UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008		Commission file number 1-5805

JPMORGAN CHASE & CO.

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

þ Yes o No

Large accelerated filer þ		Accelerated filer o

Non-accelerated filer (Do not check if a smaller reporting company) o		Smaller reporting company o

o Yes þ No

Number of shares of common stock outstanding as of October 31, 2008: 3,732,357,534

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 and nine months ended September 30, 2008 and 2007			89
		Consolidated Balance Sheets (unaudited) at September 30, 2008, and December 31, 2007			90
		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the nine months ended September 30, 2008 and 2007			91
		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2008 and 2007			92
		Notes to Consolidated Financial Statements (unaudited)			93
		Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and nine months ended September 30, 2008 and 2007			154
		Glossary of Terms and Line of Business Metrics			156
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations:
		Consolidated Financial Highlights			3
		Introduction			5
		Other Business Events			6
		Recent Market Developments			7
		Executive Overview			9
		Consolidated Results of Operations			13
		Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			17
		Business Segment Results			20
		Balance Sheet Analysis			51
		Capital Management			54
		Off-Balance Sheet Arrangements and Contractual Cash Obligations			58
		Risk Management			60
		Supervision and Regulation			84
		Critical Accounting Estimates Used by the Firm			85
		Accounting and Reporting Developments			87
		Forward-Looking Statements			162
Item 3		Quantitative and Qualitative Disclosures About Market Risk			163
Item 4		Controls and Procedures			163
Part II — Other information
Item 1		Legal Proceedings			163
Item 1A		Risk Factors			165
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			167
Item 3		Defaults Upon Senior Securities			168
Item 4		Submission of Matters to a Vote of Security Holders			168
Item 5		Other Information			168
Item 6		Exhibits			168
EX-10.1: PURCHASE AND ASSUMPTION AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)																						Nine months ended
(in millions, except per share, headcount and ratio data)																						September 30,
As of or for the period ended,		3Q08				2Q08				1Q08				4Q07				3Q07				2008				2007
Selected income statement data
Noninterest revenue		$	5,743			$	10,105			$	9,231			$	10,161			$	9,199			$	25,079			$	34,805
Net interest income			8,994				8,294				7,659				7,223				6,913				24,947				19,183
Total net revenue			14,737				18,399				16,890				17,384				16,112				50,026				53,988
Provision for credit losses			3,811				3,455				4,424				2,542				1,785				11,690				4,322
Provision for credit losses — accounting conformity(a)			1,976				—				—				—				—				1,976				—
Noninterest expense			11,137				12,177				8,931				10,720				9,327				32,245				30,983
Income (loss) before income tax expense and extraordinary gain			(2,187	)			2,767				3,535				4,122				5,000				4,115				18,683
Income tax expense (benefit)(b)			(2,133	)			764				1,162				1,151				1,627				(207	)			6,289
Income (loss) before extraordinary gain			(54	)			2,003				2,373				2,971				3,373				4,322				12,394
Extraordinary gain(c)			581				—				—				—				—				581				—
Net income		$	527			$	2,003			$	2,373			$	2,971			$	3,373			$	4,903			$	12,394
Per common share
Basic earnings
Income (loss) before extraordinary gain		$	(0.06	)		$	0.56			$	0.70			$	0.88			$	1.00			$	1.19			$	3.63
Net income			0.11				0.56				0.70				0.88				1.00				1.36				3.63
Diluted earnings
Income (loss) before extraordinary gain		$	(0.06	)		$	0.54			$	0.68			$	0.86			$	0.97			$	1.15			$	3.52
Net income			0.11				0.54				0.68				0.86				0.97				1.32				3.52
Cash dividends declared per share			0.38				0.38				0.38				0.38				0.38				1.14				1.10
Book value per share			36.95				37.02				36.94				36.59				35.72
Common shares outstanding
Average: Basic			3,445				3,426				3,396				3,367				3,376				3,422				3,416
Diluted			3,445	(h)			3,531				3,495				3,472				3,478				3,525				3,520
Common shares at period end			3,727				3,436				3,401				3,367				3,359
Share price(d)
High		$	49.00			$	49.95			$	49.29			$	48.02			$	50.48			$	49.95			$	53.25
Low			29.24				33.96				36.01				40.15				42.16				29.24				42.16
Close			46.70				34.31				42.95				43.65				45.82
Market capitalization			174,048				117,881				146,066				146,986				153,901
Financial ratios
Return on common equity (“ROE”)
Income (loss) before extraordinary gain			(1	)%			6	%			8	%			10	%			11	%			4	%			14	%
Net income			1				6				8				10				11				5				14
Return on assets (“ROA”)
Income (loss) before extraordinary gain			(0.01	)			0.48				0.61				0.77				0.91				0.35				1.16
Net income			0.12				0.48				0.61				0.77				0.91				0.39				1.16
Overhead ratio			76				66				53				62				58				64				57
Tier 1 capital ratio			8.9				9.2				8.3				8.4				8.4
Total capital ratio			12.7				13.4				12.5				12.6				12.5
Tier 1 leverage ratio			7.2				6.4				5.9				6.0				6.0
Selected balance sheet data (period-end)
Trading assets		$	520,257				$531,997			$	485,280			$	491,409			$	453,711
Securities			150,779				119,173				101,647				85,450				97,706
Loans			761,381				538,029				537,056				519,374				486,320
Total assets			2,251,469				1,775,670				1,642,862				1,562,147				1,479,575
Deposits			969,783				722,905				761,626				740,728				678,091
Long-term debt			238,034				260,192				189,995				183,862				173,696
Common stockholders’ equity			137,691				127,176				125,627				123,221				119,978
Total stockholders’ equity			145,843				133,176				125,627				123,221				119,978
Headcount			228,452				195,594				182,166				180,667				179,847

(unaudited)																						Nine months ended
(in millions, except per share, headcount and ratio data)																						September 30,
As of or for the period ended,		3Q08				2Q08				1Q08				4Q07				3Q07				2008				2007
Credit quality metrics
Allowance for credit losses		$	19,765			$	13,932			$	12,601			$	10,084			$	8,971
Nonperforming assets(e)			9,520				6,233				5,143				3,933				3,009
Allowance for loan losses to loans(f)			2.86	%			2.57	%			2.29	%			1.88	%			1.76	%
Net charge-offs		$	2,484			$	2,130			$	1,906			$	1,429			$	1,221			$	6,520			$	3,109
Net charge-off rate(g)			1.91	%			1.67	%			1.53	%			1.19	%			1.07	%			1.70	%			0.94	%
Wholesale net charge-off rate(g)			0.10				0.08				0.18				0.05				0.19				0.12				0.04
Consumer net charge-off rate(g)			3.13				2.77				2.43				1.93				1.62				2.78				1.50
Managed Card net charge-off rate			5.00				4.98				4.37				3.89				3.64				4.79				3.61

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 156—159 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 actual 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 162 and Item 1A: Risk Factors on page 165 of this Form 10-Q), as well as in the JPMorgan Chase Annual Report on Form 10-K for the year ended December 31, 2007 (“2007 Annual Report” or “2007 Form 10-K”), including Part I, Item 1A: Risk factors, and the JPMorgan Chase quarterly reports, on Forms 10-Q for the quarters ended June 30, 2008, and March 31, 2008, including Part II, Item 1A thereof, to which reference is hereby made.

INTRODUCTION

JPMorgan Chase & Co. (“JPMorgan Chase” or 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 of America (“U.S.”), with $2.3 trillion in assets, $145.8 billion in total stockholders’ equity and operations in more than 60 countries as of September 30, 2008. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. Under the JPMorgan and Chase brands, the Firm serves millions of customers in the U.S. 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 24 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 subsidiaries are J.P. Morgan Securities Inc. and Bear, Stearns & Co., Inc. (“Bear Stearns & Co.”), the Firm’s U.S. investment banking firms. The Firm merged J.P. Morgan Securities Inc. with and into Bear Stearns & Co. and changed the name of the surviving corporation to J.P. Morgan Securities Inc.

JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. 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. The description of the Firm’s business segments below does not give effect to the acquisition of the banking operations of Washington Mutual Bank (“Washington Mutual”), which was consummated on September 25, 2008. For a discussion of the Washington Mutual transaction, see pages 6 and 49–50 of this Form 10-Q.

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, prime brokerage 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 serves consumers and businesses through bank branches, ATMs, online banking and telephone banking. Customers can use more than 3,100 bank branches, 9,300 ATMs and 300 mortgage offices. More than 14,100 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans and investments across the 17-state footprint from New York to Arizona. Consumers also can obtain loans through more than 14,200 auto dealerships and 3,500 schools and universities nationwide.

Card Services
With more than 156 million cards in circulation and more than $159 billion in managed loans, Card Services (“CS”) is one of the nation’s largest credit card issuers. Customers used Chase cards to meet more than $272 billion worth of their spending needs in the nine months ended September 30, 2008.

With hundreds of partnerships, Chase has a market leadership position in building loyalty programs with many of the world’s most respected brands.

Chase Paymentech Solutions, LLC, a joint venture between JPMorgan Chase and First Data Corporation, is a processor of MasterCard and Visa payments and handled more than 16 billion transactions in the nine months ended September 30, 2008. On May 27, 2008, the Firm announced the termination of Chase Paymentech Solutions. For further information, see Other Business Events on page 7 of this Form 10-Q.

Commercial Banking
Commercial Banking (“CB”) serves more than 30,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from approximately $10 million to approximately $2 billion. Commercial Banking delivers extensive industry knowledge, local expertise and a dedicated service model. In partnership with the Firm’s other businesses, it provides comprehensive solutions including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.

Treasury & Securities Services
Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain TS revenue is included in other segments’ results. Worldwide Securities Services (“WSS”) holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally.

Asset Management
With assets under supervision of $1.6 trillion as of September 30, 2008, 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, banking and brokerage 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

Acquisition of the banking operations of Washington Mutual Bank
On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the Federal Deposit Insurance Corporation (“FDIC”) for $1.9 billion through a purchase of substantially all of the assets and assumption of specified liabilities of Washington Mutual. Washington Mutual’s banking operations consisted of a retail bank network of 2,244 branches, a nationwide credit card lending business, a multi-family and commercial real estate lending business, and nationwide mortgage banking activities. The transaction expands the Firm’s consumer branch network into California, Florida, Washington, Georgia, Idaho, Nevada and Oregon. The transaction created the nation’s second-largest branch network. The transaction also extends the reach of the Firm’s business banking, commercial banking, credit card, consumer lending and wealth management businesses. The transaction was accounted for under the purchase method of accounting in accordance with SFAS 141. The results of operations of Washington Mutual’s banking operations for the period September 26, 2008, through September 30, 2008, did not have a material effect on the results of the quarter ended September 30, 2008, except with respect to the charge to conform Washington Mutual’s loan loss reserves and the extraordinary gain related to the transaction, both of which are reflected for JPMorgan Chase in the Corporate/Private Equity segment. Beginning October 1, 2008, the results of operations of Washington Mutual’s banking operations will be included in the Firm’s business segments. For further discussion of the transaction, see Note 2 on pages 93—98 of this Form 10-Q.

Merger with The Bear Stearns Companies Inc.
Effective May 30, 2008, BSC Merger Corporation, a wholly-owned subsidiary of JPMorgan Chase, merged with The Bear Stearns Companies Inc. (“Bear Stearns”) pursuant to the Agreement and Plan of Merger, dated as of March 16, 2008, as amended March 24, 2008, with Bear Stearns becoming a wholly-owned subsidiary of JPMorgan Chase (the “Merger”). The Merger provides the Firm with a leading global prime brokerage platform; strengthens the Firm’s equities and asset management businesses; enhances capabilities in mortgage origination, securitization and servicing; and expands the platform of the Firm’s energy business. The Merger was accounted for under the purchase method of accounting, which requires that the assets and liabilities of Bear Stearns be fair valued. The total purchase price to complete the Merger was $1.5 billion.

The Merger was accomplished through a series of transactions that were reflected as step acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or 39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase acquired approximately 24 million shares of Bear Stearns common stock in the open market at an average purchase price of $12.37 per share. The share exchange and cash purchase transactions resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately prior to consummation of the Merger. Finally, on May 30, 2008, JPMorgan Chase completed the Merger, and as a result of the Merger, each outstanding share of Bear Stearns common stock (other than shares then held by JPMorgan Chase) was converted into the right to receive 0.21753 shares of common stock of JPMorgan Chase. On May 30, 2008, the shares of common stock that JPMorgan Chase and Bear Stearns acquired from each other in the share exchange transaction were cancelled. From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for its investment in Bear Stearns under the equity method of accounting in accordance with APB 18. During this period, JPMorgan Chase recorded reductions to its investment in Bear Stearns representing its share of Bear Stearns net losses, which were recorded in other income and accumulated other comprehensive income. Commencing May 31, 2008, Bear Stearns was reflected in JPMorgan Chase’s consolidated results of operations.

In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the “FRBNY”) took control, through a limited liability company (“LLC”) formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based upon the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion term loan from the FRBNY, and a $1.15 billion subordinated loan from JPMorgan Chase. The JPMorgan Chase loan is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase loan and the expense of the LLC, will be for the account of the FRBNY.

For further discussion of the Merger, see Note 2 on pages 93—98 of this Form 10-Q.

Termination of Chase Paymentech Solutions joint venture
The dissolution of Chase Paymentech Solutions, a global payments and merchant acquiring joint venture between JPMorgan Chase and First Data Corporation, was completed on November 1, 2008 and JPMorgan Chase retained approximately 51% of the business under the Chase Paymentech name.

The dissolution of Chase Paymentech Solutions is being accounted for as a step acquisition in accordance with SFAS 141, and the Firm anticipates recognizing an after-tax gain of approximately $600 million in the fourth quarter of 2008 as a result of the dissolution. The gain will represent the amount by which the fair value of the net assets acquired (predominantly intangible assets and goodwill) exceeded JPMorgan Chase’s book basis in the net assets transferred to First Data Corporation.

Purchase of additional interest in Highbridge Capital Management
In January 2008, JPMorgan Chase purchased an additional equity interest in Highbridge Capital Management, LLC (“Highbridge”). As a result, the Firm currently owns 77.5% of Highbridge. The Firm acquired a majority interest in Highbridge in 2004.

RECENT MARKET DEVELOPMENTS

The liquidity crisis has evolved into a global credit and liquidity issue involving a number of financial institutions, including the failures of some, in the U.S. and Europe. In response to these circumstances, the United States government, particularly the U.S. Department of the Treasury (the “U.S. Treasury”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the FDIC, working in cooperation with foreign governments and other central banks, including the Bank of England, the European Central Bank and the Swiss National Bank, have taken a variety of extraordinary measures designed to restore confidence in the financial markets and to strengthen financial institutions, including capital injections, guarantees of bank liabilities and the acquisition of illiquid assets from banks.

In particular, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S. Treasury has the authority to take a range of actions for the purpose of stabilizing and providing liquidity to the U.S. financial markets and has proposed several programs, including the purchase by the U.S. Treasury of certain troubled assets from financial institutions (the “Troubled Asset Relief Program”) and the direct purchase by the U.S. Treasury of equity of financial institutions (the “Capital Purchase Program”).

Other programs and actions taken by U.S. regulatory agencies include (i) the U.S. Treasury’s Temporary Guarantee Program for Money Market Funds, (ii) the FRBNY’s Money Market Investor Funding Facility (the “MMIF Facility”), which is designed to provide liquidity to U.S. money market investors, (iii) the Federal Reserve’s Commercial Paper

Funding Facility, which is designed to provide liquidity to term funding markets by providing a liquidity backstop to U.S. issuers of commercial paper, (iv) the Federal Reserve’s Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (the “AML Facility”), which is designed to provide liquidity to money market mutual funds under certain conditions by providing funding to U.S. depository institutions and bank holding companies secured by high-quality asset-backed commercial paper they purchased from those money market mutual funds, (v) the FDIC’s Temporary Liquidity Guarantee Program, which enables the FDIC to temporarily provide a 100% guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in noninterest-bearing transaction deposit accounts, (vi) the Federal Reserve’s Primary Dealer Credit Facility, which is designed to foster the financial markets generally, was modified to expand the eligible collateral to include any collateral eligible for tri-party repurchase agreements, (vii) the Federal Reserve’s Term Securities Lending Facility, which is designed to promote liquidity in the financial markets for treasuries and other collateral, was expanded to (a) include all investment-grade debt securities as eligible collateral for schedule 2 auctions and (b) increase the frequency of schedule 2 auctions, (viii) the Federal Reserve’s adoption of an interim rule that provides an exemption, until January 30, 2009, to the Federal Reserve Act to allow insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repurchase agreement market, and (ix) the Federal Reserve’s Term Auction Facility, which is designed to allow financial institutions to borrow funds at a rate that is below the discount rate.

Capital Purchase Program
Under the Capital Purchase Program, the U.S. Treasury will make $250 billion of capital available to U.S. financial institutions in the form of preferred stock and a warrant to acquire common stock. Pursuant to the Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S. Treasury, in exchange for aggregate consideration of $25.0 billion, (i) 2.5 million shares of the Firm’s Fixed Rate Cumulative Perpetual Preferred Stock, Series K, par value $1 and liquidation preference $10,000 per share (and $25.0 billion liquidation preference in the aggregate) (the “Series K Preferred Stock”), and (ii) a warrant (the “Warrant”) to purchase up to 88,401,697 shares of the Firm’s common stock, at an exercise price of $42.42 per share. The number of shares of common stock to be issued pursuant to the Warrant and the exercise price of the Warrant is subject to adjustment from time to time following, among other things, stock splits, subdivisions or combinations, certain issuances of common stock or convertible securities and certain repurchases of common stock. The Series K Preferred Stock is nonvoting, qualifies as Tier 1 capital and ranks on parity with the Firm’s other series of preferred stock. For a discussion of the Firm’s preferred stock, see page 56 of this Form 10-Q and Note 22 on pages 141—142 of this Form 10-Q.

The letter agreement between the U.S. Treasury and the Firm, dated October 26, 2008, including the securities purchase agreement (the “Purchase Agreement”) concerning the issuance and sale of the Series K Preferred Stock to the U.S. Treasury grants the holders of the Series K Preferred Stock, the Warrant and JPMorgan Chase common stock to be issued under the Warrant certain registration rights and imposes restrictions on dividend and stock repurchases. For a discussion of the dividend and stock repurchase restrictions, see Capital Purchase Program on page 55 and Note 22 on pages 141-142 of this Form 10-Q. In addition, the Purchase Agreement subjects the Firm to the executive compensation limitations as set forth in Section 111(b) of the EESA.

MMIF Facility
The MMIF, authorized by the FRBNY, will support a private-sector initiative designed to provide liquidity to U.S. money market investors. Under the MMIF Facility, the FRBNY will provide senior secured funding to a series of special purpose vehicles to finance the purchase of eligible assets such as commercial paper, bank note and certificates of deposit from eligible investors. The Firm has been selected by the FRBNY to advise the U.S. Treasury regarding the MMIF Facility.

AML Facility
On September 19, 2008, the Federal Reserve established a special lending facility, the AML Facility, to provide liquidity to eligible U.S. money market mutual funds (“MMMFs”). Under the AML Facility, participating banking organizations purchase eligible high-quality asset-backed commercial paper (“ABCP”) investments from MMMFs, which are then pledged to secure nonrecourse advances from the Federal Reserve Bank of Boston (“FRBB”); participating banking organizations do not bear any credit or market risk related to the ABCP investments they hold under this facility and, therefore, the ABCP investments held are not assessed any regulatory risk-based capital. The AML Facility will be in effect until January 30, 2009. The Firm is currently participating in the AML Facility.

EXECUTIVE OVERVIEW

Financial performance of JPMorgan Chase

		Three months ended September 30,												Nine months ended September 30,
(in millions, except per share and ratio data)		2008				2007				Change				2008				2007				Change
Selected income statement data
Total net revenue		$	14,737			$	16,112				(9	)%		$	50,026			$	53,988				(7	)%
Provision for credit losses			3,811				1,785				114				11,690				4,322				170
Provision for credit losses — accounting conformity(a)			1,976				—				NM				1,976				—				NM
Total noninterest expense			11,137				9,327				19				32,245				30,983				4
Income (loss) before extraordinary gain			(54	)			3,373				NM				4,322				12,394				(65	)
Extraordinary gain(b)			581				—				NM				581				—				NM
Net income			527				3,373				(84	)			4,903				12,394				(60	)
Diluted earnings per share
Income (loss) before extraordinary gain		$	(0.06	)		$	0.97			NM%				$	1.15			$	3.52				(67	)%
Net income			0.11				0.97				(89	)			1.32				3.52				(63	)
Return on common equity
Income (loss) before extraordinary gain			(1	)%			11	%							4	%			14	%
Net income			1				11								5				14

Business overview
JPMorgan Chase reported 2008 third-quarter net income of $527 million, or $0.11 per share, compared with net income of $3.4 billion, or $0.97 per share, for the third quarter of 2007. Return on common equity for the quarter was 1%, compared with 11% in the prior year. On September 25, 2008, JPMorgan Chase acquired Washington Mutual’s banking operations, significantly strengthening its consumer franchise, with the addition of more than 2,200 branches. Results in the third quarter included an after-tax charge of $1.2 billion to conform loan loss reserves and an extraordinary gain of $581 million related to this transaction. Excluding the conforming adjustment for the Washington Mutual transaction, the decline in net income from the third quarter of 2007 was driven by a significant increase in the provision for credit losses, higher noninterest expense and lower net revenue. Lower net revenue reflected markdowns related to mortgage-related positions and leveraged lending exposures in the Investment Bank, partially offset by increased net interest income. The provision for credit losses rose predominantly due to increases in the allowance for loan losses related to home equity, subprime and prime mortgage and credit card loans, as well as higher net charge-offs. The increase in noninterest expense was driven by higher compensation expense and additional operating costs relating to the Bear Stearns merger.

Net income for the first nine months of 2008 was $4.9 billion, or $1.32 per share, compared with net income of $12.4 billion, or $3.52 per share, for the first nine months of 2007. Return on common equity for the period was 5%, compared with 14% in the prior year. The lower results in the first nine months of 2008 were due to the same drivers highlighted for the third quarter — a significantly higher provision for credit losses, markdowns related to mortgage-related positions and leveraged lending exposures, and higher total noninterest expense, partially offset by increased net interest income.

The financial crisis that has plagued the U.S. markets and economy for over a year intensified in the third quarter of 2008, as did the global economic slowdown, resulting in sharp declines across most equity markets that are expected to continue into the fourth quarter of 2008. Credit volatility and the stress in financial markets resulted in the occurrence of significant events during the quarter: the U.S. federal government placed the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”) under its direct control; Lehman Brothers Holdings Inc. declared bankruptcy; the Bank of America Corporation agreed to acquire Merrill Lynch & Co., Inc.; the government provided a loan to American International Group, Inc. (“AIG”) in exchange for an equity interest in AIG to prevent the insurer’s failure; and Morgan Stanley and The Goldman Sachs Group, Inc. received approval from the Federal Reserve to become federal bank holding companies. The crisis of confidence was most

visible in the liquidity pressures affecting the short-term funding markets, as evidenced by the LIBOR-Fed Funds rate disparity (i.e., 3-month LIBOR rates surged over the expected Fed Funds rate). The rate disparity placed additional stress on global banking systems and economies, as LIBOR represents a key benchmark that is used to set other borrowing costs, including short-term business funding costs and rates on many types of mortgage contracts. The Federal Reserve and other global central banking authorities have responded with a series of initiatives to deal with the financial crisis and to make liquidity available to the markets, as discussed on pages 7-8 of this Form 10-Q. Labor markets continued to struggle, with the unemployment rate rising to 6.1% in September, reaching the highest level in the last five years. Economic growth contracted in the third quarter due to a decline in real consumer spending, as economic uncertainty weighed on the minds of consumers, as did high energy bills which continued to squeeze budgets, and the benefits from the tax rebates provided by the Economic Stimulus Act of 2008 came to an end.

During the third quarter of 2008, the Firm’s performance was negatively affected by the weak economic conditions and volatile financial markets. Markdowns on mortgage-related positions and leveraged lending exposures reduced net revenue in the Investment Bank. Unprecedented challenges facing the housing market resulted in a higher provision for credit losses and lower income in Retail Financial Services. A higher provision for credit losses also lowered income in Card Services. Asset Management’s net income decreased due to lower performance fees and the effect of lower markets. However, the Firm continued to show underlying business momentum, with four of its six principal lines of business delivering double-digit revenue growth. The IB maintained its #1 rankings for Global Investment Banking Fees and Global Debt, Equity and Equity-related volumes for the third quarter and first nine months of 2008; RFS increased branch production; and Commercial Banking and Treasury & Securities Services delivered double-digit net income growth.

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 the Washington Mutual transaction, and its effects on current quarter performance, see pages 93—98 of this Form 10-Q. For more information about managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 17—20 of this Form 10-Q .

Investment Bank net income increased compared with the third quarter of 2007, reflecting an increase in net revenue and the benefit of reduced deferred tax liabilities offset largely by increased noninterest expense. Higher net revenue was driven by record Equity Markets revenue, higher investment banking fees and increased Fixed Income Markets revenue. Fixed Income Markets revenue reflected record results in rates and currencies, and strong performance in credit trading, emerging markets, and commodities, largely offset by markdowns on mortgage-related positions and leveraged lending funded and unfunded commitments. The provision for credit losses increased slightly compared with the prior year, reflecting a weakening credit environment. The increase in noninterest expense was largely driven by higher compensation expense and additional operating costs relating to the Bear Stearns merger.

Retail Financial Services net income declined, reflecting a significant increase in the provision for credit losses in Regional Banking and higher noninterest expense in Mortgage Banking, offset partially by revenue growth in all businesses. Net revenue benefited from increased net interest income as a result of increased loan and deposit balances combined with wider deposit spreads, as well as higher net mortgage servicing revenue and higher deposit-related fees. The provision for credit losses increased as housing price declines have continued to result in significant increases in estimated losses, particularly for high loan-to-value home equity and mortgage loans, and loans in specific geographic areas that have been most heavily impacted by housing price declines. Noninterest expense rose from the prior year, reflecting higher mortgage reinsurance losses and increased servicing expense.

Card Services net income declined, driven by a higher provision for credit losses partially offset by lower noninterest expense. Managed net revenue increased slightly, as higher average managed loan balances, wider loan spreads and increased interchange income were offset predominantly by the effect of higher revenue reversals associated with higher charge-offs, increased rewards expense and higher volume-driven payments to partners. The managed provision for credit losses increased from the prior year due to a higher level of charge-offs and an increase in the allowance for loan losses. Noninterest expense declined due to lower marketing expense.

Commercial Banking net income increased, driven by record net revenue, partially offset by an increase in the provision for credit losses and higher noninterest expense. The increase in revenue resulted from double-digit growth in loan and liability balances and higher deposit-related and investment banking fees, predominantly offset by spread compression in the liability and loan portfolios. The increase in the provision for credit losses reflected a weakening credit environment and growth in loan balances. Noninterest expense increased due to higher performance-based compensation expense.

Treasury & Securities Services net income rose, driven by higher net revenue and the benefit of reduced deferred tax liabilities, predominantly offset by higher noninterest expense. Worldwide Securities Services revenue increased, driven by wider spreads on liability products and in securities lending and foreign exchange, combined with increased product usage by new and existing clients. Market depreciation partially offset these benefits. Treasury Services posted record revenue, reflecting higher liability balances as well as volume growth in electronic funds transfer products and trade loans. Noninterest expense increased, reflecting higher expense related to business and volume growth as well as continued investment in new product platforms.

Asset Management net income decreased, driven largely by lower net revenue. The decline in net revenue was due to lower performance fees and the effect of lower markets, including the impact of lower market valuations of seed capital investments. Partially offsetting these net revenue declines were the benefit of the Bear Stearns merger, higher loan and deposit balances, and wider deposit spreads. The provision for credit losses rose from the prior year, reflecting an increase in loan balances and a lower level of recoveries. Noninterest expense was flat compared with the prior year due to the effect of the Bear Stearns merger and increased headcount, offset by lower performance-based compensation.

Corporate/Private Equity reported a net loss for the quarter. The net loss included a conforming loan loss reserve provision and an extraordinary gain related to the acquisition of Washington Mutual’s banking operations. Excluding these items, the balance of the net loss resulted from significantly lower net revenue and an increase in the provision for credit losses, offset partially by a decrease in noninterest expense. The decline in net revenue was driven by a higher level of trading losses, predominantly on preferred securities of Fannie Mae and Freddie Mac; private equity losses in the current quarter compared with gains in the prior-year quarter; and a charge related to the offer to repurchase auction-rate securities from certain customers. These declines were partially offset by higher securities gains. The increase in the provision for credit losses was predominantly related to an increase in the allowance for loan losses for prime mortgage. The decrease in noninterest expense was driven by lower litigation expense.

The Firm’s managed provision for credit losses was $6.7 billion in the third quarter, including the $2.0 billion charge to conform Washington Mutual’s loan loss allowance. For the purposes of the following analysis, this charge is excluded. The managed provision for credit losses was $4.7 billion, up $2.3 billion, or 98%, from the prior year. The total consumer-managed provision for credit losses was $4.3 billion, compared with $2.0 billion in the prior year, reflecting increases in the allowance for credit losses related to home equity, subprime and prime mortgage and credit card loans, as well as higher net charge-offs. Consumer-managed net charge-offs were $3.3 billion, compared with $1.7 billion in the prior year, resulting in managed net charge-off rates of 3.39% and 1.96%, respectively. The wholesale provision for credit losses was $398 million, compared with $351 million in the prior year, due to an increase in the allowance for credit losses reflecting the effect of a weakening credit environment and loan growth. Wholesale net charge-offs were $52 million, compared with net charge-offs of $82 million, resulting in net charge-off rates of 0.10% and 0.19%, respectively. The Firm had total nonperforming assets of $9.5 billion at September 30, 2008, up from the prior-year level of $3.0 billion. Substantially all of the loans acquired from Washington Mutual that were nonperforming prior to the transaction closing are now considered to be performing based upon the provisions of SOP 03-3. For additional information, see Note 13 on pages 120—122 of this Form 10-Q.

Total stockholders’ equity at September 30, 2008, was $145.8 billion, and the Tier 1 capital ratio was 8.9%, compared with 8.4% at September 30, 2007. During the quarter, the Firm raised $11.5 billion of common equity and $1.8 billion of preferred equity.

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 actual results to differ materially from those set forth in such forward-looking statements.

JPMorgan Chase’s outlook for the fourth quarter of 2008 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment and client activity levels. Each of these linked factors will affect the performance of the Firm and its lines of business. The Firm’s current expectations are for the global and U.S. economic environments to weaken further and potentially faster, for capital markets to remain under stress and for a continued decline in U.S. housing prices. These factors have affected, and are likely to continue to adversely impact, the Firm’s credit costs, overall business volumes and earnings.

The consumer provision for credit losses could increase substantially as a result of a higher level of losses. Given the potential stress on the consumer from rising unemployment, the continued downward pressure on housing prices and the elevated national inventory of unsold homes, management remains extremely cautious with respect to the credit outlook for home equity, mortgage and credit card portfolios. As described below, management expects continued deterioration in credit trends for the consumer portfolios, which will likely require additions to the consumer loan loss allowance in the fourth quarter of 2008. Housing price declines in specific geographic regions and slowing economic growth could continue to drive higher estimated losses and nonperforming assets for the home equity and subprime mortgage portfolios and to increasingly affect the prime mortgage segment, due in part to the high concentration of more recent (2006 and later) originations in this portfolio. Based on management’s current economic outlook, quarterly net charge-offs in the home lending portfolio, including home equity, prime, and subprime mortgages, are expected to increase in the fourth quarter of 2008 and into 2009. Management expects the managed net charge-off rate for Card Services to be 5% or above in the fourth quarter of 2008, and to increase further in 2009; potentially, the Card Services net charge-off rate could be 6% in the early part of 2009 and possibly reach 7% by the end of the year (excluding the impact resulting from the acquisition of Washington Mutual’s banking operations). These charge-off rates could increase even further if the economic environment continues to deteriorate more than current management expectations. The wholesale provision for credit losses, nonperforming assets, and charge-offs are expected to increase over time as a result of the deterioration in underlying credit conditions. The wholesale provision may also increase due to loan growth.

The Investment Bank continues to be negatively affected by the disruption in the credit and mortgage markets, as well as by overall lower levels of liquidity and wider credit spreads. The continuation of these factors could potentially lead to reduced levels of client activity, lower investment banking fees and lower trading revenue. In addition, if the Firm’s own credit spreads tighten, the change in the fair value of certain trading liabilities would also negatively affect trading results. The Firm held $12.9 billion (gross notional) of legacy leveraged loans and unfunded commitments as held-for-sale as of September 30, 2008. Markdowns averaging 29% of the gross notional value have been taken on these legacy positions as of September 30, 2008. Leveraged loans and unfunded commitments are difficult to hedge effectively, and if market conditions further deteriorate, additional markdowns may be necessary on this asset class. The Investment Bank also held, at September 30, 2008, an aggregate $8.1 billion of prime and Alt-A mortgage exposure, which is also difficult to hedge effectively, and $1.2 billion of subprime mortgage exposure. In addition, the Investment Bank had $9.3 billion of commercial mortgage-backed securities (“CMBS”) exposure. During the quarter, mortgage exposure of $4.3 billion, primarily consisting of prime loans and securities, was transferred to the Firm’s corporate investment portfolio. Even with respect to mortgage exposure that is being actively hedged, such mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity.

Funding markets have remained challenging, with a wide differential between prime and LIBOR rates. Management expects that if there is a continuation of this rate dislocation, Card Services net income could be significantly reduced in the fourth quarter of 2008. Earnings in Treasury & Securities Services and Asset Management will likely deteriorate if business volumes or assets under custody, management or supervision decline, volatility in certain products decreases, or spreads narrow. Given recent equity market declines, management expects that fourth quarter earnings for these market-sensitive businesses will be lower. Management also continues to believe that the net quarterly loss in Corporate could average approximately $50 million to $100 million, excluding trading results related to the Firm’s investment portfolio (which could be volatile) and credit costs related to prime mortgage exposures (which are expected to increase from third quarter levels, as discussed within the consumer outlook section above). Private Equity results, which are dependent upon the capital markets, are likely to remain depressed and continue to be negative in the fourth quarter.

Management believes the net income impact of the acquisition of Washington Mutual’s banking operations could be approximately $0.50 per share in 2009, with a pro rata portion expected in the fourth quarter of 2008. Management also believes the Firm will incur merger costs related to this transaction of approximately $500 million (after tax), with approximately $100 million (after tax) of expense recognized in the fourth quarter and the remainder incurred through 2011. Also, the Firm anticipates recognizing an after-tax gain of approximately $600 million in the fourth quarter of 2008, related to the dissolution of the Chase Paymentech Solutions, LLC joint venture on November 1, 2008.

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis. Factors that related primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 85—87 of this Form 10-Q and pages 96—98 of JPMorgan Chase’s 2007 Annual Report.

Total net revenue
The following table presents the components of total net revenue.

		Three months ended September 30,												Nine months ended September 30,
(in millions)		2008				2007				Change				2008				2007				Change
Investment banking fees		$	1,316			$	1,336				(1	)%		$	4,144			$	4,973				(17	)%
Principal transactions			(2,763	)			650				NM				(2,814	)			8,850				NM
Lending & deposit-related fees			1,168				1,026				14				3,312				2,872				15
Asset management, administration and commissions			3,485				3,663				(5	)			10,709				10,460				2
Securities gains			424				237				79				1,104				16				NM
Mortgage fees and related income			457				221				107				1,678				1,220				38
Credit card income			1,771				1,777				—				5,370				5,054				6
Other income			(115	)			289				NM				1,576				1,360				16
Noninterest revenue			5,743				9,199				(38	)			25,079				34,805				(28	)
Net interest income			8,994				6,913				30				24,947				19,183				30
Total net revenue		$	14,737			$	16,112				(9	)		$	50,026			$	53,988				(7	)

Total net revenue for the third quarter of 2008 was $14.7 billion, down $1.4 billion, or 9%, from the prior year. The decrease was due to a significant decline in principal transactions revenue, which included net markdowns on mortgage-related positions and leveraged lending funded and unfunded commitments, losses on preferred securities of Fannie Mae and Freddie Mac, and losses on private equity investments; higher net interest income predominantly offset the decline. For the first nine months of 2008, total net revenue was $50.0 billion, down $4.0 billion, or 7%, from the prior year, largely reflecting the same drivers as the quarter, although the Firm had private equity gains in the first nine months of 2008 versus losses in the third quarter of 2008. However, these gains were lower than the gains in the first nine months of 2007. Also contributing to the decline in total net revenue were lower investment banking fees and the Firm’s share of Bear Stearns’ losses from April 8 to May 30, 2008. These were largely offset by the proceeds from the sale of Visa shares in its initial public offering and higher securities gains from the sale of MasterCard shares.

Investment banking fees were down slightly in the third quarter of 2008 compared with the third quarter of 2007. For the first nine months of 2008, fees declined from the record level of the comparable period last year due to lower debt underwriting fees and advisory fees, which were both at record levels in the first nine months of 2007. For a further discussion of investment banking fees, which are primarily recorded in IB, see the IB segment results on pages 22—25 of this Form 10-Q.

Principal transactions revenue consists of trading revenue and private equity gains. The Firm’s trading activities in the third quarter and first nine months of 2008 decreased significantly from the comparable periods of 2007. The decrease in the third quarter was largely driven by mortgage-related net markdowns of $2.6 billion and net markdowns on leveraged lending funded and unfunded commitments of $1.0 billion, as well as losses of $1.0 billion on preferred securities of Fannie Mae and Freddie Mac. Partially offsetting the decline in trading revenue were record results in rates and currencies, strong performance in credit trading, emerging markets and commodities, strong equity trading and client revenue, and total gains of $956 million from the widening of the Firm’s credit spread on certain structured liabilities and derivatives compared with $582 million for the third quarter of 2007. The decline in trading revenue for the first nine months of 2008 was due to the aforementioned significant markdowns, including $4.7 billion on mortgage-related positions as well as $2.8 billion on leveraged lending funded and unfunded commitments. These markdowns were offset partially by strong performances in the aforementioned trading products, as well as total gains of $2.8 billion from the widening of the Firm’s credit spread on certain structured liabilities and derivatives compared with $955 million for the first nine months of 2007. Private equity gains also declined compared with the third quarter and first nine months of 2007, driven by a net loss in the third quarter of 2008, and lower net gains for the first nine months. In addition, the first quarter of 2007 included a fair value adjustment related to the adoption of SFAS 157. For a further discussion of principal transactions revenue, see the IB and Corporate/Private Equity segment results on pages 22—25 and 47—49, respectively, and Note 5 on pages 111—113 of this Form 10-Q.

Lending & deposit-related fees rose from the third quarter and first nine months of 2007, predominantly resulting from higher deposit-related fees. For a further discussion of lending & deposit-related fees, which are mostly recorded in RFS, TSS and CB, see the RFS segment results on pages 26—32 the TSS segment results on pages 40—42, and the CB segment results on pages 37—39 of this Form 10-Q.

The decrease in asset management, administration and commissions revenue compared with the third quarter of 2007 was largely due to lower asset management fees in AM as a result of lower performance fees and the effect of lower markets. This decline was partially offset by higher commissions revenue driven by higher brokerage transaction volume (primarily included within equity markets revenue of IB). For the first nine months of 2008, asset management, administration and commissions revenue increased due predominantly to higher commissions revenue and the absence of a charge in RFS in the first quarter of 2007 associated with the accelerated surrenders of customer annuity contracts. TSS also contributed to the increase in asset management, administration and commissions, driven by the benefit of short-term interest rates in securities lending and increased product usage by new and existing clients (largely in custody, funds services and depositary receipts). These results were partially offset by lower asset management fees in AM as a result of lower performance fees and the effect of lower markets. For additional information on these fees and commissions, see the segment discussions for IB on pages 22—25, RFS on pages 26—32, TSS on pages 40—42, and AM on pages 43—46, of this Form 10-Q.

The increase in securities gains for the third quarter of 2008, compared with the same period in 2007, was due to the repositioning of the Corporate investment securities portfolio, partially offset by gains of $115 million recognized in 2007 from the sale of MasterCard shares and marketable securities received from loan workouts in IB. In the first nine months of 2008, securities gains increased due to the repositioning of the Corporate investment securities portfolio and higher gains from the sale of MasterCard shares. For a further discussion of securities gains, which are mostly recorded in the Firm’s Corporate business, see the Corporate/Private Equity segment discussion on pages 47—49 of this Form 10-Q.

Mortgage fees and related income increased from the third quarter and first nine months of 2007, driven by higher net mortgage servicing revenue, which benefited from increased loan servicing revenue and an improvement in mortgage servicing rights (“MSR”) risk management results, and higher production revenue, which reflected lower markdowns on the mortgage warehouse and pipeline. These increases were offset partially by increased reserves related to the repurchase of previously sold loans. For the first nine months of 2008, production revenue was also positively impacted by higher loan originations. For a discussion of mortgage fees and related income, which is recorded primarily in RFS’ Mortgage Banking business, see the Mortgage Banking discussion on pages 30—31 of this Form 10-Q.

Credit card income decreased slightly from the third quarter of 2007, driven primarily by lower servicing fees earned in connection with CS securitization activities, which were negatively affected by higher credit losses on securitized credit card loans. Also contributing to the decrease in credit card income were increased expense related to rewards programs and higher volume-driven payments to partners. Partially offsetting the declines was higher interchange income as a result of an increase in customer charge volume. Credit card income rose in the first nine months of 2008 due to increased servicing fees, which reflected the impact of a higher level of securitized receivables, and an increase in interchange income. Higher customer charge volume in CS and higher debit card transaction volume in RFS drove the increase in interchange income. These results were partially offset by the increases in volume-driven payments to partners and expense related to rewards programs. For a further discussion of credit card income, see CS’ segment results on pages 33—36 of this Form 10-Q.

The decline in other income from the third quarter of 2007 was predominantly due to a $375 million charge related to the offer to repurchase auction-rate securities at par, markdowns on certain investments, including seed capital in AM, lower gains on education loan sales and higher losses on other real estate owned, partially offset by higher gains on sales of certain assets. For the first nine months of 2008, other income increased due predominantly to the proceeds from the sale of Visa shares in its initial public offering ($1.5 billion pretax), higher automobile operating lease revenue and credit card net securitization gains. The increase in other income was partially offset by losses of $423 million (after-tax) reflecting the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008, and the net negative impact of the aforementioned drivers of the decline in other income in the third quarter of 2008.

Net interest income rose from the third quarter and first nine months of 2007, due predominantly to the following: higher trading-related net interest income, higher wholesale and consumer loan balances, growth in liability and deposit balances in the wholesale and consumer businesses, wider spreads on credit card balances and deposit balances in RFS and AM, and a wider net interest spread in the Corporate business. These benefits were offset partially by spread compression on deposit and liability products in CB. The Firm’s total average interest-earning assets for the third quarter of 2008 were $1.3 trillion, up 16% from the third quarter of 2007. The increase was predominantly driven by higher loans, securities borrowed, other assets, federal funds sold and securities purchased under resale agreements and available-for-sale (“AFS”) securities,

predominantly offset by lower trading assets — debt instruments. The net interest yield on these assets, on a fully taxable equivalent basis, was 2.73%, an increase of 30 basis points from the third quarter of 2007. The Firm’s total average interest earning assets for the first nine months of 2008 were $1.3 trillion, up 15% from the first nine months of 2007, driven by the same factors as drove the 2008 third quarter results, as well as by higher trading assets — debt instruments and higher deposits with banks. The net interest yield on these assets, on a fully taxable equivalent basis, was 2.68%, an increase of 31 basis points from the first nine months of 2007.

Provision for credit losses		Three months ended September 30,												Nine months ended September 30,
(in millions)		2008				2007				Change				2008				2007				Change
Wholesale:
Provision for credit losses		$	398			$	351				13	%		$	1,650			$	626				164	%
Provision for credit losses — accounting conformity(a)			564				—				NM				564				—				NM
Total wholesale provision for credit losses			962				351				174				2,214				626				254
Consumer:
Provision for credit losses			3,413				1,434				138				10,040				3,696				172
Provision for credit losses — accounting conformity(a)			1,412				—				NM				1,412				—				NM
Total consumer provision for credit losses			4,825				1,434				236				11,452				3,696				210
Total provision for credit losses		$	5,787			$	1,785				224			$	13,666			$	4,322				216

Provision for credit losses
The provision for credit losses in the third quarter and first nine months of 2008 rose significantly when compared with the prior-year periods due to increases in both the consumer and wholesale provisions. Affecting both the consumer and wholesale provisions was a $2.0 billion charge to conform Washington Mutual’s loan loss allowance. In addition, the consumer provision reflected higher estimated losses for the home equity, subprime mortgage, prime mortgage and credit card loan portfolios. The additional increase in the wholesale provision was driven by the effect of a weakening credit environment and loan growth. The wholesale provision for the first nine months of 2008 also included the effect of the transfer of funded and unfunded leverage lending commitments to retained loans from held-for-sale. For a more detailed discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for RFS on pages 26—32, CS on pages 33—36, IB on pages 22—25, CB on pages 37—39 and Credit Risk Management on pages 64—80 of this Form 10-Q.

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

		Three months ended September 30,												Nine months ended September 30,
(in millions)		2008				2007				Change				2008				2007				Change
Compensation expense		$	5,858			$	4,677				25	%		$	17,722			$	17,220				3	%
Occupancy expense			766				657				17				2,083				1,949				7
Technology, communications and equipment expense			1,112				950				17				3,108				2,793				11
Professional & outside services			1,451				1,260				15				4,234				3,719				14
Marketing			453				561				(19	)			1,412				1,500				(6	)
Other expense			1,096				812				35				2,498				2,560				(2	)
Amortization of intangibles			305				349				(13	)			937				1,055				(11	)
Merger costs			96				61				57				251				187				34
Total noninterest expense		$	11,137			$	9,327				19			$	32,245			$	30,983				4

Total noninterest expense for the third quarter of 2008 was $11.1 billion, up $1.8 billion, or 19%, from the third quarter of 2007. For the first nine months of 2008, total noninterest expense was $32.2 billion, up $1.3 billion, or 4%, from the prior year. The increase in both periods was driven by higher compensation expense and additional operating costs relating to the Bear Stearns’ merger, partially offset in the first nine months of 2008 by lower performance-based incentives.

The increase in Compensation expense for the third quarter and first nine months of 2008 was predominantly driven by the merger with Bear Stearns and additional headcount due to investments in the businesses. The increase in compensation expense for the first nine months of 2008 was partially offset by lower performance-based incentives.

The increase in occupancy expense from the third quarter and first nine months of 2007 was driven by the merger with Bear Stearns.

Technology, communications and equipment expense increased compared with the third quarter and first nine months of 2007, due to additional operating costs related to the Bear Stearns merger, the impact of business and volume growth and increased depreciation expense on owned automobiles subject to operating leases in the Auto Finance business.

Professional & outside services rose from the third quarter and first nine months of 2007, reflecting higher expense related to business and volume growth, including higher brokerage expense in IB, partly from the Bear Stearns merger, and continued investment in new product platforms in TSS.

Marketing expense declined compared with the third quarter and first nine months of 2007, reflecting lower credit card and retail marketing expense.

The increase in other expense from the third quarter of 2007 was due to higher mortgage reinsurance losses, increased mortgage servicing expense and the effect of the Bear Stearns merger, partially offset by a net reduction in litigation expense. For the first nine months of 2008, other expense declined due largely to a net reduction of litigation expense, offset partially by the aforementioned items.

For a discussion of amortization of intangibles and merger costs, refer to Note 18 and Note 10 on pages 135—137 and 117, respectively, of this Form 10-Q.

Income tax expense
The Firm’s income (loss) before income tax expense and extraordinary gain, income tax expense (benefit) and effective tax rate were as follows for each of the periods indicated.

		Three months ended September 30,								Nine months ended September 30,
(in millions, except rate)		2008				2007				2008				2007
Income (loss) before income tax expense and extraordinary gain		$	(2,187	)		$	5,000			$	4,115			$	18,683
Income tax expense (benefit)			(2,133	)			1,627				(207	)			6,289
Effective tax rate			97.5	%			32.5	%			(5.0	)			33.7	%

The change in the effective tax rate for the third quarter and first nine months of 2008, compared with the same periods for 2007, was the result of lower reported pretax income combined with an increased proportion of income that was not subject to U.S. federal income taxes, increased tax credits, and the realization of a $927 million benefit from the release of deferred tax liabilities associated with the undistributed earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely, which is discussed further in Note 26 on page 144 of this Form 10-Q.

Extraordinary gain
The Firm recorded an extraordinary gain of $581 million in the third quarter of 2008 associated with the acquisition of the banking operations of Washington Mutual. The transaction is being accounted for under the purchase method of accounting in accordance with SFAS 141. The adjusted net asset value of the banking operations after purchase accounting adjustments was higher than the consideration paid by JPMorgan Chase, resulting in an extraordinary gain. There were no extraordinary gains recorded in any other period in 2007 or 2008.

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 89—92 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 assume 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 remain on the Consolidated Balance Sheets and that the earnings on the securitized loans are classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. 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 Consolidated Balance Sheets 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 Consolidated Balance Sheets. 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 Consolidated Balance Sheets and the Firm’s retained interests in securitized loans. For a reconciliation of reported to managed basis results for CS, see CS segment results on pages 33—36 of this Form 10-Q. For information regarding the securitization process, and loans and residual interests sold and securitized, see Note 16 on pages 124—130 of this Form 10-Q.

Total net revenue for each of the business segments and the Firm is presented on a 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 revenue 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 business segment level because it believes these other 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 September 30, 2008
										Fully
		Reported				Credit				tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	1,316			$	—			$	—			$	1,316
Principal transactions			(2,763	)			—				—				(2,763	)
Lending & deposit-related fees			1,168				—				—				1,168
Asset management, administration and commissions			3,485				—				—				3,485
Securities gains			424				—				—				424
Mortgage fees and related income			457				—				—				457
Credit card income			1,771				(843	)			—				928
Other income			(115	)			—				323				208
Noninterest revenue			5,743				(843	)			323				5,223
Net interest income			8,994				1,716				155				10,865
Total net revenue			14,737				873				478				16,088
Provision for credit losses			3,811				873				—				4,684
Provision for credit losses — accounting conformity(a)			1,976				—				—				1,976
Noninterest expense			11,137				—				—				11,137
Income (loss) before income tax expense (benefit) and extraordinary gain			(2,187	)			—				478				(1,709	)
Income tax expense (benefit)			(2,133	)			—				478				(1,655	)
Income (loss) before extraordinary gain			(54	)			—				—				(54	)
Extraordinary gain			581				—				—				581
Net income		$	527			$	—			$	—			$	527
Diluted earnings (loss) per share(b)		$	(0.06	)		$	—			$	—			$	(0.06	)
Return on common equity(b)			(1	)%			—	%			—	%			(1	)%
Return on equity less goodwill(b)			(1	)			—				—				(1	)
Return on assets(b)			(0.01	)			NM				NM				(0.01	)
Overhead ratio			76				NM				NM				69
		Three months ended September 30, 2007
										Fully
		Reported				Credit				tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	1,336			$	—			$	—			$	1,336
Principal transactions			650				—				—				650
Lending & deposit-related fees			1,026				—				—				1,026
Asset management, administration and commissions			3,663				—				—				3,663
Securities gains			237				—				—				237
Mortgage fees and related income			221				—				—				221
Credit card income			1,777				(836	)			—				941
Other income			289				—				192				481
Noninterest revenue			9,199				(836	)			192				8,555
Net interest income			6,913				1,414				95				8,422
Total net revenue			16,112				578				287				16,977
Provision for credit losses			1,785				578				—				2,363
Noninterest expense			9,327				—				—				9,327
Income before income tax expense and extraordinary gain			5,000				—				287				5,287
Income tax expense			1,627				—				287				1,914
Income before extraordinary gain			3,373				—				—				3,373
Extraordinary gain			—				—				—				—
Net income		$	3,373			$	—			$	—			$	3,373
Diluted earnings per share(b)		$	0.97			$	—			$	—			$	0.97
Return on common equity(b)			11	%			—	%			—	%			11	%
Return on equity less goodwill(b)			18				—				—				18
Return on assets(b)			0.91				NM				NM				0.87
Overhead ratio			58				NM				NM				55

		Nine months ended September 30, 2008
										Fully
		Reported				Credit				tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	4,144			$	—			$	—			$	4,144
Principal transactions			(2,814	)			—				—				(2,814	)
Lending & deposit-related fees			3,312				—				—				3,312
Asset management, administration and commissions			10,709				—				—				10,709
Securities gains			1,104				—				—				1,104
Mortgage fees and related income			1,678				—				—				1,678
Credit card income			5,370				(2,623	)			—				2,747
Other income			1,576				—				773				2,349
Noninterest revenue			25,079				(2,623	)			773				23,229
Net interest income			24,947				5,007				481				30,435
Total net revenue			50,026				2,384				1,254				53,664
Provision for credit losses			11,690				2,384				—				14,074
Provision for credit losses — accounting conformity(a)			1,976				—				—				1,976
Noninterest expense			32,245				—				—				32,245
Income before income tax expense (benefit) and extraordinary gain			4,115				—				1,254				5,369
Income tax expense (benefit)			(207	)			—				1,254				1,047
Income before extraordinary gain			4,322				—				—				4,322
Extraordinary gain			581				—				—				581
Net income		$	4,903			$	—			$	—			$	4,903
Diluted earnings per share(b)		$	1.15			$	—			$	—			$	1.15
Return on common equity(b)			4	%			—	%			—	%			4	%
Return on equity less goodwill(b)			7				—				—				7
Return on assets(b)			0.35				NM				NM				0.33
Overhead ratio			64				NM				NM				60
		Nine months ended September 30, 2007
										Fully
		Reported				Credit				tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	4,973			$	—			$	—			$	4,973
Principal transactions			8,850				—				—				8,850
Lending & deposit-related fees			2,872				—				—				2,872
Asset management, administration and commissions			10,460				—				—				10,460
Securities gains			16				—				—				16
Mortgage fees and related income			1,220				—				—				1,220
Credit card income			5,054				(2,370	)			—				2,684
Other income			1,360				—				501				1,861
Noninterest revenue			34,805				(2,370	)			501				32,936
Net interest income			19,183				4,131				287				23,601
Total net revenue			53,988				1,761				788				56,537
Provision for credit losses			4,322				1,761				—				6,083
Noninterest expense			30,983				—				—				30,983
Income before income tax expense and extraordinary gain			18,683				—				788				19,471
Income tax expense			6,289				—				788				7,077
Income before extraordinary gain			12,394				—				—				12,394
Extraordinary gain			—				—				—				—
Net income		$	12,394			$	—			$	—			$	12,394
Diluted earnings per share(b)		$	3.52			$	—			$	—			$	3.52
Return on common equity(b)			14	%			—	%			—	%			14	%
Return on equity less goodwill(b)			23				—				—				23
Return on assets(b)			1.16				NM				NM				1.11
Overhead ratio			57				NM				NM				55