Feb 25, 2010 - Highest industry market share 9.5%. â«Hybrid business model â credit originator and market maker. â«P
INVESTMENT BANK Jes Staley, Investment Bank Chief Executive Officer
February 25, 2010
Agenda
Thoughts Thoughts on on the the IB IB
2010 2010 priorities priorities
Performance Performance metrics metrics
Leadership Leadership in in 2009 2009
Growth Growth initiatives initiatives
Derivatives Derivatives
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2010 2010 outlook outlook
1
Thoughts on the IB Strengths Strengths
Challenges Challenges
Client franchise
Fixed Income margin compression
5,000 issuers
Regulatory environment
16,000 investors
Maintaining price discipline
Reputation and client trust
Perception of our social contribution
Leader in capital markets
Economic environment
Highest industry market share 9.5% Hybrid business model – credit
originator and market maker Proven risk manager
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Talent
2
Thoughts on the IB
Sec’d Prods
Prime serv’s
FX/ Rates
ECM Emerging Markets
Credit DCM
M&A
Equities Commod’s
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_
JPM market position
+
2009 2009 Market Market environment environment and and 2010 2010 business business outlook outlook
_
2009 market environment
3
+
2010 Priorities Strategy Strategy
Investment Performance
Clients
Growth
Vigilant focus on
Emerging markets: Efficient capital
clients’ long-term interests
China/Brazil focus
allocation
Technology Strategic Re-
engineering Project
Commodities
Manage stress loss
Low-cost provider
Global Corporate
Management of Credit
International
Bank
Portfolio
location strategy
Redefine markets
Performance Performance
Reputation Reputation
ROE
Role financing governments, non-profits and
corporates
IB fee wallet share
Talent and diversity
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Markets revenue wallet share Control and discipline
4
Performance metrics
ROE ROE
17% +/-
10% of Global IB fees
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Wallet Wallet share share
Control Control and and discipline discipline
15% of Market revenue
15% reduction in error rate
5
Performance metrics IB IB Return Return on on Equity Equity Allocated capital ($B)
Global Global IB IB fees fees wallet wallet share share ROE (%) 10.0%
21%
9.2%
17%+/- Target
18%
8.7%
8.4%
8.5%
2006
2007
2008
2009
#2
#2
#2
#1
15% $40 $33 $21
$21
$26 Target
(5)% 2006
2007
2008
2009
Rank:
2010Est
Source: Dealogic, on a pro forma basis for all industry mergers
Control Control // Discipline Discipline Errors as % of trading volume
Markets Markets revenue revenue wallet wallet share share
15.0% 12.4%
INVESTMENT BANK
8.6%
Rank:
7.6%
7.2%
2006
2007
2008
2009
#8
#6
#5
#3
Target
Note: Represents JPM share of top 10 competitors
6
0.0005% 0.0004%
15% reduction
0.0003% 0.0002% 0.0001% 0.0000% 2007
2008
2009
Target
Leadership in 2009 Helped clients issue $620B of stocks and
League League table table results results
bonds, more than any other firm1 Provided urgent financing for municipalities Advised on 322 mergers and acquisitions
Global IB fees
Share
Rank
Share
#1
9.2%
#2
8.5%
Based on volumes (per Thomson Reuters)
complex transactions
Global Debt, Equity & Equity-related
#1
9.5%
#1
9.4%
11 of the year’s largest 25 deals1
Global Equity & Equity-related4
#1
12.6%
#1
10.3%
119 cross-border deals, more than any
Global Debt5
#1
9.2%
#1
9.3%
Global Long-term Debt5
#1
8.5%
#3
8.8%
Global M&A Announced6
#3
23.6%
#2
27.6%
Global Loan Syndications
#1
9.6%
#1
11.3%
firm1 Loaned $204B to 295 issuers globally1,2 Average loan size $691mm, more than
double the market
average1
Loans used to fund payrolls, restructure
balance sheets, finance growth and create jobs INVESTMENT BANK
Rank Based on fees (per Dealogic)
globally, more than any other firm1 Advised on many of the largest and most
20083
2009
1 Source:
Dealogic Lead left bookrunner basis 3 Source: 2008 data is pro forma for JPM merger with Bear Stearns 4 Global Equity & Equity-related includes rights offerings 5 Global Debt & Long-term Debt includes ABS, MBS and taxable municipal securities 6 Global M&A for 2008 adds back transactions withdrawn since 12/31/08 2
7
Leadership in 2009 Financing Financing for for state state and and local local governments governments State of California
State of Illinois
Committed $4B to pay off IOUs issued during the state’s cash-flow crisis
Underwrote $1.4B – the entire amount offered – of bonds
Helping Helping universities universities and and hospitals hospitals University of Virginia
Led $250mm Build America Bond issuance
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Helping Helping clients clients raise raise critical critical capital capital
Raised $12.2B in equity, convertibles, bonds and asset-backed securities for Ford Motor Company in 2009
Texas Children's Hospital
Raised $200mm to help fund the hospital’s Neurological Research Institute and a new pediatric hospital
Supporting Supporting low low carbon carbon economy economy
Raised $375mm for Chinese property developer Country Garden – the first Asia high yield bond in more than a year
Invested over $100mm of tax equity in Horizon Wind Energy’s wind power project J.P. Morgan’s total wind portfolio of 58 wind farms across 16 states
8
A leader in sourcing, developing and trading emission reduction credits
ClimateCare acquired in 2008
EcoSecurities acquired in 2009
Growth initiatives Emerging Markets
2009 2009 client client support support
Provided critical capital raising Cemex follow-on Sappi refinancing Petrobras bond VisaNet (now Cielo), the largest Brazilian
IPO ever
2010 2010 priorities priorities
Re-opened key emerging markets
Expand local client coverage; add onshore
bankers
Hong Kong IPO, Asia High Yield, LBO
Build cash equities and derivatives – Russia,
Led 8 of 10 largest Asia primary equity
Brazil, China, India, Taiwan, Korea
deals
Focus on local debt and Fixed Income flows
Raised $20B for corporate
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recapitalizations in Asia
Deliver the firm through cross-selling and
Global Corporate Banking
Sovereign debt issuance for Brazil, Mexico,
Qatar and South Africa
9
Growth initiatives Commodities – RBS Sempra acquisition
Transaction Transaction overview overview
Rationale Rationale
Acquiring global metals, global oil and
Highly complementary to our existing
European power and gas assets of RBS Sempra Commodities
Global Commodities business Allows us to deliver more
Closing in 2Q10, subject to
comprehensive solutions to our clients globally
regulatory approvals Expected to pay $1.7B subject to
Nearly doubles the number of
distributions prior to closing
corporate clients
Immediately profitable after closing
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Diversifies our Fixed Income earnings
10
Growth initiatives Commodities – RBS Sempra acquisition
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EMEA Power & Gas
Base Metals
Global Oil
Physical
Financial
Trading
Custody
Physical
Financial
J.P. Morgan
2
4
4
0
2
4
RBS Sempra
4
2
2
5
5
2
Pro forma
5
5
5
5
5
5
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Growth initiatives Technology – $1B investment
2009 progress progress 2009
2010 2010 priorities priorities
Completed Bear Stearns merger
Execute three-year Strategic
Reengineering Program focused on:
Migrated 600,000 OTC Derivatives
Next-generation front-end derivative
positions
and emerging market trading platforms
Mapped over 14,000 clients and
converted 465,000 total accounts
OTC clearing requirements
Launched state-of-the-art platforms for
Core processing infrastructure
FX Options, Brazil and Prime Services
Build-out electronic and algorithmic
Consolidated infrastructure in US
trading infrastructure for Equities
Cash Equities and Commodities
Implement Prime Services offering
Processed record volumes, up 82%
globally, including Synthetic Prime Brokerage
from pre-merger levels
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Implement global location strategy
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Our derivatives business remains client-focused Derivatives widely used by corporations, governments, agencies and supra-nationals to
manage risk and lower the cost of capital Derivative receivables, gross of collateral, declined by 45% to $146B at year-end 2009
Derivative Derivative receivables, receivables, gross gross (as (as of of 12/31/09) 12/31/09)
$88T at 12/31/08
$79T at 12/31/09
$1.6T
($1.4T)
Net derivative receivables are only 19 basis points of notional
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$146B Derivative Notional Outstanding
Gross Derivative Receivables
Less Bilateral Netting
13
Derivative Receivables, Gross of Collateral
Counterparty exposure is well managed Net exposure declined by 55% while revenue increased over 25% year-over-year Net derivative receivables represent less than 10% of IB assets at year-end 2009 IB Level 3 assets, including derivatives, declined over 15% during 2009 Derivative Derivative receivables, receivables, net net (as (as of of 12/31/09) 12/31/09) $266B at 12/31/08
$143B at 12/31/08
($66B)
($15B)
$146B
INVESTMENT BANK
$80B
Derivative Receivables, Gross of Collateral
1
Less Cash Collateral
Derivative Receivables, Net of Cash Collateral
$65B
Less Other Less Liquid Collateral
Derivative Receivables, Net of All Collateral
Other high quality includes low risk counterparties, including senior or preferred positions in special purpose entities
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Risk Group Other high quality 1 AAA to AAA+ to ABBB+ to BBBBB+ to BCCC+ & below Total
Percent 26% 36% 12% 9% 14% 3% 100%
Exposure by Product Interest Rate Credit derivatives Foreign exchange Equity Commodity Total
Percent 29% 28% 27% 8% 8% 100%
83%
17%
Leading reform of OTC derivative markets Reform Reform we we advocate advocate
Comprehensive, rigorous oversight of all dealers and large market participants Transaction reporting for all trades to regulators Mandatory clearing of most standardized, highly liquid derivative contracts between
dealers and major swap participants Regulation Regulation we we believe believe would would be be harmful harmful to to the the economy economy
Clearing for all OTC derivative: Disadvantages corporates by tying up liquidity Will divert funding away from job creation Exchange trading for all derivatives Even standardized liquid contracts not amenable to exchange trading Leading Leading the the market market evolution evolution INVESTMENT BANK
Actively participating in strengthening OTC market infrastructure Investing in technology to provide clients superior access to liquidity
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2010 Outlook Expect Fixed Income margin compression and reduced capital raising Target ROE of 17% +/ Focus on growth initiatives: Emerging Markets Commodities Technology
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Maintain leading share through vigilant client focus
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