March 11, 2011

JPMorgan Chase & Co.

Primary Credit Analyst: Stuart Plesser, New York (1) 212-438-6870; stuart_plesser@standardandpoors.com Secondary Contact: Matthew Albrecht, CFA, New York 212-438-1867; matthew_albrecht@standardandpoors.com

Table Of Contents
Major Rating Factors Rationale Outlook Profile: Strong Franchises In A Wide Breadth Of Businesses Support And Ownership: Benefits From Implicit Government Backing As A Systemically Important U.S. Bank Strategy: International Expansion And Cross-Selling Across Business Units Risk Profile And Management: Capabilities Are Strong In The Face Of Significant Risks Accounting Profitability: Good Earnings Potential Capital: Improved

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Major Rating Factors
Strengths:
One of the largest retail deposit-gathering/branch-banking bases in the U.S. Diversified earnings stream and good cost management Leading position in core markets Better underwriting standards than most U.S. peers' during the recent market turmoil Above-average funding flexibility and liquidity High systemic importance owing to size and role in global capital markets Counterparty Credit Rating
A+/Stable/A-1

Weaknesses:
Exposure to real estate loans that could see further credit deterioration Exposure to mortgage put-back risk Earnings volatility High confidence sensitivity of some business franchises and reliance on wholesale funding in its large trading operations Regulatory uncertainty

Rationale
Standard & Poor's Ratings Services' ratings on JPMorgan Chase & Co. (JPM) reflect the company's very strong competitive position as one of the leading global financial-services firms and its excellent earnings-generation capacity. With assets totaling $2.1 trillion, JPM enjoys a broadly diversified franchise, with leading positions in investment banking, derivatives, syndicated lending, credit cards, mortgages, and funds transfers. The franchise is anchored by a strong U.S. branch-banking presence that yields a significant market share of deposits, creating a healthy balance among consumer, commercial, and investment-banking businesses. Apart from its U.S.-centered retail banking business, JPM has a high degree of geographic diversity. During the financial turmoil, JPM acted as a consolidator, acquiring Bear Stearns and some of Washington Mutual's assets at what we believe to be highly attractive prices, thereby bolstering the competitive positions of its core consumer/commercial and investment-banking businesses. Given its diversity, relatively cautious underwriting, and avoidance of larger residential mortgage, commercial real estate (CRE), and leveraged finance-related trading/inventory positions, JPM's earnings held up significantly better than most peers' during the recent financial turmoil. Earnings rebounded in 2009 from historically low levels, and profitability improved further in 2010 to a Standard & Poor's-adjusted pretax income of $25.3 billion (from $17.1 billion the previous year). JPM is well positioned to resume significant earnings growth as the general economy recovers, despite new government regulations, particularly in consumer lending and derivative trading, which are likely to pose some headwinds to earnings. Although we expect revenue to remain under pressure in 2011, due to a declining net interest

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margin (NIM) and lackluster loan demand, a further reduction in loan-loss provisions should lead to higher earnings. We expect the company to continue to expand its international revenue, which comprised 22% of total revenue in 2010. We also expect the company to continue to build on synergies across business units in terms of cross-selling to customers. Indeed, we believe that JPM's ability to deliver an array of client solutions is one of its key competitive advantages. We also expect the company to continue to build on its retail bank franchise, which should attract additional customers. Over time, we expect its retail financial-services division to be the company's top earnings driver. JPM's Tier 1 common ratio totaled 9.8% at year-end 2010. Management has estimated that its common Tier 1 ratio under Basel III totals 7.0%, the minimum required, assuming no additional capital requirements for systemically important institutions. JPM's capital ratios under our risk-adjusted capital framework (RACF) as of Sept. 30, 2010, totaled 6.3% before diversification and 8.2% after diversification, slightly better than peers'. We consider a RAC ratio (after diversification) of 8.0% sufficient for a bank to withstand a substantial stress ("A" level) in developed markets. We therefore deem JPM's current capital as modest to adequate for the current rating and expect the company to continue to build capital.

Outlook
The stable outlook reflects our expectation that JPM's earnings and asset quality will continue to improve in 2011. A low interest rate environment, lackluster loan demand, and the impact of legislation will likely challenge JPM's revenue. However, we expect further improvement in credit quality to result in significantly lower provisions. We expect capital to continue to build and payout ratios to remain modest. We could lower the ratings if credit-quality trends deteriorate due to higher unemployment rates and/or a significant decline in home prices. We could also lower the ratings if rule making regarding Dodd/Frank legislation crimps profitability more than we expect. Finally, a significant pickup in nonagency mortgage put-backs could also lead to a downgrade. Conversely, we could raise the ratings if loan demand and credit quality improve faster than we expect, resulting in JPM posting more normalized returns and better capital ratios than we expect.

Profile: Strong Franchises In A Wide Breadth Of Businesses

JPM's wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services, and Asset Management segments, whereas consumer businesses comprise the Retail Financial Services (RFS) and Card Services segments. JPM's RFS business has grown rapidly, partly through combinations with Chase (2000), Banc One (2004), Bank of New York's branch system (2006), and Washington Mutual (WaMu; 2008). JPM now has just 5,268 branches in 23 states, encompassing the broad middle portion of the country, as well as California, Texas, Florida, and the New York City metropolitan area. JPM has the third-largest branch network in the U.S. JPM's regional and consumer-banking operations (which are not branch based) command a substantial share of the U.S. consumer-lending market. JPM is among the top four players in terms of its U.S. deposit market share, its market share of ATMs, its market share in home equity originations, and its position in mortgage originations and servicing. It also is the largest noncaptive provider of auto finance. In addition, as of December 2010, JPM had

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among the top-three largest credit-card operations measured by outstandings. Finally, middle-market and small-business operations are strong throughout its branch network. JPM's Commercial Banking (CB) business has more than 24,000 clients nationally including corporations, municipalities, and financial institutions with annual revenue generally ranging from $10 million to $2 billion. This segment increased significantly as a result of the WaMu acquisition. The portfolio is highly diverse in terms of industry exposure and geography, and is granular, with loans less than $20 million constituting 80% of the portfolio. JPM has a strong investment-banking franchise, evidenced by its consistent presence among the top three in underwriting fees globally, and its leading positions across many capital-market activities. The company's investment-banking revenues remained strong in 2010, although market shares declined somewhat due to increased competition. For 2010, JPM ranked No. 3 in mergers and acquisitions (M&A) announced transactions, with an 18.1% market share; No. 4 in M&A completed transactions (17.5%); No. 3 in global equity and equity-linked underwriting (7.2%); and No. 2 in global debt underwriting (7.6%), all according to Thomson Reuters' league tables. JPM's sales and trading activities are extensive, covering a wide array of instruments. Trading revenues remained among the strongest in our large U.S. bank peer set, despite subdued client activity, persistent macro (sovereign) issues, and increased competition that narrowed bid/ask spreads. JPM's derivatives-dealing operations are among the largest, comprising the full spectrum of derivatives instruments. The portfolio of derivatives was $1.99 trillion (gross fair value of trading assets) as of Sept. 30, 2010. The acquisition of Bear Stearns helped it expand its commodities-trading franchise and prime brokerage business. We don't believe the Dodd/Frank act, which limits proprietary trading, will have a major impact on JPM, as this was a small component of its business. More important is pending rule-making by regulators regarding market making, as JPM garners a significant amount of its trading income through client activity. The Treasury & Securities Services (TSS) segment comprises high-return, low-capital-intensity processing businesses that generate substantial and relatively stable fee-based earnings. TSS has the No. 1 position in U.S. Treasury clearing and commercial payments. JPM has been a consolidator in these businesses as well, amassing a leading position in some of them. It provides custody services for $16.1 trillion (up 8% year-over-year) in securities (as of Dec. 31, 2010), placing it among the largest custodians in the world. It also provides trade finance and fiduciary services, check clearing, funds transfer, and cash management. Importantly, this business provides a stable and substantial base of deposits. A considerable overlap of clients exists between this business and the commercial client lending business. Notably, TSS generates roughly 50% of its revenue outside the U.S. With assets under management (AUM) of $1.3 trillion as of Dec. 31, 2010, JPM is among the 10 largest asset managers globally. (An additional $542 billion in brokerage or private client assets is under administration or custody, including deposits.) Approximately 53% of AUM relates to institutional clients. JPM is among the leading participants in private banking for very high-net-worth clients, providing a full range of onshore and offshore services. Overall, JPM has generated investment returns that are somewhat above average compared with those of peers, which helped lead to long-term inflows of $69 billion during 2010. JPM has been a large player in private equity, with direct ownership of investments having a carrying value of $8.73 billion as of Dec. 31, 2010, spread among publicly held securities, privately held direct securities, and third-party

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fund investments (including $1 billion of unfunded commitments). As expected, private-equity results remained volatile in 2010, though net income turned positive $588 million versus a loss of $78 million in 2009. In addition, this segment used to be a disproportionately heavy consumer of capital, but JPM has recently limited its investing activity in this area.
Chart 1

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Chart 2

Support And Ownership: Benefits From Implicit Government Backing As A Systemically Important U.S. Bank
The ratings on JPM don't receive any uplift from extraordinary government support because of JPM's already very strong stand-alone credit profile. JPM is a widely held public company. We believe JPM is highly systemically important to the U.S. banking system by virtue of its size, market share of deposits, large investment banking and trading businesses, and links to the payments system. Indeed, it was one of the first companies that issued preferred stock ($25 billion in JPM's case) under the Troubled Asset Relief Program as part of a show of support by the U.S. government in late 2008. Arguably, JPM had no immediate need for this capital infusion and took the funds as a show of support for the U.S. financial system.

Strategy: International Expansion And Cross-Selling Across Business Units

JPM is focusing on growing revenues outside the U.S., particularly in developing economies that will likely have higher growth rates than the U.S. in the coming years. The strategy revolves around creating growth plans centered on expanding business lines within Investment Banking (IB) and TSS businesses. In 2010, international revenue comprised 22% of JPM's total; we expect this percentage to increase in coming years. In addition, management is focusing on cross selling throughout its franchise, particularly TSS, IB, Asset Management, and CB. Management is also focusing on building out its existing branch net work with 200-225 new builds in 2011. Management believes that the branch network is the cornerstone to attract new business, not just in

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the RFS segment but as a cross-over for growth in other segments as well.

Risk Profile And Management: Capabilities Are Strong In The Face Of Significant Risks
We view JPM's risk-management abilities as strong. JPM faces significant credit, market, liquidity, and operational risk. In our view, the company has comprehensive risk governance that is compatible with the level of risks it takes. JPM has highly sophisticated risk analytics for measuring and managing the risks it faces. The risk systems provide timely and comprehensive risk-reporting capabilities. Senior management appears to be highly involved in the risk-management function. Risk reporting, measurement, and analysis also appear to play an integral role in the company's strategy and budgeting process.

Credit risk
In 2010, JPM's credit metrics improvement markedly from the prior year. Total credit costs almost halved, registering a decline across consumer and commercial loan segments. Although overall credit costs continued to decline, the level of net charge-offs (NCOs) in the mortgage and credit-card portfolios remained very high. JPM has taken various actions to tighten its underwriting standards (e.g., in mortgage lending, by curtailing use of the broker channel, concentrating on prime customers able to provide full documentation, and requiring larger down payments), but legacy issues remain.
Chart 3

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Chart 4

JPM's managed credit-card portfolio had outstandings of $137.6 billion as of Dec. 31, 2010, of which $13.7 billion relate to the WaMu acquisition. The managed NCO ratio (excluding WaMu) was 7.08% in the fourth quarter, down from 8.64% (understated by about 60 basis points [bps] due to a moratorium period) one year earlier. Even so, JPM's losses remained below average for the major players. We expect card NCOs to trend down in the first half of 2011. JPM's home equity portfolio had loans outstanding of $88.4 billion on Dec. 31, 2010 (excluding WaMu), of which less than 10% is subprime. The NCO rate declined to 3.19% in fourth-quarter 2010 (adjusting for one-time accelerated charge-offs of $632 million in fourth-quarter 2010) from 4.52% in 2009. Management has given guidance that quarterly charge-offs for its Retail Financial Services unit--which includes prime mortgage, subprime mortgage, and home equity--could increase during the next few quarters to around $1.2 billion per quarter (compared with the adjusted $725 million in the fourth quarter), which would equate to an annualized charge-off ratio of more than 5%. JPM's prime mortgage portfolio (mostly jumbo mortgages) had owned outstandings of $56 billion as of Dec. 31, 2010 (excluding WaMu). The NCO ratio declined to 1.7% from 3.81% a year earlier. The NCO rate for prime mortgages could rise due to possible defaults of modified mortgages and further home-price declines. JPM's subprime mortgage portfolio is relatively small compared with its peers', with owned outstandings of $11.3 billion as of Dec. 31, 2010 (excluding WaMu). JPM does not appear to be originating any new subprime loans.

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Total subprime loan outstandings declined 10% in the year ended December 2010 due to run off of the portfolio. The NCO ratio declined to 6.12% (adjusted as above) in the fourth quarter from 14.01% one year earlier. Including all of its business lines, JPM had aggregate wholesale loans outstanding of $227.6 billion as of Dec. 31, 2010, and an additional $346 billion of undrawn lending-related commitments--only about half of which likely will be drawn upon, judging by historical norms. In Commercial Banking's $98 billion portfolio, the NCO rate increased to 1.16% in fourth-quarter 2010, which is down from 1.92% in the prior-year quarter but is still relatively low versus peers', likely because of JPM's conservative underwriting standards. CRE woes have not been a pressing issue for JPM. Specifically, real estate loans totaled a manageable $65.2 billion as of Sept. 30, 2010, of which only $5.4 billion related to construction and land development. Overall, JPM's loan-loss reserves (LLR) totaled $32.2 billion at year-end 2010, down $5.9 billion from the first quarter. Firm-wide NPLs declined 15.5% to $14.8 billion at year-end 2010. The ratio of LLR to total loans stood at 4.46% and the LLR-to-NPL ratio was 190% (both excluding WaMu). These are both relatively strong measures compared with those of other large banks, but are down from higher levels in the previous year. The improvement in credit-card charge-offs was the main driver of JPM's reserve releases in 2010. Notably, the ratio of credit-card reserves to credit-card loans outstanding was down to 8.0% at year-end 2010 from 10.7% in first-quarter 2010. Because allowance levels for credit cards are nearing more historically normalized levels and charge-offs for JPM's other loan portfolios are likely to remain a concern for most of 2011, we expect lower levels of reserve releases in 2011. Apart from the wholesale credit risk related to its loan books, JPM has manageable credit exposures stemming from derivatives. Thus, derivative receivables on the balance sheet totaled $80.5 billion as of year-end 2010, which is the fair value of derivative contracts after giving effect to legally enforceable master netting agreements, cash collateral held by JPM, and credit reserves. Additional liquid securities held as collateral by JPM of $20.7 billion (as of Sept. 30, 2010) are not reflected. Of this exposure, 24% is to counterparties that JPM considers being speculative grade. JPM also has additional collateral of $19.7 billion (as of Sept.30, 2010) as an initial margin, as well as other credit enhancements in the form of letters of credit.

Market risk
Market risk is a substantial component of overall risk at JPM. The company avoided the massive, problematic mortgage-related and leveraged-lending trading positions that led to outsize losses for certain of its peers, but its exposures and related losses were nonetheless significant. The framework for managing that risk exhibits some strengths and weaknesses. Independent risk management generally monitors the bank's risk levels in quantitative terms, on the basis of stress-testing methodologies that we believe are among the most sophisticated in the industry. Risk is generally viewed on an integrated basis, with trade-offs among the various classes of risk. In general, the bank's risk-measurement techniques are state of the art, and JPM has improved its intraday risk-measurement capabilities--for example, by employing a wider range of stress tests than previously. It is executing more trades with straight-through processing. Risk management and the business units collaborate on limit approvals for trading desks and strictly enforce the consequences for breaches. JPM maintains a sizable available-for-sale securities portfolio (book value of $316 billion on Dec. 31, 2010, or 15%

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of total assets), partly for interest rate risk-management purposes. The investment mix is conservative. The bank monitors price risk in trading portfolios using a series of measures like value-at-risk and stress testing. The company's average trading and credit portfolio declined to $87 million for 2010 from $164 million in 2009. Also, because of the recent investment-portfolio repositioning, higher deposit balances, and reduced levels of fixed-rate loans, the company's sensitivity to interest rates has changed. A 100 bps immediate rise in interest rates would now increase the 12-month pretax earnings by roughly $1.5 billion, as against a possible $554 million loss at December 2009.

Funding and liquidity risk

In aggregate, JPM's businesses, excluding IB, are effectively fully deposit funded. Deposits roughly equal loans in its RFS and CB operations. TSS and Asset Management have substantial customer-related deposit surpluses, which together are sufficient to cover the funding needs related to JPM's credit-card business. Although we categorize about 55% of JPM's $930 billion deposit base (as of Dec. 31, 2010) as core, the customer-related funding resulting from its custody and middle-market commercial lending businesses is stable. On the other hand, IB-related assets (totaling $792.7 billion at Dec. 31, 2010) are wholesale funded, as is typical of the sector. Although very liquid assets--for which secured funding is generally readily available--comprise a significant portion of the total, reliance on wholesale funding nevertheless poses risks. Even amid the displaced market conditions of the past year, JPM, unlike some of its peers, did not have to rely significantly on the extraordinary short-term funding support programs extended by the U.S. government. The parent company consistently maintains at least 12 months' liquidity to meet maturing obligations, and it significantly exceeded that level this past year. In third-quarter 2010, JPM reported a new metric--Global liquidity reserve--which attempts to capture liquid assets available in times of stress. It totaled $272 billion, 12.7% of assets-less than similar metrics reported by peers. The company disclosed that its liquidity coverage ratio (LCR) under the proposed Basel III (meant to gauge a bank's buffer during a stress in liquidity) was estimated to be 53% as of second-quarter 2010, versus a required ratio of more than 100%. We note, though, that compliance with the Basel III LCR is not required until 2015 and that JPM has outlined various measures to increase this ratio, including asset reduction and changing the structure of its funding profile. These moves, though, may hurt profitability. Although it is lower than in previous years, double leverage is, in our view, still sigificant if hybrid capital is excluded from equity, leaving the holding company dependent on dividends to pay interest on debt and the fixed obligations on hybrid securities. However, mitigating that risk, the major bank subsidiaries are generally well capitalized, giving them substantial capacity to issue dividends. Reported contingent liabilities in the form of lending commitments, asset-purchase agreements, letters of credit, guarantees, and the like are massive, but related cash requirements have not been problematic. For one thing, JPM was not forced to fund conduits or structured investment vehicles. The potential impact of rating triggers in derivatives contracts is relatively minor. As of Sept. 30, 2010, a single-notch downgrade would have required JPM to post an additional $156 million of collateral.

Developing risks
Dodd/Frank legislation passed in July 2010 will likely impose headwinds to earnings, most of which were not captured in 2010 earnings. The most significant impact of legislation revolves around a reduction of debit-card income stemming from a lower interchange fee; regulatory action to move standardized and liquid swaps to clearinghouses, which will likely result in a reduction in profitability of swaps; the Volcker Rule, which prohibits a

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bank from engaging in proprietary trading in which it acts as a principal to profit from near-term price movements; and a recalculation of FDIC insurance premiums to align them with bank-specific risks. It is still difficult at present to estimate the exact earnings impact of the Dodd/Frank legislation. Still, we believe the impact on earnings will be manageable (see "What Financial Reform Could Cost The Largest U.S. Banks," published Nov. 2, 2010, on RatingsDirect). We expect JPM to take several strategic actions to mitigate the earnings impact of regulation, including raising the costs of products not directly affected by regulation. JPM continues to face repurchase risk from the repurchase of securitized loans that it originated. JPM had a repurchase reserve of $3.0 billion at year-end 2010, largely for agency put-backs. JPM added $5.1 billion in litigation reserves in 2010, which we believe is partly for potential nonagency repurchase claims. Although we think the company is well reserved for agency put-backs, the amount of nonagency put-backs could result in the need for a significant addition to reserves (see "Reassessing The Cost Of Mortgage Put-Back Risk For The U.S. Banking Industry," published Feb. 8, 2011, on RatingsDirect).
Table 1

Provisions For Mortgage Put-Back Risks

(Mil. $) Provision Charge-off EOP reserves
Source: JPMorgan Chase & Co.

2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 2010 1,612 523 667 1,464 349 3,003 580 1,705 246 277 1,982 317 350 2,332 489 964 3,296 1,052 349 1,951 3,000 3,000

Provision minus charge-off 1,032

JPM acquired the banking operations of Washington Mutual Bank on Sept. 25, 2008, for $1.9 billion. The negative goodwill that remained after writing down the nonfinancial assets was recognized as an extraordinary gain totaling $1.9 billion in fourth-quarter 2008. JPM acquired Washington Mutual's loans at a $22.8 billion discount to their prior book value (net of the existing LLR). To date, the company has added almost $4.9 billion to allowance for loan losses for deterioration of Washington Mutual's prime mortgages beyond original expectations. If home prices decline further, more reserves may be needed.

Accounting
Accounting issues do not affect JPM's profile in any meaningful manner. Assets carried at fair value on a recurring basis totaled $883.7 billion on Sept. 30, 2010, of which 14% (or 6% of total JPM assets) was categorized as Level 3, meaning the values are derived principally from internal models. JPM also designated $119 billion in liabilities and hedges ($59 billon structured notes and $60.1 billion hedges at fair value) to be marked to market as of year-end 2009. These generated $373 million in gains on the widening of the firm's own debt spreads in the first nine months of 2010. For our analytical purposes, we reverse gains and losses in both earnings and equity resulting from changes in the firm's own debt. JPM acquired Bear Stearns in a transaction completed on May 30, 2008, for only $1.5 billion, $900 million of which was allocated to goodwill. In conjunction with the acquisition, the Federal Reserve Bank of New York effectively assumed all risks relating to a portfolio of $30 billion in Bear Stearns' trading assets beyond a first-loss exposure of $1.15 billion borne by JPM in the form of a subordinated note, the value of which JPM wrote off in

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2008.

Profitability: Good Earnings Potential

JPM's results improved significantly in 2010 as lower credit costs in investment banking, RFS, and credit cards led to a 51% rise in its total Standard & Poor's-adjusted pretax income for 2010 to $27 billion. Reserve releases accounted for roughly $6 billion of the total. Although profitability measures remained less favorable compared to historical standards, JPM outperformed the majority of its peers.
Table 2

JPMorgan Chase & Co. Profitability Ratios

--Year-ended Dec. 31-(%) Net interest income/average earning assets Net interest income/revenues Fee income/revenues Market-sensitive income/revenues Personnel expense/revenues Noninterest expenses/revenues New loan loss provisions/revenues Net operating income before loan loss provisions/loan loss provisions Net operating income after loan loss provisions/revenues Pretax profit/revenues Tax/pretax profit Core earnings/revenues Core earnings/average adjusted assets Noninterest expenses/average adjusted assets Core earnings/average risk-weighted assets Core earnings/average adjusted common equity Pretax profit/average common equity (%) Table 3 2010 2.9 49.7 21.8 13.9 27.7 58.7 16.3 253.3 25.0 24.2 30.1 17.1 0.9 3.0 1.5 16.3 15.3 2009 2.9 51.0 24.5 11.0 27.2 51.6 31.5 153.5 16.9 16.0 27.3 10.1 0.5 2.5 0.8 10.8 11.1 2008 2.5 59.3 34.0 (14.1) 34.7 63.1 32.4 114.2 4.6 4.5 (31.6) 4.4 0.2 2.3 0.2 3.6 2.3 2007 2.4 38.0 32.9 11.3 33.0 58.3 9.3 445.7 32.3 32.9 32.3 22.5 1.1 2.9 1.6 22.4 19.4 2006 2.1 34.7 30.3 16.0 35.2 60.1 5.1 780.2 34.8 32.8 30.9 24.2 1.2 2.9 1.7 24.2 18.3

Profitability Summary
(Mil. $) Net Revenue - As Reported Investment Bank Retail Financial Services Card Services - managed basis Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity* Total Fully tax-equivalent adjustments Total net revenue reported 2010 26,217 31,756 17,163 6,040 7,381 8,984 7,301 104,842 (2,148) 102,694 4Q 2010 6,213 8,525 4,246 1,611 1,913 2,613 1,601 26,722 (624) 26,098 3Q 2010 5,353 7,646 4,253 1,527 1,831 2,172 1,553 24,335 (511) 23,824 2Q 2010 6,332 7,809 4,217 1,486 1,881 2,068 1,820 25,613 (512) 25,101 1Q 2010 8,319 7,776 4,447 1,416 1,756 2,131 2,327 28,172 (501) 27,671 2009 28,109 32,692 20,304 5,720 7,344 7,965 6,513 108,647 (1,770) 106,877

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Table 3

Profitability Summary (cont.)

Adjusted Net Revenue Investment Bank Retail Financial Services Card Services - managed basis Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity* Total Net Income Before Extraordinary Items - As Reported Investment Bank Retail Financial Services Card Services - managed basis Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity* Total Pretax Income - Managed Basis, As Reported Investment Bank Retail Financial Services Card Services - managed basis Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total Fully tax-equivalent adjustments Total pretax encome - as reported Special Items - Adjusted For By S&P Extraordinary gain, after tax - Corp UK Bonus Tax - IBK Increase of litigation reserves, pretax - Corp Merger-related items, pretax - Corp Change on structured liabilities, pretax - IBK Mastercard Shares Sale, pretax - Corp Paymentech Sale, pretax - Corp Auction-rate securities charge, pretax - Corp Standard & Poor's-Adjusted Pretax Income Investment Bank Retail Financial Services Card Services - managed basis 373 18 (245) 25,844 31,756 17,163 6,040 7,381 8,984 7,301 104,469 6,195 8,525 4,246 1,611 1,913 2,613 1,601 26,704 5,598 7,646 4,253 1,527 1,831 2,172 1,553 24,580 5,732 7,809 4,217 1,486 1,881 2,068 1,820 25,013 8,319 7,776 4,447 1,416 1,756 2,131 2,327 28,172 29,410 32,692 20,304 5,720 7,344 7,965 6,513 109,948

6,639 2,526 2,074 2,084 1,079 1,710 1,258 17,370

1,501 708 1299 530 257 507 29 4,831

1,286 907 735 471 251 420 348 4,418

1,381 1,042 343 693 292 391 653 4,795

2,471 (131) (303) 390 279 392 228 3,326

6,899 97 (2,225) 1,271 1,226 1,430 2,954 11,652

10,152 4,440 3,329 3,544 1,703 2,786 1,053 27,007 (2,148) 24,859

2,283 1,245 2,061 901 403 813 (70) 7,636 (624) 7,012

1,791 1,581 1,175 801 392 661 313 6,714 (511) 6,203

2,135 1,813 560 1,179 468 658 806 7,619 (512) 7,107

3,943 (199) (467) 663 440 654 4 5,038 (501) 4,537

10,429 4 (3,539) 2,090 1,890 2,304 4,659 17,837 (1,770) 16,067

(846)

(846) 600 -

76

(1,301) 231

10,625 4,440 3,329

2,265 1,245 2,061

2,036 1,581 1,175

2,381 1,813 560

3,943 (199) (467)

11,730 4 (3,539)

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Table 3

Profitability Summary (cont.)

Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total adjusted PT income - managed basis Fully tax-equivalent adjustments Total adjusted PT income (including JPM adj. above) Standard & Poor's-Adjusted Net Income Investment Bank Retail Financial Services Card Services - managed basis Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total 3,544 1,703 2,786 1,053 27,480 (2,148) 25,332 901 403 813 (70) 7,618 (624) 6,994 801 392 661 313 6,959 (511) 6,448 1,179 468 658 806 7,865 (512) 7,353 663 440 654 4 5,038 (501) 4,537 2,090 1,890 2,304 4,428 18,907 (1,770) 17,137

6,947 2,526 2,074 2,084 1,079 1,710 1,258 17,678

1,489 708 1,299 530 257 507 29 4,819

1,445 907 735 471 251 420 348 4,577

1,541 1,042 343 693 292 391 653 4,955

2,471 (131) (303) 390 279 392 228 3,326

7,745 97 (2,225) 1,271 1,226 1,430 2,804 12,348

*3Q09 excludes extraordinary gain in Corporate/Private Equity segment. Adjusted to reconcile to reported pretax income; assumed similar figure in calculating adjusted pretax income for comparability to reported pretax income. Estimated 35% tax rate. Source: JPMorgan Chase & Co., Standard & Poor's.

Table 4

JPMorgan Investment Bank Revenues By Business

(Mil. $) Investment banking fees Advisory Equity underwriting Debt underwriting Total investment-banking fees Fixed-income markets Equity markets Credit porfolio Total net revenue 4Q 2010 3Q 2010 2Q 2010 1Q 2010 4Q 2009 3Q 2009 2Q 2009 1Q 2009 424 489 920 1,833 2875 1128 377 6,213 385 333 784 1,502 3123 1135 (407) 5,353 355 354 696 1,405 3,563 1,038 326 6,332 305 413 728 1,446 5,464 1,462 (53) 8,319 611 549 732 1,892 2,735 971 (669) 4,929 384 681 593 1,658 5,011 941 (102) 7,508 393 1,103 743 2,239 4,929 708 (575) 7,301 479 308 593 1,380 4,889 1,773 329 8,371

Fair value gains/(losses) on JPM credit spreads Fixed-income markets (20) (149) Equity markets Total 38 18 (96) (245)

400 200 600

N.A. N.A. N.A.

N.A. N.A. N.A.

(497) (343) (840)

(773) (326) (1,099)

422 216 638

N.A.-Not available. Source: JPMorgan Chase & Co. & Standard & Poor's.

For the year ended December 2010, investment-banking earnings were basically flat as sovereign concerns and weaker customer conviction in the latter half of the year offset a strong first quarter. RFS reported a 3% decline in revenues, somewhat reflecting run-off portfolios and lower deposit/overdraft-related fees. Credit quality, though, improved and although charge-offs remain elevated, lower provisions helped move this segment to profitability. Card services declined 15% in net revenue, reflecting the Card Act and a continued run-off of outstandings. However, profitability improved due to reserve releases. Commercial Banking revenues were up 6%, reflecting

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better lending spreads and higher fees on IB products sold to commercial banking clients. Revenues in the fee-based businesses of AM and TSS rose 13% (largely reflecting a rebound in the markets) and 1%, respectively. We expect modest downward pressures on the NIM in 2011, resulting from continued repositioning of the investment-securities portfolio, run-off of real estate loans with typically higher interest rates, and the impact of the CARD Act. Although advisory results will likely improve in 2011, the environment for fixed-income trading remains uncertain. Even if activity picks up, margins are likely to decline due to increased competition and demand for simpler, less-profitable product structures. We expect credit costs to continue to improve in 2011, but for loan growth to remain muted. Although regulatory changes loom as a likely earnings headwind, the bulk of the impact is more likely to affect 2012 earnings than 2011. Nevertheless, in 2011 the company will likely face higher FDIC deposit insurance fees and the impact of the Durbin amendment, which will likely reduce debit-interchange fees.

Capital: Improved
Although JPM has solid capital ratios under the existing regulatory framework, we view its capitalization as only moderate-adequate under our RACF, particularly in light of the rating. As of December 2010, JPM's Tier 1 common was 9.8%. The company's estimated Basel III Tier 1 common ratio was at the targeted 7.0%. Beyond this, we believe capital ratios stand to improve further, given better prospects of internal accretion and several portfolios in run-off mode, which will rationalize the risk-weighed assets. In addition, we believe that further derisking of JPM's assets should lead to further reduction of risk-weighted assets. JPM's regulatory risk-weighted assets totaled $1.17 trillion at year-end 2010, down $22 billion from the prior year. Under our RACF model, JPM's ratio of total adjusted capital to risk-weighted assets before diversification is just less than the overall weighted average of the largest U.S. financial institutions, whereas its after-diversification ratio was a slightly above-average 8.2% as of Sept. 30, 2010. We consider. a RAC ratio (after diversification) of 8.0% sufficient for a bank to withstand a substantial stress ("A" level) in developed markets. In second-quarter 2010, JPM resumed common stock repurchases. During the nine months ended Sept. 30, 2010, it repurchased 60 million shares for $2.3 billion. We believe it is likely that JPM will raise its common dividend in 2011, assuming it gets regulatory approval. We look for the payout ratio to total no more than 30% of earnings.
Table 5

JPMorgan Chase & Co. Capital Ratios

--Year-ended Dec. 31-(%) Adjusted common equity/risk assets (%) Tier 1 capital ratio Adjusted total equity/adjusted assets Adjusted total equity/managed assets Adjusted total equity plus loan loss reserves (specific)/customer loans (gross) Common dividend payout ratio 2010 9.7 12.1 6.4 5.8 22.6 5.0 2009 8.6 11.1 6.3 5.4 23.5 8.9 2008 6.3 10.9 5.1 4.4 16.2 186.2 2007 7.1 8.4 5.4 4.5 16.2 33.6 2006 7.1 8.7 5.6 4.7 16.0 35.6

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Table 6

JPMorgan Chase & Co. Summary Balance Sheet

--Year-ended Dec. 31-(Mil. $) Assets Cash and money market instruments Securities Trading securities (marked to market) Nontrading securities Mortgage-backed securities included above Loans to banks (net) Customer loans (gross) Loan loss reserves Customer loans (net) Earning assets Equity interests/participations (nonfinancial) Investments in unconsolidated subsidiaries (financial companies) Intangibles (nonservicing) Interest-only strips Fixed assets Derivatives credit amount Accrued receivables All other assets Total assets Intangibles (nonservicing) Minus insurance statutory funds Adjusted assets Liabilities Total deposits Noncore deposits Core/customer deposits Acceptances Repurchase agreements Other borrowings Other other borrowings Other credit reserves Other liabilities Total liabilities Total equity Manditorily convertible securities Limited life preferred and quasi equity Enhanced trust preferred Minority interest-equity Common shareholders' equity (reported) 2010 400,740.0 722,100.0 409,411.0 312,689.0 174,854.0 16,131.0 710,791.0 32,266.0 678,525.0 7,036.0 9,408.0 50,954.0 45.0 11,753.0 80,481.0 6,388.0 134,044.0 50,954.0 0.0 2009 408,595.0 688,658.0 330,918.0 357,740.0 187,286.0 8,640.0 642,175.0 31,602.0 610,573.0 7,268.0 8,509.0 51,251.0 68.0 9,560.0 80,201.0 6,584.0 152,082.0 51,251.0 0.0 2008 511,043.0 547,247.0 347,357.0 199,890.0 130,488.0 11,998.0 749,188.0 23,164.0 726,024.0 7,058.0 5,902.0 50,908.0 654.0 8,475.0 162,555.0 8,482.0 134,706.0 50,908.0 0.0 2007 308,901.0 461,654.0 380,515.0 81,139.0 67,050.0 13,394.0 542,130.0 9,234.0 532,896.0 7,153.0 7,148.0 48,430.0 776.0 8,049.0 77,136.0 8,432.0 88,178.0 48,430.0 0.0 2006 270,593.0 398,547.0 310,137.0 88,410.0 75,543.0 7,126.0 476,001.0 7,279.0 468,722.0 6,359.0 4,689.0 52,492.0 603.0 7,445.0 55,601.0 7,081.0 72,262.0 52,492.0 0.0

1,822,132.0 1,721,828.0 1,792,580.0 1,285,935.0 1,111,855.0

2,117,605.0 2,031,989.0 2,175,052.0 1,562,147.0 1,351,520.0

2,066,606.0 1,980,670.0 2,123,490.0 1,512,941.0 1,298,425.0

934,289.0 310,150.0 624,139.0 0.0 273,314.0 397,640.0 0.0 717.0 315,185.0 196,460.0 0.0 12,001.0 7,759.0 594.0 168,306.0

946,945.0 1,021,610.0 394,390.0 552,555.0 0.0 253,527.0 359,211.0 0.0 939.0 286,167.0 185,200.0 0.0 11,415.0 7,759.0 661.0 157,213.0 447,127.0 574,483.0 0.0 180,533.0 458,114.0 23,787.0 636.0 353,045.0 161,114.0 0.0 9,435.0 7,407.0 1,175.0 134,945.0

759,453.0 388,382.0 371,071.0 0.0 137,020.0 275,887.0 0.0 850.0 250,573.0 138,364.0 0.0 8,631.0 5,592.0 920.0 123,221.0

659,543.0 299,755.0 359,788.0 0.0 152,286.0 186,172.0 0.0 524.0 222,363.0 130,632.0 0.0 9,971.0 2,250.0 2,621.0 115,790.0

1,921,145.0 1,846,789.0 2,013,938.0 1,423,783.0 1,220,888.0

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Table 6

JPMorgan Chase & Co. Summary Balance Sheet (cont.)

Share capital and surplus Revaluation reserve Retained profits Other equity Total liabilities and equity Table 7 101,520.0 747.0 74,252.0 (8,213.0) 102,087.0 (75.0) 62,465.0 (7,264.0) 96,085.0 (5,180.0) 53,506.0 (9,466.0) 82,255.0 (926.0) 54,724.0 (12,832.0) 81,465.0 (1,562.0) 43,605.0 (7,718.0)

2,117,605.0 2,031,989.0 2,175,052.0 1,562,147.0 1,351,520.0

JPMorgan Chase & Co. Equity Reconciliation Table

--Year-ended Dec. 31-(Mil. $) Common shareholders' equity (reported) Plus minority interest (equity) Minus dividends (not yet distributed) Minus revaluation reserves Minus nonservicing intangibles Minus interest-only strips (net) Minus tax loss carryforwards Minus postretirement benefit adjustment Minus cumulative effect of credit-spread related revaluation of liabilities Minus other adjustments Adjusted common equity Plus admissible preferred and hybrids Total Adjusted Capital Plus general reserves Plus unrealized gains Minus equity in unconsolidated subsidiaries Minus capital of insurance subsidiaries Minus adjustment for securitized assets Adjusted total equity
N/A--Not applicable.

2010 2009 2008 2007 2006 168,306.0 157,213.0 134,945.0 123,221.0 115,790.0 594.0 0.0 (747.0) (29.3) 0.0 (2,288.0) 1,261.0 N/A 27,560.0 3,819.2 71.0 (9,408.0) (1,052.0) (2,717.0) 661.0 0.0 75.0 (44.2) 0.0 (2,288.0) 912.0 N/A 26,773.7 5,365.6 81.0 (8,509.0) (1,143.0) (1,608.0) 1,175.0 0.0 5,180.0 (425.1) 0.0 (2,786.0) 2,358.0 N/A 84,822.9 23,420.1 10,668.0 0.0 (5,902.0) (1,182.0) (2,617.0) 920.0 0.0 926.0 (504.4) 0.0 (503.0) 882.0 N/A 74,747.6 13,454.6 88,202.2 3,270.0 24.0 (7,148.0) (1,181.0) (1,076.0) 82,091.2 2,621.0 0.0 1,562.0 (392.0) 0.0 (1,063.0) N/A N/A 66,026.1 10,173.1 76,199.2 3,384.3 N/A (4,689.0) (1,315.0) (1,080.0) 72,499.5

(50,954.0) (51,251.0) (50,908.0) (48,430.0) (52,492.0)

113,620.8 103,453.8

141,180.8 130,227.5 108,243.0

131,893.9 124,414.1 109,210.0

Table 8

JPMorgan Chase & Co. Profit And Loss

--Year-ended Dec. 31-(Mil. $) Net interest income Interest income Interest expense Operating noninterest income Fees and commissions Net brokerage commissions Trading gains Other market-sensitive income 2010 51,194.0 63,980.0 12,786.0 51,879.0 22,424.0 2,804.0 9,404.0 4,902.0 2009 2008 2007 2006 51,335.0 38,940.0 26,553.0 21,395.0 66,533.0 73,179.0 71,534.0 59,260.0 15,198.0 34,239.0 44,981.0 37,865.0 49,375.0 26,697.0 43,406.0 40,219.0 24,641.0 22,335.0 22,983.0 18,642.0 2,904.0 1,226.0 3,141.0 547.0 2,703.0 3,785.0 4,140.0 0.0 8,986.0 844.0 9,870.0 (9,791.0)

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Table 8

JPMorgan Chase & Co. Profit And Loss (cont.)

Net insurance income Equity in earnings of unconsolidated subsidiaries Other noninterest income Operating revenues Noninterest expenses Personnel expenses Other general and administrative expense Preprovision operating income Credit loss provisions (net new) Operating income after loss provisions Nonrecurring/special income Nonrecurring/special expense Amortization of intangibles Impairment of intangibles Pretax profit Tax expense/credit Net income (before minority interest) Minority interest in consolidated subsidiaries Net income before extraordinaries Net income after extraordinaries
N/A--Not applicable.

499.0 0.0 14,650.0 60,459.0 28,554.0 31,905.0 42,614.0 16,822.0 25,792.0 51.0 N/A 936.0 0.0 24,907.0 7,489.0 17,418.0 48.0 17,370.0 17,370.0

417.0 0.0

396.0 0.0

425.0 0.0

801.0 0.0

13,221.0 13,210.0 12,073.0 10,946.0 51,996.0 41,393.0 40,816.0 37,015.0 27,424.0 22,746.0 23,094.0 21,699.0 24,572.0 18,647.0 17,722.0 15,316.0 48,714.0 24,244.0 29,143.0 24,599.0 31,735.0 21,237.0 16,979.0 220.0 N/A 1,050.0 0.0 16,149.0 4,415.0 11,734.0 82.0 11,652.0 11,728.0 1,615.0 432.0 1,263.0 0.0 (926.0) 154.0 6,538.0 1,818.0 0.0 1,394.0 0.0 7,440.0 224.0 3,153.0 331.0 142.0 1,428.0 N/A 6,237.0 321.0 3,007.0 22,605.0 21,446.0

103,073.0 100,710.0 65,637.0 69,959.0 61,614.0

2,927.0 23,029.0 20,207.0 3,853.0 15,589.0 13,970.0 3,699.0 15,365.0 13,649.0 5,605.0 15,365.0 14,444.0

Table 9

JPMorgan Chase & Co. Core Earnings Reconciliation Table

--Year-ended Dec. 31-(Mil. $) Net income (before minority interest) Minus nonrecurring/special income Plus nonrecurring/special expense Plus or minus tax impact of adjustments Plus amortization/impairment of goodwill/intangibles Minus preferred dividends Plus or minus other earnings adjustments Core earnings 2010 17,418.0 (51.0) 0.0 15.3 936.0 (642.0) N/A 17,676.3 2009 11,734.0 (220.0) 0.0 60.1 1,050.0 (2,440.0) 0.0 10,184.1 2008 3,853.0 (1,615.0) 432.0 (374.3) 1,263.0 (674.0) 0.0 2,884.7 2007 15,589.0 (1,818.0) 0.0 587.3 1,394.0 0.0 0.0 15,752.3 2006 13,970.0 (331.0) 142.0 58.3 1,428.0 (4.0) (367.0) 14,896.3

Ratings Detail (As Of March 11, 2011)*

JPMorgan Chase & Co. Counterparty Credit Rating Commercial Paper Local Currency Preferred Stock (11 Issues) Senior Unsecured (238 Issues) Senior Unsecured (11 Issues) A-1 BBB+ A+ AAA A+/Stable/A-1

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Ratings Detail (As Of March 11, 2011)*(cont.)

Subordinated (123 Issues) Counterparty Credit Ratings History 25-Feb-2011 19-Dec-2008 02-Jun-2008 14-Feb-2007 01-Nov-2006 03-May-2006 Sovereign Rating United States of America (Unsolicited Ratings) Related Entities Banco JPMorgan S.A. Issuer Credit Rating CaVal (Mexico) National Scale Rating Bank One Capital III Preferred Stock (1 Issue) Bear Stearns Capital Trust III Preferred Stock (1 Issue) Bear Stearns Caribbean Asset Holdings Ltd. Senior Unsecured (1 Issue) Bear Stearns Cos. LLC (The) Issuer Credit Rating Certificate Of Deposit Local Currency Commercial Paper Senior Unsecured (179 Issues) Senior Unsecured (2 Issues) Subordinated (1 Issue) Bear Stearns Global Asset Holdings Ltd. Senior Unsecured (1 Issue) Chase Bank USA NA Issuer Credit Rating Certificate Of Deposit Local Currency Senior Unsecured (1 Issue) Subordinated (1 Issue) Chase Capital II Preferred Stock (1 Issue) Chase Capital III Preferred Stock (1 Issue) Chase Capital VI Preferred Stock (1 Issue) BBB+ BBB+ BBB+ AA-/A-1+ AAA+ AA-/Stable/A-1+ A+ A+/A-1 A-1 A+ A+/A-1 A A+/Stable/A-1 A+ BBB+ BBB+ mxAAA/Stable/mxA-1+ AAA/Stable/A-1+ A+/Stable/A-1 A+/Negative/A-1 AA-/Negative/A-1+ AA-/Stable/A-1+ A+/Watch Pos/A-1 A+/Positive/A-1 A

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Ratings Detail (As Of March 11, 2011)*(cont.)

First Chicago NBD Capital Trust I Preferred Stock (1 Issue) JPMorgan Australia Ltd. Issuer Credit Rating JPMorgan Bank Luxembourg S.A. Subordinated (1 Issue) JP Morgan Casa de Bolsa S.A de C.V. Issuer Credit Rating CaVal (Mexico) National Scale Rating JPMorgan Chase Bank N.A. Issuer Credit Rating Certificate Of Deposit Foreign Currency Local Currency Commercial Paper Senior Unsecured (106 Issues) Senior Unsecured (3 Issues) Short-Term Debt (3 Issues) Subordinated (13 Issues) JPMorgan Chase Bank, N.A., London Branch Senior Unsecured (1 Issue) JPMorgan Chase Capital X Preferred Stock (1 Issue) JPMorgan Chase Capital XI Preferred Stock (1 Issue) JPMorgan Chase Capital XII Preferred Stock (1 Issue) JPMorgan Chase Capital XIV Preferred Stock (1 Issue) JPMorgan Chase Capital XIX Preferred Stock (1 Issue) JPMorgan Chase Capital XV Preferred Stock (1 Issue) JPMorgan Chase Capital XVI Preferred Stock (1 Issue) JPMorgan Chase Capital XVII Preferred Stock (1 Issue) JPMorgan Chase Capital XVIII Preferred Stock (1 Issue) JPMorgan Chase Capital XX Preferred Stock (1 Issue) JPMorgan Chase Capital XXI Preferred Stock (1 Issue) BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ AAA-1+ AA-/A-1+ A-1+ AAAA-/A-1+ A-1+ A+ AA-/Stable/A-1+ mxAAA/Stable/mxA-1+ BBBAA-/Negative/A-1+ BBB+

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Ratings Detail (As Of March 11, 2011)*(cont.)

JPMorgan Chase Capital XXII Preferred Stock (1 Issue) JPMorgan Chase Capital XXIII Preferred Stock (1 Issue) JPMorgan Chase Capital XXIV Preferred Stock (1 Issue) JPMorgan Chase Capital XXV Preferred Stock (1 Issue) JPMorgan Chase Capital XXVI Preferred Stock (1 Issue) JPMorgan Chase Capital XXVIII Preferred Stock (1 Issue) J.P. Morgan Clearing Corp. Issuer Credit Rating JPMorgan Securities Japan Co. Ltd. Issuer Credit Rating JPMorgan Securities Ltd. Issuer Credit Rating AA-/Stable/A-1+
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.

BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ A+/Stable/A-1 AA-/Stable/A-1+

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