J.P Morgan (JPM) 2008 Annual Shareholder Letter Notes
-”Financial results were weak in absolute terms (but fairly good in relative terms), reflection terrible market conditions, I believe – and I hope you agree – that this year may have been one of our finest”
-”As we prepare for a very tough 2009, with most signs pointing to continued deterioration of the economy”
-Earned $6 billion in 2008, down 64% from $15 billion in previous year. In a normal credit cycle environment, they should earn over $15 billion
-Two issues: 1) increasing credit costs in consumer and mortgage loans 2) investment bank write-downs of over $10 billion due to leveraged lending and mortgage exposures
-Rates and Currencies, Commodities, Emerging Markets and Credit Trading reported record results
-Credit losses from the mortgage broker-originated business are 2-3 times worse than that of their directly originated business
-They are the largest credit card issuer in the nation with 168 million cards in circulation and $190 billion of managed loans
-Expect losses on credit cards to increase from 5% to 9% tracking unemployment rate
-AUM $1.13 trillion vs. $1.19 trillion mainly due to increase in cash balances growing by $210 billion to $613 billion
-Private equity business reported $700 million loss in 2008 vs. $4 billion profit in 2007
-”Simply put, we still follow the financial commandment: Do not borrow short to invest long”
Bear Stearns
-Bear Stearns had $400 billion of assets that needed to cut to $200 billion quickly to consolidate into their financial and risk systems
-Government took the loss risk of $30 billion of the “less risky” mortgage assets
-Paid $1.5 billion for the equity, all of which was lost and several billion more ran through their income statement in the second half of 2008
Jamie also spends many pages on what he believes are the essential regulatory changes needed to prevent future crises. President Obama needs to read this. Overall I think Jamie nails it as an insider who knows what needs to be done in a measured way. It’s truly unfortunate that Obama didn’t choose him as Secretary of Treasury. Source