JPMorgan Chase Reports Second-Quarter 2008 Net Income of $2.0 Billion, or $0.54 Per Share; Net Income of $2.5 Billion Excluding Losses of $540 Million (After-Tax) for Bear Stearns Merger-Related Items

NEW YORK--(BUSINESS WIRE)--JPMorgan Chase & Co. (NYSE: JPM) today reported 2008 second-quarter net income of $2.0 billion, compared with net income of $4.2 billion in the second quarter of 2007. Earnings per share of $0.54 were down 55%, compared with earnings per share of $1.20 in the second quarter of 2007. Current-quarter results include the effect of merger-related items amounting to a net loss of $540 million (after-tax) related to the acquisition of The Bear Stearns Companies Inc., which closed on May 30, 2008. Excluding these items, net income would have been $2.5 billion.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: “Our earnings were down significantly due to the unfavorable credit environment and market conditions. The Investment Bank took additional markdowns on leveraged loans and mortgage-related positions. Retail Financial Services experienced further deterioration in its home lending portfolio, which resulted in higher charge-offs and an increase in the allowance for credit losses. However, the firm overall continued to maintain solid underlying business momentum. We had market share gains in Investment Banking fees and key product areas. Retail Financial Services posted organic revenue growth of 15%, and all of our major businesses produced growth in accounts, balances and volumes. Further positive results in the quarter included record performance from both Commercial Banking and Treasury & Securities Services.”

Mr. Dimon added, “We also completed the highly complex Bear Stearns acquisition as planned. Through the truly remarkable partnership and efforts of our people in extremely difficult times, we made great progress towards full integration, while also significantly reducing our combined risk positions. We now have an expanded platform to better serve our institutional clients – one which we fully expect will make our franchise stronger over time.”

Mr. Dimon further remarked, “I am pleased with the strength of our balance sheet and capital positions, particularly in the context of the market challenges we have faced during the past year. During the quarter, we added $1.3 billion to our allowance for credit losses (which now totals $13.9 billion) and maintained strong capital ratios.”

Discussing the firm’s outlook, Dimon said, “Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress. We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer. However, the firm has delivered underlying growth across most of our businesses, and with our substantial capital base we can continue to invest for the future. In spite of the environment, we are confident that we are building an increasingly strong and profitable company.”

In the discussion below of the business segments and JPMorgan Chase, information is presented on a managed basis. Managed basis starts with GAAP results and includes the following adjustments: for Card Services and the firm as a whole, the impact of credit card securitizations is excluded, and for each line of business and the firm as a whole, net revenue is shown on a tax-equivalent basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see Notes 1 and 2 (page 12).

INVESTMENT BANK (IB)
Results for IB								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$5,470		$3,011		$5,798		$2,459		82%		($328)		(6)%
Provision for Credit Losses		398		618		164		(220)		(36)		234		143
Noninterest Expense		4,734		2,553		3,854		2,181		85%		880		23
Net Income / (Loss)		$394		($87)		$1,179		$481		NM		($785)		(67)%

Discussion of Results:

Net income was $394 million, a decrease from net income of $1.2 billion in the prior year. The lower results reflected increased noninterest expense, a decline in net revenue and a higher provision for credit losses, partially offset by the benefit of reduced deferred tax liabilities.

Net revenue was $5.5 billion, a decrease of $328 million, or 6%, from the prior year. Investment banking fees were $1.7 billion (the second-highest quarter ever), down 9% from the prior year. Advisory fees of $370 million were down 34% from the prior year, reflecting reduced levels of activity. Debt underwriting fees of $823 million were down 1%, driven by a decline in loan syndication fees reflecting market conditions offset by higher bond underwriting fees. Equity underwriting fees were $542 million, up 6% from the prior year. Fixed Income Markets revenue was $2.3 billion, down $98 million, or 4%, from the prior year, driven largely by net markdowns of $696 million on leveraged lending funded and unfunded commitments, as well as mortgage-related net markdowns of $405 million. These marks were partially offset by strong performance in rates, currencies, emerging markets, and credit trading, as well as gains of $165 million from the widening of the firm’s credit spread on certain structured liabilities. Equity Markets revenue was $1.1 billion, down $170 million, or 14% from the prior year, driven by weak trading results offset partially by strong client revenue and a gain of $149 million from the widening of the firm’s credit spread on certain structured liabilities. Credit Portfolio revenue was $309 million, up $105 million, or 51% from the prior year, reflecting increased net interest income on higher loan balances.

The provision for credit losses was $398 million, compared with $164 million in the prior year. The current-quarter provision reflects a weakening credit environment. Net recoveries were $8 million, compared with net recoveries of $16 million in the prior year. The allowance for loan losses to total loans retained was 3.19% for the current quarter, an increase from 1.76% in the prior year.

Average loans retained were $76.2 billion, an increase of $17.2 billion, or 29%, from the prior year, largely driven by growth in acquisition finance activity, including leveraged lending, and a facility extended to Bear Stearns. Average fair value and held-for-sale loans were $20.4 billion, up $5.6 billion, or 38%, from the prior year.

Noninterest expense was $4.7 billion, an increase of $880 million, or 23%, from the prior year, largely driven by higher compensation expense and the Bear Stearns acquisition.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Ranked #1 in Global Debt, Equity and Equity-Related; #1 in Global Syndicated Loans; #1 in Global Equity and Equity Related; #1 in Global Long-Term Debt; and #3 in Global Announced M&A; based upon volume, according to Thomson Financial for year-to-date ending June 30, 2008.
• Ranked #1 in Global Investment Banking Fees for the first half of 2008, according to Dealogic.
• Return on Equity was 7% on $23.3 billion of average allocated capital; end of period allocated capital was $26.0 billion.

RETAIL FINANCIAL SERVICES (RFS)
Results for RFS								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$5,015		$4,702		$4,357		$313		7%		$658		15%
Provision for Credit Losses		1,332		2,492		587		(1,160)		(47)		745		127
Noninterest Expense		2,670		2,570		2,484		100		4%		186		7
Net Income / (Loss)		$606		($227)		$785		$833		NM		($179)		(23)%

Discussion of Results:

Net income was $606 million, a decrease of $179 million, or 23%, from the prior year, as a significant increase in the provision for credit losses in Regional Banking was offset largely by revenue growth in all businesses.

Net revenue was $5.0 billion, an increase of $658 million, or 15%, from the prior year. Net interest income was $3.0 billion, up $382 million, or 14%, due to higher loan balances, wider deposit spreads and higher deposit balances. Noninterest revenue was $2.0 billion, up $276 million, or 16%, driven by higher net mortgage servicing revenue, higher mortgage production revenue and increased deposit-related fees.

The provision for credit losses was $1.3 billion, 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. Home equity net charge-offs were $511 million (2.16% net charge-off rate), compared with $98 million (0.44% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $192 million (4.98% net charge-off rate), compared with $26 million (1.21% net charge-off rate) in the prior year. Prime mortgage net charge-offs (including net charge-offs reflected in the Corporate segment) were $104 million (0.91% net charge-off rate), compared with $4 million (0.05% net charge-off rate) in the prior year. The current-quarter provision includes an increase in the allowance for loan losses of $430 million due to increases in estimated losses in the subprime and prime mortgage portfolios. An additional provision for prime mortgage loans of $170 million has been reflected in the Corporate segment.

Noninterest expense was $2.7 billion, an increase of $186 million, or 7%, from the prior year, reflecting higher mortgage production and servicing expense, and investment in the retail distribution network.

Regional Banking net income was $354 million, down $275 million, or 44%, from the prior year. Net revenue was $3.6 billion, up $320 million, or 10%, benefiting from higher loan balances, wider deposit spreads, higher deposit-related fees and higher deposit balances. The provision for credit losses was $1.2 billion, compared with $494 million in the prior year. The provision reflected weakness in the home equity and mortgage portfolios (see Retail Financial Services discussion of the provision for credit losses for further detail). Noninterest expense was $1.8 billion, up $29 million, or 2%, from the prior year, due to investment in the retail distribution network.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Checking accounts totaled 11.3 million, up 980,000, or 9%.
• Average total deposits grew to $213.9 billion, up $6.6 billion, or 3%.
• Average home equity loans were $95.1 billion, up $5.9 billion, or 7%. Home equity originations were $5.3 billion, down $9.3 billion, or 64%.
• Average business banking loans were $16.1 billion and originations were $1.7 billion.
• Number of branches grew to 3,157, up 68.
• Branch sales of credit cards increased 4%.
• Branch sales of investment products increased 2%.
• Overhead ratio (excluding amortization of core deposit intangibles) decreased to 47% from 50%.

Mortgage Banking net income was $169 million, an increase of $98 million, or 138% from the prior year. Net revenue was $922 million, up $289 million, or 46%. Net revenue comprises production revenue and net mortgage servicing revenue. Production revenue was $597 million, up $134 million, predominantly benefiting from higher loan originations. Net mortgage servicing revenue, which includes loan servicing revenue, MSR risk management results and other changes in fair value, was $325 million, compared with $170 million in the prior year. Loan servicing revenue of $678 million increased by $63 million on growth of 15% in third-party loans serviced. MSR risk management results were positive $41 million compared with negative $62 million in the prior year. Other changes in fair value of the MSR asset were negative $394 million compared with negative $383 million in the prior year. Noninterest expense was $649 million, an increase of $133 million, or 26%. The increase reflected higher mortgage reinsurance losses, higher production expense due in part to growth in origination volume, and higher servicing costs due to increased delinquencies and defaults.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Mortgage loan originations were $56.1 billion, up 27% from the prior year and 19% from the prior quarter.
• Total third-party mortgage loans serviced were $659.1 billion, an increase of $86.7 billion, or 15%.

Auto Finance net income was $83 million, a decrease of $2 million, or 2%, from the prior year. Net revenue was $498 million, up $48 million, or 11%, driven by higher loan balances and increased automobile operating lease revenue. The provision for credit losses was $117 million, up $25 million, reflecting higher estimated losses. The net charge-off rate was 1.07%, compared with 0.61% in the prior year. Noninterest expense of $243 million increased by $24 million, or 11%, driven by increased depreciation expense on owned automobiles subject to operating leases.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Auto loan originations were $5.6 billion, up 6%.
• Average loans were $44.7 billion, up 11%.

CARD SERVICES (CS)(a)
Results for CS								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$3,775		$3,904		$3,717		($129)		(3)%		$58		2%
Provision for Credit Losses		2,194		1,670		1,331		524		31		863		65
Noninterest Expense		1,185		1,272		1,188		(87)		(7)		(3)		-
Net Income		$250		$609		$759		($359)		(59)%		($509)		(67)%
(a) Presented on a managed basis; see Note 1 (page 12) for further explanation of managed basis.

Discussion of Results:

Net income was $250 million, a decline of $509 million, or 67%, from the prior year. The decrease was driven by a higher provision for credit losses.

End-of-period managed loans of $155.4 billion grew by $7.4 billion, or 5%, from the prior year and $4.4 billion, or 3%, from the prior quarter. Average managed loans of $152.8 billion increased $5.4 billion, or 4%, from the prior year and were flat from the prior quarter, reflecting seasonal patterning. The increase from the prior year in both end-of-period and average managed loans reflects organic portfolio growth.

Managed net revenue was $3.8 billion, an increase of $58 million, or 2%, from the prior year. Net interest income was $3.0 billion, up $56 million, or 2%, from the prior year. The increase in net interest income was driven by higher average managed loan balances, an increased level of fees and wider loan spreads. These benefits were offset largely by the effect of higher revenue reversals associated with higher charge-offs. Noninterest revenue of $764 million was flat compared with the prior year. Increased interchange income (the result of charge volume growth of 6%), higher revenue from fee-based products, and higher securitization income were offset by increased rewards expense and higher volume-driven payments to partners (both of which are netted against interchange income).

The managed provision for credit losses was $2.2 billion, an increase of $863 million, or 65%, from the prior year, due to a higher level of charge-offs and an increase of $300 million in the allowance for loan losses. The managed net charge-off rate for the quarter was 4.98%, up from 3.62% in the prior year and 4.37% in the prior quarter. The 30-day managed delinquency rate was 3.46%, up from 3.00% in the prior year and down from 3.66% in the prior quarter, reflecting seasonal patterning.

Noninterest expense of $1.2 billion was flat compared with the prior year.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Return on equity was 7%, down from 22%.
• Pretax income to average managed loans (ROO) was 1.04%, compared with 3.26% in the prior year and 2.52% in the prior quarter.
• Net interest income as a percentage of average managed loans was 7.92%, down from 8.04% in the prior year and 8.34% in the prior quarter.
• Net accounts of 3.6 million were opened during the quarter.
• Charge volume was $93.6 billion, an increase of $5.6 billion, or 6%. The growth reflects an increase of 7% in sales volume and a 4% increase in balance transfers.
• Announced the termination of Chase Paymentech Solutions, a global payments and merchant acquiring joint venture between JPMorgan Chase and First Data Corporation. The dissolution is expected to be completed by year-end 2008 and JPMorgan Chase will retain approximately 51% of the business under the Chase Paymentech name.
• Merchant processing volume was $199.3 billion, an increase of $19.6 billion, or 11%, and total transactions were 5.6 billion, an increase of 812 million, or 17%.

COMMERCIAL BANKING (CB)
Results for CB								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$1,106		$1,067		$1,007		$39		4%		$99		10%
Provision for Credit Losses		47		101		45		(54)		(53)		2		4
Noninterest Expense		476		485		496		(9)		(2)		(20)		(4)
Net Income		$355		$292		$284		$63		22%		$71		25%

Discussion of Results:

Net income was a record $355 million, an increase of $71 million, or 25%, from the prior year driven by record net revenue and lower noninterest expense.

Net revenue was a record $1.1 billion, an increase of $99 million, or 10%, from the prior year. Net interest income was $723 million, up $28 million, or 4%. The increase was driven by double-digit growth in liability and loan balances, largely offset by spread compression in the liability and loan portfolios and a continued shift to narrower–spread liability products. Noninterest revenue was $383 million, an increase of $71 million, or 23%, from the prior year, largely reflecting higher deposit-related fees as well as increases in other fee income.

Middle Market Banking revenue was $708 million, an increase of $55 million, or 8%, from the prior year. Mid-Corporate Banking revenue was $235 million, an increase of $38 million, or 19%. Real Estate Banking revenue was $94 million, a decline of $15 million, or 14%.

The provision for credit losses was $47 million, an increase of $2 million, or 4%, from the prior year. The current-quarter provision largely reflects growth in loan balances. The allowance for loan losses to total loans retained was 2.61% for the current quarter, down from 2.63% in the prior year and 2.65% in the prior quarter. Nonperforming loans were $486 million, up $351 million from the prior year and up $40 million from the prior quarter, reflecting increases in nonperforming loans in each business segment and the effect of a weakening credit environment. Net charge-offs were $49 million (0.28% net charge-off rate), compared with recoveries of $8 million (0.05% net recovery rate) in the prior year and net charge-offs of $81 million (0.48% net charge-off rate) in the prior quarter.

Noninterest expense was $476 million, a decrease of $20 million, or 4%, from the prior year.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Overhead ratio was 43%, an improvement from 49%.
• Record gross investment banking revenue (which is shared with the Investment Bank) was $270 million, up by $34 million, or 14%.
• Average loan balances were $71.1 billion, up $11.2 billion, or 19%, from the prior year and up $3.0 billion, or 4%, from the prior quarter.
• Average liability balances were $99.4 billion, up $15.2 billion, or 18%, from the prior year and flat compared with the prior quarter.

TREASURY & SECURITIES SERVICES (TSS)
Results for TSS								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$2,019		$1,913		$1,741		$106		6%		$278		16%
Provision for Credit Losses		7		12		--		(5)		(42)		7		NM
Noninterest Expense		1,317		1,228		1,149		89		7		168		15
Net Income		$425		$403		$352		$22		5%		$73		21%

Discussion of Results:

Net income was a record $425 million, an increase of $73 million, or 21%, from the prior year, driven by record net revenue, partially offset by higher noninterest expense. Net income was up $22 million, or 5%, from the prior quarter and the current quarter included increased revenue from seasonal activity in securities lending and depositary receipts. These benefits were partially offset by a normalization of spreads in securities lending, as compared with the prior quarter.

Net revenue was a record $2.0 billion, an increase of $278 million, or 16%, from the prior year. Worldwide Securities Services net revenue of $1.2 billion was a record, up $146 million, or 14%, from the prior year. The growth was driven by increased product usage by new and existing clients (largely in custody, funds services and depositary receipts), wider spreads in securities lending and higher levels of market volatility in foreign exchange driven by recent market conditions. These benefits were offset partially by spread compression on liability products. Treasury Services net revenue was a record $852 million, an increase of $132 million, or 18%, from the prior year. This increase reflected higher liability balances and wider market-driven spreads as well as growth in electronic and trade loan volumes. TSS firmwide net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew to $2.7 billion, up $346 million, or 15%. Treasury Services firmwide net revenue grew to $1.6 billion, up $200 million, or 15%.

Noninterest expense was $1.3 billion, an increase of $168 million, or 15%, from the prior year, reflecting higher expense related to business and volume growth as well as continued investment in new product platforms.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• TSS pretax margin⁽²⁾ was 33%, down from 34% in the prior quarter and up from 32% in the prior year.
• Average liability balances were $268.3 billion, up 23%.
• Assets under custody grew to $15.5 trillion, up 2%.
• Key new client relationships added in the second quarter:
  • Chosen by Shell Asset Management to provide a combination of global custody, fund accounting and securities lending services to support $70 billion in pooled investments;
  • Launched programs delivering unemployment benefits through JPMorgan debit cards for the states of Colorado and Michigan; and
  • Served as lead arranger for Axiom Telecom on a $400 million trade finance facility.

ASSET MANAGEMENT (AM)
Results for AM								1Q08				2Q07
($ millions)		2Q08		1Q08		2Q07		$O/(U)		O/(U)%		$O/(U)		O/(U)%
Net Revenue		$2,064		$1,901		$2,137		$163		9%		($73)		(3)%
Provision for Credit Losses		17		16		(11)		1		6		28		NM
Noninterest Expense		1,400		1,323		1,355		77		6		45		3
Net Income		$395		$356		$493		$39		11%		($98)		(20)%

Discussion of Results:

Net income was $395 million, a decline of $98 million, or 20%, from the prior year driven largely by lower performance fees and higher expense offset partially by increased net revenue from growth in deposit and loan balances.

Net revenue was $2.1 billion, a decrease of $73 million, or 3%, from the prior year. Noninterest revenue was $1.7 billion, a decline of $141 million, or 8%, due to lower performance fees and the effect of lower markets offset partially by increased revenue from net asset inflows, higher placement fees and the acquisition of Bear Stearns. Net interest income was $361 million, up $68 million, or 23%, from the prior year, predominantly due to higher deposit and loan balances.

Private Bank revenue grew 18% to $765 million due to increased deposit and loan balances, higher placement fees and higher assets under management, partially offset by lower performance fees. Retail revenue declined 19% to $490 million due to net equity outflows. Institutional revenue declined 24% to $472 million due to lower performance fees, partially offset by growth in assets under management. Private Client Services revenue grew 10% to $299 million due to higher deposit and loan balances and growth in assets under management. Bear Stearns Brokerage added $38 million to revenue.

Assets under supervision were $1.6 trillion, an increase of $139 billion, or 9%, from the prior year. Assets under management were $1.2 trillion, up $76 billion, or 7%, from the prior year. The increase was due largely to liquidity product inflows across all segments and the Bear Stearns acquisition offset partially by lower equity markets and equity product outflows. Custody, brokerage, administration and deposit balances were $426 billion, up $63 billion, driven by the acquisition of Bear Stearns Brokerage.

The provision for credit losses was $17 million, compared with a benefit of $11 million in the prior year, reflecting an increase in loan balances and a lower level of recoveries.

Noninterest expense was $1.4 billion, up $45 million, or 3%, from the prior year, largely driven by the Bear Stearns acquisition and increased headcount offset partially by lower performance-based compensation.

Key Metrics and Business Updates:

^{(All comparisons to the prior-year quarter except as noted)}

• Pretax margin⁽²⁾ was 31%, down from 37%.
• Assets under management were $1.2 trillion, up $76 billion, or 7%, including growth of $11 billion, or 9%, in alternative assets and $15 billion from the Bear Stearns acquisition.
• Assets under management net outflows were $3 billion for the second quarter of 2008. Net inflows were $110 billion for the past 12-month period.
• Assets under management that ranked in the top two quartiles for investment performance were 76% over five years, 70% over three years and 51% over one year.
• Customer assets in 4 and 5 Star rated funds were 40%.
• Average loans of $39.3 billion were up $10.6 billion, or 37%.
• Average deposits of $70.0 billion were up $14.0 billion, or 25%.

CORPORATE / PRIVATE EQUITY

1Q08

2Q07

Results for Corporate / Private Equity ($ millions)

2Q08