UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

JPMORGAN CHASE & CO.

Delaware		13-2624428
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
270 Park Avenue, New York, New York		10017
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x   Accelerated filer o   Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

Number of shares of common stock outstanding as of April 30, 2007: 3,416,114,978

FORM 10-Q
TABLE OF CONTENTS

				Page
Part I – Financial information
Item 1		Consolidated Financial Statements – JPMorgan Chase & Co.:
		Consolidated statements of income (unaudited) for the three months ended March 31, 2007 and 2006			66
		Consolidated balance sheets at March 31, 2007 (unaudited), and December 31, 2006			67
		Consolidated statements of changes in stockholders’ equity and comprehensive income (unaudited) for the three months ended March 31, 2007 and 2006			68
		Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2007 and 2006			69
		Notes to consolidated financial statements (unaudited)			70
		Consolidated average balance sheets, interest and rates (unaudited) for the three months ended March 31, 2007 and 2006			106
		Glossary of Terms and Line of Business Metrics			107
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations:
		Consolidated Financial Highlights			3
		Introduction			4
		Executive Overview			6
		Consolidated Results of Operations			10
		Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			14
		Business Segment Results			16
		Balance Sheet Analysis			39
		Capital Management			41
		Off-Balance Sheet Arrangements and Contractual Cash Obligations			44
		Risk Management			45
		Supervision and Regulation			63
		Critical Accounting Estimates Used by the Firm			64
		Accounting and Reporting Developments			65
		Forward-Looking Statements			112
Item 3		Quantitative and Qualitative Disclosures About Market Risk			113
Item 4		Controls and Procedures			113
Part II – Other information
Item 1		Legal Proceedings			113
Item 1A		Risk Factors			114
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			114
Item 3		Defaults Upon Senior Securities			115
Item 4		Submission of Matters to a Vote of Security Holders			115
Item 5		Other Information			115
Item 6		Exhibits			115
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

 

JPMORGAN CHASE & CO.

(unaudited)
(in millions, except per share, headcount and ratio data)
As of or for the three months ended,		1Q07				4Q06				3Q06				2Q06				1Q06
Selected income statement data
Noninterest revenue(a)		$	12,850			$	10,501			$	10,166			$	9,908			$	10,182
Net interest income			6,118				5,692				5,379				5,178				4,993
Total net revenue			18,968				16,193				15,545				15,086				15,175
Provision for credit losses			1,008				1,134				812				493				831
Noninterest expense			10,628				9,885				9,796				9,382				9,780
Income tax expense			2,545				1,268				1,705				1,727				1,537
Income from continuing operations			4,787				3,906				3,232				3,484				3,027
Income from discontinued operations(b)			—				620				65				56				54
Net income		$	4,787			$	4,526			$	3,297			$	3,540			$	3,081
Per common share
Basic earnings per share:
Income from continuing operations		$	1.38			$	1.13			$	0.93			$	1.00			$	0.87
Net income			1.38				1.31				0.95				1.02				0.89
Diluted earnings per share:
Income from continuing operations		$	1.34			$	1.09			$	0.90			$	0.98			$	0.85
Net income			1.34				1.26				0.92				0.99				0.86
Cash dividends declared per share			0.34				0.34				0.34				0.34				0.34
Book value per share			34.45				33.45				32.75				31.89				31.19
Common shares outstanding
Average:  Basic			3,456				3,465				3,469				3,474				3,473
Diluted			3,560				3,579				3,574				3,572				3,571
Common shares at period-end			3,416				3,462				3,468				3,471				3,473
Share price(c)
High		$	51.95			$	49.00			$	47.49			$	46.80			$	42.43
Low			45.91				45.51				40.40				39.33				37.88
Close			48.38				48.30				46.96				42.00				41.64
Market capitalization			165,280				167,199				162,835				145,764				144,614
Financial ratios(d)
Return on common equity (“ROE”):
Income from continuing operations			17	%			14	%			11	%			13	%			11	%
Net income			17				16				12				13				12
Return on assets (“ROA”):
Income from continuing operations			1.41				1.14				0.98				1.05				0.98
Net income			1.41				1.32				1.00				1.06				1.00
Tier 1 capital ratio			8.5				8.7				8.6				8.5				8.5
Total capital ratio			11.8				12.3				12.1				12.0				12.1
Overhead ratio			56				61				63				62				64
Selected balance sheet data (period-end)
Total assets		$	1,408,918			$	1,351,520			$	1,338,029			$	1,328,001			$	1,273,282
Loans			449,765				483,127				463,544				455,104				432,081
Deposits			626,428				638,788				582,115				593,716				584,465
Long-term debt			143,274				133,421				126,619				125,280				112,133
Total stockholders’ equity			117,704				115,790				113,561				110,684				108,337
Headcount			176,314				174,360				171,589				172,423				170,787
Credit quality metrics
Allowance for credit losses		$	7,853			$	7,803			$	7,524			$	7,500			$	7,659
Nonperforming assets(e)			2,421				2,341				2,300				2,384				2,348
Allowance for loan losses to total loans(f)			1.74	%			1.70	%			1.65	%			1.69	%			1.83	%
Net charge-offs		$	903			$	930			$	790			$	654			$	668
Net charge-off rate(d)(f)			0.85	%			0.84	%			0.74	%			0.64	%			0.69	%
Wholesale net charge-off (recovery) rate(d)(f)			(0.02	)			0.07				(0.03	)			(0.05	)			(0.06	)
Managed card net charge-off rate(d)			3.57				3.45				3.58				3.28				2.99

(a)		On January 1, 2007, the Firm adopted SFAS 157 and recognized a benefit of $166 million, in the current quarter, as a result of incorporating an adjustment to the Firm’s valuation of derivative liabilities and other liabilities measured at fair value to reflect the credit quality of the Firm. The adoption also resulted in a benefit of $464 million related to valuation adjustments to nonpublic private equity investments.
(b)		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 2006 period.
(c)		JPMorgan Chase’s 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 Chase’s common stock are from The New York Stock Exchange Composite Transaction Tape.
(d)		Quarterly ratios are based upon annualized amounts.
(e)		Excludes nonperforming wholesale held-for-sale (“HFS”) loans purchased as part of the Investment Bank’s proprietary activities.
(f)		Excluded from the allowance coverage ratios were end-of-period loans held-for-sale and loans accounted for at fair value; and excluded from the net charge-off rates were average loans held-for-sale and loans accounted for at fair value.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations for JPMorgan Chase. See the Glossary of terms on pages 107–109 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s results to differ materially from those set forth in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page 112 of this Form 10-Q) and in the JPMorgan Chase Annual Report on Form 10-K for the year ended December 31, 2006 as amended by the Form 8-K filed on May 10, 2007 (“2006 Annual Report” or “2006 Form 10-K”), in Part I, Item 1A: Risk factors and in Forward-looking Statements in the MD&A of the 2006 Form 10-K, to which reference is hereby made.

INTRODUCTION

JPMorgan Chase & Co. (the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States, with $1.4 trillion in assets, $117.7 billion in stockholders’ equity and operations worldwide. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing, asset management and private equity. Under the JPMorgan and Chase brands, the Firm serves millions of customers in the United States and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with branches in 17 states; and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities Inc., the Firm’s U.S. investment banking firm.

JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows:

Investment Bank
JPMorgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The Investment Bank’s clients are corporations, financial institutions, governments and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital raising in equity and debt markets, sophisticated risk management, market-making in cash securities and derivative instruments, and research. The Investment Bank (“IB”) also commits the Firm’s own capital to proprietary investing and trading activities.

Retail Financial Services
Retail Financial Services (“RFS”), which includes the Regional Banking, Mortgage Banking and Auto Finance reporting segments, helps meet the financial needs of consumers and businesses. RFS provides convenient consumer banking through the nation’s fourth-largest branch network and third-largest ATM network. RFS is a top-five mortgage originator and servicer, the second-largest home equity originator, the largest noncaptive originator of automobile loans and one of the largest student loan originators.

RFS serves customers through more than 3,000 bank branches, 8,500 ATMs and 270 mortgage offices, and through relationships with more than 15,000 auto dealerships and 4,300 schools and universities. More than 11,000 branch salespeople assist customers, across a 17-state footprint from New York to Arizona, with checking and savings accounts, mortgage, home equity and business loans, investments and insurance. Over 1,200 additional mortgage officers provide home loans throughout the country.

Card Services
With more than 152 million cards in circulation and $146.6 billion in managed loans, Chase Card Services (“CS”) is one of the nation’s largest credit card issuers. Customers used Chase cards for more than $81.3 billion worth of transactions in the three months ended March 31, 2007.

Chase offers a wide variety of general-purpose cards to satisfy the needs of individual consumers, small businesses and partner organizations, including cards issued with AARP, Amazon, Continental Airlines, Marriott, Southwest Airlines, Sony, United Airlines, Walt Disney Company and many other well-known brands and organizations. Chase also issues private-label cards with Circuit City, Kohl’s, Sears Canada and BP.

Chase Paymentech Solutions, LLC, a joint venture with JPMorgan Chase and First Data Corporation, is the largest processor of MasterCard and Visa payments in the world, having handled 4.5 billion transactions in the three months ended March 31, 2007.

Commercial Banking
Commercial Banking (“CB”) serves more than 30,000 clients, including corporations, municipalities, financial institutions and not-for-profit entities. These clients generally have annual revenues ranging from $10 million to $2 billion. Commercial bankers serve clients nationally throughout the RFS footprint and in offices located in other major markets.

Commercial Banking offers its clients industry knowledge, experience, a dedicated service model, comprehensive solutions and local expertise. The Firm’s broad platform positions CB to deliver extensive product capabilities – including lending, treasury services, investment banking and asset management – to meet its clients’ U.S. and international financial needs.

Treasury & Securities Services
Treasury & Securities Services (“TSS”) is a global leader in providing transaction, investment and information services to support the needs of institutional clients worldwide. TSS is one of the largest cash management providers in the world and a leading global custodian. Treasury Services (“TS”) provides a variety of cash management products, trade finance and logistics solutions, wholesale card products, and liquidity management capabilities to small and midsized companies, multinational corporations, financial institutions and government entities. TS partners with the Commercial Banking, Retail Financial Services and Asset Management business segments to serve clients firmwide. As a result, certain TS revenues are included in other segments’ results. Worldwide Securities Services (“WSS”) stores, values, clears and services securities and alternative investments for investors and broker-dealers; and manages Depositary Receipt programs globally.

Asset Management
With assets under supervision of $1.4 trillion, Asset Management (“AM”) is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity, including both money market instruments and bank deposits. AM also provides trust and estate and banking services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.

OTHER BUSINESS EVENTS

Investment in SLM Corporation
On April 16, 2007, an investor group, comprising JPMorgan Chase and three other firms, announced that they had signed a definitive agreement to purchase SLM Corporation (“Sallie Mae”) for approximately $25 billion. JPMorgan Chase will invest $2.2 billion and will own 24.9% of the company. The transaction requires the approval of Sallie Mae’s stockholders and is subject to regulatory approvals. It is expected to close in late 2007.

EXECUTIVE OVERVIEW

Financial performance of JPMorgan Chase

Three months ended March 31,
(in millions, except per share and ratio data)		2007				2006				Change
Selected income statement data Net revenue		$	18,968			$	15,175				25	%
Provision for credit losses			1,008				831				21
Noninterest expense			10,628				9,780				9
Income from continuing operations			4,787				3,027				58
Income from discontinued operations			—				54			NM
Net income			4,787				3,081				55
Diluted earnings per share
Income from continuing operations		$	1.34			$	0.85				58	%
Net income			1.34				0.86				56
Return on common equity (“ROE”)
Income from continuing operations			17	%			11	%
Net income			17				12

Business overview

The Firm reported 2007 first-quarter net income of $4.8 billion, or $1.34 per share, compared with net income of $3.1 billion, or $0.86 per share, for the first quarter of 2006. Return on common equity for the quarter was 17% compared with 12% in the prior year. Income from continuing operations was $4.8 billion, or $1.34 per share, in the current quarter compared with $3.0 billion, or $0.85 per share, for the first quarter of 2006. The Firm’s adoption of SFAS 157 (“Fair Value Measurements”) resulted in a benefit to the current quarter’s earnings of $391 million (after-tax), or $0.11 per share; this benefit consisted of $103 million (after-tax) related to adjustments to the valuation of liabilities to incorporate the impact of the Firm’s credit quality (recorded in the Investment Bank) and $288 million (after-tax) related to the valuation of nonpublic private equity investments (recorded in the Corporate segment). For a discussion of SFAS 157 and SFAS 159, see Note 3 and Note 4 on pages 71–80 of this Form 10-Q.

In the first quarter of 2007, the Firm successfully completed the systems conversion and rebranding for 339 former Bank of New York branches. The Firm’s customers throughout the U.S. now have access to over 3,000 branches and 8,500 ATMs in 17 states, all of which are on common computer systems.

In the first quarter of 2007, the global economy continued to expand at a rate of approximately 5%, which supported continued strong growth in the emerging market economies. During the first quarter, the European economy slowed slightly with an estimated growth rate of 2.8%, Japan experienced steady growth of 2.8% and emerging Asian economies expanded at a rate of approximately 8.6%. U.S. economic growth slowed to a rate of approximately 1.3%, reflecting a solid gain in consumer spending, which was supported by equity market appreciation, low unemployment and wage growth. These benefits were offset partially by a continued slower pace of new home construction, weakness in government spending and a slower rate of capital spending by businesses. The Federal Reserve Board held the federal funds rate steady at 5.25% and the yield curve remained moderately inverted. Equity markets, both domestic and international, reflected positive performance, with the S&P 500 up 3% on average and international indices increasing 5% on average during the first quarter of 2007. Global capital markets activity was strong during the first quarter of 2007, with debt and equity underwriting and merger and acquisition activity surpassing levels from the first quarter of 2006. Demand for wholesale loans in the U.S. was up approximately 6%, while U.S. consumer loans grew an estimated 7% during the first quarter of 2007.

The first quarter of 2007 economic environment was a contributing factor to the performance of the Firm and each of its businesses. The overall economic expansion, strong level of capital markets activity and positive performance in equity markets helped to drive new business volume and organic growth within each of the Firm’s businesses while also contributing to the generally favorable credit environment. However, the interest rate and competitive environments negatively affected both wholesale and consumer loan and deposit spreads.

The discussion that follows highlights the current-quarter performance of each business segment compared with the prior-year quarter, and discusses results on a managed basis unless otherwise noted. For more information about managed basis, see Explanation and reconciliation of the Firm’s use of non-GAAP financial measures on pages 14–15 of this Form 10-Q.

Investment Bank achieved record net income driven by record revenue and a lower provision for credit losses, partially offset by higher noninterest expense. Investment banking fees were at a record level, benefiting from record debt and record equity underwriting fees as well as strong advisory fees. Record Fixed Income Markets revenue benefited from improved results in commodities (compared with a weak prior-year quarter), and strength in credit and rate markets, partially offset by lower results in currencies. Record Equity Markets revenue benefited from particularly strong performance in Europe and strong derivatives performance across regions. The Provision for credit losses decreased compared with the prior year as the prior-year provision reflected growth in the loan portfolio. The increase in expense was due primarily to higher performance-based compensation, partially offset by the absence of prior-year expense from the adoption of SFAS 123R.

Retail Financial Services net income decreased from the prior year due to a decline in Regional Banking results, largely offset by improved performance in Mortgage Banking. Revenue was up from the prior year driven by higher gain-on-sale income and the reclassification of certain loan origination costs to expense (previously netted against revenue) due to the adoption of SFAS 159 in Mortgage Banking, The Bank of New York transaction, higher home equity loans and deposit balances, increases in deposit-related fees and the absence of a prior-year loss related to auto loans transferred to held-for-sale. These benefits were offset partially by the sale of the insurance business, lower prime and subprime mortgage balances, and a charge resulting from accelerated surrenders of customer annuity contracts. The provision for credit losses was up from the prior year due primarily to higher losses in the subprime mortgages portfolio and, to a lesser extent, increased provision in the home equity portfolio related to weaker housing prices. These increases were offset partially by the reversal of a portion of the reserves related to Hurricane Katrina. Noninterest expense was up from the prior year primarily due to The Bank of New York transaction, the reclassification of certain loan origination costs due to the adoption of SFAS 159, investments in the retail distribution network and higher depreciation expense on owned automobiles subject to operating leases. These increases were offset partially by the sale of the insurance business.

Card Services net income decreased when compared with the prior year, primarily due to prior-year results benefiting from significantly lower net charge-offs related to decreased bankruptcy losses. Net managed revenue was flat compared with the prior year benefiting from higher average managed loan balances, increased fees and increased interchange income from higher charge volume. These benefits were largely offset by higher charge-offs, which resulted in increased revenue reversals; higher cost of funds on balance growth in promotional, introductory and transactor loan balances; and higher volume-driven payments to partners and increased rewards expense. The managed provision for credit losses was up due to the prior year benefiting from a lower level of net charge-offs, reflecting a reduction in bankruptcy losses following the change in bankruptcy legislation in the fourth quarter of 2005. This was partially offset by a reduction in the allowance for credit losses primarily relating to the strength in the underlying credit quality of the loan portfolio. Noninterest expense was flat due primarily to lower marketing expense and fraud-related losses, offset by higher expense related to recent acquisitions and increased customer activity.

Commercial Banking net income was a record, up from the prior year driven by higher net revenue. Revenue increased due to higher liability balances and loan volumes, which reflected organic growth and The Bank of New York transaction, as well as higher investment banking revenue and gains related to the sale of securities acquired in the satisfaction of debt. These benefits were offset partially by the continued shift to narrower-spread liability products and loan spread compression. Expense decreased due to the absence of prior-year expense from the adoption of SFAS 123R, largely offset by expense related to The Bank of New York transaction.

Treasury & Securities Services net income was flat compared with the prior year as higher revenue was offset by increased expense. Revenue benefited from increased product usage by existing clients, new business growth, higher liability balances and market appreciation, all of which was offset largely by price compression across Treasury Services products, a continued shift to narrower-spread liability products and lower foreign exchange revenue. The increase in expense was due to higher compensation expense related to growth in headcount supporting increased client volume and investment in new product platforms, partially offset by the absence of prior-year expense related to the adoption of SFAS 123R.

Asset Management achieved record net income driven by increased revenue and the absence of prior-year expense related to the adoption of SFAS 123R, offset primarily by higher compensation expense. Revenue benefited from increased fees and commissions largely due to increased assets under management and higher performance fees. Expense increased due to higher compensation and increased minority interest expense related to Highbridge Capital Management, partially offset by the absence of prior-year expense related to the adoption of SFAS 123R.

Corporate segment net income increased primarily from higher private equity gains and improved net interest income. Private equity gains benefited from a higher level of realized gains and a fair value adjustment on nonpublic investments resulting from the adoption of SFAS 157 as well as the reclassification of certain private equity carried interest from revenue to compensation expense. Treasury benefited from an increase in net interest income driven by improved net interest spread and the absence of securities losses in the prior year. Expense increased compared with the prior year driven by the reclassification of certain private equity carried interest to compensation expense and lower recoveries related to certain material litigation, offset primarily by business efficiencies and the absence of prior-year expense from the adoption of SFAS 123R.

Net income from discontinued operations was zero in the current quarter compared with $54 million in the prior year. Discontinued operations (included in the Corporate segment results) include the related balance sheet and income statement activity of selected corporate trust businesses that were sold to The Bank of New York on October 1, 2006.

During the quarter ended March 31, 2007, approximately $720 million (pretax) of merger savings was realized, which is an annualized rate of approximately $2.9 billion. Merger costs of $62 million were expensed during the first quarter of 2007 bringing the total amount expensed since the merger announcement to $3.5 billion (including capitalized costs).

The managed provision for credit losses was $1.6 billion, up by $321 million, or 25%, from the prior year. The wholesale provision for credit losses was $77 million for the quarter compared with a provision of $179 million in the prior year. The prior-year provision reflected growth in the loan portfolio. Wholesale net recoveries were $6 million in the current quarter compared with net recoveries of $20 million in the prior year, resulting in net recovery rates of 0.02% and 0.06%, respectively. The total consumer managed provision for credit losses was $1.5 billion compared with $1.1 billion in the prior year. The prior year benefited from a lower level of credit card net charge-offs, which reflected a low level of bankruptcy losses following the change in bankruptcy legislation in the fourth quarter of 2005. The increase from last year also reflects higher charge-offs and additions to the allowance for credit losses related to the subprime mortgage and home equity loan portfolios, partially offset by a reduction in the allowance for credit losses in Card Services. The Firm had total nonperforming assets of $2.4 billion at March 31, 2007, up by $73 million, or 3%, from the prior-year level of $2.3 billion.

The Firm had, at March 31, 2007, total stockholders’ equity of $117.7 billion and a Tier 1 capital ratio of 8.5%. The Firm purchased $4.0 billion, or 80.9 million shares, of common stock during the quarter. On April 17, 2007, the Board of Directors declared a quarterly dividend of $0.38 per share on the outstanding shares of the Firm’s common stock, an increase of $0.04 per share, or 12%. The dividend is payable on July 31, 2007, to stockholders of record at the close of business on July 6, 2007. On April 17, 2007, the Board of Directors also authorized a new $10.0 billion common stock repurchase program, which replaces the Firm’s previous $8.0 billion repurchase program authorized on March 21, 2006. There was $816 million of remaining authorization under the $8.0 billion repurchase program.

Business outlook
The following forward-looking statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s results to differ materially from those set forth in such forward-looking statements.

JPMorgan Chase’s outlook for the second quarter of 2007 should be viewed against the backdrop of the global economy, financial markets activity and the geopolitical environment, all of which are integrally linked. While the Firm considers outcomes for, and has contingency plans to respond to, stress environments, the current basic outlook is predicated on the interest rate movements implied in the forward rate curve for U.S. Treasury securities, the continuation of favorable U.S. and international equity markets and continued expansion of the global economy.

The Investment Bank enters the second quarter of 2007 with a strong investment bank fee pipeline. In the Corporate segment, the revenue outlook for the Private Equity business is directly related to the strength of the equity markets and the performance of the underlying portfolio investments. If current market conditions persist, the Firm anticipates continued realization of private equity gains, but results can be volatile from quarter to quarter. Management continues to believe that the net loss in Treasury and Other Corporate, on a combined basis, will be approximately $50 million to $100 million per quarter. The performance of each of the Firm’s lines of business will be affected by overall global economic growth, by financial market movements, including interest rates movements, by the competitive environment and by client activity levels in any given time period.

The Provision for credit losses is anticipated to be higher, primarily driven by a trend toward a more normal level of provisioning for credit losses in both the wholesale and consumer businesses. The consumer Provision for credit losses is anticipated to increase as the Firm experiences a higher level of net charge-offs in Card Services as bankruptcy filings continue to increase from the significantly lower than normal levels experienced in 2006 related to the change in bankruptcy law in 2005. The provision for credit losses was increased for both the subprime mortgage portfolio and, to a lesser extent, the home equity portfolio during the first quarter of 2007, and management remains cautious with respect to the real estate lending portfolio given continued downward pressure on housing prices and the elevated level of unsold homes nationally.

Firmwide expense is anticipated to reflect investments in each business, recent acquisitions, continued merger savings and other operating efficiencies. Annual Merger savings are expected to reach approximately $3.0 billion by the end of 2007, upon the completion of the last significant conversion activity, which is the wholesale deposit conversion scheduled for the second half of 2007. Merger costs of approximately $400 million are expected to be incurred during 2007 (including a modest amount related to The Bank of New York transaction). These additions are expected to bring total cumulative merger costs to $3.8 billion by the end of 2007.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a comparative discussion of JPMorgan Chase’s consolidated results of operations on a reported basis. Factors that relate primarily to a single business segment are discussed in more detail within that business segment than they are in this consolidated section. Total net revenue, Noninterest expense and Income tax expense reflect the impact of discontinued operations. For a discussion of the Critical accounting estimates used by the Firm that affect the Consolidated results of operations, see page 64 of this Form 10-Q and pages 83–85 of the JPMorgan Chase Annual Report on Form 10-K for the year ended December 31, 2006. Effective January 1, 2007, certain transaction costs previously reported within Principal transactions and Asset management, administration and commission revenues have now been classified and are reported in Professional and outside services expense. Reclassified amounts for 2006, 2005 and 2004 are set forth in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2006, as amended by the Firm’s Form 8-K filed May 10, 2007 (“2006 Annual Report”).

The following table presents the components of Total net revenue.

Total net revenue
Three months ended March 31,
(in millions)		2007				2006				Change
Investment banking fees		$	1,739			$	1,169				49	%
Principal transactions(a)			4,471				2,709				65
Lending & deposit related fees			895				841				6
Asset management, administration and commissions(a)			3,186				2,874				11
Securities gains (losses)			2				(116	)		NM
Mortgage fees and related income			476				241				98
Credit card income			1,563				1,910				(18	)
Other income			518				554				(6	)
Noninterest revenue			12,850				10,182				26
Net interest income			6,118				4,993				23
Total net revenue		$	18,968			$	15,175				25	%

(a)		Certain transaction costs, previously reported within Revenue, have been reclassified to Noninterest expense. Revenue and Noninterest expense have been reclassified for all periods presented. The reclassification did not affect Income from continuing operations or Net income.

Total Net revenue
Total net revenue for the first quarter of 2007 was $19.0 billion, up by $3.8 billion, or 25%, from the prior year. The increase was due to higher Principal transactions revenue, reflecting very strong private equity gains (including the impact of the adoption of SFAS 157) and record Fixed Income and record Equity markets revenue, higher Net interest income, record Investment banking fees, increased Asset management, administration and commissions revenue, and higher Mortgage fees and related income (including the impact of the adoption of SFAS 159). These improvements were partially offset by lower Credit card income.

Investment banking fees of $1.7 billion in the first quarter 2007 was a record for the Firm. This result was driven by record debt and record equity underwriting as well as strong advisory fees. For a further discussion of Investment banking fees, which are primarily recorded in the IB, see the IB segment results on pages 17–20 of this Form 10-Q.

Principal transactions revenue consists of trading revenue, changes in fair value associated with financial instruments held by the IB for which the SFAS 159 fair value option was elected and private equity gains. Trading revenue of $3.1 billion in the first quarter of 2007 was a record for the Firm, driven primarily by strong fixed income and equities performance. Credit Portfolio revenue was up, driven largely by an adjustment to the valuation of the Firm’s derivative liabilities and other liabilities measured at fair value to reflect the credit quality of the Firm, as a part of the adoption of SFAS 157, and higher trading revenue from credit portfolio management activities. Private equity gains were very strong, benefiting from a higher level of realized gains, a fair value adjustment to nonpublic investments of $464 million resulting from the adoption of SFAS 157, and the reclassification of certain private equity carried interest to Compensation expense. For a further discussion of Principal transactions revenue, see the IB and Corporate segment results on pages 17–20 and 37–39, respectively, and Note 5 on pages 80–82 of this Form 10-Q.

Lending & deposit related fees rose from the first quarter of 2006 as a result of higher deposit-related fees, which in part, resulted from The Bank of New York transaction. For a further discussion of Lending & deposit related fees, which are primarily recorded in RFS see the RFS segment results on pages 21–27 of this Form 10-Q.

The increase in Asset management, administration and commissions revenue compared with the first quarter of 2006 was primarily due to increased assets under management and higher performance fees. Assets under management in AM was $1.1 trillion at the end of the first quarter of 2007, up 21%, or $180 billion, from the prior year; this growth was primarily

the result of net asset inflows in the institutional and retail segments, and market appreciation. Also contributing to the increase was higher assets under custody in TSS driven by market value appreciation and new business, as well as growth in other fees due to a combination of increased product usage by existing clients and new business growth. In addition, commissions increased due to higher brokerage transaction volume, partly offset by the sale of the insurance business in the third quarter of 2006, and a charge resulting from accelerated surrenders of customer annuity contracts. For additional information on these fees and commissions, see the segment discussions for AM on pages 34–36, TSS on pages 32–33, and RFS on pages 21–27, of this Form 10-Q.

The favorable variance in Securities gains (losses) when compared with the first quarter of 2006 primarily reflects the absence of $158 million of securities losses in the prior year from repositioning of the Treasury investment securities portfolio. For a further discussion of Securities gains (losses), which are mostly recorded in the Firm’s Treasury business, see the Corporate segment discussion on pages 37–39 of this Form 10-Q.

Mortgage fees and related income increased in comparison with the first quarter of 2006 due to increased production revenue reflecting higher gain-on-sale income and the reclassification of certain loan origination costs to expense (previously netted against revenue) due to the adoption of SFAS 159. Net mortgage servicing revenue improved reflecting an increase in third-party loans serviced. For a discussion of Mortgage fees and related income, which is recorded primarily in RFS’s Mortgage Banking business, see the Mortgage Banking discussion on pages 25–26 and Note 6 on page 83 of this Form 10-Q.

Credit card income decreased $347 million, or 18%, from the prior year primarily from lower servicing fees earned in connection with securitization activities, which were unfavorably affected by higher net credit losses incurred on securitized credit card loans, an increase in interest paid to investors in securitized loans, and a decrease in average securitized loans from the prior year. Also, contributing to the decrease were increases in volume-driven payments to partners and increased expenses related to rewards programs. These were offset partially by higher customer charge volume that favorably impacted interchange income and an increase in fee-based product revenue.

The decrease in Other income from the first quarter of 2006 reflected lower gains from loan workouts, partially offset by higher results on corporate and bank-owned life insurance policies and the absence of a prior-year $50 million loss related to auto loans transferred to held-for-sale.

Net interest income rose from the first quarter of last year as a result of improved trading-related Net interest income, primarily from the impact of a shift of Interest expense to Principal transactions revenue related to certain IB structured notes to which the fair value option was elected in connection with the adoption of SFAS 159; an improvement in Treasury’s net interest spread; higher average credit card balances, which included a private-label credit card portfolio acquisition by CS; higher home equity loans; the impact of The Bank of New York transaction; and higher wholesale liability balances and consumer deposits. These increases were offset partially by narrower spreads on consumer and wholesale loans; increased credit card-related interest reversals in the current quarter associated with higher charge-offs; a shift to narrower spread deposit products; and the impact of RFS’s sale of the insurance business. The Firm’s total average interest-earning assets for the first quarter of 2007 were $1.1 trillion, up 12% from the first quarter of 2006, primarily as a result of an increase in Trading assets – debt instruments, Loans, and Available-for-sale securities, partially offset by a decline in Interests in purchased receivables as a result of the restructuring and deconsolidation during the second quarter of 2006 of certain multi-seller conduits that the Firm administered. The net interest yield on these assets, on a fully taxable-equivalent basis, was 2.39%, an increase of 20 basis points from the prior year, partly reflecting the shift of Interest expense to Principal transactions revenue related to certain IB structured notes to which the fair value option was elected in connection with the adoption of SFAS 159.

Provision for credit losses
Three months ended March 31,
(in millions)		2007				2006				Change
Provision for credit losses		$	1,008			$	831				21	%

Provision for credit losses
The Provision for credit losses in the first quarter of 2007 increased by $177 million from 2006 due to a $279 million increase in the consumer Provision for credit losses, partly offset by a $102 million decrease in the wholesale Provision for credit losses. The increase in the consumer provision was driven by the following: in RFS, higher losses in the subprime mortgage portfolio and, to a lesser extent, a provision increase against the home equity portfolio related to weaker housing prices; and in CS, the prior-year quarter benefited from lower net charge-offs, which reflected a reduction in bankruptcy-related losses following the change in bankruptcy legislation in the fourth quarter of 2005. The current quarter benefited from an $85 million reduction in the allowance for credit losses, primarily related to strength in the underlying credit quality of the credit card portfolio, and by the reversal of a portion of the reserves in RFS related to

Hurricane Katrina. The decrease in the wholesale provision was largely the result of a higher provision in the prior year due to growth in the loan portfolio. For a more detailed discussion of the loan portfolio and the Allowance for loan losses, refer to Credit risk management on pages 48–60 of this Form 10-Q.

Noninterest expense
The following table presents the components of Noninterest expense.

Three months ended March 31,
(in millions)		2007				2006				Change
Compensation expense		$	6,234			$	5,548				12	%
Occupancy expense			640				594				8
Technology, communications and equipment expense			922				869				6
Professional & outside services(a)			1,200				1,008				19
Marketing			482				519				(7	)
Other expense			735				816				(10	)
Amortization of intangibles			353				355				(1	)
Merger costs			62				71				(13	)
Total Noninterest expense		$	10,628			$	9,780				9

(a)		Certain transaction costs, previously reported within Revenue, have been reclassified to Noninterest expense. Revenue and Noninterest expense have been reclassified for all periods presented. The reclassification did not affect Income from continuing operations or Net income.

Noninterest expense

Total Noninterest expense for the first quarter of 2007 was $10.6 billion, up by $848 million, or 9%, from the prior year. The increase was driven by higher Compensation expense, primarily from performance-based incentives. In addition, expense growth was also driven by acquisitions and investments in businesses, as well as lower insurance recoveries related to certain material litigation. The increase in expense was offset partially by the absence of a prior-year expense from the adoption of SFAS 123R, as well as business divestitures and operating expense efficiencies.

The increase in Compensation expense from the first quarter of 2006 was primarily the result of higher performance-based incentives, additional headcount in connection with acquisitions and investments in businesses, the reclassification of certain private equity carried interest from Principal transactions revenue, as well as the reclassification of certain loan origination costs (previously netted against revenue) due to the adoption of SFAS 159. These increases were partially offset by the absence of a prior-year expense of $459 million from the adoption of SFAS 123R, business divestitures and expense efficiencies throughout the Firm. For a detailed discussion of the adoption of SFAS 159 and SFAS 123R see Note 4 on pages 77–80 and Note 9 on page 85, respectively, of this Form 10-Q.

The increase in Occupancy expense from the first quarter of 2006 was driven by ongoing investments in the retail distribution network, which included incremental expense from The Bank of New York transaction.

The increase in Technology, communications and equipment expense, when compared with the first quarter of 2006, was due primarily to higher depreciation expense on owned automobiles subject to operating leases and technology investments to support business growth, partially offset by operating expense efficiencies.

Professional & outside services expense increased from the first quarter of 2006 due primarily to higher brokerage expense and credit card processing costs as a result of growth in transaction volume. Also contributing to the increase was acquisitions and investments in businesses.

Marketing expense was lower when compared with the first quarter of 2006, reflecting lower expenditures for credit card campaigns.

Other expense declined compared with the first quarter of 2006 due to the sale of the insurance business in the third quarter of 2006, lower charges related to litigation, and lower credit card fraud-related losses. These items were partially offset by lower insurance recoveries pertaining to certain litigation matters, and growth in business volume, acquisitions and investments in businesses.

For a discussion of Amortization of intangibles and Merger costs, refer to Note 17 and Note 10 on pages 96–98 and 85, respectively, of the Form 10-Q.

Income tax expense
The Firm’s Income from continuing operations before income tax expense, Income tax expense and Effective tax rate were as follows for each of the periods indicated.

Three months ended March 31,
(in millions, except rate)		2007				2006
Income from continuing operations before income tax expense		$	7,332			$	4,564
Income tax expense			2,545				1,537
Effective tax rate			34.7	%			33.7	%

The increase in the effective tax rate was related to higher reported pre-tax income combined with changes in the proportion of income subject to federal, state and local taxes.

Income from discontinued operations
Net income from discontinued operations was zero in the current quarter compared with $54 million in the prior year. Discontinued operations (included in the Corporate segment results) include the related balance sheet and income statement activity of selected corporate trust businesses that were sold to The Bank of New York on October 1, 2006.

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES

The Firm prepares its Consolidated financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”); these financial statements appear on pages 66–69 of this Form 10-Q. That presentation, which is referred to as “reported basis,” provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s and the lines’ of business results on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that assumes credit card loans securitized by CS remain on the balance sheet and presents revenue on a fully taxable-equivalent (“FTE”) basis. These adjustments do not have any impact on Net income as reported by the lines of business or by the Firm as a whole.

The presentation of CS results on a managed basis assumes that credit card loans that have been securitized and sold in accordance with SFAS 140 still remain on the balance sheet and that the earnings on the securitized loans are classified in the same manner as the earnings on retained loans recorded on the balance sheet. JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations are funded and decisions are made about allocating resources, such as employees and capital, based upon managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the balance sheet and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer’s credit performance will affect both the securitized loans and the loans retained on the balance sheet. JPMorgan Chase believes managed basis information is useful to investors, enabling them to understand both the credit risks associated with the loans reported on the balance sheet and the Firm’s retained interests in securitized loans. For a reconciliation of reported to managed basis of CS results, see Card Services segment results on pages 27–29 of this Form 10-Q. For information regarding the securitization process, and loans and residual interests sold and securitized, see Note 15 on pages 90–94 of this Form 10-Q.

Total net revenue for each of the business segments and the Firm is presented on an FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenues arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within Income tax expense.

Management also uses certain non-GAAP financial measures at the segment level because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and therefore facilitate a comparison of the business segment with the performance of its competitors.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.

Three months ended March 31,		2007
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(b)				adjustments				basis
Revenue
Investment banking fees		$	1,739			$	—			$	—			$	1,739
Principal transactions			4,471				—				—				4,471
Lending & deposit related fees			895				—				—				895
Asset management, administration and commissions			3,186				—				—				3,186
Securities gains			2				—				—				2
Mortgage fees and related income			476				—				—				476
Credit card income			1,563				(746	)			—				817
Other income			518				—				110				628
Noninterest revenue			12,850				(746	)			110				12,214
Net interest income			6,118				1,339				70				7,527
Total net revenue			18,968				593				180				19,741
Provision for credit losses			1,008				593				—				1,601
Noninterest expense			10,628				—				—				10,628
Income from continuing operations before income tax expense			7,332				—				180				7,512
Income tax expense			2,545				—				180				2,725
Income from continuing operations			4,787				—				—				4,787
Income from discontinued operations			—				—				—				—
Net income		$	4,787			$	—			$	—			$	4,787
Net income – diluted earnings per share		$	1.34			$	—			$	—			$	1.34
Return on common equity(a)			17	%			—	%			—	%			17	%
Return on equity less goodwill(a)			27				—				—				27
Return on assets(a)			1.41			NM				NM					1.34
Overhead ratio			56			NM				NM					54

Three months ended March 31,		2006
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(b)				adjustments				basis
Revenue
Investment banking fees		$	1,169			$	—			$	—			$	1,169
Principal transactions			2,709				—				—				2,709
Lending & deposit related fees			841				—				—				841
Asset management, administration and commissions			2,874				—				—				2,874
Securities (losses)			(116	)			—				—				(116	)
Mortgage fees and related income			241				—				—				241
Credit card income			1,910				(1,125	)			—				785
Other income			554				—				146				700
Noninterest revenue			10,182				(1,125	)			146				9,203
Net interest income			4,993				1,574				71				6,638
Total net revenue			15,175				449				217				15,841
Provision for credit losses			831				449				—				1,280
Noninterest expense			9,780				—				—				9,780
Income from continuing operations before income tax expense			4,564				—				217				4,781
Income tax expense			1,537				—				217				1,754
Income from continuing operations			3,027				—				—				3,027
Income from discontinued operations			54				—				—				54
Net income		$	3,081			$	—			$	—			$	3,081
Net income – diluted earnings per share		$	0.86			$	—			$	—			$	0.86
Return on common equity(a)			11	%			—	%			—	%			11	%
Return on equity less goodwill(a)			19				—				—				19
Return on assets(a)			0.98			NM				NM					0.95
Overhead ratio			64			NM				NM					62

(a)		Based upon Income from continuing operations.
(b)		Credit card securitizations affect CS. See pages 27–29 of this Form 10-Q for further information.

Three months ended March 31,		2007												2006
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans – Period-end		$	449,765			$	68,403			$	518,168			$	432,081			$	69,580			$	501,661
Total assets – average			1,378,915				65,114				1,444,029				1,248,357				67,557				1,315,914

BUSINESS SEGMENT RESULTS

The Firm is managed on a line-of-business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management, as well as a Corporate segment. The segments are based upon the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For further discussion of Business segment results, see pages 34–35 of JPMorgan Chase’s 2006 Annual Report.

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on page 34 of JPMorgan Chase’s 2006 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

Segment Results — Managed Basis^(a)

The following table summarizes the business segment results for the periods indicated.

																																						Return
Three months ended March 31,		Total net revenue												Noninterest expense												Net income (loss)												on equity
(in millions, except ratios)		2007				2006				Change				2007				2006				Change				2007				2006				Change				2007				2006
Investment Bank		$	6,254			$	4,828				30	%		$	3,831			$	3,320				15	%		$	1,540			$	850				81	%			30	%			17	%
Retail Financial Services			4,106				3,763				9				2,407				2,238				8				859				881				(2	)			22				26
Card Services			3,680				3,685				—				1,241				1,243				—				765				901				(15	)			22				26
Commercial Banking			1,003				900				11				485				498				(3	)			304				240				27				20				18
Treasury & Securities Services			1,526				1,485				3				1,075				1,048				3				263				262				—				36				42
Asset Management			1,904				1,584				20				1,235				1,098				12				425				313				36				46				36
Corporate(b)			1,268				(404	)		NM					354				335				6				631				(366	)		NM				NM				NM
Total		$	19,741			$	15,841				25	%		$	10,628			$	9,780				9	%		$	4,787			$	3,081				55	%			17	%			12	%

(a)		Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
(b)		Net income (loss) includes Income from discontinued operations (after-tax) of $54 million for the quarter ended March 31, 2006.

INVESTMENT BANK

For a discussion of the business profile of the IB, see pages 36–37 of JPMorgan Chase’s 2006 Annual Report.

Selected income statement data
Three months ended March 31,
(in millions, except ratios)		2007				2006				Change
Revenue
Investment banking fees		$	1,729			$	1,170				48	%
Principal transactions(a)(b)			3,126				2,480				26
Lending & deposit related fees			93				137				(32	)
Asset management, administration and commissions(b)			641				576				11
All other income			42				275				(85	)
Noninterest revenue			5,631				4,638				21
Net interest income			623	(f)			190				228
Total net revenue(c)			6,254				4,828				30
Provision for credit losses			63				183				(66	)
Credit reimbursement from TSS(d)			30				30				—
Noninterest expense
Compensation expense			2,637				2,256				17
Noncompensation expense(b)			1,194				1,064				12
Total noninterest expense			3,831				3,320				15
Income before income tax expense			2,390				1,355				76
Income tax expense			850				505				68
Net income		$	1,540			$	850				81
Financial ratios
ROE			30	%			17	%
ROA			0.95				0.53
Overhead ratio			61				69
Compensation expense as a % of total net revenue(e)			42				41
Revenue by business
Investment banking fees:
Advisory		$	472			$	389				21
Equity underwriting			393				212				85
Debt underwriting			864				569				52
Total investment banking fees			1,729				1,170				48
Fixed income markets(a)(b)			2,592				2,076				25
Equity markets(a)(b)			1,539				1,262				22
Credit portfolio(a)			394				320				23
Total net revenue		$	6,254			$	4,828				30
Revenue by region
Americas		$	3,366			$	2,153				56
Europe/Middle East/Africa			2,251				2,025				11
Asia/Pacific			637				650				(2	)
Total net revenue		$	6,254			$	4,828				30

(a)		As a result of the adoption on January 1, 2007, of SFAS 157, the IB recognized a benefit, in the current quarter, of $166 million in Total net revenue (primarily in Credit Portfolio, but with smaller impacts to Equity Markets and Fixed Income Markets) relating to the incorporation of an adjustment to the valuation of the Firm’s derivative liabilities and other liabilities measured at fair value that reflects the credit quality of the Firm.
(b)		Certain transaction costs, previously reported within Revenue, have been reclassified to Noninterest expense. Revenue and Noninterest expense have been reclassified for all periods presented.
(c)		Total net revenue includes tax-equivalent adjustments, primarily due to tax-exempt income from municipal bond investments and income tax credits related to affordable housing investments, of $152 million and $194 million for the quarters ended March 31, 2007 and 2006, respectively.
(d)		Treasury & Securities Services is charged a credit reimbursement related to certain exposures managed within the Investment Bank credit portfolio on behalf of clients shared with TSS.

(e)		For the quarter ended March 31, 2006, the Compensation expense to Total net revenue ratio is adjusted to present this ratio as if SFAS 123R had always been in effect. IB management believes that adjusting the Compensation expense to Total net revenue ratio for the incremental impact of adopting SFAS 123R provides a more meaningful measure of IB’s Compensation expense to Total net revenue ratio for 2006.
(f)		Net Interest Income for the quarter ended March 31, 2007, increased from the prior year due primarily to the adoption of SFAS 159. For certain IB structured notes elected, all components of earnings are reported in Principal transaction; causing a shift between Principal transactions and Net interest income in the first quarter of 2007.

Quarterly results

Net income was a record $1.5 billion, up by $690 million, or 81%, compared with the prior year. Earnings growth reflected record revenue and a lower provision for credit losses, partially offset by higher noninterest expense.

Net revenue was a record $6.3 billion, up 30% from the prior year, driven by record investment banking fees and record markets results. Investment banking fees of $1.7 billion were up 48% from the prior year driven by record debt and record equity underwriting as well as strong advisory fees. Debt underwriting fees of $864 million were up 52% driven by record bond underwriting fees and strong loan syndication fees, which benefited from both leveraged and high grade issuance. Advisory fees of $472 million were up 21%, with particular strength in the Americas. Equity underwriting fees of $393 million were up 85%, reflecting strength in common stock and convertible offerings in the Americas and Europe. Record Fixed Income Markets revenue of $2.6 billion was up 25% from the prior year, benefiting from improved results in commodities (compared with a weak prior-year quarter) as well as strength in credit and rate markets, partially offset by lower results in currencies. Record Equity Markets revenue of $1.5 billion increased 22%, benefiting from particularly strong performance in Europe as well as strong derivatives performance across regions. Credit Portfolio revenue of $394 million was up 23%, due to the incorporation of an adjustment to the valuation of the firm’s derivative liabilities measured at fair value that reflects the credit quality of the firm, in conjunction with SFAS 157 (“Fair Value Measurements”), and higher trading revenue from credit portfolio management activities, partially offset by lower gains from loan workouts.

Provision for credit losses was $63 million compared with $183 million in the prior year. The prior-year provision reflected growth in the loan portfolio.

Noninterest expense was $3.8 billion, up by $511 million, or 15%, from the prior year. This increase was due to higher compensation expense, primarily performance-based, partially offset by the absence of expense from the adoption of SFAS 123R in the prior-year quarter.

Selected metrics
Three months ended March 31,
(in millions, except headcount and ratio data)		2007				2006				Change
Selected average balances
Total assets		$	658,724			$	646,220				2	%
Trading assets–debt and equity instruments(a)			335,118				252,415				33
Trading assets–derivatives receivables			56,398				49,388				14
Loans:
Loans retained(b)			59,873				53,678				12
Loans held-for-sale(a)			12,784				19,212				(33	)
Total loans			72,657				72,890				—
Adjusted assets(c)			572,017				492,304				16
Equity			21,000				20,000				5
Headcount			23,892				21,705				10
Credit data and quality statistics
Net charge-offs (recoveries)		$	(6	)		$	(21	)			71
Nonperforming assets:
Nonperforming loans(d)			92				434				(79	)
Other nonperforming assets			36				50				(28	)
Allowance for loan losses			1,037				1,117				(7	)
Allowance for lending related commitments			310				220				41
Net charge-off (recovery) rate(a)(b)			(0.04	)%			(0.16	)%
Allowance for loan losses to average loans(a)(b)			1.76				2.08
Allowance for loan losses to nonperforming loans(d)			1,178				305
Nonperforming loans to average loans			0.13				0.60
Market risk–average trading and credit portfolio VAR(e)
By risk type:
Fixed income		$	45			$	60				(25	)
Foreign exchange			19				20				(5	)
Equities			42				32				31
Commodities and other			34				47				(28	)
Less: portfolio diversification(f)			(58	)			(68	)			15
Total trading VAR			82				91				(10	)
Credit portfolio VAR(g)			13				14				(7	)
Less: portfolio diversification(f)			(12	)			(11	)			(9	)
Total trading and credit portfolio VAR		$	83			$	94				(12	)

(a)		Loans held-for-sale are excluded from the allowance coverage ratio and Net charge-off rate. Loans held-for-sale for the quarter ended March 31, 2007, reflect the impact of reclassifying $11.7 billion of Loans held-for-sale to Trading assets as a result of the adoption of SFAS 159 effective January 1, 2007.
(b)		Loans retained include credit portfolio loans, leveraged leases, bridge loans for underwriting, other accrual loans and certain loans carried at fair value. Average loans carried at fair value were $900 million for the quarter ended March 31, 2007. This amount is excluded from Total loans for the allowance coverage ratio and Net charge-off rate.
(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; and (4) goodwill and intangibles. The amount of adjusted assets is presented to assist the reader in comparing the IB’s 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 company’s capital adequacy. The IB believes an adjusted asset amount that excludes the assets discussed above, which are considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.
(d)		Nonperforming loans include Loans held-for-sale of $4 million and $68 million at March 31, 2007, and March 31, 2006, respectively, which are excluded from the allowance coverage ratios. Nonperforming loans exclude distressed HFS loans purchased as part of IB’s proprietary activities. During the first quarter of 2007, the Firm elected the fair value option of accounting for this portfolio of nonperforming loans. These loans are classified as Trading assets at March 31, 2007.
(e)		Average VARs are 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 are not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves.
(f)		For a more complete description of VAR, see page 60 of this Form 10-Q.
(g)		Includes VAR on derivative credit and debit valuation adjustments, hedges of the credit valuation adjustment and mark-to-market hedges of the retained loan portfolio, which are all reported in Principal Transactions. The VAR does not include the retained loan portfolio.

According to Thomson Financial, in the first quarter of 2007, the Firm was ranked #1 in Global Equity and Equity-Related; #1 in Global Syndicated Loans; #2 in Global Announced M&A; #2 in Global Debt, Equity and Equity-Related; and #2 in Global Long-term Debt based upon volume.

Three months ended March 31, 2007

Full Year 2006

Market shares and rankings(a)

Market Share

Rankings

Market Share

Rankings

Global debt, equity and equity-related

8

%

#2

7

%

#2

Global syndicated loans

15

#1

14

#1

Global long-term debt

8

#2

6

#3

Global equity and equity-related

13

#1

7

#6

Global announced M&A

23

#2

22

#4

U.S. debt, equity and equity-related

11

#2

9

#3

U.S. syndicated loans

27

#1

26

#1

U.S. long-term debt

12

#2

12

#2

U.S. equity and equity-related(b)

19

#1

8

#6

U.S. announced M&A

39

#2

28

#4

(a)		Source: Thomson Financial Securities data. 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%.
(b)		References U.S domiciled equity and equity-related transactions, per Thomson Financial.

RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS, see pages 38–42 of JPMorgan Chase’s 2006 Annual Report.

During the first quarter of 2006, RFS completed the purchase of Collegiate Funding Services, which contributed an education loan servicing capability and provided an entry into the Federal Family Education Loan Program consolidation market. On July 1, 2006, RFS sold its life insurance and annuity underwriting businesses to Protective Life Corporation. On October 1, 2006, JPMorgan Chase completed The Bank of New York transaction, significantly strengthening RFS’s distribution network in the New York Tri-state area.

Selected income statement data
Three months ended March 31,
(in millions, except ratios)		2007				2006				Change
Revenue
Lending & deposit related fees		$	423			$	371				14	%
Asset management, administration and commissions			263				437				(40	)
Securities gains (losses)			—				(6	)		NM
Mortgage fees and related income(a)			482				236				104
Credit card income			142				115				23
Other income			179				48				273
Noninterest revenue			1,489				1,201				24
Net interest income			2,617				2,562				2
Total net revenue			4,106				3,763				9
Provision for credit losses			292				85				244
Noninterest expense
Compensation expense(a)			1,065				920				16
Noncompensation expense(a)			1,224				1,207				1
Amortization of intangibles			118				111				6
Total noninterest expense			2,407				2,238				8
Income before income tax expense			1,407				1,440				(2	)
Income tax expense			548				559				(2	)
Net income		$	859			$	881				(2	)
Financial ratios
ROE			22	%			26	%
Overhead ratio(a)			59				59
Overhead ratio excluding core deposit intangibles(a)(b)			56				57

(a)		As a result of the adoption of SFAS 159, certain loan origination costs have been reclassified to expense (previously netted against revenue) in the quarter ended March 31, 2007, resulting in increases in Mortgage fees and related income, Noninterest expense and the Overhead ratios.
(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 Regional Banking’s core deposit intangible amortization expense related to The Bank of New York transaction and the Bank One merger of $116 million and $109 million for the quarters ended March 31, 2007 and 2006, respectively.

Quarterly results

Net income of $859 million was down by $22 million, or 2%, from the prior year.

Net revenue of $4.1 billion was up by $343 million, or 9%, from the prior year. Net interest income of $2.6 billion was up 2% due to The Bank of New York transaction, higher home equity loans and deposit balances in Regional Banking, and wider loan spreads in Auto Finance. These benefits were offset partially by lower prime and subprime mortgage balances, the sale of the insurance business, lower auto loan and lease balances, and narrower spreads on deposits. Noninterest revenue of $1.5 billion was up by $288 million, or 24%. Results benefited from higher gain-on-sale income and the reclassification of certain loan origination costs to expense (previously netted against revenue) due to the adoption of SFAS 159 in Mortgage Banking; increases in deposit—related fee revenue; the absence of a prior-year loss related to auto loans transferred to held-for-sale; The Bank of New York transaction; and higher automobile operating lease revenue. These benefits were offset partially by the sale of the insurance business, and a charge resulting from accelerated surrenders of customer annuity contracts.

The provision for credit losses of $292 million was up by $207 million from the prior year. This increase was due to higher losses in the subprime mortgage portfolio and, to a lesser extent, increased provision in the home equity portfolio related to weaker housing prices. These increases were offset partially by the reversal of a portion of the reserves related to Hurricane Katrina. The Firm’s exposure to subprime mortgages is deemed manageable, with current quarter outstandings of $9.0 billion and net charge-offs of $20 million (0.92% net charge-off rate), compared with $15.1 billion of loans and net charge-offs of $9 million (0.26% net charge-off rate) in the prior-year quarter. Since the Firm’s current expectations are for continued poor loss experience in subprime mortgages and that weaker home prices are expected to continue to affect losses in the home equity portfolio, underwriting standards were tightened during the quarter.

Noninterest expense of $2.4 billion was up by $169 million, or 8%, primarily due to The Bank of New York transaction, the reclassification of certain loan origination costs due to the adoption of SFAS 159, investments in the retail distribution network and higher depreciation expense on owned automobiles subject to operating leases. These increases were offset partially by the sale of the insurance business.

Selected metrics
Three months ended March 31,
(in millions, except headcount and ratios)		2007				2006				Change
Selected ending balances
Assets		$	212,997			$	235,127				(9	)%
Loans(a)(b)			188,468				202,591				(7	)
Deposits			221,840				200,154				11
Selected average balances
Assets		$	217,135			$	231,587				(6	)
Loans(a)(b)			190,979				198,797				(4	)
Deposits			216,933				194,382				12
Equity			16,000				13,896				15
Headcount			67,247				62,472				8
Credit data and quality statistics
Net charge-offs		$	185			$	121				53
Nonperforming loans(c)			1,655				1,349				23
Nonperforming assets			1,910				1,537				24
Allowance for loan losses			1,453				1,333				9
Net charge-off rate(d)			0.46	%			0.27	%
Allowance for loan losses to ending loans(d)			0.89				0.71
Allowance for loan losses to nonperforming loans(d)			94				100
Nonperforming loans to total loans			0.88				0.67