual Report | 213 |
Year ended December 31, | Investment Bank | Retail Financial Services | Card Services | Commercial Banking | ||||||||||||||||||||||||||||||||||||||||||||
(in millions, except ratios) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
Noninterest revenue |
$ | 1,930 | $ | 14,094 | $ | 18,334 | $ | 9,355 | $ | 6,779 | $ | 4,660 | $ | 2,719 | $ | 3,046 | $ | 2,944 | $ | 1,481 | $ | 1,263 | $ | 1,073 | ||||||||||||||||||||||||
Net interest income |
10,284 | 4,076 | 499 | 14,165 | 10,526 | 10,165 | 13,755 | 12,189 | 11,801 | 3,296 | 2,840 | 2,727 | ||||||||||||||||||||||||||||||||||||
Total net revenue |
12,214 | 18,170 | 18,833 | 23,520 | 17,305 | 14,825 | 16,474 | 15,235 | 14,745 | 4,777 | 4,103 | 3,800 | ||||||||||||||||||||||||||||||||||||
Provision for credit losses |
2,015 | 654 | 191 | 9,905 | 2,610 | 561 | 10,059 | 5,711 | 4,598 | 464 | 279 | 160 | ||||||||||||||||||||||||||||||||||||
Credit reimbursement
(to)/from TSS(b) |
121 | 121 | 121 | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Noninterest expense(c) |
13,844 | 13,074 | 12,860 | 12,077 | 9,905 | 8,927 | 5,140 | 4,914 | 5,086 | 1,946 | 1,958 | 1,979 | ||||||||||||||||||||||||||||||||||||
Income (loss) from
continuing operations
before income tax
expense (benefit) |
(3,524 | ) | 4,563 | 5,903 | 1,538 | 4,790 | 5,337 | `1,275 | 4,610 | 5,061 | 2,367 | 1,866 | 1,661 | |||||||||||||||||||||||||||||||||||
Income tax expense (benefit) |
(2,349 | ) | 1,424 | 2,229 | 658 | 1,865 | 2,124 | 495 | 1,691 | 1,855 | 928 | 732 | 651 | |||||||||||||||||||||||||||||||||||
Income (loss) from
continuing operations |
(1,175 | ) | 3,139 | 3,674 | 880 | 2,925 | 3,213 | 780 | 2,919 | 3,206 | 1,439 | 1,134 | 1,010 | |||||||||||||||||||||||||||||||||||
Income from discontinued
operations |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Income (loss) before
extraordinary gain |
(1,175 | ) | 3,139 | 3,674 | 880 | 2,925 | 3,213 | 780 | 2,919 | 3,206 | 1,439 | 1,134 | 1,010 | |||||||||||||||||||||||||||||||||||
Extraordinary gain(d) |
| | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (1,175 | ) | $ | 3,139 | $ | 3,674 | $ | 880 | $ | 2,925 | $ | 3,213 | $ | 780 | $ | 2,919 | $ | 3,206 | $ | 1,439 | $ | 1,134 | $ | 1,010 | |||||||||||||||||||||||
Average common equity |
$ | 26,098 | $ | 21,000 | $ | 20,753 | $ | 19,011 | $ | 16,000 | $ | 14,629 | $ | 14,326 | $ | 14,100 | $ | 14,100 | $ | 7,251 | $ | 6,502 | $ | 5,702 | ||||||||||||||||||||||||
Average assets |
832,729 | 700,565 | 647,569 | 304,442 | 241,112 | 231,566 | 173,711 | 155,957 | 148,153 | 114,299 | 87,140 | 57,754 | ||||||||||||||||||||||||||||||||||||
Return on average
common equity |
(5 | )% | 15 | % | 18 | % | 5 | % | 18 | % | 22 | % | 5 | % | 21 | % | 23 | % | 20 | % | 17 | % | 18 | % | ||||||||||||||||||||||||
Overhead ratio |
113 | 72 | 68 | 51 | 57 | 60 | 31 | 32 | 34 | 41 | 48 | 52 | ||||||||||||||||||||||||||||||||||||
(a) | In addition to analyzing the Firms results on a reported basis, management reviews the Firms results and the results of the lines of business on a managed basis, which is a non-GAAP financial measure. The Firms definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that do not have any impact on net income as reported by the lines of business or by the Firm as a whole. | |
(b) | TSS is charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. | |
(c) | Includes merger costs which are reported in the Corporate/Private Equity segment. Merger costs attributed to the business segments for 2008, 2007 and 2006 were as follows. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Investment Bank |
$ | 183 | $ | (2 | ) | $ | 2 | |||||
Retail Financial Services |
90 | 14 | 24 | |||||||||
Card Services |
20 | (1 | ) | 29 | ||||||||
Commercial Banking |
4 | (1 | ) | 1 | ||||||||
Treasury & Securities Services |
| 121 | 117 | |||||||||
Asset Management |
3 | 20 | 23 | |||||||||
Corporate/Private Equity |
132 | 58 | 109 | |||||||||
(d) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the FDIC for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale, such as premises and equipment and other intangibles, acquired in the Washington Mutual transaction were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain. | |
(e) | Included a $1.5 billion charge to conform Washington Mutuals loan loss reserve to JPMorgan Chases allowance methodology. |
214 | JPMorgan Chase & Co. / 2008 Annual Report |
Treasury & | Asset | Reconciling | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities Services | Management | Corporate/Private Equity | items(g)(h) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||
$ | 5,196 | $ | 4,681 | $ | 4,039 | $ | 6,066 | $ | 7,475 | $ | 5,816 | $ | (278 | ) | $ | 5,056 | $ | 1,058 | $ | 2,004 | $ | 2,572 | $ | 2,833 | $ | 28,473 | $ | 44,966 | $ | 40,757 | ||||||||||||||||||||||||||||
2,938 | 2,264 | 2,070 | 1,518 | 1,160 | 971 | 347 | (637 | ) | (1,044 | ) | (7,524 | ) | (6,012 | ) | (5,947 | ) | 38,779 | 26,406 | 21,242 | |||||||||||||||||||||||||||||||||||||||
8,134 | 6,945 | 6,109 | 7,584 | 8,635 | 6,787 | 69 | 4,419 | 14 | (5,520 | ) | (3,440 | ) | (3,114 | ) | 67,252 | 71,372 | 61,999 | |||||||||||||||||||||||||||||||||||||||||
82 | 19 | (1 | ) | 85 | (18 | ) | (28 | ) | 1,981 | (e)(f) | (11 | ) | (1 | ) | (3,612 | ) | (2,380 | ) | (2,210 | ) | 20,979 | 6,864 | 3,270 | |||||||||||||||||||||||||||||||||||
(121 | ) | (121 | ) | (121 | ) | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||||
5,223 | 4,580 | 4,266 | 5,298 | 5,515 | 4,578 | (28 | ) | 1,757 | 1,147 | | | | 43,500 | 41,703 | 38,843 | |||||||||||||||||||||||||||||||||||||||||||
2,708 | 2,225 | 1,723 | 2,201 | 3,138 | 2,237 | (1,884 | ) | 2,673 | (1,132 | ) | (1,908 | ) | (1,060 | ) | (904 | ) | 2,773 | 22,805 | 19,886 | |||||||||||||||||||||||||||||||||||||||
941 | 828 | 633 | 844 | 1,172 | 828 | (535 | ) | 788 | (1,179 | ) | (1,908 | ) | (1,060 | ) | (904 | ) | (926 | ) | 7,440 | 6,237 | ||||||||||||||||||||||||||||||||||||||
1,767 | 1,397 | 1,090 | 1,357 | 1,966 | 1,409 | (1,349 | ) | 1,885 | 47 | | | | 3,699 | 15,365 | 13,649 | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | 795 | | | | | | 795 | ||||||||||||||||||||||||||||||||||||||||||||
1,767 | 1,397 | 1,090 | 1,357 | 1,966 | 1,409 | (1,349 | ) | 1,885 | 842 | | | | 3,699 | 15,365 | 14,444 | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | 1,906 | | | | | | 1,906 | | | ||||||||||||||||||||||||||||||||||||||||||||
$ | 1,767 | $ | 1,397 | $ | 1,090 | $ | 1,357 | $ | 1,966 | $ | 1,409 | $ | 557 | $ | 1,885 | $ | 842 | $ | | $ | | $ | | $ | 5,605 | $ | 15,365 | $ | 14,444 | |||||||||||||||||||||||||||||
$ | 3,751 | $ | 3,000 | $ | 2,285 | $ | 5,645 | $ | 3,876 | $ | 3,500 | $ | 53,034 | $ | 54,245 | $ | 49,728 | $ | | $ | | $ | | $ | 129,116 | $ | 118,723 | $ | 110,697 | |||||||||||||||||||||||||||||
54,563 | 53,350 | 31,760 | 65,550 | 51,882 | 43,635 | 323,227 | 231,818 | 218,623 | (76,904 | ) | (66,780 | ) | (65,266 | ) | 1,791,617 | 1,455,044 | 1,313,794 | |||||||||||||||||||||||||||||||||||||||||
47 | % | 47 | % | 48 | % | 24 | % | 51 | % | 40 | % | NM | NM | NM | NM | NM | NM | 4 | %(i) | 13 | % | 13 | %(i) | |||||||||||||||||||||||||||||||||||
64 | 66 | 70 | 70 | 64 | 67 | NM | NM | NM | NM | NM | NM | 65 | 58 | 63 | ||||||||||||||||||||||||||||||||||||||||||||
(f) | In November 2008, the Firm transferred $5.8 billion of higher quality credit card loans from the legacy Chase portfolio to a securitization trust previously established by Washington Mutual (the Trust). As a result of converting higher credit quality Chase-originated on-book receivables to the Trusts sellers interest which has a higher overall loss rate reflective of the total assets within the Trust, approximately $400 million of incremental provision expense was recorded during the fourth quarter. This incremental provision expense was recorded in the Corporate segment as the action related to the acquisition of Washington Mutuals banking operations. For further discussion of credit card securitizations, see Note 16 on pages 169-170 of this Annual Report. | |
(g) | Managed results for credit card exclude the impact of CS securitizations on total net revenue, provision for credit losses and average assets, as JPMorgan Chase treats the sold receivables as if they were still on the balance sheet in evaluating the credit performance of the entire managed credit card portfolio as operations are funded, and decisions are made about allocating resources such as employees and capital, based upon managed information. These adjustments are eliminated in reconciling items to arrive at the Firms reported U.S. GAAP results. The related securitization adjustments were as follows. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Noninterest revenue |
$ | (3,333 | ) | $ | (3,255 | ) | $ | (3,509 | ) | |||
Net interest income |
6,945 | 5,635 | 5,719 | |||||||||
Provision for credit losses |
3,612 | 2,380 | 2,210 | |||||||||
Average assets |
76,904 | 66,780 | 65,266 | |||||||||
(h) | Segment managed results reflect revenue on a tax-equivalent basis with the corresponding income tax impact recorded within income tax expense (benefit). These adjustments are eliminated in reconciling items to arrive at the Firms reported U.S. GAAP results. Tax-equivalent adjustments for the years ended December 31, 2008, 2007 and 2006 were as follows. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | |||||||||
Noninterest
revenue |
$ | 1,329 | $ | 683 | $ | 676 | ||||||
Net interest income |
579 | 377 | 228 | |||||||||
Income tax
expense |
1,908 | 1,060 | 904 | |||||||||
(i) | Ratio is based upon net income. |
JPMorgan Chase & Co. / 2008 Annual Report | 215 |
(in millions, except per share, ratio and headcount data) | 2008(i) | 2007 | ||||||||||||||||||||||||||||||
As of or for the period ended | 4th | 3rd | 2nd | 1st | 4th | 3rd | 2nd | 1st | ||||||||||||||||||||||||
Selected income statement data |
||||||||||||||||||||||||||||||||
Noninterest revenue(a) |
$ | 3,394 | $ | 5,743 | $ | 10,105 | $ | 9,231 | $ | 10,161 | $ | 9,199 | $ | 12,740 | $ | 12,866 | ||||||||||||||||
Net interest income |
13,832 | 8,994 | 8,294 | 7,659 | 7,223 | 6,913 | 6,168 | 6,102 | ||||||||||||||||||||||||
Total net revenue |
17,226 | 14,737 | 18,399 | 16,890 | 17,384 | 16,112 | 18,908 | 18,968 | ||||||||||||||||||||||||
Provision for credit losses |
7,755 | 3,811 | 3,455 | 4,424 | 2,542 | 1,785 | 1,529 | 1,008 | ||||||||||||||||||||||||
Provision for credit losses accounting
conformity(b) |
(442 | ) | 1,976 | | | | | | | |||||||||||||||||||||||
Total noninterest expense |
11,255 | 11,137 | 12,177 | 8,931 | 10,720 | 9,327 | 11,028 | 10,628 | ||||||||||||||||||||||||
Income (loss) before income tax expense
(benefit) and extraordinary gain |
(1,342 | ) | (2,187 | ) | 2,767 | 3,535 | 4,122 | 5,000 | 6,351 | 7,332 | ||||||||||||||||||||||
Income tax expense (benefit) |
(719 | ) | (2,133 | ) | 764 | 1,162 | 1,151 | 1,627 | 2,117 | 2,545 | ||||||||||||||||||||||
Income (loss) before extraordinary gain |
(623 | ) | (54 | ) | 2,003 | 2,373 | 2,971 | 3,373 | 4,234 | 4,787 | ||||||||||||||||||||||
Extraordinary gain(c) |
1,325 | 581 | | | | | | | ||||||||||||||||||||||||
Net income |
$ | 702 | $ | 527 | $ | 2,003 | $ | 2,373 | $ | 2,971 | $ | 3,373 | $ | 4,234 | $ | 4,787 | ||||||||||||||||
Per common share |
||||||||||||||||||||||||||||||||
Basic earnings |
||||||||||||||||||||||||||||||||
Income (loss) before extraordinary gain |
$ | (0.28 | ) | $ | (0.06 | ) | $ | 0.56 | $ | 0.70 | $ | 0.88 | $ | 1.00 | $ | 1.24 | $ | 1.38 | ||||||||||||||
Net income |
0.07 | 0.11 | 0.56 | 0.70 | 0.88 | 1.00 | 1.24 | 1.38 | ||||||||||||||||||||||||
Diluted earnings |
||||||||||||||||||||||||||||||||
Income (loss) before extraordinary gain |
$ | (0.28 | ) | $ | (0.06 | ) | $ | 0.54 | $ | 0.68 | $ | 0.86 | $ | 0.97 | $ | 1.20 | $ | 1.34 | ||||||||||||||
Net income |
0.07 | 0.11 | 0.54 | 0.68 | 0.86 | 0.97 | 1.20 | 1.34 | ||||||||||||||||||||||||
Cash dividends declared per share |
0.38 | 0.38 | 0.38 | 0.38 | 0.38 | 0.38 | 0.38 | 0.34 | ||||||||||||||||||||||||
Book value per share |
36.15 | 36.95 | 37.02 | 36.94 | 36.59 | 35.72 | 35.08 | 34.45 | ||||||||||||||||||||||||
Common shares outstanding |
||||||||||||||||||||||||||||||||
Average: Basic |
3,738 | 3,445 | 3,426 | 3,396 | 3,367 | 3,376 | 3,415 | 3,456 | ||||||||||||||||||||||||
Diluted |
3,738 | (h) | 3,445 | (h) | 3,531 | 3,495 | 3,472 | 3,478 | 3,522 | 3,560 | ||||||||||||||||||||||
Common shares at period end |
3,733 | 3,727 | 3,436 | 3,401 | 3,367 | 3,359 | 3,399 | 3,416 | ||||||||||||||||||||||||
Share price(d) |
||||||||||||||||||||||||||||||||
High |
$ | 50.63 | $ | 49.00 | $ | 49.95 | $ | 49.29 | $ | 48.02 | $ | 50.48 | $ | 53.25 | $ | 51.95 | ||||||||||||||||
Low |
19.69 | 29.24 | 33.96 | 36.01 | 40.15 | 42.16 | 47.70 | 45.91 | ||||||||||||||||||||||||
Close |
31.53 | 46.70 | 34.31 | 42.95 | 43.65 | 45.82 | 48.45 | 48.38 | ||||||||||||||||||||||||
Market capitalization |
117,695 | 174,048 | 117,881 | 146,066 | 146,986 | 153,901 | 164,659 | 165,280 | ||||||||||||||||||||||||
Financial ratios |
||||||||||||||||||||||||||||||||
Return on common equity: |
||||||||||||||||||||||||||||||||
Income (loss) before extraordinary gain |
(3 | )% | (1 | )% | 6 | % | 8 | % | 10 | % | 11 | % | 14 | % | 17 | % | ||||||||||||||||
Net income |
1 | 1 | 6 | 8 | 10 | 11 | 14 | 17 | ||||||||||||||||||||||||
Return on assets: |
||||||||||||||||||||||||||||||||
Income (loss) before extraordinary gain |
(0.11 | ) | (0.01 | ) | 0.48 | 0.61 | 0.77 | 0.91 | 1.19 | 1.41 | ||||||||||||||||||||||
Net income |
0.13 | 0.12 | 0.48 | 0.61 | 0.77 | 0.91 | 1.19 | 1.41 | ||||||||||||||||||||||||
Tier 1 capital ratio |
10.9 | 8.9 | 9.2 | 8.3 | 8.4 | 8.4 | 8.4 | 8.5 | ||||||||||||||||||||||||
Total capital ratio |
14.8 | 12.6 | 13.4 | 12.5 | 12.6 | 12.5 | 12.0 | 11.8 | ||||||||||||||||||||||||
Tier 1 leverage ratio |
6.9 | 7.2 | 6.4 | 5.9 | 6.0 | 6.0 | 6.2 | 6.2 | ||||||||||||||||||||||||
Overhead ratio |
65 | 76 | 66 | 53 | 62 | 58 | 58 | 56 | ||||||||||||||||||||||||
Selected balance sheet data (period-end) |
||||||||||||||||||||||||||||||||
Trading assets |
$ | 509,983 | $ | 520,257 | $ | 531,997 | $ | 485,280 | $ | 491,409 | $ | 453,711 | $ | 450,546 | $ | 423,331 | ||||||||||||||||
Securities |
205,943 | 150,779 | 119,173 | 101,647 | 85,450 | 97,706 | 95,984 | 97,029 | ||||||||||||||||||||||||
Loans |
744,898 | 761,381 | 538,029 | 537,056 | 519,374 | 486,320 | 465,037 | 449,765 | ||||||||||||||||||||||||
Total assets |
2,175,052 | 2,251,469 | 1,775,670 | 1,642,862 | 1,562,147 | 1,479,575 | 1,458,042 | 1,408,918 | ||||||||||||||||||||||||
Deposits |
1,009,277 | 969,783 | 722,905 | 761,626 | 740,728 | 678,091 | 651,370 | 626,428 | ||||||||||||||||||||||||
Long-term debt |
252,094 | 238,034 | 260,192 | 189,995 | 183,862 | 173,696 | 159,493 | 143,274 | ||||||||||||||||||||||||
Common stockholders equity |
134,945 | 137,691 | 127,176 | 125,627 | 123,221 | 119,978 | 119,211 | 117,704 | ||||||||||||||||||||||||
Total stockholders equity |
166,884 | 145,843 | 133,176 | 125,627 | 123,221 | 119,978 | 119,211 | 117,704 | ||||||||||||||||||||||||
Headcount |
224,961 | 228,452 | 195,594 | 182,166 | 180,667 | 179,847 | 179,664 | 176,314 | ||||||||||||||||||||||||
Credit quality metrics |
||||||||||||||||||||||||||||||||
Allowance for credit losses |
$ | 23,823 | $ | 19,765 | $ | 13,932 | $ | 12,601 | $ | 10,084 | $ | 8,971 | $ | 8,399 | $ | 7,853 | ||||||||||||||||
Nonperforming assets(e)(f) |
12,714 | 9,520 | 6,233 | 5,143 | 3,933 | 3,009 | 2,423 | 2,212 | ||||||||||||||||||||||||
Allowance for loan losses to total loans(g) |
3.18 | % | 2.56 | % | 2.57 | % | 2.29 | % | 1.88 | % | 1.76 | % | 1.71 | % | 1.74 | % | ||||||||||||||||
Net charge-offs |
$ | 3,315 | $ | 2,484 | $ | 2,130 | $ | 1,906 | $ | 1,429 | $ | 1,221 | $ | 985 | $ | 903 | ||||||||||||||||
Net charge-off rate(g) |
1.80 | % | 1.91 | % | 1.67 | % | 1.53 | % | 1.19 | % | 1.07 | % | 0.90 | % | 0.85 | % | ||||||||||||||||
Wholesale net charge-off (recovery) rate(g) |
0.33 | 0.10 | 0.08 | 0.18 | 0.05 | 0.19 | (0.07 | ) | (0.02 | ) | ||||||||||||||||||||||
Consumer net charge-off rate(g) |
2.59 | 3.13 | 2.77 | 2.43 | 1.93 | 1.62 | 1.50 | 1.37 | ||||||||||||||||||||||||
Managed card net charge-off rate |
5.56 | 5.00 | 4.98 | 4.37 | 3.89 | 3.64 | 3.62 | 3.57 | ||||||||||||||||||||||||
(a) | The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages 129143 of this Annual Report for additional information. | |
(b) | For a discussion of accounting conformity, see provision for credit losses on page 35 and consumer credit portfolio discussion on page 91. | |
(c) | For a discussion of the extraordinary gain, see Note 2 on pages 123128. | |
(d) | JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chases common stock are from The New York Stock Exchange Composite Transaction Tape. | |
(e) | Excludes purchased wholesale loans held-for-sale. | |
(f) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. | |
(g) | End-of-period and average loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratios and net charge-off rates, respectively. | |
(h) | Common equivalent shares have been excluded from the computation of diluted earnings per share for the third quarter of 2008, as the effect on income (loss) before extraordinary gain would be antidilutive. | |
(i) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. |
216 | JPMorgan Chase & Co. / 2008 Annual Report |
(in millions, except per share, headcount and ratio data) | ||||||||||||||||||||
As of or for the year ended December 31, | 2008 | (i) | 2007 | 2006 | 2005 | 2004 | (j) | |||||||||||||
Selected income statement data |
||||||||||||||||||||
Noninterest revenue(a) |
$ | 28,473 | $ | 44,966 | $ | 40,757 | $ | 34,693 | $ | 26,209 | ||||||||||
Net interest income |
38,779 | 26,406 | 21,242 | 19,555 | 16,527 | |||||||||||||||
Total net revenue |
67,252 | 71,372 | 61,999 | 54,248 | 42,736 | |||||||||||||||
Provision for credit losses |
19,445 | 6,864 | 3,270 | 3,483 | 1,686 | |||||||||||||||
Provision for credit losses accounting conformity(b) |
1,534 | | | | 858 | |||||||||||||||
Total noninterest expense |
43,500 | 41,703 | 38,843 | 38,926 | 34,336 | |||||||||||||||
Income from continuing operations before income tax expense
(benefit) |
2,773 | 22,805 | 19,886 | 11,839 | 5,856 | |||||||||||||||
Income tax expense (benefit) |
(926 | ) | 7,440 | 6,237 | 3,585 | 1,596 | ||||||||||||||
Income from continuing operations |
3,699 | 15,365 | 13,649 | 8,254 | 4,260 | |||||||||||||||
Income from discontinued operations(c) |
| | 795 | 229 | 206 | |||||||||||||||
Income before extraordinary gain |
3,699 | 15,365 | 14,444 | 8,483 | 4,466 | |||||||||||||||
Extraordinary gain(d) |
1,906 | | | | | |||||||||||||||
Net income |
$ | 5,605 | $ | 15,365 | $ | 14,444 | $ | 8,483 | $ | 4,466 | ||||||||||
Per common share |
||||||||||||||||||||
Basic earnings per share |
||||||||||||||||||||
Income from continuing operations |
$ | 0.86 | $ | 4.51 | $ | 3.93 | $ | 2.36 | $ | 1.51 | ||||||||||
Net income |
1.41 | 4.51 | 4.16 | 2.43 | 1.59 | |||||||||||||||
Diluted earnings per share |
||||||||||||||||||||
Income from continuing operations |
$ | 0.84 | $ | 4.38 | $ | 3.82 | $ | 2.32 | $ | 1.48 | ||||||||||
Net income |
1.37 | 4.38 | 4.04 | 2.38 | 1.55 | |||||||||||||||
Cash dividends declared per share |
1.52 | 1.48 | 1.36 | 1.36 | 1.36 | |||||||||||||||
Book value per share |
36.15 | 36.59 | 33.45 | 30.71 | 29.61 | |||||||||||||||
Common shares outstanding |
||||||||||||||||||||
Average: Basic |
3,501 | 3,404 | 3,470 | 3,492 | 2,780 | |||||||||||||||
Diluted |
3,605 | 3,508 | 3,574 | 3,557 | 2,851 | |||||||||||||||
Common shares at period end |
3,733 | 3,367 | 3,462 | 3,487 | 3,556 | |||||||||||||||
Share price(e) |
||||||||||||||||||||
High |
$ | 50.63 | $ | 53.25 | $ | 49.00 | $ | 40.56 | $ | 43.84 | ||||||||||
Low |
19.69 | 40.15 | 37.88 | 32.92 | 34.62 | |||||||||||||||
Close |
31.53 | 43.65 | 48.30 | 39.69 | 39.01 | |||||||||||||||
Market capitalization |
117,695 | 146,986 | 167,199 | 138,387 | 138,727 | |||||||||||||||
Financial ratios |
||||||||||||||||||||
Return on common equity: |
||||||||||||||||||||
Income from continuing operations |
2 | % | 13 | % | 12 | % | 8 | % | 6 | % | ||||||||||
Net income |
4 | 13 | 13 | 8 | 6 | |||||||||||||||
Return on assets: |
||||||||||||||||||||
Income from continuing operations |
0.21 | 1.06 | 1.04 | 0.70 | 0.44 | |||||||||||||||
Net income |
0.31 | 1.06 | 1.10 | 0.72 | 0.46 | |||||||||||||||
Tier 1 capital ratio |
10.9 | 8.4 | 8.7 | 8.5 | 8.7 | |||||||||||||||
Total capital ratio |
14.8 | 12.6 | 12.3 | 12.0 | 12.2 | |||||||||||||||
Tier 1 leverage ratio |
6.9 | 6.0 | 6.2 | 6.3 | 6.2 | |||||||||||||||
Overhead ratio |
65 | 58 | 63 | 72 | 80 | |||||||||||||||
Selected balance sheet data (period-end) |
||||||||||||||||||||
Trading assets |
$ | 509,983 | $ | 491,409 | $ | 365,738 | $ | 298,377 | $ | 288,814 | ||||||||||
Securities |
205,943 | 85,450 | 91,975 | 47,600 | 94,512 | |||||||||||||||
Loans |
744,898 | 519,374 | 483,127 | 419,148 | 402,114 | |||||||||||||||
Total assets |
2,175,052 | 1,562,147 | 1,351,520 | 1,198,942 | 1,157,248 | |||||||||||||||
Deposits |
1,009,277 | 740,728 | 638,788 | 554,991 | 521,456 | |||||||||||||||
Long-term debt |
252,094 | 183,862 | 133,421 | 108,357 | 95,422 | |||||||||||||||
Common stockholders equity |
134,945 | 123,221 | 115,790 | 107,072 | 105,314 | |||||||||||||||
Total stockholders equity |
166,884 | 123,221 | 115,790 | 107,211 | 105,653 | |||||||||||||||
Headcount |
224,961 | 180,667 | 174,360 | 168,847 | 160,968 | |||||||||||||||
Credit quality metrics |
||||||||||||||||||||
Allowance for credit losses |
$ | 23,823 | $ | 10,084 | $ | 7,803 | $ | 7,490 | $ | 7,812 | ||||||||||
Nonperforming assets(f)(g) |
12,714 | 3,933 | 2,341 | 2,590 | 3,231 | |||||||||||||||
Allowance for loan losses to total loans(h) |
3.18 | % | 1.88 | % | 1.70 | % | 1.84 | % | 1.94 | % | ||||||||||
Net charge-offs |
$ | 9,835 | $ | 4,538 | $ | 3,042 | $ | 3,819 | $ | 3,099 | ||||||||||
Net charge-off rate(h) |
1.73 | % | 1.00 | % | 0.73 | % | 1.00 | % | 1.08 | % | ||||||||||
Wholesale net charge-off (recovery) rate(h) |
0.18 | 0.04 | (0.01 | ) | (0.06 | ) | 0.18 | |||||||||||||
Consumer net charge-off rate(h) |
2.71 | 1.61 | 1.17 | 1.56 | 1.56 | |||||||||||||||
Managed card net charge-off rate |
5.01 | 3.68 | 3.33 | 5.21 | 5.27 | |||||||||||||||
(a) | The Firm adopted SFAS 157 in the first quarter of 2007. See Note 4 on pages 129143 of this Annual Report for additional information. | |
(b) | For a discussion of accounting conformity, see provision for credit losses on page 35 and consumer credit portfolio discussion on page 91. | |
(c) | On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust businesses for the consumer, business banking and middle-market banking businesses of The Bank of New York Company Inc. The results of operations of these corporate trust businesses are reported as discontinued operations for each period prior to 2007. | |
(d) | For a discussion of the extraordinary gain, see Note 2 on pages 123128. | |
(e) | JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chases common stock are from The New York Stock Exchange Composite Transaction Tape. | |
(f) | Excludes purchased wholesale loans held-for-sale. | |
(g) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Periods prior to 2007 have not been revised as the impact was not material. | |
(h) | End-of-period and average loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratios and net charge-off rates, respectively. | |
(i) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128 of this Annual Report. | |
(j) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
JPMorgan Chase & Co. / 2008 Annual Report | 217 |
218 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 219 |
220 | JPMorgan Chase & Co. / 2008 Annual Report |
JPMorgan Chase & Co. / 2008 Annual Report | 221 |
2008(d) | ||||||||||||
Year ended December 31, | Average | Average | ||||||||||
(Taxable-equivalent interest and rates; in millions, except rates) | balance | Interest | rate | |||||||||
Assets |
||||||||||||
Deposits with banks |
$ | 54,666 | $ | 1,916 | 3.51 | % | ||||||
Federal funds sold and securities purchased under resale agreements |
170,006 | 5,983 | 3.52 | |||||||||
Securities borrowed |
110,598 | 2,297 | 2.08 | |||||||||
Trading
assets debt instruments |
298,266 | 17,556 | 5.89 | |||||||||
Securities |
123,551 | 6,447 | 5.22 | (g) | ||||||||
Interests in purchased receivables |
| | | |||||||||
Loans |
588,801 | 38,503 | (f) | 6.54 | ||||||||
Other assets(a) |
27,404 | 895 | 3.27 | |||||||||
Total interest-earning assets |
1,373,292 | 73,597 | 5.36 | |||||||||
Allowance for loan losses |
(13,477 | ) | ||||||||||
Cash and due from banks |
30,323 | |||||||||||
Trading
assets equity instruments |
85,836 | |||||||||||
Trading
assets derivative receivables |
121,417 | |||||||||||
Goodwill |
46,068 | |||||||||||
Other intangible assets |
||||||||||||
Mortgage servicing rights |
11,229 | |||||||||||
Purchased credit card relationships |
1,976 | |||||||||||
All other intangibles |
3,803 | |||||||||||
All other assets |
131,150 | |||||||||||
Assets of discontinued operations held-for-sale(b) |
| |||||||||||
Total assets |
$ | 1,791,617 | ||||||||||
Liabilities |
||||||||||||
Interest-bearing deposits |
$ | 645,058 | $ | 14,546 | 2.26 | % | ||||||
Federal funds purchased and securities loaned or sold under
repurchase agreements |
196,739 | 4,668 | 2.37 | |||||||||
Commercial paper |
45,734 | 1,023 | 2.24 | |||||||||
Other borrowings and liabilities(c) |
161,555 | 5,242 | 3.24 | |||||||||
Beneficial interests issued by consolidated VIEs |
13,220 | 405 | 3.06 | |||||||||
Long-term debt |
234,909 | 8,355 | 3.56 | |||||||||
Total interest-bearing liabilities |
1,297,215 | 34,239 | 2.64 | |||||||||
Noninterest-bearing deposits |
140,749 | |||||||||||
Trading
liabilities derivative payables |
93,200 | |||||||||||
All other liabilities, including the allowance for lending-related
commitments |
122,199 | |||||||||||
Liabilities of discontinued operations held-for-sale(b) |
| |||||||||||
Total liabilities |
1,653,363 | |||||||||||
Stockholders equity |
||||||||||||
Preferred stock |
9,138 | |||||||||||
Common stockholders equity |
129,116 | |||||||||||
Total stockholders equity |
138,254 | (e) | ||||||||||
Total liabilities, preferred stock of subsidiary and stockholders
equity |
$ | 1,791,617 | ||||||||||
Interest rate spread |
2.72 | % | ||||||||||
Net interest income and net yield on interest-earning assets |
$ | 39,358 | 2.87 | |||||||||
(a) | Includes margin loans and the Firms investment in asset-backed commercial paper under the Federal Reserve Bank of Bostons AML facility. | |
(b) | For purposes of the consolidated average balance sheet for assets and liabilities transferred to discontinued operations, JPMorgan Chase used federal funds sold interest income as a reasonable estimate of the earnings on corporate trust deposits; therefore, JPMorgan Chase transferred to assets of discontinued operations held-for-sale average federal funds sold, along with the related interest income earned, and transferred to liabilities of discontinued operations held-for-sale average corporate trust deposits. | |
(c) | Includes securities sold but not yet purchased, brokerage customer payables and advances from federal home loan banks. | |
(d) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128. | |
(e) | The ratio of average stockholders equity to average assets was 7.7% for 2008, 8.2% for 2007 and 8.4% for 2006. The return on average stockholders equity was 4.1% for 2008, 12.9% for 2007 and 13.0% for 2006. | |
(f) | Fees and commissions on loans included in loan interest amounted to $2.0 billion in 2008, $1.7 billion in 2007 and $1.2 billion in 2006. | |
(g) | The annualized rate for available-for-sale securities based on amortized cost was 5.17% in 2008, 5.64% in 2007, and 5.49% in 2006, and does not give effect to changes in fair value that are reflected in accumulated other comprehensive income (loss). |
222 | JPMorgan Chase & Co. / 2008 Annual Report |
2007 | 2006 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | |||||||||||||||||||
$ | 29,010 | $ | 1,418 | 4.89 | % | $ | 27,730 | $ | 1,265 | 4.56 | % | |||||||||||||
135,677 | 6,497 | 4.79 | 132,118 | 5,578 | 4.22 | |||||||||||||||||||
86,072 | 4,539 | 5.27 | 83,831 | 3,402 | 4.06 | |||||||||||||||||||
292,846 | 17,241 | 5.89 | 205,506 | 11,120 | 5.41 | |||||||||||||||||||
95,290 | 5,387 | 5.65 | (g) | 77,845 | 4,304 | 5.53 | (g) | |||||||||||||||||
| | | 13,941 | 652 | 4.68 | |||||||||||||||||||
479,679 | 36,682 | (f) | 7.65 | 454,535 | 33,014 | (f) | 7.26 | |||||||||||||||||
| | | | | | |||||||||||||||||||
1,118,574 | 71,764 | 6.42 | 995,506 | 59,335 | 5.96 | |||||||||||||||||||
(7,620 | ) | (7,165 | ) | |||||||||||||||||||||
32,781 | 31,171 | |||||||||||||||||||||||
88,569 | 74,573 | |||||||||||||||||||||||
65,439 | 57,368 | |||||||||||||||||||||||
45,226 | 43,872 | |||||||||||||||||||||||
8,565 | 7,484 | |||||||||||||||||||||||
2,590 | 3,113 | |||||||||||||||||||||||
4,094 | 4,307 | |||||||||||||||||||||||
96,826 | 87,068 | |||||||||||||||||||||||
| 16,497 | |||||||||||||||||||||||
$ | 1,455,044 | $ | 1,313,794 | |||||||||||||||||||||
$ | 535,359 | $ | 21,653 | 4.04 | % | $ | 452,323 | $ | 17,042 | 3.77 | % | |||||||||||||
196,500 | 9,785 | 4.98 | 183,783 | 8,187 | 4.45 | |||||||||||||||||||
30,799 | 1,434 | 4.65 | 17,710 | 794 | 4.49 | |||||||||||||||||||
100,181 | 4,923 | 4.91 | 102,147 | 5,105 | 5.00 | |||||||||||||||||||
14,563 | 580 | 3.98 | 28,652 | 1,234 | 4.31 | |||||||||||||||||||
170,206 | 6,606 | 3.88 | 129,667 | 5,503 | 4.24 | |||||||||||||||||||
1,047,608 | 44,981 | 4.29 | 914,282 | 37,865 | 4.14 | |||||||||||||||||||
121,861 | 124,550 | |||||||||||||||||||||||
65,198 | 57,938 | |||||||||||||||||||||||
101,654 | 90,506 | |||||||||||||||||||||||
| 15,787 | |||||||||||||||||||||||
1,336,321 | 1,203,063 | |||||||||||||||||||||||
| 34 | |||||||||||||||||||||||
118,723 | 110,697 | |||||||||||||||||||||||
118,723 | (e) | 110,731 | (e) | |||||||||||||||||||||
$ | 1,455,044 | $ | 1,313,794 | |||||||||||||||||||||
2.13 | % | 1.82 | % | |||||||||||||||||||||
$ | 26,783 | 2.39 | $ | 21,470 | 2.16 | |||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 223 |
2008(b) | ||||||||||||
Year ended December 31, | Average | Average | ||||||||||
(Taxable-equivalent interest and rates; in millions, except rates) | balance | Interest | rate | |||||||||
Interest-earning assets: |
||||||||||||
Deposits with banks, primarily non-U.S. |
$ | 54,666 | $ | 1,916 | 3.51 | % | ||||||
Federal funds sold and securities purchased under resale agreements: |
||||||||||||
U.S. |
95,301 | 3,084 | 3.24 | |||||||||
Non-U.S. |
74,705 | 2,899 | 3.88 | |||||||||
Securities borrowed: |
||||||||||||
U.S. |
60,592 | 985 | 1.63 | |||||||||
Non-U.S. |
50,006 | 1,312 | 2.62 | |||||||||
Trading assets debt instruments: |
||||||||||||
U.S. |
169,447 | 9,614 | 5.67 | |||||||||
Non-U.S. |
128,819 | 7,942 | 6.17 | |||||||||
Securities: |
||||||||||||
U.S. |
108,663 | 5,859 | 5.39 | |||||||||
Non-U.S. |
14,888 | 588 | 3.95 | |||||||||
Interests in purchased receivables, primarily U.S. |
| | | |||||||||
Loans: |
||||||||||||
U.S. |
506,513 | 33,570 | 6.63 | |||||||||
Non-U.S. |
82,288 | 4,933 | 5.99 | |||||||||
Other assets, primarily U.S. |
27,404 | 895 | 3.27 | |||||||||
Total interest-earning assets |
$ | 1,373,292 | $ | 73,597 | 5.36 | % | ||||||
Interest-bearing liabilities: |
||||||||||||
Interest-bearing deposits: |
||||||||||||
U.S. |
$ | 407,699 | $ | 8,420 | 2.07 | % | ||||||
Non-U.S. |
237,359 | 6,126 | 2.58 | |||||||||
Federal funds purchased and securities loaned or sold under
repurchase agreements: |
||||||||||||
U.S. |
158,054 | 3,326 | 2.10 | |||||||||
Non-U.S. |
38,685 | 1,342 | 3.47 | |||||||||
Other borrowings and liabilities: |
||||||||||||
U.S. |
161,509 | 3,390 | 2.10 | |||||||||
Non-U.S. |
45,780 | 2,875 | 6.28 | |||||||||
Beneficial interests issued by consolidated VIEs, primarily U.S. |
13,220 | 405 | 3.06 | |||||||||
Long-term debt, primarily U.S. |
234,909 | 8,355 | 3.56 | |||||||||
Intracompany funding: |
||||||||||||
U.S. |
(17,637 | ) | (927 | ) | | |||||||
Non-U.S. |
17,637 | 927 | | |||||||||
Total interest-bearing liabilities |
1,297,215 | 34,239 | 2.64 | |||||||||
Noninterest-bearing liabilities(a) |
76,077 | |||||||||||
Total investable funds |
$ | 1,373,292 | $ | 34,239 | 2.49 | % | ||||||
Net interest income and net yield: |
$ | 39,358 | 2.87 | % | ||||||||
U.S. |
31,651 | 3.24 | ||||||||||
Non-U.S. |
7,707 | 1.95 | ||||||||||
Percentage of total assets and liabilities attributable
to non-U.S. operations: |
||||||||||||
Assets |
30.4 | |||||||||||
Liabilities |
28.0 | |||||||||||
(a) | Represents the amount of noninterest-bearing liabilities funding interest-earning assets. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123128. |
224 | JPMorgan Chase & Co. / 2008 Annual Report |
2007 | 2006 | |||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||
balance | Interest | rate | balance | Interest | rate | |||||||||||||||||
$ | 29,010 | $ | 1,418 | 4.89 | % | $ | 27,730 | $ | 1,265 | 4.56 | % | |||||||||||
71,467 | 3,672 | 5.14 | 66,627 | 3,647 | 5.47 | |||||||||||||||||
64,210 | 2,825 | 4.40 | 65,491 | 1,931 | 2.95 | |||||||||||||||||
39,855 | 2,472 | 6.20 | 36,016 | 1,848 | 5.13 | |||||||||||||||||
46,217 | 2,067 | 4.47 | 47,815 | 1,554 | 3.25 | |||||||||||||||||
148,071 | 9,235 | 6.24 | 88,492 | 5,471 | 6.18 | |||||||||||||||||
144,775 | 8,006 | 5.53 | 117,014 | 5,649 | 4.83 | |||||||||||||||||
82,405 | 4,855 | 5.89 | 68,477 | 3,951 | 5.77 | |||||||||||||||||
12,885 | 532 | 4.13 | 9,368 | 353 | 3.77 | |||||||||||||||||
| | | 13,941 | 652 | 4.68 | |||||||||||||||||
413,507 | 32,483 | 7.86 | 402,295 | 29,475 | 7.33 | |||||||||||||||||
66,172 | 4,199 | 6.35 | 52,240 | 3,539 | 6.77 | |||||||||||||||||
| | | | | | |||||||||||||||||
$ | 1,118,574 | $ | 71,764 | 6.42 | % | $ | 995,506 | $ | 59,335 | 5.96 | % | |||||||||||
$ | 353,133 | $ | 13,641 | 3.86 | % | $ | 313,835 | $ | 11,551 | 3.68 | % | |||||||||||
182,226 | 8,012 | 4.40 | 138,488 | 5,491 | 3.96 | |||||||||||||||||
148,918 | 7,826 | 5.26 | 137,439 | 6,729 | 4.90 | |||||||||||||||||
47,582 | 1,959 | 4.12 | 46,344 | 1,458 | 3.15 | |||||||||||||||||
76,585 | 3,897 | 5.09 | 55,300 | 3,368 | 6.09 | |||||||||||||||||
54,395 | 2,460 | 4.52 | 64,557 | 2,531 | 3.92 | |||||||||||||||||
14,563 | 580 | 3.98 | 28,652 | 1,234 | 4.31 | |||||||||||||||||
170,206 | 6,606 | 3.88 | 129,667 | 5,503 | 4.24 | |||||||||||||||||
(17,054 | ) | (555 | ) | | (49,972 | ) | (2,088 | ) | | |||||||||||||
17,054 | 555 | | 49,972 | 2,088 | | |||||||||||||||||
1,047,608 | 44,981 | 4.29 | 914,282 | 37,865 | 4.14 | |||||||||||||||||
70,966 | 81,224 | |||||||||||||||||||||
$ | 1,118,574 | $ | 44,981 | 4.02 | % | $ | 995,506 | $ | 37,865 | 3.80 | % | |||||||||||
$ | 26,783 | 2.39 | % | $ | 21,470 | 2.16 | % | |||||||||||||||
21,007 | 2.78 | 19,430 | 2.87 | |||||||||||||||||||
5,776 | 1.59 | 2,040 | 0.64 | |||||||||||||||||||
36.5 | 35.3 | |||||||||||||||||||||
34.1 | 31.8 | |||||||||||||||||||||
JPMorgan Chase & Co. / 2008 Annual Report | 225 |
2008 versus 2007 | 2007 versus 2006 | |||||||||||||||||||||||
Increase (decrease) due to change in: | Net | Increase (decrease) due to change in: | Net | |||||||||||||||||||||
(On a taxable equivalent basis; in millions) | Volume | Rate | change | Volume | Rate | change | ||||||||||||||||||
Interest-earning assets |
||||||||||||||||||||||||
Deposits with banks, primarily non-U.S. |
$ | 898 | $ | (400 | ) | $ | 498 | $ | 61 | $ | 92 | $ | 153 | |||||||||||
Federal funds sold and securities
purchased under resale agreements: |
||||||||||||||||||||||||
U.S. |
770 | (1,358 | ) | (588 | ) | 245 | (220 | ) | 25 | |||||||||||||||
Non-U.S. |
408 | (334 | ) | 74 | (56 | ) | 950 | 894 | ||||||||||||||||
Securities borrowed: |
||||||||||||||||||||||||
U.S. |
334 | (1,821 | ) | (1,487 | ) | 239 | 385 | 624 | ||||||||||||||||
Non-U.S. |
100 | (855 | ) | (755 | ) | (70 | ) | 583 | 513 | |||||||||||||||
Trading assets debt instruments: |
||||||||||||||||||||||||
U.S. |
1,223 | (844 | ) | 379 | 3,711 | 53 | 3,764 | |||||||||||||||||
Non-U.S. |
(991 | ) | 927 | (64 | ) | 1,538 | 819 | 2,357 | ||||||||||||||||
Securities: |
||||||||||||||||||||||||
U.S. |
1,416 | (412 | ) | 1,004 | 822 | 82 | 904 | |||||||||||||||||
Non-U.S. |
79 | (23 | ) | 56 | 145 | 34 | 179 | |||||||||||||||||
Interests in purchased receivables,
primarily U.S. |
| | | (652 | ) | | (652 | ) | ||||||||||||||||
Loans: |
||||||||||||||||||||||||
U.S. |
6,173 | (5,086 | ) | 1,087 | 876 | 2,132 | 3,008 | |||||||||||||||||
Non-U.S. |
972 | (238 | ) | 734 | 879 | (219 | ) | 660 | ||||||||||||||||
Other assets, primarily U.S. |
895 | | 895 | | | | ||||||||||||||||||
Change in interest income |
12,277 | (10,444 | ) | 1,833 | 7,738 | 4,691 | 12,429 | |||||||||||||||||
Interest-bearing liabilities |
||||||||||||||||||||||||
Interest-bearing deposits: |
||||||||||||||||||||||||
U.S. |
1,100 | (6,321 | ) | (5,221 | ) | 1,525 | 565 | 2,090 | ||||||||||||||||
Non-U.S. |
1,431 | (3,317 | ) | (1,886 | ) | 1,912 | 609 | 2,521 | ||||||||||||||||
Federal funds purchased and securities
loaned or
sold under repurchase agreements: |
||||||||||||||||||||||||
U.S. |
206 | (4,706 | ) | (4,500 | ) | 602 | 495 | 1,097 | ||||||||||||||||
Non-U.S. |
(308 | ) | (309 | ) | (617 | ) | 51 | 450 | 501 | |||||||||||||||
Other borrowings and liabilities: |
||||||||||||||||||||||||
U.S. |
1,783 | (2,290 | ) | (507 | ) | 1,082 | (553 | ) | 529 | |||||||||||||||
Non-U.S. |
(542 | ) | 957 | 415 | (458 | ) | 387 | (71 | ) | |||||||||||||||
Beneficial interests issued by
consolidated VIEs,
primarily U.S. |
(41 | ) | (134 | ) | (175 | ) | (559 | ) | (95 | ) | (654 | ) | ||||||||||||
Long-term debt, primarily U.S. |
2,294 | (545 | ) | 1,749 | 1,570 | (467 | ) | 1,103 | ||||||||||||||||
Intracompany funding: |
||||||||||||||||||||||||
U.S. |
(31 | ) | (341 | ) | (372 | ) | 1,073 | 460 | 1,533 | |||||||||||||||
Non-U.S. |
31 | 341 | 372 | (1,073 | ) | (460 | ) | (1,533 | ) | |||||||||||||||
Change in interest expense |
5,923 | (16,665 | ) | (10,742 | ) | 5,725 | 1,391 | 7,116 | ||||||||||||||||
Change in net interest income |
$ | 6,354 | $ | 6,221 | $ | 12,575 | $ | 2,013 | $ | 3,300 | $ | 5,313 | ||||||||||||
226 | JPMorgan Chase & Co. / 2008 Annual Report |
December 31, 2008 | Due in 1 | Due after 1 | Due after 5 | Due after | ||||||||||||||||
(in millions, rates on a taxable-equivalent basis) | year or less | through 5 years | through 10 years | 10 years(d) | Total | |||||||||||||||
U.S. government and federal agency obligations: |
||||||||||||||||||||
Amortized cost |
$ | 229 | $ | 112 | $ | 188 | $ | 6,994 | $ | 7,523 | ||||||||||
Fair value |
229 | 111 | 186 | 7,149 | 7,675 | |||||||||||||||
Average yield(a) |
0.20 | % | 1.56 | % | 2.19 | % | 5.24 | % | 4.95 | % | ||||||||||
U.S. government-sponsored enterprise obligations: |
||||||||||||||||||||
Amortized cost |
$ | 5 | $ | 5,046 | $ | 5,261 | $ | 107,765 | $ | 118,077 | ||||||||||
Fair value |
5 | 5,018 | 5,231 | 109,813 | 120,067 | |||||||||||||||
Average yield(a) |
4.48 | % | 2.87 | % | 3.82 | % | 5.26 | % | 5.09 | % | ||||||||||
Other:(b) |
||||||||||||||||||||
Amortized cost |
$ | 23,929 | $ | 20,957 | $ | 7,656 | $ | 31,186 | $ | 83,728 | ||||||||||
Fair value |
23,822 | 19,946 | 7,019 | 27,380 | 78,167 | |||||||||||||||
Average yield(a) |
2.83 | % | 2.37 | % | 3.80 | % | 4.95 | % | 3.61 | % | ||||||||||
Total available-for-sale securities:(c) |
||||||||||||||||||||
Amortized cost |
$ | 24,163 | $ | 26,115 | $ | 13,105 | $ | 145,945 | $ | 209,328 | ||||||||||
Fair value |
24,056 | 25,075 | 12,436 | 144,342 | 205,909 | |||||||||||||||
Average yield(a) |
2.80 | % | 2.46 | % | 3.78 | % | 5.19 | % | 4.49 | % | ||||||||||
Total held-to-maturity securities:(c) |
||||||||||||||||||||
Amortized cost |
$ | | $ | | $ | 31 | $ | 3 | $ | 34 | ||||||||||
Fair value |
| | 32 | 3 | 35 | |||||||||||||||
Average yield(a) |
| % | | % | 6.89 | % | 5.69 | % | 6.78 | % | ||||||||||
(a) | The average yield was based on amortized cost balances at the end of the year and does not give effect to changes in fair value that are reflected in accumulated other comprehensive income (loss). Yields are derived by dividing interest income (including the effect of related derivatives on available-for-sale securities and the amortization of premiums and accretion of discounts) by total amortized cost. Taxable-equivalent yields are used where applicable. | |
(b) | Includes certificates of deposit, debt securities issued by non-U.S. governments, corporate debt securities, mortgage-backed securities, asset-backed securities and other debt and equity securities. | |
(c) | For the amortized cost of the above categories of securities at December 31, 2007, see Note 12 on page 159. At December 31, 2006, the amortized cost of U.S. government and federal agency obligations was $2.5 billion, U.S. government-sponsored enterprise obligations was $75.4 billion and other available-for-sale securities was $14.0 billion. At December 31, 2006, the amortized cost of U.S. government and federal agency obligations and U.S. government-sponsored enterprise obligations held-to-maturity securities was $58 million. There were no other held-to-maturity securities at December 31, 2006. | |
(d) | Securities with no stated maturity are included with securities with a contractual maturity of ten years or more. Substantially all of JPMorgan Chases mortgaged-backed securities (MBSs) and collateralized mortgage obligations (CMOs) are due in ten years or more based on contractual maturity. The estimated duration, which reflects anticipated future prepayments based on a consensus of dealers in the market, is approximately four years for MBSs and CMOs. |
JPMorgan Chase & Co. / 2008 Annual Report | 227 |
December 31, (in millions) | 2008 | 2007(c) | 2006(c) | 2005(c) | 2004(c) | |||||||||||||||
U.S. wholesale loans: |
||||||||||||||||||||
Commercial and industrial |
$ | 72,422 | $ | 69,038 | $ | 47,101 | $ | 43,140 | $ | 46,960 | ||||||||||
Real estate |
64,450 | 17,190 | 18,787 | 17,170 | 15,670 | |||||||||||||||
Financial institutions |
20,953 | 15,113 | 15,632 | 13,681 | 14,080 | |||||||||||||||
Government agencies |
5,919 | 5,770 | 4,964 | 3,709 | 1,529 | |||||||||||||||
Other |
23,032 | 26,142 | 32,202 | 34,365 | 21,629 | |||||||||||||||
Total U.S. wholesale loans |
186,776 | 133,253 | 118,686 | 112,065 | 99,868 | |||||||||||||||
Non-U.S. wholesale loans: |
||||||||||||||||||||
Commercial and industrial |
35,251 | 33,829 | 22,332 | 18,545 | 13,341 | |||||||||||||||
Real estate |
2,859 | 3,632 | 2,371 | 1,393 | 2,063 | |||||||||||||||
Financial institutions |
17,552 | 17,245 | 19,174 | 8,093 | 6,959 | |||||||||||||||
Government agencies |
602 | 720 | 2,543 | 1,296 | 2,611 | |||||||||||||||
Other |
19,004 | 24,397 | 18,636 | 8,719 | 10,225 | |||||||||||||||
Total non-U.S. wholesale loans |
75,268 | 79,823 | 65,056 | 38,046 | 35,199 | |||||||||||||||
Total wholesale loans: |
||||||||||||||||||||
Commercial and industrial |
107,673 | 102,867 | 69,433 | 61,685 | 60,301 | |||||||||||||||
Real estate |
67,309 | 20,822 | 21,158 | 18,563 | 17,733 | |||||||||||||||
Financial institutions |
38,505 | 32,358 | 34,806 | 21,774 | 21,039 | |||||||||||||||
Government agencies |
6,521 | 6,490 | 7,507 | 5,005 | 4,140 | |||||||||||||||
Other |
42,036 | 50,539 | 50,838 | 43,084 | 31,854 | |||||||||||||||
Total wholesale loans |
262,044 | 213,076 | 183,742 | 150,111 | 135,067 | |||||||||||||||
Total consumer loans: |
||||||||||||||||||||
Home equity |
142,890 | 94,832 | 85,730 | 73,866 | 67,612 | |||||||||||||||
Mortgage |
157,078 | 56,031 | 59,668 | 58,959 | 56,116 | |||||||||||||||
Auto loans |
42,603 | 42,350 | 41,009 | 46,081 | 58,906 | |||||||||||||||
Credit card receivables |
104,746 | 84,352 | 85,881 | 71,738 | 64,575 | |||||||||||||||
Other |
35,537 | 28,733 | 27,097 | 18,393 | 19,838 | |||||||||||||||
Total consumer loans |
482,854 | 306,298 | 299,385 | 269,037 | 267,047 | |||||||||||||||
Total loans(a)(b) |
$ | 744,898 | $ | 519,374 | $ | 483,127 | $ | 419,148 | $ | 402,114 | ||||||||||
Memo: |
||||||||||||||||||||
Loans held-for-sale |
$ | 8,287 | $ | 18,899 | $ | 55,251 | $ | 34,150 | $ | 24,462 | ||||||||||
Loans at fair value |
7,696 | 8,739 | | | | |||||||||||||||
Total loans held-for-sale and
loans at fair value |
$ | 15,983 | $ | 27,638 | $ | 55,251 | $ | 34,150 | $ | 24,462 | ||||||||||
(a) | Loans are presented net of unearned income and net deferred loan fees of $694 million, $1.0 billion, $1.3 billion, $3.0 billion and $4.1 billion at December 31, 2008, 2007, 2006, 2005 and 2004, respectively. | |
(b) | As a result of the adoption of SFAS 159, at January 1, 2007, certain loans are accounted for at fair value and reported in trading assets and therefore, such loans are no longer included in loans at December 31, 2007. | |
(c) | The reporting categories have been modified to reflect the industry categories and client domicile consistent with the reporting provided in the credit risk management section on pages 80-99. Prior periods have been revised to reflect the current presentation. |
228 | JPMorgan Chase & Co. / 2008 Annual Report |
Within | 1-5 | After 5 | ||||||||||||||
December 31, 2008 (in millions) | 1 year(a) | years | years | Total | ||||||||||||
U.S.: |
||||||||||||||||
Commercial and industrial |
$ | 15,079 | $ | 47,459 | $ | 9,884 | $ | 72,422 | ||||||||
Real estate |
8,609 | 13,574 | 42,267 | 64,450 | ||||||||||||
Financial institutions |
11,239 | 8,579 | 1,135 | 20,953 | ||||||||||||
Government agencies |
2,675 | 1,641 | 1,603 | 5,919 | ||||||||||||
Other |
10,423 | 8,922 | 3,687 | 23,032 | ||||||||||||
Total U.S. |
48,025 | 80,175 | 58,576 | 186,776 | ||||||||||||
Non-U.S.: |
||||||||||||||||
Commercial and industrial |
10,507 | 19,392 | 5,352 | 35,251 | ||||||||||||
Real estate |
1,010 | 1,671 | 178 | 2,859 | ||||||||||||
Financial institutions |
12,489 | 3,910 | 1,153 | 17,552 | ||||||||||||
Government agencies |
434 | 60 | 108 | 602 | ||||||||||||
Other |
11,210 | 5,092 | 2,702 | 19,004 | ||||||||||||
Total non-U.S. |
35,650 | 30,125 | 9,493 | 75,268 | ||||||||||||
Total wholesale loans |
$ | 83,675 | $ | 110,300 | $ | 68,069 | $ | 262,044 | ||||||||
Loans at fixed interest rates |
$ | 31,033 | $ | 15,078 | ||||||||||||
Loans at variable interest rates |
79,267 | 52,991 | ||||||||||||||
Total
commercial loans |
$ | 110,300 | $ | 68,069 | ||||||||||||
(a) | Includes demand loans and overdrafts. |
JPMorgan Chase & Co. / 2008 Annual Report | 229 |
December 31, (in millions) | 2008 | 2007(d) | 2006(d) | 2005(d) | 2004(d) | |||||||||||||||
Nonperforming assets |
||||||||||||||||||||
U.S. nonaccrual loans:(a) |
||||||||||||||||||||
Wholesale |
||||||||||||||||||||
Commercial and industrial
|
$ | 1,052 | $ | 63 | $ | 238 | $ | 555 | $ | 908 | ||||||||||
Real estate
|
806 | 216 | 18 | 44 | 26 | |||||||||||||||
Financial institutions
|
60 | 10 | 5 | 87 | 17 | |||||||||||||||
Government agencies
|
| 1 | | 3 | 1 | |||||||||||||||
Other
|
205 | 200 | 49 | 130 | 276 | |||||||||||||||
Consumer
|
6,571 | 2,768 | (e) | 1,686 | 1,351 | 1,169 | ||||||||||||||
Total U.S. nonaccrual loans
|
8,694 | 3,258 | 1,996 | 2,170 | 2,397 | |||||||||||||||
Non-U.S. nonaccrual loans:(a) |
||||||||||||||||||||
Wholesale |
||||||||||||||||||||
Commercial and industrial
|
45 | 14 | 41 | 105 | 269 | |||||||||||||||
Real estate
|
| | | | 2 | |||||||||||||||
Financial institutions
|
115 | 8 | 24 | 51 | 43 | |||||||||||||||
Government agencies
|
| | | 3 | | |||||||||||||||
Other
|
99 | 2 | 16 | 14 | 32 | |||||||||||||||
Consumer
|
| | | | | |||||||||||||||
Total U.S. nonaccrual loans
|
259 | 24 | 81 | 173 | 346 | |||||||||||||||
Total nonaccrual loans
|
8,953 | 3,282 | 2,077 | 2,343 | 2,743 | |||||||||||||||
Derivative receivables
|
1,079 | 29 | 36 | 50 | 241 | |||||||||||||||
Assets acquired in loan satisfactions
|
2,682 | 622 | 228 | 197 | 247 | |||||||||||||||
Nonperforming assets
|
$ | 12,714 | $ | 3,933 | $ | 2,341 | $ | 2,590 | $ | 3,231 | ||||||||||
Memo: |
||||||||||||||||||||
Loans held-for-sale
|
$ | 12 | $ | 45 | $ | 120 | $ | 136 | $ | 15 | ||||||||||
Loans at fair value
|
20 | 5 | | | | |||||||||||||||
Total loans held-for-sale and loans at fair
value
|
$ | 32 | $ | 50 | $ | 120 | $ | 136 | $ | 15 | ||||||||||
Contractually past-due assets:(b) |
||||||||||||||||||||
U.S. loans |
||||||||||||||||||||
Commercial and industrial
|
$ | 30 | $ | 7 | $ | 5 | $ | 6 | $ | | ||||||||||
Real estate
|
76 | 34 | 1 | 1 | | |||||||||||||||
Financial institutions
|
| | | | | |||||||||||||||
Government agencies
|
| | | 6 | | |||||||||||||||
Other
|
54 | 28 | 23 | 37 | 6 | |||||||||||||||
Consumer
|
3,084 | 1,945 | 1,708 | 1,068 | 998 | |||||||||||||||
Total U.S. loans
|
3,244 | 2,014 | 1,737 | 1,118 | 1,004 | |||||||||||||||
Total U.S. loans: |
||||||||||||||||||||
Non-U.S. loans |
||||||||||||||||||||
Commercial and industrial
|
| | | | | |||||||||||||||
Real estate
|
| | | | | |||||||||||||||
Financial institutions
|
| | | | | |||||||||||||||
Government agencies
|
| | | | | |||||||||||||||
Other
|
3 | 6 | | | 2 | |||||||||||||||
Consumer
|
28 | 23 | 16 | 10 | | |||||||||||||||
Total non-U.S. loans
|
31 | 29 | 16 | 10 | 2 | |||||||||||||||
Total
|
$ | 3,275 | $ | 2,043 | $ | 1,753 | $ | 1,128 | $ | 1,006 | ||||||||||
Restructured loans(c) |
||||||||||||||||||||
U.S. |
||||||||||||||||||||
Commercial and industrial
|
$ | | $ | 8 | $ | | $ | | $ | | ||||||||||
Consumer |
1,834 | | | | | |||||||||||||||
Total U.S.
|
1,834 | 8 | | | | |||||||||||||||
Non-U.S. |
||||||||||||||||||||
Commercial and industrial
|
5 | | | | | |||||||||||||||
Consumer
|
| | | | | |||||||||||||||
Total Non-U.S.
|
5 | | | | | |||||||||||||||
Total
|
$ | 1,839 | $ | 8 | $ | | $ | | $ | | ||||||||||
(a) | Excludes wholesale loans held-for-sale purchased as part of the Investment Banks proprietary activities. | |
(b) | Represents accruing loans past-due 90 days or more as to principal and interest, which are not characterized as nonperforming loans. | |
(c) | Represents troubled debt restructured loans for which concessions, such as the reduction of interest rates or the deferral of interest or principal payments, have been granted as a result of a deterioration in the borrowers financial condition as defined in SFAS 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. | |
(d) | The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99. Prior periods have been revised to reflect the current presentation. | |
(e) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Periods prior to 2007 have not been revised as the impact was not material. |
230 | JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007(a) | 2006(a) | |||||||||
U.S.: |
||||||||||||
Wholesale |
||||||||||||
Gross amount of interest that would have been recorded at the original rate
|
$ | 87 | $ | 71 | $ | 27 | ||||||
Interest that was recognized in income
|
(7 | ) | (5 | ) | (6 | ) | ||||||
Total U.S. wholesale
|
80 | 66 | 21 | |||||||||
Consumer |
||||||||||||
Gross amount of interest that would have been recorded at the original rate
|
584 | 230 | (b) | 129 | ||||||||
Interest that was recognized in income
|
(193 | ) | (8 | ) | (20 | ) | ||||||
Total U.S. consumer
|
391 | 222 | 109 | |||||||||
Negative impact U.S.
|
471 | 288 | 130 | |||||||||
Non-U.S.: |
||||||||||||
Wholesale |
||||||||||||
Gross amount of interest that would have been recorded at the original rate
|
11 | 2 | 5 | |||||||||
Interest that was recognized in income
|
(2 | ) | (1 | ) | | |||||||
Total non-U.S. wholesale
|
9 | 1 | 5 | |||||||||
Consumer |
||||||||||||
Gross amount of interest that would have been recorded at the original rate
|
| | | |||||||||
Interest that was recognized in income
|
| | | |||||||||
Total non-U.S. consumer
|
| | | |||||||||
Negative
impact non-U.S.
|
9 | 1 | 5 | |||||||||
Total negative impact on interest income
|
$ | 480 | $ | 289 | $ | 135 | ||||||
(a) | The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99. Prior periods have been revised to reflect the current presentation. | |
(b) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Amounts for 2006 have not been revised as the impact was not material. |
JPMorgan Chase & Co. / 2008 Annual Report | 231 |
Net local | Total | |||||||||||||||||||||||||||||||
country | cross-border | Total | ||||||||||||||||||||||||||||||
(in millions) | December 31, | Governments | Banks | Other(a) | assets | outstandings(b) | Commitments(c) | exposure | ||||||||||||||||||||||||
United
Kingdom |
2008 | $ | 1,173 | $ | 23,490 | $ | 19,624 | $ | | $ | 44,287 | $ | 562,980 | $ | 607,267 | |||||||||||||||||
2007 | 324 | 8,245 | 14,450 | | 23,019 | 475,046 | 498,065 | |||||||||||||||||||||||||
2006 | 507 | 13,116 | 11,594 | | 25,217 | 306,565 | 331,782 | |||||||||||||||||||||||||
France |
2008 | $ | 6,666 | $ | 25,479 | $ | 24,665 | $ | 28 | $ | 56,838 | $ | 353,074 | $ | 409,912 | |||||||||||||||||
2007 | 8,351 | 9,278 | 20,303 | 75 | 38,007 | 288,044 | 326,051 | |||||||||||||||||||||||||
2006 | 5,218 | 7,760 | 12,747 | 575 | 26,300 | 171,407 | 197,707 | |||||||||||||||||||||||||
Germany |
2008 | $ | 8,437 | $ | 24,312 | $ | 10,297 | $ | 3,660 | $ | 46,706 | $ | 348,635 | $ | 395,341 | |||||||||||||||||
2007 | 10,095 | 11,468 | 18,656 | | 40,219 | 284,879 | 325,098 | |||||||||||||||||||||||||
2006 | 9,361 | 16,384 | 16,091 | | 41,836 | 186,875 | 228,711 | |||||||||||||||||||||||||
Netherlands |
2008 | $ | 1,360 | $ | 8,645 | $ | 19,356 | $ | | $ | 29,361 | $ | 132,574 | $ | 161,935 | |||||||||||||||||
2007 | 895 | 3,945 | 15,180 | | 20,020 | 138,136 | 158,156 | |||||||||||||||||||||||||
2006 | 1,776 | 9,699 | 17,878 | | 29,353 | 80,337 | 109,690 | |||||||||||||||||||||||||
Italy |
2008 | $ | 7,680 | $ | 6,804 | $ | 3,742 | $ | 448 | $ | 18,674 | $ | 134,851 | $ | 153,525 | |||||||||||||||||
2007 | 5,301 | 5,285 | 5,593 | 1,401 | 17,580 | 120,179 | 137,759 | |||||||||||||||||||||||||
2006 | 6,395 | 3,004 | 6,328 | 364 | 16,091 | 84,054 | 100,145 | |||||||||||||||||||||||||
Spain |
2008 | $ | 906 | $ | 11,867 | $ | 4,466 | $ | 1,161 | $ | 18,400 | $ | 104,956 | $ | 123,356 | |||||||||||||||||
2007 | 1,995 | 3,484 | 5,728 | 1,337 | 12,544 | 90,135 | 102,679 | |||||||||||||||||||||||||
2006 | 722 | 3,715 | 5,766 | 1,136 | 11,339 | 55,517 | 66,856 | |||||||||||||||||||||||||
Japan |
2008 | $ | 687 | $ | 17,401 | $ | 18,568 | $ | 2,174 | $ | 38,830 | $ | 64,583 | $ | 103,413 | |||||||||||||||||
2007 | 12,895 | 9,687 | 9,138 | | 31,720 | 49,407 | 81,127 | |||||||||||||||||||||||||
2006 | 6,758 | 8,158 | 8,588 | | 23,504 | 32,781 | 56,285 | |||||||||||||||||||||||||
Cayman Islands |
2008 | $ | 87 | $ | 115 | $ | 30,869 | $ | | $ | 31,071 | $ | 6,843 | $ | 37,914 | |||||||||||||||||
2007 | 6 | 41 | 36,310 | | 36,357 | 14,054 | 50,411 | |||||||||||||||||||||||||
2006 | 20 | 125 | 21,492 | | 21,637 | 10,626 | 32,263 | |||||||||||||||||||||||||
Luxembourg |
2008 | $ | | $ | 514 | $ | 7,863 | $ | | $ | 8,377 | $ | 28,611 | $ | 36,988 | |||||||||||||||||
2007 | 1,718 | 739 | 8,832 | | 11,289 | 24,952 | 36,241 | |||||||||||||||||||||||||
2006 | 1,396 | 1,860 | 8,592 | | 11,848 | 15,667 | 27,515 | |||||||||||||||||||||||||
Norway |
2008 | $ | 15,944 | $ | 616 | $ | 718 | $ | | $ | 17,278 | $ | 11,393 | $ | 28,671 | |||||||||||||||||
2007 | 9,727 | 650 | 690 | | 11,067 | 8,929 | 19,996 | |||||||||||||||||||||||||
2006 | 3,273 | 87 | 368 | | 3,728 | 4,216 | 7,944 | |||||||||||||||||||||||||
(a) | Consists primarily of commercial and industrial. | |
(b) | Outstandings includes loans and accrued interest receivable, interest-bearing deposits with banks, acceptances, resale agreements, other monetary assets, cross-border trading debt and equity instruments, mark-to-market exposure of foreign exchange and derivative contracts and local country assets, net of local country liabilities. The amounts associated with foreign exchange and derivative contracts are presented after taking into account the impact of legally enforceable master netting agreements. | |
(c) | Commitments include outstanding letters of credit, undrawn commitments to extend credit and the notional value of credit derivatives where JPMorgan Chase is a protection seller. |
232 |
JPMorgan Chase & Co. / 2008 Annual Report |
Year ended December 31, (in millions) | 2008 | 2007(e) | 2006(e) | 2005(e) | 2004(d)(e) | |||||||||||||||
Balance at beginning of year |
$ | 9,234 | $ | 7,279 | $ | 7,090 | $ | 7,320 | $ | 4,523 | ||||||||||
Addition resulting from mergers and
acquisitions(a) |
2,535 | | | | 3,123 | |||||||||||||||
Provision for loan losses(b) |
21,237 | 6,538 | 3,153 | 3,575 | 2,883 | |||||||||||||||
U.S. charge-offs |
||||||||||||||||||||
Commercial and industrial |
183 | 34 | 80 | 154 | 238 | |||||||||||||||
Real estate |
217 | 46 | 10 | 2 | 1 | |||||||||||||||
Financial institutions |
17 | 9 | 1 | 2 | 2 | |||||||||||||||
Government agencies |
| 10 | 2 | | | |||||||||||||||
Other |
35 | 81 | 36 | 64 | 84 | |||||||||||||||
Consumer |
10,140 | 5,181 | 3,635 | 4,604 | 3,262 | |||||||||||||||
Total U.S. charge-offs |
10,592 | 5,361 | 3,764 | 4,826 | 3,587 | |||||||||||||||
Non-U.S. charge-offs |
||||||||||||||||||||
Commercial and industrial |
40 | 2 | 43 | 32 | 84 | |||||||||||||||
Real estate |
| | | | | |||||||||||||||
Financial institutions |
29 | | | | 6 | |||||||||||||||
Government agencies |
| | | | | |||||||||||||||
Other |
| 3 | 14 | 1 | 128 | |||||||||||||||
Consumer |
103 | 1 | 63 | 10 | | |||||||||||||||
Total non-U.S. charge-offs |
172 | 6 | 120 | 43 | 218 | |||||||||||||||
Total charge-offs |
10,764 | 5,367 | 3,884 | 4,869 | 3,805 | |||||||||||||||
U.S. recoveries |
||||||||||||||||||||
Commercial and industrial |
(60 | ) | (48 | ) | (89 | ) | (110 | ) | (87 | ) | ||||||||||
Real estate |
(5 | ) | (1 | ) | (4 | ) | (4 | ) | (12 | ) | ||||||||||
Financial institutions |
(2 | ) | (3 | ) | (4 | ) | (6 | ) | (8 | ) | ||||||||||
Government agencies |
| | | | | |||||||||||||||
Other |
(29 | ) | (40 | ) | (48 | ) | (46 | ) | (93 | ) | ||||||||||
Consumer |
(793 | ) | (716 | ) | (622 | ) | (717 | ) | (349 | ) | ||||||||||
Total U.S. recoveries |
(889 | ) | (808 | ) | (767 | ) | (883 | ) | (549 | ) | ||||||||||
Non-U.S. recoveries |
||||||||||||||||||||
Commercial and industrial |
(16 | ) | (8 | ) | (26 | ) | (122 | ) | (55 | ) | ||||||||||
Real estate |
| | | | | |||||||||||||||
Financial institutions |
| (1 | ) | (11 | ) | (7 | ) | (19 | ) | |||||||||||
Government agencies |
| | | (15 | ) | (27 | ) | |||||||||||||
Other |
(7 | ) | (12 | ) | (26 | ) | (22 | ) | (56 | ) | ||||||||||
Consumer |
(17 | ) | | (12 | ) | (1 | ) | | ||||||||||||
Total non-U.S. recoveries |
(40 | ) | (21 | ) | (75 | ) | (167 | ) | (157 | ) | ||||||||||
Total recoveries |
(929 | ) | (829 | ) | (842 | ) | (1,050 | ) | (706 | ) | ||||||||||
Net charge-offs |
9,835 | 4,538 | 3,042 | 3,819 | 3,099 | |||||||||||||||
Allowance related to purchased portfolios |
6 | | 75 | 17 | | |||||||||||||||
Change in accounting principles |
| (56 | ) | | | | ||||||||||||||
Other |
(13 | ) | 11 | 3 | (3 | ) | (110 | )(c) | ||||||||||||
Balance at year-end |
$ | 23,164 | $ | 9,234 | $ | 7,279 | $ | 7,090 | $ | 7,320 | ||||||||||
(a) | The 2008 amount relates to the Washington Mutual transaction and 2004 amount relates to the merger with Bank One. | |
(b) | While the provision for loan losses increased during 2004 and 2005 due to the July 2004 Bank One merger, the allowance for loan losses as a percentage of total loans declined from 2004 through 2006 as a result of a relatively benign credit environment. Deteriorating credit conditions in 2007 and 2008, primarily within consumer lending, resulted in increasing losses and correspondingly higher loan loss provisions for those periods. For a more detailed discussion of the 2006 through 2008 provision for credit losses, see Provision for Credit Losses on page 99. | |
(c) | Primarily relates to the transfer of the allowance for accrued interest and fees on reported and securitized credit card loans in 2004. | |
(d) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. | |
(e) | The reporting categories have been modified to reflect the industry categories consistent with the reporting provided in the credit risk management section on pages 80-99. Prior periods have been revised to reflect the current presentation. |
Year ended December 31, (in millions) | 2008 | 2007 | 2006 | 2005 | 2004(b) | |||||||||||||||
Balance at beginning of year |
$ | 850 | $ | 524 | $ | 400 | $ | 492 | $ | 324 | ||||||||||
Addition resulting from mergers and
acquisitions(a) |
66 | | | | 508 | |||||||||||||||
Provision for lending-related commitments |
(258 | ) | 326 | 117 | (92 | ) | (339 | ) | ||||||||||||
Net charge-offs |
| | | | | |||||||||||||||
Other |
1 | | 7 | | (1 | ) | ||||||||||||||
Balance at year-end |
$ | 659 | $ | 850 | $ | 524 | $ | 400 | $ | 492 | ||||||||||
(a) | The 2008 amount relates to the Washington Mutual transaction and 2004 amount relates to the merger with Bank One. | |
(b) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
JPMorgan Chase & Co. / 2008 Annual Report |
233 |
Year ended December 31, (in millions, except ratios) | 2008(c) | 2007 | 2006 | 2005 | 2004(e) | |||||||||||||||
Balances |
||||||||||||||||||||
Loans average |
$ | 588,801 | $ | 479,679 | $ | 454,535 | $ | 409,988 | $ | 308,249 | ||||||||||
Loans year-end |
744,898 | 519,374 | 483,127 | 419,148 | 402,114 | |||||||||||||||
Net charge-offs(a) |
9,835 | 4,538 | 3,042 | 3,819 | 3,099 | |||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||
U.S. |
21,830 | 8,454 | 6,654 | 6,642 | 6,617 | |||||||||||||||
Non-U.S. |
1,334 | 780 | 625 | 448 | 703 | |||||||||||||||
Total allowance for loan losses |
23,164 | 9,234 | 7,279 | 7,090 | 7,320 | |||||||||||||||
Nonperforming loans |
8,953 | 3,282 | (d) | 2,077 | 2,343 | 2,743 | ||||||||||||||
Ratios |
||||||||||||||||||||
Net charge-offs to: |
||||||||||||||||||||
Loans average(b) |
1.73 | % | 1.00 | % | 0.73 | % | 1.00 | % | 1.08 | % | ||||||||||
Allowance for loan losses |
42.46 | 49.14 | 41.79 | 53.86 | 42.34 | |||||||||||||||
Allowance for loan losses to: |
||||||||||||||||||||
Loans year-end(b) |
3.18 | 1.88 | 1.70 | 1.84 | 1.94 | |||||||||||||||
Nonperforming loans(b) |
260 | 286 | (d) | 372 | 321 | 268 | ||||||||||||||
(a) | There were no net charge-offs (recoveries) on lending-related commitments in 2008, 2007, 2006, 2005 or 2004. | |
(b) | Excludes loans held-for-sale and loans at fair value. | |
(c) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128. | |
(d) | During the second quarter of 2008, the policy for classifying subprime mortgage and home equity loans as nonperforming was changed to conform to all other home lending products. Amounts for 2007 have been revised to reflect this change. Periods prior to 2007 have not been revised as the impact was not material. | |
(e) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
Average balances | Average interest rates | |||||||||||||||||||||||
(in millions, except interest rates) | 2008(a) | 2007 | 2006 | 2008(a) | 2007 | 2006 | ||||||||||||||||||
U.S.: |
||||||||||||||||||||||||
Noninterest-bearing demand |
$ | 39,476 | $ | 40,359 | $ | 36,099 | | % | | % | | % | ||||||||||||
Interest-bearing demand |
13,165 | 10,737 | 8,036 | 0.59 | 1.31 | 2.73 | ||||||||||||||||||
Savings |
313,939 | 270,149 | 260,645 | 1.13 | 2.62 | 2.52 | ||||||||||||||||||
Time |
175,117 | 147,503 | 126,927 | 2.74 | 4.35 | 3.75 | ||||||||||||||||||
Total U.S. deposits |
541,697 | 468,748 | 431,707 | 1.55 | 2.91 | 2.68 | ||||||||||||||||||
Non-U.S.: |
||||||||||||||||||||||||
Noninterest-bearing demand |
6,751 | 6,246 | 6,645 | | | | ||||||||||||||||||
Interest-bearing demand |
155,015 | 102,959 | 77,624 | 2.37 | 4.71 | 4.35 | ||||||||||||||||||
Savings |
480 | 624 | 513 | 0.58 | 0.59 | 0.53 | ||||||||||||||||||
Time |
81,864 | 78,643 | 60,384 | 3.00 | 4.01 | 3.50 | ||||||||||||||||||
Total non-U.S. deposits |
244,110 | 188,472 | 145,166 | 2.51 | 4.25 | 3.78 | ||||||||||||||||||
Total deposits |
$ | 785,807 | $ | 657,220 | $ | 576,873 | 1.85 | % | 3.29 | % | 2.95 | % | ||||||||||||
(a) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-128. |
By remaining maturity at | 3 months | Over 3 months | Over 6 months | Over | ||||||||||||||||
December 31, 2008 (in millions) | or less | but within 6 months | but within 12 months | 12 months | Total | |||||||||||||||
U.S. time certificates of
deposit ($100,000 or more) |
$ | 23,559 | $ | 9,471 | $ | 15,545 | $ | 5,050 | $ | 53,625 | ||||||||||
234 |
JPMorgan Chase & Co. / 2008 Annual Report |
(in millions, except rates) | 2008 | 2007 | 2006 | |||||||||
Federal funds purchased and securities loaned or sold
under repurchase agreements: |
||||||||||||
Balance at year-end |
$ | 192,546 | $ | 154,398 | $ | 162,173 | ||||||
Average daily balance during the year |
196,739 | 196,500 | 183,783 | |||||||||
Maximum month-end balance |
224,075 | 222,119 | 204,879 | |||||||||
Weighted-average rate at December 31 |
0.97 | % | 4.41 | % | 5.05 | % | ||||||
Weighted-average rate during the year |
2.37 | 4.98 | 4.45 | |||||||||
Commercial paper: |
||||||||||||
Balance at year-end |
$ | 37,845 | $ | 49,596 | $ | 18,849 | ||||||
Average daily balance during the year |
45,734 | 30,799 | 17,710 | |||||||||
Maximum month-end balance |
54,480 | 51,791 | 20,980 | |||||||||
Weighted-average rate at December 31 |
0.82 | % | 4.27 | % | 4.80 | % | ||||||
Weighted-average rate during the year |
2.24 | 4.65 | 4.49 | |||||||||
Other borrowed funds:(a) |
||||||||||||
Balance at year-end |
$ | 177,674 | $ | 117,997 | $ | 108,541 | ||||||
Average daily balance during the year |
118,714 | 100,181 | 102,147 | |||||||||
Maximum month-end balance |
244,040 | 133,871 | 132,367 | |||||||||
Weighted-average rate at December 31 |
3.65 | % | 4.93 | % | 5.56 | % | ||||||
Weighted-average rate during the year |
4.29 | 4.91 | 5.00 | |||||||||
FIN 46 short-term beneficial interests: (b) |
||||||||||||
Commercial paper: |
||||||||||||
Balance at year-end |
$ | | $ | 55 | $ | 3,351 | ||||||
Average daily balance during the year |
3 | 919 | 17,851 | |||||||||
Maximum month-end balance |
| 3,866 | 35,757 | |||||||||
Weighted-average rate at December 31 |
NA | % | 4.38 | % | 4.67 | % | ||||||
Weighted-average rate during the year |
3.23 | 4.82 | 4.53 | |||||||||
Other borrowed funds: |
||||||||||||
Balance at year-end |
$ | 5,556 | $ | 6,752 | $ | 4,497 | ||||||
Average daily balance during the year |
5,703 | 5,361 | 5,267 | |||||||||
Maximum month-end balance |
7,325 | 6,752 | 9,078 | |||||||||
Weighted-average rate at December 31 |
1.13 | % | 3.04 | % | 1.99 | % | ||||||
Weighted-average rate during the year |
2.69 | 3.02 | 1.61 | |||||||||
(a) | Includes securities sold but not yet purchased. | |
(b) | Included on the Consolidated Balance Sheets in beneficial interests issued by consolidated variable interest entities. |
JPMorgan Chase & Co. / 2008 Annual Report | 235 |
JPMorgan Chase & Co. (Registrant) |
||||
By: /s/ JAMES DIMON |
||||
(James Dimon | ||||
Chairman and Chief Executive Officer) Date: March 2, 2009 |
||||
Capacity | Date | ||||
/s/ JAMES DIMON
|
Director, Chairman and Chief Executive Officer | ||||
(James Dimon)
|
(Principal Executive Officer) | ||||
/s/ CRANDALL C. BOWLES
|
Director | March 2, 2009 | |||
/s/ STEPHEN B. BURKE
|
Director | ||||
/s/ DAVID M. COTE
|
Director | ||||
/s/ JAMES S. CROWN
|
Director | ||||
/s/ ELLEN V. FUTTER
|
Director |
236
Capacity | Date | ||||
/s/ WILLIAM H. GRAY, III
|
Director | ||||
/s/ LABAN P. JACKSON, JR.
|
Director | ||||
/s/ DAVID C. NOVAK
|
Director | March 2, 2009 | |||
/s/ LEE R. RAYMOND
|
Director | ||||
/s/ WILLIAM C. WELDON
|
Director | ||||
/s/ MICHAEL J. CAVANAGH
|
Executive Vice President and Chief Financial Officer |
||||
(Principal Financial Officer) | |||||
/s/ LOUIS RAUCHENBERGER
|
Managing Director and Controller (Principal Accounting Officer) |
237
Exhibit 4.1(a) CHEMICAL BANKING CORPORATION TO THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) Trustee ------------------- INDENTURE Dated as of December 1, 1989 ------------------- CHEMICAL BANKING CORPORATION Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of , 1989 Trust Indenture Act Section Indenture Section - ---------------- ----------------- Section 310(a)(1) 609 (a)(2) 609 (a)(3) Not Applicable (a)(4) Not Applicable (b) 608
610 Section 311(a) 613(a) (b) 613(b) (b)(2) 703(a)(2) (703)(b) Section 312(a) 701 702(a) (b) 702(b) (c) 702(c) Section 313(a) 703(a) (b) 703(b) (c) 703(a), 703(b) (d) 703(c) Section 314(a) 704 (b) Not Applicable (c)(1) 102 (c)(2) 102 (c)(3) Not Applicable (d) Not Applicable (e) 102 Section 315(a) 601(a) (b) 602 703(a)(6) (c) 601(b) (d) 601(c) (d)(1) 601(a)(1) (d)(2) 601(c)(2) (d)(3) 601(c)(3) (e) 514 Section 316(a) (1)(A) 502 512 (a)(1)(B) 513
(a)(2) Not Applicable (b) 508 Section 317 (a)(1) 503 (a)(2) 504 (b) 1003 Section 318 (a) 107 TABLE OF CONTENTS ---------------- Page Parties 1 Recitals Of The Company * ARTICLE ONE Definitions And Other Provisions Of General Application Section 101. Definitions. * Act...... * Affiliate; control * Attorney-in-Fact * Authenticating Agent * Bank..... * Board of Directors * Board Resolution * Business Day * Commission * Company *
Company Request; Company Order * Corporate Trust Office * corporation * covenant defeasance * Defaulted Interest * defeasance * Depository * Event of Default * Global Security * Holder * Indebtedness for money borrowed * Indenture * interest * Interest Payment Date * Intermediate Subsidiary * Maturity * Officers' Certificate * Opinion of Counsel * Original Issue Discount Security * Outstanding * Payment Agent * Person * Place of Payment *
Predecessor Security * Record Date * Redemption Date * Redemption Price * Regular Record Date * Responsible Officer * Securities * Security Register and Security Registrar * Special Record Date * Stated Maturity * Subsidiary * Trustee * Trust Indenture Act * U.S. Government Obligations * Vice President * Voting Stock * Section 102. Compliance Certificates and Opinions. * Section 103. Form of Documents Delivered to Trustee. * Section 104. Acts of Holders. * Section 105. Notices, Etc., to Trustee and Company. * Section 106. Notice to Holders; Waiver. * Section 107. Conflict with Trust Indenture Act. * Section 108. Effect of Headings and Table of Contents.*
Section 109. Successors and Assigns. * Section 110. Separability Clause. * Section 111. Benefits of Indenture. * Section 112. Governing Law. * Section 113. Legal Holidays. * ARTICLE TWO Security Forms Section 201. Forms Generally. * Section 202. Form of Face of Security. * Section 203. Form of Reverse of Security. * Section 204. Additional Provisions Required in Global Security. * Section 205. Form of Trustee's Certificate of Authentication. * ARTICLE Three The Securities Section 301. Amount Unlimited; Issuable in Series. * Section 302. Denominations. * Section 303. Execution, Authentication, Delivery and Dating. * Section 304. Temporary Securities. * Section 305. Registration, Registration of Transfer and Exchange. * Section 306. Mutilated, Destroyed, Lost and Stolen Securities. *
Section 307. Payment of Interest; Interest Rights Preserved. * Section 308. Persons Deemed Owners. * Section 309. Cancellation. * Section 310. Computation of Interest. * ARTICLE FOUR Satisfaction And Discharge Section 401. Satisfaction and Discharge of Indenture. * Section 402. Application of Trust Money. * ARTICLE FIVE Remedies Section 501. Events of Default. * Section 502. Acceleration of Maturity; Rescission and Annulment. * Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. * Section 504. Trustee May File Proofs and Claim. * Section 505. Trustee May Enforce Claims Without Possession of Securities. * Section 506. Application of Money Collected. * Section 507. Limitation on Suits. * Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. * Section 509. Restoration of Rights and Remedies. * Section 510. Rights and Remedies Cumulative *
Section 511. Delay or Omission Not Waiver. * Section 512. Control by Holders. * Section 513. Waiver of Past Defaults. * Section 514. Undertaking for Costs. * ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities. * Section 602. Notice of Defaults. * Section 603. Certain Rights of Trustee. * Section 604. Not Responsible for Recitals or Issuance of Securities. * Section 605. May Hold Securities. * Section 606. Money Held in Trust. * Section 607. Compensation and Reimbursement. * Section 608. Disqualifications; Conflicting Interests.* (a) Elimination of Conflicting Interest or Resignation* (b) Notice of Failure to Eliminate Conflicting Interest or Resign * (c) "Conflict of Interest" Defined * (d) Definitions of Certain Terms Used in This Section * (e) Calculation of Percentages of Securities * Section 609. Corporate Trustee Required; Eligibility. * Section 610. Resignation and Removal; Appointment of Successor. * Section 611. Acceptance of Appointment by Successor. *
Section 612. Merger, Conversion, Consolidation or Succession to Business. * Section 613. Preferential Collection of Claims Against Company. * (a) Segregation and Apportionment of Certain Collections by Trustee, Certain Exceptions * (b) Certain Creditor Relationships Excluded from Segregation and Apportionment * (c) Definition of Certain Terms Used in this Section * Section 614. Appointment of Authenticating Agent. * ARTICLE SEVEN Holders' Lists And Reports By Trustee And Company Section 701. Company to Furnish Trustee Names and Addresses of Holders. * Section 702. Preservation of Information; Communications to Holders. * Section 703. Reports by Trustee. * Section 704. Reports by Company. * ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer Or Lease Section 801. Company May Consolidate, Etc., Only on Certain Terms. * Section 802. Successor Corporation Substituted. * ARTICLE NINE Supplemental Indentures
Section 901. Supplemental Indentures Without Consent of Holders. * Section 902. Supplemental Indentures with Consent of Holders. * Section 903. Execution of Supplemental Indentures. * Section 904. Effect of Supplemental Indentures. * Section 905. Conformity with Trust Indenture Act. * Section 906. Reference in Securities to Supplemental Indentures. * ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest. * Section 1002. Maintenance of Office or Agency. * Section 1003. Money for Securities Payments to Be Held in Trust. * Section 1004. Corporate Existence. * Section 1005. Payment of Taxes and Other Claims. * Section 1006. Limitation on Disposition of Stock of Bank. * Section 1007. Statement as to Compliance. * Section 1008. Waiver of Certain Covenants. * ARTICLE ELEVEN Redemption Of Securities Section 1101. Applicability of Article. * Section 1102. Election to Redeem; Notice to Trustee. *
Section 1103. Selection by Trustee of Securities to Be Redeemed. * Section 1104. Notice of Redemption. * Section 1105. Deposit of Redemption Price. * Section 1106. Securities Payable on Redemption Date. * Section 1107. Securities Redeemed in Part. * ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article. * Section 1202. Satisfaction of Sinking Fund Payments with Securities. * Section 1203. Redemption of Securities for Sinking Fund. * ARTICLE THIRTEEN Defeasance And Covenant Defeasance Section 1301. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. * Section 1302. Defeasance and Discharge. * Section 1303. Covenant Defeasance. * Section 1304. Conditions to Defeasance or Covenant Defeasance. * Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. * Testimonium * Signatures And Seals * Acknowledgments *
INDENTURE, DATED AS OF DECEMBER 1, 1989, BETWEEN CHEMICAL BANKING CORPORATION, A CORPORATION DULY ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE (HEREIN CALLED THE "COMPANY"), HAVING ITS PRINCIPAL OFFICE AT 277 PARK AVENUE, NEW YORK, NEW YORK 10172, AND THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), A NATIONAL BANKING ASSOCIATION DULY ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES, AS TRUSTEE (HEREIN CALLED THE "TRUSTEE"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. Now, Therefore, This Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: 1. Definitions and Other Provisions of General Application 1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: 1. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 2. All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 3. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and 4. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Six, are defined in that Article. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Attorney-in-Fact" means an officer of the Bank who has been duly appointed as an attorney-in-fact by the Company. "Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities. "Bank" means Chemical Bank, a banking corporation duly organized and existing under the laws of the State of New York, and its successors (whether by consolidation, merger, conversion, transfer of substantially all their assets and business or otherwise) so long as Chemical Bank or any successor is a Subsidiary. "Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to set hereunder or any directors or officers of the Company or Attorneys-in-Fact to whom such board of directors or such committee shall have duly delegated its authority.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law to close. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, a Vice Chairman, its President, its Chief Financial Officer, a Vice President or any Attorney-in-Fact, and by its Controller, an Assistant Controller, its Secretary or an Assistant Secretary and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee in the Borough of Manhattan, The City of New York, at which at any particular time its corporate trust business shall be administered, such office being currently located at One New York Plaza, New York, NY 10081. "corporation" includes corporations, associations, companies and business trusts. "covenant defeasance" has the meaning specified in Section 1303.
"Defaulted Interest" has the meaning specified in Section 307. "defeasance" has the meaning specified in Section 1302. "Depository" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depository by the Company pursuant to Section 301. "Event of Default" has the meaning specified in Section 501. "Global Security" means a Security in the form prescribed in Section 204 evidencing all or part of a series of Securities, issued to the Depository for such series or its nominee, and registered in the name of such Depository or nominee. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indebtedness for money borrowed", when used with respect to the Company, means any obligation of, or any obligation guaranteed by, the Company for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms or particular series of Securities established as contemplated by Section 301. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Intermediate Subsidiary" has the meaning specified in Section 1006.
"Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman, the President, its Chief Financial Officer, a Vice President or any Attorney-in-Fact, and by the Controller, an Assistant Controller, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel who may be an employee of the Company or other counsel to the Company. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration on the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: i. Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; ii. Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefore satisfactory to the Trustee has been made; and iii. Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 502, (ii) the principal amount of a Security denominated in a foreign currency or currency unit shall be the U.S. dollar equivalent, determined as of the date of original issuance of such Security, of the principal amount of such Security (or, in the case of an Original Issue Discount Security denominated in a foreign currency or currency unit, the U.S. dollar equivalent as of the date of original issuance of such Security of the amount determined as provided in (i) above), (iii) the principal amount of a Security for which the amount of payments of principal of and any premium or interest on such Security may be determined with reference to an index shall be determined as of the date of original issuance of such Security and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee established to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Payment Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Record Date" means a Regular Record Date or a Special Record Date, as the case may be. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporation trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which the instrument was executed, except as provided in Section 905. "U.S. Government Obligations" has the meaning specified in Section 1304(1). "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".
"Voting Stock" means stock of the class or classes having a general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 2. Compliance Certificates and Opinions. Under any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include 1. a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 2. a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 3. a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and 4. a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. 3. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters on one or several documents. Any certificate or opinion of an officer of, or Attorney-in-Fact for, the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by counsel, unless such officer or Attorney-in-Fact knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of, or an Attorney-Fact or Attorneys-in-Fact for, the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 4. Acts of Holders. a. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. b. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. c. The ownership of Securities shall be proved by the Security Register. d. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefore or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. 5. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished in, or filed with, 1. the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, or 2. the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it, attention: Secretary, at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. 6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holder is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give one's notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. 7. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. 8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 9. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. 12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York.
13. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. 2. Security Forms 1. Forms Generally. The Securities of each series shall be substantially in the form set forth in this Article, or in such other form (including permanent global form) as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers of the Company or any Attorney-in-Fact executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. If all of the Securities of any series established by action taken pursuant to a Board Resolution are not to be issued at one time, it shall not be necessary to deliver a record of such action at the time of issuance of each Security of such series, but an appropriate record of such action shall be delivered at or before the time of issuance of the first Security of such series. The Trustee's certificates of authentication shall be in substantially the form set forth in this Article. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner (provided that if any Securities are to be listed on any securities exchange, then in such manner as may be permitted by the rules of any such securities
exchange), all as determined by the officers of the Company or any Attorney-in-Fact executing such Securities, as evidenced by their execution of such Securities. 2. Form of Face of Security. [Insert any legend required by the Internal Revenue Code and the regulations thereunder] CHEMICAL BANKING CORPORATION ---------------------------------------------------------------------- No. _________ $_______ CHEMICAL BANKING CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________________________, or registered assigns, the principal sum of ________________________________________ Dollars on ______________________________________ [if the Security is to bear interest prior to Maturity, insert , and to pay interest thereon from _______________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, [insert appropriate period] or _________________ and _______________ in each year, commencing ______________, at the rate of __% per annum, until the principal hereof is paid or made available for payment [if applicable, insert , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium [if applicable, insert and on any overdue instalment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ________ or _______ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of __% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. [Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of __% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand].] Payment of the principal of (and premium, if any) and [if applicable, insert any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in _____________, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [unless otherwise specifically provided with respect to the Securities of the series, insert ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof, or an Authenticating Agent, by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. In Witness Whereof, the Company has caused this instrument to be duly executed under its corporate seal. Dated: _________________________________________
By_______________________________________ Attest: ______________________________________ 3. Form of Reverse of Security. This Security is one of a duly authorized series of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of December 1, 1989 (herein called the "Indenture"), between the Company and the Chase Manhattan Bank (National Association), as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregated principal amount to $________]. [If applicable, insert The Securities of this series are subject to redemption upon not less than 30 days' nor more than 60 days' notice by mail [if applicable, insert (1) on ________________ in any year commencing with the year _________ and ending with the year __________ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [on or after ______________, 19__], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before ______________, __%, and if redeemed] during the 12-month period beginning ______________ of the years indicated, REDEMPTION REDEMPTION YEAR PRICE YEAR PRICE
And thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption [if applicable, insert (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest instalments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Regular Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert The Securities of this series are subject to redemption upon not less than 30 days' nor more than 60 days' notice by mail (1) on _____________ in any year commencing with the year ________ and ending with the year ________ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [on or after _____________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ________________ of the years indicated, REDEMPTION PRICE FOR REDEMPTION REDEMPTION PRICE FOR THROUGH OPERATION REDEMPTION OTHERWISE OF THE THEN THROUGH OPERATION YEAR SINKING FUND OF THE SINKING FUND
and thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest instalments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Regular Record Dates referred to on the face hereof, all as provided in the Indenture.] [Notwithstanding the foregoing, the Company may not, prior to ________________, redeem any Securities of this series as contemplated by [Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practices) of less than __% per annum.] [The sinking fund for this series provides for the redemption on _____________ in each year beginning with the year _______ and ending with the year ________of [not less than] $_______ [("mandatory sinking fund") and not more than $________] aggregate principal amount of Securities of this series. [Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made [if applicable, insert in the inverse order in which they become due].] In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation hereof. [If applicable, insert The Indenture contains provisions for defeasance at any time of [(a)] [the entire indebtedness evidenced by this Security] [and (b)] certain restrictive covenants,] [in each case] upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.] [If the Security is not an Original Issue Discount Security, insert If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to insert formula for determining the amount.] Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium if any)
and interest (if any) on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest (if any) on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $_______ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 4. Additional Provisions Required in Global Security. Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 202 and 203, bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a
nominee of a Depository. This Security is exchangeable for Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture and may not be transferred except as a whole by the Depository to a nominee of the depository or by a nominee of the Depository to the Depository or another nominee of the Depository. Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, any Global Security shall provide, in addition to the provisions set forth in Sections 202 and 203 and the preceding paragraph, that the Depository will not sell, assign, transfer or otherwise convey any beneficial interest in such Global Security unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series, and that the Depository, by accepting such Global Security, agrees to be bound by such provision. 5. Form of Trustee's Certificate of Authentication. This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Trustee By____________________________________ Authorized Officer THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Trustee By Chemical Bank Authenticating Agent By____________________________________ Authorized Signer
3. The Securities 1. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, 1. the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities); 2. any limit upon the aggregate principal amount or the aggregate initial offering price of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 906 or 1107 and except for any Securities which, pursuant to Section 303, shall not have been issued and sold by the Company and are therefore deemed never to have been authenticated and delivered hereunder); 3. the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; 4. the date or dates on which the principal of the Securities of the series is payable; the provisions, if any, for extension of such date or dates; 5. the rate or rates (or the formula pursuant to which such rate or rates shall be determined) at which the Securities of the series shall bear interest, if any, including that rate of interest applicable to overdue payments of principal, and the rate of interest, if any, applicable to overdue payments of interest if different from the rate of interest stated in the title of the Security; the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date;
6. the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable; 7. if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company; 8. the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; 9. if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; 10. if other than the currency of the United States, the currency or currencies, including composite currencies, in which payment of the principal of and any premium and interest on the Securities of the series shall be payable, which may be different for principal, premium, if any, and interest; 11. if the principal of (and premium, if any) or interest, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies other than that in which the Securities are stated to be payable, the currency or currencies in which payment of the principal of (and premium, if any) or interest, if any, on Securities of such series as to which such election is made shall be payable, and the period or periods within which, and the terms and conditions upon which, such election may be made; 12. if the amount of payments of principal of and any premium or interest on the Securities of the series may be determined with reference to an index, the manner in which such amounts shall be determined; 13. if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; 14. any Event of Default with respect to the Securities of the series, if not set forth herein; 15. the application, if any, of either or both of Section 1302 and Section 1303 to the Securities of the series. 16. whether the Securities of the series shall be issued in whole or in part in the form of one or more Global Securities and,
in such case, the Depository for such Global Security or Securities, which Depository shall be, if then required by applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended; and 17. any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture), including any covenants to be applicable to Securities of such series if not set forth herein. All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth in the Officers' Certificate referred to above or in any such indenture supplemental hereto. All Securities of any one series need not be issued at one time, and unless otherwise provided, a series may be reopened for issuances of additional Securities of such series. Unless otherwise specifically provided with respect to the Securities of a series, at the option of the Company, interest on the Securities of any series that bears interest may be paid by mailing a check to the address of the person entitled thereto as such address shall appear in the Security Register. If any of the terms of Securities of a series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. If all of the Securities of any series established by action taken pursuant to a Board Resolution are not to be issued at one time, it shall not be necessary to deliver a record of such action at the time of issuance of each Security of such series, but an appropriate record of such action shall be delivered at or before the time of issuance of the First Security of such series. 2. Denominations. The Securities of each series shall be issuable in registered form without coupons in each denominations as shall be specified as contemplated by Section 301. In the absence of any such provisions with respect to the Securities of any particular series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. 3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairman, its President, its Chief Financial Officer or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimiles. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices a the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee or the Authenticating Agent for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee or the Authenticating Agent in accordance with the Company Order shall authenticate and make available for delivery such Securities. If all of the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate, maturity date, date of issuance and date from which interest shall accrue. In authenticating Securities of any series, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee or the Authenticating Agent, as the case may be, shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, a. if the form of such Securities has been established by or pursuant to a Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; b. if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and c. that such Securities, when authenticated and delivered by the Trustee and issued by the Company
in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and, if applicable, to provisions of law which may require that a judgment for money damages rendered by a court in the United States be expressed in Unites States dollars. If such forms or terms have been so established, the Trustee or the Authenticating Agent, as the case may be, shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's or the Authenticating Agent's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or the Authenticating Agent. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the time of authentication upon original issuance of the first Security of such series to be issued. After the original issuance of the first Security of such series to be issued, any separate request by the Company that the Trustee authenticate Securities of such series for original issuance will be deemed to be a certification by the Company that it is in compliance with all conditions precedent provided for in this Indenture relating to the authentication and delivery of such Securities. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein
executed by the Trustee or the Authenticating Agent by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. 4. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee or the Authenticating Agent shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, reproduced or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations of the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor a like principal amount of definitive Securities of the same series and tenor of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. 5. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the corporate trust office of the Security Registrar designated pursuant to this Section 305 a register (the register maintained in such office being herein sometimes referred to as
the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Bank is hereby initially appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like tenor and aggregate principal amount. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before any selection for redemption of Securities of like tenor and of the series of which such Security is a part and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Securities of such series to be redeemed, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. Notwithstanding the foregoing, any Global Security representing a series of Securities shall be exchangeable pursuant to this Section 305 for Securities registered in the names of Persons other than the Depository or its nominee only if (i) subject to any other terms of the series applicable to such Global Security, such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when such Depository is required to be so registered to act as such Depository, (ii) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to the Securities. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as such Depository shall direct. Notwithstanding any other provision in this Indenture, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository. Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities evidenced in whole or in part by a Global Security, the Depository may not sell, assign, transfer or otherwise convey any beneficial interest in a Global Security evidencing all or part of the Securities of such series unless such beneficial interest is in an amount equal to an authorized denomination for Securities of such series. 6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnify as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same
series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security of the same series, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. 7. Payment of Interest; Interest Rights Preserved. Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: 1. The Company may elect to make payment of any Defaulted Interest to the Person or Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interested and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). 2. The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. 8. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Notwithstanding the foregoing, with respect to any Global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by a Depository or impair, as between a Depository and holders of beneficial interests in any Global Security, the operation of customary practices governing the exercise of the rights of the Depositary as Holder of such Global Security. 9. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed by the Trustee and a certificate of destruction shall be delivered to the Company. 10. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. 4. Satisfaction and Discharge 1. Satisfaction and Discharge of Indenture.
This Indenture shall upon request by the Company cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, upon Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when 1. either A. all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or B. all such Securities not theretofore delivered to the Trustee for cancellation i. have become due and payable, or ii. will become due and payable at their Stated Maturity within one year, or iii. are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expenses of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; 2. the Company has paid or caused to be paid all other sums payable hereunder by the Company; and 3. the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money or U.S. Government Obligations shall have been deposited with the Trustee (or another trustee satisfying the conditions of Section 609) in accordance with Section 1302, the obligations of the Company to the Trustee (or other qualifying trustee) under the fourth paragraph of Section 1305, and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. 2. Application of Trust Money. Subject to provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest, if any, for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except as required by law. 5. Remedies 1. Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): 1. default in the payment of interest, if any, upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or 2. default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or 3. default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series and continuance of such default for a period of 5 days; or 4. default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or any Security of that series (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically death with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder, or 5. a default under any bond, debenture, notice or other evidence of indebtedness for money borrowed by the Company (including a default with respect to Securities of any series other than that series) or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (including this Indenture), whether such indebtedness now exists or shall hereafter be created, which default shall have resulted (i) in a failure to pay an aggregate principal amount exceeding $25,000,000 of such indebtedness for money borrowed at the later of final maturity or upon the expiration of any applicable period of grace with respect to such principal amount, or (ii) in such indebtedness for money borrowed in an aggregate principal amount exceeding $25,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; provided, however, that, subject to the provisions of Sections 601 and 602, the Trustee shall not be deemed to have knowledge of such default unless either (A) a Responsible Officer of the Trustee shall have actual knowledge of such default or (B) the Trustee shall have received written notice thereof from the Company, from any Holder, from the holder of any
such indebtedness for money borrowed or from the trustee under any such mortgage, indenture or other instrument; and provided, further, that any such default shall not be deemed to have occurred if and so long as the Company shall contest the validity thereof in good faith by appropriate proceedings; or 6. the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or the Bank in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or the Bank or of all or substantially all of their respective property, or ordering the winding up or liquidation of their respective affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or 7. the commencement by the Company or the Bank of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or the consent by either to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or the Bank or of all or substantially all of their respective property, or the making by either of an assignment for the benefit of creditors, or the admission by either in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or the Bank in furtherance of any such action; or 8. any other Event of Default provided with respect to Securities of that series. Upon receipt by the Trustee of any Notice of Default pursuant to Section 501(4) or Section 501(5) with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such Notice of Default, which record date shall be at the close of business on the day the Trustee receives such Notice of Default. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such Notice of Default, whether or not such Holders remain Holders after such record date; provided, that unless Holders of at least 10% in principal amount of the Outstanding Securities of such series, or their proxies, shall have joined in
such Notice of Default prior to the date which is 90 days after such record date, such Notice of Default shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new Notice of Default which is identical to a Notice of Default which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 501. 2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable, except that no such declaration shall be required upon the occurrence of an Event of Default specified in Section 501(7). At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences, and any Event of Default giving rise to such declaration shall not be deemed to have occurred, if 1. the Company has paid or deposited with the Trustee a sum sufficient to pay A. all overdue interest on all Securities of that series, B. the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities, C. to the extent that payment of such interest is lawful, interest, if any, upon overdue interest
at the rate or rates prescribed therefor in such Securities, and D. all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and 1. all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513 or otherwise remedied. No such rescission shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Trustee of any written notice declaring such an acceleration, or rescission and annulment thereof, with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of each 90-day period, a new written notice of declaration of acceleration, or rescission or annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 502. 1. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: 1. default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days,
2. default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, or 3. default is made in the making or satisfaction of any sinking fund payment or analogous obligation when the same becomes due pursuant to the terms of any Security and such default continues for 5 days; the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest and, to the extent that the payment of such interest shall be legally enforceable, interest on any overdue principal including any sinking fund payment or analogous obligations (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 2. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, i. to file and prove a claim for the whole amount of principal (and premium, if any) and interest, if any, owing and unpaid in respect of the Securities of all series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and ii. to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 3. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. 4. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, if any, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 607; and Second: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest, if any, on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, if any, respectively. 5. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless 1. such Holder has previously given written notice to the Trustee of a continuing Event of Default or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to the Securities of that series; 2. the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
3. such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; 4. the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and 5. no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. 6. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest, if any, on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 7. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 8. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 9. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 10. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that 1. such direction shall not be in conflict with any rule of law or with this Indenture, and 2. the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Upon receipt by the Trustee of any written notice directing the time, method or place of conducting any such proceeding or exercising any such trust or power with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that unless Holders of a majority in principal amount of the Outstanding Securities of such series shall have joined in such notice prior to the day which is 90 days after such record date, such
notice shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new notice identical to a notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 512. 11. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default 1. in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, or 2. in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Person, shall be entitled to waive any default hereunder, whether or not such Holders remain Holders after such record date; provided, that unless such majority in principal amount shall have waived such default prior to the date which is 90 days after such record date, any such waiver of such default previously given shall automatically and without further action by any Holder be canceled and of no further effect. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 12. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest, if any, on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case or redemption, on or after the Redemption Date). 1. The Trustee 1. Certain Duties and Responsibilities. a. Except during the continuance of an Event of Default, 1. the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and 2. in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. b. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. c. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that 1. this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; 2. the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; 3. the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority
in principal amount of the Outstanding Securities of any series, determined as provided in Section 512, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and 4. no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. d. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. 2. Notice of Defaults. Within 90 days after the occurrence of any default hereunder known to the Trustee with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such default hereunder, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund instalment with respect to Securities of such series, the Trustee shall be protected in the withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that withholding of such notice is in the interest of the Holders of Securities of such series; and provided, further, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. 3. Certain Rights of Trustee. Subject to the provisions of Section 601: a. the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; b. any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; c. whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; d. the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; e. the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; f. the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and g. the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. 4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The
Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. 5. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. 6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. 7. Compensation and Reimbursement. The Company agrees 1. to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); 2. except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and 3. to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. 8. Disqualifications; Conflicting Interests.
a. If the Trustee has or shall acquire any conflicting interest, as defined in this Section, with respect to the Securities of any series, it shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign with respect to the Securities of that series in the manner and with the effect hereinafter specified in this Article. b. In the event that the Trustee shall fail to comply with the provisions of Subsection (a) of this Section with respect to the Securities of any series, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit by mail to all Holders of Securities of that series, as their names and addresses appear in the Security Register, notice of such failure. c. For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest with respect to the Securities of any series if 1. the Trustee is trustee under this Indenture with respect to the Outstanding Securities of any series other than that series or is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Securities issued under this Indenture, provided that there shall be excluded from the operation of this paragraph this Indenture with respect to the Securities of any series other than that series, the Indenture dated as of November 1, 1982, as supplemented, between the Company and the Trustee, under which the Company's Medium Term Notes at various rates and with various maturity dates, Step-Down Floating Rate Notes due 1990, 9-1/2% Notes due 1991, and 9.55% Senior Notes due 1993 are outstanding as of the date hereof or any other indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if i. this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act, unless the Commission shall have found and declared by order pursuant to Section 305(b) or Section 307(c) of the Trust Indenture Act that differences exist between the provisions of this Indenture with respect to Securities of that series and one or more other series or the provisions of such other indenture or indentures which are so likely to involve a
material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to the Securities of that series and such other series or under such other indenture or indentures, or ii. the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under this Indenture with respect to the Securities of that series and such other series or such other indenture or indentures is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to the Securities of that series and such other series or under such other indenture or indentures; 2. the Trustee or any of its directors or executive officers is an obligor upon the Securities or an underwriter for the Company; 3. the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company; 4. the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (i) one individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of the Company but may not be at the same time an executive officer of both the Trustee and the Company; (ii) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director or an executive officer, or both, of the Trustee and a director of the Company; and (iii) the Trustee may be designated by the Company or by any underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or, subject to
the provisions of paragraph (1) of this Subsection, to act as trustee, whether under an indenture or otherwise; 5. 10% or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons; 6. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), (i) 5% or more of the voting securities, or 10% or more of any other class of security, of the Company not including the Securities issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (ii) 10% or more of any class of security of an underwriter for the Company; 7. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company; 8. the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of the Company; or 9. the Trustee owns, on May 15 in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7) or (8) of this Subsection. As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that
such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after May 15 in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May 15. If the Company fails to make payment in full of the principal of (or premium, if any) or interest on any of the Securities when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection. The specification of percentages in paragraphs (5) to (9), inclusive, of this Subsection shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this Subsection. For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection only, (i) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (ii) an obligation shall be deemed to be "in default" when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (iii) the Trustee shall not be deemed to be the owner or holder of (A) any security which it holds as collateral security, as trustee or otherwise, for an obligation which is not in default as defined in clause (ii) above, or (B) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (C) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity. d. For the purposes of this Section:
1. The term "underwriter", when used with reference to the Company, means every person who, within three years prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. 2. The term "director" means any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated. 3. The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. 4. The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. 5. The term "Company" means any obligor upon the Securities. 6. The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. e. The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions: 1. A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding
voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. 2. A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. 3. The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security. 4. The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: i. securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; ii. securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; iii. securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and iv. securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. 5. A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. 9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of a least $50,000,000 subject to supervision or examination by Federal or State authority and having its Corporate Trust Office in the Borough of Manhattan, The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 10. Resignation and Removal; Appointment of Successor. a. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. b. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. c. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. d. If at any time: 1. the Trustee shall fail to comply with Section 608(a) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or 2. the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or
3. the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all securities, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. e. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any Series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. f. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the
Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. 11. Acceptance of Appointment by Successor. a. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. b. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees cotrustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring
Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. c. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraphs (a) and (b) of this Section, as the case may be. d. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. 13. Preferential Collection of Claims Against Company. a. Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within four months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities, as defined in Subsection (c) of this Section:
1. an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and 2. all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee: A. to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law; B. to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four months' period; C. to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four months' period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in Subsection (c) of this Section, would occur within four months; or
D. to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such four months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned among the Trustee, the Holders and the holders of other indenture securities in such manner that the Trustee, the Holders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Holders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to
any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion among the Trustee, the Holders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Holders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee which has resigned or been removed after the beginning of such four months' period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four months' period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist: i. the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such four months' period; and
ii. such receipt of property or reduction of claim occurred within four months after such resignation or removal. b. There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from: 1. the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; 2. advances authorized by a receivership or bankruptcy court of competent jurisdiction or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders at the time and in the manner provided in this Indenture; 3. disbursements made in the ordinary course of business in the capacity of trustee under the indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; 4. an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as defined in Subsection (c) of this Section; 5. the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; and 6. the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper, as defined in Subsection (c) of this Section. c. For the purposes of this Section only: 1. the term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable; 2. the term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account; 3. the term "cash transaction" means any transaction in which full payment for goods or securities sold is made within
seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; 4. the term "self-liquidating paper" means any draft, bull of exchange, acceptance or obligations which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation; 5. the term "Company" means any obligor upon the Securities; and 6. the term "Federal Bankruptcy Act" means the Bankruptcy Act or Title 11 of the United States Code. 14. Appointment of Authenticating Agent. As of the date of the Indenture and at any time when any of the Securities remain Outstanding the Trustee may appoint an Authenticating Agent or Agents (which may be an Affiliate or Affiliates of the Company) with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital surplus as set forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation, to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice or resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section. The Bank is initially designated as the Authenticating Agent for the Securities. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) As Trustee
By___________________________________ As Authenticating Agent By___________________________________ Authorized Officer 2. Holders' Lists and Reports by Trustee and Company 1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee a. semi-annually, not more than fifteen days after each Regular Record Date, or, in the case of any series of Securities on which no interest is payable, not more than fifteen days after each coupon date or other date specified by the Trustee, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Record Date, and b. at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee if and so long as it is acting as Security Registrar. 2. Preservation of Information; Communications to Holders. a. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addressees of Holders received by the Trustee if and so long as it is acting as Security Registrar. The Trustee may
destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. b. If three or more Holders of the same series (herein referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at its election, either i. afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(a), or ii. inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information. the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appear in the information preserved at the time by the Trustee in accordance with Section 702(a) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. c. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(b). 3. Reports by Trustee. a. On or before September 15 of each year commencing with the year 1990, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report dated as of the preceding July 15 with respect to: 1. its eligibility under Section 609 and its qualifications under Section 608, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect; 2. the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remain unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities Outstanding on the date of such report; 3. the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description
of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 613(b)(2), (3), (4) or (6); 4. the property and funds, if any, physically in the possession of the Trustee as such on the date of such report; 5. any additional issue of Securities which the Trustee has not previously reported; and 6. any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 602. b. The Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding at such time, such report to be transmitted within 90 days after such time. c. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. 4. Reports by Company. The Company shall: 1. file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; 2. file with the Trustees and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and 3. transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. 3. Consolidation, Merger, Conveyance, Transfer or Lease 1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless: 1. the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, of which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be performed or observed; 2. immediately after giving effect to such transaction, no Event of Default and no event which, after notice or lapse of time or both, would become an Event of Default shall have happened and be continuing; and 3. the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. 2. Successor Corporation Substituted. Upon any consolidation by the Company with or merger by the Company into any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. 4. Supplemental Indentures 1. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: 1. to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or 2. to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of fewer than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
3. to add any additional Events of Default; or 4. to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in certificated form or global form; or 5. to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or 6. to secure the Securities; or 7. to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or 8. to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611(b); or 9. to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Securities or any series in any material respect. 2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, 1. change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or
reduce the principal amount thereof or the rate of, or method of computation of the rate of, interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation, or change any Place of Payment where, or the coin or currency in which, any Security or any premium of the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or 2. reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, of the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or 3. modify any of the provisions of this Section, Section 513 or Section 1008, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to the "Trustee", and concomitant changes in this Section and Section 1008, or the deletion of this proviso, in accordance with the requirements of Sections 611(b) and 901(8). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such
consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 3. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee may receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. 4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. 5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. 6. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
5. Covenants 1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. The Company shall have the right to require a Holder, in connection with the payment of the principal of (and premium, if any) or interest, if any, on a Security, to present at the office or agency of the Company at which such payment is made a certificate, in such form as the Company may from time to time prescribe, to enable the Company to determine its duties and liabilities with respect to any taxes, assessments or governmental charges which it may be required to deduct or withhold therefrom under any present or future law of the United States of America or of any State, County, Municipality or taxing authority therein, and the Company shall be entitled to determine its duties and liabilities with respect to such deduction or withholding on the basis of information contained in such certificate or, if no such certificate shall be so presented, on the basis of any presumption created by any such law, and shall be entitled to act in accordance with such determination. 2. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York and in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment (provided, however, that, unless otherwise provided with respect to any series of Securities, at the option of the Company payment of interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Security Register), where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company initially appoints the corporate trust office of the Bank as its agent for purposes of presentation and surrender of Securities for payment, registration of transfer or exchange and for service of notices and demands to or upon the Company in respect of the Securities of a series and this Indenture. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York and in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. 3. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: 1. hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
2. give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal of (and premium, if any) or interest on the Securities of that series; and 3. at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. 4. Corporate Existence. Except as permitted by the provisions of Article Eight and subject to Section 1006, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of the Bank and material rights (charter and statutory) and material franchises of the Company and the Bank; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries considered as a whole, and that the loss thereof is not disadvantageous in any material respect to the Holders. 5. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company and the Bank or upon the income, profits or property of the Company and the Bank, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company and the Bank; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. 6. Limitation on Disposition of Stock of Bank. So long as any Securities shall be Outstanding, neither the Company nor any Intermediate Subsidiary (as hereinafter defined) will (except to the Company or an Intermediate Subsidiary) sell, assign, transfer, grant a security interest in or otherwise dispose of any shares of, securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank, nor will the Company or any Intermediate Subsidiary permit the Bank to issue any shares of, or securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank, nor will the Company permit any Intermediate Subsidiary that owns any shares of, or securities convertible into, or options, warrants or rights to subscribe for or purchase shares of, Voting Stock of the Bank to cease to be an Intermediate Subsidiary, except that (i) the Company or an Intermediate Subsidiary may make any such sale, assignment, transfer, or grant of a security interest or other disposition for fair market value on the date thereof, as determined by the Board of Directors of the Company or such Intermediate Subsidiary, as the case may be (which determination shall be conclusive), and evidenced by a duly adopted resolution thereof, and (ii) in each such case, after giving effect thereto, the Company and any one or more Intermediate Subsidiaries will own at least 80% of the Voting Stock of the Bank then issued and outstanding free and clear of any security interest. Notwithstanding the foregoing, the Bank may be merged into or consolidated with another banking institution organized under the laws of the United States, any State thereof or the District of Columbia, if after giving effect to such merger or consolidation the Company and any one or more Intermediate Subsidiaries own at least 80% of the Voting Stock of such other banking institution and immediately after giving effect thereto
and treating any such resulting bank thereafter as the Bank for purposes of this Indenture, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing. For purposes of this Section, an "Intermediate Subsidiary" means a Subsidiary (i) that is organized under the laws of the United States, any State thereof or the District of Columbia, and (ii) of which all the shares of each class of capital stock issued and outstanding, and all securities convertible into, and options, warrants and rights to subscribe for or purchase shares of, such capital stock, are owned directly by the Company, free and clear of any security interest. The provisions of this Section 1006 shall not prohibit the Company from consolidating with or merging into any other Person or from conveying, transferring or leasing the Company's properties and assets substantially as an entirety to any Person as otherwise permitted pursuant to Article Eight. 7. Statement as to Compliance. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, a written statement, which need not comply with Section 102, signed by the Chairman of the Board, a Vice Chairman, the President, the Chief Financial Officer or a Vice President and by the Controller, Assistant Controller, the Secretary or an Assistant Secretary of the Company stating, as to each signer thereof, that 1. a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and 2. to the best of his knowledge, based on such review, (a) the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof. 8. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, covenant or condition set forth in Sections 1004 to 1006, inclusive, with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such term, covenant or condition, but no such waiver shall extend to or affect such term, covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, covenant or condition shall remain in full force and effect. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any such term, provision or condition. If a record date is fixed, the Holders on such record date or their duly designated proxies, and only such Persons, shall be entitled to waive any such term, provision or condition hereunder, whether or not such Holders remain Holders after such record date; provided, that unless the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall have waived such term, provision or condition prior to the date which is 90 days after such record date, any such waiver previously given shall automatically and without further action by any Holder be canceled and of no further effect. 6. Redemption of Securities 1. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. 2. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of fewer than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the tenor, if applicable, of the Securities to be redeemed, and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. 3. Selection by Trustee of Securities to Be Redeemed. If fewer than all the Securities of any series are to be redeemed (unless all of the Securities of a specified tenor are to e redeemed), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series subject to such redemption and not previously called for redemption, by such method as the Trustee shall deem fair and appropriate (but subject to compliance with the rules of any securities exchange on which the securities of such series may be listed) and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If fewer than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. 4. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: 1. the Redemption Date, 2. the Redemption Price, 3. if fewer than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, 4. the CUSIP number of the Securities to be redeemed, 5. that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be
redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, 6. the place or places where such Securities are to be surrendered for payment of the Redemption Price, and 7. that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. 5. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. 6. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. 7. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security. 7. Sinking Funds 1. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. 2. Satisfaction of Sinking Fund Payments with Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited; provided further that, in the case of (1) above, with respect to any Outstanding Securities so delivered, and in the case of (2) above, with respect to any such Securities so credited, such Outstanding Securities or Securities, as the case may be, be Securities subject to the sinking fund payment required to be made with respect to the Securities of such series. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such
Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. 3. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 45 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. 8. Defeasance and Covenant Defeasance 1. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. If pursuant to Section 301 provision is made for either or both of (a) defeasance of the Securities of a series under Section 1302 or (b) covenant defeasance of the Securities of a series under Section 1303, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article Thirteen, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 1302 (if applicable) or Section 1303 (if applicable) be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article Thirteen. 2. Defeasance and Discharge. Upon the Company's exercise of the above option applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied but subject to satisfaction of the conditions subsequent set forth below (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of the series of Securities defeased pursuant to this Section 1302 to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003 and such obligations as shall be ancillary thereto, (C) the rights, powers, trusts, duties, immunities and other provisions in respect of the Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303 with respect to the Securities of such series. Following a defeasance, payment of the Securities of such series may not be accelerated because of an Event of Default. 3. Covenant Defeasance. Upon the Company's exercise of the above option applicable to this Section, the Company shall be released from its obligations under Section 1005 and Section 1006, (and any other Sections applicable to such Securities that are determined pursuant to Section 301 to be subject to this provision) and the occurrence of an event of default specified in Section 501(4) (insofar as it is with respect to Section 1005 and Section 1006 or any other Section applicable to such Securities that are determined pursuant to Section 301 to be subject to this provision) or Section 501(5) shall be deemed not to be an Event of Default with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied but subject to satisfaction of the conditions subsequent set forth below (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. Following a covenant defeasance, payment of the Securities of such series may not be accelerated because of an Event of Default specified in Section 501(5) or by reference to such other Section specified above in this Section 1303.
4. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions precedent or, as specifically noted below, subsequent to application of either Section 1302 or Section 1303 to the Outstanding Securities of such series: 1. The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest on the Outstanding Securities of such series to maturity or redemption, as the case may be, and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the due dates thereof. Before such a deposit the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date or dates in accordance with Article Eleven, which shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. 2. No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing (A) on the date of such deposit or (B) insofar as subsections 501(6) and (7) are concerned, at any time during the period ending on the 123rd day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this clause (B) is a condition subsequent and shall not be deemed satisfied until the expiration of such period). 3. Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest as defined in Section 608 or for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended. 4. Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound. 5. Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Securities Exchange Act of 1934, as amended, to be delisted. 6. In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of
such series will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. 7. In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. 8. Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. 9. The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. 5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee collectively, for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (but not including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof. Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. Anything herein to the contrary notwithstanding, if and to the extent the deposited money or U.S. Government Obligations (or the proceeds thereof) either (i) cannot be applied by the Trustee in accordance with this Section because of a court order or (ii) are for any reason insufficient in amount, then the Company's obligations to pay principal of (and premium, if any) and interest on the Securities of such series shall be reinstated to the extent necessary to cover the deficiency on any due date for payment. In any case specified in clause (i), the Company's interest in the deposited money and U.S. Government Obligations (and proceeds thereof) shall be reinstated to the extent the Company's payment obligations are reinstated. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. In Witness Whereof, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
Chemical Banking Corporation By [Corporate Seal] Attest: The Chase Manhattan Bank (National Association) By [Corporate Seal] Attest: State of New York) )SS.: County Of New York ) On the day of , , before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of Chemical Banking Corporation one of the corporations described in and which executed the foregoing instruments; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. Notary Public in and for said State [Notarial Seal] State Of New York) )SS.: County Of New York) On the day of , , before me personally came , to me known, who, being by me duly sworn, did depose and say that he is of The Chase Manhattan Bank (National Association) one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. Notary Public in and for said State [Notarial Seal]
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JPMORGAN CHASE & CO. |
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Name: | Tod J. Gordon | |||
Title: | Managing Director | |||
DEUTSCHE BANK TRUST COMPANY |
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AMERICAS, as Trustee |
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[Registered] | [Registered] |
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1 | This Form of Assignment shall be modified as appropriate if the assignment is being made by an individual Holder rather than the Trustee or if the debt being assigned is not in certificated form or otherwise represented by a written instrument. |
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Very truly yours, | ||||||
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Exhibit 4.4(a) - ------------------------------------------------------------------------------- THE CHASE MANHATTAN CORPORATION TO THE BANK OF NEW YORK TRUSTEE ------------------------------------------------ JUNIOR SUBORDINATED INDENTURE DATED AS OF , 1996 ------------------------------------------------ - --------------------------------------------------------------------------------
THE CHASE MANHATTAN CORPORATION Reconciliation and tie between the Trust Indenture Act of 1939 (including cross-references to provisions of Sections 310 to and including 317 which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the Trust Reform Act of 1990, are a part of and govern the Indenture whether or not physically contained therein) and the Junior Subordinated Indenture, dated as of , 199 . Trust Indenture Indenture ACT SECTION SECTION - ----------- --------- Section 310 (a) (1), (2) and (5)............ 6.9 (a) (3)......................... Not Applicable (a) (4)......................... Not Applicable (b)............................. 6.8 ................................ 6.10 (c)............................. Not Applicable Section 311 (a)............................. 6.13(a) (b)............................. 6.13(b) (b) (2)......................... 7.3(a) (2) ............................... .7.3(a) (2) Section 312 (a)............................. 7.1 ................................ 7.2(a) (b)............................. 7.2(b) (c)............................. 7.2(c) Section 313 (a)............................. 7.3(a) (b)............................. 7.3(b) (c)............................. 7.3(a), 7.3(b) (d)............................. 7.3(c) Section 314 (a) (1), (2) and (3)............ 7.4 (a) (4)......................... 10.5 (b)............................. Not Applicable (c) (1)......................... 1.2 (c) (2)......................... 1.2 (c) (3)......................... Not Applicable (d)............................. Not Applicable (e)............................. 1.2 (f)............................. Not Applicable Section 315 (a)............................. 6.1(a) (b)............................. 6.2 ................................ 7.3(a) (6) (c)............................. 6.1(b)
TRUST INDENTURE INDENTURE ACT SECTION SECTION - --------------- --------- (d)............................. 6.1(c) (d) (1)......................... 6.1(a) (1) (d) (2)......................... 6.1(c) (2) (d) (3)......................... 6.1(c) (3) (e)............................. 5.14 Section 316 (a)............................. 1.1 (a) (1) (A)..................... 5.12 (a) (1) (B)..................... 5.13 (a) (2)......................... Not Applicable (b)............................. 5.8 (c)............................. 1.4(f) Section 317 (a) (1)......................... 5.3 (a) (2)......................... 5.4 (b)............................. 10.3 Section 318 (a)............................. 1.7 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture.
TABLE OF CONTENTS ----------------- Page ---- ARTICLE I..................... 1 SECTION 1.1. Definitions. .............................................. 1 SECTION 1.2. Compliance Certificate and Opinions. ...................... 9 SECTION 1.3. Forms of Documents Delivered to Trustee. .................. 10 SECTION 1.4. Acts of Holders. .......................................... 10 SECTION 1.5. Notices, Etc. to Trustee and Company. ..................... 12 SECTION 1.6. Notice to Holders; Waiver. ................................ 13 SECTION 1.7. Conflict with Trust Indenture Act. ........................ 13 SECTION 1.8. Effect of Headings and Table of Contents. ................. 13 SECTION 1.9. Successors and Assigns. ................................... 13 SECTION 1.10. Separability Clause. ..................................... 13 SECTION 1.11 Benefits of Indenture. .................................... 13 SECTION 1.12. Governing Law. ........................................... 14 SECTION 1.13. Non-Business Days. ....................................... 14 ARTICLE II..................... 14 SECTION 2.1. Forms Generally. .......................................... 14 SECTION 2.2. Form of Face of Security. ................................. 15 SECTION 2.3. Form of Reverse of Security. .............................. 18 SECTION 2.4. Additional Provisions Required in Global Security. ........ 20 SECTION 2.5. Form of Trustee's Certificate of Authentication. .......... 21 ARTICLE III.................... 21 SECTION 3.1. Title and Terms. .......................................... 21 SECTION 3.2. Denominations. ............................................ 24 SECTION 3.3. Execution, Authentication, Delivery and Dating. ........... 24 SECTION 3.4. Temporary Securities. ..................................... 25 SECTION 3.5. Registration, Transfer and Exchange. ...................... 26 SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities. ......... 27 SECTION 3.7. Payment of Interest; Interest Rights Preserved. ........... 28 SECTION 3.8. Persons Deemed Owners. .................................... 29 SECTION 3.9. Cancellation. ............................................. 30 SECTION 3.10. Computation of Interest. ................................. 30 SECTION 3.11. Deferrals of Interest Payment Dates. ..................... 30 SECTION 3.12. Right of Set-Off. ........................................ 31 SECTION 3.13. Agreed Tax Treatment. .................................... 31 SECTION 3.14. Shortening or Extension of Stated Maturity................ 32 SECTION 3.15. CUSIP Numbers. ........................................... 32 - i -
Page ---- ARTICLE IV.................................................. 32 SECTION 4.1. Satisfaction and Discharge of Indenture. ............................................... 32 SECTION 4.2. Application of Trust Money. ............................................................ 34 ARTICLE V.................................................. 34 SECTION 5.1. Events of Default. ..................................................................... 34 SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. .................................... 35 SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. ..................................................................................... 36 SECTION 5.4. Trustee May File Proofs of Claim. ...................................................... 37 SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities. ............................ 38 SECTION 5.6. Application of Money Collected. ........................................................ 38 SECTION 5.7. Limitation on Suits. ................................................................... 38 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. .............................. 39 SECTION 5.9. Restoration of Rights and Remedies. .................................................... 40 SECTION 5.10. Rights and Remedies Cumulative. ....................................................... 40 SECTION 5.11. Delay or Omission Not Waiver. ......................................................... 40 SECTION 5.12. Control by Holders. ................................................................... 40 SECTION 5.13. Waiver of Past Defaults. .............................................................. 41 SECTION 5.14. Undertaking for Costs. ................................................................ 41 SECTION 5.15. Waiver of Usury, Stay or Extension Laws. .............................................. 42 ARTICLE VI.................................................. 42 SECTION 6.1. Certain Duties and Responsibilities. ................................................... 42 SECTION 6.2. Notice of Defaults. .................................................................... 43 SECTION 6.3. Certain Rights of Trustee. ............................................................. 43 SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. ................................ 44 SECTION 6.5. May Hold Securities. ................................................................... 44 SECTION 6.6. Money Held in Trust. ................................................................... 45 SECTION 6.7. Compensation and Reimbursement. ........................................................ 45 SECTION 6.8. Disqualification; Conflicting Interests. ............................................... 45 SECTION 6.9. Corporate Trustee Required; Eligibility. ............................................... 46 SECTION 6.10. Resignation and Removal; Appointment of Successor. .................................... 46 SECTION 6.11. Acceptance of Appointment by Successor. ............................................... 48 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. .......................... 49 SECTION 6.13. Preferential Collection of Claims Against Company. .................................... 49 SECTION 6.14. Appointment of Authenticating Agent. .................................................. 49 ARTICLE VII................................................. 51 SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders............................... 51 SECTION 7.2. Preservation of Information, Communications to Holders. ................................ 51 SECTION 7.3. Reports by Trustee. .................................................................... 51 SECTION 7.4. Reports by Company. .................................................................... 52 - ii -
Page ---- ARTICLE VIII................................................. 52 SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms. .................................. 52 Section 8.2. Successor Corporation Substituted. ..................................................... 53 ARTICLE IX.................................................. 54 SECTION 9.1. Supplemental Indentures without Consent of Holders. .................................... 54 SECTION 9.2. Supplemental Indentures with Consent of Holders. ....................................... 55 SECTION 9.3. Execution of Supplemental Indentures.................................................... 56 SECTION 9.4. Effect of Supplemental Indentures. ..................................................... 56 SECTION 9.5. Conformity with Trust Indenture Act. ................................................... 56 SECTION 9.6. Reference in Securities to Supplemental Indentures. .................................... 57 ARTICLE X.................................................. 57 SECTION 10.1. Payment of Principal, Premium and Interest. ........................................... 57 SECTION 10.2. Maintenance of Office or Agency. ...................................................... 57 SECTION 10.3. Money for Security Payments to be Held in Trust. ...................................... 58 SECTION 10.4. Statement as to Compliance. ........................................................... 59 SECTION 10.5. Waiver of Certain Covenants. .......................................................... 59 SECTION 10.6. Additional Sums. ...................................................................... 59 SECTION 10.7. Additional Covenants. ................................................................. 60 ARTICLE XI.................................................. 61 SECTION 11.1. Applicability of This Article. ........................................................ 61 SECTION 11.2. Election to Redeem; Notice to Trustee. ................................................ 61 SECTION 11.3. Selection of Securities to be Redeemed. ............................................... 61 SECTION 11.4. Notice of Redemption. ................................................................. 62 SECTION 11.5. Deposit of Redemption Price. .......................................................... 63 SECTION 11.6. Payment of Securities Called for Redemption. .......................................... 63 SECTION 11.7. Right of Redemption of Securities Initially Issued to a Trust. ........................ 63 ARTICLE XII................................................. 64 SECTION 12.1. Applicability of Article. ............................................................. 64 SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities. ................................ 64 SECTION 12.3. Redemption of Securities for Sinking Fund. ............................................ 64 ARTICLE XIII................................................. 66 SECTION 13.1. Securities Subordinate to Senior Debt. ................................................ 66 SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc. ....................................... 66 SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of Securities........................... 67 SECTION 13.4. No Payment When Senior Debt in Default. ............................................... 68 SECTION 13.5. Payment Permitted If No Default. ...................................................... 68 SECTION 13.6. Subrogation to Rights of Holders of Senior Debt. ...................................... 69 SECTION 13.7. Provisions Solely to Define Relative Rights. .......................................... 69 SECTION 13.8. Trustee to Effectuate Subordination. .................................................. 69 - iii -
Page ---- SECTION 13.9. No Waiver of Subordination Provisions. ................................................ 70 SECTION 13.10. Notice to Trustee. .................................................................. 70 SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent. ....................................................................................... 71 SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt. ................................... 71 SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. ............................................................................ 71 SECTION 13.14. Article Applicable to Paying Agents. ................................................ 71 SECTION 13.15. Certain Conversions or Exchanges Deemed Payment. .................................... 72 - iv -
JUNIOR SUBORDINATED INDENTURE, dated as of , 199 , between THE CHASE MANHATTAN CORPORATION, a Delaware corporation (hereinafter called the "Company") having its principal office at 270 Park Avenue, New York, NY 10017, and THE BANK OF NEW YORK, a national banking association duly organized and existing under the laws of the United States, as Trustee (hereinafter called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured junior subordinated debt securities in series (hereinafter called the "Securities") of substantially the tenor hereinafter provided, including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more business trusts (each a "Trust," and, collectively, the "Trusts") of preferred trust interests in such Trusts (the "Preferred Securities") and common interests in such Trusts (the "Common Securities" and, collectively with the Preferred Securities, the "Trust Securities"), and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) All other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and the term "generally accepted
2 accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles which are generally accepted at the date or time of such computation; provided, that when two or more principles are so generally accepted, it shall mean that set of principles consistent with those in use by the Company; and (4) The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act" when used with respect to any Holder has the meaning specified in Section 1.4. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security. "Additional Sums" has the meaning specified in Section 10.6. "Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which a Trust has become subject from time to time as a result of a Tax Event. "Administrative Trustee" means, in respect of any Trust, each Person identified as an "Administrative Trustee" in the related Trust Agreement, solely in such Person's capacity as Administrative Trustee of such Trust under such Trust Agreement and not in such Person's individual capacity, or any successor administrative trustee appointed as therein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, no Trust to which Securities have been issued shall be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Allocable Amounts," when used with respect to any Senior Debt, means all amounts due or to become due on such Senior Debt less, if applicable, any amount which would have been paid to, and retained by, the holders of such Senior Debt (whether as a result of the receipt of payments by the holders of such Senior Debt from the Company or any other obligor thereon or from any holders of, or trustee in respect of, other indebtedness that is subordinate and junior in right of payment to such Senior Debt pursuant to any provision of such indebtedness for the payment over of amounts received on account of such indebtedness to the holders of such Senior Debt or otherwise) but for the fact that such Senior Debt is subordinate or junior in right of payment to (or subject to a requirement that amounts received on such Senior Debt be paid over to obligees on) trade accounts payable or accrued liabilities arising in the ordinary course of business.
3 "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors, or such committee of the Board of Directors or officers of the Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to the Securities of a series initially issued to a Trust, the principal office of the Property Trustee under the related Trust Agreement, is closed for business. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Securities" has the meaning specified in the first recital of this Indenture. "Common Stock" means the common stock[, par value $ per share,] [, without par value,] of the Company. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, the written request or order signed in the name of the Company by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "corporation" includes a corporation, association, company, joint-stock company or business trust. "Debt" means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for
4 money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary by the Company pursuant to Section 3.1 with respect to such series (or any successor thereto). "Discount Security" means any security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2. "Distributions," with respect to the Trust Securities issued by an Trust, means amounts payable in respect of such Trust Securities as provided in the related Trust Agreement and referred to therein as "Distributions." "Dollar" means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts. "Event of Default" unless otherwise specified in the supplemental indenture creating a series of Securities has the meaning specified in Article V. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Extension Period" has the meaning specified in Section 3.11. "Global Security" means a Security in the form prescribed in Section 2.4 evidencing all or part of a series of Securities, issued to the Depository or its nominee for such series, and registered in the name of such Depository or its nominee.
5 "Guarantee" means the guarantee by the Company of distributions on the Preferred Securities of a Trust to the extent provided in the Guarantee Agreement. "Guarantee Agreement" means the Guarantee Agreement substantially in the form attached hereto as Annex C, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Holder" means a Person in whose name a Security is registered in the Securities Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of each particular series of Securities established as contemplated by Section 3.1. "Interest Payment Date" means as to each series of Securities the Stated Maturity of an installment of interest on such Securities. "Junior Subordinated Payment" has the meaning specified in Section 13.2. "Maturity" when used with respect to any Security means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. "Notice of Default" means a written notice of the kind specified in Section 5.1(3). "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors , a Vice Chairman of the Board of Directors, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Date" means the date of issuance specified as such in each Security. "Outstanding" means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
6 (ii) Securities for whose payment money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; and (iii) Securities in substitution for or in lieu of which other Securities have been authenticated and delivered or which have been paid pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. Upon the written request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of the Company, or any other obligor on the Securities or any Affiliate of the Company or such obligor, and, subject to the provisions of Section 6.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. "Paying Agent" means the Trustee or any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means, with respect to the Securities of any series, the place or places where the principal of (and premium, if any) and interest on the Securities of such series are payable pursuant to Sections 3.1 and 3.11. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Preferred Securities" has the meaning specified in the first recital of this Indenture. "Proceeding" has the meaning specified in Section 13.2.
7 "Property Trustee" means, in respect of any Trust, the commercial bank or trust company identified as the "Property Trustee" in the related Trust Agreement, solely in its capacity as Property Trustee of such Trust under such Trust Agreement and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as therein provided. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date with respect to the Securities of a series means, unless otherwise provided pursuant to Section 3.1 with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). "Responsible Officer" when used with respect to the Trustee means any officer of the Trustee assigned by the Trustee from time to time to administer its corporate trust matters. "Rights Plan" means a plan of the Company providing for the issuance by the Company to all holders of its Common Stock of rights entitling the holders thereof to subscribe for or purchase shares of Common Stock or any class or series of preferred stock, which rights (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case until the occurrence of a specified event or events. "S&P" means Standard & Poor's Ratings Services. "Securities" or "Security" means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 3.5. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Securities or to other Debt which is pari passu with, or subordinated to, the Securities, provided, however, that Senior Debt shall not be deemed to include (a) any Debt of the Company which, when incurred and without respect to any election under Section 1111(b)
8 of the Bankruptcy Reform Act of 1978, was without recourse to the Company, (b) any Debt of the Company to any of its Subsidiaries, (c) Debt to any employee of the Company, and (d) any Securities. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.7. "Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified pursuant to the terms of such Security as the date on which the principal of such Security or such installment of interest is due and payable, in the case of such principal, as such date may be shortened or extended as provided pursuant to the terms of such Security and this Indenture. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Tax Event" means the receipt by a Trust of an Opinion of Counsel (as defined in the relevant Trust Agreement) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities of such Trust, there is more than an insubstantial risk that (i) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the corresponding series of Securities issued by the Company to such Trust, (ii) interest payable by the Company on such corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel, will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) such Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust" has the meaning specified in the first recital of this Indenture. "Trust Agreement" means the Trust Agreement substantially in the form attached hereto as Annex A, as amended by the form of Amended and Restated Trust Agreement substantially in the form attached hereto as Annex B, or substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time.
9 "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder and, if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. " 77aaa-77bbb), as amended and as in effect on the date as of this Indenture, except as provided in Section 9.5. "Trust Securities" has the meaning specified in the first recital of this Indenture. "Vice President" when used with respect to the Company, means any duly appointed vice president, whether or not designated by a number or a word or words added before or after the title "vice president." SECTION 1.2. Compliance Certificate and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent (including covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitute a condition precedent), if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificates provided pursuant to Section 10.5) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
10 SECTION 1.3. Forms of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a Person acting in other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority.
11 (c) The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine. (d) The ownership of Securities shall be proved by the Securities Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.2, (iii) any request to institute proceedings referred to in Section 5.7(2) or (iv) any direction referred to in Section 5.12, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date, provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any
12 action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day, provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (g) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 1.5. Notices, Etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder, any holder of Preferred Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust office, or (2) the Company by the Trustee, any Holder or any holder of Preferred Securities shall be sufficient for every purpose (except as otherwise provided in Section 5.1) hereunder if in writing and mailed, first class, postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
13 SECTION 1.6. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at the address of such Holder as it appears in the Securities Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7. Conflict with Trust Indenture Act. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control. SECTION 1.8. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.9. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the holders of Senior Debt, the Holders of the Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2, the holders of Preferred Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.
14 SECTION 1.12. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. SECTION 1.13. Non-Business Days. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day (and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, until such next succeeding Business Day except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day (in each case with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity). ARTICLE II SECURITY FORMS SECTION 2.1. Forms Generally. The Securities of each series and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, or in such other form or forms as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with applicable tax laws or the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 with respect to the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be substantially in the form set forth in this Article. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods, if required by any securities exchange on which the Securities may be listed, on a steel engraved border or steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be
15 listed, all as determined by the officers executing such Securities, as evidenced by their execution of such securities. SECTION 2.2. Form of Face of Security. THE CHASE MANHATTAN CORPORATION % JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES No. $ THE CHASE MANHATTAN CORPORATION, a corporation organized and existing under the laws of the state of Delaware (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars on , 2026; provided that the Company may (i) shorten the Stated Maturity of the principal of this Security to a date not earlier than , 2001 and (ii) extend the Stated Maturity of the principal of this Security at any time on one or more occasions, subject to certain conditions specified in Section 3.14 of the Indenture, but in no event to a date later than , 2045. The Company further promises to pay interest on said principal sum from , or from the most recent interest payment date (each such date, an "Interest Payment Date") on which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year, commencing March 31, 1997, at the rate of % per annum, until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of % per annum, compounded quarterly. The amount of interest payable for any period shall be computed on the basis of twelve 30-day months and a 360-day year. The amount of interest payable for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or exective order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee or the Property Trustee under the Trust Agreement hereinafter referred to for Chase Capital I, is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities is registered at the close of business on the Regular Record Date for such interest installment, which shall be, unless otherwise provided pursuant to Section 3.1 of the Junior Subordinated Indenture, dated as of , 199 (herein called the "Indenture") between the Company and The Bank of New York, as Trustee (herein called the
16 "Trustee", which term includes any successor trustee under the Indenture), with respect to Securities of a series, (i) in the case of Securities of a series represented by one or more Global Securities, the Business Day next preceding such Interest Payment Date and (ii) in the case of Securities of a series not represented by one or more Global Securities, the date which is fifteen days next preceding such Interest Payment Date (whether or not a Business Day). Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time during the term of this Security to defer payment of interest on this Security, at any time or from time to time, for up to 20 consecutive quarterly interest payment periods with respect to each deferral period (each an "Extension Period"), during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of this Security; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to this Security or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiaries of the Company if such guarantee ranks pari passu with or junior in interest to this Security (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any Common Stock or any class or series of preferred stock of the Company under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees. Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period shall exceed beyond the Stated Maturity of the principal of this Security. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period except at the end thereof. The Company shall give the Holder of this Security and the Trustee notice of its election to begin any Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on this Security would be payable but for such deferral or, with respect to the Securities issued to a Trust, so long as such
17 Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities would be payable but for such deferral or (ii) the date the Administrative Trustees are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert C; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register]. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payments to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. THE CHASE MANHATTAN CORPORATION By:----------------------------- [President or Vice President] Attest:
18 - ------------------------------------------- [Secretary or Assistant Secretary] SECTION 2.3. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under the Indenture, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities, and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in aggregate principal amount to $ ]. All terms used in this Security that are defined in the Indenture or in the Amended and Restated Trust Agreement, dated as of , 1996, as amended (the "Trust Agreement"), for Chase Capital I among The Chase Manhattan Corporation, as Depositor, and the Trustees named therein, shall have the meanings assigned to them in the Indenture or the Trust Agreement, as the case may be. The Company may at any time, at its option, on or after , , and subject to the terms and conditions of Article XI of the Indenture, redeem this Security in whole at any time or in part from time to time, without premium or penalty, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any to the Redemption Date. Upon the occurrence and during the continuation of a Tax Event in respect of a Trust, the Company may, at its option, at any time within 90 days of the occurrence of such Tax Event redeem this Security, in whole but not in part, subject to the provisions of Section 11.7 and the other provisions of Article XI of the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, including Additional Interest, if any, to the Redemption Date. In the event of redemption of this Security in part only, a new Security or Securities of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all
19 Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities of this series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series may declare the principal amount of all the Securities of this series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of this series issued to a Trust, if upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of this series fails to declare the principal of all the Securities of this series to be immediately due and payable, the holders of at least 25% in aggregate Liquidation Amount of the Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration the principal amount of and the accrued interest (including any Additional Interest) on all the Securities of this series shall become immediately due and payable, provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII of the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 10.2 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
20 The Securities of this series are issuable only in registered form without coupons in denominations of $25.00 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of such series of a different authorized denomination, as requested by the Holder surrendering the same. The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree that for United States Federal, state and local tax purposes it is intended that this Security constitute indebtedness. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. SECTION 2.4. Additional Provisions Required in Global Security. Any Global Security issued hereunder shall, in addition to the provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Security is exchangeable for Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture and may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary." SECTION 2.5. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within mentioned Indenture. Dated: ------------------------------------------- as Trustee By: ---------------------------------------- Authorized officer ARTICLE III THE SECURITIES SECTION 3.1. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
21 The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of a series: (a) the title of the securities of such series, which shall distinguish the Securities of the series from all other Securities; (b) the limit, if any, upon the aggregate principal amount of the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder); provided, however, that the authorized aggregate principal amount of such series may be increased above such amount by a Board Resolution to such effect; (c) the Stated Maturity or Maturities on which the principal of the Securities of such series is payable or the method of determination thereof; (d) the rate or rates, if any, at which the Securities of such series shall bear interest, if any, the rate or rates and extent to which Additional Interest, if any, shall be payable in respect of any Securities of such series, the Interest Payment Dates on which such interest shall be payable, the right, pursuant to Section 3.11 or as otherwise set forth therein, of the Company to defer or extend an Interest Payment Date, and the Regular Record Date for the interest payable on any Interest Payment Date or the method by which any of the foregoing shall be determined; (e) the place or places where the principal of (and premium, if any) and interest on the Securities of such series shall be payable, the place or places where the Securities of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Securities of such series may be made; (f) the period or periods within or the date or dates on which, if any, the price or prices at which and the terms and conditions upon which the Securities of such series may be redeemed, in whole or in part, at the option of the Company; (g) the obligation or the right, if any, of the Company to redeem, repay or purchase the Securities of such series pursuant to any sinking fund, amortization or analogous provisions, or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (h) the denominations in which any Securities of such series shall be issuable, if other than denominations of $25 and any integral multiple thereof;
22 (i) if other than Dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable, or in which the Securities of the series shall be denominated; (j) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Securities of such series; (k) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the Maturity thereof; (l) the additions or changes, if any, to this Indenture with respect to the Securities of such series as shall be necessary to permit or facilitate the issuance of the Securities of such series in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (m) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Securities of such series or the manner in which such amounts will be determined; (n) whether the Securities of the series, or any portion thereof, shall initially be issuable in the form of a temporary Global Security representing all or such portion of the Securities of such series and provisions for the exchange of such temporary Global Security for definitive Securities of such series; (o) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 2.4 and any circumstances in addition to or in lieu of those set forth in Section 3.5 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (p) the appointment of any Paying Agent or Agents for the Securities of such series; (q) the terms of any right to convert or exchange Securities of such series into any other securities or property of the Company, and the additions or changes, if any, to this Indenture with respect to the Securities of such series to permit or facilitate such conversion or exchange; (r) the form or forms of the Trust Agreement, Amended and Restated Trust Agreement and Guarantee Agreement, if different from the forms attached hereto as Annexes A, B and C, respectively;
23 (s) the relative degree, if any, to which the Securities of the series shall be senior to or be subordinated to other series of Securities in right of payment, whether such other series of Securities are Outstanding or not; and (t) any other terms of the Securities of such series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. The Securities shall be subordinated in right of payment to Senior Debt as provided in Article XIII. SECTION 3.2. Denominations. The Securities of each series shall be in registered form without coupons and shall be issuable in denominations of $25 and any integral multiple thereof, unless otherwise specified as contemplated by Section 3.1. SECTION 3.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its President or one of its Vice Presidents under its corporate seal reproduced or impressed thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating,
24 (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.1, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.1, that such terms have been established in conformity with the provisions of this Indenture; and (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by the manual signature of one of its authorized officers, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.9, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
25 SECTION 3.4. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Securities of such series in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for that purpose without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations having the same Original Issue Date and Stated Maturity and having the same terms as such temporary Securities. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. SECTION 3.5. Registration, Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such register is herein sometimes referred to as the "Securities Register." The Trustee is hereby appointed "Securities Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated for that purpose the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms. At the option of the Holder, Securities may be exchanged for other Securities of the same series of any authorized denominations, of a like aggregate principal amount, of the same Original Issue Date and Stated Maturity and having the same terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.
26 Every Security presented or surrendered for transfer or exchange shall (if so required by the Company or the Securities Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Securities. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as depositary, in each case unless the Company has approved a successor Depositary within 90 days, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security, (C) the Company in its sole discretion determines that such Global Security will be so exchangeable or transferable or (D) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 3.1. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 3.4, 3.6, 9.6 or 11.6 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Neither the Company nor the Trustee shall be required, pursuant to the provisions of this Section, (a) to issue, transfer or exchange any Security of any series during a period beginning
27 at the opening of business 15 days before the day of selection for redemption of Securities pursuant to Article XI and ending at the close of business on the day of mailing of notice of redemption or (b) to transfer or exchange any Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, any portion thereof not to be redeemed. SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee together with such security or indemnity as may be required by the Company or the Trustee to save each of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity, and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same issue and series of like tenor and principal amount, having the same Original Issue Date and Stated Maturity as such destroyed, lost or stolen Security, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
28 SECTION 3.7. Payment of Interest; Interest Rights Preserved. Interest on any Security of any series which is payable, and is punctually paid or duly provided for, on any Interest Payment Date, shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest in respect of Securities of such series, except that, unless otherwise provided in the Securities of such series, interest payable on the Stated Maturity of the principal of a Security shall be paid to the Person to whom principal is paid. The initial payment of interest on any Security of any series which is issued between a Regular Record Date and the related Interest Payment Date shall be payable as provided in such Security or in the Board Resolution pursuant to Section 3.1 with respect to the related series of Securities. Any interest on any Security which is payable, but is not timely paid or duly provided for, on any Interest Payment Date for Securities of such series (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series in respect of which interest is in default (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class, postage prepaid, to each Holder of a Security of such series at the address of such Holder as it appears in the Securities Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
29 (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of the series in respect of which interest is in default may be listed and, upon such notice as may be required by such exchange (or by the Trustee if the Securities are not listed), if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.8. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and (subject to Section 3.7) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.9. Cancellation. All Securities surrendered for payment, redemption, transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Securities surrendered directly to the Trustee for any such purpose shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be destroyed by the Trustee and the Trustee shall deliver to the Company a certificate of such destruction. SECTION 3.10. Computation of Interest. Except as otherwise specified as contemplated by Section 3.1 for Securities of any series, interest on the Securities of each series for any period shall be computed on the basis of a 360- day year of twelve 30-day months and interest on the Securities of each series for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. SECTION 3.11. Deferrals of Interest Payment Dates. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, so long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time during the term of such series, from time to time to
30 defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an "Extension Period") during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a date other than an Interest Payment Date. At the end of any such Extension Period the Company shall pay all interest then accrued and unpaid on the Securities (together with Additional Interest thereon, if any, at the rate specified for the Securities of such series to the extent permitted by applicable law); provided, however, that no Extension Period shall extend beyond the Stated Maturity of the principal of the Securities of such series; provided, further, that during any such Extension Period, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock, or (ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks pari passu with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company that by their terms rank pari passu with or junior in interest to the securities of such series (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any Common Stock of any class or series of preferred stock of the Company under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period shall exceed the period or periods specified in such Securities or extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall give the Holders of the Securities of such series and the Trustee notice of its election to begin any such Extension Period at least one Business Day prior to the next succeeding Interest Payment Date on which interest on Securities of such series would be payable but for such deferral or, with respect to the Securities of a series issued to a Trust, so long as such Securities are held by such Trust, prior to the earlier of (i) the next succeeding date on which Distributions on the Preferred Securities of such Trust would be payable but for such deferral or (ii) the date the Administrative Trustees of such Trust are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. The Trustee shall promptly give notice of the Company's election to begin any such Extension Period to the Holders of the Outstanding Securities of such series.
31 SECTION 3.12. Right of Set-Off. With respect to the Securities of a series issued to a Trust, notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder in respect of any such Security to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee relating to such Security or under Section 5.8 of the Indenture. SECTION 3.13. Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness. SECTION 3.14. Shortening or Extension of Stated Maturity. If specified as contemplated by Section 2.1 or Section 3.1 with respect to the Securities of a particular series, the Company shall have the right to (i) shorten the Stated Maturity of the principal of the Securities of such series at any time to any date not earlier than the first date on which the Company has the right to redeem the Securities of such series, and (ii) extend the Stated Maturity of the principal of the Securities of such series at any time at its election for one or more periods, but in no event to a date later than the 49th anniversary of the first Interest Payment Date following the Original Issue Date of the Securities of such series; provided that, if the Company elects to exercise its right to extend the Stated Maturity of the principal of the Securities of such series pursuant to clause (ii), above, at the time such election is made and at the time of extension (A) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (B) the Company is not in default in the payment of any interest or principal on such Securities, (C) in the case of any series of Securities issued to a Trust, such Trust is not in arrears on payments of Distributions on the Preferred Securities issued by such Trust and no deferred Distributions are accumulated and (D) such Securities are rated not less than BBB- by S&P or Baa3 by Moody's or the equivalent by any other nationally recognized statistical rating organization. In the event the Company elects to shorten or extend the Stated Maturity of the Series A Subordinated Debentures, it shall give notice to the Trustee, and the Trustee shall give notice of such shortening or extension to the Holders, no less than 30 and no more than 60 days prior to the effectiveness thereof. SECTION 3.15. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.
32 ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture shall, upon Company Request, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for and as otherwise provided in this Section 4.1) and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year of the date of deposit, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of Clause (B) (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount in the currency or currencies in which the Securities of such series are payable sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest (including any Additional Interest) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
33 (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive. SECTION 4.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which such money or obligations have been deposited with or received by the Trustee. ARTICLE V REMEDIES SECTION 5.1. Events of Default. "Event of Default", wherever used herein with respect to the Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security of that series, including any Additional Interest in respect thereof, when it becomes due and payable, and continuance of such default for a period of 30 days (subject to the deferral of any due date in the case of an Extension Period); or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or (3) default in the performance, or breach, in any material respect, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee
34 by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied; or (4) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (5) the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit for creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by the Company in furtherance of any such action; or (6) any other Event of Default provided with respect to Securities of that series. SECTION 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(4) or 5.1(5)) with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that, in the case of the Securities of a series issued to a Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series fail to declare the principal of all the Securities of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the corresponding series of Preferred Securities then outstanding shall have such right by a notice in writing to the Company and the Trustee; and upon any such declaration such principal amount (or specified portion thereof) of and the accrued interest (including any Additional Interest) on all the Securities of such series shall become immediately due and payable. Payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article XIII notwithstanding that such amount shall become immediately due and payable as herein provided. If an Event of Default specified in Section 5.1(4) or 5.1(5) with respect to Securities of any series at the time Outstanding occurs, the principal amount of all the
35 Securities of that series (or, if the Securities of that series are Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms of that series) shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue installments of interest (including any Additional Interest) on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such acceleration, have been cured or waived as provided in Section 5.13. In the case of Securities of a series issued to a Trust, the holders of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of the related series of Preferred Securities issued by such Trust shall also have the right to rescind and annul such declaration and its consequences by written notice to the Company and the Trustee, subject to the satisfaction of the conditions set forth in Clauses (1) and (2) above of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest (including any Additional Interest) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
36 (2) default is made in the payment of the principal of (and premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, including any sinking fund payment or analogous obligations (and premium, if any) and interest (including any Additional Interest); and, in addition thereto, all amounts owing the Trustee under Section 6.7. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (a) the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest (including any Additional Interest)) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest (including any Additional Interest) owing and unpaid in respect to the Securities and to file such other papers or documents as may be necessary or advisable and to take any and all actions as are authorized under the Trust Indenture Act in order to have the claims of the Holders and any predecessor to the Trustee under Section 6.7 allowed in any such judicial proceedings; and
37 (ii) in particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same in accordance with Section 5.6; and (b) any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee for distribution in accordance with Section 5.6, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it and any predecessor Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of all the amounts owing the Trustee and any predecessor Trustee under Section 6.7, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.6. Application of Money Collected. Any money or property collected or to be applied by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal (or premium, if any) or interest (including any Additional Interest), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7; SECOND: Subject to Article XIII, to the payment of the amounts then due and unpaid upon such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such series of Securities for principal (and premium, if any) and interest (including any Additional Interest), respectively; and
38 THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 5.7. Limitation on Suits. No Holder of any Securities of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other similar official) or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.
39 SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest; Direct Action by Holders of Preferred Securities. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series issued to a Trust, any holder of the corresponding series of Preferred Securities issued by such Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company for enforcement of payment to such holder of principal of (premium, if any) and (subject to Section 3.7) interest (including any Additional Interest) on the Securities having a principal amount equal to the aggregate Liquidation Amount (as defined in the Trust Agreement under which such Trust is formed) of such Preferred Securities of the corresponding series held by such holder. SECTION 5.9. Restoration of Rights and Remedies. If the Trustee, any Holder or any holder of Preferred Securities has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, such Holder or such holder of Preferred Securities, then and in every such case the Company, the Trustee, the Holders and such holder of Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee, the Holders and the holders of Preferred Securities shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. Except as otherwise provided in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee, any Holder of any Security or any holder of any Preferred Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein.
40 Every right and remedy given by this Article or by law to the Trustee or to the Holders and the right and remedy given to the holders of Preferred Securities by Section 5.8 may be exercised from time to time, and as often as may be deemed expedient, by the Trustee, the Holders or the holders of Preferred Securities, as the case may be. SECTION 5.12. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow such direction if a Responsible Officer or Officers of the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would involve the Trustee in personal liability. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series and, in the case of any Securities of a series issued to a Trust, the holders of Preferred Securities issued by such Trust may waive any past default hereunder and its consequences with respect to such series except a default: (1) in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Any such waiver shall be deemed to be on behalf of the Holders of all the Securities of such series or, in the case of a waiver by holders of Preferred Securities issued by such Trust, by all holders of Preferred Securities issued by such Trust. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
41 SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security on or after the respective Stated Maturities expressed in such Security. SECTION 5.15. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
42 (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of Holders pursuant to Section 5.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
43 SECTION 6.2. Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Securities Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest (including any Additional Interest) on any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of Securities of such series; and provided, further, that, in the case of any default of the character specified in Section 5.1(3), no such notice to Holders of Securities of such series shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.3. Certain Rights of Trustee. Subject to the provisions of Section 6.1: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, Security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
44 (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, indenture, Security or other paper or document, but the Trustee in its discretion may make such inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 6.4. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. SECTION 6.5. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Securities Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Securities Registrar or such other agent. SECTION 6.6. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 6.7. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder in such amounts as the Company and the Trustee shall agree from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
45 (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including the reasonable compensation and the expenses and disbursements of its agents and counsel) incurred without negligence or bad faith, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnification shall survive the termination of this Agreement. To secure the Company's payment obligations in this Section, the Company and the Holders agree that the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee. Such lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.1(4) or (5) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Reform Act of 1978 or any successor statute. SECTION 6.8. Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of said Section 310(b). SECTION 6.9. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be (a) a corporation organized and doing business under the laws of the United States of America or of any State or Territory or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority, or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees,
46 in either case having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Neither the Company nor any Person directly or indirectly controlling, controlled by or under common control with the Company shall serve as Trustee for the Securities of any series issued hereunder. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, acting pursuant to the authority of a Board Resolution, may remove the Trustee with respect to all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
47 (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee with respect to the Securities of that or those series. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, subject to Section 5.14, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of such series as their names and addresses appear in the Securities Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of
48 that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated, and in case any Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor Trustee or in the name of such successor Trustee, and in all cases the certificate of authentication shall have the full force which it is provided anywhere in the Securities or in this Indenture that the certificate of the Trustee shall have. SECTION 6.13. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).
49 SECTION 6.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, or of any State or Territory or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of an Authenticating Agent shall be the successor Authenticating Agent hereunder, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 1.6 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section.
50 The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within mentioned Indenture. Dated: ------------------------------------ As Trustee By:--------------------------------- As Authenticating Agent By:--------------------------------- Authorized Officer ARTICLE VII HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after and in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such and , and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Securities Registrar.
51 SECTION 7.2. Preservation of Information, Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided in the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act. SECTION 7.3. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act, at the times and in the manner provided pursuant thereto. (b) Reports so required to be transmitted at stated intervals of not more than 12 months shall be transmitted no later than in each calendar year, commencing with the first after the first issuance of Securities under this Indenture. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed and also with the Commission. The Company will notify the Trustee when any Securities are listed on any stock exchange. SECTION 7.4. Reports by Company. The Company shall file with the Trustee and with the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided in the Trust Indenture Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is required to be filed with the Commission. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the Commission and provide the Trustee with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a).
52 ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest (including any Additional Interest) on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) in the case of the Securities of a series issued to a Trust, such consolidation, merger, conveyance, transfer or lease is permitted under the related Trust Agreement and Guarantee and does not give rise to any breach or violation of the related Trust Agreement or Guarantee; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and any such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and the Trustee, subject to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel as conclusive evidence that such transaction complies with this Section 8.1.
53 SECTION 8.2. Successor Corporation Substituted. Upon any consolidation or merger by the Company with or into any other Person, or any conveyance, transfer or lease by the Company of its properties and assets substantially as an entirety to any Person in accordance with Section 8.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and in the event of any such conveyance, transfer or lease the Company shall be discharged from all obligations and covenants under the Indenture and the Securities and may be dissolved and liquidated. Such successor Person may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication pursuant to such provisions and any Securities which such successor Person thereafter shall cause to be signed and delivered to the Trustee on its behalf for the purpose pursuant to such provisions. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form may be made in the Securities thereafter to be issued as may be appropriate. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.1. Supplemental Indentures without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to convey, transfer, assign, mortgage or pledge any property to or with the Trustee or to surrender any right or power herein conferred upon the Company; or
54 (3) to establish the form or terms of Securities of any series as permitted by Sections 2.1 or 3.1; or (4) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (5) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (6) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (7) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (7) shall not adversely affect the interest of the Holders of Securities of any series in any material respect or, in the case of the Securities of a series issued to a Trust and for so long as any of the corresponding series of Preferred Securities issued by such Trust shall remain outstanding, the holders of such Preferred Securities; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); or (9) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act. SECTION 9.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
55 (1) except to the extent permitted by Section 3.11 or as otherwise specified as contemplated by Section 2.1 or Section 3.1 with respect to the deferral of the payment of interest on the Securities of any series, change the Stated Maturity of the principal of, or any installment of interest (including any Additional Interest) on, any Security, or reduce the principal amount thereof or the rate of interest thereon or reduce any premium payable upon the redemption thereof, or reduce the amount of principal of a Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 5.13 or Section 10.5, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Security affected thereby; or (4) modify the provisions in Article XIII of this Indenture with respect to the subordination of Outstanding Securities of any series in a manner adverse to the Holders thereof; provided, further, that, in the case of the Securities of a series issued to a Trust, so long as any of the corresponding series of Preferred Securities issued by such Trust remains outstanding, (i) no such amendment shall be made that adversely affects the holders of such Preferred Securities in any material respect, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the aggregate liquidation preference of such Preferred Securities then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and, subject to Section 3.7, unpaid interest (including any Additional Interest) thereon have been paid in full and (ii) no amendment shall be made to Section 5.8 of this Indenture that would impair the rights of the holders of Preferred Securities provided therein without the prior consent of the holders of each Preferred Security then outstanding unless and until the principal (and premium, if any) of the Securities of such series and all accrued and (subject to Section 3.7) unpaid interest (including any Additional Interest) thereon have been paid in full. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Securities or Preferred Securities, or which modifies the rights of the Holders of Securities or holders of Preferred Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities or holders of Preferred Securities of any other series.
56 It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.3. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that all conditions precedent have been complied with. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.6. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Company, bear a notation in form approved by the Company as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE X COVENANTS SECTION 10.1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of
57 that series in accordance with the terms of such Securities and this Indenture. SECTION 10.2. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment and an office or agency where Securities of that series may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company initially appoints the Trustee, acting through its Corporate Trust Office, as its agent for said purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency. SECTION 10.3. Money for Security Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m. New York City time on each due date of the principal of or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal and premium (if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
58 (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (4) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be paid on Company Request to the Company, or (if then held by the Company) shall (unless otherwise required by mandatory provision of applicable escheat or abandoned or unclaimed property law) be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
59 SECTION 10.4. Statement as to Compliance. The Company shall deliver to the Trustee, within 120 days after the end of each calendar year of the Company ending after the date hereof, an Officers' Certificate covering the preceding calendar year, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance, observance or fulfillment of or compliance with any of the terms, provisions, covenants and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. For the purpose of this Section 10.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. SECTION 10.5. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to the Securities of any series, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company in respect of any such covenant or condition shall remain in full force and effect. SECTION 10.6. Additional Sums. In the case of the Securities of a series issued to a Trust, so long as no Event of Default has occurred and is continuing and except as otherwise specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a Trust is the Holder of all of the Outstanding Securities of such series, (ii) a Tax Event in respect of such Trust shall have occurred and be continuing and (iii) the Company shall not have (A) redeemed the Securities of such series pursuant to Section 11.7(b) or (B) terminated such Trust pursuant to Section 9.2(b) of the related Trust Agreement, the Company shall pay to such Trust (and its permitted successors or assigns under the related Trust Agreement) for so long as such Trust (or its permitted successor or assignee) is the registered holder of any Securities of such series, such additional amounts as may be necessary in order that the amount of Distributions (including any Additional Amounts (as defined in such Trust Agreement)) then due and payable by such Trust on the related Preferred Securities and Common Securities that at any time remain outstanding in accordance with the terms thereof shall not be reduced as a result of any Additional Taxes (the "Additional Sums"). Whenever in this Indenture or the Securities there is a reference in any context to the payment of principal of or interest on the Securities, such mention shall be deemed to include mention of the payments of the Additional Sums provided for in this paragraph to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to the provisions of this paragraph and express mention of the payment of Additional Sums (if applicable) in any provisions hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made; provided, however, that the deferral of the payment of interest pursuant to Section 3.11 or the Securities shall not defer the payment of any Additional Sums that may be due and payable.
60 SECTION 10.7. Additional Covenants. The Company covenants and agrees with each Holder of Securities of each series that it shall not, and it shall not permit any Subsidiary of the Company to, (a) declare or pay any dividends or distributions on, or redeem purchase, acquire or make a liquidation payment with respect to, any shares of the Company's capital stock, or (b) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Securities of such series or make any guarantee payments with respect to any guarantee by the Company of debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Securities (other than (a) dividends or distributions in Common Stock, (b) any declaration of a dividend in connection with the implementation of a Rights Plan, the issuance of any rights, of any Common Stock or any class or series of preferred stock of the Company or of any other property under any Rights Plan or the repurchase of any rights distributed pursuant to a Rights Plan, (c) payments under any Guarantee, and (d) purchases of Common Stock related to the issuance of Common Stock under any of the Company's benefit plans for its directors, officers or employees) if at such time (i) there shall have occurred any event of which the Company has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default with respect to the Securities of such series and (B) in respect of which the Company shall not have taken reasonable steps to cure, (ii) if the Securities of such series are held by a Trust, the Company shall be in default with respect to its payment of any obligations under the Guarantee relating to the Preferred Securities issued by such Trust or (iii) the Company shall have given notice of its election to begin an Extension Period with respect to the Securities of such series as provided herein and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. The Company also covenants with each Holder of Securities of a series issued to a Trust (i) to maintain directly or indirectly 100% ownership of the Common Securities of such Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate such Trust, except (a) in connection with a distribution of the Securities of such series to the holders of Preferred Securities in liquidation of such Trust or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of such Trust Agreement, to cause such Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes.
61 ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1. Applicability of This Article. Redemption of Securities of any series (whether by operation of a sinking fund or otherwise) as permitted or required by any form of Security issued pursuant to this Indenture shall be made in accordance with such form of Security and this Article; provided, however, that if any provision of any such form of Security shall conflict with any provision of this Article, the provision of such form of Security shall govern. Except as otherwise set forth in the form of Security for such series, each Security of such series shall be subject to partial redemption only in the amount of $25 or, in the case of the Securities of a series issued to a Trust, $25, or integral multiples thereof. SECTION 11.2. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any particular series and having the same terms, the Company shall, not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such date and of the principal amount of Securities of that series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing compliance with such restriction. SECTION 11.3. Selection of Securities to be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for partial redemption and the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of
62 Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. If the Company shall so direct, Securities registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Securities selected for redemption. SECTION 11.4. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not later than the thirtieth day, and not earlier than the sixtieth day, prior to the Redemption Date, to each Holder of Securities to be redeemed, at the address of such Holder as it appears in the Securities Register. With respect to Securities of each series to be redeemed, each notice of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities of such particular series and having the same terms are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the particular Securities to be redeemed; (d) that on the Redemption Date, the Redemption Price will become due and payable upon each such Security or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; (e) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and (f) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall not be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. In any case, a failure to give such notice by mail or any defect in the notice to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security.
63 SECTION 11.5. Deposit of Redemption Price. Prior to 10:00 a.m. New York City time on the Redemption Date specified in the notice of redemption given as provided in Section 11.4, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and any accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date. SECTION 11.6. Payment of Securities Called for Redemption. If any notice of redemption has been given as provided in Section 11.4, the Securities or portion of Securities with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice at the applicable Redemption Price. On presentation and surrender of such Securities at a Place of Payment in said notice specified, the said securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable Redemption Price, together with accrued interest (including any Additional Interest) to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 3.1, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.7. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the unredeemed portion of the Security so presented and having the same Original Issue Date, Stated Maturity and terms. If a Global Security is so surrendered, such new Security will also be a new Global Security. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal of and premium, if any, on such Security shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 11.7. Right of Redemption of Securities Initially Issued to a Trust. In the case of the Securities of a series initially issued to a Trust, except as otherwise specified as contemplated by Section 3.1, the Company, at its option, may redeem such Securities (i) on or after the date five years after the Original Issue Date of such Securities, in whole at any time or in part from time to time, or (ii) upon the occurrence and during the continuation of a Tax Event, at any time within 90 days following the occurrence of such Tax Event in respect of such Trust, in whole (but not in part), in each case at a Redemption Price equal to 100% of the principal amount thereof. ARTICLE XII
64 SINKING FUNDS SECTION 12.1. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 3.1 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities of any series is herein referred to as a "mandatory sinking fund payment", and any sinking fund payment in excess of such minimum amount which is permitted to be made by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of such Securities. SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities. In lieu of making all or any part of a mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option, at any time no more than 16 months and no less than 30 days prior to the date on which such sinking fund payment is due, deliver to the Trustee Securities of such series (together with the unmatured coupons, if any, appertaining thereto) theretofore purchased or otherwise acquired by the Company, except Securities of such series that have been redeemed through the application of mandatory or optional sinking fund payments pursuant to the terms of the Securities of such series, accompanied by a Company Order instructing the Trustee to credit such obligations and stating that the Securities of such series were originally issued by the Company by way of bona fide sale or other negotiation for value; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the redemption price for such Securities, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 12.3. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash in the currency in which the Securities of such series are payable (except as provided pursuant to Section 3.1) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 12.2 and will also deliver to the Trustee any Securities to be so delivered. Such Officers' Certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, on or before the succeeding sinking fund payment date. In the case of the failure of the Company to deliver such Officers' Certificate (or,
65 as required by this Indenture, the Securities and coupons, if any, specified in such Officers' Certificate), the sinking fund payment due on the succeeding sinking fund payment date for such series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of the Securities of such series subject to a mandatory sinking fund payment without the right to deliver or credit securities as provided in Section 12.2 and without the right to make the optional sinking fund payment with respect to such series at such time. Any sinking fund payment or payments (mandatory or optional) made in cash plus any unused balance of any preceding sinking fund payments made with respect to the Securities of any particular series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent) on the sinking fund payment date on which such payment is made (or, if such payment is made before a sinking fund payment date, on the sinking fund payment date immediately following the date of such payment) to the redemption of Securities of such series at the Redemption Price specified in such Securities with respect to the sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee (or, if the Company is acting as its own Paying Agent, segregated and held in trust by the Company as provided in Section 10.3) for such series and together with such payment (or such amount so segregated) shall be applied in accordance with the provisions of this Section 12.3. Any and all sinking fund moneys with respect to the Securities of any particular series held by the Trustee (or if the Company is acting as its own Paying Agent, segregated and held in trust as provided in Section 10.3) on the last sinking fund payment date with respect to Securities of such series and not held for the payment or redemption of particular Securities of such series shall be applied by the Trustee (or by the Company if the Company is acting as its own Paying Agent), together with other moneys, if necessary, to be deposited (or segregated) sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 11.6. On or before each sinking fund payment date, the Company shall pay to the Trustee (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 10.3) in cash a sum in the currency in which Securities of such series are payable (except as provided pursuant to Section 3.1) equal to the principal and any interest accrued to the Redemption Date for Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 12.3. Neither the Trustee nor the Company shall redeem any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund for such series during the continuance of a default in payment of interest, if any, on any Securities of such series or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph) with respect to the Securities of such series, except that if the notice of redemption shall have been provided in accordance with the provisions hereof, the Trustee (or the Company, if the Company is then acting as its own Paying Agent) shall redeem such Securities if cash sufficient for that purpose shall be deposited with the Trustee (or segregated by the Company) for that purpose in accordance with the terms of this Article XII. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such
66 default or Event of Default shall occur and any moneys thereafter paid into such sinking fund shall, during the continuance of such default or Event of Default, be held as security for the payment of the Securities and coupons, if any, of such series; provided, however, that in case such default or Event of Default shall have been cured or waived herein, such moneys shall thereafter be applied on the next sinking fund payment date for the Securities of such series on which such moneys may be applied pursuant to the provisions of this Section 12.3. ARTICLE XIII SUBORDINATION OF SECURITIES SECTION 13.1. Securities Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the payment of the principal of (and premium, if any) and interest (including any Additional Interest) on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt. SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company (each such event, if any, herein sometimes referred to as a "Proceeding"), then the holders of Senior Debt shall be entitled to receive payment in full of all Allocable Amounts of such Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive or retain any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of the Company (including any series of the Securities) subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a "Junior Subordinated Payment"), on account of principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary and to that end the holders of Senior Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all Allocable Amounts of all Senior Debt are paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, and if such fact shall, at or prior to the time of such payment or
67 distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Allocable Amounts of all Senior Debt remaining unpaid, to the extent necessary to pay all Allocable Amounts of all Senior Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior Debt to substantially the same extent as the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article VIII shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article VIII. SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of Securities. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Debt outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all Allocable Amounts due on or in respect of such Senior Debt (including any amounts due upon acceleration), or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) by the Company on account of the principal of (or premium, if any) or interest (including any Additional Interest) on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such declaration of acceleration. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company.
68 The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable. SECTION 13.4. No Payment When Senior Debt in Default. (a) In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest on any Senior Debt, or in the event that any event of default with respect to any Senior Debt shall have occurred and be continuing and shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (b) in the event any judicial proceeding shall be pending with respect to any such default in payment or such event or default, then no payment or distribution of any kind or character, whether in cash, properties or securities (including any Junior Subordinated Payment) shall be made by the Company on account of principal of (or premium, if any) or interest (including any Additional Interest), if any, on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary, in each case unless and until all Allocable Amounts of such Senior Debt are paid in full; provided, however, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with this Indenture or as otherwise specified as contemplated by Section 3.1 for the Securities of any series by delivering and crediting pursuant to Section 12.2 or as otherwise specified as contemplated by Section 3.1 for the Securities of any series Securities which have been acquired (upon redemption or otherwise) prior to such default in payment or event of default. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 13.2 would be applicable. SECTION 13.5. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 13.2 or under the conditions described in Sections 13.3 and 13.4, from making payments at any time of principal of (and premium, if any) or interest (including Additional Interest) on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest (including any Additional Interest) on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article.
69 SECTION 13.6. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all amounts due or to become due on all Senior Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Senior Debt of the Company to substantially the same extent as the Securities are subordinated to the Senior Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt) to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. SECTION 13.7. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as between the Company and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest (including any Additional Interest) on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than their rights in relation to the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article of the holders of Senior Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.8. Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article and appoints the Trustee his or her attorney-in-fact for any and all such purposes.
70 SECTION 13.9. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the immediately preceding paragraph, the holders of Senior Debt may, at any time and from to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 13.10. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or from any trustee, agent or representative therefor; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any monies may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest (including any Additional Interest) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt (or a trustee therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish
71 evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article or otherwise. SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. SECTION 13.14. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee.
72 SECTION 13.15. Certain Conversions or Exchanges Deemed Payment. For the purposes of this Article only, (a) the issuance and delivery of junior securities upon conversion or exchange of Securities shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest (including any Additional Interest) on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion or exchange of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. * * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. THE CHASE MANHATTAN CORPORATION By:----------------------------- Attest: THE BANK OF NEW YORK as Trustee By:-----------------------------
Exhibit 10.3 THE CHASE MANHATTAN CORPORATION Post-Retirement Compensation Plan for Non-Employee Directors (As amended and restated effective May 21, 1996.) SECTION 1. Plan. This plan is the Chase Manhattan Corporation Post-Retirement Compensation Plan for Non-Employee Directors. SECTION 2. Definitions. For purposes of the Plan, the following terms shall have the meanings specified below: "Administrator" shall mean the person appointed by the Chief Executive Officer of the Corporation to administer the Plan. "Board" shall mean the Board of Directors of the Corporation. "Common Stock" shall mean the shares of common stock, par value $1 per share, of the Corporation. "Corporation" shall mean The Chase Manhattan Corporation, a Delaware corporation. "Director" shall mean a person serving as a director of the Corporation. "Fair Market Value" shall mean the mean between the high and low selling prices of Common Stock on the date as of which such value is being determined. "Outside Director" shall mean any Director of the Corporation who has never been an employee or officer of the Corporation or a Subsidiary. "Participant" shall have the meaning assigned to such term in Section 3. "Subsidiary" shall mean any corporation which at the time qualifies as a subsidiary of the Corporation under the definition of "subsidiary corporation" in Section 425(f) of the Internal Revenue Code of 1986, as the same may be amended from time to time. "Unit" shall mean a unit which is equal in value to the Fair Market Value of a share of Common Stock. SECTION 3. Participants. Effective as of May 21, 1996, the term "Participant" shall be limited to those Outside Directors who were participating in the Plan and on such date, the Plan shall be frozen, and no further amounts shall accrue in respect of any Participant, except as set forth in Section 4(b). 1
SECTION 4. Compensation. (a) Commencing upon a Participant's retirement, resignation or removal from service as a Director on the Board, or any failure of a Participant to be reelected as a Director after accepting a nomination for election, in each case (i) after attaining the age of 70 (or such other age as may be established from time to time by the Board as the retirement age), (ii) with the consent of the Board or (iii) because of disability or health reasons, the Corporation shall pay on May 1 of each year (or on such other date or dates as the Administrator shall so designate in his sole discretion) during the Participant's lifetime to each Participant an amount equal to the dollar value of the annual retainer fee (such dollar value to be determined by the Administrator from time to time) payable to Directors of the Corporation at the date the Participant retires, resigns, or is removed from service as a Director or is not reelected as a Director after accepting a nomination for election, which amount shall be not less than $25,000 for Participants ceasing to serve the Corporation in the capacity of Director on or after January 1, 1990; provided, however, such amount shall be reduced for each Participant with fewer than ten years of service to the Board as an Outside Director by ten percent for each year, or part thereof, less than ten years of service. In calculating the number of years a Participant has served on the Board, all years served prior to the effectiveness of this Plan and for Participants who were Directors of Manufacturers Hanover Corporation or who were Directors of The Chase Manhattan Corporation at the time of its merger with Chemical Banking Corporation, all years such Participants had served as directors of such corporation prior to becoming Directors of the Corporation. shall be included in the calculation. (b) For purposes of determining the amount payable hereunder to any Participant retiring, resigning or being removed on or after May 20, 1996, the following rules shall apply: (i) any Participant retiring, resigning or being removed on May 20, 1996, shall be permitted to elect to (A) receive the compensation set forth in Section 4(a), except that the age specified in Section 4(a) (i) shall be 65 and such Participant shall be deemed to have performed ten years of service to the Board as an Outside Director (regardless of his or her actual years of service); or (B) be treated in the manner set forth in Section 4(b) (ii) below; (ii) any Participant retiring, resigning, being removed or otherwise terminating service as an Outside Director after May 20, 1996 shall, in lieu of the compensation payable under this Section 4(a), receive an amount determined pursuant to Section 5; provided that in determining the amount to be initially credited to the Participant's account under Section 5, each Participant shall be considered to have performed ten years of service to the Board as an Outside Director (regardless of his or her actual years of service). SECTION 5. Deferred Account. (a) The compensation otherwise payable under Section 4(a) to Participants described in Section 4(b) (ii) or electing to be so treated under the provisions of Section 4(b) (i) shall be converted to a present value dollar amount, based on actuarial assumptions satisfactory to the Administrator, and such dollar amount converted into a number of Units by dividing such dollar amount by 2
the average of the Fair Market Value of the Common Stock during the period commencing July 18, 1996 and ending August 5, 1996, inclusive. (b) The amount so determined pursuant to Section 5(a) shall be treated as deferred in accordance with Appendix A hereto. SECTION 6. Nontransferability. No amount due to any Participant shall be assignable or transferable by a Participant, except by will or the laws of descent and distribution, and no right or interest of any Participant shall be subject to any lien, obligation or liability. Any attempted assignment or alienation of payments hereunder shall be void and of no force or effect. SECTION 7. Amendment. The Board may amend, suspend or terminate the Plan or any portion hereof at any time; provided, however, no right under the Plan of any Participant (including the right to receive future compensation in specified amounts) immediately prior to any amendment of the Plan shall in any way be amended, modified, suspended or terminated without such Participant's prior written consent. SECTION 8. Withholding. The Corporation shall have the right to deduct from any and all amounts paid to any Participant under this Plan any taxes required by law to be withheld therefrom. SECTION 9. Administration. The Plan shall be administered by the Administrator who shall have the authority to adopt rules and regulations for carrying out the Plan, and who shall interpret, construe and implement the provisions of the Plan. SECTION 10. Participant's Rights Unsecured. The right of any Participant to receive future payments under the provisions of the Plan shall be an unsecured claim against the general assets of the Corporation. SECTION 11. Effective Date. This Plan became effective on May 13, 1988. 3
Appendix A SECTION A1. Participants' Account Balances. The Corporation shall maintain an individual book account under the Plan for each Participant having a deferred account. Each Participant shall initially have credited to his or her account the number of Units calculated in respect of such Participant pursuant to Section 5 hereof. Such account shall continue to be expressed in Units until an Outside Director has ceased to render services to the Corporation as an Outside Director. Any dividends paid on Common Stock shall be credited to a Participant's account in respect of each Unit and deemed to be reinvested in additional Units based on the Fair Market Value of Common Stock on the dividend payment date. In addition, the number of Units allocated to a Participant's account shall be adjusted to reflect stock dividends, splits and reclassifications, and similar transactions affecting the value of Common Stock. At the time that the Participant's services as an Outside Director cease, subject to Section 5 hereof, the account balance will, until such time as it is paid to the Participant in accordance with the Participant's payment elections, be allocated among the hypothetical investments permitted under the Plan for Participants who have ceased to render service as an Outside Director, as such allocation may be elected by the Participant. SECTION A2. Payment Elections. (a) General Provisions. In connection with the commencement of participation in this Plan, each Participant shall make an election (the "Payment Election") concerning the timing and form of distribution of the amounts credited to his or her Plan account. Any payment from the Plan shall commence following termination of the Participant's services to the Corporation as an Outside Director, but in no event prior to one year after receipt by the Corporation of the Outside Director's initial Payment Election. The forms of benefit available under the Plan shall be a lump sum payment or quarterly, semi-annual or annual installments over a period not to exceed 15 years from the earliest date the director may commence receiving payments hereunder. (b) Special Rules. (i) Subsequent Payment Elections may be made by a Participant, which shall supersede the initial Payment Election, but any such subsequent Payment Election shall not be valid unless it is made prior to May of the calendar year preceding the calendar year in which payments to the Director hereunder are otherwise due to commence. (ii) If a Participant has elected to receive installment payments of the amount in his or her account, the Participant may, at the Participant's option, elect to allocate the account, on or after the date on which he or she ceases to perform services as an Outside Director, among such forms of hypothetical investment as may be made available hereunder by the Administrator with reference to the hypothetical investments made available under the Deferred Compensation Plan for Non-Employee Directors of The Chase Manhattan Corporation (the "Deferred Compensation Plan"). Reallocations may be made among hypothetical investments on the same basis as is permitted under the Deferred Compensation Plan. 4
SECTION A3. Payments to a Deceased Participant's Estate. (a) In the event of a Participant's death before the balance of his or her account is fully paid, payment of the balance of the Participant's account shall then be made to his or her estate in accordance with the manner selected by the Participant prior to death, which manner shall provide that: (i) payment shall be made to the Participant's estate in the same manner as provided with respect to the payments to the Participant or (ii) the balance of the Participant's account shall be determined as soon as practicable following his or her death and this amount shall be paid in a single payment to the Participant's estate as soon as reasonably practicable thereafter. In the event no election has been made, payment shall be made in accordance with clause (ii) of the preceding sentence. (b) In the event of a Participant's death before the balance of his or her account is fully paid to the estate in installments, the Administrator may, upon consideration of the application of the duly appointed administrator or executor of the Participant's estate, direct that the balance of the Participant's account be paid to the estate in a single payment. The payment shall be made at the time specified by the Administrator. 5
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1.1 | Account means the bookkeeping account established by the Company with respect to a Participant under Article IV of the Plan. Such Account shall be credited with Deferred Amounts, including investment experience thereon, in accordance with the Participants Deferral Election and any investment experience from Deemed Investments. Within an Account, each Deferred Amount, including investment experience, shall be separately accounted for; and each Deferred Amount shall be subject to separate Distribution Elections. | ||
1.2 | Annual Installments shall mean an amount payable annually on a Distribution Date or Initial Distribution Date based on value of the Account as of the Valuation Date. The amount of each installment shall be calculated by multiplying such Account balance by a fraction the numerator is 1 and denominator is the remaining installments. Each installment shall be a separate payment for purposes of the Treasury Regulations issued pursuant to Section 409A of the Code. | ||
1.3 | Administrator means the individual holding the title Compensation and Benefits Executive of the Company or such other individual designated by the Committee, who shall be responsible for those functions assigned to him under the Plan; provided that the term Administrator shall mean the Committee with respect to any discretionary act hereunder which affects any person subject to Section 16(a) of the Securities Exchange Act of 1934, as amended. | ||
1.4 | Affiliate means any corporation that is included in a controlled group of corporations (within the meaning of Section 414(b)of the Code). This would include the Company, any trade or business (whether or not incorporated) under common control with the Company (within the meaning of Section 414(c) of the Code), any organization that is part of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Company and any other entity required to be aggregated with the Company pursuant to the Treasury Regulations under Section 414(o) of the Code; provided that for this purpose, the Plan shall retain the 80% benchmark in defining an Affiliate. | ||
1.5 | Allocation/Transfer Election means an election by a Participant in accordance with the provisions of Article V of the Plan as to the allocation, reallocation or the transfer of the Participants future deferrals and/or existing Account balances among the Investment Options. | ||
1.6 | Allocation/Transfer Election Form means such form or other designated means by which the Participant makes an Allocation Election. Such other designated means may include, but not be limited to, interactive voice response, internet, intranet and other electronic means. | ||
1.7 | Bank means JPMorgan Chase Bank National Association. |
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1.8 | Beneficiary or Beneficiaries means, with respect to a Participant, any natural person(s), estate or trust(s) designated by the Participant on the form provided by the Administrator to receive the benefits specified under the Plan in the event of the Participants death. The Participants estate shall be the Beneficiary if: (i) the Participant has not designated any natural person(s) or trust(s) as Beneficiary, or (ii) all designated Beneficiaries have predeceased the Participant. Designations made under the Program or under Bank One Corporation Deferred Compensation Plan shall apply to amounts deferred under the Plan until a new designation is filed. | ||
1.9 | Board shall mean the Board of Directors of the Company; provided that any action taken by a duly authorized committee of the Board of Directors within the scope of authority delegated to it by the Board shall be considered an action of the Board of Directors for the purpose of this Plan. | ||
1.10 | Bonus means the annual incentive compensation payable in the form of an annual cash bonus pursuant to a calendar year performance program, including any Performance-Based Bonus but before reduction for taxes and any other amounts as the Administrator may specify. | ||
1.11 | Code means the Internal Revenue Code of 1986, as it may be amended from time to time, as well as Treasury Regulations promulgated thereunder. | ||
1.12 | Commissions means commissions and production overrides earned by a Participant for services rendered, but before reduction for (i) taxes, (ii) any before-tax contributions made on the Participants behalf under any tax-qualified employee benefit plans established by the Company and (iii) any amount not included in the Participants income pursuant to Section 125, 129, or 132 of the Code. Base salary shall be considered part of Commissions for these purpose, except that it shall include base salary earned for the month December. | ||
1.13 | Committee means the Compensation and Management Development Committee of the Board. | ||
1.14 | Deemed Investment or Deemed Invested means the notional conversion of the balance held in a Participants Account into shares or units of the Investment Options that are used as measuring devices for determining the value of a Participants Account. | ||
1.15 | Deferral Election means an election by a Participant to defer a portion of the Participants Commissions, Bonus and/or Other Compensation in accordance with Article III of the Plan. | ||
1.16 | Deferral Election Form means such form or other designated means by which a Participant elects the amount of Commissions, Bonus and/or Other Compensation to defer (in dollar amount or percentage). Such other designated means may include, but not be limited to, an offer letter, interactive voice response, internet, intranet, and other electronic means. |
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1.17 | Deferred Amounts means, with respect to a Participant, the Commissions, Bonus and Other Compensation amounts that the Participant has elected to defer under the Plan and includes investment experience following the date of deferral. | ||
1.18 | Distribution Election means elections by the Participant made at the same time as his/her Deferral Election (i) as to the form of payment of the Deferred Amount (including investment experience thereon) subject to the Deferral Election and (ii) date(s) when such payments shall commence. | ||
1.19 | Distribution Election Form means such form or other designated means by which a Participant makes a Distribution Election. Such other designated means may include, but not be limited to, an offer letter, interactive voice response, internet, intranet, and other electronic means. | ||
1.20 | DSIB means the Deferred Supplemental Income Benefit Investment Option, which was only available for Deferred Amounts attributable to deferrals credited to such Deemed Investment in January 2005. See Appendix B for a full description of this Deemed Investment. | ||
1.21 | Distribution Date means any time during the calendar year (i) for which a Participant elected a specified year for a distribution or (ii) the calendar year following the Initial Distribution Date. | ||
1.22 | Eligible Employee means an Employee who is designated by the Administrator as eligible to participate in the Plan in accordance with Section II hereof, provided that a rehired Employee who was a Participant shall not become Eligible Employee for purposes of 30 day rule set forth in Section 3.1 until 24 months have elapsed. | ||
1.23 | Employee means an individual whose employment classification is that of a regular full-time employee and who is on a United States payroll of a Participating Company. | ||
1.24 | ERISA means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, as well as Treasury Regulations promulgated thereunder. | ||
1.25 | FICA Amount means Federal Insurance Contributions Act tax imposed under Section 3101, Section 3121(a) and Section 3121(v)(2) of the Code, where applicable, on Deferred Amounts. | ||
1.26 | Full Career Eligibility means a Separation from Service that occurs on or after the completion of 15 years of recognized service with the Company as set forth in the Companys human resource data basis relating to service related policies. | ||
1.27 | Initial Distribution Date means the calendar year immediately following the calendar year in which a Separation from Service occurs with respect to a Participant who: |
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| did not made a Distribution Election with respect to a Deferred Amount, | ||
| elected a lump sum or Installment following Separation from Service with respect to a Deferred Amount, | ||
| is subject to automatic distribution rules of Section 7.7(a) with respect to a Deferred Amount, including investment experience, or | ||
| made a Distribution Election of a specific year that immediately precedes the calendar year of the Participants Separation from Service. |
1.28 | Investment Options mean the hypothetical securities or other investments as may be provided, from time to time, under the Plan, from which a Participant may select to be used as measuring devices to determine the Deemed Investment earnings or losses of the Participants Account. A Participant shall have no real or beneficial ownership in the security or other investment represented by the Investment Options. | ||
1.29 | Other Compensation means compensation to which an Employee has a legal binding right within the meaning Section 409A of the Code and which is payable in a future calendar year. Other Compensation may include awards of restricted stock units and dividends thereon that are not subject to a substantial risk of forfeiture as defined by Section 409A of the Code. It may also include Deferral Elections and Distribution Elections set forth in letters offering employment; provided that the Employee does not have a legally binding right to such amounts prior to accepting such offer of employment. | ||
1.30 | Participant means an Eligible Employee who has elected to make Commission and/or Bonus deferrals in accordance with the Plan. | ||
1.31 | Participating Employer means the Company and any Affiliate that has been authorized by the Administrator to have its Employees eligible to participate in the Plan. | ||
1.32 | Performance-Based Bonus means any performance-based Bonus that meets the requirements of Section 409A of the Code with respect to performance-based compensation based on services performed over a period of at least twelve months. |
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1.33 | Plan means this JPMorgan Chase & Co. 2005 Deferred Compensation Plan as documented herein and as may be amended from time to time hereafter. In employee communications, it is referred to as the Voluntary Bonus Deferral Plan and/or Voluntary Compensation Deferral Plan. | ||
1.34 | Plan Year means the twelve-month period beginning each January 1 and ending each December 31. | ||
1.35 | Prior Program means the JPMorgan Chase Deferred Compensation Program as in effect through December 31, 2004 with respect to amounts deferred and vested on or prior to December 31, 2004. | ||
1.36 | Separation from Service means a termination of employment with the Company or an Affiliate as set forth in Treasury Regulation 1.409A-1(h), using the 20% bench mark set forth therein. For purposes of a good faith compliance with Section 409A of the Code and Notice 2005-1 and period through December 31, 2008, it means a termination of employment as set forth on the books and records of the Company. | ||
1.37 | Specified Employee means a specified employee as defined in Section 409A (a)(2)(B)(i) of the Code. For this purpose and all other plans of deferred compensation, the specified employee identification date for determining a whether a Participant is a Specified Employee shall be each December 31st and W-2 compensation for that year, as permitted by Treasury Regulation 1.409A-1(i)(2), shall be used. An individual who is a Specified Employee on the specified identification date shall be considered to be in such status from the April 1 immediately following the identification date up to and including the next March 31s provided that a non-resident alien employee of an Affiliate shall not be included. The Plan determines specified employees based on the top paid fifty employees. | ||
1.38 | 2005 Deferred Amount means, for purposes of Article VI, any vested amount credited to a Participants Account with respect to Bonus, Commissions and Other Compensation deferred during calendar year 2005, including investment experience thereon; provided that the investment experience for any 2005 Deferred Amount treated as if invested in DSIB and the Private Equity Investment Options shall be the rate of return of the Short-Term Investment Option and the investment experience for the Multi-Strategy Investment Option shall be credited through October 31, 2005. | ||
1.39 | Unforeseeable Emergency means a severe financial hardship of the Participant resulting from an illness or accident of the Participant or beneficiary, the Participants spouse, or the Participants dependent (as defined in Section 152(a) of the Cole); loss of the Participants property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, as determined under Section 409A. |
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1.40 | Valuation Date means any date specified by the Administrator with respect to valuing an Account of a Participant for purposes of a distribution during that month, which shall be the fifth business day in which a distribution occurs; provided that if a dividend has been declared on the common stock of the Company during a month in which a distribution shall occur, the Valuation Date shall be the dividend record date plus one day. |
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| designated by the Administrator or his delegatee as an officer and/or other key employee of a Participating Company, and | ||
| notified in writing by the Administrator or his delegatee that he or she is eligible to participate in the Plan. |
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Exhibit 10.8 As Amended December 11, 1996 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies Article I Purpose The purpose of the 1995 Stock Incentive Plan (the "Plan") is to afford an incentive to key employees of J.P. Morgan & Co. Incorporated (the "Company") and its affiliates to acquire a proprietary interest in the Company, to encourage such employees to increase their efforts on behalf of the Company and remain in its employ, and to more closely align the interests of such key employees with those of the Company's stockholders. Article II Definitions 2.1. The following terms shall have the meanings described below when used in the Plan: (a) "Award" shall refer to a Restricted Stock Award granted under Article VIII or a Stock Unit Award granted under Article IX. (b) "Board of Directors" shall mean the Board of Directors of the Company. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (d ) "Committee" shall mean the committee appointed by the Board of Directors to administer the Plan pursuant to Article III. (e) "Common Stock" shall mean common stock, par value $2.50, of the Company. 1
(f) "Company" shall mean J.P. Morgan & Co. Incorporated or any successor to it in ownership of all or substantially all of its assets. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (h) "Fair Market Value" of Common Stock on any day shall mean the average of the highest and lowest price of Common Stock as reported on the composite tape for such day, unless the Committee determines that another procedure for determining Fair Market Value would be more appropriate. (i) "Incentive Stock Option" shall mean a stock option granted under Article VI which is intended to meet the requirements of Section 422 of the Code. (j) "Nonqualified Stock Option" shall mean a stock option granted under Article VI which is not intended to be an Incentive Stock Option. (k) "Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option. (l) "Optionee" shall mean a Participant who is granted an Option. (m) "Participant" shall mean an eligible employee who has been granted an Option, Stock Appreciation Right or Award under the Plan. (n) "Participating Company" shall mean the Company, the Trust Company or any subsidiary or other affiliated entity (whether or not incorporated). (o) "Plan" shall mean this 1995 Stock Incentive Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies. (p) "Related Right" shall mean a Stock Appreciation Right described in Section 7.2. (q) "Restricted Period" shall mean the period during which a Restricted Stock Award is being earned in accordance with Section 8.3. (r) "Restricted Stock Award" shall mean an award granted under Article VIII. (s) "Stand Alone Right" shall mean a Stock Appreciation Right described in Section 7.3. (t) "Stock Appreciation Right" shall mean a right granted under Article VII. (u) "Stock Unit Award" shall mean an award granted under Article IX. 2
(v) "Trust Company" shall mean Morgan Guaranty Trust Company of New York or any successor to it in ownership of all or substantially all of its assets. Article III 3.1. (a) The Board of Directors shall appoint not less than three Directors to the Committee which shall administer the Plan. With respect to determinations regarding the grant, amount, acceleration or forfeiture of Options, Stock Appreciation Rights or awards with respect to an eligible employee who is a member of the Board of Directors, the Committee shall be composed of all directors of the Company who are not employees of the Company or any other Participating Company. No individual shall be a member of the Committee unless such individual is disinterested within the meaning of Rule 16b-3 under the Exchange Act. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be issued or adopted by the Board of Directors, to grant to eligible persons Options, Stock Appreciation Rights and Awards under the Plan; to waive any restrictions or limitations, or impose additional limitations or restrictions, on previously granted Options, Stock Appreciation Rights, or Awards (within the parameters of the Plan); to interpret the provisions of the Plan and any agreements relating to Options, Stock Appreciation Rights or Awards granted under the Plan; to supervise the administration of the Plan and to delegate to senior officers of the Company or the Trust Company the power to act for the Committee as the Committee shall specify. (b) All decisions made by the Committee (or such persons acting under a delegation by the Committee pursuant to subsection 3.1 (a) ) pursuant to the provisions of the Plan and related orders of the Board of Directors shall be within the absolute discretion of the Committee or its delegate, as the case may be, and shall be conclusive and binding on all persons, including the Company, stockholders, employees and beneficiaries of employees. Article IV Shares Subject To The Plan 4.1. (a) Subject to adjustment pursuant to subsection 4.1 (d), the maximum number of shares of Common Stock with respect to which Options, Stock Appreciation Rights and Awards may be granted shall be 28,000,000 shares of Common Stock. Shares of Common Stock may be made available from the authorized but unissued shares of the Company or from shares reacquired by the Company, including shares purchased in the open market. If an Option, Stock Appreciation Right or Award granted under the Plan shall expire or terminate for any reason other than the exercise of a Related Right (to the extent set forth in subsection 7.2(c) ), the shares subject to such Option, Stock Appreciation Right or Award shall be 3
available for other Options, Stock Appreciation Rights and Awards to the same Participant or other eligible employees. Any shares delivered in payment of the exercise price of an Option shall be available for other Options, Stock Appreciation Rights and Awards to the same Participant or other eligible employees. (b) Subject to adjustment pursuant to subsection 4.1 (d), of the total shares of Common Stock referred to in subsection 4.1 (a), the number of shares of Common Stock with respect to which Awards may be granted shall not exceed 7,000,000 shares of Common Stock. (c) Subject to adjustment pursuant to subsection 4.1 (d), of the total shares of Common Stock referred to in subsection 4.1 (a), the number of shares of Common Stock with respect to which Options or Stock Appreciation Rights may be granted to any Participant during the term of the Plan shall not exceed 2,800,000 shares of Common Stock. (d) In the event that the Committee shall determine that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or other similar corporate event affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under this Plan, then the Committee shall, in its sole discretion, and in such manner as the Committee may deem equitable, adjust any or all of ( 1 ) the number and kind of shares which thereafter may be awarded or optioned and sold or made the subject of Stock Appreciation Rights under the Plan, (2) the number and kind of shares subject to outstanding Options, Stock Appreciation Rights and Awards, and (3) the option price with respect to any of the foregoing and/or, if deemed appropriate, make provision for a cash payment to a Participant. The number of shares subject to any Option, Stock Appreciation Right or Award shall always be a whole number. Article V Eligibility 5.1. The employees eligible to participate in the Plan and receive Options, Stock Appreciation Rights and Awards under the Plan shall consist of key employees of the Company and other Participating Companies. 4
Article VI Stock Options 6.1. Grant of Options. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Options and determine the time when each Option shall be granted and the number of shares subject to each Option. Options may be either Incentive Stock Options or Nonqualified Stock Options and more than one Option may be granted to the same person. Options shall be evidenced in such manner as may be approved by the Committee. Options may be amended or supplemented from time to time as approved by the Committee, provided that the terms of such Options after being amended or supplemented conform to the terms of the Plan. 6.2. Option Price. The price at which shares may be purchased upon exercise of a particular Option shall be not less than 100% of the Fair Market Value of such shares on the date such Option is granted. 6.3. Medium and Time of Payment. No shares shall be delivered pursuant to any exercise of an Option until payment in full of the Option price therefor is received by the Company. Such payment shall be made in cash or, unless prohibited by the Committee, through the delivery of shares of Common Stock of the Company with a Fair Market Value equal to the total Option price or a combination of cash and shares. The Committee may prescribe additional methods of payment to the extent permitted by applicable law. Any shares so delivered shall be valued at their Fair Market Value on the exercise date, or on such other date as determined by the Committee for administrative convenience. No Optionee, transferee, legal representative, legatee or distributee of any Optionee shall be deemed to be a holder of any shares subject to any Option prior to the issuance of such shares upon exercise of such Option or any related Stock Appreciation Right. 6.4. Term and Exercisability of Options. An Option shall be exercisable ratably on each of the first three anniversaries of the date of grant of such Option or as otherwise determined by the Committee, but in no event shall such Option be exercised earlier than one year or later than ten years from the date the Option is granted. The Committee may require that an Option only be exercised upon the achievement of such performance objectives as the Committee shall designate. An Option shall be subject to earlier termination as provided in Section 6.6 with respect to death, retirement and termination of employment or as provided in Section 10.6. 6.5. Transferability of Options. (a) Except as provided in subsection (b) below, an Option may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution and, during the lifetime of the 5
Optionee, may be exercised only by such Optionee. (b) Notwithstanding subsection (a) above, the Committee may determine that an Option may be transferred by the Optionee to one or more members of the Optionee's immediate family, to a partnership of which the only partners are members of the Optionee's immediate family, or to a trust established by the Optionee for the benefit of one or more members of the Optionee's immediate family. For this purpose immediate family means the Optionee's spouse, parents, children, grandchildren and the spouses of such parents, children and grandchildren. A transferee described in this subsection may not further transfer an Option. An Option transferred pursuant to this subsection shall remain subject to the provisions of the Plan, including, but not limited to, the provisions of Section 6.6 relating to the exercise of the Option upon the death, retirement or termination of employment of the Optionee, and shall be subject to such other rules as the Committee shall determine. 6.6. Death, Retirement and Termination of Employment. Subject to the condition that no Option be exercised in whole or in part after the expiration of the Option period specified by the Committee, and subject to the Committee's right to cancel any Option in accordance with Section 10.6, unless otherwise determined by the Committee: (a) Upon termination of employment prior to an Optionee's attainment of age 55 but after the Optionee is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, an Optionee or a transferee described in subsection 6.5(b), may, within three years after the date of such termination, purchase any or all of the shares subject to an Option granted at least one year prior to such termination of employment, at or after the time or times the Optionee would have been entitled to purchase such shares had the Optionee not terminated employment; (b) Upon termination of employment on or after an Optionee's attainment of age 55 and after the Optionee is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, an Optionee or a transferee described in subsection 6.5(b), may, at any time prior to the expiration of the Option period, purchase any or all of the shares subject to an Option granted at least one year prior to such termination of employment, at or after the time or times the Optionee would have been entitled to purchase such shares had the Optionee not terminated employment; (c) Upon the death of an Optionee after a termination of employment described in subsections (a) or (b) above, the Optionee's designated beneficiary, or if none, the person or persons to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution, or a transferee described in subsection 6.5(b), may, at any time prior to the expiration of the Option period determined under subsection (a) or (b), as the case may be, purchase any or all of the shares subject to an Option at or after the time the Optionee would have been entitled to purchase such shares had the Optionee survived; 6
(d) Upon the death of an Optionee while employed, the Optionee's designated beneficiary, or if none, the person or persons to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution, or a transferee described in subsection 6.5(b), may, within three years after the date of such death, but no later than the expiration of the Option period, purchase any or all of the shares subject to an Option at or after the time the Optionee would have been entitled to purchase such shares had the Optionee survived; and (e) Upon termination of employment for any reason other than death or retirement as aforesaid, an Optionee's Options, including any Options transferred pursuant to subsection 6.5(b), shall be cancelled to the extent not theretofore exercised. In addition, the Optionee shall repay to the Company the value of the difference between the Fair Market Value on the date of exercise over the Option price of any Options exercised within the six month period preceding the date of such termination and the value of any Related Right described in Section 7.2 exercised during such period. Article VII Stock Appreciation Rights 7.1. Grant of Stock Appreciation Rights. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Stock Appreciation Rights and determine the time when each Stock Appreciation Right shall be granted and such other terms of each Stock Appreciation Right pursuant to this Article VII. Stock Appreciation Rights may be granted either alone ("Stand Alone Rights") or in conjunction with all or part of any Option granted under the Plan ( "Related Rights" ) . In the case of a Nonqualified Stock Option, Related Rights may be granted either at or after the time of the grant of the Nonqualified Stock Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option. 7.2. Related Rights. (a) A Related Right shall be exercisable only at such time or times and to the extent that the Option to which it relates shall be exercisable in accordance with Article 6, provided that the Committee may, for administrative convenience, determine that, for any Related Right which can only be exercised during a limited period of time in order to satisfy rules imposed by the Securities and Exchange Commission, the exercise of any such Related Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Common Stock is the highest. A Related Right granted with respect to an Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option, provided that, unless otherwise provided by the Committee, a Related Right granted with 7
respect to less than the full number of shares covered by a related Option shall only be reduced if and to the extent that the number of shares covered by the exercise or termination of the related Option exceeds the number of shares not covered by the Related Right, provided further that, in the event of the death of the Participant, the Related Right shall be cancelled to the extent not theretofore exercised, whether or not the related Option is cancelled. (b) Upon the exercise of a Related Right, a Participant shall be entitled to receive up to, but not more than, an amount in cash or shares of Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option price per share of Common Stock of the related Option multiplied by the number of shares of Common Stock in respect of which the Related Right shall have been exercised. The Committee shall have the right to determine the form of payment. Any shares delivered in payment shall be valued at their Fair Market Value on the date of exercise. No fractional shares shall be issued and the Participant shall receive cash in lieu thereof. (c) Upon the exercise of a Related Right, the Option or part thereof to which such Related Right is related shall be deemed to have been exercised for the purpose of the limitations set forth in Section 4.1 on the number of shares of Common Stock to be issued under the Plan, but only to the extent of the number of shares of Common Stock issued under the Related Right. 7.3. Stand Alone Rights. (a) A Stand Alone Right shall be exercisable ratably on each of the first three anniversaries of the grant of such Stand Alone Right or as otherwise determined by the Committee, but in no event shall such Stand Alone Right be exercised earlier than one year or later than ten years from the date the Stand Alone Right is granted. The Committee may require that a Stand Alone Right only be exercised upon the achievement of such performance objectives as the Committee shall designate. The Committee may, for administrative convenience, determine that, for any Stand Alone Right which can only be exercised during a limited period of time in order to satisfy rules imposed by the Securities and Exchange Commission, the exercise of any such Stand Alone Right for cash during such limited period shall be deemed to occur for all purposes hereunder on the day during such limited period on which the Fair Market Value of the Common Stock is the highest. A Stand Alone Right shall be subject to earlier termination as provided in subsection 7.3(c) with respect to death, retirement and termination of employment. (b) Upon the exercise of a Stand Alone Right, a Participant shall be entitled to receive up to, but not more than, an amount in cash or shares of Common Stock equal in value to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the Fair Market Value of one share of Common Stock on the date of grant multiplied by the number of shares in respect of which the right is being exercised. The Committee shall have the right to determine the form of payment. Any shares delivered in payment shall be valued at their Fair Market Value on the date of exercise. No fractional shares shall be issued and the 8
Participant shall receive cash in lieu thereof. (c) Subject to the condition that no Stand Alone Right may be exercised in whole or in part after the expiration of the period specified by the Committee, and subject to the Committee's right to cancel any Stock Appreciation Right in accordance with Section 10.6, unless otherwise determined by the Committee: (i) Upon termination of employment prior to a Participant's attainment of age 55 but after the Participant is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, a Participant may, within three years after the date of such termination, exercise any or all of the Stand Alone Right granted at least one year prior to such termination of employment, at or after the time or times the Participant would have been entitled to exercise such Stand Alone Right had the Participant not terminated employment; (ii) Upon termination of employment on or after a Participant's attainment of age 55 and after the Participant is eligible for retirement pursuant to a retirement plan of the Company or any of its subsidiaries, a Participant may, at any time prior to the expiration of the Stock Appreciation Right exercise period, exercise any or all of the Stand Alone Right granted at least one year prior to such termination of employment, at or after the time or times the Participant would have been entitled to exercise such Stand Alone Right had the Participant not terminated employment; and (iii) Upon termination of employment for any reason other than retirement as aforesaid, a Participant's Stand Alone Rights shall be cancelled to the extent not theretofore exercised. In addition, except in the event of death, the Participant shall repay to the Company the value of any Stand Alone Right exercised within the six month period preceding the date of such termination. 7.4. Transfer of Stock Appreciation Rights. A Stock Appreciation Right may not be transferred to anyone and may only be exercised by the Participant to whom it is granted Article VIII Restricted Stock Awards 8.1. Grant of Restricted Stock Awards. Subject to the limitations of the Plan, the Committee shall, after such consultation with and consideration of the recommendations of management as the Committee considers desirable, select from eligible employees those Participants to be granted Restricted Stock Awards and determine the time when each Award shall be granted, the vesting date or vesting dates for each Award, the time or times as of which vested Awards shall be paid and the number of share credits (each of which shall be equivalent to one share of Common Stock) subject to each Award. Restricted Stock Awards 9
shall be evidenced in such manner as may be approved by the Committee. Restricted Stock Awards may be amended or supplemented from time to time as approved by the Committee, provided that the terms of such Awards after being amended or supplemented conform to the terms of the Plan. No provision of this Plan shall be interpreted to prohibit the grant of a Restricted Stock Award hereunder in connection with awards granted pursuant to the 1995 Executive Officer Performance Plan of J.P. Morgan & Co. Incorporated and Affiliated Companies or any other plan of the Company, provided that any such Award conforms to the terms of this Plan. 8.2. Number of Share Credits. Each Restricted Stock Award shall state the number of share credits to be subject to the Award. 8.3. Restrictions. A Restricted Stock Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, for a period of five years from the date of grant of the Award or such other period as the Committee shall determine, and for such further period as the payment of Awards may be deferred pursuant to Section 8.5. The Committee may define the Restricted Period in terms of the passage of time, the satisfaction of performance criteria, a combination of time and performance, or in any other manner it deems appropriate. Restricted Stock Awards shall not be paid until the successful completion of the Restricted Period except as may be otherwise provided in circumstances of death or retirement pursuant to Section 8.4, or until the end of any deferral period described in subsection 8.5(b). 8.4. Death, Retirement and Termination of Employment. Unless otherwise determined by the Committee: (a) Upon termination of a Participant's employment prior to the end of the Restricted Period for any reason except for death, as described below, the Participant's Awards shall be forfeited and the Participant shall have no right with respect to such Award. (b) Upon the death of a Participant, an Award granted to such Participant shall be (i) 100% (or such other percentage as the Committee shall have determined at the time of grant of such Award) vested and nonforfeitable and (ii) shall be payable to the Participant's beneficiary, or if none, the person or persons to whom such Participant's rights under the Award are transferred by will or the laws of descent and distribution, subject to any further deferral of the Award in accordance with subsection 8.5(b), provided that with respect to an Award subject to performance restrictions, the Committee shall make such determination with respect to such Award as it deems appropriate. 8.5. Payment of Awards. (a) Subject to the provisions of subsection (b) hereof, as soon as practicable after the successful completion of the Restricted Period, such Award shall be paid to the Participant or, in the case of the death of the Participant, the Participant's beneficiary, or if none, the person or persons to whom such Participant's rights under the 10
Award are transferred by will or the laws of descent and distribution. (b) The Committee may, in its discretion, provide that payment of Awards be deferred until such time or times as the Committee shall specify, or such time or times as the Participant may elect. Any election of a Participant pursuant to the preceding sentence shall be filed with the Committee in accordance with such rules and regulations, including any deadline for the making of such an election, as the Committee may provide. (c) Except as otherwise determined pursuant to subsection 8.6(c), payments pursuant to this Section 8.5, including any dividend equivalents determined under subsection 8.6(b), shall be made in shares of Common Stock, except there may be paid in cash the value of any partial shares of Common Stock and that part of the total payment determined by the Company to be necessary to satisfy tax withholding requirements. 8.6. Dividend Equivalents. (a) Except as may be otherwise determined by the Committee, in addition to the payment provided for in Section 8.5, each Participant (or beneficiary) entitled to payment under Section 8.5 shall receive the dividend equivalent amount calculated under subsection (b) hereof. (b) The dividend equivalent amount is the number of additional share credits attributable to the number of share credits awarded plus additional share credits calculated hereunder. Such additional share credits shall be determined and credited as of the end of each calendar year by dividing (1) the aggregate cash dividends which would have been paid had the share credits awarded or credited under this subsection (b), as the case may be, been actual shares of Common Stock on the record date for each such dividend during such calendar year by (2) the average market prices per shares of Common Stock on the last trading day of each calendar month during the 12 months ending on the November 30 preceding the date such determination is being made. For this purpose, the market price on any day shall be the average of the highest and lowest price of a share of Common Stock as reported on the composite tape for such day. The Committee may designate any other manner for determining and crediting dividend equivalents as it deems appropriate. (c) In such cases as the Committee may deem advisable, the Committee may, in lieu of the crediting provided for in subsection (b), determine to pay all or part of the dividend equivalent amount in cash or stock as dividends are actually paid on Common Stock, or at such other time or times as the Committee may otherwise determine. 11
Article IX Stock Unit Awards 9.1. Grant of Stock Unit Awards. The Committee shall have authority to grant to eligible employees Stock Unit Awards which can be in the form of Common Stock or units, the value of which is based, in whole or in part, on the value of Common Stock. Subject to the provisions of the Plan, including Section 9.2 below, Stock Unit Awards shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules (all of which are sometimes hereinafter collectively referred to as "rules" ) as the Committee may determine in its sole discretion, all such rules applicable to a particular Stock Unit Award to be reflected in writing and furnished to the Participant. In no event shall any Award vest less than one year from the date of grant. The rules need not be identical for each Stock Unit Award. No provision of this Plan shall be interpreted to prohibit the grant of a Stock Unit Award hereunder in connection with awards granted pursuant to the 1995 Executive Officer Performance Plan or any other plan of the Company, provided that any such Award conforms to the terms of the Plan. 9.2. Rules. In the sole discretion of the Committee, a Stock Unit Award shall be granted subject to the following rules (a) Any shares of Common Stock which are part of a Stock Unit Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, prior to the date on which the shares are issued or such other date provided by the Committee at the time of grant of the Award or thereafter. (b) Stock Unit Awards may provide for the payment of cash consideration by the person to whom such Award is granted or provide that the Award, and Common Stock to be issued in connection therewith, if applicable, shall be delivered without the payment of cash consideration. (c) Stock Unit Awards may relate in whole or in part to performance criteria established by the Committee at the time of grant. (d) Stock Unit Awards may provide for deferred payment schedules, vesting over a specified period of employment, the payment (on a current or deferred basis) of dividend equivalent amounts, with respect to the number of shares of Common Stock covered by the Award, and elections by the Participant to defer payment of the Award or the lifting of restrictions on the Award, if any. 12
Article X General Provisions 10.1. Change in Control. (a) (i) In the case of a Change in Control (as defined below) of the Company, each Option and Stock Appreciation Right then outstanding shall (unless the Committee determines otherwise) immediately be nonforfeitable and exercisable in full; (ii) In the case of a Change in Control (as defined below) of the Company, each Award shall (unless the Committee determines otherwise) immediately be fully vested and nonforfeitable and shall thereupon be paid as soon as practicable. (b) Any determination by the Committee made pursuant to this Section 10.1 may be made as to all outstanding Options, Stock Appreciation Rights or Awards or only as to certain Options, Stock Appreciation Rights or Awards specified by the Committee, and all such determinations shall be made in cases covered by paragraphs (c) (i) or (ii) below, prior to or as soon as practicable after the occurrence of such event and in the cases covered by paragraphs (c) (iii) and (iv) below, prior to the occurrence of such event. (c) A Change in Control shall occur if: (i) any "person" or "group of persons" as such terms are used in Section 13(d) and 14(d) of the Exchange Act directly or indirectly purchases or otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) or has the right to acquire such beneficial ownership (whether or not such right is exercisable immediately, with the passage of time, or subject to any condition), of voting securities representing 25% or more of the combined voting power of all outstanding voting securities of the Company; (ii) during any period of two consecutive years, the individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority of the members thereof, unless ( 1 ) there are seven or more directors then still in office who were directors at the beginning of the period, and (2) the election, or the nomination for election by the Company's stockholders, of each new director was approved by at least two-thirds of the directors then still in office who were directors at the beginning of the period; (iii) the stockholders of the Company shall approve an agreement to merge or consolidate the Company with or into another corporation as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are or are to be owned by the former shareholders of the Company (excluding from former shareholders, a shareholder who is or, as a result of the transaction in question, becomes an "affiliate," as defined in Rule 12b-2 under the Exchange Act, of any party to such consolidation or merger); or 13
(iv) the stockholders of the Company shall approve the sale of all or substantially all of the Company's business and/or assets to a person or entity which is not a wholly-owned subsidiary of the Company. 10.2. Designation of Beneficiary. Subject to such rules and regulations as the Committee may prescribe, including the right of the Committee to limit the types of designations which are acceptable for purposes of the Plan, each Participant who shall be granted an Option or Award under the Plan may designate a beneficiary or beneficiaries and may change such designation from time to time by filing a written designation of beneficiaries with the Committee on a form to be prescribed by it, provided that no such designation shall be effective unless so filed prior to the death of such Participant. 10.3. No Right of Continued Employment. Neither the establishment of the Plan, the granting of Options, Stock Appreciation Rights or Awards, nor the payment of any benefits hereunder nor any action of the Company or of the Board of Directors or of the Committee shall be held or construed to confer upon any person any legal right to be continued in the employ of the Company or its subsidiaries, each of which expressly reserves the right to discharge any employee whenever the interest of any such company in its sole discretion may so require without liability to such company, the Board of Directors or the Committee except as to any rights which may be expressly conferred upon such employee under the Plan. 10.4. No Segregation of Cash or Shares. The Company shall not be required to segregate any cash or any shares of Common Stock which may at any time be represented by Options, Stock Appreciation Rights, Awards, share credits or dividend equivalent amounts and the Plan shall constitute an "unfunded" plan of the Company. No employee shall have voting or other rights with respect to shares of Common Stock prior to the delivery of such shares. The Company shall not, by any provisions of the Plan, be deemed to be a trustee of any Common Stock or any other property, and the liabilities of the Company to any employee pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any employee, former employee or beneficiary under the Plan shall be limited to those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations of the Company and each other Participating Company under the Plan, provided, however, that existence of such trusts or other arrangements is consistent with the unfunded status of the Plan. 10.5. Delivery of Shares. No shares shall be delivered pursuant to any exercise of an Option or Stock Appreciation Right or pursuant to the payment of any Award until the requirements of such laws and regulations as may be deemed by the Committee to be applicable thereto are satisfied. 10.6. Cancellation of Options, Stock Appreciation Rights and Awards. 14
(a) Prior to the occurrence of a Change in Control, but not thereafter, the Committee may, in its sole discretion and with or without cause, cancel any Option, Stock Appreciation Right or Award in whole or in part to the extent it has not theretofore been exercised or, in the case of Awards, become vested. Such cancellation shall be effective as of the date specified by the Committee. (b) Notwithstanding subsection (a) above, prior to payment of any Award, the Committee may, in its sole discretion, in cases involving a serious breach of conduct by an employee or former employee, or activity of a former employee in competition with the business of a Participating Company, cancel any Award, whether or not vested, in whole or in part. Such cancellation shall be effective as of the date specified by the Committee. The determination of whether an employee or former employee has engaged in a serious breach of conduct or activity in competition with the business of a Participating Company shall be determined by the Committee in good faith and in its sole discretion. 10.7. Transfer, Leave of Absence, etc. For purposes of the Plan: (1 ) a transfer of a Participant from a Participating Company to an affiliated company, (2) a leave of absence, duly authorized in writing by the Participating Company, for military service or sickness, or for any other purpose approved by the Participating Company H the period of such leave does not exceed ninety days, and (3) a leave of absence in excess of ninety days, duly authorized in writing by the Participating Company, provided the Participant's right to reemployment is guaranteed either by a statute or by contract, shall not be deemed a termination of employment. 10.8. New York Law to Govern. All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of New York. 10.9. Payments and Tax Withholding. The delivery of any shares of Common Stock and the payment of any amount in respect of a Stock Appreciation Right or Award shall be of the account of the applicable Participating Company and any such delivery or payment shall not be made until the recipient shall have made satisfactory arrangements for the payment of any applicable withholding taxes. Article XI Amendment and Termination 11.1. Amendments, Suspension or Discontinuance. The Board of Directors may amend, suspend or discontinue the Plan, provided, however, that the Board of Directors may not, without the prior approval of the stockholders of the Company, make any amendment for which stockholder approval is necessary to comply with any applicable tax 15
or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief under Section 16(b) of the Exchange Act, and provided, further, that upon or following the occurrence of a Change in Control no amendment may adversely affect the rights of any person in connection with any Option, Stock Appreciation Right or Award previously granted. 11.2. Termination. No Option, Stock Appreciation Right or Award shall be granted under the Plan after expiration of ten years from the date upon which the Plan is approved by vote of the stockholders of the Company. 16
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(i) | a termination of employment for Cause; | ||
(ii) | within 2 years of a termination of employment, the solicitation of the customers, or clients of the Employer or any affiliate of the Employer by the Participant in order to compete with his/her Employer or any affiliate of the Employer; | ||
(iii) | within 2 years of termination of employment, the hiring of, or the attempt to hire, the Employees of the Employer or any affiliate of the Employer; | ||
(iv) | at any time after a termination of employment, a release to any party unrelated to an Employer of secret or confidential information obtained by the Participant in the course of his/her employment, except as the case may be required by law; or | ||
(v) | at any time, an attempt to assign, encumber or hypothecate benefits as provided in Section 7.1. |
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(A) | the amount of the cash dividend declared by the Corporation for each outstanding Share of the Corporation, and | ||
(B) | the number of Stock Units credited to the Director and still outstanding, |
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(a) | Award includes, without limitation, stock options (including incentive stock options under Section 422 of the Code), stock appreciation rights, performance share or unit awards, dividend or equivalent rights, stock awards, restricted share or unit awards, or other awards that are valued in whole or part by reference to, or are otherwise based on, the Corporations Common Stock (other Common Stock-based Awards), all on a stand alone, combination or tandem basis, as described in or granted under this Plan. | |
(b) | Award Summary means a written summary setting forth the terms and conditions of each Award made under this Plan. | |
(c) | Board means the Board of Directors of the Corporation, excluding any member who is an officer or Employee of the Corporation or who otherwise would not be considered a Non-Employee Director within the meaning of Rule 16b-3 of the Securities and Exchange Commission. | |
(d) | Code means the Internal Revenue Code of 1986, as amended from time to time. | |
(e) | Committee means the Organization, Compensation and Nominating Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. | |
(f) | Common Stock means the Common Stock, par value $.01 per share, of the Corporation. | |
(g) | Corporation means BANK ONE CORPORATION, a Delaware corporation. | |
(h) | Employee means an employee of BANK ONE CORPORATION or a Subsidiary. | |
(i) | Exchange Act means the Securities Exchange Act of 1934, as amended. | |
(j) | Fair Market Value means the closing price of Common Stock as listed on the New York Stock Exchange Composite Transaction Tape for the trading day immediately preceding the valuation date (or, if no closing price is listed for Common Stock on such date, the next immediately preceding date for which a closing price is listed); provided, however, that the Committee may modify the definition of Fair Market Value with respect to any particular Award. |
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(k) | Participant means an Employee who has been granted an Award under the Plan. | |
(l) | Plan means the BANK ONE CORPORATION Stock Performance Plan. | |
(m) | Plan Year means a twelve-month period beginning with January 1 of each year. | |
(n) | Subsidiary means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, an ownership interest of at least 50% by reason of stock ownership or otherwise. |
(a) | Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate. | |
(b) | The Committee shall have authority to interpret and construe the provisions of the Plan and the Award Summaries and to make determinations pursuant to any Plan provision or Award Summary. Any such interpretation or determination shall be final and binding on all parties. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporations Restated Certificate of Incorporation, as it may be amended from time to time. | |
(c) | The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. | |
(d) | The Committee shall have the authority at any time prior to a Change of Control (as defined in Section 12 below) to cancel Awards for reasonable cause and to provide for the conditions and circumstances under which Awards shall be forfeited. |
(a) | The stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock, subject to adjustment in accordance with the provisions of Section 10, and subject to Section 5(b) below, the total number of shares of Common Stock available for grants of Awards in any Plan Year shall not exceed 2% of the outstanding Common Stock as reported in the Corporation? Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year. |
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(b) | There shall be available for Awards under the Plan in any Plan Year, in addition to shares available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5 for any prior Plan Year; (ii) shares represented by Awards which are canceled, surrendered, forfeited, terminated, paid in cash or expire unexercised; (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations; (iv) any shares of Common Stock that are used to pay the purchase price or any withholding taxes associated therewith upon the exercise of an option, to the extent such shares result in the grant of a replacement option; provided, however, that the total number of shares of Common Stock which may be available for Awards under the Plan Year may not exceed 5% of the outstanding Common Stock as reported in the Corporations Annual Report on Form 10-K for the fiscal year ending immediately prior to the applicable Plan Year. | |
(c) | The exercise of an option or stock appreciation right granted in tandem therewith will reduce proportionately the number of shares subject to the tandem stock appreciation right or option. In addition, any shares ceasing to be subject to the related option or right because of such reduction shall not increase the number of shares of Common Stock available for future Awards granted under the Plan. The grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares available for Awards granted under the Plan. |
(a) | Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of such Award; provided further that no more than 10,000,000 stock options and stock appreciation rights in the aggregate (except that a stock option issued in tandem with a stock appreciation right shall be counted as one stock option for purposes of this maximum) may be granted to any Employee during any five-year period. | |
(b) | Incentive Stock Option. An Award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor Section of the Code as it may be amended from time to time. Subject to adjustment in accordance with the provisions of Section 10, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed 16,200,000 shares, subject in any Plan Year to the limitations of Section 5 of this Plan. | |
(c) | Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted; provided that no more than 10,000,000 stock options and stock appreciation rights in the aggregate (except that a stock appreciation right issued in tandem with a stock option shall be counted as one stock option for purposes of this maximum) may be granted to any Participant during any five-year period. | |
(d) | Restricted and Performance Share. A transfer of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine; provided that no more than 5,000,000 performance shares (determined based upon the maximum number of shares of Common Stock that may be earned) may be granted to any Employee during any five-year period. |
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(e) | Restricted and Performance Share Unit. A fixed or variable share or dollar-denominated unit subject to conditions of vesting, performance and time of payment as the Committee may determine, which are valued at the Committees discretion in whole or in part by reference to, or otherwise based on, the Fair Market Value of Common Stock and which may be paid in Common Stock, cash or a combination of both. | |
(f) | Dividend or Equivalent Right. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. | |
(g) | Stock Award. An unrestricted transfer of ownership of Common Stock which may only be made to Employees other than Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act. | |
(h) | Other Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section 6. |
(a) | Assignability. Except to the extent permitted by Rule 16b-3 under the Exchange Act, or Section 422 of the Code, and as otherwise provided in the Award Summary, no Award shall be assignable or transferable except by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code, and during the lifetime of a Participant, the Award shall be exercisable only by the Participant or such Participants guardian, legal representative or assignee under a qualified domestic relations order. In the event that any Award is transferred as permitted by the preceding sentence, the permitted transferee thereof shall be deemed the Award recipient hereunder. Stock options, incentive stock options and stock appreciation rights shall be exercisable during the transferees lifetime only by the Award recipient or by the Award recipients guardian, legal representative or similar person. Notwithstanding the foregoing, effective May 15, 2001, Awards under the Plan shall not be assignable pursuant to a qualified domestic relations order, nor shall an assignee under a qualified domestic relations order have any right to exercise an Award hereunder. |
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(b) | Termination of Employment. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participants employment. | |
(c) | Rights As A Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant or his nominee, or guardian or legal representative becomes the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. | |
(d) | No Obligation To Exercise. The grant of an Award shall impose no obligation upon Participant to exercise the Award. | |
(e) | Payments By Participants. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate. | |
(f) | Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. The Committee may provide for shares of Common Stock to be withheld for tax withholding purposes in excess of the required minimum amount but not in excess of a Participants maximum marginal tax rate. | |
(g) | Restrictions on Sale and Exercise. With respect to Employees who are officers and directors of the Corporation for purposes of Section 16 of the Exchange Act, and if required to comply with rules promulgated thereunder, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of Common Stock by the Participant for at least six months from the date of grant, and (ii) Common Stock acquired pursuant to this Plan (other than Common Stock acquired as a result of the granting of a derivative security may not be sold for at least six months after acquisition. | |
(h) | Designation of Beneficiaries. Effective May 15, 2001, a Participant may designate a beneficiary to receive outstanding Awards upon the Participants death. If a Participant fails to designate a beneficiary, Awards that are outstanding at the time of the Participants death shall be transferred to the Participants surviving spouse (to the extent the Awards do not expire upon the Participants death). If the Participant does not have a surviving spouse, Awards shall be transferred to the Participants estate. |
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(a) | A Change of Control of the Corporation shall be deemed to have occurred in accordance with the Change of Control definition and standards adopted by the Board from time to time. | |
(b) | The effect of a Change of Control on any and all Awards granted on or after November 1, 2000 that are outstanding as of the date such Change of Control occurs shall be set forth in the applicable Award Summaries, as may be amended from time to time prior to the Change of Control. | |
(c) | Notwithstanding anything contained in the Plan or any Award Summary to the contrary, the effect of a Change of Control on any and all Awards granted before November 1, 2000 shall be determined in accordance with the terms of the Plan as in effect prior to November 1, 2000. |
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EXHIBIT 10.14 REVISED AND RESTATED BANC ONE CORPORATION 1989 STOCK INCENTIVE PLAN SECTION 1. Establishment, Purpose, and Effective Date of Plan 1.1 Establishment. BANC ONE CORPORATION, a Delaware corporation, (the "Corporation") hereby establishes the "1989 STOCK INCENTIVE PLAN" (the "Plan")for key employees of the Corporation and its subsidiaries and for directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Plan permits the grant of Director Stock Options to such directors and the grant of Stock-Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares, and Performance Awards to such employees. 1.2 Purpose. The purpose of the Plan is to advance the interests of the Corporation by encouraging and providing for the acquisition of an equity interest in the Corporation by directors of the Corporation and key employees of the Corporation and its subsidiaries and by enabling the Corporation to attract and retain the services of such directors and key employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. 1.3 Effective Date. The Plan shall become effective as of January 18, 1989, the date of its adoption by the Board of Directors of the Corporation, subject to ratification by the shareholders of the Corporation within twelve months of the adoption date. SECTION 2. Definitions 2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Awards, Performance Share, or Performance Award. (b) "Board" means the Board of Directors of the Corporation. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Committee of the Corporation's Board of Directors which shall consist of two or more non-employee directors, within the meaning set forth in Rule 16b-3 of the Securities Exchange Act of 1934, appointed by the Board. (e) "Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio. (f) "Disability" means disability as determined by the Committee. (g) "Director Stock Option" means an Option granted to an Eligible Director. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to fall under the provisions of Section 422A of the Code. (h) "Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any of its subsidiaries. I-1
(i) "Fair Market Value" means the closing price of the Stock as reported by the New York Stock Exchange on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. (j) "Option" means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option, other than a Director Stock Option, may be either (i) an incentive stock option within the meaning of Section 422A of the Code or (ii) a nonqualified stock option whose grant is intended not to fall under the provisions of Section 422A. (k) "Option Agreement" means an agreement entered into between the Corporation and an employee or an Eligible Director in the form prescribed by the Committee. (l) "Option Price" means the price at which each share of Stock subject to an Option may be purchased, determined in accordance with Section 8.4 herein. (m) "Participant" means any individual, other than an Eligible Director, designated by the Committee to participate in the Plan pursuant to Section 3.1 herein. (n) "Period of Restriction" means the period during which the transfer of shares of Restricted Stock and/or Performance Shares is restricted pursuant to Section 10 and/or Section 11 of the Plan. (o) "Performance Awards" means awards of cash granted to a Participant pursuant to Section 12 of the Plan. (p) "Performance Objective" shall mean the performance measure(s) and the achievement goals of the Corporation or one or more of its subsidiaries set by the Committee. (q) "Performance Period" shall mean two or more successive fiscal years of the Corporation with respect to which a Performance Share or Performance Award may be earned pursuant to this Plan. Performance Periods shall begin with the first day of the fiscal year in which a Performance Share or Performance Award is granted. The length of a Performance Period shall be at the discretion of the Committee. For each Performance Share and Performance Award, no more than one Performance Period shall begin in any one fiscal year of the Corporation. (r) "Performance Shares" means Stock granted to a Participant pursuant to Section 11 of the Plan. Each Performance Share shall be the equivalent of one share of Stock. (s) "Restricted Stock" means Stock granted to a Participant pursuant to Section 10 of the Plan. (t) "Restricted Stock Agreement" means an agreement entered into between the Corporation and the Employee in the form prescribed by the Committee. (u) "Retirement," "Normal Retirement," and "Early Retirement" means termination of employment as defined in the BANC ONE CORPORATION Retirement Plan. (v) "Stock" means the common stock of the Corporation, without par value. (w) "Stock Appreciation Right" and "SAR" means the right to receive a cash payment from the Corporation equal to the excess of the Fair Market Value of a share of Stock at the date of exercise over a specified price fixed by the Committee which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of a Stock Appreciation Right which is granted in conjunction with an Option, the specified price shall be the Option exercise price. I-2
2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. SECTION 3. Eligibility and Participation 3.1 Eligibility and Participation. Participants in the Plan shall be selected by the Committee from among those employees of the Corporation and its subsidiaries who are recommended for participation by the Chief Executive Officer of the Corporation and who, in the opinion of the Committee, are in a position to contribute materially to the Corporation's continued growth, development, and long-term financial success. Persons serving on the Committee shall not be eligible to be a Participant. 3.2 Eligible Directors. Eligible Directors are entitled to participate in the Plan solely with respect to the grant of Director Stock Options and may not receive any other Award under the Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options. SECTION 4. Administration 4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Corporation, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the explicit provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever. SECTION 5. Stock Subject to Plan 5.1 Number. The total number of shares of Stock subject to issuance under the Plan may not exceed six million three hundred thousand (6,300,000) subject to adjustment upon occurrence of any of the events indicated in Subsection 5.3. Of this total number, up to six million (6,000,000) shares of Stock may be granted in Restricted Stock or in common stock as a payout medium to Participants under the Plan and up to three hundred thousand (300,000) shares may be issued pursuant to the exercise of Director Stock Options. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or issued stock reacquired and held as treasury Stock not reserved for any other purpose. 5.2 Unused Stock. In the event any shares of Stock that are subject to an Option which, for any reason, expires or is terminated unexercised as to such shares, or any shares of Stock subject to a Restricted Stock or Performance Share grant made under the Plan are reacquired by the Corporation pursuant to the Plan, such shares again shall become available for issuance under the Plan except as provided in Section 9.4. 5.3 Adjustment in Capitalization. In the event that subsequent to the date of adoption of the Plan by the Board the shares of Stock should as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change, be increased or decreased or changed into or exchanged for a different number or kind of shares of Stock or other securities of the Corporation or of another corporation, then (a) there shall automatically be substituted for each share of Stock subject to an unexercised Option (in whole or in part) granted under the Plan and each share of Stock available for additional grants of Options under the Plan the number and kind of shares of Stock or other securities into which each outstanding share of Stock shall be changed or for which each such shares shall be exchanged, (b) the Option Price shall I-3
be increased or decreased proportionately so that the aggregate purchase price for the securities subject to the Option shall remain the same as immediately prior to such event and (c) the Board shall make such other adjustments to the securities subject to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable. Any such adjustment may provide for the elimination of fractional shares. In such event, the Committee also shall have discretion to make appropriate adjustments in the number and type of shares subject to Restricted and Performance Share grants then outstanding under the Plan pursuant to the terms of such grants or otherwise. SECTION 6. Stock Appreciation Rights Subject to Plan 6.1 Unexercised Rights. In the event any Stock Appreciation Rights expire unexercised, such Stock Appreciation Rights again shall become available for issuance under the Plan. 6.2 Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after ratification of the Plan by the shareholders of the Corporation by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the Committee shall make appropriate adjustments in the number of outstanding Stock Appreciation Rights and the related grant values. SECTION 7. Duration of Plan The Plan shall remain in effect, subject to the Board's right to earlier terminate the Plan pursuant to Section 16 hereof, until all Stock subject to it shall have been purchased or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Option, Stock Appreciation Right, Restricted Stock, Performance Share or Performance Award may be granted under the Plan on or after the tenth (10th) anniversary of the Plan's effective date. SECTION 8. Stock Options 8.1 Grant of Options Other than Director Stock Options. Subject to the provisions of Sections 5 and 7, Options other than Director Stock Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee also shall determine, whether an Option is to be an incentive stock option within the meaning of Code Section 422A, or a nonqualified stock option whose grant is intended not to fall within the provisions of Section 422A. However, in no event shall the aggregate Fair Market Value (determined at the date of grant) of the stock for which incentive stock options are first exercisable in a particular calendar year exceed $100,000, computed in accordance with Section 422A(b)(7) of the Code. An incentive stock option shall not be granted to any person who owns, directly or indirectly, Stock possessing more than 10% of the total combined voting power of all classes of Stock of the Corporation. Nothing in this Section 8 shall be deemed to prevent the grant of nonqualified stock options in excess of the maximum established by Section 422A of the Code. 8.2 Grant of Director Stock Options. Subject to the provisions of Sections 5 and 7, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8.2 and the Committee shall have no discretion with respect to any matters set forth in this Section 8.2. (a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant. (b) Number of Shares. Director Stock Options shall be granted as follows: (i) Each Eligible Director on the effective date of the Plan shall automatically be granted a Director Stock Option for 3,000 shares of Stock. I-4
(ii) Each other person who is elected or appointed to serve as a director of the Corporation after the effective date of the Plan and who is an Eligible Director shall, upon his initial appointment or election as an Eligible Director, automatically be granted a Director Stock Option for 3,000 shares of Stock; (iii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1990 and immediately after the adjournment of the Annual Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted a Director Stock Option for 1,000 shares of Stock if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%. 8.3 Option Agreement. Each Option shall be evidenced by an Option Agreement that shall specify the type of Option granted, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other provisions as the Committee shall determine. 8.4 Option Price. No Option granted pursuant to the Plan shall have an Option Price that is less than the Fair Market Value of the Stock on the date the Option is granted. 8.5 Duration of Options. Each Option, other than Director Stock Options, shall expire at such time as the Committee shall determine at the time it is granted; provided, however, that no Option, other than incentive stock options within the meaning of Section 422A of the Code, shall be exercisable later than twenty years and one day from the date of its grant and no such incentive stock option shall be exercisable more than ten years and one day from the date of grant. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant. 8.6 Exercise of Options. Options granted under the Plan other than Director Stock Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for all Participants. 8.7 Payment. The Option Price upon exercise of any Option shall be payable to the Corporation in full either (i) in cash or its equivalent, or (ii) by tendering shares of previously acquired Stock having a Fair Market Value at the time of exercise equal to the total Option Price, or (iii) by a combination of (i) and (ii). The proceeds from such a payment shall be added to the general funds of the Corporation and shall be used for general corporate purposes. As soon as practicable after receipt of full payment (including the necessary tax withholding), the Corporation shall deliver to the Participant or the Eligible Director, as the case may be, Stock certificates in an appropriate amount based upon the number of Options exercised, issued in the name of the Participant or the Eligible Director, as the case may be. 8.8 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares. 8.9 Termination of Employment. If the employment of a Participant terminates, other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section. (a) Retirement Under the Retirement Plan. When a Participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any award may be accelerated. I-5
(b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancellation pursuant to Section 8.10 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest. (c) Death or Disability of a Participant. (i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement. (ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability. (iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries. (iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 8.9, the Committee's determination shall be binding and conclusive. (d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants. 8.10 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement. 8.11 Termination of Eligible Director Shares. In the event that an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to the Plan which are exercisable as of the date he ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8.5, above, or three months after such cessation date, whichever first occurs; provided, however, that if he ceases to be an Eligible Director by reason of death, the three-month period shall be extended to the sooner of twelve (12) months and five (5) days or the expiration date of the Director Stock Option. 8.12 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. All Options granted to a Participant or an Eligible Director under the Plan shall be exercisable during his lifetime only by such Participant or Eligible Director. SECTION 9. Stock Appreciation Rights I-6
9.1 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 6 and 7, Stock Appreciation Rights may be granted to Participants at any time and from time to time as shall be determined by the Committee. An SAR may be granted, in the discretion of the Committee, in any of the following forms: (a) In lieu of Options, (b) In addition to Options, (c) Upon lapse of Options, or (d) Independent of Options. 9.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of Options may be exercised for all or part of the shares of Stock subject to the related Option upon the surrender of the right to exercise an equivalent number of Options. The SAR may be exercised only with respect to the shares of Stock for which its related Option is then exercisable. SARs granted in lieu of Options will lapse in the event and to the extent that the related Option is exercised. 9.3 Exercise of SARs in Addition to Options. SARs granted in addition to Options shall be deemed to be exercised upon the exercise of the related Options. 9.4 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of Options shall be deemed to have been exercised upon the lapse of the related Options as to the number of shares of Stock subject to the Options. 9.5 Exercise of SARs Independent of Options. SARs granted independent of Options may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon the SARs. 9.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to receive payment of an amount (subject to Section 9.8 below) determined by multiplying: (a) The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant, by (b) The number of shares with respect to which the SAR is exercised. 9.7 Form and Timing of Payment. At the discretion of the Committee, payment for SARs may be made in cash or stock, or in a combination thereof. If payment is made in Stock, the value of such Stock shall be the Fair Market Value determined as of the date of exercise. 9.8 Limit on Appreciation. At the time of grant, the Committee may establish, in its sole discretion, a maximum amount per share which will be payable upon exercise of an SAR. 9.9 Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Rule 16b-3 (or any successor rule), under the Securities Exchange Act of 1934. 9.10 Term of SAR. The term of an SAR granted under the Plan shall not exceed ten years and one day. 9.11 Termination of Employment. In the event the employment of a Participant is terminated by reason of Death, Disability, Retirement, or any other reason, any SARs outstanding shall terminate in the same manner as specified for Options under Sections 8.9 and 8.10 herein. I-7
9.12 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 10. Restricted Stock Awards. 10.1 Grant of Restricted Stock. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may award shares of Restricted Stock under the Plan to such Participants and in such amounts as it shall determine. Each Restricted Stock Award shall be evidenced by a Restricted Stock Agreement that shall specify the Period or Periods of Restriction, the number of Restricted Stock shares awarded, and such other provisions as the Committee shall determine. 10.2 Transferability. Except as provided in this Section 10, the shares of Restricted Stock awarded hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the Restricted Stock Agreement, or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. 10.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock awarded pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable federal or state securities or tax laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. 10.4 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 10.3 hereof, each certificate representing shares of Restricted Stock granted pursuant to the Plan shall bear a legend which is comparable to the following: "The sale or other transfer of this certificate or the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer and other terms and conditions set forth in the BANC ONE CORPORATION 1989 Stock Incentive Plan and a Restricted Stock Agreement dated , 19 . A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271-0261." 10.5 Removal of Restrictions. Except as otherwise provided in this Section 10, shares of Restricted Stock covered by each Restricted Stock Award made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 10.4 removed from his Stock certificates. 10.6 Voting Rights. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder may exercise full voting rights with respect to those shares. 10.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. 10.8 Termination of Employment. If the employment of a Participant terminates other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section. I-8
(a) Retirement Under the Retirement Plan. When a participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any Award may be accelerated. (b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancelation pursuant to Section 10.9 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest. (c) Death or Disability of a Participant. (i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement. (ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability. (iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries. (iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 10.8, the Committee's determination shall be binding and conclusive. (d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants. 10.9 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement. SECTION 11. Performance Shares 11.1 Grant of Performance Shares. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Shares to such Participants and in such amounts as it shall determine. Each grant of Performance Shares shall be in writing. I-9
11.2 Performance Period. The period over which Performance Shares may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee, in its sole discretion, but shall not be less than two years. 11.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the number of the Performance Shares payable at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period. The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives. 11.4 Payment of Awards. All payments pursuant to Performance Share grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in Stock. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan. 11.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. In the event that a Participant terminates his employment with the Corporation because of Early Retirement, any Performance Shares outstanding at the date of such Early Retirement automatically shall be forfeited; provided, however, that the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Shares as it deems appropriate. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. 11.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. 11.7 Termination of Employment for Reasons Other Than Death, Disability or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 1 1.5 and 11.6 hereof during the Performance Period, then any Performance Shares still outstanding at the date of such termination automatically shall be forfeited; provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Shares as it deems appropriate, and pay a prorated award. 11.8 Nontransferability of Performance Shares. No Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent I-10
and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 12. Performance Awards 12.1 Grant of Performance Awards. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Awards under the Plan to Such Participants and in such amounts as it shall determine. Each grant of Performance Awards shall be in writing. 12.2 Performance Period. The period over which Performance Awards may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee in its sole discretion but shall not be less than two years. 12.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the value of the Performance Awards at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period. The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives. 12.4 Payment of Awards. All payments pursuant to Performance Award grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in cash. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan. 12.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payment of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. In the event that a Participant terminates his employment with the Corporation because of Early Retirement, the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Awards as it deems appropriate. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. 12.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. I-11
12.7 Termination of Employment for Reasons Other Than Death, Disability, or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 12.5 and 12.6 hereof during the Performance Period, then any Performance Awards still outstanding at the date of such termination automatically shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Awards as it deems appropriate and pay a prorated award. 12.8 Nontransferability of Performance Awards. No Performance Awards granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 13. Beneficiary Designation Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his estate. SECTION 14. Rights of Employees 14.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Corporation to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation. 14.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. SECTION 15. Change in Control 15.1 In General. In the event that (a) the Corporation is a party to a merger or consolidation agreement, (b) the Corporation is a party to an agreement to sell substantially all of its assets, or (c) there is a change in control of the Corporation as defined in Section 15.3 below, the Committee may, in its sole discretion, provide that all outstanding Awards shall become 100% vested, that all outstanding Options and SARs shall become immediately exercisable and that any Period of Restriction shall immediately lapse. Performance Share and Performance Award values shall be computed as if the most recently completed full fiscal year was the end of the Performance Period, except that no Performance Share or Performance Award payable under this Section, except as limited by Section 15.2 hereof, may be less than would have been paid had the Corporation achieved 100% of its Performance Objectives. 15.2 Limitation on Payments. If the receipt of any payment under this Section by any Participant shall, in the opinion of independent tax counsel of recognized standing selected by the Corporation, result in the payment by such Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax. 15.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the following events: I-12
(i) The acquisition of "beneficial ownership", as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), of twenty percent (20%) or more of the total voting capital Stock of the Corporation then issued and outstanding, by any person, or "group", as defined in Section 13(d)(3) of the Exchange Act, or (ii) Individuals who were members of the Board of the Corporation immediately prior to a meeting of the shareholders of the Corporation involving a contest for the election of directors do not constitute a majority of the Board immediately following such election, unless the election of such new directors was recommended to the shareholders by management of the Corporation. The Board has final authority to determine the exact date on which a change in control has been deemed to have occurred under (i) and (ii) above. SECTION 16. Amendment, Modification, and Termination of Plan The Board may at any time terminate and, from time to time, may amend or modify the Plan, provided, however, that no such action of the Board, without approval of the shareholders, may: (a) Increase the total amount of Stock which may be issued under the Plan, except as provided in Subsections 5.1 and 5.3 of the Plan. (b) Change the provisions of the Plan regarding the Option Price except as permitted by Subsection 5.3. (c) Materially increase the cost of the Plan or materially increase the benefits to Participants. (d) Extend the period during which Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards may be granted. (e) Extend the maximum period after the date of grant during which Options may be exercised. No amendment, modification, or termination of the Plan shall in any manner adversely affect any Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards theretofore granted under the Plan, without the consent of the Participant or the Eligible Director, as the case may be. SECTION 17. Tax Withholding (a) The Corporation shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant or an Eligible Director, as the case may be, is required to pay to the Corporation an amount required to be withheld under applicable income tax laws In connection with a distribution of common stock or upon exercise of an Option or SAR, the Participant or an Eligible Director, as the case may be, may satisfy this obligation in whole or in part by electing (the "Election") to have the Corporation withhold from the distribution shares of common stock having a value equal to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the common stock on the date that the amount of tax to be withheld shall be determined ("Tax Date"). (b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any grant that the right to make Elections shall not apply to such Grant. An Election is irrevocable. I-13
SECTION 18. Indemnification Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, Suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of Indemnification, shall not be exclusive of any other rights of Indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless. SECTION 19. Requirements of Law 19.1 Requirements of Law. The granting of Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or performance Awards, and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 19.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and be governed by the laws of the State of Ohio. Amended: Oct., 1996 - Section 2 - Definition of Committee Sections 8.9, 8.10 & 10.8 - Matters re: Termination of Employment Section 17(c) Deleted Apr., 1992 - Section 5.1 Stock Subject to Plan Increased I-14
Exhibit 10.15 REVISED AND RESTATED BANC ONE CORPORATION 1995 STOCK INCENTIVE PLAN 1. PURPOSE The purpose of the BANC ONE CORPORATION 1995 Stock Incentive Plan is to provide incentives and rewards for Employees and Eligible Directors of the Corporation and its Subsidiaries (i) to support the execution of the Corporation's business and human resource strategies and the achievement of its goals and (ii) to associate the interests of Employees and Eligible Directors with those of the Corporation's shareholders. 2. DEFINITIONS "Award" includes, without limitation, stock options (including incentive stock options under Section 422 of the Code and Director Stock Options), stock appreciation rights, restricted and performance shares, restricted and performance share units, Performance Stock Awards, dividend or equivalent rights, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand alone, combination or tandem basis, as described in or granted under this Plan. "Award Agreement" means a written agreement entered into between the Corporation and a Participant setting forth the terms and conditions of an Award made to such Participant under this Plan, in the form prescribed by the Committee. "Board" means the Board of Directors of the Corporation. "Change of Control" shall have the meaning specified in Section 12(b). "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Committee appointed by the Board, each member of which shall be a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act and shall be an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall be composed of no fewer than the minimum number of disinterested persons as may be required by Rule 16b-3. "Common Stock" means the common stock of the Corporation, without par value. "Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio. "Director Stock Option" means the right, granted to an Eligible Director, to purchase Common Stock at a stated price for a specified period of time. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to comply with the requirements of Section 422 of the Code or any successor Section as it may be amended from time to time. "Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any Subsidiary. "Employee" means an employee of the Corporation or a Subsidiary. -1-
"Employee Award" means an Award (other than a Director Stock Option) to an Employee under this Plan. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means the closing price of the Common Stock as reported on the New York Stock Exchange Composite Transactions Tape on the relevant valuation date or, if there were no Common Stock transactions on the valuation date, on the next preceding date on which there were Common Stock transactions; provided, however, that the Committee may specify some other definition of Fair Market Value with respect to any particular Employee Award. "Negative Discretion" means other factors to be applied by the Committee in reducing the number of restricted shares to be issued pursuant to a Performance Stock Award if the Performance Goals have been met or exceeded if, in the Committee's sole judgment, such application is appropriate in order to act in the best interest of the Corporation and its shareholders. The Negative Discretion factors include, but are not limited to, the achievement of measurable individual performance objectives established by the Committee and communicated to the Employee in advance of the Performance Period, and competitive pay practices. "Participant" means an Employee or an Eligible Director who has been granted an Award under this Plan. "Performance Goals" means, with respect to any Performance Period, performance goals based on any of the following criteria and established by the Committee prior to the beginning of such Performance Period or performance goals based on any of the following criteria and established by the Committee after the beginning of such Performance Period that meet the requirements to be considered pre-established performance goals under Section 162(m) of the Code: earnings or earnings growth; return on equity, assets or investment; revenues; expenses; stock price; market share; charge-offs; or reductions in non-performing assets. Such Performance Goals may be particular to an Employee or the division, department, branch, line of business, Subsidiary or other Unit in which the Employee works, or may be based on the performance of the Corporation generally. "Performance Period" means the period of time designated by the Committee applicable to a Performance Stock Award during which the Performance Goals shall be measured. "Performance Stock Award" shall have the meaning specified in Section 6(g). "Plan" means this BANC ONE CORPORATION 1995 Stock Incentive Plan. "Plan Year" means a twelve-month period beginning with January 1 of each year. "Reporting Person" means an officer or director of the Corporation subject to the reporting requirements of Section 16 of the Exchange Act. "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. -2-
3. ELIGIBILITY (a) Any Employee selected by the Committee is eligible to receive an Employee Award. (b) Eligible Directors are entitled to participate in this Plan solely with respect to the grant of Director Stock Options and may not receive any other Awards under this Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options. 4. PLAN ADMINISTRATION (a) This Plan shall be administered by the Committee. The Committee shall periodically make determinations with respect to the participation of Employees in this Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, performance standards (including Performance Goals), length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. (b) The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Reporting Persons. 5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The stock subject to the provisions of this Plan shall either be shares of authorized but unissued Common Stock, shares of Common Stock held as treasury stock or previously issued shares of Common Stock reacquired by the Corporation, including shares purchased on the open market. Subject to adjustment in accordance with the provisions of Section 11, and subject to Section 5(d), (i) the total number of shares of Common Stock available for grants of Awards (including, without limitation, Awards of restricted and performance shares) in any Plan Year shall not exceed one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year and (ii) the total number of shares of Common Stock available for grants of restricted and performance shares (including restricted shares to be issued pursuant to Performance Stock Awards) in any Plan Year shall not exceed one fourth of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on form 10- K for the fiscal year ending immediately prior to such Plan Year. (b) Subject to adjustment in accordance with Section 11, and subject to Section 5(a), (i) the total number of shares of Common Stock available for grants of Awards in any Plan Year to any Participant shall not exceed one half of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year and (ii) the total number of shares of Common Stock available for grants of restricted shares to be issued pursuant to Performance Stock Awards in any Plan Year to any Employee shall not exceed one eighth of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on form 10-K for the fiscal year ending immediately prior to such Plan Year. -3-
(c) For purposes of calculating the total number of shares of Common Stock available for grants of Awards, (i) the grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares of Common Stock which may be issued under the Award and (ii) where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares of Common Stock available for Awards granted under this Plan. (d) There shall be carried forward and be available for Awards under this Plan in each succeeding Plan Year, in addition to shares of Common Stock available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5 for the two immediately preceding Plan Years; (ii) shares of Common Stock represented by Awards which have been canceled, forfeited, surrendered, terminated or expire unexercised during that Plan Year or the two immediately preceding Plan Years; (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations; (iv) authorized shares of Common Stock as to which stock options, stock appreciation rights, restricted stock awards, performance shares or performance awards were not granted under the BANC ONE CORPORATION 1989 Stock Incentive Plan; and (v) shares of Common Stock under the BANC ONE CORPORATION 1989 Stock Incentive Plan subject to stock options, stock appreciation rights, restricted stock awards, performance shares or performance awards which have been canceled, forfeited, surrendered, terminated or expire unexercised during that Plan Year or the two immediately preceding Plan Years. 6. EMPLOYEE AWARDS UNDER THIS PLAN As the Committee may determine, the following types of Employee Awards may be granted under this Plan to Employees on a stand alone, combination or tandem basis: (a) Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the Award. (b) Incentive Stock Option. An award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor Section as it may be amended from time to time. (c) Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted. (d) Restricted and Performance Shares. A transfer of shares of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine. (e) Restricted and Performance Share Unit. A fixed or variable share or dollar denominated unit subject to conditions of vesting, performance and time of payment as the Committee may determine, which may be paid in shares of Common Stock, cash or a combination of both. (f) Dividend or Equivalent Right. A right to receive dividends or their equivalent in value in shares of Common Stock, cash or in a combination of both with respect to any new or previously existing Employee Award. -4-
(g) Performance Stock Awards. A right, granted to an Employee, to receive restricted shares (as defined in Section 6(d) hereof) that are not to be issued to the Employee until after the end of the related Performance Period, subject to satisfaction of the Performance Goals for such Performance Period. (h) Other Common Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Employee Awards set forth in this Section 6. In addition to granting Employee Awards for purposes of incentive compensation, Employee Awards may also be made in tandem with or in lieu of current or deferred Employee compensation. 7. PERFORMANCE STOCK AWARDS. (a) Administration. Performance Stock Awards may be granted to Employees either alone or in addition to other Employee Awards granted under this Plan. The Committee shall determine the Employees to whom Performance Stock Awards shall be awarded for any Performance Period, the duration of the applicable Performance Period, the number of restricted shares to be awarded at the end of a Performance Period to Employees if the Performance Goals are met or exceeded and the terms and conditions of the Performance Stock Award in addition to those contained in this Section 7. (b) Payment of Award. After the end of a Performance Period, the financial performance of the Corporation during such Performance Period shall be measured against the Performance Goals. If the Performance Goals are not met, no restricted shares shall be issued pursuant to the Performance Stock Award. If the Performance Goals are met or exceeded, the Committee shall certify that fact in writing in the Committee minutes or elsewhere and certify the number of restricted shares to be issued under each Performance Stock Award in accordance with the related Award Agreement. The Committee may, in its sole discretion, apply Negative Discretion to reduce the number of restricted shares to be issued under a Performance Stock Award. (c) Requirement of Employment. To be entitled to receive a Performance Stock Award, an Employee must remain in the employment of the Corporation through the end of the Performance Period, except that the Committee may provide for partial or complete exceptions to this requirement as it deems equitable in its sole discretion. 8. DIRECTOR STOCK OPTIONS Subject to the provisions of Section 5, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8 and the Committee shall have no discretion with respect to any matters set forth in this Section 8. (a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant. (b) Number of Shares. Director Stock Options shall be granted as follows: (i) Each person who is first elected or appointed to serve as a director of the Corporation after the effective date of this Plan and who is an Eligible Director shall, upon such person's initial appointment or election as an Eligible Director, automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $100,000 on the date the Director Stock Options are granted; and (ii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1995 and immediately after the adjournment of the Annual -5-
Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $60,000 on the date the Director Stock Options are granted if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%. (c) Option Price. Each Director Stock Option shall have an option price ("Option Price") that is equal to the Fair Market Value of the Common Stock on the date the Director Stock Option is granted. (d) Duration of Options. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant. (e) Payment. The Option Price upon exercise of any Director Stock Option shall be payable to the Corporation in full either (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits, (ii) through the delivery or deemed delivery based on attestation of ownership of shares of Common Stock with a Fair Market Value at the time of exercise equal to the total Option Price or (iii) by a combination of the methods described in items (i) and (ii) above. (f) Termination of Director Stock Options. If an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to this Plan which are exercisable as of the date such person ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8(d), above, or three years after such cessation date, whichever first occurs. Any then outstanding Director Stock Option granted to such Eligible Director which is not exercisable as of the date such person ceases to be an Eligible Director shall terminate on and as of such date. 9. OTHER TERMS AND CONDITIONS (a) Assignability. Except to the extent, if any, as may be permitted by the Code and rules promulgated under Section 16 of the Exchange Act, (i) no Award shall be assignable or transferable except by will, by the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Code and as determined or established by the Committee, and (ii) during the lifetime of a Participant, an Award shall be exercisable only by such Participant, such Participant's guardian, legal representative or assignee pursuant to a qualified domestic relations order or as determined or established by the Committee. An Award shall not otherwise be assignable. (b) Award Agreement. Each Award under this Plan shall be evidenced by an Award Agreement. (c) Rights As A Shareholder. Except as otherwise provided herein or in any Award Agreement, a Participant shall have no rights as a shareholder with respect to shares of Common Stock covered by an Award until the date the Participant or his nominee (which, for purposes of this Plan, shall include any third party agent selected by the Committee to hold such shares on behalf of a Participant), guardian or legal representative is the holder of record of such shares. (d) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) Payments by Participants. The Committee may determine that Employee Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate. -6-
(f) Tax Withholding. The Corporation shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Corporation an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Corporation withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date and (ii) the election must be subject to the disapproval of the Committee. (g) Restrictions On Sale and Exercise. With respect to Reporting Persons, and if required to comply with rules promulgated under Section 16 of the Exchange Act, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of shares of Common Stock by the Participant for at least six months from the date of grant, and (ii) shares of Common Stock acquired pursuant to this Plan (other than shares of Common Stock acquired as a result of the granting of a "derivative security") may not be sold or otherwise disposed of for at least six months after acquisition. (h) Requirements of Law. The granting of Awards and the issuance of shares of Common Stock upon the exercise of Awards shall be subject to all applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed. As a condition precedent to the issuer of shares of Common Stock pursuant to the grant or exercise of an Award, the Corporation may require the Participant to take any reasonable action to meet such requirements. 10. AMENDMENTS (a) Except as otherwise provided in this Plan, the Board may at any time terminate and, from time to time, may amend or modify this Plan. Any such action of the Board may be taken without the approval of the Corporation's shareholders, but only to the extent that such shareholder approval is not required by applicable law or regulation, including specifically Rule 16b-3 under the Exchange Act. (b) No amendment, modification or termination of this Plan shall in any manner adversely affect any Awards theretofore granted to a Participant under this Plan without the consent of such Participant. 11. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change. Any such adjustment may provide for the elimination of fractional shares. 12. NO RIGHT TO EMPLOYMENT No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Corporation or a Subsidiary. Nothing in this Plan shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation or any Subsidiary. -7-
13. CHANGE OF CONTROL (a) Subject to the provisions of Section 13(c) below, notwithstanding anything contained in this Plan, the provisions of Section 13(a)(iii) below or any Award Agreement to the contrary, in the event of a Change of Control, as defined below, the following (x) may, in the sole discretion of the Committee, occur with respect to any and all Employee Awards outstanding as of such Change of Control and (y) shall occur with respect to any and all Director Stock Options outstanding as of such Change of Control: (i) automatic maximization of performance standards, lapse of all restrictions and acceleration of any time periods relating to the exercise, realization or vesting of such Awards so that such Awards may be immediately exercised, realized or vested in full on or before the relevant date fixed in the Award Agreement; (ii) performance shares or performance units shall be paid entirely in cash; (iii) upon exercise of a stock option or an incentive stock option (collectively, an "Option") during the 60-day period from and after the date of a Change of Control, the Participant exercising the Option may in lieu of the receipt of Common Stock upon the exercise of the Option, elect by written notice to the Corporation to receive an amount in cash equal to the excess of the aggregate Value (as defined below) of the shares of Common Stock covered by the Option or portion thereof surrendered determined on the date the Option is exercised, over the aggregate exercise price of the Option (such excess is referred to herein as the "Aggregate Spread"); provided, however, and notwithstanding any other provision of this Plan, if the end of such 60-day period from and after the date of a Change of Control is within six months of the date of grant of an Option held by a Participant who is a Reporting Person, such Option shall be canceled in exchange for a cash payment to the Participant equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Option. As used in this Section 13(a)(iii) the term "Value" means the higher of (i) the highest Fair Market Value during the 60-day period from and after the date of a Change of Control and (ii) if the Change of Control is the result of a transaction or series of transactions described in paragraphs (i) or (iii) of the definition of Change of Control, the highest price per share of the Common Stock paid in such transaction or series of transactions (which in the case of paragraph (i) shall be the highest price per share of the Common Stock as reflected in a Schedule 13D filed by the person having made the acquisition); (iv) if a Participant's employment terminates for any reason other than retirement or death following a Change of Control, any Options held by such Participant may be exercised by such Participant until the earlier of three months after the termination of employment or the expiration date of such Options; and (v) all Awards become non-cancelable. (b) A "Change of Control" of the Corporation shall be deemed to have occurred upon the happening of any of the following events: (i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership of 20% or more of either the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; provided, however, that any acquisition by the Corporation or any of its Subsidiaries, or any employee benefit plan (or related trust) of the Corporation or its Subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Stock and voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately -8-
prior to such acquisition, of the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, as the case may be, shall not constitute a Change of Control; (ii) individuals who, as of January 1, 1995, constitute the Board as of the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to such date whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) approval by the shareholders of the Corporation of a reorganization, merger or consolidation of the Corporation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Corporation or of the sale or other disposition of all or substantially all of the assets of the Corporation. (c) If any right granted pursuant to Section 13(a) would make a Change of Control transaction ineligible for pooling of interests accounting that but for Section 13(a) would otherwise be eligible for such accounting treatment, the Committee shall have the ability to substitute the cash payable pursuant to Section 13(a) with Common Stock with a Fair Market Value equal to the cash that would otherwise be payable thereunder. 14. GOVERNING LAW To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the law of the State of Ohio. 15. INDEMNIFICATION Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless. -9-
16. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Employees who are Reporting Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by laws, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are Reporting Persons without so restricting, limiting or conditioning this Plan with respect to other Participants. 17. EFFECTIVE DATE AND TERM The effective date of this Plan is April 17, 1995 subject to its approval by the Corporation's shareholders at their next annual meeting or at any adjournment thereof, within twelve months following the date of its adoption by the Board. This Plan shall remain in effect until terminated by the Board. Amended: Oct. 1996 - Section 2 - Definition of Committee Section 9(f) - Tax Withholding Jan. 1997 - Section 9(a) - Assignability Jan. 1998 - Section 10 - Amendments - former Section 10(b) deleted Section 13(a) - Change of Control Section 13(c) - Change of Control added Revised 5/30/97 Revised 6/2/97 (tab spacing change only) Revised 2/27/98 Revised 3/10/98 (correct two typos) -10-
Award Agreement | These terms and conditions are made part of the Award Agreement dated as of
January 20, 2009 (Grant Date) awarding Stock Appreciation Rights pursuant
to the terms of the JPMorgan Chase & Co. Long-Term Incentive Plan (Plan).
To the extent the terms of the Award Agreement (all references to which
will include these terms and conditions) conflict with the Plan, the Plan
will govern. The Award Agreement, the Plan and Prospectus supersede any
other agreement, whether written or oral, that may have been entered into
by the Firm and you relating to this award. |
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This award was granted on the Grant Date subject to the Award Agreement.
Unless you decline by the deadline and in the manner specified in the Award
Agreement, you will have agreed to be bound by these terms and conditions,
effective as of the Grant Date. If you decline the award, it will be
cancelled as of the Grant Date. |
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Capitalized terms that are not defined in the Award Agreement will have the
same meaning as set forth in the Plan. |
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JPMorgan Chase & Co. will be referred to throughout the Award Agreement as
JPMorgan Chase, and together with its subsidiaries as the Firm. |
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Form and Purpose of Award | Stock Appreciation Rights represent the right, following exercise, to
receive (without payment), a number of shares of JPMorgan Chase Common
Stock, the Fair Market Value of which, as of the date of exercise, is equal
to the excess of the Fair Market Value of one share of such Common Stock on
such exercise date over the Exercise Price, multiplied by the number of
Stock Appreciation Rights being exercised. The Firm will retain from each
distribution the number of shares of Common Stock required to satisfy tax
withholding obligations. |
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The purpose of this award is, in part, to motivate your future performance
and to align your interests with those of the Firm and its shareholders. |
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Exercisable Dates/Expiration Date |
Your award will become exercisable on the Exercisable Dates set forth in
your Award Agreement, provided that you are continuously employed by the
Firm from the date of grant through the relevant Exercisable Date or you
meet the requirements to allow your award to remain outstanding upon
termination of employment as described below. Your award will remain
exercisable until the earlier of the tenth anniversary of the Grant Date
(the Expiration Date) or the date the award is cancelled pursuant to this
Award Agreement. No Stock Appreciation Right may be exercised after its
Expiration Date. |
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Termination of Employment | Except as explicitly set forth below under Job Elimination, Full Career
Eligibility and Death or Total Disability, any Stock Appreciation Rights
outstanding under this award will be cancelled effective on the date your
employment with the Firm terminates for any reason. |
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Job Elimination: |
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In the event that the Director Human Resources of the Firm or nominee in
their sole discretion determine that the Firm terminated your employment
because your job was eliminated, and provided that you continue to provide
services in a cooperative and professional manner as requested by the Firm
until the date your employment terminates (and subject to Your
Obligations and the other terms of this award), then any Stock
Appreciation Rights that were exercisable on your termination date will
remain exercisable for the ninety-day period immediately following your
termination date, but in no event beyond the Expiration Date. |
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You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance |
with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled. |
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Full Career Eligibility: |
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Any Stock Appreciation Rights that were exercisable as of the date of your
employment termination will remain exercisable for a two year period
following your termination date but in no event beyond the Expiration Date
in the event that: |
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you leave the Firm voluntarily, have completed at least five years
of continuous service with the Firm immediately preceding your termination
date, and |
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the sum of your age and Recognized Service (as defined below) on
your date of termination equals or exceeds 60, and |
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you provide at least 90 days advance written notice to the Firm of
your intention to voluntarily terminate your employment under this
provision during which notice period you provide such services as requested
by the Firm in a cooperative and professional manner and you do not perform
any services for any other employer, and |
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for the two year period following your termination date, you do not
(i) perform services in any capacity (including self-employment) for a
Financial Services Company (as defined below) or (ii) work in your
profession (whether or not for a non-Financial Services Company); provided
that you may work for a government, education or Not-for-Profit
Organization (as defined below). |
||
After receipt of such advance written notice, the Firm may choose to have
you continue to provide services during the 90-day period or shorten the
length of the 90-day notice period at the Firms discretion, but to a date
no earlier than the date you would otherwise meet the age and service
requirements. |
||
Additional advance notice requirements may apply in certain business units
(or equivalent organizational unit or department). (See Special Notice
Period below.) |
||
You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled.
With respect to full career eligibility, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
Failure to provide such notification could impact your right to exercise. |
||
Death or Total Disability: |
||
If you die while employed by the Firm, or in the event your employment
terminates as a result of your permanent and total disability as defined in
the JPMorgan Chase & Co. Long Term Disability Plan (or for non-U.S.
employees the equivalent local country plan), then any Stock Appreciation
Rights that were exercisable as of the date of your termination will remain
exercisable for a two year period following your termination date but in no
event beyond the Expiration Date. |
||
In the case of your total disability, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment. |
||
In the case of death, your beneficiary is the designated beneficiary on
file with the Human Resources Department, or if no beneficiary has been
designated or survives you, then your |
2
estate. |
||
Any Stock Appreciation Rights that are not exercised within the applicable
two year period set forth above will be cancelled. |
||
Termination for Cause | In the event your employment is terminated for Cause (as defined below), or
in the event that the Firm determines after the termination of your
employment that your employment could have been terminated for Cause, any
outstanding Stock Appreciation Rights as of your termination date will be
cancelled and you may be required to return to the Firm the value of
certain shares previously delivered to you. See Remedies for additional
information. |
|
Restriction on Disposition of Shares Derived from an Exercise Under this Award | If you exercise any part of your award before the fifth anniversary of the
Grant Date, then you may not sell, assign, transfer, pledge or encumber the
net number of shares of Common Stock derived from such exercise until the
fifth anniversary of the Grant Date. Notwithstanding the foregoing, this
restriction on disposition and transfer of shares shall not apply to your
beneficiary in the event of your death. |
|
Your Obligations | As consideration for the grant of this award, you agree to comply with and
be bound by the following: |
|
Non-Solicitation of Employees and Customers:
|
During your employment by the Firm and for one year following the
termination of your employment (or if longer, the exercise period), you
will not directly or indirectly, whether on your own behalf or on behalf of
any other party, without the prior written consent of the Director Human
Resources of JPMorgan Chase: (i) solicit, induce or encourage any of the
Firms then current employees to leave the Firm or to apply for employment
elsewhere; (ii) hire any employee or former employee who was employed by
the Firm at the date your employment terminated, unless the individuals
employment terminated more than six months before the date of hire or
because his or her job was eliminated; or (iii) solicit or induce or
attempt to induce to leave the Firm, or divert or attempt to divert from
doing business with the Firm, any then current customers, suppliers or
other persons or entities that were serviced by you or whose names became
known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers,
suppliers or other persons or entities. This does not apply to publicly
known institutional customers that you service after your employment with
the Firm without the use of the Firms confidential or proprietary
information. |
|
These restrictions do not apply to authorized actions you take in the
normal course of your employment with the Firm, such as employment
decisions with respect to employees you supervise or business referrals in
accordance with the Firms policies. |
||
Confidential Information:
|
You may not, either during your employment with the Firm or thereafter,
directly or indirectly use or disclose to anyone any confidential
information related to the Firms business, except as explicitly permitted
by the JPMorgan Chase Code of Conduct and applicable policies or law or
legal process. Confidential information shall have the same meaning for
the Award Agreement as it has in the JPMorgan Chase Code of Conduct. |
|
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter,
make or encourage others to make any public statement or release any
information that is intended to, or reasonably could be foreseen to,
embarrass or criticize the Firm or its employees, directors or shareholders
as a group. This shall not preclude you from reporting to the Firms
management or directors or to the government or a regulator conduct you
believe to be in violation of the law or the Firms Code of Conduct or
responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or
regulatory investigation or proceeding. |
|
Cooperation
|
You agree to cooperate fully with and provide full and accurate information
to the Firm and its counsel with respect to any matter (including any
audit, tax proceeding, litigation or |
3
governmental proceeding with respect
to which you may have knowledge or information, subject to reimbursement
for actual, appropriate and reasonable expenses incurred by you. |
||
Compliance with
Award Agreement:
|
You agree that you will provide the Firm with any information reasonably
requested to determine compliance with the Award Agreement, and you
authorize the Firm to disclose the terms of the Award Agreement to any
third party who might be affected thereby, including your prospective
employer. |
|
Special Notice
Period:
|
If you are a managing director, executive director or vice president (or
comparable title) of a business unit or equivalent organizational unit or
department (business unit) that requires as a condition of your continued
employment that you provide advance written notice (Special Notice
Period) of your intention to terminate your employment for any reason,
then as consideration for this Award, you shall provide the Firm advance
written notice of your election to terminate your employment as specified
by such business unit. In business units that require this Special Notice
Period, the current notice period is 90 days for managing directors (or
comparable title), 60 days for executive directors (or comparable title)
and 30 days for vice presidents (or comparable title). Please note that in
some cases, individuals may have specific agreements providing for longer
notice periods than those stated above. In those cases, the longer notice
period shall apply. |
|
After receipt of such notice, the Firm may choose to have you continue to
provide services during the applicable Special Notice Period or may place
you on a paid leave for all or part of the applicable Special Notice
Period. During the Special Notice Period, you shall continue to devote
your full time and loyalty to the Firm by providing services in a
cooperative and professional manner and not perform any services for any
other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to
waive or modify the length of the Special Notice Period. |
||
Regardless of whether the Special Notice Period applies to you, you must
comply with the 90-day advance notice period described under Full Career
Eligibility in the event you wish to terminate employment under the Full
Career Eligibility provision. |
||
Remedies | In addition to the cancellation of the award as provided for in
Termination of Employment and Termination for Cause, if the Firm in its
sole discretion determines that (i) you are not in compliance with any of
the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or (ii) you have not returned
the applicable release of claims or other documents specified above within
the specified deadline, or (iii) you violated any of the provisions as set
forth above in Your Obligations, all outstanding Stock Appreciation
Rights under your award and any shares that are subject to the restriction
on disposition of shares described above will be immediately cancelled. |
|
In addition, if you received shares under this award resulting from an
exercise during the one year prior to (i) the violation of any of the
provisions as set forth above in Your Obligations or (ii) the termination
of your employment for Cause as described under Termination for Cause,
including a later determination by the Firm that your employment could have
been terminated for Cause (in which case the one year will be measured from
your actual termination date), you will be required to pay the Firm
liquidated damages by returning to the Firm an amount equal to the gain on
exercise (as of the exercise date), less withholding taxes. Payment may be
made in shares of Common Stock or in cash. |
||
You agree that this payment will be liquidated damages and is not to be
construed in any manner as a penalty. You acknowledge that a violation or
attempted violation of the obligations set forth herein will cause
immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any
court of competent jurisdiction, restraining any violation or further
violation of such obligations; such right to an injunction, however, shall
be cumulative and in addition to whatever other remedies the Firm may have
under law or equity. In any action or proceeding by the Firm to enforce
the terms and |
4
conditions of this Award Agreement where the Firm is the
prevailing party, the Firm shall be entitled to recover from you its
reasonable attorneys fees and expenses incurred in such action or
proceeding. |
||
Not a Shareholder Until Exercise |
You shall not be deemed for any purpose to be or have rights as a
shareholder of JPMorgan Chase with respect to the shares of Common Stock
subject to Stock Appreciation Rights until such Stock Appreciation Rights
are exercised. No adjustments shall be made for cash dividends or
distributions or other rights for which the record date is prior to the
date you become a shareholder of record of JPMorgan Chase. Shares upon
exercise will be issued in accordance with JPMorgan Chases procedures for
issuing stock. |
|
Additional Conditions | Notwithstanding any terms of this Award Agreement to the contrary: |
|
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from the exercise of, all or any portion of this
award to the extent provided under the JPMorgan Chase Bonus Recoupment
Policy as in effect from time to time. |
||
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from exercise of, all or any portion of this award
if JPMorgan Chase determines that this award was based on materially
inaccurate performance metrics or on any misrepresentation by you. |
||
If you are subject to Section 111 of the Emergency Economic
Stabilization Act of 2008 and any regulations or interpretations
promulgated thereunder or any other applicable statute or regulation
affecting your compensation (EESA or Other Applicable Law), then any
payment of any kind provided for by this Award Agreement must comply with
EESA or Other Applicable Law, and this Award Agreement shall be interpreted
or reformed to so comply. |
||
Administrative Provisions | Binding Agreement: The Award Agreement will be binding upon any successor
in interest to JPMorgan Chase, by merger or otherwise. |
|
Not a Contract of Employment: Nothing contained herein constitutes a
contract of employment or continued employment. Employment is at-will and
may be terminated by either you or JPMorgan Chase for any reason at any
time. This award does not confer any right or entitlement to, nor does the
award impose any obligation on the Firm to provide, the same or any similar
award in the future. |
||
Exercise Procedures/Withholding Taxes: The exercise of Stock Appreciation
Rights shall be in accordance with the Firms procedures for exercises of
such awards. The date of exercise shall be the date when the properly
completed notice of exercise is received and accepted by the Firm or its
designee in accordance with the Firms procedures. |
||
Following each exercise, the Firm will retain from each distribution the
number of shares of Common Stock required to satisfy applicable tax
obligations (including, to the extent legally permissible, recovery by the
Firm of fringe benefit taxes). If, according to local country tax
regulations, a withholding tax liability arises at a time after the date of
exercise, JPMorgan Chase may implement any procedures necessary to ensure
that the withholding obligation is fully satisfied, including, but not
limited to, restricting transferability of the shares. |
||
Assignment or Transfer: Except as otherwise provided in this Award
Agreement, ,Stock Appreciation Rights shall not be assignable or
transferable or subject to any lien, obligation or liability. You may make
a gift of unexpired, unexercised Stock Appreciation Rights, subject to the
Firms prior consent, to an immediate family member or a trust (or similar
vehicle) for the benefit of these immediate family members (or
beneficiaries) as defined below. JPMorgan Chase may condition its prior
consent to receipt of an agreement by you and proposed transferee
containing such terms and conditions and undertakings as JPMorgan Chase
deems appropriate in its sole and absolute discretion. No attempted
transfer will be valid without the Firms prior consent. Immediate family
members include your parents, parents-in-law, children |
5
(including adopted
children), grandchildren, and siblings or a trust exclusively for the
benefit of one or more of these immediate family members. Your spouse is an
Immediate Family Member but only if Stock Appreciation Rights are
transferred to a trust (or similar vehicle) for the benefit of such spouse,
which trust includes one or more other Immediate Family Members as
beneficiaries. |
||
Right to Set Off: The Firm may, to the maximum extent permitted by
applicable law, retain for itself funds or securities otherwise payable to
you pursuant to this award to satisfy any obligation or debt that you owe
to the Firm. Other than in the case of forfeiture or cancellation of an
award, the Firm may not retain such funds or securities until such time as
they would otherwise be distributable to you in accordance with the Award
Agreement. |
||
Cancellation/Substitution: JPMorgan Chase may, in its sole discretion and
for any reason, cancel outstanding unexercised Stock Appreciation Rights
and substitute an equal number of non-qualified stock options to purchase
the same number of shares of common stock of JPMorgan Chase represented by
the cancelled Stock Appreciation Rights. Such substituted options shall
have the same exercise price, Expiration Date and other terms and
conditions that were applicable to the Stock Appreciation Rights; provided
that the method of exercise and the payment of exercise price, as well as
the method of payment of withholding taxes, may be changed by JPMorgan
Chase. |
||
Change in Outstanding Shares: In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend or
split, recapitalization, issuance of a new class of common stock, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to stockholders of Common Stock
other than regular cash dividends, the Committee will make an equitable
substitution or proportionate adjustment, in the number or kind of shares
of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan and to any Stock Appreciation Rights (including but
not to limited to their Exercise Price) outstanding under this award for
such corporate events. |
||
Interpretation/Administration: The Director Human Resources has sole and
complete authority to interpret and administer this Award Agreement,
including, without limitation, the power to (i) interpret the Plan and the
terms of this Award Agreement; (ii) determine the reason for termination of
employment and application of the post-employment obligations; (iii) decide
all claims arising with respect to this Award; and (iv) delegate such
authority as he deems appropriate. Any determination by the Director Human
Resources shall be binding on all parties. |
||
Notwithstanding anything herein to the contrary, the Firms determinations
under the Plan and the Award Agreements are not required to be uniform. By
way of clarification, the Firm shall be entitled to make non-uniform and
selective determinations and modifications under Award Agreements and the
Plan. |
||
Amendment: The Firm by action of its Director Human Resources reserves the
right to amend this Award Agreement in any manner, at any time and for any
reason so long as there has not been a change in control of JPMorgan
Chase, as such term is defined by the JPMorgan Chase Board of Directors
from time to time. After a change in control of JPMorgan Chase, this Award
Agreement may not be amended in any way that is adverse to your interests
without your prior written consent. This Award Agreement may not be amended
except in writing signed by the Director Human Resources JPMorgan Chase. |
||
Severability: If any portion of the Award Agreement is found to be
unenforceable, any court of competent jurisdiction may reform the
restrictions (e.g. as to length of service, geographical area or scope) to
the extent required to make the provision enforceable under applicable law. |
||
Governing Law: By accepting this award, you are agreeing (i) to the
extent not preempted by federal law, the laws of the state of New York
(without reference to conflict of law principles) will |
6
apply to the award
and the Plan;(ii) to waive the right to a jury trial with respect to any
judicial proceeding brought in connection with this award; and (iii) that
any dispute related to this award shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion. |
||
Definitions | Cause means a determination by the Firm that your employment terminated
as a result of your (i) violation of any law, rule or regulation (including
rules of self-regulatory bodies) related to the Firms business; (ii)
indictment or conviction of a felony; (iii) commission of a fraudulent act;
(iv) violation of the JPMorgan Code of Conduct or other Firm policies or
misconduct related to your duties to the Firm (other than an immaterial
and inadvertent violation or misconduct); (v) inadequate performance of
the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to
act that is or might reasonably be expected to be injurious to the
interests of the Firm or its relationship with a customer, client or
employee. |
|
Financial Services Company means a business enterprise that employs you
in any capacity (as an employee, contractor, consultant, advisor,
self-employed individual, etc. whether paid or unpaid) and engages in: |
||
commercial or retail banking, including, but not limited to,
commercial, institutional and personal trust, custody and/or lending and
processing services, originating and servicing mortgages, issuing and
servicing credit cards; |
||
insurance , including but not limited to, guaranteeing against
loss, harm damage, illness, disability or death, providing and issuing
annuities, acting as principal, agent or broker for purpose of the
forgoing; |
||
financial, investment or economic advisory services, including but
not limited to, investment banking services (such as advising on mergers or
dispositions, underwriting, dealing in, or making a market in securities or
other similar activities), brokerage services, investment management
services, asset management services, and hedge funds; |
||
issuing, trading or selling instruments representing interests in
pools of assets or in derivatives instruments; |
||
advising on, or investing in, private equity or real estate, or |
||
any similar activities that JPMorgan Chase determines in its sole
discretion constitutes financial services. |
||
Not-for-Profit Organization means an entity exempt from tax under state
law and under Section 501(c) (3) of the Internal Revenue Code. Section
501(c) (3) includes entities organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or
educational purposes, or to foster national or international amateur sports
competition or for the prevention of cruelty to children or animals. |
||
Recognized Service means the period of service as an employee set forth
in the Firms applicable service-related policies. |
7
Award Agreement | These terms and conditions are made part of the Award Agreement dated as of
January 20, 2009 (Grant Date) awarding Stock Appreciation Rights pursuant
to the terms of the JPMorgan Chase & Co. Long-Term Incentive Plan (Plan).
To the extent the terms of the Award Agreement (all references to which
will include these terms and conditions) conflict with the Plan, the Plan
will govern. The Award Agreement, the Plan and Prospectus supersede any
other agreement, whether written or oral, that may have been entered into
by the Firm and you relating to this award. |
|
This award was granted on the Grant Date subject to the Award Agreement.
Unless you decline by the deadline and in the manner specified in the Award
Agreement, you will have agreed to be bound by these terms and conditions,
effective as of the Grant Date. If you decline the award, it will be
cancelled as of the Grant Date. |
||
Capitalized terms that are not defined in the Award Agreement will have the
same meaning as set forth in the Plan. |
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as
JPMorgan Chase, and together with its subsidiaries as the Firm. |
||
Form and Purpose of Award | Stock Appreciation Rights represent the right, following exercise, to
receive (without payment), a number of shares of JPMorgan Chase Common
Stock, the Fair Market Value of which, as of the date of exercise, is equal
to the excess of the Fair Market Value of one share of such Common Stock on
such exercise date over the Exercise Price, multiplied by the number of
Stock Appreciation Rights being exercised. The Firm will retain from each
distribution the number of shares of Common Stock required to satisfy tax
withholding obligations. |
|
The purpose of this award is, in part, to motivate your future performance
and to align your interests with those of the Firm and its shareholders. |
||
Exercisable Dates/ Expiration Date |
Your award will become exercisable on the Exercisable Dates set forth in
your Award Agreement, provided that you are continuously employed by the
Firm from the date of grant through the relevant Exercisable Date or you
meet the requirements to allow your award to remain outstanding upon
termination of employment as described below, and subject to the following: |
|
Although it is intended and expected that this award will become
exercisable as scheduled, the award may be reduced or cancelled or
Exercisable Dates may be deferred in the event that the Chief Executive
Officer (CEO) of JPMorgan Chase determines, as part of JPMorgan Chases
annual performance assessment process, based on the CEOs assessment of
your performance and the performance of the Firm (which may include more
than one performance year), that you have not achieved satisfactory
progress toward your priorities or that the Firm has not achieved
satisfactory progress toward the Firms priorities for which you share
responsibility as a member of the Operating Committee. Such a determination
is subject to ratification by the Compensation and Management Development
Committee of the Board of Directors of JPMorgan Chase. |
||
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from the exercise of, all or any portion of this
award to the extent provided under the JPMorgan Chase Bonus Recoupment
Policy as in effect from time to time. |
||
JPMorgan Chase reserves the right to cancel, or require repayment
of any gains you derived from exercise of, all or any portion of this award
if JPMorgan Chase determines that this award was based on materially
inaccurate performance metrics or on any misrepresentation by you. |
||
If you are subject to Section 111 of the Emergency Economic
Stabilization Act of 2008 and any regulations or interpretations
promulgated thereunder, or any successor or other |
applicable statute
affecting your compensation (EESA or Other Applicable Law), then any
payment of any kind provided for by this Award Agreement must comply with
EESA or Other Applicable Law, and this Award Agreement shall be interpreted
or reformed to so comply. |
||
Your award will remain exercisable until the earlier of the tenth
anniversary of the Grant Date (the Expiration Date) or the date the award
is cancelled pursuant to this Award Agreement. No Stock Appreciation Right
may be exercised after its Expiration Date. |
||
Termination of Employment | Except as explicitly set forth below under Job Elimination, Full Career
Eligibility and Death or Total Disability, any Stock Appreciation Rights
outstanding under this award will be cancelled effective on the date your
employment with the Firm terminates for any reason. |
|
Job Elimination: |
||
In the event that the Director Human Resources of the Firm or nominee in
their sole discretion determine that the Firm terminated your employment
because your job was eliminated, and provided that you continue to provide
services in a cooperative and professional manner as requested by the Firm
until the date your employment terminates, then any Stock Appreciation
Rights that were exercisable on your termination date will remain
exercisable for the ninety-day period immediately following your
termination date, but in no event beyond the Expiration Date. |
||
You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled. |
||
Full Career Eligibility: |
||
Any Stock Appreciation Rights that were exercisable as of the date of your
employment termination will remain exercisable for a two year period
following your termination date but in no event beyond the Expiration Date
in the event that: |
||
you leave the Firm voluntarily, have completed at least five years
of continuous service with the Firm immediately preceding your termination
date, and |
||
the sum of your age and Recognized Service (as defined below) on
your date of termination equals or exceeds 60, and |
||
you provide at least 90 days advance written notice to the Firm of
your intention to voluntarily terminate your employment under this
provision during which notice period you provide such services as requested
by the Firm in a cooperative and professional manner and you do not perform
any services for any other employer, and |
||
for the two year period following your termination date, you do not
(i) perform services in any capacity (including self-employment) for a
Financial Services Company (as defined below) or (ii) work in your
profession (whether or not for a non-Financial Services Company); provided
that you may work for a government, education or Not-for-Profit
Organization (as defined below). |
||
After receipt of such advance written notice, the Firm may choose to have
you continue to provide services during the 90-day period or shorten the
length of the 90-day notice period at the Firms discretion, but to a date
no earlier than the date you would otherwise meet the age and service
requirements. |
||
Additional advance notice requirements may apply in certain business units
(or equivalent organizational unit or department). (See Special Notice
Period below.) |
||
You will be required to timely execute and deliver a release of claims in
favor of the Firm, having such form and terms as the Firm shall specify, to
have all or any portion of your award |
2
remain exercisable after the
termination of your employment and you must certify compliance with the
above requirements on a form provided by the Firm in connection with an
exercise. If you fail to return the required release within the specified
deadline, your outstanding Stock Appreciation Rights will be cancelled |
||
With respect to full career eligibility, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment.
Failure to provide such notification could impact your right to exercise. |
||
Death or Total Disability: |
||
If you die while employed by the Firm, or in the event your employment
terminates as a result of your permanent and total disability as defined in
the JPMorgan Chase & Co. Long Term Disability Plan (or for non-U.S.
employees the equivalent local country plan), then any Stock Appreciation
Rights that were exercisable as of the date of your termination will remain
exercisable for a two year period following your termination date but in no
event beyond the Expiration Date. |
||
In the case of your total disability, you must notify JPMorgan Chase in
advance in writing if you are to perform services for any party or if you
are self-employed following the date of your termination of employment. |
||
In the case of death, your beneficiary is the designated beneficiary on
file with the Human Resources Department, or if no beneficiary has been
designated or survives you, then your estate. |
||
Any Stock Appreciation Rights that are not exercised within the applicable
two year period set forth above will be cancelled. |
||
Termination for Cause: |
||
In the event your employment is terminated for Cause (as defined below), or
in the event that the Firm determines after the termination of your
employment that your employment could have been terminated for Cause, any
outstanding Stock Appreciation Rights as of your termination date will be
cancelled and you may be required to return to the Firm the value of
certain shares previously delivered to you. See Remedies for additional
information. |
||
Restriction on Disposition of Shares Derived from an Exercise Under this Award | If you exercise any part of your award before the fifth anniversary of the
Grant Date, then you may not sell, assign, transfer, pledge or encumber the
net number of shares of Common Stock derived from such exercise until the
fifth anniversary of the Grant Date. Notwithstanding the foregoing, this
restriction on disposition and transfer of shares shall not apply to your
beneficiary in the event of your death. |
|
Your Obligations | As consideration for the grant of this award, you agree to comply with and
be bound by the following: |
|
Non-Solicitation of
Employees and Customers:
|
During your employment by the Firm and for one year following the
termination of your employment (or if longer, the exercise period), you
will not directly or indirectly, whether on your own behalf or on behalf of
any other party, without the prior written consent of the Director Human
Resources of JPMorgan Chase: (i) solicit, induce or encourage any of the
Firms then current employees to leave the Firm or to apply for employment
elsewhere; (ii) hire any employee or former employee who was employed by
the Firm at the date your employment terminated, unless the individuals
employment terminated more than six months before the date of hire or
because his or her job was eliminated; or (iii) solicit or induce or
attempt to induce to leave the Firm, or divert or attempt to divert from
doing business with the Firm, any then current customers, suppliers or
other persons or entities that were serviced by you or whose names became
known to you by virtue of your employment with the Firm, or otherwise
interfere with the |
3
relationship between the Firm and such customers,
suppliers or other persons or entities. This does not apply to publicly
known institutional customers that you service after your employment with
the Firm without the use of the Firms confidential or proprietary
information. |
||
These restrictions do not apply to authorized actions you take in the
normal course of your employment with the Firm, such as employment
decisions with respect to employees you supervise or business referrals in
accordance with the Firms policies. |
||
Confidential
Information:
|
You may not, either during your employment with the Firm or thereafter,
directly or indirectly use or disclose to anyone any confidential
information related to the Firms business, except as explicitly permitted
by the JPMorgan Chase Code of Conduct and applicable policies or law or
legal process. Confidential information shall have the same meaning for
the Award Agreement as it has in the JPMorgan Chase Code of Conduct. |
|
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter,
make or encourage others to make any public statement or release any
information that is intended to, or reasonably could be foreseen to,
embarrass or criticize the Firm or its employees, directors or shareholders
as a group. This shall not preclude you from reporting to the Firms
management or directors or to the government or a regulator conduct you
believe to be in violation of the law or the Firms Code of Conduct or
responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or
regulatory investigation or proceeding. |
|
Cooperation
|
You agree to cooperate fully with and provide full and accurate information
to the Firm and its counsel with respect to any matter (including any
audit, tax proceeding, litigation or governmental proceeding with respect
to which you may have knowledge or information, subject to reimbursement
for actual, appropriate and reasonable expenses incurred by you. |
|
Compliance with
Award Agreement:
|
You agree that you will provide the Firm with any information reasonably
requested to determine compliance with the Award Agreement, and you
authorize the Firm to disclose the terms of the Award Agreement to any
third party who might be affected thereby, including your prospective
employer. |
|
Special Notice
Period:
|
If you are at or above the level of managing director, executive director
or vice president (or comparable title) of a business unit or equivalent
organizational unit or department (business unit) that requires as a
condition of your continued employment that you provide advance written
notice (Special Notice Period) of your intention to terminate your
employment for any reason, then as consideration for this Award, you shall
provide the Firm advance written notice of your election to terminate your
employment as specified by such business unit. In business units that
require this Special Notice Period, the current notice period is 90 days
for managing directors (or comparable title), 60 days for executive
directors (or comparable title) and 30 days for vice presidents (or
comparable title). Please note that in some cases, individuals may have
specific agreements providing for longer notice periods than those stated
above. In those cases, the longer notice period shall apply. |
|
After receipt of such notice, the Firm may choose to have you continue to
provide services during the applicable Special Notice Period or may place
you on a paid leave for all or part of the applicable Special Notice
Period. During the Special Notice Period, you shall continue to devote
your full time and loyalty to the Firm by providing services in a
cooperative and professional manner and not perform any services for any
other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to
waive or modify the length of the Special Notice Period. |
||
Regardless of whether the Special Notice Period applies to you, you must
comply with the 90-day advance notice period described under Full Career
Eligibility in the event you wish to terminate employment under the Full
Career Eligibility provision. |
4
Remedies | In addition to the cancellation of the award as provided for in
Termination of Employment and Termination for Cause, if the Firm in its
sole discretion determines that (i) you are not in compliance with any of
the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or (ii) you have not returned
the applicable release of claims or other documents specified above within
the specified deadline, or (iii) you violated any of the provisions as set
forth above in Your Obligations, all outstanding Stock Appreciation
Rights under your award and any shares that are subject to the restriction
on disposition of shares described above will be immediately cancelled. |
|
In addition, if you received shares under this award resulting from an
exercise during the one year prior to (i) the violation of any of the
provisions as set forth above in Your Obligations or (ii) the termination
of your employment for Cause as described under Termination for Cause,
including a later determination by the Firm that your employment could have
been terminated for Cause (in which case the one year will be measured from
your actual termination date), you will be required to pay the Firm
liquidated damages by returning to the Firm an amount equal to the gain on
exercise (as of the exercise date), less withholding taxes. Payment may be
made in shares of Common Stock or in cash. |
||
You agree that this payment will be liquidated damages and is not to be
construed in any manner as a penalty. You acknowledge that a violation or
attempted violation of the obligations set forth herein will cause
immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any
court of competent jurisdiction, restraining any violation or further
violation of such obligations; such right to an injunction, however, shall
be cumulative and in addition to whatever other remedies the Firm may have
under law or equity. In any action or proceeding by the Firm to enforce
the terms and conditions of this Award Agreement where the Firm is the
prevailing party, the Firm shall be entitled to recover from you its
reasonable attorneys fees and expenses incurred in such action or
proceeding. |
||
Administrative Provisions | Binding Agreement: The Award Agreement will be binding upon any successor
in interest to JPMorgan Chase, by merger or otherwise. |
|
Not a Contract of Employment: Nothing contained herein constitutes a
contract of employment or continued employment. Employment is at-will and
may be terminated by either you or JPMorgan Chase for any reason at any
time. This award does not confer any right or entitlement to, nor does the
award impose any obligation on the Firm to provide, the same or any similar
award in the future. |
||
Exercise Procedures/Withholding Taxes: The exercise of Stock Appreciation
Rights shall be in accordance with the Firms procedures for exercises of
such awards. The date of exercise shall be the date when the properly
completed notice of exercise is received and accepted by the Firm or its
designee in accordance with the Firms procedures. |
||
Following each exercise, the Firm will retain from each distribution the
number of shares of Common Stock required to satisfy applicable tax
obligations (including, to the extent legally permissible, recovery by the
Firm of fringe benefit taxes). If, according to local country tax
regulations, a withholding tax liability arises at a time after the date of
exercise, JPMorgan Chase may implement any procedures necessary to ensure
that the withholding obligation is fully satisfied, including, but not
limited to, restricting transferability of the shares. |
||
Assignment or Transfer: Except as otherwise provided in this Award
Agreement, ,Stock Appreciation Rights shall not be assignable or
transferable or subject to any lien, obligation or liability. You may make
a gift of unexpired, unexercised Stock Appreciation Rights, subject to the
Firms prior consent, to an immediate family member or a trust (or similar
vehicle) for the benefit of these immediate family members (or
beneficiaries) as defined below. JPMorgan |
5
Chase may condition its prior
consent to receipt of an agreement by you and proposed transferee
containing such terms and conditions and undertakings as JPMorgan Chase
deems appropriate in its sole and absolute discretion. No attempted
transfer will be valid without the Firms prior consent. Immediate family
members include your parents, parents-in-law, children (including adopted
children), grandchildren, and siblings or a trust exclusively for the
benefit of one or more of these immediate family members. Your spouse is an
Immediate Family Member but only if Stock Appreciation Rights are
transferred to a trust (or similar vehicle) for the benefit of such spouse,
which trust includes one or more other Immediate Family Members as
beneficiaries. |
||
Right to Set Off: The Firm may, to the maximum extent permitted by
applicable law, retain for itself funds or securities otherwise payable to
you pursuant to this award to satisfy any obligation or debt that you owe
to the Firm. Other than in the case of forfeiture or cancellation of an
award, the Firm may not retain such funds or securities until such time as
they would otherwise be distributable to you in accordance with the Award
Agreement. |
||
Cancellation/Substitution: JPMorgan Chase may, in its sole discretion and
for any reason, cancel outstanding unexercised Stock Appreciation Rights
and substitute an equal number of non-qualified stock options to purchase
the same number of shares of common stock of JPMorgan Chase represented by
the cancelled Stock Appreciation Rights. Such substituted options shall
have the same exercise price, Expiration Date and other terms and
conditions that were applicable to the Stock Appreciation Rights; provided
that the method of exercise and the payment of exercise price, as well as
the method of payment of withholding taxes, may be changed by JPMorgan
Chase. |
||
Change in Outstanding Shares: In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend or
split, recapitalization, issuance of a new class of common stock, merger,
consolidation, spin-off, combination or exchange of shares or other similar
corporate change, or any distributions to stockholders of Common Stock
other than regular cash dividends, the Committee will make an equitable
substitution or proportionate adjustment, in the number or kind of shares
of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan and to any Stock Appreciation Rights (including but
not to limited to their Exercise Price) outstanding under this award for
such corporate events. |
||
Interpretation/Administration: The Director Human Resources has sole and
complete authority to interpret and administer this Award Agreement,
including, without limitation, the power to (i) interpret the Plan and the
terms of this Award Agreement; (ii) determine the reason for termination of
employment and application of the post-employment obligations; (iii) decide
all claims arising with respect to this Award; and (iv) delegate such
authority as he deems appropriate. Any determination by the Director Human
Resources shall be binding on all parties. |
||
Notwithstanding anything herein to the contrary, the Firms determinations
under the Plan and the Award Agreements are not required to be uniform. By
way of clarification, the Firm shall be entitled to make non-uniform and
selective determinations and modifications under Award Agreements and the
Plan. |
||
Amendment: The Firm by action of its Director Human Resources reserves the
right to amend this Award Agreement in any manner, at any time and for any
reason so long as there has not been a change in control of JPMorgan
Chase, as such term is defined by the JPMorgan Chase Board of Directors
from time to time. After a change in control of JPMorgan Chase, this Award
Agreement may not be amended in any way that is adverse to your interests
without your prior written consent. This Award Agreement may not be amended
except in writing signed by the Director Human Resources JPMorgan Chase. |
||
Severability: If any portion of the Award Agreement is found to be
unenforceable, any court of competent jurisdiction may reform the
restrictions (e.g. as to length of service, geographical area |
6
or scope) to
the extent required to make the provision enforceable under applicable law. |
||
Governing Law: By accepting this award, you are agreeing (i) to the
extent not preempted by federal law, the laws of the state of New York
(without reference to conflict of law principles) will apply to the award
and the Plan;(ii) to waive the right to a jury trial with respect to any
judicial proceeding brought in connection with this award; and (iii) that
any dispute related to this award shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion. |
||
Definitions | Cause means a determination by the Firm that your employment terminated
as a result of your (i) violation of any law, rule or regulation (including
rules of self-regulatory bodies) related to the Firms business; (ii)
indictment or conviction of a felony; (iii) commission of a fraudulent act;
(iv) violation of the JPMorgan Code of Conduct or other Firm policies or
misconduct related to your duties to the Firm (other than an immaterial
and inadvertent violation or misconduct); (v) inadequate performance of
the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to
act that is or might reasonably be expected to be injurious to the
interests of the Firm or its relationship with a customer, client or
employee. |
|
Financial Services Company means a business enterprise that employs you
in any capacity (as an employee, contractor, consultant, advisor,
self-employed individual, etc. whether paid or unpaid) and engages in: |
||
commercial or retail banking, including, but not limited to,
commercial, institutional and personal trust, custody and/or lending and
processing services, originating and servicing mortgages, issuing and
servicing credit cards; |
||
insurance , including but not limited to, guaranteeing against
loss, harm damage, illness, disability or death, providing and issuing
annuities, acting as principal, agent or broker for purpose of the
forgoing; |
||
financial, investment or economic advisory services, including but
not limited to, investment banking services (such as advising on mergers or
dispositions, underwriting, dealing in, or making a market in securities or
other similar activities), brokerage services, investment management
services, asset management services, and hedge funds; |
||
issuing, trading or selling instruments representing interests in
pools of assets or in derivatives instruments; |
||
advising on, or investing in, private equity or real estate, or |
||
any similar activities that JPMorgan Chase determines in its sole
discretion constitutes financial services. |
||
Not-for-Profit Organization means an entity exempt from tax under state
law and under Section 501(c) (3) of the Internal Revenue Code. Section
501(c) (3) includes entities organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or
educational purposes, or to foster national or international amateur sports
competition or for the prevention of cruelty to children or animals. |
||
Recognized Service means the period of service as an employee set forth
in the Firms applicable service-related policies. |
7
Award Agreement | These terms and conditions are made part of the Award Agreement dated as of January 20,
2009 (Grant Date) awarding restricted stock units pursuant to the terms of the
JPMorgan Chase & Co. Long-Term Incentive Plan (Plan). To the extent the terms of the
Award Agreement (all references to which will include these terms and conditions)
conflict with the Plan, the Plan will govern. The Award Agreement, the Plan and
Prospectus supersede any other agreement, whether written or oral, that may have been
entered into by the Firm and you relating to this award. |
|
This award was granted on the Grant Date subject to the Award Agreement. Unless you
decline by the deadline and in the manner specified in the Award Agreement, you will
have agreed to be bound by these terms and conditions, effective as of the Grant Date.
If you decline the award, it will be cancelled as of the Grant Date. |
||
Capitalized terms that are not defined in the Award Agreement will have the same
meaning as set forth in the Plan. |
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as JPMorgan
Chase, and together with its subsidiaries as the Firm. |
||
Form and Purpose of Award | Each restricted stock unit represents a non-transferable right to receive one share of
Common Stock following the applicable vesting date. |
|
The purpose of this award is, in part, to motivate your future performance and to align
your interests with those of the Firm and its shareholders. |
||
Dividend Equivalents | If dividends are paid on Common Stock while restricted stock units under this award are
outstanding, you will be paid an amount equal to the dividend paid on one share of
Common Stock, multiplied by the number of restricted stock units outstanding to you
under this award. |
|
Vesting Dates/ Vesting Periods |
This award will vest according to the schedule on your Award Agreement, provided that
you are continuously employed by the Firm, or you meet the requirements for continued
vesting described below, through the relevant vesting date. The period from the Grant
Date to each vesting date will be a separate vesting period. |
|
Termination of Employment | Except as explicitly set forth below under Job Elimination, Full Career
Eligibility, Total Disability, and Death, any restricted stock units outstanding
under this award will be cancelled effective on the date your employment with the Firm
terminates for any reason. |
|
Job Elimination, Full Career Eligibility, Total Disability | Subject to your compliance with the terms and conditions of this Award Agreement
(including without limitation Your Obligations set forth below), you will be eligible
to continue to vest in your outstanding restricted stock units under this award
following the termination of your employment if one of the following circumstances
applies to you. |
|
Job Elimination: |
||
This award will continue to vest on the original schedule following termination of
employment in the event that: |
||
the Director Human Resources of the Firm or nominee in their sole discretion
determine that the Firm terminated your employment because your job was eliminated, and |
||
after you are notified that your job will be eliminated, you provide such
services as requested by the Firm in a cooperative and professional manner. |
Full Career Eligibility: |
||
This award will continue to vest on the original schedule following termination of
employment in the event that: |
||
you leave the Firm voluntarily, have completed at least five years of
continuous service with the Firm immediately preceding your termination date, and the
sum of your age and Recognized Service (as defined below) on your date of termination
equals or exceeds 60, and |
||
you provide at least 90 days advance written notice to the Firm of your
intention to voluntarily terminate your employment under this provision, during which
notice period you provide such services as requested by the Firm in a cooperative and
professional manner and you do not perform any services for any other employer, and |
||
for the remainder of the relevant vesting period, you do not (i) perform
services in any capacity (including self-employment) for a Financial Services Company
(as defined below) or (ii) work in your profession (whether or not for a Financial
Services Company); provided that you may work for a government, education or
Not-for-Profit Organization (as defined below). |
||
After receipt of such advance written notice, the Firm may choose to have you continue
to provide services during such 90-day period or shorten the length of the 90-day
period at the Firms discretion, but to a date no earlier than the date you would
otherwise meet the age and service requirements. |
||
Additional advance notice requirements may apply in certain business units (or
equivalent organizational unit or department). (See Special Notice Period below.) |
||
Total Disability: |
||
In the event your employment terminates as a result of your permanent and total
disability as defined in the JPMorgan Chase & Co. Long Term Disability Plan (or for
non-U.S. employees the equivalent local country plan), your outstanding units will
continue to vest on the original schedule during such period of disability provided
that you remain unemployed for such period. |
||
For both Full Career Eligibility and Total Disability, you must notify JPMorgan Chase
in writing in advance if you plan to perform services for any party or if you will be
self-employed during the vesting periods. Failure to provide such notification could
impact award vesting. |
||
Release/Certification | In order to qualify for continued vesting after termination of your employment under
any of the foregoing circumstances: |
|
you must timely execute and deliver a release of claims in favor of the Firm,
having such form and terms as the Firm shall specify, |
||
with respect to Full Career Eligibility, prior to the termination of your
employment, you must confirm with management that you meet the eligibility criteria
(including providing at least 90 days advance written notification) and advise that you
are seeking to be treated as an individual eligible for Full Career Eligibility, and |
||
except in the case of a job elimination, it is your responsibility to take the
appropriate steps to certify to the Firm prior to each vesting date on the authorized
form of the Firm that you have complied with the employment restrictions applicable to
you (as described above) throughout the vesting period and otherwise complied with all
other terms of the Award Agreement. (See Your Obligations.) |
||
Death | If you die while you are eligible to vest in your outstanding units under this award,
the units will immediately vest and will be distributed in shares of Common Stock
(after applicable tax withholding) to your designated beneficiary on file with the
Firms Stock Administration Department, or if no beneficiary has been designated or
survives you, then to your estate. Any shares will be distributed by the later of the
end of the calendar year in which you die or the 15th day of the third month
following your date of death. |
2
Termination for Cause | In the event that your employment is terminated for Cause (as defined below), or in the
event that JPMC determines after the termination of your employment that your
employment could have been terminated for Cause, your outstanding restricted stock
units shall be forfeited. In addition, you may be required to return to the Firm the
value of certain shares delivered to you prior to or after your termination. See
Remedies for additional information. |
|
Your Obligations | As consideration for the grant of this award, you agree to comply with and be bound by the following: |
|
Non-Solicitation
of Employees and
Customers:
|
During your employment by the Firm and for one year following the termination of your
employment, or if longer, during all remaining vesting periods if you continue to vest
after your employment with the Firm terminates, you will not directly or indirectly,
whether on your own behalf or on behalf of any other party, without the prior written
consent of the Director Human Resources of JPMorgan Chase: (i) solicit, induce or
encourage any of the Firms then current employees to leave the Firm or to apply for
employment elsewhere; (ii) hire any employee or former employee who was employed by the
Firm at the date your employment terminated, unless the individuals employment
terminated more than six months before the date of hire or because his or her job was
eliminated; or (iii) solicit or induce or attempt to induce to leave the Firm, or
divert or attempt to divert from doing business with the Firm, any then current
customers, suppliers or other persons or entities that were serviced by you or whose
names became known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers, suppliers or other
persons or entities. This does not apply to publicly known institutional customers
that you service after your employment with the Firm without the use of the Firms
confidential or proprietary information. |
|
These restrictions do not apply to authorized actions you take in the normal course of
your employment with the Firm, such as employment decisions with respect to employees
you supervise or business referrals in accordance with the Firms policies. |
||
Confidential Information: |
You may not, either during your employment with the Firm or thereafter, directly or
indirectly use or disclose to anyone any confidential information related to the Firms
business, except as explicitly permitted by the JPMorgan Chase Code of Conduct and
applicable policies or law or legal process. Confidential information shall have the
same meaning for the Award Agreement as it has in the JPMorgan Chase Code of Conduct. |
|
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter, make or
encourage others to make any public statement or release any information that is
intended to, or reasonably could be foreseen to, embarrass or criticize the Firm or its
employees, officers, directors or shareholders as a group. This shall not preclude you
from reporting to the Firms management or directors or to the government or a
regulator conduct you believe to be in violation of the law or the Firms Code of
Conduct or responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or regulatory
investigation or proceeding. |
|
Cooperation:
|
You agree to cooperate fully with and provide full and accurate information to the Firm
and its counsel with respect to any matter (including any audit, tax proceeding,
litigation, investigation or governmental proceeding) with respect to which you may
have knowledge or information, subject to reimbursement for actual, appropriate and
reasonable expenses incurred by you. |
|
Compliance with Award Agreement: |
You agree that you will provide the Firm with any information reasonably requested to
determine compliance with the Award Agreement, and you authorize the Firm to disclose
the terms of the Award Agreement to any third party who might be affected thereby,
including your prospective employer. |
|
Special Notice Period:
|
If you are a managing director, executive director or vice president (or comparable
title) of a business unit or equivalent organizational unit or department (business
unit) that requires as a |
3
condition of your continued employment that you provide
advance written notice (Special Notice Period) of your intention to terminate your
employment for any reason, then as consideration for this Award, you shall provide the
Firm advance written notice of your election to terminate your employment as specified
by such business unit. In business units that require this Special Notice Period, the
current notice period is 90 days for managing directors (or comparable title), 60 days
for executive directors (or comparable title) and 30 days for vice presidents (or
comparable title). Please note that in some cases, individuals may have specific
agreements providing for longer notice periods than those stated above. In those cases,
the longer notice period shall apply. |
||
After receipt of such notice, the Firm may choose to have you continue to provide
services during the applicable Special Notice Period or may place you on a paid leave
for all or part of the applicable Special Notice Period. During the Special Notice
Period, you shall continue to devote your full time and loyalty to the Firm by
providing services in a cooperative and professional manner and not perform any
services for any other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to waive or
modify the length of the Special Notice Period. |
||
Regardless of whether the Special Notice Period applies to you, you must comply with
the 90-day advance notice period described under Full Career Eligibility in the event
you wish to terminate employment under the Full Career Eligibility provision. |
||
Remedies Cancellation
|
In addition to the provisions described under Termination of Employment and
Termination for Cause, your outstanding restricted stock units will be cancelled if: |
|
the Firm in its sole discretion determines that you are not in compliance with
any of the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or |
||
you fail to return the required forms specified under Release/Certification
within the specified deadline, including the certification required immediately prior
to a vesting date under Full Career Eligibility and Total Disability, or |
||
you violate any of
the provisions as set forth above in Your Obligations. |
||
Damages
|
In addition, you will be required to pay the Firm as liquidated damages an amount equal
to the Fair Market Value (determined as of the vesting date) of the net number of
shares of Common Stock distributed to you under this award as follows: |
|
shares distributed within the one year period prior to your violation of any of
the provisions as set forth above in Your Obligations; |
||
shares distributed at any time following termination of employment when you
were not in compliance with the employment restrictions then applicable to you during
the vesting period, and |
||
shares distributed within the one year period immediately preceding and any
time after your termination of employment if your employment was terminated or the Firm
determines that your employment could have been terminated for Cause (as described
under Termination for Cause). |
||
Payment may be made in shares of Common Stock or in cash. You agree that this payment
will be liquidated damages and is not to be construed in any manner as a penalty. You
acknowledge that a violation or attempted violation of the obligations set forth herein
will cause immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any court of
competent jurisdiction, restraining any violation or further violation of such
obligations; such right to an injunction, however, shall be cumulative and in addition
to whatever other remedies the Firm may have under law or equity. In any action or
proceeding by the Firm to enforce the terms and conditions of this Award Agreement
where the Firm is the prevailing party, the Firm shall be entitled to recover from you
its reasonable attorneys fees and expenses incurred in such action or proceeding. |
4
Additional Conditions | Notwithstanding any terms of this Award Agreement to the contrary: |
|
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, this award to the extent provided under the
JPMorgan Chase Bonus Recoupment Policy as in effect from time to time. |
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distribution you received under, all or any portion of this award if JPMorgan
Chase determines that this award was based on materially inaccurate performance metrics
or on any misrepresentation by you. |
||
If you are subject to Section 111 of the Emergency Economic Stabilization Act
of 2008 and any regulations or interpretations promulgated thereunder, or any successor
or other applicable statute or regulation affecting your compensation (EESA or Other
Applicable Law), then any payment of any kind provided for by this Award Agreement
must comply with EESA or Other Applicable Law, and this Award Agreement shall be
interpreted or reformed to the extent required to so comply. |
||
Administrative Provisions | Withholding Taxes: The Firm will retain from each distribution the number of shares of
Common Stock required to satisfy applicable tax obligations (including, to the extent
legally permissible, recovery by the Firm of fringe benefit taxes). For U.S. tax
purposes, dividend equivalents are treated as wages and subject to tax withholding when
paid. If, according to local country tax regulations, a withholding tax liability
arises at a time after the date of distribution, JPMorgan Chase may implement any
procedures necessary to ensure that the withholding obligation is fully satisfied,
including but not limited to, restricting transferability of the shares. |
|
Right to Set Off: The Firm may, to the maximum extent permitted by applicable law,
retain for itself funds or securities otherwise payable to you pursuant to this award
to satisfy any obligation or debt that you owe to the Firm. The Firm may not retain
such funds or securities until such time as they would otherwise be distributable to
you in accordance with the Award Agreement. |
||
No Ownership Rights: Restricted stock units do not convey the rights of ownership of
Common Stock and do not carry voting rights. No shares of Common Stock will be issued
to you until after the restricted stock units have vested and all applicable
restrictions have lapsed. Shares will be issued in accordance with JPMorgan Chases
procedures for issuing stock. JPMorgan Chases obligation hereunder is unfunded. |
||
Binding Agreement: The Award Agreement will be binding upon any successor in interest
to JPMorgan Chase, by merger or otherwise. |
||
Not a Contract of Employment: Nothing contained in the Award Agreement constitutes a
contract of employment or continued employment. Employment is at-will and may be
terminated by either you or JPMorgan Chase for any reason at any time. This award
does not confer any right or entitlement to, nor does the award impose any obligation
on the Firm to provide, the same or any similar award in the future. |
||
Section 409A Compliance: Notwithstanding anything herein to the contrary, if you (i)
are subject to taxation under the United States Internal Revenue Code (Code), (ii)
are a specified employee as defined in the JPMorgan Chase 2005 Deferred Compensation
Plan and (iii) have incurred a separation from service and if any shares under this
award represent deferred compensation as defined in Section 409A and are distributable
to you as a result your separation from service, then those shares will be delivered to
you on first business day of the first calendar month after the expiration of six
full months from date of your separation from service. Further, if prior to any
vesting date, your award is not subject to a substantial risk of forfeiture as defined
by Section 409A of the Code, then the remainder of each calendar year immediately
following (i) each vesting date shall be a payment date for purposes of
distributing the vested portion of the award and (ii) each date that JPMorgan Chase
specifies for payment of dividends declared on its common stock shall be the payment
date(s) for purposes of dividend equivalent payments. |
5
Change in Outstanding Shares: In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization, issuance of a
new class of common stock, merger, consolidation, spin-off, combination or exchange of
shares or other similar corporate change, or any distributions to stockholders of
Common Stock other than regular cash dividends, the Compensation & Management
Development Committee of the Board will make an equitable substitution or proportionate
adjustment, in the number or kind of shares of Common Stock or other securities issued
or reserved for issuance pursuant to the Plan and to any Restricted Stock Units
outstanding under this award for such corporate events. |
||
Interpretation/Administration: The Director Human Resources has sole and complete
authority to interpret and administer this Award Agreement, including, without
limitation, the power to (i) interpret the Plan and the terms of this Award Agreement;
(ii) determine the reason for termination of employment and application of the
post-employment obligations; (iii) decide all claims arising with respect to this
Award; and (iv) delegate such authority as he deems appropriate. Any determination by
the Director Human Resources shall be binding on all parties. |
||
Notwithstanding anything herein to the contrary, the Firms determinations under the
Plan and the Award Agreements are not required to be uniform. By way of clarification,
the Firm shall be entitled to make non-uniform and selective determinations and
modifications under Award Agreements and the Plan. |
||
Amendment: The Firm by action of its Director Human Resources reserves the right to
amend the Award Agreement in any manner, at any time and for any reason so long as
there has not been a change in control of JPMorgan Chase, as such term is defined by
the JPMorgan Chase Board of Directors from time to time. After a change in control of
JPMorgan Chase, this Award Agreement may not be amended in any way that is adverse to
your interests without your prior written consent. This Award Agreement may not be
amended except in writing signed by the Director Human Resources of JPMorgan Chase. |
||
Severability: If any portion of the Award Agreement is determined by the Firm to be
unenforceable in any jurisdiction, any court of competent jurisdiction or the Director
Human Resources may reform the relevant provisions (e.g., as to length of service,
time, geographical area or scope) to the extent the Firm considers necessary to make
the provision enforceable under applicable law. |
||
Governing Law: By accepting this award, you are agreeing (i) to the extent not
preempted by federal law, the laws of the state of New York (without reference to
conflict of law principles) will apply to this award and the Plan; (ii) to waive the
right to a jury trial with respect to any judicial proceeding brought in connection
with this award; and (iii) that any dispute related to this award shall be submitted to
arbitration in accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion. |
||
Definitions | Cause means a determination by the Firm that your employment terminated as a result
of your (i) violation of any law, rule or regulation (including rules of
self-regulatory bodies) related to the Firms business; (ii) indictment or conviction
of a felony; (iii) commission of a fraudulent act; (iv) violation of the JPMorgan Code
of Conduct or other Firm policies or misconduct related to your duties to the Firm
(other than immaterial and inadvertent violations or misconduct); (v) inadequate
performance of the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to act that is
or might reasonably be expected to be injurious to the interests of the Firm or its
relationship with a customer, client or employee. |
|
Financial Services Company means a business enterprise that employs you in any
capacity (as an employee, contractor, consultant, advisor, self-employed individual,
etc. whether paid or unpaid) and engages in: |
6
commercial or retail banking, including, but not limited to, commercial,
institutional and personal trust, custody and/or lending and processing services,
originating and servicing mortgages, issuing and servicing credit cards; |
||
insurance, including but not limited to, guaranteeing against loss, harm
damage, illness, disability or death, providing and issuing annuities, acting as
principal, agent or broker for purpose of the forgoing; |
||
financial, investment or economic advisory services, including but not limited
to, investment banking services (such as advising on mergers or dispositions,
underwriting, dealing in, or making a market in securities or other similar
activities), brokerage services, investment management services, asset management
services, and hedge funds; |
||
issuing, trading or selling instruments representing interests in pools of
assets or in derivatives instruments; |
||
advising on, or investing in, private equity or real estate, or |
||
any similar activities that JPMorgan Chase determines in its sole discretion
constitute financial services. |
||
Not-for-Profit Organization means an entity exempt from tax under state law and under
Section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) includes entities
organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes, or to foster national or international
amateur sports competition or for the prevention of cruelty to children or animals. |
||
Recognized Service means the period of service as an employee set forth in the Firms
applicable service-related policies. |
7
Award Agreement | These terms and conditions are made part of the Award Agreement dated as of January 20,
2009 (Grant Date) awarding restricted stock units pursuant to the terms of the
JPMorgan Chase & Co. Long-Term Incentive Plan (Plan). To the extent the terms of the
Award Agreement (all references to which will include these terms and conditions)
conflict with the Plan, the Plan will govern. The Award Agreement, the Plan and
Prospectus supersede any other agreement, whether written or oral, that may have been
entered into by the Firm and you relating to this award. |
|
This award was granted on the Grant Date subject to the Award Agreement. Unless you
decline by the deadline and in the manner specified in the Award Agreement, you will
have agreed to be bound by these terms and conditions, effective as of the Grant Date.
If you decline the award, it will be cancelled as of the Grant Date. |
||
Capitalized terms that are not defined in the Award Agreement will have the same
meaning as set forth in the Plan. |
||
JPMorgan Chase & Co. will be referred to throughout the Award Agreement as JPMorgan
Chase, and together with its subsidiaries as the Firm. |
||
Form and Purpose of Award | Each restricted stock unit represents a non-transferable right to receive one share of
Common Stock following the applicable vesting date. |
|
The purpose of this award is, in part, to motivate your future performance and to align
your interests with those of the Firm and its shareholders. |
||
Dividend Equivalents | If dividends are paid on Common Stock while restricted stock units under this award are
outstanding, you will be paid an amount equal to the dividend paid on one share of
Common Stock, multiplied by the number of restricted stock units outstanding to you
under this award. |
|
Vesting Dates | This award will vest according to the schedule on your Award Agreement, provided that
you are continuously employed by the Firm, or you meet the requirements for continued
vesting described below, through the relevant vesting date, and subject to the
following: |
|
Although it is intended and expected that this award will vest as scheduled,
the award may be reduced or cancelled or vesting dates may be deferred in the event
that the Chief Executive Officer (CEO) of JPMorgan Chase determines, as part of
JPMorgan Chases annual performance assessment process, based on the CEOs assessment
of your performance and the performance of the Firm (which may include more than one
performance year), that you have not achieved satisfactory progress toward your
priorities or that the Firm has not achieved satisfactory progress toward the Firms
priorities for which you share responsibility as a member of the Operating Committee.
Such a determination is subject to ratification by the Compensation and Management
Development Committee of the Board of Directors of JPMorgan Chase. |
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, all or any portion of this award to the extent
provided under the JPMorgan Chase Bonus Recoupment Policy as in effect from time to
time. |
||
JPMorgan Chase reserves the right to cancel, or require repayment of the value
of any distributions you received under, all or any portion of this award if JPMorgan
Chase determines that this award was based on materially inaccurate performance metrics
or on any misrepresentation by you. |
||
If you are subject to Section 111 of the Emergency Economic Stabilization Act
of 2008 and any regulations or interpretations promulgated thereunder, or any successor
or |
other applicable statute affecting your compensation (EESA or Other Applicable
Law), then any payment of any kind provided for by this Award Agreement must comply
with EESA or Other Applicable Law, and this Award Agreement shall be interpreted or
reformed to so comply. |
||
Vesting Periods | The period from the Grant Date to each vesting date will be a separate vesting period. |
|
Termination of Employment | Except as explicitly set forth below under Job Elimination, Full Career
Eligibility, Total Disability, and Death, any restricted stock units outstanding
under this award will be cancelled effective on the date your employment with the Firm
terminates for any reason. |
|
Job Elimination, Full Career Eligibility, Total Disability | Subject to Vesting Dates and the terms and conditions of this Award Agreement
(including without limitation Your Obligations ), you will be eligible to continue to
vest in your outstanding restricted stock units under this award following the
termination of your employment if one of the following circumstances applies to you. |
|
Job Elimination: |
||
This award will continue to vest on the original schedule following termination of
employment in the event that: |
||
the Director Human Resources of the Firm or nominee in their sole discretion
determine that the Firm terminated your employment because your job was eliminated, and |
||
after you are notified that your job will be eliminated, you provide such
services as requested by the Firm in a cooperative and professional manner. |
||
Full Career Eligibility: |
||
This award will continue to vest on the original schedule following termination of
employment in the event that: |
||
you leave the Firm voluntarily, have completed at least five years of
continuous service with the Firm immediately preceding your termination date, and the
sum of your age and Recognized Service (as defined below) on your date of termination
equals or exceeds 60, and |
||
you provide at least 90 days advance written notice to the Firm of your
intention to voluntarily terminate your employment under this provision, during which
notice period you provide such services as requested by the Firm in a cooperative and
professional manner and you do not perform any services for any other
employer, and |
||
for the remainder of the relevant vesting period, you do not (i) perform
services in any capacity (including self-employment) for a Financial Services Company
(as defined below) or (ii) work in your profession (whether or not for a Financial
Services Company); provided that you may work for a government, education or
Not-for-Profit Organization (as defined below). |
||
After receipt of such advance written notice, the Firm may choose to have you continue
to provide services during such 90-day period or shorten the length of the 90-day
period at the Firms discretion, but to a date no earlier than the date you would
otherwise meet the age and service requirements. |
||
Additional advance notice requirements may apply in certain business units (or
equivalent organizational unit or department). (See Special Notice Period below.) |
||
Total Disability: |
||
In the event your employment terminates as a result of your permanent and total
disability as defined in the JPMorgan Chase & Co. Long Term Disability Plan (or for
non-U.S. employees the equivalent local country plan), your outstanding units will
continue to vest on the original schedule during such period of disability provided
that you remain unemployed for such period. |
||
For both Full Career Eligibility and Total Disability, you must notify JPMorgan Chase
in writing in |
2
advance if you plan to perform services for any party or if you will be
self-employed during the vesting periods. Failure to provide such notification could
impact award vesting. |
||
Release/Certification | In order to qualify for continued vesting after termination of your employment under
any of the foregoing circumstances: |
|
you must timely execute and deliver a release of claims in favor of the Firm,
having such form and terms as the Firm shall specify, |
||
with respect to Full Career Eligibility, prior to the termination of your
employment, you must confirm with management that you meet the eligibility criteria
(including providing at least 90 days advance written notification) and advise that you
are seeking to be treated as an individual eligible for Full Career Eligibility, and |
||
except in the case of a job elimination, it is your responsibility to take the
appropriate steps to certify to the Firm prior to each vesting date on the authorized
form of the Firm that you have complied with the employment restrictions applicable to
you (as described above) throughout the vesting period and otherwise complied with all
other terms of the Award Agreement. (See Your Obligations.) |
||
Death | If you die while you are eligible to vest in your outstanding units under this award,
the units will immediately vest and will be distributed in shares of Common Stock
(after applicable tax withholding) to your designated beneficiary on file with the
Firms Stock Administration Department, or if no beneficiary has been designated or
survives you, then to your estate. Any shares will be distributed by the later of the
end of the calendar year in which you die or the 15th day of the third month
following your date of death. |
|
Termination for Cause | In the event that your employment is terminated for Cause (as defined below), or in the
event that JPMC determines after the termination of your employment that your
employment could have been terminated for Cause, your outstanding restricted stock
units shall be forfeited. In addition, you may be required to return to the Firm the
value of certain shares delivered to you prior to or after your termination. See
Remedies for additional information. |
|
Your Obligations | As consideration for the grant of this award, you agree to comply with and be bound by
the following: |
|
Non-Solicitation
of Employees and
Customers:
|
During your employment by the Firm and for one year following the termination of your
employment, or if longer, during all remaining vesting periods if you continue to vest
after your employment with the Firm terminates, you will not directly or indirectly,
whether on your own behalf or on behalf of any other party, without the prior written
consent of the Director Human Resources of JPMorgan Chase: (i) solicit, induce or
encourage any of the Firms then current employees to leave the Firm or to apply for
employment elsewhere; (ii) hire any employee or former employee who was employed by the
Firm at the date your employment terminated, unless the individuals employment
terminated more than six months before the date of hire or because his or her job was
eliminated; or (iii) solicit or induce or attempt to induce to leave the Firm, or
divert or attempt to divert from doing business with the Firm, any then current
customers, suppliers or other persons or entities that were serviced by you or whose
names became known to you by virtue of your employment with the Firm, or otherwise
interfere with the relationship between the Firm and such customers, suppliers or other
persons or entities. This does not apply to publicly known institutional customers
that you service after your employment with the Firm without the use of the Firms
confidential or proprietary information. |
|
These restrictions do not apply to authorized actions you take in the normal course of
your employment with the Firm, such as employment decisions with respect to employees
you supervise or business referrals in accordance with the Firms policies. |
||
Confidential Information: |
You may not, either during your employment with the Firm or thereafter, directly or
indirectly use or disclose to anyone any confidential information related to the Firms
business, except as explicitly permitted by the JPMorgan Chase Code of Conduct and
applicable policies or law or |
3
legal process. Confidential information shall have the
same meaning for the Award Agreement as it has in the JPMorgan Chase Code of Conduct. |
||
Non-Disparagement:
|
You may not, either during your employment with the Firm or thereafter, make or
encourage others to make any public statement or release any information that is
intended to, or reasonably could be foreseen to, embarrass or criticize the Firm or its
employees, officers, directors or shareholders as a group. This shall not preclude you
from reporting to the Firms management or directors or to the government or a
regulator conduct you believe to be in violation of the law or the Firms Code of
Conduct or responding truthfully to questions or requests for information to the
government, a regulator or in a court of law in connection with a legal or regulatory
investigation or proceeding. |
|
Cooperation:
|
You agree to cooperate fully with and provide full and accurate information to the Firm
and its counsel with respect to any matter (including any audit, tax proceeding,
litigation, investigation or governmental proceeding) with respect to which you may
have knowledge or information, subject to reimbursement for actual, appropriate and
reasonable expenses incurred by you. |
|
Compliance with
Award Agreement:
|
You agree that you will provide the Firm with any information reasonably requested to
determine compliance with the Award Agreement, and you authorize the Firm to disclose
the terms of the Award Agreement to any third party who might be affected thereby,
including your prospective employer. |
|
Special Notice Period: |
If you are at or above the level of managing director, executive director or vice
president (or comparable title) of a business unit or equivalent organizational unit or
department (business unit) that requires as a condition of your continued employment
that you provide advance written notice (Special Notice Period) of your intention to
terminate your employment for any reason, then as consideration for this Award, you
shall provide the Firm advance written notice of your election to terminate your
employment as specified by such business unit. In business units that require this
Special Notice Period, the current notice period is 90 days for managing directors (or
comparable title), 60 days for executive directors (or comparable title) and 30 days
for vice presidents (or comparable title). Please note that in some cases, individuals
may have specific agreements providing for longer notice periods than those stated
above. In those cases, the longer notice period shall apply. |
|
After receipt of such notice, the Firm may choose to have you continue to provide
services during the applicable Special Notice Period or may place you on a paid leave
for all or part of the applicable Special Notice Period. During the Special Notice
Period, you shall continue to devote your full time and loyalty to the Firm by
providing services in a cooperative and professional manner and not perform any
services for any other employer and shall receive your base salary and certain benefits
until your employment terminates. You and the Firm may mutually agree to waive or
modify the length of the Special Notice Period. |
||
Regardless of whether the Special Notice Period applies to you, you must comply with
the 90-day advance notice period described under Full Career Eligibility in the event
you wish to terminate employment under the Full Career Eligibility provision. |
||
Remedies Cancellation
|
In addition to the provisions described under Termination of Employment and Termination for Cause, your outstanding restricted stock units will be cancelled if: |
|
the Firm in its sole discretion determines that you are not in compliance with
any of the advance notice/cooperation requirements or employment restrictions
applicable to your termination of employment, or |
||
you fail to return the required forms specified under Release/Certification
within the specified deadline, including the certification required immediately prior
to a vesting date under Full Career Eligibility and Total Disability, or |
||
you violate any of the provisions as set forth above in Your Obligations. |
4
Damages
|
In addition, you will be required to pay the Firm as liquidated damages an amount equal
to the Fair Market Value (determined as of the vesting date) of the net number of
shares of Common Stock distributed to you under this award as follows: |
|
shares distributed within the one year period prior to your violation of any of
the provisions as set forth above in Your Obligations; |
||
shares distributed at any time following termination of employment when you
were not in compliance with the employment restrictions then applicable to you during
the vesting period, and |
||
shares distributed within the one year period immediately preceding and any
time after your termination of employment if your employment was terminated or the Firm
determines that your employment could have been terminated for Cause (as described
under Termination for Cause). |
||
Payment may be made in shares of Common Stock or in cash. You agree that this payment
will be liquidated damages and is not to be construed in any manner as a penalty. You
acknowledge that a violation or attempted violation of the obligations set forth herein
will cause immediate and irreparable damage to the Firm, and therefore agree that the
Firm shall be entitled as a matter of right to an injunction, from any court of
competent jurisdiction, restraining any violation or further violation of such
obligations; such right to an injunction, however, shall be cumulative and in addition
to whatever other remedies the Firm may have under law or equity. In any action or
proceeding by the Firm to enforce the terms and conditions of this Award Agreement
where the Firm is the prevailing party, the Firm shall be entitled to recover from you
its reasonable attorneys fees and expenses incurred in such action or proceeding.
Notwithstanding any terms of this Award Agreement to the contrary: |
||
Administrative Provisions | Withholding Taxes: The Firm will retain from each distribution the number of shares of
Common Stock required to satisfy applicable tax obligations (including, to the extent
legally permissible, recovery by the Firm of fringe benefit taxes). For U.S. tax
purposes, dividend equivalents are treated as wages and subject to tax withholding when
paid. If, according to local country tax regulations, a withholding tax liability
arises at a time after the date of distribution, JPMorgan Chase may implement any
procedures necessary to ensure that the withholding obligation is fully satisfied,
including but not limited to, restricting transferability of the shares. |
|
Right to Set Off: The Firm may, to the maximum extent permitted by applicable law,
retain for itself funds or securities otherwise payable to you pursuant to this award
to satisfy any obligation or debt that you owe to the Firm. The Firm may not retain
such funds or securities until such time as they would otherwise be distributable to
you in accordance with the Award Agreement. |
||
No Ownership Rights: Restricted stock units do not convey the rights of ownership of
Common Stock and do not carry voting rights. No shares of Common Stock will be issued
to you until after the restricted stock units have vested and all applicable
restrictions have lapsed. Shares will be issued in accordance with JPMorgan Chases
procedures for issuing stock. JPMorgan Chases obligation hereunder is unfunded. |
||
Binding Agreement: The Award Agreement will be binding upon any successor in interest
to JPMorgan Chase, by merger or otherwise. |
||
Not a Contract of Employment: Nothing contained in the Award Agreement constitutes a
contract of employment or continued employment. Employment is at-will and may be
terminated by either you or JPMorgan Chase for any reason at any time. This award
does not confer any right or entitlement to, nor does the award impose any obligation
on the Firm to provide, the same or any similar award in the future. |
||
Section 409A Compliance: Notwithstanding anything herein to the contrary, if you (i)
are subject to taxation under the United States Internal Revenue Code (Code), (ii)
are a specified employee as defined in the JPMorgan Chase 2005 Deferred Compensation
Plan and (iii) have |
5
incurred a separation from service and if any shares under this
award represent deferred compensation as defined in Section 409A and are distributable
to you as a result your separation from service, then those shares will be delivered to
you on first business day of the first calendar month after the expiration of six
full months from date of your separation from service. Further, if prior to any
vesting date, your award is not subject to a substantial risk of forfeiture as defined
by Section 409A of the Code, then the remainder of each calendar year immediately
following (i) each vesting date shall be a payment date for purposes of
distributing the vested portion of the award and (ii) each date that JPMorgan Chase
specifies for payment of dividends declared on its common stock shall be the payment
date(s) for purposes of dividend equivalent payments. |
||
Change in Outstanding Shares: In the event of any change in the outstanding shares of
Common Stock by reason of any stock dividend or split, recapitalization, issuance of a
new class of common stock, merger, consolidation, spin-off, combination or exchange of
shares or other similar corporate change, or any distributions to stockholders of
Common Stock other than regular cash dividends, the Compensation & Management
Development Committee of the Board will make an equitable substitution or proportionate
adjustment, in the number or kind of shares of Common Stock or other securities issued
or reserved for issuance pursuant to the Plan and to any Restricted Stock Units
outstanding under this award for such corporate events. |
||
Interpretation/Administration: The Director Human Resources has sole and complete
authority to interpret and administer this Award Agreement, including, without
limitation, the power to (i) interpret the Plan and the terms of this Award Agreement;
(ii) determine the reason for termination of employment and application of the
post-employment obligations; (iii) decide all claims arising with respect to this
Award; and (iv) delegate such authority as he deems appropriate. Any determination by
the Director Human Resources shall be binding on all parties. |
||
Notwithstanding anything herein to the contrary, the Firms determinations under the
Plan and the Award Agreements are not required to be uniform. By way of clarification,
the Firm shall be entitled to make non-uniform and selective determinations and
modifications under Award Agreements and the Plan. |
||
Amendment: The Firm by action of its Director Human Resources reserves the right to
amend the Award Agreement in any manner, at any time and for any reason so long as
there has not been a change in control of JPMorgan Chase, as such term is defined by
the JPMorgan Chase Board of Directors from time to time. After a change in control of
JPMorgan Chase, this Award Agreement may not be amended in any way that is adverse to
your interests without your prior written consent. This Award Agreement may not be
amended except in writing signed by the Director Human Resources of JPMorgan Chase. |
||
Severability: If any portion of the Award Agreement is determined by the Firm to be
unenforceable in any jurisdiction, any court of competent jurisdiction or the Director
Human Resources may reform the relevant provisions (e.g., as to length of service,
time, geographical area or scope) to the extent the Firm considers necessary to make
the provision enforceable under applicable law. |
||
Governing Law: By accepting this award, you are agreeing (i) to the extent not
preempted by federal law, the laws of the state of New York (without reference to
conflict of law principles) will apply to this award and the Plan; (ii) to waive the
right to a jury trial with respect to any judicial proceeding brought in connection
with this award; and (iii) that any dispute related to this award shall be submitted to
arbitration in accordance with the rules of the American Arbitration Association, if so
elected by the Firm in its sole discretion. |
||
Definitions | Cause means a determination by the Firm that your employment terminated as a result
of your (i) violation of any law, rule or regulation (including rules of
self-regulatory bodies) related to the Firms business; (ii) indictment or conviction
of a felony; (iii) commission of a fraudulent act; (iv) |
6
violation of the JPMorgan Code
of Conduct or other Firm policies or misconduct related to your duties to the Firm
(other than immaterial and inadvertent violations or misconduct); (v) inadequate
performance of the duties associated with your position or job function or failure to
follow reasonable directives of your manager; or (vi) any act or failure to act that is
or might reasonably be expected to be injurious to the interests of the Firm or its
relationship with a customer, client or employee. |
||
Financial Services Company means a business enterprise that employs you in any
capacity (as an employee, contractor, consultant, advisor, self-employed individual,
etc. whether paid or unpaid) and engages in: |
||
commercial or retail banking, including, but not limited to, commercial,
institutional and personal trust, custody and/or lending and processing services,
originating and servicing mortgages, issuing and servicing credit cards; |
||
insurance, including but not limited to, guaranteeing against loss, harm
damage, illness, disability or death, providing and issuing annuities, acting as
principal, agent or broker for purpose of the forgoing; |
||
financial, investment or economic advisory services, including but not limited
to, investment banking services (such as advising on mergers or dispositions,
underwriting, dealing in, or making a market in securities or other similar
activities), brokerage services, investment management services, asset management
services, and hedge funds; |
||
issuing, trading or selling instruments representing interests in pools of
assets or in derivatives instruments; |
||
advising on, or investing in, private equity or real estate, or |
||
any similar activities that JPMorgan Chase determines in its sole discretion
constitute financial services. |
||
Not-for-Profit Organization means an entity exempt from tax under state law and under
Section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) includes entities
organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary or educational purposes, or to foster national or international
amateur sports competition or for the prevention of cruelty to children or animals. |
||
Recognized Service means the period of service as an employee set forth in the Firms
applicable service-related policies. |
7
Year ended December 31, | ||||||||||||||||||||
(in millions, except ratios) | 2008(b) | 2007 | 2006 | 2005 | 2004(c) | |||||||||||||||
Excluding interest on deposits |
||||||||||||||||||||
Income from continuing operations before income taxes |
$ | 2,773 | $ | 22,805 | $ | 19,886 | $ | 11,839 | $ | 5,856 | ||||||||||
Fixed charges: |
||||||||||||||||||||
Interest expense |
19,693 | 23,328 | 20,823 | 15,534 | 9,418 | |||||||||||||||
One-third of rents, net of income from subleases(a) |
507 | 400 | 357 | 349 | 334 | |||||||||||||||
Total fixed charges |
20,200 | 23,728 | 21,180 | 15,883 | 9,752 | |||||||||||||||
Less: Equity in undistributed income of affiliates/Add: Equity in undistributed loss of affiliates |
623 | (159 | ) | (152 | ) | 6 | 149 | |||||||||||||
Income from continuing operations before income taxes and fixed charges, excluding capitalized interest |
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Fixed charges, as above |
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Ratio of earnings to fixed charges |
1.17 | 1.95 | 1.93 | 1.75 | 1.62 | |||||||||||||||
Including interest on deposits |
||||||||||||||||||||
Fixed charges as above |
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Add: Interest on deposits |
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total fixed charges and interest on deposits |
$ | 34,746 | $ | 45,381 | $ | 38,222 | $ | 25,869 | $ | 14,267 | ||||||||||
Income from continuing operations before income taxes and fixed charges, excluding
capitalized interest, as above |
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Add: Interest on deposits |
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total income from continuing operations before income taxes, fixed charges and interest on deposits |
$ | 38,142 | $ | 68,027 | $ | 57,956 | $ | 37,714 | $ | 20,272 | ||||||||||
Ratio of earnings to fixed charges |
1.10 | 1.50 | 1.52 | 1.46 | 1.42 | |||||||||||||||
(a) | The proportion deemed representative of the interest factor. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. | |
(c) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
238
Year ended December 31, | ||||||||||||||||||||
(in millions, except ratios) | 2008(b) | 2007 | 2006 | 2005 | 2004(c) | |||||||||||||||
Excluding interest on deposits |
||||||||||||||||||||
Income from continuing operations before income taxes |
$ | 2,773 | $ | 22,805 | $ | 19,886 | $ | 11,839 | $ | 5,856 | ||||||||||
Fixed charges: |
||||||||||||||||||||
Interest expense |
19,693 | 23,328 | 20,823 | 15,534 | 9,418 | |||||||||||||||
One-third of rents, net of income
from subleases(a) |
507 | 400 | 357 | 349 | 334 | |||||||||||||||
Total fixed charges |
20,200 | 23,728 | 21,180 | 15,883 | 9,752 | |||||||||||||||
Less: Equity in undistributed income
of affiliates/Add: Equity in undistributed
loss of affiliates |
623 | (159 | ) | (152 | ) | 6 | 149 | |||||||||||||
Income from continuing operations
before income taxes and fixed charges,
excluding capitalized interest |
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Fixed charges, as above |
$ | 20,200 | $ | 23,728 | $ | 21,180 | $ | 15,883 | $ | 9,752 | ||||||||||
Preferred stock dividends (pretax) |
803 | | 6 | 18 | 68 | |||||||||||||||
Fixed charges including preferred
stock dividends |
$ | 21,003 | $ | 23,728 | $ | 21,186 | $ | 15,901 | $ | 9,820 | ||||||||||
Ratio of earnings to fixed charges
and preferred stock dividend
requirements |
1.12 | 1.95 | 1.93 | 1.74 | 1.60 | |||||||||||||||
Including interest on deposits |
||||||||||||||||||||
Fixed charges including preferred stock
dividends, as above |
$ | 21,003 | $ | 23,728 | $ | 21,186 | $ | 15,901 | $ | 9,820 | ||||||||||
Add: Interest on deposits |
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total fixed charges including preferred
stock dividends and interest on deposits |
$ | 35,549 | $ | 45,381 | $ | 38,228 | $ | 25,887 | $ | 14,335 | ||||||||||
Income from continuing operations before
income taxes and fixed charges, excluding
capitalized interest, as above |
$ | 23,596 | $ | 46,374 | $ | 40,914 | $ | 27,728 | $ | 15,757 | ||||||||||
Add: Interest on deposits |
14,546 | 21,653 | 17,042 | 9,986 | 4,515 | |||||||||||||||
Total income from continuing operations
before income taxes, fixed charges and
interest on deposits |
$ | 38,142 | $ | 68,027 | $ | 57,956 | $ | 37,714 | $ | 20,272 | ||||||||||
Ratio of earnings to fixed charges and
preferred stock dividend requirements |
1.07 | 1.50 | 1.52 | 1.46 | 1.41 | |||||||||||||||
(a) | The proportion deemed representative of the interest factor. | |
(b) | On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase and their respective results of operations are included in the Firms results from each respective transaction date. | |
(c) | On July 1, 2004, Bank One Corporation merged with and into JPMorgan Chase. Accordingly, 2004 results include six months of the combined Firms results and six months of heritage JPMorgan Chase results. |
239
Percentage of voting | ||||||||
Organized under the | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Banc One Building Management Corporation |
Wisconsin | 100 | ||||||
Banc One Capital Holdings LLC |
Delaware | 100 | ||||||
BOCP Holdings Corporation |
Ohio | 100 | ||||||
Banc One Capital Partners IV, Ltd. |
Ohio | 100 | ||||||
Banc One Capital Partners VIII, Ltd. |
Ohio | 83 | ||||||
BOCP Energy Partners, L.P. |
Ohio | 95 | ||||||
Banc One Stonehenge Capital Fund Wisconsin, LLC |
Delaware | 100 | ||||||
BOCF, LLC |
Delaware | 100 | ||||||
BOCNY, LLC |
Delaware | 100 | ||||||
JPM Mezzanine Capital, LLC |
Delaware | 100 | ||||||
Chase Investment Services Corp. |
Delaware | 100 | ||||||
Banc One Deferred Benefits Corporation |
Ohio | 98 | ||||||
Banc One Financial LLC |
Delaware | 100 | ||||||
JPMorgan Capital Corporation |
Delaware | 100 | ||||||
Bank One Investment Corporation |
Delaware | 100 | ||||||
OEP Holding Corporation |
Delaware | 100 | ||||||
Banc One Equity Capital Fund II, L.L.C. |
Delaware | 99.5 | ||||||
Banc One Equity Capital II, L.L.C. |
Delaware | 100 | ||||||
One Equity Partners II, L.P. |
Cayman Islands | 99.9 | (1) | |||||
One Equity Partners III, L.P. |
Cayman Islands | 99.7 | ||||||
One Equity Partners LLC |
Delaware | 99.9 | (2) | |||||
First Chicago Capital Corporation |
Delaware | 100 | ||||||
JPMorgan Capital (Canada) Corp. |
Canada | 100 | ||||||
One Mortgage Partners Corp. |
Vermont | 100 | ||||||
First Chicago Leasing Corporation |
Delaware | 100 | ||||||
First Chicago Lease Holdings, Inc. |
Delaware | 100 | ||||||
Palo Verde
Leasing Corporation |
Delaware | 100 | ||||||
First Chicago Lease Investments, Inc. |
Delaware | 100 | ||||||
FM Holdings I, Inc. |
Delaware | 100 | ||||||
GHML Holdings I, Inc. |
Delaware | 100 | ||||||
GHML Holdings II, Inc. |
Delaware | 100 | ||||||
GTC Fund III Holdings, Inc. |
Delaware | 100 | ||||||
GTC Fund IV Holdings, Inc. |
Delaware | 100 | ||||||
GTC Fund V Holdings, Inc. |
Delaware | 100 | ||||||
JPMorgan Housing Corporation |
Delaware | 100 | ||||||
Cooper Project, L.L.C. |
Delaware | 100 | ||||||
J.P. Morgan Structured Fund Management SAS |
France | 100 | ||||||
Protech Tax Credit Fund II, LLC |
United States | 0.01 | (3) | |||||
NLTC Fund Holdings I, Inc. |
Delaware | 100 | ||||||
OX FCL Two, Inc. |
Delaware | 100 | ||||||
SAHP 130 Holdings, Inc. |
Delaware | 100 | ||||||
Banc One Neighborhood Development Corporation |
Ohio | 100 | ||||||
BOI Leasing Corporation |
Indiana | 100 | ||||||
Bridge Acquisition Holdings, Inc. |
Delaware | 100 | ||||||
CCC Holding Inc. |
Delaware | 100 | ||||||
Chase Commercial Corporation |
Delaware | 100 | ||||||
Chase Capital Holding Corporation |
Delaware | 100 | ||||||
Chase Capital Corporation |
Delaware | 100 | ||||||
Chase Capital Credit Corporation |
Delaware | 100 | ||||||
Chase Lincoln First Commercial Corporation |
Delaware | 100 | ||||||
Chase Manhattan Realty Leasing Corporation |
New York | 100 |
240
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Palo Verde 1-PNM August 50 Corporation |
Delaware | 100 | ||||||
Palo Verde 1-PNM December 75 Corporation |
Delaware | 100 | ||||||
PV2-APS 150 Corporation |
Delaware | 100 | ||||||
PV2-PNM December 35 Corporation |
Delaware | 100 | ||||||
Chatham
Ventures, Inc. |
New York | 100 | ||||||
J.P. Morgan
Partners (BHCA), L.P. |
California | 80 | (4) | |||||
CVCA, LLC |
Delaware | 100 | ||||||
Chemical Equity Incorporated |
New York | 100 | ||||||
Chemical
Investments, Inc. |
Delaware | 100 | ||||||
Clintstone Properties Inc. |
New York | 100 | ||||||
CMRCC, Inc. |
New York | 100 | ||||||
Credit Markets Investment Corporation |
Delaware | 100 | ||||||
Custodial Trust Company |
New Jersey | 99 | ||||||
Hambrecht & Quist California |
California | 100 | ||||||
H&Q Holdings Inc. |
Delaware | 100 | ||||||
Hatherley Insurance Ltd. |
Bermuda | 100 | ||||||
Homesales, Inc. |
Delaware | 100 | ||||||
J.P. Morgan Capital Financing Limited |
England | 100 | ||||||
Aldermanbury Investments Limited |
England | 100 | ||||||
J.P. Morgan Chase International Financing Limited |
England | 100 | ||||||
Robert Fleming Holdings Limited |
England | 100 | ||||||
Robert Fleming Investment Trust Limited |
England | 100 | ||||||
J.P. Morgan Chase Community Development Corporation |
Delaware | 100 | ||||||
J.P. Morgan
Chase National Corporate Services, Inc. |
New York | 100 | ||||||
J.P. Morgan Corporate Services Limited |
England | 100 | ||||||
Robert Fleming Holdings Inc. |
Delaware | 100 | ||||||
J.P. Morgan
Equity Holdings, Inc. |
Delaware | 100 | ||||||
CMC Holding Delaware Inc. |
Delaware | 100 | ||||||
Chase Bank
USA, National Association |
United States | 100 | ||||||
Chase
BankCard Services, Inc. |
Delaware | 100 | ||||||
J.P. Morgan Investor Services Co. |
Delaware | 100 | ||||||
Ixe
Tarjetas, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad Regulada |
Mexico | 50 | (5) | |||||
J.P. Morgan Trust Company of Delaware |
Delaware | 100 | ||||||
JPMorgan
Bank and Trust Company, National Association |
United States | 100 | ||||||
JPM Capital Corporation |
Delaware | 100 | ||||||
JPMC Wind Assignor Corporation |
Delaware | 100 | ||||||
JPMC Wind Investment LLC |
Delaware | 49.995 | (6) | |||||
J.P. Morgan Finance Holdings (Japan) LLC |
Delaware | 100 | ||||||
J.P. Morgan Finance Japan YK |
Japan | 100 | ||||||
J.P. Morgan Funding Corp. |
England | 99.99 | (7) | |||||
J.P. Morgan Futures Inc. |
Delaware | 100 | ||||||
J.P. Morgan GT Corporation |
Delaware | 100 | ||||||
J.P. Morgan
Insurance Holdings, L.L.C. |
Arizona | 100 | ||||||
Banc One Insurance Company |
Vermont | 100 | ||||||
Chase
Insurance Agency, Inc. |
Wisconsin | 100 | ||||||
J.P. Morgan International Holdings LLC |
Delaware | 100 | ||||||
J.P. Morgan Trust Company (Bahamas) Limited |
Bahamas, The | 100 | ||||||
J.P. Morgan Trust Company (Cayman) Limited |
Cayman Islands | 100 | ||||||
JPMAC Holdings Inc. |
Delaware | 100 | ||||||
J.P. Morgan Invest Holdings LLC |
Delaware | 100 | ||||||
J.P. Morgan Retirement Plan Services LLC |
Delaware | 100 | ||||||
J.P. Morgan
Partners (23A Manager), Inc. |
Delaware | 100 | ||||||
J.P. Morgan Private Investments Inc. |
Delaware | 100 | ||||||
J.P. Morgan Securities Inc. |
Delaware | 100 | ||||||
J.P. Morgan Clearing Corp. |
Delaware | 100 | ||||||
J.P. Morgan
Services Asia Holdings, Inc. |
Delaware | 100 | ||||||
J.P. Morgan Services Asia Holdings Limited |
Mauritius | 100 | ||||||
J.P. Morgan Services India Private Limited |
India | 99.99957515 | (8) | |||||
J.P. Morgan Services Inc. |
Delaware | 100 | ||||||
JPM International Consumer Holding Inc. |
Delaware | 100 | ||||||
Brysam
Global Partners, L.P. |
Cayman Islands | 98.0392 | ||||||
Brysam BPO Ltd |
Mauritius | 100 | ||||||
Brysam
Mexico II, LLC |
Delaware | 100 | ||||||
JPMorgan Asset Management Holdings Inc. |
Delaware | 100 | ||||||
Highbridge
Capital Management, LLC |
Delaware | 77.5 |
241
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Highbridge Capital Management (Hong Kong), Limited |
Hong Kong | 100 | ||||||
Highbridge
Capital Management (UK), Ltd. |
England | 100 | ||||||
Highbridge Principal Strategies, LLC |
Delaware | 100 | ||||||
Highbridge
Principal Strategies (UK) I, Ltd |
England | 100 | ||||||
Highbridge Principal Strategies (UK), LLP |
England | 50 | (9) | |||||
J.P. Morgan Alternative Asset Management, Inc. |
Delaware | 100 | ||||||
J.P. Morgan Investment Management Inc. |
Delaware | 100 | ||||||
JPMorgan Global Absolute Return Strategy Fund, LLC |
Delaware | 100 | ||||||
JPMorgan Asset Management (Asia) Inc. |
Delaware | 100 | ||||||
JF Asset Management (Singapore) Limited |
Singapore | 100 | ||||||
JF Asset Management Limited |
Hong Kong | 99.99998 | (10) | |||||
JPMorgan Funds (Asia) Limited |
Hong Kong | 99.9999998 | (11) | |||||
JPMorgan Asset Management (Taiwan) Limited |
Taiwan | 100 | ||||||
JPMorgan Asset Management (Japan) Limited |
Japan | 100 | ||||||
JPMorgan Funds (Taiwan) Limited |
Taiwan | 100 | ||||||
JPMorgan Asset Management (Canada) Inc. |
Canada | 100 | ||||||
JPMorgan Asset Management International Limited |
England | 100 | ||||||
JPMorgan Asset Management Holdings (UK) Limited |
England | 100 | ||||||
JPMorgan Asset Management (UK) Limited |
England | 100 | ||||||
JPMorgan Asset Management Holdings (Luxembourg) S.à r.l. |
Luxembourg | 100 | ||||||
JPMorgan Asset Management (Europe) S.à r.l. |
Luxembourg | 100 | ||||||
JPMorgan Asset Management Societa di Gestione del Risparmio SpA |
Italy | 99.9 | (12) | |||||
JPMorgan Asset Management Luxembourg S.A. |
Luxembourg | 99.99 | (13) | |||||
JPMorgan Asset Management Advisory Company S.à r.l. |
Luxembourg | 99.97 | (14) | |||||
JPMorgan Asset Management Marketing Limited |
England | 100 | ||||||
JPMorgan Equity Plan Managers Limited |
England | 100 | ||||||
JPMorgan Funds Limited |
Scotland | 100 | ||||||
Save & Prosper Insurance Limited |
England | 100 | ||||||
Save & Prosper Pensions Limited |
England | 100 | ||||||
JPMorgan Investments Limited |
England | 100 | ||||||
JPMorgan Life Limited |
England | 100 | ||||||
JPMorgan LDHES LLC |
Delaware | 100 | ||||||
Security Capital Research & Management Incorporated |
Delaware | 100 | ||||||
JPMorgan
Chase Bank, Dearborn |
Michigan | 100 | ||||||
JPMorgan
Chase Bank, National Association |
United States | 100 | ||||||
Banc One Acceptance Corporation |
Ohio | 100 | ||||||
Banc One Arizona Leasing Corporation |
Arizona | 100 | ||||||
Banc One Building Corporation |
Illinois | 100 | ||||||
Banc One Community Development Corporation |
Delaware | 100 | ||||||
Protech Tax Credit Fund III, LLC |
United States | 0.01 | (15) | |||||
Banc One Equipment Finance, Inc. |
Indiana | 100 | ||||||
Banc One Kentucky Leasing Corporation |
Kentucky | 100 | ||||||
Banc One Kentucky Vehicle Leasing Company |
Kentucky | 100 | ||||||
Banc One National Processing Corporation |
Delaware | 100 | ||||||
Banc One Real Estate Investment Corp. |
Delaware | 100 | ||||||
Bank One Education Finance Corporation |
Ohio | 100 | ||||||
Bank One
Equity Investors - BIDCO, Inc. |
Louisiana | 100 | ||||||
Bear Stearns Commercial Mortgage, Inc. |
New York | 100 | ||||||
Bear Stearns Credit Products Inc. |
Delaware | 100 | ||||||
Bear Stearns Forex Inc. |
Delaware | 100 | ||||||
Bear Stearns Mortgage Capital Corporation |
Delaware | 100 | ||||||
Bear, Stearns Funding, Inc. |
Delaware | 100 | ||||||
Blue Box Holdings Inc. |
Delaware | 100 | ||||||
BOC Southeast Holdings Company |
Delaware | 100 | ||||||
BOILL IHC, Inc. |
Nevada | 100 | ||||||
Chase BankCard LLC |
Delaware | 100 | ||||||
BONA Capital I, LLC |
Delaware | 100 | ||||||
BONA Capital II, LLC |
Delaware | 100 | ||||||
BOTAC, Inc. |
Nevada | 100 | ||||||
California Reconveyance Company |
California | 100 | ||||||
Cedar Hill International Corp. |
Delaware | 100 | ||||||
Chase Auto Finance Corp. |
Delaware | 100 | ||||||
Chase Community Development Corporation |
Delaware | 100 | ||||||
Chase Equipment Leasing Inc. |
Ohio | 100 | ||||||
Chase Funding Corporation |
Delaware | 100 |
242
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Chase Home Finance Inc. |
Delaware | 100 | ||||||
Chase Home Finance LLC |
Delaware | 100 | ||||||
Chase
Mortgage Holdings, Inc. |
Delaware | 100 | ||||||
Chase New Markets Corporation |
Delaware | 100 | ||||||
Chase Preferred Capital Corporation |
Delaware | 100 | ||||||
CPCC Delaware Statutory Trust |
Delaware | 100 | ||||||
CPCC Texas Limited Partnership |
Texas | 99.5 | (16) | |||||
CPCC Massachusetts Business Trust |
Massachusetts | 100 | ||||||
Chase Student Loan Services, Inc. |
Delaware | 100 | ||||||
Collegiate
Funding Services, L.L.C. |
Virginia | 100 | ||||||
CFS
Servicing, LLC |
Delaware | 100 | ||||||
Chase
Student Loan Servicing, LLC |
United States | 100 | ||||||
Chase Student Loans, Inc. |
United States | 100 | ||||||
Collegiate
Funding of Delaware, L.L.C. |
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2003A |
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2003B |
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2004A |
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2005A |
United States | 100 | ||||||
Collegiate Funding Services Education Loan Trust 2005B |
United States | 100 | ||||||
Chase Ventures Holdings, Inc. |
United States | 100 | ||||||
Commercial Loan Partners L.P. |
United States | 58.6275 | (17) | |||||
Cross Country Insurance Company |
United States | 100 | ||||||
CSL Leasing, Inc. |
United States | 100 | ||||||
DNT Asset Trust |
United States | 100 | ||||||
Ventures Business Trust |
United States | 100 | ||||||
FA Out-of-State Holdings, Inc. |
United States | 100 | ||||||
Ahmanson Marketing, Inc. |
United States | 100 | ||||||
FA California Aircraft Holding Corp. |
United States | 100 | ||||||
Pacific Centre Associates LLC |
United States | 54.86 | (18) | |||||
WMRP Delaware Holdings LLC |
United States | 97.84 | (19) | |||||
Irvine Corporate Center, Inc. |
United States | 100 | ||||||
Rivergrade Investment Corp. |
United States | 32.8 | (20) | |||||
Savings of America, Inc. |
United States | 100 | ||||||
WaMu Insurance Services, Inc. |
United States | 100 | ||||||
Washington Mutual Community Development, Inc. |
United States | 100 | ||||||
FC Energy Finance I, Inc. |
United States | 100 | ||||||
FC Energy Finance II, Inc. |
United States | 100 | ||||||
FDC Offer Corporation |
United States | 100 | ||||||
Paymentech, Inc. |
United States | 100 | ||||||
FNBC Leasing Corporation |
United States | 100 | ||||||
ICIB Fund I Holdings, Inc. |
United States | 100 | ||||||
Georgetown/Chase Phase I LLC |
United States | 99 | (21) | |||||
Georgetown/Chase Phase II, LLC |
United States | 99 | (22) | |||||
Harvest Opportunity Holdings Corp. |
United States | 100 | ||||||
HCP Properties, Inc. |
United States | 100 | ||||||
J.P. Morgan Electronic Financial Services, Inc. |
United States | 100 | ||||||
J.P. Morgan International Inc. |
United States | 100 | ||||||
Bank One International Holdings Corporation |
United States | 100 | ||||||
Bank One Europe Limited |
England | 100 | ||||||
J.P. Morgan International Finance Limited |
United States | 100 | ||||||
Banco J.P. Morgan S.A. |
Brazil | 99.27 | (23) | |||||
J.P. Morgan Corretora de Cambio e Valores Mobiliarios S.A. |
Brazil | 100 | ||||||
J.P. Morgan
S.A. Distribuidora de Titulos e Valores Mobiliarios |
Brazil | 100 | ||||||
BOL (C) II, Inc. |
Delaware | 100 | ||||||
BOL Canada II Sub, Inc. |
United States | 100 | ||||||
BOL Canada II Trust |
United States | 100 | ||||||
BO Leasing II ULC |
Canada | 100 | ||||||
BOL Canada I, Inc. |
United States | 100 | ||||||
BOL Canada I Sub, Inc. |
United States | 100 | ||||||
BO Leasing I ULC |
Canada | 100 | ||||||
BOL Canada III, Inc. |
United States | 100 | ||||||
BOL Canada III Sub, Inc. |
United States | 100 | ||||||
BO Leasing III ULC |
Canada | 100 | ||||||
Brysam
Global Partners (AV-1), L.P. |
Cayman Islands | 98.0392 | ||||||
AEF, LLC |
United States | 100 |
243
Percentage of voting | |||||||||
Organized under | securities owned by | ||||||||
Name | the laws of | immediate parent | |||||||
Apoyo Economico Familiar, S.de R.L. de C.V. |
Mexico | 100 | |||||||
CB J.P. Morgan Bank International (LLC) |
Russia | 99 | (24) | ||||||
Chase Manhattan Holdings Limitada |
Brazil | 99.99 | |||||||
Dearborn Merchant Services, Inc |
Canada | 100 | |||||||
Chase Paymentech Solutions |
Canada | 51 | (25) | ||||||
First Data/Paymentech Canada Partner ULC |
Canada | 100 | |||||||
Inversiones J.P. Morgan Limitada |
Chile | 99.942 | (26) | ||||||
J.P. Morgan (Suisse) SA |
Switzerland | 100 | |||||||
J.P. Morgan Bank (Ireland) plc |
Ireland | 100 | |||||||
J.P. Morgan Administration Services (Ireland) Limited |
Ireland | 100 | |||||||
JPMorgan Hedge Fund Services (Ireland) Limited |
Ireland | 100 | |||||||
J.P. Morgan Bank Canada |
Canada | 100 | |||||||
J.P. Morgan Bank Luxembourg S.A. |
Luxembourg | 99.99 | (27) | ||||||
J.P. Morgan Beteiligungs- und Verwaltungsgesellschaft mbH |
Germany | 99.8 | (28) | ||||||
J.P. Morgan AG |
Germany | 100 | |||||||
J.P. Morgan Capital Holdings Limited |
England | 72.727 | (29) | ||||||
J.P. Morgan Chase (UK) Holdings Limited |
England | 100 | |||||||
J.P. Morgan Chase International Holdings |
England | 100 | |||||||
J.P. Morgan EU Holdings Limited |
England | 100 | |||||||
J.P. Morgan Equities Limited |
South Africa | 100 | |||||||
J.P. Morgan Europe Limited |
England | 100 | |||||||
Crosby Sterling (Holdings) Limited |
England | 79 | (30) | ||||||
J.P. Morgan Markets LLP |
England | 36.02 | (31) | ||||||
J.P. Morgan Chase Finance Limited |
England | 65 | (32) | ||||||
JPMorgan Cazenove Holdings |
England | 50.01 | |||||||
J.P. Morgan Securities Ltd. |
England | 98.947 | (33) | ||||||
J.P. Morgan Securities Ltd. - Milan Branch |
Italy | 100 | |||||||
Morgan Property Development Company Limited |
England | 100 | |||||||
Robert Fleming (Overseas) Number 2 Limited |
England | 100 | |||||||
J.P. Morgan plc |
England | 100 | |||||||
J.P. Morgan Holdings B.V. |
Netherlands | 100 | |||||||
J.P. Morgan Chase Bank Berhad |
Malaysia | 100 | |||||||
J.P. Morgan Chile Limitada |
Chile | 99.8 | (34) | ||||||
J.P. Morgan Funding South East Asia Private Limited |
Singapore | 100 | |||||||
J.P. Morgan (S.E.A.) Limited |
Singapore | 100 | |||||||
J.P. Morgan
Grupo Financiero S.A. De C.V. |
Mexico | 99.66 | (35) | ||||||
Banco J.P. Morgan S.A., Institucion de Banca Multiple, J.P. Morgan Grupo Financiero |
Mexico | 99.99 | (36) | ||||||
Banco J.P. Morgan Socio Liquidador |
Mexico | 100 | |||||||
J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero |
Mexico | 99.99 | (37) | ||||||
J.P. Morgan Servicios, S.A. de C.V., J.P. Morgan Grupo Financiero |
Mexico | 99 | (38) | ||||||
J.P. Morgan Holdings (Hong Kong) Limited |
Hong Kong | 99.8 | (39) | ||||||
Copthall Mauritius Investment Limited |
Mauritius | 100 | |||||||
J.P. Morgan Futures (Korea) Limited |
Korea, South | 100 | |||||||
J.P. Morgan Securities (Far East) Limited |
Hong Kong | 99.9999999 | (40) | ||||||
J.P. Morgan Broking (Hong Kong) Limited |
Hong Kong | 99.99999 | (41) | ||||||
J.P. Morgan Futures Co., Limited |
China, Peoples Republic of | 49 | |||||||
J.P. Morgan International Derivatives Ltd. |
Jersey | 100 | |||||||
J.P. Morgan International Holdings Limited |
Cayman Islands | 100 | |||||||
J.P. Morgan India Securities Holdings Limited |
Mauritius | 55.714 | (42) | ||||||
J.P. Morgan India Private Limited |
India | 99.9999726 | (43) | ||||||
J.P. Morgan Indonesia Holdings (B.V.I.) Limited |
British Virgin Islands | 100 | |||||||
J.P. Morgan Securities Singapore Private Limited |
Singapore | 100 | |||||||
J.P. Morgan Securities Thailand Holdings Limited |
British Virgin Islands | 100 | |||||||
PGW Limited |
Thailand | 99.9997 | |||||||
JPMorgan Securities (Thailand) Limited |
Thailand | 50.100001 | (44) | ||||||
Jadeling Malaysia Holdings Limited |
British Virgin Islands | 100 | |||||||
JPMorgan Securities (Malaysia) Sdn. Bhd. |
Malaysia | 100 | |||||||
J.P. Morgan Investimentos e Financas Ltda. |
Brazil | 99.79 | (45) | ||||||
J.P. Morgan Luxembourg International S.à r.l. |
Luxembourg | 100 | |||||||
J.P. Morgan Malaysia Ltd. |
Malaysia | 100 | |||||||
J.P. Morgan Overseas Capital Corporation |
United States | 100 | |||||||
J.P. Morgan Australia Group Pty Limited |
Australia | 100 | |||||||
J.P. Morgan Operations Australia Limited |
Australia | 100 | |||||||
J.P. Morgan Administrative Services Australia Limited |
Australia | 100 | |||||||
J.P. Morgan Australia Limited |
Australia | 100 |
244
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
J.P. Morgan Portfolio Services Limited |
Australia | 100 | ||||||
JFOM Pty Limited |
Australia | 100 | ||||||
OMG Australia Pty Limited |
Australia | 100 | ||||||
J.P. Morgan Securities Australia Limited |
Australia | 100 | ||||||
JPMorgan Investments Australia Limited |
Australia | 100 | ||||||
J.P. Morgan Markets Australia Pty Limited |
Australia | 100 | ||||||
J.P. Morgan Espana S.A. |
Spain | 100 | ||||||
J.P. Morgan International Bank Limited |
England | 100 | ||||||
J.P. Morgan Securities Canada Inc. |
Canada | 100 | ||||||
J.P. Morgan Whitefriars Inc. |
United States | 100 | ||||||
J.P. Morgan Whitefriars (UK) |
England | 99.99 | (46) | |||||
JPMorgan Corporacion Financiera S.A. |
Colombia | 90 | (47) | |||||
PT J.P. Morgan Securities Indonesia |
Indonesia | 42.5 | (48) | |||||
J.P. Morgan Pakistan Broking (Private) Limited |
Pakistan | 99.999 | ||||||
J.P. Morgan Partners (CMB Reg K GP), Inc. |
United States | 100 | ||||||
J.P. Morgan Saudi Arabia Limited |
Saudi Arabia | 95 | (49) | |||||
J.P. Morgan Securities (C.I.) Limited |
Jersey | 100 | ||||||
J.P. Morgan (Jersey) Limited |
Jersey | 100 | ||||||
J.P. Morgan Securities (Taiwan) Limited |
Taiwan | 72.3 | (50) | |||||
J.P. Morgan Securities Asia Private Limited |
Singapore | 100 | ||||||
J.P. Morgan Securities Holdings (Hong Kong) Limited |
Hong Kong | 86.38172 | (51) | |||||
J.P. Morgan Securities (Asia Pacific) Limited |
Hong Kong | 99.99999 | (52) | |||||
J.P. Morgan Securities Holdings (Caymans) Limited |
Cayman Islands | 99.9999 | (53) | |||||
J.P. Morgan Securities India Private Limited |
India | 89.99999 | (54) | |||||
J.P. Morgan Securities Philippines, Inc. |
Philippines | 99.9997 | ||||||
J.P. Morgan Securities South Africa (Proprietary) Limited |
South Africa | 100 | ||||||
JPMorgan Administration Services (Proprietary) Limited |
South Africa | 100 | ||||||
J.P. Morgan Structured Products B.V. |
Netherlands | 100 | ||||||
J.P. Morgan Trust Company (Jersey) Limited |
Jersey | 100 | ||||||
JPMorgan Holdings (Japan) LLC |
United States | 100 | ||||||
JPMorgan
Securities Japan Co., Ltd. |
Japan | 85.042735 | (55) | |||||
Bear Stearns (Japan), LLC |
United States | 100 | ||||||
JPMorgan Trust Bank Limited |
Japan | 72.1625613 | (56) | |||||
Norchem Holdings e Negocios S.A. |
Brazil | 48.97 | (57) | |||||
NorChem Participacoes e Consultoria S.A. |
Brazil | 50 | ||||||
Vastera Bermuda LP |
Bermuda | 99.99 | (58) | |||||
Vastera Netherlands B.V. |
Netherlands | 100 | ||||||
J.P. Morgan Mortgage Acquisition Corp. |
United States | 100 | ||||||
J.P. Morgan Treasury Technologies Corporation |
United States | 100 | ||||||
JPMorgan Chase Bank (China) Company Limited |
China, Peoples Republic of | 100 | ||||||
JPMorgan
Chase Bank, N.A. - Asia Pacific Area Office |
Hong Kong | 0 | ||||||
JPMorgan Chase Vastera Inc. |
United States | 100 | ||||||
JPMorgan Chase Vastera Professional Services Inc. |
United States | 100 | ||||||
JPMorgan Investment Advisors Inc. |
United States | 100 | ||||||
JPMorgan Xign Corporation |
United States | 100 | ||||||
Manufacturers Hanover Leasing International Corp. |
United States | 100 | ||||||
Meliora Holding Corp. |
United States | 100 | ||||||
Pike Street Holdings, Inc. |
United States | 100 | ||||||
Providian Bancorp Services |
United States | 100 | ||||||
Seafair Securities Holding Corp. |
United States | 100 | ||||||
Second and Union, LLC |
United States | 100 | ||||||
South Cutler Corporation |
United States | 100 | ||||||
Stockton
Plaza, Incorporated |
United States | 100 | ||||||
Washington Mutual Brokerage Holdings, Inc. |
United States | 100 | ||||||
WaMu Investments, Inc. |
United States | 100 | ||||||
Washington Mutual Mortgage Securities Corp. |
United States | 100 | ||||||
WM Marion Holdings, LLC |
United States | 100 | ||||||
Cranbrook Real Estate Investment Trust |
United States | 100 | ||||||
Washington Mutual Preferred Funding LLC |
United States | 100 | ||||||
WM Specialty Mortgage LLC |
United States | 100 | ||||||
WM Winslow Funding LLC |
United States | 100 | ||||||
WMB Baker LLC |
United States | 100 | ||||||
WMICC Delaware Holdings LLC |
United States | 100 | ||||||
JPMorgan Chase Funding Inc. |
United States | 100 | ||||||
J.P. Morgan Ventures Energy Corporation |
United States | 100 |
245
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
BE Investment Holding Inc. |
United States | 100 | ||||||
Arroyo Energy Investors LLC |
United States | 100 | ||||||
Argonaut Power LP |
United States | 99 | (59) | |||||
Arroyo DP Holding LP |
United States | 100 | ||||||
Brush Gas Holdings, LLC |
United States | 99 | (60) | |||||
Central Power Holdings LP |
United States | 100 | ||||||
Okwari CB Holdings LP |
United States | 100 | ||||||
Okwari UCF LP |
United States | 100 | ||||||
Thermo Holdings LP |
United States | 100 | ||||||
JPMorgan Ventures Energy (Asia) Pte Ltd |
Singapore | 100 | ||||||
PropPartners Master Fund L.P. |
Cayman Islands | 99.9 | (61) | |||||
JPMorgan Distribution Services, Inc. |
United States | 100 | ||||||
JPMorgan Funds Management, Inc. |
United States | 100 | ||||||
JPMorgan Private Capital Asia Corp. |
United States | 100 | ||||||
JPMorgan Private Capital Asia General Partner, L.P. |
Cayman Islands | 100 | ||||||
JPMorgan Private Capital Asia Fund I, L.P. |
Cayman Islands | 100 | ||||||
JPMorgan PCA Holdings (Mauritius) I Limited |
Mauritius | 100 | ||||||
JPMorgan Securities Holdings LLC |
United States | 100 | ||||||
J.P. Morgan Commercial Mortgage Investment Corp. |
United States | 100 | ||||||
J.P. Morgan Institutional Investments Inc. |
United States | 100 | ||||||
Neovest, Inc. |
United States | 100 | ||||||
JPMorgan Special Situations Asia Corporation |
United States | 100 | ||||||
JPMorgan Mauritius Holdings VI Limited |
Mauritius | 100 | ||||||
Harbour Victoria Investment Holdings Limited |
Mauritius | 100 | ||||||
Indocean Financial Holding Limited |
Mauritius | 100 | ||||||
JPMorgan Mauritius Holdings II Limited |
Mauritius | 100 | ||||||
JPMorgan Mauritius Holdings IV Limited |
Mauritius | 100 | ||||||
JPMorgan Mauritius Holdings VII Limited |
Mauritius | 100 | ||||||
JPMorgan Special Situations (Mauritius) Limited |
Mauritius | 100 | ||||||
J.P. Morgan Advisors India Private Limited |
India | 99.9999995 | (62) | |||||
Magenta Magic Limited |
British Virgin Islands | 100 | ||||||
J.P. Morgan Partners, LLC |
United States | 100 | ||||||
JPMP Capital, LLC |
United States | 100 | ||||||
J.P. Morgan Capital, L.P. |
United States | 99.5 | (63) | |||||
J.P. Morgan Investment Holdings, LLC |
United States | 100 | ||||||
JPMCC Belgium S.P.R.L. |
Belgium | 100 | ||||||
JPMCC Belgium (SCA) |
United States | 100 | ||||||
J.P. Morgan Partnership Capital Corporation |
United States | 100 | ||||||
J.P. Morgan Partnership Investment Corporation |
United States | 100 | ||||||
Peabody Real Estate Partnership Corporation |
United States | 100 | ||||||
The Peabody Fund Consultants, Inc. |
United States | 100 | ||||||
JPMREP Holding Corporation |
United States | 100 | ||||||
JPMorgan Real Estate Partners, L.P. |
United States | 99.9 | (64) | |||||
PIM Commons, LLC |
United States | 100 | ||||||
Patriot-JPM Conti Charlotte Holdings, LLC |
United States | 90 | ||||||
PIM/KMG Norwood, LLC |
United States | 80 | ||||||
PIM/Waterton Portland Hotel, LLC |
United States | 85 | ||||||
PIM Winchester, LLC |
United States | 100 | ||||||
LabMorgan Corporation |
United States | 100 | ||||||
LabMorgan Investment Corporation |
United States | 100 | ||||||
MorServ, Inc. |
United States | 100 | ||||||
NBD Community Development Corporation |
United States | 100 | ||||||
Offshore Equities, Inc. |
United States | 100 | ||||||
Park Assurance Company |
United States | 100 | ||||||
Special Situations Investing Inc. |
United States | 100 | ||||||
The Bear Stearns Companies LLC |
United States | 100 | ||||||
383 Corporate Funding Inc. |
United States | 100 | ||||||
383 Corporate Funding LLC |
United States | 100 | ||||||
Arctos Partners Inc. |
United States | 100 | ||||||
Bear Growth Capital Partners, LP |
United States | 100 | ||||||
Bear Hunter Holdings LLC |
United States | 59.63 | (65) | |||||
Bear Stearns Asset Management Inc. |
United States | 100 | ||||||
Bear Stearns Access Fund III, L.P. |
United States | 1 | (66) | |||||
Bear Stearns Access Fund IV, L.P. |
United States | 1 | (67) | |||||
Bear Stearns Access Fund V, L.P. |
United States | 1 |
246
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Bear Stearns Access Fund VI, L.P. |
United States | 1 | ||||||
Bear Stearns Access Fund VII, L.P. |
United States | 1 | ||||||
Bear Stearns Private Equity Opportunity Fund II, L.P. |
United States | 1 | ||||||
Bear Stearns Fund of Hedge Funds Associates LLC |
United States | 100 | ||||||
BX, L.P. |
United States | 100 | ||||||
Bear Stearns Private Opportunity Ventures, L.P. |
United States | 1.07 | ||||||
Bear Stearns Venture Partners, L.P. |
United States | 100 | ||||||
BSAM Capital Investments Limited |
England | 100 | ||||||
Measurisk, LLC |
United States | 80 | ||||||
Bear Stearns Capital Markets Inc. |
United States | 100 | ||||||
Bear Stearns Alternative Assets II Inc. |
United States | 100 | ||||||
Bear Stearns Alternative Assets III Inc. |
United States | 100 | ||||||
Bear Stearns Global Alternative Assets International Limited |
Cayman Islands | 100 | ||||||
Bear Stearns Alternative Assets International Limited |
Cayman Islands | 100 | ||||||
Bear Stearns Caribbean Asset Holdings Ltd. |
Barbados | 100 | ||||||
Bear Stearns Corporate Lending Inc. |
United States | 100 | ||||||
Bear Stearns Equity Strategies RT LLC |
United States | 100 | ||||||
Bear Stearns Financial Products Inc. |
United States | 100 | ||||||
Bear Stearns Global Lending Limited |
Cayman Islands | 100 | ||||||
Bear Stearns International Funding I, Inc. |
United States | 100 | ||||||
Bear Stearns International Funding (Bermuda) Limited |
Bermuda | 50 | (68) | |||||
Bear Stearns Overseas Funding Unlimited |
England | 100 | ||||||
Bear Stearns International Funding II, Inc. |
United States | 100 | ||||||
Bear Stearns Investment Products Inc. |
United States | 100 | ||||||
Aircraft Certificate Seller LLC |
United States | 100 | ||||||
Alpha Financing BS LLC |
United States | 100 | ||||||
Bear Stearns Irish Holdings Inc. |
United States | 100 | ||||||
Bear Stearns International Funding I S.à r.l. |
Luxembourg | 100 | ||||||
Bear Stearns International Funding II S.à r.l. |
Luxembourg | 100 | ||||||
Bear Stearns International Funding III S.à r.l. |
Luxembourg | 100 | ||||||
Bear Stearns Ireland Limited |
Ireland | 100 | ||||||
Bear Stearns Bank plc |
Ireland | 100 | ||||||
Bear Stearns Services Inc. |
United States | 100 | ||||||
Bear Stearns UK Holdings Limited |
England | 100 | ||||||
Bear Stearns Holdings Limited |
England | 100 | ||||||
Bear Stearns International Trading Limited |
England | 100 | ||||||
Bear, Stearns International Limited |
England | 100 | ||||||
Bear Strategic Investments Corp. |
United States | 100 | ||||||
Bear Stearns Singapore Holdings Pte Ltd |
Singapore | 100 | ||||||
Bear Stearns
Singapore Management Pte. Ltd. |
Singapore | 100 | ||||||
Bear Stearns Financial Services (India) Private Ltd. |
India | 99.9999983 | (69) | |||||
Bear UK Mortgages Limited |
England | 100 | ||||||
Rooftop Funding Limited |
England | 100 | ||||||
Rooftop Mortgages Limited |
England | 100 | ||||||
Bear, Stearns International Holdings Inc. |
United States | 100 | ||||||
Bear Stearns Hong Kong Limited |
Hong Kong | 99.999 | (70) | |||||
Bear Stearns Asia Limited |
Hong Kong | 99.9999667 | (71) | |||||
BSG Insurance Holdings Limited |
England | 93 | ||||||
Minster Insurance Company Limited |
England | 100 | ||||||
Bear, Stearns Netherlands Holding B.V. |
Netherlands | 100 | ||||||
Bear, Stearns Realty Investors, Inc. |
United States | 100 | ||||||
BSC Life Settlement Holdings, LLC |
United States | 100 | ||||||
Thyme Settlements Limited |
Ireland | 100 | ||||||
CL II Holdings LLC |
United States | 100 | ||||||
Commercial Lending II LLC |
United States | 99 | (72) | |||||
Commercial Lending III LLC |
United States | 99 | (73) | |||||
Community Capital Markets LLC |
United States | 100 | ||||||
Commercial Lending LLC |
United States | 99 | (74) | |||||
Constellation Venture Capital II, L.P. |
United States | 0.89 | ||||||
Constellation Venture Capital Offshore II, L.P. |
United States | 0.56 | ||||||
eCAST Settlement Corporation |
United States | 100 | ||||||
EMC Mortgage Corporation |
United States | 100 | ||||||
EMC Mortgage SFJV 2005, LLC |
United States | 70 | ||||||
SFJV 2005, LLC |
United States | 70 | ||||||
Gregory/Madison Avenue LLC |
United States | 100 |
247
Percentage of voting | ||||||||
Organized under | securities owned by | |||||||
Name | the laws of | immediate parent | ||||||
Indiana Four Holdings LLC |
United States | 99 | (75) | |||||
Indiana Four LLC |
United States | 99 | (76) | |||||
Madison Insurance Company, Inc. |
United States | 100 | ||||||
Madison
Vanderbilt Holdings, LLC |
United States | 100 | ||||||
MV Partners Fund I, L.P. |
United States | 100 | ||||||
Max Recovery Australia Pty Limited |
Australia | 100 | ||||||
MAX Recovery Inc. |
United States | 100 | ||||||
MAX Flow Corp. |
United States | 100 | ||||||
Max Recovery Limited |
England | 100 | ||||||
MLP Investment Holdings, Inc. |
United States | 100 | ||||||
New Castle Holding, Inc. |
United States | 100 | ||||||
Plymouth Park Tax Services LLC |
United States | 100 | ||||||
Madison Tax Capital, LLC |
United States | 100 | ||||||
Principal Real Estate Funding Corporation Limited |
England | 100 | ||||||
Strategic Mortgage Opportunities REIT Inc. |
United States | 100 | ||||||
Max Recovery Canada Company |
United States | 100 | ||||||
(1) | OEP General Partner II, L.P. owns 0.1% | |
(2) | OEP Management LLC owns 0.1% | |
(3) | First Chicago Leasing Corporation owns 99.99% | |
(4) | JPMP Master Fund Manager, L.P. owns 20% | |
(5) | Ixe Banco, S.A., Institucion de Banca Multiple, Ixe Grupo Financiero owns 50% | |
(6) | JPMC Wind Assignor Corporation owns 50.005% | |
(7) | J.P. Morgan Financial Investments Limited owns 0.01% | |
(8) | J.P. Morgan International Finance Limited owns 0.00042485% | |
(9) | Highbridge Principal Strategies (UK) II, Ltd owns 50% | |
(10) | JPMorgan Asset Management Holdings Inc. owns 0.00002% | |
(11) | JPMorgan Asset Management (Asia) Inc. owns 0.0000002% | |
(12) | JPMorgan Asset Management (Europe) S.à r.l. owns 0.1% | |
(13) | JPMorgan Asset Management (Europe) S.à r.l. owns 0.01% | |
(14) | JPMorgan Asset Management Holdings (Luxembourg) S.à r.l. owns 0.03% | |
(15) | FNBC Leasing Corporation owns 99.99% | |
(16) | CPCC Massachusetts Business Trust owns 0.5% | |
(17) | Savings of America, Inc. owns 41.3725% | |
(18) | Stockton Plaza, Incorporated owns 32.4% and Irvine Corporate Center, Inc. owns 12.74% | |
(19) | Stockton Plaza, Incorporated owns 2.16% | |
(20) | Ahmanson Marketing, Inc. owns 1.4% and Commercial Loan Partners L.P. owns 25% and JPMorgan Chase Bank, National Association owns 25.8% and Savings of America, Inc. owns 15% | |
(21) | Easton Phase I SPE Corp. owns 1% | |
(22) | Easton Phase II SPE Corp. owns 1% | |
(23) | Chase Manhattan Holdings Limitada owns 0.4226% | |
(24) | J.P. Morgan plc owns 1% | |
(25) | First Data/Paymentech Canada Partner ULC owns 49% | |
(26) | J.P. Morgan International Inc. owns 0.008% and Chase Manhattan Overseas Finance Corporation owns 0.05% | |
(27) | Chase Manhattan Overseas Finance Corporation owns 0.01% | |
(28) | J.P. Morgan AG owns 0.2% | |
(29) | J.P. Morgan Overseas Capital Corporation owns 27.272% and J.P. Morgan International Inc. owns 0.001% | |
(30) | J.P. Morgan Chase International Holdings owns 21% | |
(31) | J.P. Morgan plc owns 27.07% and J.P. Morgan Securities Ltd. owns 27.29% and J.P. Morgan Whitefriars (UK) owns 9.62% | |
(32) | J.P. Morgan Securities Ltd. owns 35% | |
(33) | J.P. Morgan Capital Financing Limited owns 1.053% | |
(34) | J.P. Morgan Overseas Capital Corporation owns 0.2% | |
(35) | J.P. Morgan Overseas Capital Corporation owns 0.34% | |
(36) | J.P. Morgan International Finance Limited owns 0.01% | |
(37) | J.P. Morgan International Inc. owns 0.01% | |
(38) | J.P. Morgan International Finance Limited owns 1% | |
(39) | Fledgeling Nominees International Limited owns 0.2% | |
(40) | Fledgeling Nominees International Limited owns 0.0000001% | |
(41) | J.P. Morgan Holdings (Hong Kong) Limited owns 0.00001% | |
(42) | Fledgeling Nominees International Limited owns 44.286% | |
(43) | J.P. Morgan International Finance Limited owns 0.0000274% | |
(44) | Fledgeling Nominees International Limited owns 0.000003% and J.P. Morgan Holdings (Hong Kong) Limited owns 0.000003% and J.P. Morgan International Finance Limited owns 30.283423% and J.P. Morgan International Holdings Limited owns 19.616564% and J.P. Morgan Secretaries (B.V.I.) Limited owns 0.000003% and J.P. Morgan Securities (Far East) Limited owns 0.000003% | |
(45) | J.P. Morgan Overseas Capital Corporation owns 0.21% | |
(46) | J.P. Morgan Financial Investments Limited owns 0.01% | |
(47) | J.P. Morgan International Finance Limited owns 10% | |
(48) | J.P. Morgan Securities Asia Private Limited owns 13.75% and J.P. Morgan Indonesia Holdings (B.V.I.) Limited owns 42.5% | |
(49) | J.P. Morgan International Inc. owns 5% | |
(50) | J.P. Morgan International Holdings Limited owns 27.7% | |
(51) | Fledgeling Nominees International Limited owns 0.0001% and J.P. Morgan Holdings (Hong Kong) Limited owns 0.00001% and J.P. Morgan Securities (Far East) Limited owns 2.84613% and JPMorgan Securities Japan Co., Ltd. owns 10.77214% | |
(52) | Chase Manhattan Overseas Finance Corporation owns 0.00001% | |
(53) | Fledgeling Nominees International Limited owns 0.0001% | |
(54) | J.P. Morgan Overseas Capital Corporation owns 10.00001% | |
(55) | J.P. Morgan Luxembourg International S.à r.l. owns 14.957265% |
248
(56) | J.P. Morgan Chase International Holdings owns 27.8374387% | |
(57) | Chase Manhattan Holdings Limitada owns 29.2735% | |
(58) | Vastera Bermuda, LLC owns 0.01% | |
(59) | Arroyo Power GP Holdings LLC owns 1% | |
(60) | Arroyo Power GP Holdings LLC owns 1% | |
(61) | J.P. Morgan Ventures Investment Corporation owns 0.01% | |
(62) | JPMorgan Special Situations Asia Corporation owns 0.0000005% | |
(63) | J.P. Morgan Capital Management Company, L.P. owns 0.5% | |
(64) | JPMREP General Partner, L.P. owns 0.1% | |
(65) | Bear Strategic Investments Corp. owns 40.37% | |
(66) | The Bear Stearns Companies LLC owns 99% | |
(67) | The Bear Stearns Companies LLC owns 99% | |
(68) | Bear Stearns International Funding II, Inc. owns 50% | |
(69) | Bear Stearns Singapore Holdings Pte Ltd owns 0.0000017% | |
(70) | The Bear Stearns Companies LLC owns 0.001% | |
(71) | The Bear Stearns Companies LLC owns 0.0000333% | |
(72) | CL II Management LLC owns 1% | |
(73) | CL III Management LLC owns 1% | |
(74) | NMTC Management LLC owns 1% | |
(75) | Bear Stearns N.Y., Inc. owns 1% | |
(76) | Bear Stearns N.Y., Inc. owns 1% | |
249
250
1. | I have reviewed this annual report on Form 10-K of JPMorgan Chase & Co.; | |
2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ James Dimon | ||||
James Dimon | ||||
Chairman and Chief Executive Officer | ||||
251 | JPMorgan Chase & Co. / 2008 Annual Report |
1. | I have reviewed this annual report on Form 10-K of JPMorgan Chase & Co.; | |
2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Michael J. Cavanagh | ||||
Michael J. Cavanagh | ||||
Executive Vice President and Chief Financial Officer | ||||
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1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of JPMorgan Chase & Co. |
Date: March 2, 2009 | By: | /s/ James Dimon | ||
James Dimon | ||||
Chairman and Chief Executive Officer | ||||
Date: March 2, 2009 | By: | /s/ Michael J. Cavanagh | ||
Michael J. Cavanagh | ||||
Executive Vice President and Chief Financial Officer | ||||
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