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 March 31, 2009		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)

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.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

o Yes þ No

Number of shares of common stock outstanding as of April 30, 2009: 3,759,160,375

 

 

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, 2009 and 2008			82
Consolidated Balance Sheets (unaudited) at March 31, 2009, and December 31, 2008			83
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the three months ended March 31, 2009 and 2008			84
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2009 and 2008			85
Notes to Consolidated Financial Statements (unaudited)			86
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three months ended March 31, 2009 and 2008			148
Glossary of Terms and Line of Business Metrics			149
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Consolidated Financial Highlights			3
Introduction			5
Executive Overview			7
Consolidated Results of Operations			11
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			14
Business Segment Results			16
Balance Sheet Analysis			41
Off-Balance Sheet Arrangements and Contractual Cash Obligations			43
Capital Management			45
Risk Management			49
Supervision and Regulation			77
Critical Accounting Estimates Used by the Firm			77
Accounting and Reporting Developments			80
Forward-Looking Statements			156
Item 3 Quantitative and Qualitative Disclosures About Market Risk			157
Item 4 Controls and Procedures			157
Part II — Other information
Item 1 Legal Proceedings			157
Item 1A Risk Factors			160
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			160
Item 3 Defaults Upon Senior Securities			160
Item 4 Submission of Matters to a Vote of Security Holders			160
Item 5 Other Information			160
Item 6 Exhibits			160
EX-31.1
EX-31.2
EX-32

JPMORGAN CHASE & CO.

(unaudited)
(in millions, except per share, headcount and ratios)
As of or for the period ended,		1Q09				4Q08				3Q08				2Q08				1Q08
Selected income statement data
Noninterest revenue		$	11,658			$	3,394			$	5,743			$	10,105			$	9,231
Net interest income			13,367				13,832				8,994				8,294				7,659
Total net revenue			25,025				17,226				14,737				18,399				16,890
Provision for credit losses			8,596				7,755				3,811				3,455				4,424
Provision for credit losses — accounting conformity(a)			—				(442	)			1,976				—				—
Noninterest expense			13,373				11,255				11,137				12,177				8,931
Income (loss) before income tax expense and extraordinary gain			3,056				(1,342	)			(2,187	)			2,767				3,535
Income tax expense (benefit)(b)			915				(719	)			(2,133	)			764				1,162
Income (loss) before extraordinary gain			2,141				(623	)			(54	)			2,003				2,373
Extraordinary gain(c)			—				1,325				581				—				—
Net income		$	2,141			$	702			$	527			$	2,003			$	2,373
Per common share
Basic earnings(d)
Income (loss) before extraordinary gain		$	0.40			$	(0.29	)		$	(0.08	)		$	0.54			$	0.67
Net income			0.40				0.06				0.09				0.54				0.67
Diluted earnings(d)
Income (loss) before extraordinary gain		$	0.40			$	(0.29	)		$	(0.08	)		$	0.53			$	0.67
Net income			0.40				0.06				0.09				0.53				0.67
Cash dividends declared per share			0.05				0.38				0.38				0.38				0.38
Book value per share			36.78				36.15				36.95				37.02				36.94
Common shares outstanding
Weighted-average: Basic			3,755.7				3,737.5				3,444.6				3,426.2				3,396.0
Diluted(d)			3,758.7				3,737.5	(f)			3,444.6	(f)			3,453.1				3,423.3
Common shares at period end			3,757.7				3,732.8				3,726.9				3,435.7				3,400.8
Share price(e)
High		$	31.64			$	50.63			$	49.00			$	49.95			$	49.29
Low			14.96				19.69				29.24				33.96				36.01
Close			26.58				31.53				46.70				34.31				42.95
Market capitalization			99,881				117,695				174,048				117,881				146,066
Financial ratios
Return on common equity (“ROE”)
Income (loss) before extraordinary gain			5	%			(3	)%			(1)	%			6	%			8	%
Net income			5				1				1				6				8
Return on assets (“ROA”)
Income (loss) before extraordinary gain			0.42				(0.11	)			(0.01	)			0.48				0.61
Net income			0.42				0.13				0.12				0.48				0.61
Overhead ratio			53				65				76				66				53
Tier 1 capital ratio			11.4				10.9				8.9				9.2				8.3
Total capital ratio			15.2				14.8				12.6				13.4				12.5
Tier 1 leverage ratio			7.1				6.9				7.2				6.4				5.9
Selected balance sheet data (period-end)
Trading assets		$	429,700			$	509,983			$	520,257			$	531,997			$	485,280
Securities			333,861				205,943				150,779				119,173				101,647
Loans			708,243				744,898				761,381				538,029				537,056
Total assets			2,079,188				2,175,052				2,251,469				1,775,670				1,642,862
Deposits			906,969				1,009,277				969,783				722,905				761,626
Long-term debt			243,569				252,094				238,034				260,192				189,995
Common stockholders’ equity			138,201				134,945				137,691				127,176				125,627
Total stockholders’ equity			170,194				166,884				145,843				133,176				125,627
Headcount			219,569				224,961				228,452				195,594				182,166

(unaudited)
(in millions, except ratios)
As of or for the period ended,		1Q09				4Q08				3Q08				2Q08				1Q08
Credit quality metrics
Allowance for credit losses		$	28,019			$	23,823			$	19,765			$	13,932			$	12,601
Nonperforming assets			14,654				12,714				9,520				6,233				5,143
Net charge-offs			4,396				3,315				2,484				2,130				1,906
Net charge-off rate			2.51	%			1.80	%			1.91	%			1.67	%			1.53	%
Wholesale net charge-off rate			0.32				0.33				0.10				0.08				0.18
Consumer net charge-off rate			3.61				2.59				3.13				2.77				2.43
Managed Card net charge-off rate			7.72				5.56				5.00				4.98				4.37

(a)		The third and fourth quarters of 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Bank’s banking operations.
(b)		The income tax benefit in the third quarter of 2008 includes the realization of a 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.
(c)		JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.
(d)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised as required. For further discussion of FSP EITF 03-6-1, see Note 20 on page 140 of this Form 10-Q.
(e)		JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chase’s common stock are from the New York Stock Exchange Composite Transaction Tape.
(f)		Common equivalent shares have been excluded from the computation of diluted earnings per share for the third and fourth quarters of 2008, as the effect on income (loss) before extraordinary gain would be antidilutive.

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 149-153 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 on 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 pages 156-157 and Item 1A: Risk Factors on page 159 of this Form 10-Q), as well as in the JPMorgan Chase Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the U.S. Securities and Exchange Commission (“2008 Annual Report” or “2008 Form 10-K”), including Part I, Item 1A: Risk factors, 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 $2.1 trillion in assets, $170.2 billion in stockholders’ equity and operations in more than 60 countries as of March 31, 2009. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. Under the J.P. Morgan 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 23 states in the U.S.; 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/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.

Investment Bank

J.P. Morgan 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 selectively commits the Firm’s own capital to principal investing and trading activities.

Retail Financial Services

Retail Financial Services (“RFS”), which includes the Retail Banking and Consumer Lending reporting segments, serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking as well as through auto dealerships and school financial aid offices. Customers can use more than 5,100 bank branches (third-largest nationally) and 14,100 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 20,900 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 15,700 auto dealerships and 4,800 schools and universities nationwide.

Card Services

Chase Card Services (“CS”) is one of the nation’s largest credit card issuers, with 159 million cards in circulation and more than $176 billion in managed loans. Customers used Chase cards to meet $76 billion worth of their spending needs in the three months ended March 31, 2009. Chase has a market leadership position in building loyalty and rewards programs with many of the world’s most respected brands and through its proprietary products, which include the Chase Freedom program.

Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one of the leading processors of MasterCard and Visa payments.

Commercial Banking

Commercial Banking (“CB”) serves more than 26,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 30,000 real estate investors/owners. Delivering extensive industry knowledge, local expertise and dedicated service, CB partners with the Firm’s other businesses to provide 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 holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and it manages depositary receipt programs globally.

Asset Management

Asset Management (“AM”), with assets under supervision of $1.5 trillion, 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 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.

EXECUTIVE OVERVIEW

This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit and market risks, and the critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.

Financial performance of JPMorgan Chase

		Three months ended March 31,
(in millions, except per share data and ratios)		2009				2008				Change
Selected income statement data
Total net revenue		$	25,025			$	16,890				48	%
Total noninterest expense			13,373				8,931				50
Provision for credit losses			8,596				4,424				94
Net income			2,141				2,373				(10	)
Diluted earnings per share(a)		$	0.40			$	0.67				(40	)
Return on common equity			5	%			8	%

(a)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 20 on page 140 of this Form 10-Q.

Business overview

JPMorgan Chase reported first-quarter 2009 net income of $2.1 billion, or $0.40 per share, compared with net income of $2.4 billion, or $0.67 per share, in the first quarter of 2008. Return on common equity for the quarter was 5%, compared with 8% in the prior year. The decline in earnings was driven by a higher provision for credit losses and increased noninterest expense, predominantly offset by record net revenue. Both revenue and expense were higher due to the impact of the acquisition of the banking operations of Washington Mutual Bank (“Washington Mutual”) on September 25, 2008. In addition, record revenue in the Investment Bank and positive mortgage servicing rights (“MSR”) risk management results in Retail Financial Services contributed to revenue growth, while higher performance-based compensation expense in the Investment Bank and higher FDIC insurance premiums contributed to expense growth. Continued deterioration in the credit environment resulted in a higher provision for credit losses compared with the prior year, with the largest increases in Card Services and Retail Financial Services.

The global economy continued to contract in the first quarter of 2009 at about the same rate as in the fourth quarter of 2008. Labor markets deteriorated rapidly as U.S. firms reduced the number of jobs by another two million in the first quarter alone, driving the U.S. unemployment rate to 8.5% in March. The S&P 500 index was down 40% and 11% from the first and fourth quarters of last year, respectively; bankruptcies increased 30% from March of last year; auto companies reported weak results; and volatile currency swings in the current quarter ended with the U.S. dollar continuing to weaken against the Japanese yen but appreciate against the Euro. The U.S. federal government (“U.S. government”) and regulators continued their efforts to stabilize the U.S. economy during the quarter, putting in place a financial rescue plan that supplements the interest rate and other actions taken by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the U.S. Department of the Treasury (the “U.S. Treasury”) last fall and winter. The rescue plan includes, among other actions, the U.S. Treasury Capital Assistance Program and the Supervisory Capital Assessment Program intended to reinforce confidence in the capitalization of the U.S. banking system; the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”) program, which is intended to promote the flow of credit to consumers and mortgage markets; the U.S. Treasury’s Public-Private Investment Program, which is intended to repair balance sheets and ensure that credit is available to households and businesses; and the Federal Reserve’s intent to purchase and hold on its own books additional U.S. Treasury and agency debt and mortgage-backed securities. Recent positive trends, such as the narrowing of certain credit spreads and the stabilization of consumer spending, indicate that all these efforts may be starting to take effect.

In the midst of this challenging environment, in the first quarter of 2009, JPMorgan Chase generated record firmwide revenue; generated record revenue and net income in the Investment Bank; and benefited from underlying growth in Retail Financial Services, including increased deposits and checking accounts, higher mortgage refinancing volumes and excellent progress on the Washington Mutual integration. Specifically, the Firm rebranded 708 Washington Mutual branches and 1,900 ATMs, and opened nine regional homeownership centers in California. Nationally, Retail Financial Services consolidated nearly 300 Washington Mutual branches, and Card Services successfully completed the conversion of the Washington Mutual portfolio to the Chase TSYS processing system. In addition, Commercial Banking, Treasury & Securities Services and Asset Management continued to report solid volumes and earnings.

The Firm continued to focus on its capital and balance sheet strength in the first quarter of 2009, ending the quarter with a Tier 1 capital ratio of 11.4%, or 9.3% excluding the capital received under the Capital Purchase Program component of the U.S. government’s Troubled Asset Relief Program (“TARP”). The Firm added $4.2 billion to the allowance for credit losses, which reached $28.0 billion, resulting in a firmwide loan loss coverage ratio of 4.53%. In addition, the Firm lowered its quarterly dividend to $0.05 per common share, which will enable the Firm to retain approximately $5.0 billion in common equity per year. Management believes these levels of capital and reserves, combined with significant earnings power, will enable JPMorgan Chase to withstand an even worse economic scenario than it faces today.

During the quarter, JPMorgan Chase extended more than $150.0 billion in new credit to consumer and corporate customers, purchased nearly $34.0 billion of mortgage-backed and asset-backed securities, and made progress on its goal of preventing 650,000 foreclosures by the end of next year to help keep people in their homes. JPMorgan Chase remains committed to helping bring stability to the communities in which it operates and to the financial system overall.

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 14-16 of this Form 10-Q .

Investment Bank net income reached a record level, reflecting record revenue, partially offset by higher noninterest expense and a higher provision for credit losses. Both Fixed Income Markets and Equity Markets reported record revenue driven by strong trading results and client revenue, including the prime services business acquired in the Bear Stearns merger, and higher debt underwriting fees drove an increase in investment banking fees. The provision for credit losses increased due to a higher allowance reflecting a weakening credit environment. The increase in noninterest expense primarily reflected higher performance-based compensation expense and the impact of the Bear Stearns merger.

Retail Financial Services reported net income for the quarter compared with a net loss reported in the prior year, as higher revenue was offset partially by a higher provision for credit losses and noninterest expense. Revenue growth was driven by the impact of the Washington Mutual transaction, positive MSR risk management results, wider deposit and loan spreads, higher mortgage production revenue and higher deposit-related fees. The provision for credit losses included a significant increase in the allowance for loan losses, primarily for the home lending portfolio. The increase in noninterest expense reflected the impact of the Washington Mutual transaction, higher servicing expense, higher mortgage reinsurance losses and higher FDIC insurance premiums.

Card Services reported a net loss for the quarter, compared with net income in the prior year. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue. The increase in managed net revenue was driven by the impact of the Washington Mutual transaction, wider loan spreads and higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture. These benefits were offset partially by lower securitization income, the effect of higher revenue reversals associated with higher charge-offs, and a decreased level of fees. The provision for credit losses reflected a higher level of charge-offs, and an increase in the allowance for loan losses, reflecting a weakening credit environment. Noninterest expense increased due to the impact of the Washington Mutual transaction and the dissolution of the Chase Paymentech Solutions joint venture, predominantly offset by lower marketing expense.

Commercial Banking net income increased from the prior year, driven by higher net revenue reflecting the impact of the Washington Mutual transaction, offset largely by a higher provision for credit losses. Revenue growth resulted from double-digit growth in liability balances and higher deposit- and lending-related fees offset partially by spread compression on liability products. The increase in the provision for credit losses reflected a weakening credit environment. Noninterest expense rose due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.

Treasury & Securities Services net income decreased from the prior year, driven by lower net revenue and higher noninterest expense. The decrease in net revenue was driven by lower revenue in Worldwide Securities Services, reflecting a decline in securities lending balances, primarily as a result of declines in asset valuations and demand, and the effects of market depreciation on assets under custody, which were partially offset by higher net interest income. Revenue in Treasury Services increased, reflecting higher liability balances, higher trade revenue and growth across cash management products offset largely by spread compression on liability products. The increase in noninterest expense reflected higher FDIC insurance premiums and higher expense related to investment in new product platforms.

Asset Management net income declined from the prior year, due to lower net revenue offset partially by lower noninterest expense. The decline in net revenue was due to the effect of lower markets and lower performance fees; these effects were offset partially by the benefit of the Bear Stearns merger, higher deposit balances and wider deposit spreads. Noninterest expense decreased due to lower performance-based compensation and lower headcount-related expense, offset by the impact of the Bear Stearns merger and higher FDIC insurance premiums.

Corporate/Private Equity reported a net loss for the quarter, compared with net income in the prior year (which included a benefit from the proceeds of the sale of Visa shares in its initial public offering). Net revenue declined, reflecting Private Equity losses compared with gains in the prior year.

Firmwide, the managed provision for credit losses was $10.1 billion, up $5.0 billion, or 97%, from the prior year. The total consumer-managed provision for credit losses was $8.5 billion, compared with $4.4 billion in the prior year, reflecting higher net charge-offs, as well as increases in the allowance for credit losses primarily related to credit card loans and home lending. Consumer-managed net charge-offs were $5.7 billion, compared with $2.5 billion in the prior year, resulting in managed net charge-off rates of 4.12% and 2.68%, respectively. The wholesale provision for credit losses was $1.5 billion, compared with $747 million in the prior year, and resulted from an increase in the allowance for credit losses reflecting a weakening credit environment. Wholesale net charge-offs were $191 million, compared with prior-year net charge-offs of $92 million, resulting in net charge-off rates of 0.32% and 0.18%, respectively. The Firm had total nonperforming assets of $14.7 billion at March 31, 2009, up from the prior-year level of $5.1 billion. The allowance for credit losses increased $4.2 billion from December 31, 2008, to $28.0 billion at March 31, 2009, and the loan loss coverage ratio increased to 4.53% of loans at March 31, 2009, compared with 3.62% at December 31, 2008, reflecting the continuing weakening credit environment.

Business outlook

The following forward-looking statements are based on 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 second quarter of 2009 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. In addition, as a result of recent market conditions and events, Congress and regulators have increased their focus on the regulation of financial institutions. The Firm’s current expectations are for the global and U.S. economic environments to weaken further and potentially faster, capital markets to remain under stress, for there to be a continued decline in U.S. housing prices, and for the unemployment rate to continue to rise into 2010, likely reaching the 9-10% level before the U.S. economy recovers and strengthens enough to increase labor demand. In addition, the Firm currently expects Congress and regulators to continue to adopt legislation and regulations that could limit or restrict the Firm’s operations, or impose additional costs upon the Firm in order to comply with such new laws or rules. Any of these factors could adversely impact the Firm’s revenue, credit costs, overall business volumes or earnings. For example, it is likely the Firm will be subject to a one-time special assessment by the FDIC, subject to terms being finalized between the FDIC and the banking industry. The total assessment, based on the size of the Firm’s deposit base, could reach between $750 million and $1.5 billion, which would be recorded as an expense in the quarter the terms become final.

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 the consumer loan portfolios. Management expects possible continued deterioration in credit trends, which could require additions to the consumer loan loss allowance. Based on management’s current economic outlook, quarterly net charge-offs could, over the next several quarters, reach $1.4 billion for the home equity portfolio, $500 million for the prime mortgage portfolio, and $375 million to $475 million for the subprime mortgage portfolio. Management expects the managed net charge-off rate for Card Services (excluding the Washington Mutual credit card portfolio) to approach 9% in the second quarter of 2009 and possibly trend higher in the second half of the year, depending on unemployment levels. The managed net charge-off rate for the Washington Mutual credit card portfolio is expected to approach 18%-24% by the end of 2009; these charge-off rates could increase even further if the economic environment continues to deteriorate further than management’s current expectations. Similarly, the wholesale provision for credit losses and nonperforming assets as well as charge-offs are likely to increase over time as a result of the deterioration in underlying credit conditions.

The Investment Bank is operating in an uncertain environment. Trading revenue is volatile and could be affected by further disruption in the credit and mortgage markets, as well as lower levels of liquidity. 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 $11.5 billion (gross notional) of legacy leveraged loans and unfunded commitments as held-for-sale as of March 31, 2009. Markdowns averaging 52% of the gross notional value have been taken on these legacy positions as of March 31, 2009, resulting in a net carrying value of $5.5 billion. 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 March 31, 2009, an aggregate $5.5 billion of prime and Alt-A mortgage exposure, which is also difficult to hedge effectively, and $678 million of subprime mortgage exposure. In addition, the Investment Bank had $6.5 billion of commercial mortgage exposure. In spite of active hedging, mortgage exposures could be adversely affected by worsening market conditions and further deterioration in the housing market.

Earnings in Commercial Banking and Treasury & Securities Services could decline due to the impact of tighter spreads in the current low interest rate environment or due to a decline in the level of liability balances. Earnings in Treasury & Securities Services and Asset Management will likely deteriorate if market levels continue to decline, due to reduced levels of assets under management, supervision and custody. Management believes that, at current market valuation and activity levels, it is reasonable to expect quarterly net revenue over the near-term of approximately $1.4 billion in Commercial Banking, $2.0 billion in Treasury & Securities Services and $1.8 billion in Asset Management. Earnings in the Corporate/Private Equity segment could be more volatile this year due to increases in the size of the Firm’s investment portfolio, which is comprised largely of investment-grade securities. Private Equity results are dependent upon the capital markets, the performance of the broader economy and investment-specific issues.

Assuming economic conditions do not worsen beyond management’s current expectations, management continues to believe that the net income impact of Washington Mutual’s banking operations could be approximately $0.50 per share in 2009; the Bear Stearns businesses could contribute $1 billion (after-tax) annualized after 2009; and merger-related items, which include both the Washington Mutual transaction and the Bear Stearns merger, could be approximately $600 million (after-tax) in 2009.

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 77-79 of this Form 10-Q and pages 107-111 of JPMorgan Chase’s 2008 Annual Report.

Total net revenue

The following table presents the components of total net revenue.

		Three months ended March 31,
(in millions)		2009				2008				Change
Investment banking fees		$	1,386			$	1,216				14	%
Principal transactions			2,001				(803	)		NM
Lending & deposit-related fees			1,688				1,039				62
Asset management, administration and commissions			2,897				3,596				(19	)
Securities gains			198				33				500
Mortgage fees and related income			1,601				525				205
Credit card income			1,837				1,796				2
Other income			50				1,829				(97	)
Noninterest revenue			11,658				9,231				26
Net interest income			13,367				7,659				75
Total net revenue		$	25,025			$	16,890				48

Total net revenue for the first quarter of 2009 was $25.0 billion, up by $8.1 billion, or 48%, from the first quarter of 2008 and reflected the impact of the Washington Mutual transaction. Revenue growth was also driven by higher net interest income, significantly higher trading results and positive MSR risk management results. These benefits were offset partially by the absence of proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008, and lower asset management, administration and commissions.

Investment banking fees increased from the first quarter of 2008 due to higher debt underwriting fees, driven by improved bond market conditions, as well as higher loan syndication fees. Predominantly offsetting the increase was a decrease in equity underwriting fees due to continued challenging market conditions. For a further discussion of investment banking fees, which are primarily recorded in IB, see IB segment results on pages 17-20 of this Form 10-Q.

Principal transactions revenue, which consists of revenue from the Firm’s trading and private equity investing activities, rose from the first quarter of 2008. Trading revenue increased to $2.5 billion from negative $1.0 billion in the first quarter of 2008. The increase was driven by record results in credit trading, emerging markets and rates, combined with strong results in currencies. In addition, equity trading results and client revenue were strong, particularly in prime services. Also contributing to the increase in trading revenue were gains of $1.1 billion from a widening of the Firm’s credit spread on certain structured liabilities and derivatives. These results were partially offset by $711 million of net markdowns on leveraged lending funded and unfunded commitments, as well as $214 million of net markdowns on mortgage-related exposures. Private equity revenue declined to a loss of $488 million, from gains of $200 million in the first quarter of 2008. For a further discussion of principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 17-20 and 39-40, respectively, and Note 5 on pages 102-103 of this Form 10-Q.

Lending & deposit-related fees rose from the first quarter of 2008, predominantly resulting from the impact of the Washington Mutual transaction and higher deposit-related fees. For a further discussion of lending & deposit-related fees, which are mostly recorded in RFS, CB and TSS, see the RFS segment results on pages 21-27, the CB segment results on pages 32-33, and the TSS segment results on pages 34-36 of this Form 10-Q.

The decline in asset management, administration and commissions revenue compared with the first quarter of 2008 reflected lower asset management fees in AM due to the effect of lower markets and lower performance fees; lower administration fees in TSS driven by lower securities lending balances and the effects of market depreciation on assets under custody; and lower commissions revenue in IB predominantly related to lower brokerage transaction volume. For additional information on these fees and commissions, see the segment discussions for IB on pages 17-20, RFS on pages 21-27, TSS on pages 34-36, and AM on pages 36-38 of this Form 10-Q.

The increase in securities gains compared with the first quarter of 2008 was due to the repositioning of the Corporate investment securities portfolio as a result of lower interest rates in connection with managing the structural interest rate risk of the Firm. 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 39-40 of this Form 10-Q.

Mortgage fees and related income increased from the first quarter of 2008, driven by the Washington Mutual transaction, higher net mortgage servicing revenue and higher production revenue. Net mortgage servicing revenue benefited from an

improvement in MSR risk management results. Higher mortgage production revenue reflected wider margins on new originations offset partially by an increase in reserves for the repurchase of previously-sold loans and lower mortgage origination volumes. For a discussion of mortgage fees and related income, which is recorded primarily in RFS’ Consumer Lending business, see the Consumer Lending discussion on pages 24-27 of this Form 10-Q.

Credit card income increased slightly compared with the first quarter of 2008, driven by higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture. These increases were offset by lower servicing fees earned in connection with CS securitization activities, which were negatively affected by higher credit losses on securitized credit card loans. For a further discussion of credit card income, see CS’ segment results on pages 28-31 of this Form 10-Q.

Other income decreased compared with the first quarter of 2008, due predominantly to the absence of proceeds of $1.5 billion from the sale of Visa shares in its initial public offering in the first quarter of 2008, lower securitization results at CS, and the dissolution of the Chase Paymentech Solutions joint venture, offset partially by lower markdowns on certain investments.

Net interest income rose from the first quarter of 2008, due predominantly to the following: impact of the Washington Mutual transaction, higher investment-related net interest income in Corporate, higher trading-related net interest income in IB, wider spreads on consumer loans and deposits in RFS, higher consumer loan balances and growth in liability and deposit balances in the wholesale businesses. The Firm’s total average interest-earning assets for the first quarter of 2009 were $1.7 trillion, up 37% from the first quarter of 2008, driven by higher loans, available-for-sale (“AFS”) securities, deposits with banks and securities borrowed partly offset by lower trading assets — debt instruments. The Firm’s total average interest-bearing liabilities for the first quarter of 2009 were $1.5 trillion, up 31% from the first quarter of 2008, driven by higher deposits, higher brokerage payables and other borrowings from the impact of the Bear Stearns merger and Washington Mutual transaction, respectively, higher long-term debt and federal funds purchased and securities loaned or sold under repurchase agreements. The net interest yield on the Firm’s interest-earning assets, on a fully taxable equivalent basis, was 3.29%, an increase of 70 basis points from the first quarter of 2008, driven predominantly by an increase in higher yielding assets associated with the Washington Mutual transaction and trading-related net interest income in IB.

Provision for credit losses		Three months ended March 31,
(in millions)		2009				2008				Change
Wholesale		$	1,530			$	747				105	%
Consumer			7,066				3,677				92
Total provision for credit losses		$	8,596			$	4,424				94

Provision for credit losses

The provision for credit losses in the first quarter of 2009 rose by $4.2 billion compared with the first quarter of 2008 due to increases in both the consumer and wholesale provisions. The consumer provision reflected additions to the allowance for loan losses for the home equity, mortgage and credit card portfolios, as rising unemployment, housing price declines and weak overall economic conditions have contributed to a higher level of charge-offs for these portfolios. The increase in the wholesale provision was driven by a higher allowance for loan losses, reflecting the effect of the weakening credit environment. For a more detailed discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for RFS on pages 21-27, CS on pages 28-31, IB on pages 17-20 and CB on pages 32-33, and the Credit Risk Management section on pages 53-70 of this Form 10-Q.

Noninterest expense

The following table presents the components of noninterest expense.

		Three months ended March 31,
(in millions)		2009				2008				Change
Compensation expense		$	7,588			$	4,951				53	%
Noncompensation expense:
Occupancy expense			885				648				37
Technology, communications and equipment expense			1,146				968				18
Professional & outside services			1,515				1,333				14
Marketing			384				546				(30	)
Other expense			1,375				169			NM
Amortization of intangibles			275				316				(13	)
Total noncompensation expense			5,580				3,980				40
Merger costs			205				—			NM
Total noninterest expense		$	13,373			$	8,931				50

Total noninterest expense for the first quarter of 2009 was $13.4 billion, up $4.4 billion, or 50%, from the first quarter of 2008. The increase was driven by higher performance-based compensation expense and the additional operating costs related to the Washington Mutual transaction and Bear Stearns merger.

The increase in compensation expense from the first quarter of 2008 was driven by higher performance-based compensation expense, primarily in the Investment Bank due to record revenue, and higher salary expense, predominantly from the Washington Mutual transaction and Bear Stearns merger.

Noncompensation expense increased from the first quarter of 2008 due predominantly to the impact of the Washington Mutual transaction and Bear Stearns merger. Excluding the effects of these transactions, noncompensation expense also increased due to an increase in other expense related to a lower level of benefits from litigation-related items in the current quarter compared with the prior-year quarter, higher FDIC insurance premiums as a result of increased assessment rates, higher mortgage and home equity default-related expense due to higher delinquencies and defaults and higher mortgage reinsurance losses. Also contributing to the increases were higher occupancy expense and technology, communications and equipment expense reflecting investments across the businesses, and the impact of the dissolution of the Chase Paymentech Solutions joint venture. These increases were offset partially by lower credit card marketing expense.

For information on merger costs, refer to Note 11 on page 114 of this Form 10-Q.

Income tax expense

The Firm’s income 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)		2009				2008
Income before income tax expense		$	3,056			$	3,535
Income tax expense			915				1,162
Effective tax rate			29.9	%			32.9	%

The decrease in the effective tax rate compared with the first quarter of 2008 was primarily the result of lower reported pretax income, increased business tax credits and changes in the proportion of income subject to federal, state and local taxes. For a further discussion of income taxes, see Critical Accounting Estimates used by the Firm on pages 77-79 of this Form 10-Q.

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 82-85 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 results and the results of the lines of business 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 it 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 on 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 28-31 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 March 31, 2009
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	1,386			$	—			$	—			$	1,386
Principal transactions			2,001				—				—				2,001
Lending & deposit-related fees			1,688				—				—				1,688
Asset management, administration and commissions			2,897				—				—				2,897
Securities gains			198				—				—				198
Mortgage fees and related income			1,601				—				—				1,601
Credit card income			1,837				(540	)			—				1,297
Other income			50				—				337				387
Noninterest revenue			11,658				(540	)			337				11,455
Net interest income			13,367				2,004				96				15,467
Total net revenue			25,025				1,464				433				26,922
Noninterest expense			13,373				—				—				13,373
Pre-provision profit			11,652				1,464				433				13,549
Provision for credit losses			8,596				1,464				—				10,060
Income before income tax expense			3,056				—				433				3,489
Income tax expense			915				—				433				1,348
Net income		$	2,141			$	—			$	—			$	2,141
Diluted earnings per share(a)(b)		$	0.40			$	—			$	—			$	0.40
Return on common equity(a)			5	%			—	%			—	%			5	%
Return on equity less goodwill(a)			7				—				—				7
Return on assets(a)			0.42				NM				NM				0.40
Overhead ratio			53				NM				NM				50

		Three months ended March 31, 2008
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	1,216			$	—			$	—			$	1,216
Principal transactions			(803	)			—				—				(803	)
Lending & deposit-related fees			1,039				—				—				1,039
Asset management, administration and commissions			3,596				—				—				3,596
Securities gains			33				—				—				33
Mortgage fees and related income			525				—				—				525
Credit card income			1,796				(937	)			—				859
Other income			1,829				—				203				2,032
Noninterest revenue			9,231				(937	)			203				8,497
Net interest income			7,659				1,618				124				9,401
Total net revenue			16,890				681				327				17,898
Noninterest expense			8,931				—				—				8,931
Pre-provision profit			7,959				681				327				8,967
Provision for credit losses			4,424				681				—				5,105
Income before income tax expense			3,535				—				327				3,862
Income tax expense			1,162				—				327				1,489
Net income		$	2,373			$	—			$	—			$	2,373
Diluted earnings per share(a)(b)		$	0.67			$	—			$	—			$	0.67
Return on common equity(a)			8	%			—	%			—	%			8	%
Return on equity less goodwill(a)			12				—				—				12
Return on assets(a)			0.61				NM				NM				0.58
Overhead ratio			53				NM				NM				50

Three months ended March 31,		2009												2008
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans — Period-end		$	708,243			$	85,220			$	793,463			$	537,056			$	75,062			$	612,118
Total assets — average			2,067,119				82,782				2,149,901				1,569,797				71,589				1,641,386

(a)		Based on net income.
(b)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 20 on page 140 of this Form 10-Q.
(c)		Credit card securitizations affect CS. See pages 28-31 of this Form 10-Q for further information.

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/Private Equity segment. The business segments are determined based on 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 40-41 of JPMorgan Chase’s 2008 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 40 of JPMorgan Chase’s 2008 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)(b)

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

Three months ended																																						Return
March 31,		Total net revenue												Noninterest expense												Net income (loss)												on equity
(in millions, except ratios)		2009				2008				Change				2009				2008				Change				2009				2008				Change				2009				2008
Investment Bank		$	8,341			$	3,011				177	%		$	4,774			$	2,553				87	%		$	1,606			$	(87	)			NM				20	%			(2	)%
Retail Financial Services			8,835				4,763				85				4,171				2,572				62				474				(311	)			NM				8				(7	)
Card Services			5,129				3,904				31				1,346				1,272				6				(547	)			609				NM				(15	)			17
Commercial Banking			1,402				1,067				31				553				485				14				338				292				16	%			17				17
Treasury & Securities Services			1,821				1,913				(5	)			1,319				1,228				7				308				403				(24	)			25				46
Asset Management			1,703				1,901				(10	)			1,298				1,323				(2	)			224				356				(37	)			13				29
Corporate/Private Equity			(309	)			1,339				NM				(88	)			(502	)			82				(262	)			1,111				NM				NM				NM
Total		$	26,922			$	17,898				50	%		$	13,373			$	8,931				50	%		$	2,141			$	2,373				(10	)%			5	%			8	%

(a)		Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
(b)		On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase, and their respective results of operations are included in the Firm’s results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-127 of JPMorgan Chase’s 2008 Annual Report and Note 2 on pages 86-88 of this Form 10-Q.

INVESTMENT BANK

For a discussion of the business profile of IB, see pages 42-44 of JPMorgan Chase’s 2008 Annual Report and page 5 of this Form 10-Q.

Selected income statement data		Three months ended March 31,
(in millions, except ratios)		2009				2008				Change
Revenue
Investment banking fees		$	1,380			$	1,206				14	%
Principal transactions			3,515				(798	)		NM
Lending & deposit-related fees			138				102				35
Asset management, administration and commissions			692				744				(7	)
All other income			(86	)			(66	)			(30	)
Noninterest revenue			5,639				1,188				375
Net interest income(a)			2,702				1,823				48
Total net revenue(b)			8,341				3,011				177
Provision for credit losses			1,210				618				96
Credit reimbursement from TSS(c)			30				30				—
Noninterest expense
Compensation expense			3,330				1,241				168
Noncompensation expense			1,444				1,312				10
Total noninterest expense			4,774				2,553				87
Income (loss) before income tax expense (benefit)			2,387				(130	)		NM
Income tax expense (benefit)			781				(43	)		NM
Net income (loss)		$	1,606			$	(87	)		NM
Financial ratios
ROE			20	%			(2	)%
ROA			0.89				(0.05	)
Overhead ratio			57				85
Compensation expense as a % of total net revenue			40				41
Revenue by business
Investment banking fees:
Advisory		$	479			$	483				(1	)
Equity underwriting			308				359				(14	)
Debt underwriting			593				364				63
Total investment banking fees			1,380				1,206				14
Fixed income markets			4,889				466			NM
Equity markets			1,773				976				82
Credit portfolio			299				363				(18	)
Total net revenue		$	8,341			$	3,011				177
Revenue by region
Americas		$	4,780			$	536			NM
Europe/Middle East/Africa			2,588				1,641				58
Asia/Pacific			973				834				17
Total net revenue		$	8,341			$	3,011				177

(a)		The increase in net interest income is due primarily to higher spreads across several fixed income trading businesses as well as the addition of the Bear Stearns Prime Services business.
(b)		Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing investments and tax-exempt income from municipal bond investments, of $365 million and $289 million for the quarters ended March 31, 2009 and 2008, respectively.
(c)		TSS is charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS.

Quarterly results

Net income was a record $1.6 billion, an increase of $1.7 billion from the prior year. The improved results reflected an increase in net revenue, partially offset by higher noninterest expense and a higher provision for credit losses.

Net revenue was a record $8.3 billion, an increase of $5.3 billion from the prior year. Investment banking fees were $1.4 billion, up 14% from the prior year. Advisory fees were $479 million, flat compared with the prior year. Debt underwriting fees were $593 million, up 63% from the prior year, driven by improved bond market conditions, as well as higher loan syndication fees compared with a weak prior year. Equity underwriting fees were $308 million, down 14% from the prior year, due to continued challenging market conditions. Fixed Income Markets revenue was a record $4.9 billion, compared with $466 million in the prior year. The increase was driven by record results in credit trading, emerging markets and rates, combined with strong results in currencies and gains of $422 million from the widening of the Firm’s credit spread on certain structured liabilities. These results were offset partially by $711 million of net markdowns on leveraged lending funded and unfunded commitments, as well as $214 million of net markdowns on mortgage-related exposures. Equity Markets revenue was a record $1.8 billion, up by $797 million from the prior year, reflecting strong trading results and client revenue, particularly in prime services, as well as gains of $216 million from the widening of the Firm’s credit spread on certain structured liabilities. Credit Portfolio revenue was $299 million, down by $64 million from the prior year.

The provision for credit losses was $1.2 billion, compared with $618 million in the prior year, due to a higher allowance reflecting a weakening credit environment. Net charge-offs were $36 million, compared with net charge-offs of $13 million in the prior year. The allowance for loan losses to average loans retained was 6.68% for the current quarter, compared with 2.55% in the prior year. Nonperforming loans were $1.8 billion, up by $1.5 billion from the prior year also reflecting the weakening credit environment.

Average loans retained were $70.0 billion, down 5% from the prior year. Average fair-value and held-for-sale loans were $12.4 billion, down by $7.2 billion, or 37%, from the prior year, as acquisition finance activity declined.

Noninterest expense was $4.8 billion, compared with $2.6 billion in the prior year, primarily reflecting higher performance-based compensation expense on record revenue and the impact of the Bear Stearns merger.

Selected metrics		Three months ended March 31,
(in millions, except headcount and ratios)		2009				2008				Change
Selected balance sheet data (period-end)
Equity		$	33,000			$	22,000				50	%
Selected balance sheet data (average)
Total assets			733,166				755,828				(3	)
Trading assets-debt and equity instruments			272,998				369,456				(26	)
Trading assets-derivative receivables			125,021				90,234				39
Loans:
Loans retained(a)			70,041				74,106				(5	)
Loans held-for-sale and loans at fair value			12,402				19,612				(37	)
Total loans			82,443				93,718				(12	)
Adjusted assets(b)			589,163				662,419				(11	)
Equity			33,000				22,000				50
Headcount			26,142				25,780				1
Credit data and quality statistics
Net charge-offs		$	36			$	13				177
Nonperforming assets:
Loans(c)			1,795				321				459
Derivative receivables			1,010				31			NM
Assets acquired in loan satisfactions			236				87				171
Total nonperforming assets			3,041				439			NM
Allowance for credit losses:
Allowance for loan losses			4,682				1,891				148
Allowance for lending-related commitments			295				607				(51	)
Total allowance for credit losses			4,977				2,498				99
Net charge-off rate(a)(d)			0.21	%			0.07	%
Allowance for loan losses to average loans(a)(d)			6.68	(i)			2.55	(i)
Allowance for loan losses to nonperforming loans(c)			269				683
Nonperforming loans to average loans			2.18				0.34
Market risk-average trading and credit portfolio VaR — 99% confidence level(e)
Trading activities:
Fixed income		$	218			$	120				82
Foreign exchange			40				35				14
Equities			162				31				423
Commodities and other			28				28				—
Diversification(f)			(159	)			(92	)			(73	)
Total trading VaR(g)			289				122				137
Credit portfolio VaR(h)			182				30			NM
Diversification(f)			(135	)			(30	)			(350	)
Total trading and credit portfolio VaR		$	336			$	122				175

(a)		Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans held-for-sale and loans accounted for at fair value.
(b)		Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of variable interest entities (“VIEs”) consolidated under FIN 46R; (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral; and (6) investments purchased under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The amount of adjusted assets is presented to assist the reader in comparing 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. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.
(c)		Nonperforming loans included loans held-for-sale and loans at fair value of $57 million and $44 million at March 31, 2009 and 2008, respectively, which were excluded from the allowance coverage ratios. Nonperforming loans excluded distressed loans held-for-sale that were purchased as part of IB’s proprietary activities. Allowance for loan losses of $767 million and $51 million was held against these nonperforming loans at March 31, 2009 and 2008, respectively.
(d)		Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off (recovery) rate.
(e)		First quarter of 2008 reflects heritage JPMorgan Chase & Co. results. For a more complete description of value-at-risk (“VaR”), see pages 71-76 of this Form 10-Q.

(f)		Average VaRs were less than the sum of the VaRs of their market risk components, which was due to risk offsets resulting from portfolio diversification. The diversification effect reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is usually less than the sum of the risks of the positions themselves.
(g)		Trading VaR includes predominantly all trading activities in IB; however, particular risk parameters of certain products are not fully captured — for example, correlation risk. Trading VaR does not include VaR related to held-for-sale funded loans and unfunded commitments, nor the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See the DVA Sensitivity table on page 75 of this Form 10-Q for further details. Trading VaR also does not include the MSR portfolio or VaR related to other corporate functions, such as Corporate/Private Equity. Beginning in the fourth quarter of 2008, trading VaR includes the estimated credit spread sensitivity of certain mortgage products.
(h)		Included VaR on derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market hedges of the retained loan portfolio, which were all reported in principal transactions revenue. This VaR does not include the retained loan portfolio.
(i)		Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio would be 2.61% for the quarter ended March 31, 2008. The average balance of the loan extended to Bear Stearns was $1.7 billion for the quarter ended March 31, 2008. The allowance for loan losses to period-end loans was 7.04% and 2.46% at March 31, 2009 and 2008, respectively.

According to Thomson Reuters, in the first quarter of 2009, the Firm was ranked #1 in Global Debt, Equity and Equity-Related; #1 in Global Equity and Equity-Related; #6 in Global Syndicated Loans; #2 in Global Long-Term Debt and #2 in Global Announced M&A based on volume.

Three months ended March 31, 2009

Full Year 2008

Market shares and rankings(a)

Market Share

Rankings

Market Share

Rankings

Global debt, equity and equity-related

11

%

#1

10

%

#1

Global syndicated loans

6

#6

11

#1

Global long-term debt(b)

9

#2

9

#3

Global equity and equity-related(c)

13

#1

10

#1

Global announced M&A(d)

43

#2

27

#2

U.S. debt, equity and equity-related

15

#1

15

#2

U.S. syndicated loans

17

#3

27

#1

U.S. long-term debt(b)

14

#1

15

#2

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

21

#1

11

#1

U.S. announced M&A(d)

66

#3

34

#2

(a)		Source: Thomson Reuters. Full-year 2008 results are pro forma for the Bear Stearns merger.
(b)		Includes asset-backed securities, mortgage-backed securities and municipal securities.
(c)		Includes rights offerings; U.S.-domiciled equity and equity-related transactions.
(d)		Global announced M&A is based on rank value; all other rankings are based on proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. Global and U.S. announced M&A market share and rankings for 2008 include transactions withdrawn since December 31, 2008. U.S. announced M&A represents any U.S. involvement ranking.

RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS, see pages 45-50 of JPMorgan Chase’s 2008 Annual Report and page 5 of this Form 10-Q.

Selected income statement data		Three months ended March 31,
(in millions, except ratios)		2009				2008				Change
Revenue
Lending & deposit-related fees		$	948			$	461				106	%
Asset management, administration and commissions			435				377				15
Mortgage fees and related income			1,633				525				211
Credit card income			367				174				111
Other income			214				152				41
Noninterest revenue			3,597				1,689				113
Net interest income			5,238				3,074				70
Total net revenue			8,835				4,763				85
Provision for credit losses			3,877				2,688				44
Noninterest expense
Compensation expense			1,631				1,160				41
Noncompensation expense			2,457				1,312				87
Amortization of intangibles			83				100				(17	)
Total noninterest expense			4,171				2,572				62
Income (loss) before income tax expense (loss)			787				(497	)		NM
Income tax expense (benefit)			313				(186	)		NM
Net income (loss)		$	474			$	(311	)		NM
Financial ratios
ROE			8	%			(7	)%
Overhead ratio			47				54
Overhead ratio excluding core deposit intangibles(a)			46				52

(a)

Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation results in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes Retail Banking’s core deposit intangible amortization expense, related to the 2006 Bank of New York transaction and the 2004 Bank One merger, of $83 million and $99 million for the quarters ended March 31, 2009 and 2008, respectively.

Quarterly results

Net income was $474 million, compared with a net loss of $311 million in the prior year, as the positive impact of the Washington Mutual transaction and positive MSR risk management results were partially offset by an increase in the provision for credit losses.

Net revenue was $8.8 billion, an increase of $4.1 billion, or 85%, from the prior year. Net interest income was $5.2 billion, up by $2.2 billion, or 70%, benefiting from the Washington Mutual transaction and wider deposit and loan spreads. Noninterest revenue was $3.6 billion, up by $1.9 billion, or 113%, driven by the impact of the Washington Mutual transaction, positive MSR risk management results, higher mortgage production revenue and higher deposit-related fees.

The provision for credit losses was $3.9 billion, an increase of $1.2 billion, or 44%, from the prior year. Delinquency rates increased due to overall weak economic conditions, while housing price declines continued to drive increased loss severities, particularly for high loan-to-value home equity and mortgage loans. The provision included $1.7 billion in additions to the allowance for loan losses, primarily for the home lending portfolio. Home equity net charge-offs were $1.1 billion (3.14% net charge-off rate; 3.93% excluding purchased credit-impaired loans), compared with $447 million (1.89% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $364 million (6.83% net charge-off rate; 9.91% excluding purchased credit-impaired loans), compared with $149 million (3.82% net charge-off rate) in the prior year. Prime mortgage net charge-offs were $312 million (1.46% net charge-off rate; 1.95% excluding purchased credit-impaired loans), compared with $50 million (0.56% net charge-off rate) in the prior year.

Noninterest expense was $4.2 billion, an increase of $1.6 billion, or 62%, from the prior year, reflecting the impact of the Washington Mutual transaction, higher servicing expense, higher mortgage reinsurance losses and higher FDIC insurance premiums.

Selected metrics		Three months ended March 31,
(in millions, except headcount and ratios)		2009				2008				Change
Selected balance sheet data (period-end)
Assets		$	412,505			$	262,118				57	%
Loans:
Loans retained			364,220				218,489				67
Loans held-for-sale and loans at fair value(a)			12,529				18,000				(30	)
Total loans			376,749				236,489				59
Deposits			380,140				230,854				65
Equity			25,000				17,000				47
Selected balance sheet data (average)
Assets		$	423,472			$	260,013				63
Loans:
Loans retained			366,925				214,586				71
Loans held-for-sale and loans at fair value(a)			16,526				17,841				(7	)
Total loans			383,451				232,427				65
Deposits			370,278				225,555				64
Equity			25,000				17,000				47
Headcount			100,677				70,095				44
Credit data and quality statistics
Net charge-offs		$	2,176			$	825				164
Nonperforming loans(b)(c)(d)(e)			7,978				3,742				113
Nonperforming assets(b)(c)(d)(e)			9,846				4,359				126
Allowance for loan losses			10,619				4,496				136
Net charge-off rate(f)			2.41	%			1.55	%
Net charge-off rate excluding purchased credit-impaired loans(f)(g)			3.16				1.55
Allowance for loan losses to ending loans(f)			2.92				2.06
Allowance for loan losses to ending loans excluding purchased credit-impaired loans(f)(g)			3.84				2.06
Allowance for loan losses to nonperforming loans(b)(f)			138				124
Nonperforming loans to total loans			2.12				1.58
Nonperforming loans to total loans — excluding purchased credit-impaired loans(b)			2.76				1.58