INITIATION | COMMENT 125 WEEKS 22FEB08 - 09JUL10 Rel. S&P 500 HI-10OCT08 142.63 JULY 12, 2010 135.00 HI/LO DIFF -49.66% 120.00 105.00 CLOSE 111.01 JPMorgan Chase & Co. (NYSE: JPM) 90.00 75.00 LO-06MAR09 71.80 2008 2009 2010 FM A M J J A S O N D J F M A M J J A S O N D J F M A M J J Regulatory Smoke Clouding Underlying Value HI-03OCT08 50.63 48.00 HI/LO DIFF -70.45% 42.00 36.00

30.00 CLOSE 38.85 Outperform 24.00 Average Risk 18.00 Price Target: 45.00 LO-06MAR09 14.96 Price: 39.18 600000 Implied All-In Return: 15% Market Cap (MM): 155,897 400000 PEAK VOL.709186.9 Shares O/S (MM): 3,979.0 200000 VOLUME 152297.9 Dividend: 0.05 Yield: 0.1% BVPS: 39.38 P/BVPS: 1.0x Tangible BVPS: 26.40 Avg. Daily Volume (MM): 42.00 RBC Capital Markets Corp. ROE: 7.6% Float (MM): 133,194.0 Gerard Cassidy (Analyst) Institutional Ownership: 76% (207) 780-1554; [email protected] Priced as of market close, ET July 12, 2010.

Jake Civiello (Associate) (207) 780-1554; [email protected] Initiating Coverage at Outperform with a $45 Price Target Investment Opinion FY Dec 2008A 2009A 2010E 2011E EPS (Op) - FD 0.83 2.52 3.12 4.58 • Initiating at Outperform: We are initiating coverage of JPMorgan Chase & P/E 47.2x 15.5x 12.6x 8.6x Co. with an Outperform rating, Average Risk and a price target of $45 per EPS (Op) - FD Q1 Q2 Q3 Q4 share, which is 1.12x estimated 2Q10 book value. Our initial 2010 and 2011 2008 0.67A 0.53A (0.08)A (0.29)A EPS estimates are $3.12 and $4.58, respectively (see p. 7). 2009 0.40A 0.57A 0.80A 0.74A • Dodd-Frank Act to Have Forceful EPS Impact: We believe EPS will be 2010 0.74A 0.71E 0.81E 0.85E reduced by 5% (effect included in our estimates) due to the The Dodd-Frank All values in USD unless otherwise noted. Act. The effect, however, could change based on further interpretation and implementation of Act (see p. 10). • Another Deal on the Horizon?: JPM has an estimated 9.0% U.S. deposit market share (below 10% limit), which means SunTrust Banks Inc. (NYSE: STI; $25.46; Not Rated) is an ideal target for JPM, in our opinion (see p. 21). • Credit Deterioration Appears to Have Peaked: Nonperforming Assets (NPAs) for the company as a whole appear to have peaked in the 4Q09, although the level of NPAs still remains high. We believe the improvement in credit will drive earnings going forward (see p. 33). • Dividend Increase on the Horizon: We expect JPM will start increasing its dividends in 2011 and eventually lift it to $1.80 per share (see p. 20). • Diversified Business Model: The company's revenue stream is divided into primarily six business lines. This diversified revenue stream has kept the company profitable in most quarters during the recent financial crisis and, in a normalized environment, would offer significant earnings power (see p. 26 & 42). • Expected to be Over Capitalized: We believe that the company's capital ratios will exceed the new Tier 1 Common and Tier 1 Equity ratios and the new Basel III requirements which are not expected to be effective for 3-5 years (see p. 20 and 40). • Stock is Undervalued: Since its recent high in April, the stock has underperformed the major bank indices, due to an overreaction to the uncertainty that surrounds the company, in our view. We believe normalized earnings (in 2012) could reach between $5.18 and $5.68 per share. Our $45 per share price target still offers meaningful upside based on current market valuations (see p. 3).

Priced as of prior trading day's market close, EST (unless otherwise noted). For Required Conflicts Disclosures, see Page 65. 77 July 12, 2010 JPMorgan Chase & Co.

Table of Contents Valuations and Estimates ...... 3 Risks to Our Estimates ...... 9 Potential Effect from Dodd-Frank Act ...... 10 Repurchase Loan Risk from Reps & Warrants ...... 19 The Obama Financial Crisis Responsibility Fee ...... 20 Dividends ...... 20 Acquisitions ...... 21 Company Description ...... 22 History ...... 24 Navigating the Financial Crisis ...... 26 Consolidated Revenue Overview ...... 27 Consolidated Expense Overview ...... 29 Credit Exposure ...... 30 Asset Quality...... 33 Off-Balance Sheet Exposure ...... 37 Funding Overview ...... 39 Deposit Composition ...... 39 Regulatory Capital ...... 40 Lines of Business Overview ...... 42 Investment Bank Review ...... 46 Retail Financial Services Review ...... 48 Card Services Review ...... 54 Commercial Banking Review ...... 55 Treasury & Securities Services Review ...... 57 Asset Management Review ...... 58 Corporate/Private Equity Review ...... 59 Management Team ...... 60 Peer Group ...... 62

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78 July 12, 2010 JPMorgan Chase & Co.

Valuations and Estimates In valuing the company, we first estimated JPM’s normalized earnings by analyzing the returns on each line of business, both on a historical basis and on management stated targets. We then valued the company under two methods: 1) Standard application of a price-to-earnings multiple to the estimated normalized earnings and 2) Dividend yield method driven off of the estimated normalized earnings. Exhibit 1 gives the derivation to our estimated normalized earnings. To begin, JPM’s management team organizes the firm by major lines of business: 1) Investment Bank, 2) Retail Financial Services, 3) Card Services, 4) Commercial Banking, 5) Treasury & Securities Services, 6) Asset Management and 7) Corporate/Private Equity. Each line of business (LOB) is allocated a portion of the firm’s equity, thereby setting a reference point to assess the performance of each LOB (return on average equity). For each line of business, we calculated the median quarterly ROAE going back to the first quarter of 2005. In addition, management also stated its targeted ROAE in a normalized environment. We anticipate that higher capital standards will be required at some point in the future, although we anticipate that the higher capital standards will most likely affect the returns to equity at the firm level (excess firm-level capital) not the individual LOBs. We first estimated equity balances in 2012 using an 8% annual growth rate off of 2010 equity. We then applied our median historical ROAE and management’s targeted ROAE to the estimated 2012 allocated equity for each LOB, and thereby imputed two sets of normalized earnings, our median historical and management’s targeted. We then summed up each LOB earnings to derive the firm- wide earnings and then deducted preferred shareholders to reach earnings to common shareholders, which came out to $6.43 per share based on our median historical LOB ROAE and $6.95 per share based on management’s targeted ROAE. We then adjusted our normalized earnings for the anticipated effect from the recent legislations as well as other known effects to earnings (Exhibit 2) resulting in estimated normalized earnings of $5.18 and $5.68 per share.

Exhibit 1: Estimated Normalized Earnings Median 2010 2012 2012 Normlz Earns ($M) 3 Historical Targetted Allocated LOB Est. Alloc'd Eq Historical Targetted 1 2 Line of Business ROAE ROAE Equity ($M) Equity/Assets 8.0% CAGR ROAE ROAE Investment Bank 18% 17% 40,000 5.92% 46,656 8,319 7,932 Retail Financial Services 18% 30% 28,000 7.11% 32,659 5,879 9,798 4 Card Services 17% 20% 15,000 9.56% 17,496 3,023 3,499 Commercial Banking 18% 20% 8,000 6.01% 9,331 1,680 1,866 Treasury & Securities Services 46% 35% 6,500 16.98% 7,582 3,488 2,654 Asset Management 39% 35% 6,500 10.40% 7,582 2,957 2,654 Corporate/Private Equity 2% 0% 49,000 NA 57,154 1,001 - Total LOB 153,000 178,459 26,345 28,402 Excess Capital 4,200 4,899 NA NA Total Company 157,200 8.06% 183,358 26,345 28,402 Less Preferred Equity 8,152 8,152 648 648 Total Common Shareholders 149,048 175,206 25,697 27,754

Implied ROACE 153,248 180,105 14.7% 15.8% Implied ROAA (Avg Assets of $2.3 trillion at 4Q12) 1.13% 1.22%

Imputed Earnings 25,697 27,754 Average Diluted Common Shares 3,994.7 3,994.7 2012 Imputed Earnings per Share ($) 6.43 6.95

1) Median historical ROAE based on quarterly ROAE for each LOB from 1Q05 to 1Q10 2) Per management guidance 1Q10. 3) Based on average equity and average assets. 4) Based on average equity and average managed assets. Source: Company financials, RBC Capital Market estimates

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Exhibit 2: Normalized Earnings per Share Net of Legislative & Other Effects Historical Targetted Initial Normalized 2012 Earnings 6.43 6.95 % Redux Legislative & Other Impact in Rev Derivatives Legislation 4.0% + Interchange Fees 3.0% = Gross Reduction in Revenue from Deriv & Interch 7.0% x Tax Effect (35% tax) 65% = Net Inc Redux from Derivatives & Interchange 4.6% 4.6% + Net Inc Redux from Change in FDIC Assessment Base ($194M net tax) 0.8% 0.7% + Net Inc Redux from Home Lending Runoff ($975M net tax) 3.8% 3.5% + Net Inc Redux from Loan Repurchase ($1.3B net tax) 5.1% 4.7% + Net Inc Redux from Reg E for Debit Cards ($500M net tax) 1.9% 1.8% + Net Inc Redux from Credit Card Legislation & Runoff ($850M net tax) 3.3% 3.1% = After-Tax Earnings Reduction 19.4% 18.3% Normalized 2012 Earnings Net of Legislative & Other Impact 5.18 5.68

Source: RBC Capital Market estimates

Below are details on net income reductions to normalized earnings in Exhibit 2: 1. Derivatives Legislation : Our 4% reduction in revenue (gross of tax) is the midpoint to our estimated range calculated in the Derivatives Activity subsection of the Potential Impact from Dodd-Frank Act section in the following pages. This subsection provides our calculations and assumptions. 2. Interchange Fees: Our 3% reduction in revenue (gross of tax) is the midpoint to our estimated range calculated in the Interchange Fees subsection of the Potential Impact from Dodd-Frank Act section in the following pages. This subsection provides our calculations and assumptions. 3. Change in FDIC Assessment Base : Our $194 million reduction to net income is 25% of the estimated increase in the FDIC assessment of $776 million. According to the Dodd-Frank Act the new FDIC assessment methodology will use average assets less average tangible equity of the depository rather than average deposits in determining the assessment. We assume that the company will recoup 75% of the assessment increase through higher service charges, and the elimination of free services and products. 4. Home Lending Runoff : Our $975 million reduction to net income is based on guidance provided within JPM’s 2009 Annual Report. The company estimated that the $263 billion Home Lending portfolio in the fourth quarter of 2009 could decline by 10% to 15%, reach an average balance of $240 billion for full-year 2010 and possibly decline to an average balance of $200 billion in 2011. The company estimates the effect to net interest income to be approximately $1 billion in 2010. Therefore, we estimated a $1.5 billion hit to net interest income in 2011 and beyond. It is possible that net interest income could drop by more than $2 billion, in our view. 5. Loan Repurchase : While this reduction in earnings has a limited life (we believe the highest risk period is the first 36 months from time of origination), it is still having a real impact, in our opinion. Our $1.3 billion net of tax hit to earnings is based on the high end ($2 billion gross of tax) of our estimated range described in the section Repurchase Loan Risk from Reps & Warrants . 6. Reg E for Debit Cards : Our $500 million net of tax effect to earnings is based on guidance provided in the company’s 2009 Annual Report. 7. Credit Card Legislation and Portfolio Runoff : Our $850 million net of tax effect to earnings is based on the high end of JPM’s guidance of $750 million reduction in net income provided in its 2009 Annual Report, plus our belief that the runoff may be greater than expected as consumers de-lever their balance sheets, which in turn reduces credit card demand. With estimated normalized earnings net of legislative and other effects, we then looked at two valuation methods. The first method we used was the standard application of a price-to-earnings multiple. The second valuation method we used was based off of a dividend yield valuation. Price-to-Earnings Multiple Method: We believe that an 8.0x P/E multiple is warranted based on JPM’s historical data and the assumption that a PEG (Price-to-earnings-to-growth) ratio of 1 signifies fair value. Therefore, 8.0x P/E would denote an 8.0% growth rate. Exhibit 3 shows JPM’s historical core EPS from 2003 – 2007 (normalized years) and calculates the compounded annual growth rate (CAGR) for each year using our two normalized EPS values for the final year, which we believe would be 2012 when normalized

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80 July 12, 2010 JPMorgan Chase & Co. earnings are assumed to return. We then calculated the average CAGRs for the 2003 – 2007 period. We can see that the CAGRs ranged between 8.1% and 9.5% with an average of 8.8%. Therefore, we feel that an 8.0x P/E multiple is conservative and warranted for the company at this time due to the uncertain outlook for some of the company’s lines of businesses (e.g., credit cards, derivatives, proprietary trading, etc.). We then applied the multiple to our normalized earnings, which gave us a valuation of $42 and $46 per share. Exhibit 4, left table, gives the valuation data table for the two imputed earnings at various pricing multiples. The right table gives the implied price to first-quarter 2010 book value multiples based on the left table.

Exhibit 3: Historical CAGRs Using Normalized EPS in 2012 Average CAGR Core EPS & CAGR to 2012 '03 - '07 2003Y 2004Y 2005Y 2006Y 2007Y 2012Y

Core EPS with 2012 Normalized EPS of $5.18 2.81 2.24 3.04 3.58 3.65 5.18 CAGR for Selected Year to 2012 7.9% 7.0% 11.1% 7.9% 6.4% 7.3% Core ROAE (%) 13.17 9.32 10.25 11.54 10.94

Core EPS with 2012 Normalized EPS of $5.68 2.81 2.24 3.04 3.58 3.65 5.68 CAGR for Selected Year to 2012 9.4% 8.1% 12.3% 9.3% 8.0% 9.2% Core ROAE (%) 13.17 9.32 10.25 11.54 10.94

2003 - 2007 CAGR Average 8.7% Source: SNL Financial, LC, RBC Capital Market estimates

Exhibit 4: Valuation Range Based on Various P/E Multiples of Estimated Normalized Earnings Imputed Price per Share Based on P/E Implied Price/Book Imputed EPS ($) Imputed EPS ($) 5.18 5.68 5.18 5.68 6.0x 31.10 34.05 6.0x 0.79x 0.86x 6.5x 33.70 36.89 6.5x 0.86x 0.94x 7.0x 36.29 39.73 7.0x 0.92x 1.01x 7.5x 38.88 42.57 7.5x 0.99x 1.08x 8.0x 41.47 45.40 8.0x 1.05x 1.15x 8.5x 44.06 48.24 8.5x 1.12x 1.23x P/E Multiple P/E 9.0x 46.66 51.08 Multiple P/E 9.0x 1.18x 1.30x 9.5x 49.25 53.92 9.5x 1.25x 1.37x 10.0x 51.84 56.76 10.0x 1.32x 1.44x Source: RBC Capital Market estimates

Dividend Yield Valuation Method: In this method, we first calculated a normalized dividend by applying a normalized payout ratio of 33% to our normalized earnings (historically, the company’s payout ratio has averaged approximately 38% of earnings). We then imputed the value using our normalized dividend calculation and JPM’s historical yield, and discounted the imputed 2012 valuation as well as our estimated dividends from present through 2012 at a 10% discount rate, which we believe is appropriate. Exhibit 5 provides our calculations with the top table using our $5.18 normalized 2012 EPS estimate and the bottom table using our $5.68 normalized 2012 EPS estimate. In both scenarios, we assume a quarterly dividend stream of $0.05 per share until the first quarter of 2011, followed by $0.20 per share until the fourth quarter of 2011. For 2012, the dividend stream is dependent on our two sets of normalized 2012 earnings and our assumed 33% payout ratio. The valuation ranges between $43.49 and $47.55 under this method. Exhibit 6 gives three data tables showing the valuations at various normalized earnings, payout, yield and discount rate scenarios.

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Exhibit 5: Valuation Based on Historical Dividend Yield, 33% Payout of Normalized Earnings and 10% Discount Rate Valuation Based on Estimate Normalized 2012 EPS of $5.18 Assumptions Discount Rate 10% Historical Dividend Yield 3.26% Payout Ratio 33%

Imputed 2012 Price Based on Historical Dividend Yield

FY12 1Q12 2Q12 3Q12 4Q12 2012 Dividend 1.71 0.43 0.43 0.43 0.43 / Historical Yield 3.26% = Imputed 2012 Price 52.56

Valuation Based on Future Cash Flows 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Est Quarterly Dividend per Share 0.05 0.05 0.05 0.20 0.20 0.20 0.43 0.43 0.43 0.43 + Imputed 2012 Price ------52.56 = Total Cash Flow 0.05 0.05 0.05 0.20 0.20 0.20 0.43 0.43 0.43 52.98 x Present Value Factor 0.98 0.95 0.93 0.91 0.89 0.87 0.85 0.83 0.81 0.79 = Present Value of Future Cash Flows 0.05 0.05 0.05 0.18 0.18 0.17 0.36 0.35 0.35 41.75

Sum of Present Value of Future Cash Flows for 2012 Est Normalized EPS of $5.18 43.49

Valuation Based on Estimate Normalized 2012 EPS of $5.68 Assumptions Discount Rate 10% Historical Dividend Yield 3.26% Payout Ratio 33%

Imputed 2012 Price Based on Historical Dividend Yield

FY12 1Q12 2Q12 3Q12 4Q12 2012 Dividend 1.87 0.47 0.47 0.47 0.47 / Historical Yield 3.26% = Imputed 2012 Price 57.54

Valuation Based on Future Cash Flows 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Est Quarterly Dividend per Share 0.05 0.05 0.05 0.20 0.20 0.20 0.47 0.47 0.47 0.47 + Imputed 2012 Price ------57.54 = Total Cash Flow 0.05 0.05 0.05 0.20 0.20 0.20 0.47 0.47 0.47 58.01 x Present Value Factor 0.98 0.95 0.93 0.91 0.89 0.87 0.85 0.83 0.81 0.79 = Present Value of Future Cash Flows 0.05 0.05 0.05 0.18 0.18 0.17 0.40 0.39 0.38 45.71

Sum of Present Value of Future Cash Flows for 2012 Est Normalized EPS of $5.68 47.55 Source: RBC Capital Market estimates

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Exhibit 6: Valuation at Various Yield, Payout, Earnings and Discount Rate Scenarios Imputed Price at Various Payout Ratios and Imputed Price at Various Yields and Earnings 2 Imputed Price at Various Discount Rates and Earnings 1 Earnings 3

Payout Ratio Dividend Yield Discount Rate 43.49 27% 30% 33% 36% 39% 43.49 2.76% 3.01% 3.26% 3.51% 3.76% 43.49 8.00% 9.00% 10.00% 11.00% 12.00% 4.82 33.21 36.83 40.44 44.06 47.67 4.82 47.43 43.64 40.44 37.70 35.32 4.82 42.31 41.36 40.44 39.55 38.69 4.94 34.04 37.75 41.46 45.17 48.87 4.94 48.62 44.74 41.46 38.64 36.21 4.94 43.38 42.40 41.46 40.54 39.66 5.06 34.87 38.67 42.47 46.27 50.07 5.06 49.81 45.84 42.47 39.59 37.09 5.06 44.44 43.44 42.47 41.54 40.63 5.18 35.70 39.60 43.49 47.38 51.27 5.18 51.00 46.93 43.49 40.53 37.97 5.18 45.50 44.48 43.49 42.53 41.60 5.31 36.53 40.52 44.50 48.49 52.47 5.31 52.20 48.03 44.50 41.48 38.86 5.31 46.56 45.52 44.50 43.52 42.57 5.43 37.36 41.44 45.52 49.59 53.67 5.43 53.39 49.13 45.52 42.42 39.74 5.43 47.63 46.55 45.52 44.51 43.54 5.55 38.19 42.36 46.53 50.70 54.87 5.55 54.58 50.22 46.53 43.37 40.63 5.55 48.69 47.59 46.53 45.50 44.51 5.68 39.02 43.29 47.55 51.81 56.07 5.68 55.78 51.32 47.55 44.31 41.51 5.68 49.75 48.63 47.55 46.50 45.48 NormalizedEarnings Normalized Earnings 5.80 39.85 44.21 48.56 52.91 57.27 Normalized Earnings 5.80 56.97 52.42 48.56 45.26 42.39 5.80 50.81 49.67 48.56 47.49 46.45 5.92 40.69 45.13 49.58 54.02 58.47 5.92 58.16 53.51 49.58 46.20 43.28 5.92 51.87 50.71 49.58 48.48 47.42 6.04 41.52 46.05 50.59 55.13 59.67 6.04 59.35 54.61 50.59 47.15 44.16 6.04 52.94 51.74 50.59 49.47 48.39 1) Assumes dividend yield of 3.26%, discount rate of 10% for 10 quarters. 2) Assumes payout ratio of 33%, discount rate of 10% for 10 quarters. 3) Assumes dividend yield of 3.26%, payout ratio of 33% and 10 quarters discounted. Source: RBC Capital Market estimates

Finally, to arrive at our price target of $45, we averaged the valuations under the two methods using both our historical median normalized earnings and management’s targeted normalized earnings. Exhibit 7 provides a valuation summary with the valuation of $44.48 (which we rounded up to $45 for our target price). Given the company’s current price of $38.85 per share and our price target of $45 per share, we feel that there is still meaningful upside for investors who are willing to look beyond the near-term noise. Our price target of $45 per share is 1.13x first-quarter 2010 book value and 1.68x first-quarter 2010 tangible book value.

Exhibit 7: Valuation Summary Price/ Price/ Valuation Book Tng Book P/E Method @ 8x $5.18 41.47 1.05x 1.57x $5.68 45.40 1.15x 1.72x

Yield Method @ 33% Payout $5.18 43.49 1.10x 1.65x $5.68 47.55 1.21x 1.80x

Average: 44.48 1.13x 1.68x Source: RBC Capital Market estimates

Our initial 2010 and 2011 EPS estimates are $3.12 and $4.58, respectively. Our estimates will be prone to adjustments throughout the year due to the volatility of the company’s investment banking business. Driving our estimates are the following assumptions: • Provision for credit losses will be significantly lower in 2010 and 2011 from 2009 levels and is the predominant driver of year- over-year earnings growth. RFS and CS will recover, for the most part, in 2011. • Derivatives and Interchange legislation will affect 2011 estimates because we anticipate the bill will be implemented by the third quarter of 2011 and that the company would make necessary adjustments to its business prior to the effective date of implementation to facilitate a smooth transition. • Increase in FDIC assessment with offsetting initiatives (ending free checking, etc.) resulting in $0.05 EPS loss to occur in 2011. • Home Lending portfolio runoff will cost $1 billion in 2010 and $1.5 billion in 2011 gross of tax. • Loan repurchase expense will reach $1.75 billion in 2010 and $2.0 billion in 2011 gross of tax.

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• Reg E will reduce net income by $500 million per year. • The Credit Card Act and portfolio runoff will lower net income by $850 million per year. • The economy will improve steadily although employment will remain sluggish during 2010. • Net interest margin (NIM) to remain flat or a slight decrease due to higher yielding portfolio runoff. • Investment banking will continue to have good years, although not at the same level as 2009 and growth will be less robust. • Basel III will not be implemented for some time, and following its implementation, we do not believe that it will have a material effect on the company (we assume some of the most onerous requirements will not be in the final draft.) The estimates show dramatic improvement from 2009 EPS of $2.52. The large gains are primarily driven by our underlying thesis that earnings normalization will be primarily driven by credit improvement occurring in 2010 to 2011. 2009 will be remembered as the return of the capital markets, while 2010 and 2011 will be remembered for the rebound in credit, in our view. Exhibit 8 breaks out our EPS by the different LOBs. The exhibit shows that RFS and CS (orange boxes) turn positive in 2010 and expand further to contribute $0.96 and $0.88, respectively, to EPS in 2011. The large expansion is driven by continual credit improvement resulting in lower provisioning in both RFS and CS. Exhibit 9 displays our estimated provisioning by LOB, virtually all of which reside within RFS and CS. We anticipate net charge-offs to have peaked in the first quarter of 2010 at 4.36% of average loans and decline through the year to approximately 3.80% for 2010 and 2.80% for 2011. What is especially critical in this credit turnaround is ongoing improvement in employment, specifically, in net job creation in the private sector. Also, investors need to factor in ‘Net Charge- Off Burnout (NCOB)’ in estimating future credit costs. NCOB develops as poorly underwritten loans eventually pay-off or are written-off over the duration of the portfolio. As these loans are eliminated from the portfolio, they are normally replaced with more conservatively underwritten loans. As a result, net-charge-offs from poorly underwritten loans in time ‘burnout’. For JPM and the banking industry , we believe 2004-2007 was the time period when nearly all the poorly underwritten loans were originated suggesting a good portion of these loans have been addressed; either written-off, paid-off, sold-off, or paying according to the terms of the loan (we are assuming 100% of the loans originated from these years will not be written-off.) These loans have been replaced with more conservatively underwritten loans (2008-present), which are not expected to have credit losses at the levels recorded for the loans originated from 2004-2007, in our opinion. Investors also need to keep in mind that NCO ratios may mask better underlying credit improvement due to a shrinking loan portfolio. Therefore, actual credit costs could fall faster than the NCO ratios.

Exhibit 8: Annual EPS by Line of Business

Annual EPS by Line of Business

5.40

4.80

4.20

3.60

3.00

2.40

EPS ($) EPS 1.80

1.20

0.60

0.00

(0.60)

(1.20) FY07A FY08A FY09A FY10E FY11E

Pref Div / M in Int / Other - (0.26) (0.48) (0.35) (0.35) Corporate/Private Equity 0.54 (0.39) 0.75 0.42 0.45 Asset M anagement 0.56 0.39 0.37 0.50 0.61 Treasury & Securities Services 0.40 0.50 0.32 0.28 0.29 Commercial Banking 0.32 0.41 0.33 0.48 0.54 Card Services 0.83 0.24 (0.57) 0.12 0.85 Retail Financial Services 0.83 0.24 0.03 0.39 1.06 Investment Bank 0.89 (0.29) 1.78 1.28 1.13 Firmwide EPS to Common 4.37 0.83 2.52 3.12 4.58

Source: RBC Capital Market estimates

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Exhibit 9: Provision for Credit Losses by Line of Business

Annual Provision for Credit Losses by Line of Business

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000 Provision for Credit Losses ($M) Losses Credit for Provision 0

(5,000)

(10,000) FY07A FY08A FY09A FY10E FY11E

Securitization adjustments (2,380) (3,612) (6,443) - - Corporate/Private Equity (11) 1,981 80 59 38 Asset M anagement (18) 85 188 120 76 Treasury & Securities Services 19 82 55 3 38 Commercial Banking 279 464 1,454 894 610 Card Services 5,711 10,059 18,462 11,677 8,562 Retail Financial Services 2,610 9,905 15,940 10,524 4,859 Investment Bank 654 2,015 2,279 728 1,068 Firmwide Reported PCL 6,864 20,979 32,015 24,005 15,252

Source: RBC Capital Market estimates

Risks to Our Estimates • Legislation Risk: The final Dodd-Frank Act has brought some clarity to the political uncertainty that had weighed on banks for the past year. The risk, however, is still high because many parts of the bill are vague and further open to interpretation and quantification. Specific Dodd-Frank Act legislation risks include regulation on derivatives activities and interchange fees, the Financial Crisis assessment (which has been taken out from the bill as of June 29, 2010, but may be brought back), and the change in FDIC insurance premium assessment, all of which are described in detail in the following section. Other legislation risk includes President Obama’s 10-year, $90 billion ‘Financial Crisis Responsibility Fee’ on banks with at least $50 billion in assets announced earlier in the year. • Regulation Risk: Similar to the legislation risk, new rules may be developed and enforced that may materially affect the earnings, performance and operations of the company. One such regulatory rule is that of Basel III, which still is vague and continuously changing. Many companies that are currently well capitalized have been more cautious in deploying their capital. • Geographic Risk: The company has exposure to both local and international clients, and as such, it may be materially affected by events in those areas. Even if there is no direct exposure, the interconnectedness of the markets and the size of the company present a geographic risk. • Consumer Loan Portfolio: We believe that a peak in credit deterioration has occurred, and credit costs will either be flat or subside; however, if credit costs escalate, then the company’s earnings can be materially affected because JPM’s primary consumer business lines, Retail Financial Services and Card Services, make up approximately 45% of total earnings. • Litigation Risk: There may be ongoing litigation risk related to the products and services offered by the major financial firms prior to the financial crisis. At the time, they may have been viewed as fully proper and legal, but that may change in the near term or the future. • Loan Repurchase Risk: Although the company has placed $1.7 billion in reserves for expenses related to loan repurchases, we are concerned that loan repurchase expense may increase, which would adversely affect earnings.

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Potential Effect from Dodd-Frank Act Derivatives Activity Legislation : The original provision proposed by Arkansas Senator Blanche Lincoln, who also chairs the Senate Agriculture Committee, sought to exclude all derivative activities from Federally assisted banks (banks that receive insurance from the FDIC or borrow from the Federal Reserve). Senator Lincoln faced strong opposition from Democrats and Republicans, as well as industry heads. A compromise was reached with two of the major provisions as follows: 1) Banks can trade foreign exchange and interest rate swaps in house, as well as gold and silver swaps, and derivatives designed to hedge their own risk and 2) Banks need to spin off desks to affiliates to handle agricultural, energy and metals, equity and uncleared credit default swaps. Exposure : For U.S. banks, the Comptroller of the Currency reported that 1,050 U.S. commercial banks had $216 trillion in notional value of derivatives on its books as of March 31, 2010. The top-five banks, which included JPM, accounted for 97% of that total. Exhibit 10 shows JPM’s historical notional derivatives outstandings, which in the first quarter of 2010 were $77.4 trillion, representing a 36% market share. By far, interest rate contracts represent the lion’s share of notional outstandings at 81% during the first quarter of 2010, which has been the general range in the prior years, with the exception of 2006 when interest contracts represented 86% of notional outstandings. Since the amended Lincoln provision allows banks to keep their interest rate, foreign exchange and gold and silver derivatives activities in-house, essentially 10%, or possibly less, of JPM’s derivatives would be required to be spun off, which is similar for the industry in general as well. JPM and the banking industry dodged a bullet on this provision, in our opinion.

Exhibit 10: Notional Derivatives Outstandings 100 1Q10: Equity 90 Credit Commodity 1% 80 derivatives 1% 7% 70

60 Foreign exchange 50 10%

($Trillions) 40

30 Interest rate 20 81%

10 4Q06: Equity 0 Credit 1% Commodity Dec-06 Dec-07 Dec-08 Dec-09 Mar-10 derivatives 1% 8% Interest rate Foreign exchange Credit derivatives Equity Commodity Foreign exchange 4%

Interest rate

86% Source: Company reports Impact : It is our view that JPMorgan’s firm-wide revenue will be affected by 2% to 5%, ceteris paribus, once the legislation is enacted, effectively lowering our normalized 2012 EPS estimates by $0.17 to $0.18. To start out, we looked at the notional outstandings to give us a proxy of what the effect may be, and in JPM’s case, approximately 10% of derivatives-related revenue based on notional outstandings. This proxy, however, does not take into account the different margins for the various contract types. Generally, the more complex or opaque a product is, the more risk it entails and hence a higher

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86 July 12, 2010 JPMorgan Chase & Co. margin. Most would consider interest rate and foreign exchange derivatives, although complex themselves, to be fairly simple in the derivatives spectrum. Exhibit 11 shows the derivative and non-derivatives trading revenues for the past-five quarters (top graph), derivatives trading revenue by contract type (bottom left graph) and non-derivatives trading revenue by contract type (bottom right graph). A couple of takeaways from these graphs: 1) Trading revenue is very volatile. 2) Derivatives trading revenue generally makes at least 50% of total trading revenues (first quarter of 2009 – third quarter of 2009 recorded large, non-derivative trading losses). 3) Interest rate, foreign exchange and credit derivatives generate a larger proportion of revenues. 4) Foreign exchange and credit derivatives have higher margins than interest rate derivatives because foreign exchange and credit derivatives have combined notional outstandings of less than 15% of interest rate derivatives, yet revenues are comparable to interest rate derivatives for the period. 5) Commodity and equity derivatives generate less revenue than the other three.

Exhibit 11: Trading Revenue by Contract Type: Total, Derivative and Non-Derivative Total Trading Revenue by Derivative-Related or Non-Derivative-Related :

8,000

6,000

4,000

2,000

($Millions) 0

(2,000)

(4,000) 1Q09 2Q09 3Q09 4Q09 1Q10

Non-Derivative (1,588) (2,893) (2,265) 312 2,163

Derivative 4,077 6,048 5,965 214 2,223

Total Trading 2,489 3,155 3,700 526 4,386

Derivative-Related Trading Revenue by Contract Type: Non-Derivative-Related Trading Revenue by Contract Type :

7,000 3,000

6,000 2,000

5,000 1,000 4,000

0 3,000

2,000 ($Millions) ($Millions) (1,000)

1,000 (2,000) 0

(3,000) (1,000)

(2,000) (4,000) 1Q09 2Q09 3Q09 4Q09 1Q10 1Q09 2Q09 3Q09 4Q09 1Q10

Commodity 401 359 326 243 413 Commodity (35) 0 (59) 35 (81)

Equity 866 (68) 264 463 822 Equity (447) 665 257 56 105

Credit (649) 2,332 2,321 1,018 2,125 Credit (199) (2,355) (1,581) (341) (105)

FX 1,074 2,052 1,734 (807) (1,244) FX (326) (1,197) (963) 750 1,942

Interest Rate 2,385 1,373 1,320 (703) 107 Interest Rate (581) (6) 81 (188) 302

Total 4,077 6,048 5,965 214 2,223 Total (1,588) (2,893) (2,265) 312 2,163

Source: SEC Filings, FR Y-9C Regulatory Filings

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87 July 12, 2010 JPMorgan Chase & Co.

The volatility from quarter to quarter in the latest-five quarters makes estimating the legislative effect difficult; however, Exhibit 12 provides the average-derivatives revenue contribution to firm-wide revenues from 2006 to 2008 (assuming all derivatives revenue comes from the Investment Bank sub-unit) and the average revenue for each contract type during the same period. Approximately 8% of firm-wide revenues come from derivatives (left graph) with interest rate and foreign exchange contracts making up approximately 59% of derivatives revenue, while credit, equity and commodities make up 12%, 21% and 8%, respectively. Based on these statistics and assuming the worst case scenario that only interest rate and foreign exchange derivatives are permissible, the data table in Exhibit 13 shows our estimated range of effect to total firm-wide revenue at various derivatives revenue to firm-wide revenue (horizontal) and various interest rate and foreign exchange revenues to total derivatives revenue (vertical) assumptions.

Exhibit 12: Average 2006 – 2008 Derivatives Revenue Breakout Average Firmwide Revenue: Derivative-Related Revenue by Contract Type IB Derivative Commodity 8% 8%

Equity IB Non- 21% Derivative 17%

Interes Rates & Non-IB Credit FX 75% 12% 59%

Source: Company presentation

Exhibit 13: Estimated Revenue Loss from Derivatives Legislation Derivative Revenue/Firmwide Revenue 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 40% 2.4% 3.0% 3.6% 4.2% 4.8% 5.4% 6.0% 6.6% 7.2% 45% 2.2% 2.8% 3.3% 3.9% 4.4% 5.0% 5.5% 6.1% 6.6% 50% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 55% 1.8% 2.3% 2.7% 3.2% 3.6% 4.1% 4.5% 5.0% 5.4% 60% 1.6% 2.0% 2.4% 2.8% 3.2% 3.6% 4.0% 4.4% 4.8% 65% 1.4% 1.8% 2.1% 2.5% 2.8% 3.2% 3.5% 3.9% 4.2% 70% 1.2% 1.5% 1.8% 2.1% 2.4% 2.7% 3.0% 3.3% 3.6% 75% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0%

IR & FX Rev/TotalDeriv Rev FX IR& 80% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% Source: RBC Capital Market estimates Timeline : Regulators will have at least a year after the time of passage to implement the legislation. Therefore, we view this effect to occur in the latter part of 2011 or beyond. Likely Actions : We believe the company will look to adjust its derivatives positions, as well as quietly lobbying the agencies and regulators who will need to interpret and clarify definitions before the legislation can be enforced.

Volcker Rule Legislation : The original Volcker Rule’s primary provisions sought to prohibit banks from engaging in proprietary trading and from owning or investing in private equity funds or hedge funds. Impact : We do not include the effect of the Volcker Rule in our 2010 and 2011 estimates due to the ambiguity of the rule and the timeline going beyond 2011 and perhaps 2012, in our view; however, our initial assessment shows that if the Volcker Rule was to affect 2012 earnings, the effecct would be approximately $0.13 per share. To start, it is difficult to determine the proposed legislation’s financial effect on proprietary trading since selected proprietary trading areas were exempted. Below are some major explicit carve-outs (from Section 619 of legislation) that are permissible:

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88 July 12, 2010 JPMorgan Chase & Co.

1) Treasuries, Agencies and Munis: Purchase or sale of U.S. obligations, including of any U.S. agency, or other instruments of, or issued by, Ginnie Mae, Fannie Mae, Freddie Mac, a Federal Home Loan Bank, the Federal Agricultural Mortgage Corporation, a Farm Credit System institution or of any state or political subdivision. 2) Underwriting and Market Making: Purchase or sale of securities and other instruments in connection with underwriting or market- making activities, to the extent that such activities ‘are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties’. 3) Hedging: Risk-mitigating hedging activities in connection with and related to individual or aggregated positions, contracts, or other holdings of the banking entity or non-bank financial company supervised by the board that are designed to reduce specific risks to such entities. 4) Customer facilitation: Purchase or sale of securities and other instruments on behalf of customers. Organizing and offering a private equity or hedge fund provided that the “banking entity provides bona fide trust, fiduciary or investment advisory services.” In regards to private equity and hedge fund ownership, the Volcker Rule has the following main clauses: • Sec. 619 (a) (1) (B) states: “PROHIBITION. – Unless otherwise provided in this section, a banking entity shall not – (B) acquire or retain any equity, partnership, or other ownership interest in or sponsor a hedge fund or a private equity fund .” • Sec. 619 (d) (1) (G) states: “Permitted Activities” includes the “ (G) organizing and offering a private equity or hedge fund ” provided that the “(i) banking entity provides bona fide trust, fiduciary, or investment advisory services; (ii) the fund is organized and offered only in connection with the provision of bona fide trust, fiduciary, or investment advisory services and only to persons that are customers of such services of the banking entity; (iii) the banking entity does not require or retain an equity interest, partnership interest, or other ownership interest in the funds except for a de minimis investment subject to and in compliance with paragraph (4) .” • Sec. 619 (d) (4) (B) (ii) states “(I) not later than 1 year after the date of establishment of the fund, be reduced through redemption, sale, or dilution to an amount that is not more than 3 percent of the total ownership interests of the fund ; (II) be immaterial to the banking entity, as defined, by rule, pursuant to subsection (b)(2), but in no case may the aggregate of all of the interests of the banking entity in all such funds exceed 3 percent of the Tier 1 capital of the banking entity .” Based on the above language, we believe that JPM will be required to limit its total private equity and hedge fund ownership to 3% of Tier 1 capital and total ownership interest of the funds must be 3% or lower. As of the first quarter of 2010, the 3% Tier 1 capital limitation represents a limit of approximately $4.0 billion. As of the first quarter of 2010, the company reported $7.3 billion in its private equity portfolio. In addition, the company also has 100% ownership of a hedge fund unit, Highbridge Capital Management, under its Asset Management business line with $21 billion in client assets as of the fourth quarter of 2009. We believe that JPM would ultimately need to divest portions of its private equity and it remains unclear on the hedge fund unit, which primarily serves JPM’s buy-side clients, and may be allowed to fall under the “Permitted Activities” section. It should be noted that Sec. 619 includes a “Study and Rulemaking” paragraph stating “(1) STUDY. – Not later than 6 months after the date of enactment of this section, the Financial Stability Oversight Council shall study and make recommendations on implementing the provisions of this section.” It is quite possible that the interpretation and implantation of the Volcker Rule may be significantly different from our interpretation based on this ‘study’ period. As we stated, we view it difficult to assess the effect from the Volcker legislation with a reasonable level of confidence and have excluded it from our 2010 and 2011 estimates, partly from the vagueness of the legislation and also partly from the likelihood that the effect would not be materially felt until 2013 or beyond, in our view. That being said, we made a rough estimate as to what we believe the potential future effect could be from the divestitures and proprietary trading restrictions. Exhibit 14 summarizes our estimated effect from required divestitures and foregone proprietary trading income, which shows a hit to earnings of approximately 2% to estimated normalized 2012 earnings. We reiterate that the Volcker effect has been excluded from our estimates.

Exhibit 14: Estimated EPS Impact from Volcker Rule Historical Targetted Initial Normalized 2012 Earnings 6.43 6.95

+ Net Inc Redux from Portfolio Divestiture ($433M net tax) 1.7% 1.6% + Net Inc Redux from Highbridge Divestiture 0.1% 0.1% + Net Inc Redux from Foregone Prop Trading 0.1% 0.1% = After-Tax Earnings Reduction 2.0% 1.8% Source: Company Financials; RBC Estimates

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89 July 12, 2010 JPMorgan Chase & Co.

To arrive at our estimated effect from required divestitures, we assumed that 1) JPM will divest its stake in Highbridge and 2) the company will limit its private equity portfolio to 3% of Tier 1 capital. Exhibit 15 shows that the first-quarter 2010 Tier 1 capital level of $131 billion would imply a holdings limitation of $3.9 billion and require a divestiture of $3.3 billion from the private equity portfolio. We calculated the loss to earnings in the range of $0.05 per share to $0.16 per share depending on the returns of the divested portfolios (10% to 30% range).

Exhibit 15: Estimated EPS Impact from Private Equity Portfolio Divestiture ($Millions except per share) Private Equity Portfolio Carrying Value at 1Q10 7,275

Estimated Private Equity Portfolio Limitation Tier 1 Capital at 1Q10 131,350 x % Limitation 3% = Private Equity Portfolio Limit 3,941 Required Divestiture 3,335

EPS Redux at Various Rate of Return Scenarios Required Divestiture 3,335 3,335 3,335 3,335 3,335 x Estimated Rate of Return on Portfolio 10% 15% 20% 25% 30% = Lost Gains on Investment 333 500 667 834 1,000 x Tax Effect (35%) 65% 65% 65% 65% 65% = Net Impact to Earning from Portfolio Divestiture 217 325 433 542 650 Per Share Impact $ 0.05 $ 0.08 $ 0.11 $ 0.14 $ 0.16 Source: Company Financials; RBC Estimates

Exhibit 16 gives our estimated effect from the Highbridge divestiture. To do this, we first calculated the percent of total assets under management coming from Highbridge (1.7%) and used that as an initial proxy for asset management revenue coming from Highbridge. We then applied a Highbridge margin factor as we believe this unit would generate 2x to 4x higher revenue than the traditional asset management business. We then applied an operating margin of 25% to factor the gain from foregone expenses related to Highbridge (our 25% operating margin is based on the operating margins of fee-based banks). This method gives us the percent of foregone asset management revenue due to the Highbridge divestiture. Historically, asset management revenue has generally made up 18% of total revenue on average, and applying this and a tax effect to the Highbridge loss results in an almost negligible hit to earnings of 0.2% or less.

Exhibit 16: Estimated EPS Impact from Highbridge Divestiture Average FY06A FY07A FY08A FY09A

Asset Mgmt Revenues 11,725 14,356 13,943 12,540 Total revenues 61,437 71,372 67,252 100,434

18% 19% 20% 21% 12%

($Billions) Highbridge 4Q09 AUM 21 / Total AUM for Asset Management LOB 1,249 = % from Highbridge 1.7% 1.7% 1.7% x Highbridge Margin Factor (x) 2x 3x 4x = Estimated % Asset Mgmt Revenues from Highbridge 3.4% 5.0% 6.7% x Operating Margin 25% 25% 25% = % Asset Mgmt foregone from Highbridge divestiture (net of exp) 0.8% 1.3% 1.7% x % Asset Mgmt Revenues to Total Revenues 18% 18% 18% x Tax Effect (35%) 65% 65% 65% = Est % Earnings Loss from Highbridge Divestiture Net of Tax 0.1% 0.1% 0.2% Source: Company Financials; RBC Estimates

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90 July 12, 2010 JPMorgan Chase & Co.

The proprietary trading estimate is perhaps the hardest to gauge because JPM does not publicly disclose its level of proprietary trading, and has only stated that it’s minimal. Exhibit 17 lays out our estimate with our understanding of ‘minimal’ being 5% of total trading revenues. Total trading revenues averaged approximately 10.5 % of total revenues. We assume that 5% of that came from proprietary trading and applied a 40% operating margin to get an estimated revenue loss of 0.2%. Tax affecting this results in a de minimis hit to earnings.

Exhibit 17: Estimated EPS Impact from Foregone Proprietary Trading ($Millions) Average FY06A FY07A FY08A FY09A Trading Revenue 8,986 5,085 (9,791) 9,870 / Total Revenue 61,437 71,372 67,252 100,434 = % Revenues from Trading 10.5% 14.6% 7.1% NM 9.8%

Estimated % Earnings Loss from Prop Trading % Total Revenues from Trading 10.5% x Assumed % Total Trading Revenue from Prop Trading 5.0% x Operating Margin 40% = Est Revenue Loss from Foregone Prop Trading (net of exp) 0.2% x Tax Effect (35%) 65% = Est % Earnings Loss from Foregone Prop Trading Net of Tax 0.1% Source: Company Financials; RBC Estimates Timeline : 1) 12 months following the issuance of regulations or 2) two years following passage of this legislation. JPM will then have an additional two years within which to comply with the prohibitions, and the Fed can grant extensions of up to three-additional years. Effectively, implementation could be delayed easily for well over five years from passage of legislation. The legislation further provides a special divestiture rule for ‘illiquid funds’. Likely Actions : We believe that the company will wait to receive more clarity on the final guidelines before proceeding with any actions.

Trust Preferred Exclusion from Tier 1 Legislation : Widely known as the Collins Amendment, this provision would alter the definition of Tier 1 capital at the holding company level, preventing banks from including trust preferred securities as a part of Tier 1 capital. There are two noteworthy changes in the final bill, which mitigates the near-term effects on the banking industry. The first change is the exclusion of banks with less than $15 billion in assets from the requirements of the provision. The second change is a grandfathering clause that allows for a grace period of up to five years before large institutions (greater than $15 billion in assets) must comply. Impact : As of the first quarter of 2010, JPMorgan had approximately $19.6 billion of trust preferred, virtually all of which qualified as Tier 1 capital. Exhibit 18 shows two scenarios for pro forma Tier 1 capital assuming the bill was effective immediately . Scenario 1 assumes no trust preferred redemptions, while scenario 2 does. For both cases, the Tier 1 ratio falls to approximately 10% from approximately 11.5%; however, these scenarios are highly unlikely because the company has up to five years to treat trust preferred securities as Tier 1 capital, which is plenty of time to generate capital, in our view.

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91 July 12, 2010 JPMorgan Chase & Co.

Exhibit 18: Estimated Impact to Capital from Trust Preferred Legislation ($M) Current Scenario 2 1Q10 TRUPS Redemption 1Q10 Tier 1 131,350 Tier 1 131,350 / Risk-Wtd Assets 1,147,008 - Qualifying TRUPS 19,288 = Tier 1 Ratio 11.45% = Pro Forma Tier 1 112,062

Scenario 1 Risk-Wtd Assets 1,147,008 No TRUPS Redemption 1Q10 - Qualifying TRUPS 19,288 Tier 1 131,350 = Pro Forma Risk-Wtd Assets 1,127,720 - Qualifying TRUPS 19,288 = Pro Forma Tier 1 112,062 Pro Forma Tier 1 112,062 / Risk-Wtd Assets 1,147,008 / Pro Forma Risk-Wtd Assets 1,127,720 = Pro Forma Tier 1 Ratio 9.77% = Pro Forma Tier 1 Ratio 9.94% Source: FRY-9C Filing, RBC Capital Market estimates

Timeline : Five years. Likely Actions : Nothing in the near term because there is plenty of time to utilize the less expensive form of capital before its Tier 1 designation is revoked.

Interchange Fees Legislation : The Interchange amendment mandates the Federal Reserve oversee the interchange fees charged by debit card-issuing banks and ensure that the rates are ‘reasonable and proportional’ to the transaction costs. The proposal, which would take effect one year after enactment, exempts all debit card-issuing banks and credit unions with less than $10 billion in assets. Importantly, the final provision (Section 920) allows the Federal Reserve to take fraud prevention costs into account when defining what interchange fees would be ‘reasonable’. Impact : It is our view that the interchange legislation will negatively affect revenues by 2% to 4%, effectively shaving $0.13 to $0.14 from our normalized 2012 estimate. To begin, JPM does not break out interchange income; however, approximations can be made using credit card income. Exhibit 19 calculates the average percent of credit card income to total revenue (top) for the latest quarter and prior three years, which shows an average of 8%. Assumptions can then be made on percentage of credit card income from interchange fees and what the likely reduction in interchange fees would be. The data table at the bottom of Exhibit 19 shows the effect to firm-wide revenues at various percentage credit card incomes from interchange fees assumptions and various reductions in interchange fees assumptions.

Exhibit 19: Credit Card Revenue to Total Revenue and Estimated Revenue Effect from Interchange Legislation % Credit Card Income to Total Revenue: Average 1Q10 FY09 FY08 FY07 Credit Card Income 1,361 7,110 7,149 6,911 Total Revenue 27,671 100,434 67,252 71,372 % Total Revenue 8.1% 4.9% 7.1% 10.6% 9.7%

Estimated Revenue Loss from Interchange Reduction: Reduction in Interchange Fees 3.2% 20% 30% 40% 50% 60% 70% 80% 50% 0.8% 1.2% 1.6% 2.0% 2.4% 2.8% 3.2% 60% 1.0% 1.5% 1.9% 2.4% 2.9% 3.4% 3.9% 70% 1.1% 1.7% 2.3% 2.8% 3.4% 4.0% 4.5% 80% 1.3% 1.9% 2.6% 3.2% 3.9% 4.5% 5.2% 90% 1.5% 2.2% 2.9% 3.6% 4.4% 5.1% 5.8%

% CC Inc%CC Interchg from 100% 1.6% 2.4% 3.2% 4.0% 4.8% 5.7% 6.5% Source: Company reports, RBC Capital Market estimates

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Timeline : One year after enactment. Likely Actions : The company, as well as the industry in general, will likely look to recoup loss revenue from new fees such as a debit card activation fee, etc.

Repeal of the Prohibition of Interest Payment on Demand Deposits Legislation : Sec. 627 of the Dodd-Frank Act repeals Section 19(i) of the Federal Reserve Act (12 U.S.C. 371a), which stated that “No member bank shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit which is payable on demand.” Impact : The immediate potential effect once enacted could be compression of the net interest margin due to market forces as banks compete for business by offering interest. This provision, however, may also drive new business because banks could now compete with other financial institutions not burdened with this restriction. The lifting of this prohibition may prove very beneficial to a depository in rising short-term interest rate environments. Timeline : This provision would be in effect one year after the enactment of the Dodd-Frank Act.

Dodd-Frank Financial Crisis Assessment Legislation : The Dodd-Frank Act includes a $19 billion assessment that was slipped into the bill at the last minute on page 2,302 out of the 2,315 page bill. The assessment is to be made over four years (starting September 30, 2012 and ending September 30, 2015) on financial companies with $50 billion in assets and over and to hedge funds with $10 billion in assets and over. The factors for the assessment on those companies meeting the above criteria are vaguely defined and include the following: 1. the extent of the company’s leverage, 2. the extent and nature of the company’s off balance sheet exposures, 3. the extent and nature of the company’s transactions and relationships with other financial companies; the company’s importance as a source of credit for households, businesses, and State and local governments and as a source of liquidity for the financial system and 4. the company’s importance as a source of credit for low-income, minority, or underserved communities and the impact the failure of such company would have on the availability of credit in such communities.

The assessment has been a major sticking point for key Senators needed to pass the bill. Newly elected Massachusetts Senator, Scott Brown, on discovering the last minute provision, voiced his objection and rescinded his support to the bill directly resulting from this ‘tax’. Other senators reserving their initial support include Maine GOP senators Olympia Snowe and Susan Collins, and Senator Chuck Grassley from Iowa. Senator Chris Dodd, for whom the bill is named after, has been scrambling to offer a compromise to this ‘tax’. On June 29, 2010, it was reported that the assessment was taken out and that a provision was added that would prematurely end the Troubled Asset Relief Program (TARP) and divert approximately $11 billion from the fund toward financial regulation. Therefore, it appears that $19 billion assessment has been eliminated; however, if the assessment was to be brought back, we detailed the potential effect below.

Impact : Our worst case assessment shows an effect of roughly $0.11 per annum to earnings and is based on the following assumptions: 1. only banks with $50 billion in assets and over will be assessed (no hedge funds, insurance companies, etc.), 2. all of the funding will come from banks (no TARP funds or other source of funds will be drawn), 3. the $19 billion is paid evenly in four annual payments and 4. the allocation of the assessment fee is based on asset size of the group meeting the $50 billion criteria.

The four-year assessment comes out to $4.75 billion per year for applicable banks, which we estimate at 37 companies. JPM has a 15% asset market share for this group, and after tax-affecting JPM’s share of the assessment, the net result on a per share basis comes out to $0.11 per year. We estimate the negative effect would be approximately $0.02 to $0.03 per share if this provision were kept.

Dodd-Frank Change in FDIC Insurance Premium Assessment Legislation : Sec. 331 proposes changes to how the FDIC insurance premium is calculated to factor in higher risk depository institutions. The current assessment is based off of an institution’s deposit base and with an assessment rate on the deposit base dependent on institution’s CAMELS rating (Capital adequacy, Asset quality, Management, Earnings, Liquidity, Sensitivity to market risk) with a Risk Category I range between 7 basis points and 24 basis points, but can go as high as 77.5 basis points for Risk Category IV institutions. Sec. 331 of the Dodd-Frank Act looks to change the assessment base from deposits to a more leverage-biased

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93 July 12, 2010 JPMorgan Chase & Co. assessment base defined as average total assets LESS average tangible equity. Therefore, companies with higher leverage would be assessed higher fees. Impact : We anticipate a $0.05 net reduction to EPS (approximately 3% of earnings) from this provision. Exhibit 20 shows the effect to JPM from the newly proposed FDIC assessment based on the company’s banking subsidiary, JPMorgan Chase Bank, NA (Bank NA). In estimating the effect, we calculated the FDIC assessment rate based on its Assessment Rate Calculator and assumed that JPM had an overall CAMELS rating of 2. The assessment rate for JPM came out to 13 basis points and applying that to Bank NA’s first-quarter 2010 deposits, we arrive at an annual assessment of $827 million. Applying Dodd-Frank’s new methodology proposal, we calculated the assessment base to be approximately $1.6 trillion (average total assets LESS average tangible equity), and applying 13 basis points to this base brings us to approximately $2.0 billion in annual assessments. Therefore, the Dodd-Frank proposal would add another $1.2 billion in annual assessments. Tax-affecting this, we get a reduction to EPS of $0.19 off of normalized earnings. This is quite meaningful; however, we anticipate that the company will look for alternate avenues to recoup this loss, most likely through its customers. We can envision greater deposit product fees and lower interest rates in interest- bearing deposits as a way of offsetting these higher FDIC fees. Additionally, we could see the company transferring certain assets from its banking subsidiary to other wholly-owned non-banking subsidiaries, thereby lowering the assessment base and ultimately overall cost. Therefore, though the newly proposed assessment will be material, the overall effect will be muted due to offsetting initiatives, in our view, to approximately 25% ($0.05 to EPS), of the initial calculated impact. The $0.05 reduction to EPS is included in our 2011 estimate . Exhibit 21 displays the likely loss to EPS at various assessment rates and RBC estimated percentage net effect.

Exhibit 20: Impact to Earnings from Dodd-Frank Change in FDIC Insurance Premium Assessment ($Millions except per share)

Current Est. FDIC Assessment Total 1Q10 Domestic Deposits 1 636,442 x Assessment Rate 0.13% = Estimated Current Annual Assessment 827

Dodd-Frank FDIC Assessment Proposal Average 1Q10 Total Assets 1,636,743 - Average 1Q10 Tangible Equity 2 82,481 = Assessment Base 1,554,262 x Assessment Rate 0.13% Estimated Dodd-Frank Assessment Proposal 2,021 Est. Negative Impact from Dodd-Frank FDIC Assessment Proposal 1,193 x Tax Effect (35% tax rate) 65% = Est. Negative Impact from Dodd-Frank FDIC Assessment Proposal Net of Tax 776 Per Share Impact $ 0.19 Source: Federal Financial Institutions Examination Council Call Report; RBC Capital Markets 1) Based on subsidiary JPMorgan Chase Bank, NA 2) Avg Tng Eq = 2 Point Avg Total Equity - Period End Intangibles

Exhibit 21: Reduction to EPS from Dodd-Frank Change in FDIC Insurance Premium Assessment Net of Initiatives to Recoup Losses Assessment Rate ### 0.10% 0.11% 0.12% 0.13% 0.14% 0.15% 0.16% 5% $0.01 $0.01 $0.01 $0.01 $0.01 $0.01 $0.01 10% $0.01 $0.01 $0.02 $0.02 $0.02 $0.02 $0.03 15% $0.02 $0.02 $0.03 $0.03 $0.03 $0.04 $0.04 20% $0.02 $0.03 $0.03 $0.04 $0.04 $0.05 $0.05 25% $0.03 $0.04 $0.04 $0.05 $0.05 $0.06 $0.07 30% $0.04 $0.04 $0.05 $0.06 $0.07 $0.07 $0.08 35% $0.04 $0.05 $0.06 $0.07 $0.08 $0.09 $0.09 40% $0.05 $0.06 $0.07 $0.08 $0.09 $0.10 $0.11

RBCEst Net% Impact 45% $0.05 $0.06 $0.08 $0.09 $0.10 $0.11 $0.12 50% $0.06 $0.07 $0.08 $0.10 $0.11 $0.12 $0.14 Source: RBC Capital Markets

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Repurchase Loan Risk from Reps & Warrants Many of the loans that JPM originates are sold to third parties, such as Fannie and Freddie, and require representations and warranties be made, so the loans meet certain standards. As more defaults have occurred, many of the third parties that have purchased these loans have claimed defects to the loans and have requested that JPM repurchase the defective loans. Exhibit 22 is from JPM’s 2009 Investor Day presentation. The chart on the left provides the loan repurchase demand by vintage. The chart shows a large uptick in demand starting in 2009 with a majority of the vintage being 2007 with an increase in 2008 vintage of late offset by a decrease in 2006 vintage. Repurchase demand volume has been approximately $1 billion per quarter. The chart on the right lays out the repurchase expense and the required provisioning to replenish reserves for unpaid principal balance (UPB) repurchases. Every dollar in UPB generates approximately $0.53 repurchase expense. Below are some notable statistics on loan repurchases: 1. Top drivers for finalized repurchases reflect misrepresentations from: i) credit and undisclosed debt, ii) income and employment and iii) appraisal. 2. Timeline generally ranges from 24 to 36 months from the initial identification of defect to resolution through the review process. 3. Approximately 50% of repurchase demands are ‘cured’ by providing additional documentation or evidence. 4. Approximately 40% of third-party originated loans were put or claimed back. 5. Reserves for repurchase liabilities totalled $1.7 billion and $1.1 billion for 2009 and 2008, respectively. 6. Approximately 45% repurchase claims were broker originated. 7. Repurchase claims primarily concentrated in Florida (29%), California (21%) and Arizona (6%). Recent Events : On January 29, 2010, the company received a letter from the SEC inquiring about its specific reserve methodologies relating to repurchased loans, specifically citing the fourth-quarter 2009 earnings release investor presentation. It is unclear at this point if the SEC letter was merely an inquiry or if there are deficiencies in the company’s reserve methodology. Impact : We anticipate our 2012 earnings to be hit by approximately 5%, or $0.33 per share. In trying to assess the effect to normalized earnings in 2012, we start with the chart on the right in Exhibit 22, which shows that $1.6 billion in expenses were incurred in 2009 related to repurchases. Assuming that the 2007 vintages are still problematic in 2012, while 2008 vintages have grown substantially to take the place of 2006 and prior vintages, we can make the assumption that repurchase expense will range between $1.5 billion and $2.0 billion gross of tax. Exhibit 23 displays the potential effect to net income from repurchases. Given the SEC inquiry, potentially lingering high levels of unemployment, populist sentiment, potentially large ongoing losses from Fannie and Freddie, and coupled with banks returning to profitability, we feel that the high side of our range is warranted ($2.0 billion pre-tax repurchase expense).

Exhibit 22: Loan Repurchase Demand by Vintage (Left) and Repurchase Expense (Right) Repurchase demand from investor by vintage ($ in millions) 2009 repurchases ($ in millions)

Source: Company reports

Exhibit 23: Earnings Effect at Various Repurchase Expense Scenarios ($B except per share) Repurchase Expense 1.50 1.60 1.70 1.80 1.90 2.00 Tax Effect (35%) 65% 65% 65% 65% 65% 65% Redux in Net Income 0.98 1.04 1.11 1.17 1.24 1.30 Redux in EPS 0.24 0.26 0.28 0.29 0.31 0.33 Source: RBC Capital Market estimates

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The Obama Financial Crisis Responsibility Fee In January, President Obama announced his plans to recoup TARP funds by imposing a $90 billion Financial Crisis Responsibility Fee on financial institutions with $50 billion in assets and over. President Obama has brought this fee back into light in a recent weekly address. The fee would be assessed over 10 years based on 15 basis points of a company’s ‘excess liabilities,’ defined as total assets minus Tier 1 capital and FDIC-insured deposits. Using JPM’s first-quarter 2010 numbers, the excess liabilities would amount to approximately $1.1 trillion, with 15 basis points on that equating to $1.6 billion. Spreading this out for 10 years and tax-affecting it, the effect would be roughly $0.03 per annum to EPS, which is very manageable. The president’s fee, however, faces much opposition, and we are inclined to think that it would be watered down further or not enacted at all. Specifically, we believe that the Dodd-Frank Act will give banks enough ammunition to say that the pound of flesh has been taken. In addition, many opponents to the fee make the argument that all the big banks have paid their TARP funds back with interest, and that the government will actually make money from bank TARP funds. They cite the 800 pound gorilla to be Fannie and Freddie, which have not been addressed. Given the uncertainty of this fee and the minimal effect, we excluded it from our 2010 and 2011 estimates.

Dividends A portion of our valuation is dependent upon two major factors: 1) earnings returning to a more normalized level by 2012 and 2) dividends reaching a payout ratio of 30-35% by 2012. These factors are contingent on two major suppositions: 1) consistent credit improvement until 2012 flowing through to provisions for credit losses and 2) regulatory capital levels reaching well beyond conservative levels. For a review of our estimates and effect from credit improvement, refer to section Valuations and Estimates at the beginning of the report. If our outlook on credit is accurate, then we believe that dividends will return only if regulatory capital levels are defined as ‘well capitalized’. We believe that for the largest U.S. banks, the Tier 1 Common Ratio threshold will be increased to 7% or 8%, and the Tier 1 Equity Ratio threshold will be increased to 10% to 12%. In JPM’s case, how does its capital levels stand up with an increase in dividends? Exhibits 24 and 25 provide our estimated Tier 1 Common and Tier 1 Equity Ratios in two dividend scenarios: 1) dividend remains at $0.05 quarterly until 2012 and 2) dividend is increased to $0.20 quarterly for the second quarter of 2011 until the fourth quarter of 2011, and then increased to $0.45 quarterly for the first quarter of 2012 until the fourth quarter of 2012 (approximately 33% payout). We also raised the threshold to an even more conservative level of 9% Tier 1 Common and 13% Tier 1. What the charts show is that the $0.20 and $0.45 quarterly dividends do not make much of a dent in capital and that the company will still meet more stringent capital thresholds. In short, it is hard for us to conceive of a substantial dividend not coming by some time in 2011 and reaching adjusted normalized payout levels by 2012. We modelled a $0.20 quarterly dividend to occur in the second quarter of 2011 until the fourth quarter of 2011 and assume a $0.45 quarterly dividend in 2012 .

Exhibit 24: Tier 1 Common Ratio with Dividend Scenario

Tier 1 Common with Dividend Scenario

12%

11%

10%

9%

8%

7%

6%

5%

4%

3%

2%

1%

0% FY07A FY08A FY09A FY10E FY11E FY12E

$0.20 (2Q11 - 4Q11) & $0.45 (1Q12 - 4Q12) 7.01% 6.98% 8.79% 9.40% 10.76% 11.59%

$0.05 Through 2012 7.01% 6.98% 8.79% 9.40% 10.91% 12.23%

Tier 1 Common Ratio Threshold 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%

Source: RBC Capital Market estimates

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Exhibit 25: Tier 1 Ratio with Dividend Scenario

Tier 1 with Dividend Scenario

15%

14%

13%

12%

11%

10%

9%

8%

7%

6%

5%

4%

3%

2%

1%

0% FY07A FY08A FY09A FY10E FY11E FY12E

$0.20 (2Q11 - 4Q11) & $0.45 (1Q12 - 4Q12) 8.44% 10.94% 11.10% 11.65% 13.01% 13.75%

$0.05 Through 2012 8.44% 10.94% 11.10% 11.65% 13.15% 14.39%

Tier 1 Ratio Threshold 13.00% 13.00% 13.00% 13.00% 13.00% 13.00%

Source: RBC Capital Market estimates

Acquisitions We anticipate that JPM will make a bank acquisition sometime in the near future because the current environment has offered some buying opportunities from weakened banks. In addition, the new regulatory environment will add further layers of cost on top of current levels giving many banks higher hurdles to meet shareholder expectations. After having gone through ‘hell and back’, many management and board teams may feel that the added layer of cost is too much and decide to throw in the towel, in our view. In order for a JPM major bank acquisition to occur, we feel the following factors need to be clarified: 1. JPM needs to be assured that its credit problems are behind, and it needs to be able to quantify the target’s credit issues with a certain level of confidence. 2. JPM needs to receive clear guidance on what the official minimum well capitalized standard levels are for Tier 1 Common and Tier 1 Equity ratios. We believe the company will receive guidance by the end of 2010. The ideal target, in our view, would be one that fills out JPM’s consumer banking franchise, and we view SunTrust Banks Inc. (NYSE: STI; $25.46; Not Rated) to be a leading candidate based on the branch footprint of the two companies (Exhibit 26).

Exhibit 26: Pro Forma Branch Map of JPMorgan and SunTrust

Source: SNL Financial, LC

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From a strategic standpoint, the transaction looks very attractive to JPM because it gives JPM a significant southeast presence. Nevertheless, we believe that there may be some regulatory obstacles that may impede the transaction. Currently, there exists a nationwide deposit concentration limit where the pro forma entity’s deposit market share can not exceed 10% of total U.S. deposits. Based on the latest available branch depository data as of June 30, 2009, Exhibit 27 shows that if JPM were to conduct the transaction, it would be required to divest approximately 40% of SunTrust’s deposits, which is substantial and potentially problematic for the deal. However, we believe that JPM would be able to avoid this by selling off some of its U.S. time deposits, which totalled $109 billion for the first quarter of 2010. Additionally, we would not expect any large transactions from the company or the industry until year-end 2010 or the first quarter of 2011, when total U.S. deposits are likely to be higher and possibly exceeding $7.0 trillion, in our opinion.

Exhibit 27: Potential Required Divestiture for JPMorgan/SunTrust Transaction Deposits ($B) % STI JPM Total Domestic Deposits 618 + STI Total Domestic Deposits 119 = Pro Forma Deposits 737

Total U.S. Deposits 6,895 x 10% Nationwide Limitation 10% = Deposit Limit on Pro Forma Entity 689

Required Divestiture 47 40% Deposit data based on branch deposits as of June 30, 2009. Source: SNL Financial, LC

If domestic acquisitions are not in the cards, we believe that the company could look toward Europe. Similar to where U.S. banks were last year, we believe that European banks are following a similar path and could offer great buying opportunities in their weakened state. Washington Mutual Conversion Update : JPM acquired Washington Mutual (WaMu) on September 25, 2008 through a government assisted deal as WaMu was being placed into conservatorship. The WaMu conversion process has run smoothly and was the fastest conversion ever for JPM with the first conversion completed seven months from announcement and the final conversion completed six months later. The conversions included 30,000 new branch work stations, 2,000 new branch servers, 900 braches being retrofitted, and 1,100 deposit-friendly ATMs from WaMu branches. Looking forward, JPM will further expand from WaMu by adding more than 2,000 personal bankers, approximately 450 investment sales representatives and 375 small business bankers in the next few years.

Company Description JPMorgan Chase & Co. is a leading global financial services firm and the second-largest banking institution in the US in assets with $2.1 trillion in assets, more than 5,100 branches nationwide and operations in more than 60 countries as of March 31, 2010. The company markets under two brands: 1) Chase and 2) J.P. Morgan. The Chase brand focuses on the consumer and commercial clients, offering a wide range of financial products and services from retail banking and traditional mortgages to credit card products and equipment finance. The J.P. Morgan brand targets affluent individuals, major corporations, governments and institutional investors, offering investment banking products and services, cash management and clearing services, and asset management products and services. The J.P. Morgan brand is a leader in its space, often ranking in the top-three positions in many categories. As of the first quarter of 2010, the company had greater than $714 billion in loans and $925 billion in deposits on $2.1 trillion in assets and $164 billion in equity. As part of its consumer business, the company has a retail branch network that extends coast to coast with major presences in the New York, Chicago, Florida, Texas and West Coast states. JPM’s top-five depository markets are New York, Texas, California, Illinois and Arizona with deposits of $272 billion, $77 billion, $60 billion, $45 billion and $19 billion in deposits, respectively, which gives the company a deposit market share of 35%, 18%, 7%, 13% and 24%, respectively. The New York, California and Illinois markets, although the growth is slower than the other two top-five markets, have median incomes of $58,474, $61,614, and $60,823, respectively, which is above the national median of $54,719. The Texas and Arizona markets have lower median incomes; however, they offer higher projected 2009 to 2014 population growth of 9.3% and 12.8%, respectively. Exhibit 28 lists JPM’s deposit market base with demographics statistics, and Exhibit 29 gives JPM’s branch map network.

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Exhibit 28: Deposit Market Share with Demographics Statistics Market Rank Branches JPM Deposits Deposit Market Share % National Franchise Total Population Projected Population Median HH Projected HH Income States 2009 ($M) 2009 2009 2009 (actual) Change 2009-2014 Income ($) Change 2009-2014 New York 1 816 $271,760 34.8% 44.0% 19,495,049 0.8% $58,747 6.1% Texas 2 656 $76,539 17.6% 12.4% 24,896,267 9.3% $52,382 4.0% California 4 732 $59,895 7.3% 9.7% 37,933,734 5.1% $61,614 4.0% Illinois 1 412 $44,595 12.8% 7.2% 13,114,513 2.3% $60,823 4.6% Arizona 1 298 $19,327 23.6% 3.1% 6,664,707 12.8% $55,275 5.5% Michigan 3 306 $19,301 11.8% 3.1% 10,194,648 0.3% $55,536 2.4% Ohio 6 291 $17,237 7.3% 2.8% 11,577,283 0.6% $52,400 4.1% Nevada 3 38 $16,337 10.2% 2.6% 2,746,331 14.6% $58,128 4.6% Louisiana 2 162 $13,270 16.9% 2.2% 4,488,442 4.8% $37,868 2.1% Indiana 1 186 $12,014 12.8% 1.9% 6,461,343 2.9% $54,105 4.4% Florida 6 242 $10,766 2.7% 1.7% 19,021,613 7.6% $50,413 4.2% New Jersey 6 236 $10,516 4.3% 1.7% 8,834,947 1.7% $72,809 5.6% Washington 3 189 $9,671 8.5% 1.6% 6,691,182 6.4% $60,852 4.8% Utah 4 62 $7,835 7.4% 1.3% 2,748,395 11.2% $60,286 4.3% Colorado 4 115 $6,039 7.1% 1.0% 5,026,916 7.8% $62,597 5.1% Wisconsin 4 77 $5,178 4.2% 0.8% 5,706,220 2.8% $56,363 4.6% Oregon 4 105 $4,425 8.4% 0.7% 3,841,859 5.8% $53,483 4.0% Connecticut 7 49 $4,026 4.5% 0.7% 3,534,265 1.1% $70,949 5.0% Kentucky 5 65 $3,886 5.7% 0.6% 4,317,469 3.3% $44,205 5.1% Oklahoma 6 33 $2,612 3.9% 0.4% 3,692,249 3.4% $43,746 4.9% West Virginia 6 30 $1,691 6.0% 0.3% 1,838,109 0.7% $37,099 3.9% Georgia 27 58 $717 0.4% 0.1% 9,932,949 9.3% $56,761 3.2% Idaho 12 22 $489 2.7% 0.1% 1,562,163 9.6% $50,374 5.2% District of Columbia 29 1 $0 0.0% 0.0% 590,484 1.7% $51,491 4.6% Massachusetts 180 1 $0 0.0% 0.0% 6,499,354 0.7% $68,225 5.4% Pennsylvania 245 1 $0 0.0% 0.0% 12,598,860 0.8% $53,225 4.9%

Total JPM 3 5,183 $618,125,022 9.0% 234,009,351 3.7% $57,429 5.0% Aggregate National 309,731,508 4.6% $54,719 4.1% Source: SNL Financial, LC

Exhibit 29: Branch Map

Source: SNL Financial, LC

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History The JPMorgan Chase & Co. of today primarily consists of three entities formed in the past decade with two recent notable additions resulting from the financial crisis of 2008. The company is the result of the merger between The Chase Manhattan Corp. and J.P.Morgan & Co., and subsequently with Bank One Corp. merging the three leaders in commercial banking, investment banking and consumer banking. The Chase Manhattan Corp: The Chase Manhattan Corp. roots go back to the founding period of the US. The modern company was formed from the merger between The Chase Manhattan Corp. and Chemical Banking Corp. in 1996. The Chase Manhattan Corp. was a decedent of the Bank of the Manhattan Company and Chase National Bank of the City of New York. The Bank of the Manhattan Company was founded by former U.S. Vice President Aaron Burr in 1799. The bank was originally formed not for banking activities, rather for a water works project for the Lower Manhattan area. In forming the company, Burr cleverly added a stipulation that allowed the company to use its excess capital for other purposes, which led to banking activities. Chase National Bank of the City of New York was formed in 1877 by John Thompson, a Wall Street publisher and banker. The ‘Chase’ name given by Thompson was in honour of his late friend, Salmon P. Chase, who served as President Abraham Lincoln’s Treasury Secretary, as the governor of Ohio and as chief justice of the US. Chase became a respected correspondent bank and grew a large corporate business. By 1930, Chase was the largest bank in the world with $2.7 billion in assets. Chase would go on to merge with The Bank of the Manhattan Co. in 1955 to form The Chase Manhattan Corp. On the Chemical Banking Corp. side, Chemical Banking was the result of the merger between Manufactures Hanover Corp. and Chemical Banking Corp., with the resulting entity keeping the Chemical name. Manufactures Hanover Corp. traces its roots back to a manufacturer of cotton-processing equipment, New York Manufacturing Co., in 1812. The company would switch to banking five years later and was the precursor to Manufacturers Trust Company, which would then go on to merge with Hanover Bank in 1961 to form Manufacturers Hanover Corp. The pre-merger Chemical Banking Corp. came from the New York Chemical Manufacturing Co., which was formed in 1823 and produced medicines, paints and dyes in the Greenwich Village district of New York City. The company modelled its business similarly to The Bank of the Manhattan Co. using its excess capital for banking activities, which led to the formation of The Chemical Bank of New York. In 1986, Chemical Bank announced the largest interstate banking merger in U.S. history at the time with the acquisition of Texas Commerce Bancshares for $1.1 billion. J.P. Morgan & Co.: J.P. Morgan & Co. was founded in New York City in 1871 as Drexel, Morgan & Co., which took the name from its founders J. Pierpont Morgan and Philadelphia banker Anthony Drexel. In 1895, the company would take its modern day name, J.P. Morgan & Co., and in 1914, it took the headquarters at 23 Wall Street, famously known as ‘The House of Morgan’. The firm was originally a merchant bank focused on offering its European clients investment opportunities in the US. J.P. Morgan became heavily involved in the railroad industry in the late 1800s under a process known as ‘morganization’. At the time, the railroad industry was in flux with overcapacity and rate wars. Morganization entailed the take over of small, competing and under-financed railroad companies, and merging them eventually to form near monopolies, which ultimately guaranteed a steady return to Morgan’s European investors, as well as creating a more efficient and operational national railroad network. In total, the firm played a role in one-sixth of the railroad tracks in the US, including the Northern Pacific, the Erie and the Reading railroads. This process was repeated in the steel, electric and banking industries, making J.P. Morgan & Co. the most powerful investment bank in the world at the time. The company would play pivotal roles in U.S. finance, helping the U.S. government in 1894 when gold reserves fell, as well as playing a pivotal role in the 1907 financial panic, and helping the U.S. government raise $40 million for the purchase of the land rights to the Panama Canal from the bankrupt French Panama Canal Co. In addition to the U.S. government, J.P. Morgan & Co. also helped the UK and France finance their war efforts in 1914. By 1933, the effects of the Depression were felt across the US, and the Glass-Steagall Act was passed forcing J.P. Morgan & Co. to separate its investment banking and commercial banking businesses. The company ultimately elected to spin off its investment banking business, which ultimately formed the modern-day Morgan Stanley. Meanwhile, J.P. Morgan focused on its commercial banking business and, in 1959, merged with the Guaranty Trust Company of New York, which was four times the size of J.P. Morgan at the time. The resulting entity originally took the name of Morgan Guaranty Trust Company, but returned to its original moniker in the late 1980s. Bank One Corp.: The modern-day Bank One Corp. traces its lineage to the pre-merger Bank One Corp. and First Chicago NBD Corp. To begin, pre-merger Bank One Corp. was formed in 1968 and originally known as First Banc Group of Ohio. First Banc Group of Ohio was the result of the merger between City National Bank & Trust Co. of Columbus and Farmers Saving & Trust Co. in Ohio. The entity would grow by numerous acquisitions in Ohio, Arizona, Colorado, Indiana, Texas, Utah, Wisconsin and other states, and would later re-brand itself as the pre-merger Bank One Corp. First Chicago NBD Corp. was a product of the automobile industry in Detroit during the depths of the Depression. In 1933, a bank holiday was declared in Detroit to allow the banks in the area to gather their footing during the turmoil. It was unfortunately that Detroit’s two largest banks were not able to recover leaving a gigantic banking hole in the area. It was at this time that General Motors Corp. and the federal Reconstruction Finance Corp., the government agency that provided emergency financing to banks, formed the National Bank of Detroit. The bank was a huge success and eventually grew to be the largest banking institution in Michigan. It would go on to merge with First Chicago Corp. in 1995 to form First Chicago NBD.

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J.P. Morgan, Chase and the Dimon Years: In 2000, J.P. Morgan & Co. merged with The Chase Manhattan Corp. to form J.P. Morgan Chase & Co. The merger united two premier institutions in commercial and investment banking. In 2004, J.P. Morgan Chase & Co. merged with Bank One Corp. and re-branded itself as JPMorgan Chase & Co. It was also during 2000 that Jamie Dimon came into Bank One Corp. as its newly appointed CEO. Previously, Dimon worked under Sandy Weill at Citigroup. At the time of Dimon’s arrival, Bank One Corp. was struggling to digest the merger with First Chicago NBD Corp., which was not going very well. The year that Dimon joined, the company suffered a $500 million net loss for the year. Dimon turned the company around within a year as the company posted a net profit of $2.6 billion and eventually $3.5 billion in 2003, the year prior to its merger with J.P. Morgan Chase & Co. In 2004, J.P. Morgan Chase & Co. merged with Bank One Corp. to form JPMorgan Chase & Co, now a global leader in commercial, consumer and investment banking. Dimon joined the new company as president and COO but was designated to take the CEO position within two years. Dimon became CEO in 2006 and received the chairmanship as well later that year. Exhibit 30 shows the defining mergers and acquisitions that result in the JPMorgan Chase & Co. of today.

Exhibit 30: Defining Mergers & Acquisitions

Source: Company Reports, SNL Financial, LC Financial Crisis: The newly formed JPMorgan Chase & Co. entered the financial crisis in a position of strength under Dimon’s leadership. Although not unscathed, the company managed to steer far enough from the subprime mess. This position of strength gave the company unique opportunities during a period of weakness for the industry. In 2008, the financial crisis was brewing full steam as Bear Stearns was about to go under. JPM was the only company large enough and with enough capital and management talent to execute the fire-sale purchase of Bear Stearns in a weekend. JPM would later go on to acquire Washington Mutual through a government-assisted deal in the same year. In 2008, JPM also accepted TARP funds from the government. The company did not need the capital at the time because its balance sheet was very strong, in our opinion; nevertheless, the perception of TARP at the time was not what it is currently. Many well capitalized banks, big and small, accepted TARP funds because it was believed at the time to be a ‘patriotic’ thing to do, and it allowed weaker banks to accept funds without the stigma and potential issues of being a weaker bank. We also believe that healthy banks had their ‘arms twisted’ forcing them to accept TARP. Indeed, some investment bankers even advised their clients to accept the funding as a sign of doing one’s duty for the good of the country. Hindsight is always 20-20, because many well capitalized banks did not gain financially and have had to deal with the public relations issues that go with being a TARP recipient and the costs of paying it back.

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Navigating the Financial Crisis Throughout the crisis, JPM did not record one quarterly loss, and made two capital raises (excluding TARP, which the company did not need), the first was used in its acquisition of Washington Mutual and the second was required to pay back TARP, in our opinion. Looking at its peers that have survived, this is quite an impressive feat. Goldman Sachs, Bank of America/Merrill Lynch, Morgan Stanley, Citigroup and Wells Fargo all recorded at least one quarterly loss, and all required injections of capital of some sort. Strong Management Teams : Looking back, we can see the problems that many companies face today can at least be partially attributable to poor or inept management teams. Some management teams did not have the appropriate backgrounds to understand the risks of the businesses that they were entering. Some took too much risk. Many were complacent in their monitoring of risk. History tells us that the next crisis will occur about a decade away from when the current one ends. A strong management team will be even more imperative in preparation for that event. We believe that JPM’s excellent performance relative to its peers thus far can be at least partially attributed to its management team, led by Jamie Dimon. Specifically, we believe the following actions were critical in steering the company away from many of the disastrous fates: 1. The company stayed away from sponsoring and financing structured investment vehicles (SIV). The issue with SIVs: a. SIVs relied on short-term funding (commercial paper) to acquire long-term assets, resulting in a liquidity risk if the SIV cannot roll over the commercial paper and solvency risk if the asset falls below the value of the commercial paper. b. In order to get a high rating, SIVs were required to obtain liquidity facilities from banks to reduce exposure to market disruptions when the commercial paper had to be rolled over. Banks offering this backstop were at high risk of being called when the financial crisis hit and the credit markets froze. 2. The company did not underwrite option adjustable-rate mortgage (ARM) loans because they were not consumer friendly. Many customers most likely did not fully understand the risks, which would ultimately be a problem for the bank. 3. The company significantly cut down on subprime mortgage underwriting in 2006. Although the mortgages would eventually be securitized and sold off in the market, there was a large risk during the time the securitized book was being built and held on the balance sheet. 4. The company shied away from entered the collateralised debt obligation (CDO) business because risks were too high. 5. The company did not over leverage itself and contained high-quality capital. 6. The company maintained high levels of liquidity. 7. The company maintained a high level of core deposits. Although the company was able to steer clear from the major pitfalls, it stumbled in regards to its consumer loan portfolio, to which we believe management regrets. The mistakes relate to consumer mortgages. In the midst of the frenzy, JPM relaxed its underwriting standards and offered loans with loan-to-values (LTV) greater than 80%. JPM also offered loans without requiring documentation (liar loans). Last, the company relied on approximately one-third of its loan generation through the wholesale channel (third-party mortgage brokers), which have a statistically higher rate of default than in-house loans.

Diverse Lines of Business: Prudent management alone would most likely not have been able to keep JPM profitable throughout the crisis. What contributed to the company’s ability to remain stable were the diverse income streams from the different business lines. Exhibit 31 displays the bottom line contributions from each business line for full-year 2008 and 2009 and the first quarter of 2010 in a heat map format. As one can see, the company reported $5.6 billion in earnings in 2008, and that Investment Banking (IB) reported a loss of $1.2 billion for the period. Offsetting this loss were strong contributions from Commercial Banking (CB), Treasury & Securities Services (TSS) and Asset Management (AM), with modest contribution from Retail Financial Services (RFS), Card Services (CS) and Corporate/Private Equity (CP). In 2009, the firm reported net income of $11.7 billion, half of which was driven by a strong rebound in IB followed with a strong contribution from CP and steady contributions from CB, TSS and AM. CS recorded a gigantic loss of $2.2 billion for the period and RFS barely broke a profit. In the first quarter of 2010, IB continued the strong support with $2.5 billion in earnings followed by steady contributions from CB, TSS, AM and CP. CS continues its trend losing $303 million in the first quarter of 2010 followed by a loss of $131 million in RFS. With that said, the first quarter of 2010 was still a good quarter and is a good start for a year when the company should earn in excess of $18 billion.

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Exhibit 31: Line of Business Contributions to Consolidated Net Income ($M) Heat Map of Net Income Contributions

Consolidated IB RFS CS CB TSS AM CP 1Q10 3,326 2,471 (131) (303) 390 279 392 228 2009 11,728 6,899 97 (2,225) 1,271 1,226 1,430 3,030 2008 5,605 (1,175) 880 780 1,439 1,767 1,357 557 Source: Company reports

Consolidated Revenue Overview The company’s revenue stream is split 50% between net interest income and non-interest income for the first quarter of 2010. Net interest income is generated from revenue received through loans and interest-earning securities less interest expense paid on interest- bearing liabilities used to fund the interest earning assets. The ratio of net interest income to average earning assets is a common metric that the industry focuses on in gauging net interest income. Non-interest income is generated through fees on products and services offered by JPM’s various lines of business. • Net Interest Income (50% of total revenue): JPM makes loans and purchases securities and other earning assets using funds from deposits, borrowings and its own capital. The company collects the difference between the interest income received and interest expense paid out as net interest income. Loans are divided into eight categories: 1) home equity, 2) prime mortgage, 3) subprime mortgage, 4) option ARMs, 5) auto loans, 6) credit card loans, 7) other consumer loans and 8) wholesale loans (commercial loans). Loans totalled $725 billion or 33% of total assets for the first quarter of 2010. The company’s securities and other earning assets portfolios include the following: 1) investment securities, 2) trading assets – debt instruments, 3) securities borrowed and 4) Fed funds sold and repos. Securities and other earning assets totalled $1.2 trillion, or 56% of total assets, for the first quarter of 2010. On the interest-bearing funding side, the company has $925 billion in total deposits, representing a conservative loan-to-deposit ratio of 77%, for the first quarter of 2010. The company’s borrowings consist of $395 billion in short- term borrowings and $263 billion in long-term debt for the quarter. The absolute size of the earning asset base, along with NIM, is the key driver of net interest income. For the first quarter of 2010, net interest income was up to $13.7 billion from $12.4 billion in the prior quarter and increased slightly from the year-ago quarter of $13.4 billion. The NIM remained flat at 3.32% from the prior quarter, but down from 3.60% in the year-ago quarter, on a securitization-adjusted basis to account for FAS 166 and 167 in the first quarter of 2010. Going forward, we anticipate NIM remaining flat assuming that interest rates remain unchanged and trending downward with a rate hike. • Non-interest income (50% of total revenue): Approximately two-thirds of non-interest income comes from investment banking fees, principal transactions and asset management-related fees totalling $1.5 billion, $4.5 billion and $3.3 billion, respectively, for the first quarter of 2010. Consumer-focused, non-interest income items of lending and deposit-related fees and credit card income totalled $1.6 billion and $1.4, respectively, for the quarter. The most-volatile component of non-interest income is principal transactions, which consists of revenue from trading and private equity investing, and showed large losses in 2008. As highlighted earlier, we anticipate that JPM will be negatively affected by the debit and credit card legislation, and the Dodd- Frank Act. For debit card transactions, Regulation E came into effect July 1, 2010 and requires customers to opt in for the overdraft protection service. A debit transaction will be denied if the banking customer does not opt in and attempts to execute a debit transaction with insufficient funds. JPM anticipates Regulation E will cost approximately $500 million in net income per year. For credit cards, the Credit Card Act of 2009 restricts a card issuer’s ability to change rates and prohibits several practices that were not deemed consumer friendly, such as double-cycle billing, which calculates interest due on the current billing cycle as well as the prior billing cycle. Ultimately, JPM estimates that $500 million to $750 million in net income will be lost from this legislation. We believe that it could be closer to $850 million. In addition, due to the inflexibility to adjust rates, the company estimates that approximately 15% of its credit card customers will no longer be offered credit cards due to the high risk they pose, and it will reduced or eliminated credit lines for those customers with inactive usage. The recent Dodd-Frank Act will have a material effect on JPM’s earnings. We estimated the effect to be about 5% to net income. For full analysis on the effect to earnings, refer to Exhibit 2 in the Valuations and Estimates section. For full details on the Dodd- Frank Act, refer to section Potential Effect from Dodd-Frank Act .

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103 July 12, 2010 JPMorgan Chase & Co.

Exhibit 32: Revenue Breakdown 1Q10: 30,000

25,000 Mortgage fees and related Credit card 20,000 Securities income income gains 2% 5% Other income 2% 15,000 1% $ Millions $

Asset mgmt., 10,000 admin & commiss. Net interest 12% 5,000 income Lending & 51% deposit- 0 related fees 6% Principal Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Investment transactions banking fees Net interest income Investment banking fees 16% 5% Principal transactions Lending & deposit-related fees Asset mgmt., admin & commiss. Credit card income Other income

Source: Company reports

Exhibit 33: Net Interest Margin

3.80%

3.60% 3.64% 3.48% 3.39% 3.40% 3.36% 3.40% 3.35% 3.35% 3.21% 3.20% 3.18% 3.29% 3.32% 3.12% 3.00% 3.10% 3.07% 3.02% 2.87% 2.80%

2.60%

2.40% 2.39%

2.20% 2.16% 2.00% 2006 2007 2008 2009 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10

JPM JPM Peer

JPM Peer: BAC, C, WFC, and Wachovia (2006 – 2007) Source: SNL Financial, LC

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104 July 12, 2010 JPMorgan Chase & Co.

Consolidated Expense Overview JPM has improved on operating efficiency in the past two years from the prior years. Compensation expense is in-line with typical commercial banks at 35% of total revenues for the past four years and is lower than some investment banking peers that pay out close to 50% of total revenues. In 2009, the company kept its efficiency ratio (the ratio of core operating expense to total revenue) close to 50%. Costs in 2008 were contained as well; however, revenues fell sharply that year offsetting the gains in cost controls. For the first quarter of 2010, the company saw a jump in operating expense primarily due to 1) an increase in compensation reflecting higher investment banking revenues and 2) an increase in other expense due to a $2.3 billion charge for litigation reserves related to pending class-action lawsuits on mortgage-backed security (MBS) and related products. The increase in compensation, albeit large on an absolute basis, actually decreased relative to total revenue at 26%. Excluding the one-time litigation reserve charge, the company’s expenses were in line with recent prior quarters with an efficiency ratio slightly above 50%. Going forward, we anticipate that the company will maintain costs within 50% to 55% of revenues, excluding any one-time charges.

Exhibit 34: Non-Interest Expense 1Q10: 18,000

16,000

14,000 Merger costs Amortization 0% 12,000 of intangibles 2% Compensation 10,000 Other expense expense $ Millions $ 8,000 44% 28% 6,000

4,000 Marketing 4% 2,000 Professional Occupancy 0 and outside Tech, comms expense 5% Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 services & equip 10% expense Compensation expense Occupancy expense 7% Tech, comms & equip expense Professional and outside services Marketing Other expense Amortization of intangibles Merger costs

Source: Company reports The company’s efficiency ratio was 58.7% in the first quarter of 2010 compared to 51.4% in the prior quarter and 51.2% in the year- ago quarter (see Exhibit 35). The year-over-year increase was due to the most recent quarter containing a $2.3 billion litigation reserve, while the sequential increase was attributable to the litigation reserve and compensation expense reaching more normalized levels because the fourth quarter 2009 had abnormally low compensation expense.

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105 July 12, 2010 JPMorgan Chase & Co.

Exhibit 35: Efficiency Ratio

70%

63.6% 63.1% 61.3% 60% 60.0% 58.7% 59.0% 58.1% 57.6% 57.4% 56.3% 52.8%

51.2% 53.0% 50% 51.9% 51.9% 49.5% 51.4% 49.5%

40% 2006 2007 2008 2009 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10

JPM JPM Peer

JPM Peer: BAC, C, WFC, and Wachovia (2006 – 2007) Source: SNL Financial, LC

Exhibit 36: Compensation/Total Revenue

43%

39% 38% 36% 34% 35% 33% 31% 32% 29% 32% 28% 29% 27% 28% 28% 27% 27% 27% 25% 23% 22%

20% 18% 2006 2007 2008 2009 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10

JPM JPM Peer

JPM Peer: BAC, C, WFC, and Wachovia (2006 – 2007) Note: Citigroup Q4-09 excluded due to it being an outlier (116%) Source: SNL Financial, LC

Credit Exposure Being the second largest bank in assets in the US, JPM naturally moves with the overall economy, and the risks associated with the company are primarily derived from its overall credit exposure. Exhibit 37 displays the company’s quarterly credit exposure by portfolio. Currently, the company has approximately $1.14 trillion in total credit exposure, of which 56% is on the wholesale side, 23% from consumer home loans and 13% from consumer credit cards to round out the top three. We anticipate the consumer portion to contract slightly further for the next few quarters, primarily due to the Credit Card Act. Additionally, because home-related credit losses remain elevated and unemployment is still high, underwriting standards will remain conservative, which will place a governor on growth, in our opinion.

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106 July 12, 2010 JPMorgan Chase & Co.

Exhibit 37: Total Credit Exposure by Portfolio 1,600,000 1Q10:

1,400,000 Credit card Auto 1,200,000 13% Other loans 4% 3% 1,000,000 Option ARMs 3% 800,000

$ Millions $ Subprime 600,000 mortgage Total 2% 400,000 Wholesale Prime Credit 200,000 mortgage 56% - 8% Home equity 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 11% Total Wholesale Credit Home equity Prime mortgage Subprime mortgage Option ARMs Auto Credit card Other loans

Source: Company reports Exhibit 38 shows the industry concentration for the wholesale portfolio as of the first quarter of 2010 compared to 2006. For the most part, the portfolio mix is essentially the same, although real estate exposure has dropped considerably from 11% of overall wholesale portfolio to 5% as of the first quarter of 2010.

Exhibit 38: Wholesale Portfolio Top-10 Industry Concentration 4Q06: 1Q10:

Real estate Banks and Banks and 11% finance Real estate Healthcare finance companies 5% 5% companies Healthcare 10% 9% 6% State and All other municipal 48% State and governments municipal All other 5% governments 52% Consumer 5% products Utilities Utilities Insurance 4% 4% 4% 2% Consumer Asset Retail and Oil and gas Oil and gas Securities managers products Retail and consumer 4% 3% Asset firms and 4% 4% consumer services managers exchanges services 3% 4% 4% 4%

Source: Company reports

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107 July 12, 2010 JPMorgan Chase & Co.

In light of the recent headlines regarding the debt crisis of Portugal, Italy, Ireland, Greece and Spain, as well as potentially other European nations, JPM’s European-credit exposure is manageable, in our view. Exhibit 39 displays JPM’s first-quarter 2010 cross- country exposure based on The Federal Financial Institutions Examination Council (FFIEC) Form-009a criteria, which for Part A is credit “exposure to any country that exceeds 1% of the reporting institution’s total assets or 20% of its total capital, whichever is less.” For Part B, cross-country credit exposure that “exceeds 0.75% but does not exceed 1% of the reporting institution’s assets or is between 15% and 20% of its total capital, whichever is less,” JPM had $37 billion in exposure in this category, of which Ireland was the only European nation. Our estimated total-European aggregate exposure is approximately $206 billion, or 157% of Tier 1 capital, of which $118 billion will mature in less than one year. It should be noted that this report is very conservative because it does not factor in underlying cash and other collateral that should be netted against the exposure. In a May 2010 comment by Jes Staley, CEO of the Investment Bank business line, Greece exposure (not in the table) has been stated as “de minimis, pretty much close to zero,” and that the company was “comfortable” with commitments from Italy and Spain. Exhibit 40 lists JPM’s top-10 emerging markets exposure, which totalled approximately $47 billion, representing approximately 36% of Tier 1 capital and 4% of total credit exposure. Many of these counties have weathered the financial crisis fairly well, some better than the US, and we feel that Europe in general would pose a higher risk, not necessarily from outright defaults, but perhaps from sluggish growth because austerity programs will likely lead to economic contractions and exports have been cited as the saviour of the continent. Unfortunately, as more countries rely on exports to get out of the crisis, the more difficult it will be in executing this strategy, in our opinion.

Exhibit 39: Cross-Country Exposure Report (FFIEC Form: 009a) Distribution of Amounts in Column 1 ($Millions) Cross-Border Claims ($Millions) By Type of Borrower By Maturity Cross-Border Frgn Local Claims from Public Claims Resdnts Derivatives Total % of Tier 1 Banks Sector Other <= 1 Year > 1 Year Part A of Form 009a: France 49,329 1,985 3,419 54,733 41.7% 24,684 6,406 18,239 38,535 10,794 Netherlands 43,931 - 2,323 46,254 35.2% 15,515 1,003 27,413 30,429 13,502 Cayman Islands 41,405 - 4,804 46,209 35.2% 175 12 41,218 33,004 8,401 Japan 36,751 5,199 3,733 45,683 34.8% 29,546 58 7,147 34,764 1,987 Germany 35,205 - 4,428 39,633 30.2% 14,922 12,712 7,571 24,452 10,753 United Kingdom 16,622 - 5,328 21,950 16.7% 9,052 1,083 6,487 11,185 5,437 Italy 16,388 209 5,238 21,835 16.6% 4,285 7,365 4,738 13,219 3,169 TOTAL 239,631 7,393 29,273 276,297 210.4% 98,179 28,639 112,813 185,588 54,043 % Total Credit Exposure ($1.1T) 21.0% 0.6% 2.6% 24.3%

Part B of Form 009a: Korea, Ireland 37,265

Aggregate Eurpean exposure 1 205,763 156.7% 117,820 % Total Credit Exposure ($1.1T) 18.1% 10.3% Part A of Form 009a: Total exposure to any country that exceeds 1% of the reporting institution's total assets or 20% of its total capital, whichever is less. Part B of Form 009a: To any country not listed in Part A, where exposure exceeds 0.75% but does not exceed 1% of the reporting institution’s assets or is between 15% and 20% of its total capital, whichever is less. 1) Aggregate European exposure based solely on Form 009a data for France, Netherlands, Germany, UK, Italy and Ireland, and assumes Ireland credit exposure is 1% of total JPM 1Q10 assets, or $21.4 billion, all of which is assumed to mature beyond one year. Source: Federal Financial Institutions Examination Council

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108 July 12, 2010 JPMorgan Chase & Co.

Exhibit 40: Top-10 Emerging Markets Credit Exposure Cross-Border (in $billions) Total Country Lending Trading Other Total Local Exposure % of Tier 1 South Korea 3.1 1.8 1.4 6.3 4.5 10.8 8.2% India 1.9 3.5 1.2 6.6 1.3 7.9 6.0% Brazil 2.3 0.1 1.0 3.4 3.6 7.0 5.3% China 3.0 0.7 1.0 4.7 - 4.7 3.6% Mexico 1.5 1.4 0.4 3.3 - 3.3 2.5% Hong Kong 1.3 0.6 1.3 3.2 - 3.2 2.4% Taiwan 0.3 0.7 0.4 1.4 1.6 3.0 2.3% Malaysia 0.5 2.0 0.3 2.8 - 2.8 2.1% Chile 0.9 0.8 0.5 2.2 - 2.2 1.7% Turkey 0.7 1.3 0.1 2.1 - 2.1 1.6% Total Exposure 15.5 12.9 7.6 36.0 11.0 47.0 35.8% % Total Credit Exposure ($1.1T) 1% 1% 1% 3% 1% 4% Source: Company reports

Asset Quality A critical turning point will be a peak in credit deterioration. Once this has occurred, we believe that JPM’s earnings power will become more optimized because credit costs will ease. We believe that credit deterioration has peaked for the banking industry as a whole in the first quarter of 2010 and in JPM’s case, perhaps in the fourth quarter of 2009. As we analyze credit quality at this stage of the credit cycle it is important for investors not to loose sight of the 90+ days and still accruing and troubled debt restructuring (TDRs) categories. Though JPM’s TDR disclosure is limited to once a year, we estimated the TDR component of NPAs for the periods where it is unavailable. In viewing Exhibit 41, investors can see that the NPA ratio appears to have peaked in the fourth quarter of 2009 at a level that is below many of its competitors. We expect the NPA ratio to decline steadily during the next two years due to a strengthening in the economy and stronger loan underwriting, which should lead to lower credit costs, in our opinion.

Exhibit 41: NPAs (including TDRs & 90PD) / Loans + REO

NPAs + 90PD / Loans + REO

4.50%

4.00%

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

A A A A A A A A Q09 1Q08 2Q08 3Q08 4Q08 1Q09A 2 3Q09 4Q09 1Q10

Source: Company reports; RBC Capital Markets Estimates Note: For 1Q08 to 3Q08, TDRs approximated using 4Q07. For 1Q09 to 3Q09, TDRs approximated using 4Q08. For 1Q10, TDRs approximated using 4Q09.

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109 July 12, 2010 JPMorgan Chase & Co.

Exhibit 42 shows the breakout in non-performing assets by portfolio. We can see that NPAs grew by a factor of four from $5 billion in the first quarter of 2008 to the peak of $20 billion in the third quarter of 2009 (note that these NPAs do not include TDRs and loans 90+ days past due). The largest increase came in the wholesale portfolio, which peaked in the third quarter of 2009 and currently represents 34% of total non-performing assets. Exhibit 43 shows the NPA breakout as a percentage of the portfolio exposure. Not surprisingly, the largest non-performers relative to the portfolio are in subprime and prime mortgages. We expect these levels to remain flat but elevated because unemployment remains high. Once unemployment subsides for a few quarters, we can expect these elevated levels to come down.

Exhibit 42: NPAs excl TDRs & 90PD 25,000 1Q10: Assets Other loans acquired in 20,000 5% loan satisfactions Total Credit card - 8% Wholesale 15,000 reported Credit 0% 34% $ Millions $ 10,000 Auto loans 1%

5,000 Option ARMs 2% - Subprime 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 mortgage

Total Wholesale Credit Home equity 18% Prime Home equity Prime mortgage Subprime mortgage mortgage 8% Option ARMs Auto loans 24% Credit card -reported Other loans Assets acquired in loan satisfactions

Source: Company reports

Exhibit 43: NPAs/Portfolio 20% 18% 16% 14% 12% 10% 8%

NPAs/Portfolio 6% 4% 2% 0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Total Wholesale Credit Home equity Prime mortgage Subprime mortgage Option ARMs Auto Credit card Other loans Source: Company reports Breaking down the non-performers by business lines, Exhibit 44 shows a disproportionate amount of the NPAs residing in RFS, which is not a surprise. Currently, almost two-thirds of the company’s NPAs reside within RFS, while IB and CB make up roughly the other

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110 July 12, 2010 JPMorgan Chase & Co. third of NPAs. The positive takeaway is that overall non-performers have gone down. The negative is that the drop in NPAs is primarily coming from the wholesale side. Consumer NPAs, which almost entirely lie in RFS, are still elevated

Exhibit 44: NPAs excl TDRs & 90PD by LOB 25,000 1Q10:

Asset Management 20,000 3% Corporate/Private Treasury & Equity 15,000 Securities Services 0% 0% Investment Bank $Millions 10,000 Commercial 17% Banking

5,000 17%

- Card Services Retail Financial 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 0% Services Investment Bank Retail Financial Services 63% Card Services Commercial Banking

Treasury & Securities Services Asset Management Corporate/Private Equity

Source: Company reports Focusing more on the consumer portfolio, Exhibit 45 displays the net charge-off rates for RFS and CS. As one can see, the net charge offs (NCO) are very high and CS NCOs climbed further in the latest period. RFS NCOs have been relatively flat for the last four quarters at around 4.5% while CS NCOs currently stand at 11.6%. As we stated earlier, lower unemployment is a main factor that is needed to reverse this trend, in our opinion.

Exhibit 45: Consumer Net Charge-Offs 1Q10: 14%

12%

10% Retail Financial 8% Services 35%

$Millions 6%

4% Card Services 65% 2%

0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Retail Financial Services Card Services Total Consumer

Source: Company reports

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111 July 12, 2010 JPMorgan Chase & Co.

Although data thus far show continued weakness on the consumer side, we see early positive signs in the exhibits below. Exhibit 46 breaks out the Retail Financial Service’s Net Charge-Offs by sub-business lines, which are 1) Retail Banking, 2) Mortgage Banking & Other Consumer and 3) Real Estate Portfolios. Management segmented RFS in the following manner to better understand the performance of its non-real estate related business. What the data show looks promising. The chart on the right shows that 85% of the net charge-offs are related to its real estate portfolio not its other sub-business lines. The chart on the left gives the net charge-off rate. What we see is that net charge-offs for the normal business lines of Retail Banking and Mortgage Banking & Other have declined, while the legacy real estate portfolio has been at a relatively high, but flat level for several quarters. This sign could be an early indicator that credit deterioration has stabilized on the on-going consumer side.

Exhibit 46: Retail Financial Services Net Charge-Offs by Sub-LOB 1Q10: 7% Retail Banking 6% 8% Mtg Banking & Other 5% Consumer

4% 7%

NCO Rate 3%

2%

1% Real Estate (Mortgage) 0% 85%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 Retail Banking Mtg Banking & Other Consumer Real Estate (Mortgage) Total RFS

Source: Company reports On the wholesale side, we saw earlier that NPA levels have already trended downward. Net charge-offs, as Exhibit 47 shows, are also trending downward for IB and CB, which combined makes up approximately 75% of the overall wholesale net charge-offs.

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112 July 12, 2010 JPMorgan Chase & Co.

Exhibit 47: Wholesale Net Charge-Offs LOB 1Q10: 6%

Asset Investment 5% Management Bank 17% 27% 4%

3% Treasury & Securities Services 2% 11% Net Charge-Off Rate Charge-Off Net 1% Commercial

0% Banking 45% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 -1% Investment Bank Commercial Banking Treasury & Securities Services Asset Management Total Wholesale

Source: Company reports Off-Balance Sheet Exposure Special-Purpose Entities: JPMorgan is involved in special-purpose entities (SPEs) to offer to its clients liquidity and access to specific asset portfolios with various risks and returns, as well as providing liquidity to itself. SPEs are created by a sponsor with a focused purpose. SPEs are funded through the issuance of various debt instruments, ranging from short-term commercial paper to medium-term notes as well as other forms of capital. In return for the purchase of these debt securities, investors generally receive the cash flow of the underlying investments that the SPE will purchase with the new capital. SPEs are an integral part of the modern financial markets because they allow financial products to be created that meet various investment criteria and hence open the financial markets to many more investors. JPMorgan is involved with three types of SPEs: 1. Multi-seller conduit: The SPE purchases the asset-backed securities from more than one originator. JPM receives fees related to the structuring of multi-seller conduit transactions, as well as compensation as administrative agent, liquidity provider and provider of program-wide credit enhancement. 2. Investor intermediation: These SPEs are essentially used to create derivatives structures that clients look for. 3. Qualifying special-purpose entities (QSPE): These SPEs are created solely for the purpose of securitizing loans and are required to meet certain criteria. Exhibit 48 shows revenues related to the three SPEs. Most of the fees are from contractual servicing and credit fee income (i.e., income from acting as administrator, structurer or liquidity provider).

Exhibit 48: SPE-Related Revenues Reveue from SPEs ($Millions) 1Q10 FY09 FY08 FY07 Multi-seller conduits 67 460 314 187 Investor intermediation 13 34 22 33 QSPEs and other securitization entities 544 2,510 1,742 1,420 Total 624 3,004 2,078 1,640 Source: Company reports

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Guarantees and Commitments: The recent financial crisis highlighted one of the risks involved when dealing with SPEs. In order to receive desired credit ratings for certain asset tranches, credit rating agencies required the SPE to receive liquidity commitments (or other guarantees, such as credit enhancements) from their sponsor or other financial companies. The liquidity commitments essentially guarantee the orderly payment to investors for the underlying asset tranche should the asset become past due or non-performing. In addition, liquidity commitments may have other triggers, such as a credit rating downgrade. In return for the commitment, the provider would receive a certain fee. During the crisis, many banks were called on to follow through on their liquidity commitments once defaults, write-downs and credit downgrades occurred. If the draw became large enough, the bank would eventually bring the asset onto its balance sheet and most likely mark the asset down. As of the first quarter of 2010, some of the liquidity commitments that JPM had were contingent on its subsidiary, JPMorgan Chase Bank, N.A., to maintain a short-term credit rating of P-1, A-1 and F1 for Moody’s, Standard & Poor’s and Fitch, respectively. These commitments totalled $32.7 billion as of the first quarter of 2010 compared to $34.2 billion as of the fourth quarter of 2009. Exhibit 49 displays the company’s off-balance sheet guarantees and commitments that have maturities. Most of the consumer-related commitments stem from credit card lines, while other unfunded commitments to extend credit make up the majority on the wholesale side. It should be noted that these commitments often expire without being drawn and even higher proportions expire without a default. In addition, the company can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice at all.

Exhibit 49: Outstanding Guarantees and Commitments (excludes those without Maturities) March 31, 2010 Dec. 31, 2009 Due after Due after 1 year 3 years By remaining maturity Due in 1 through through Due after (in millions) year or less 3 years 5 years 5 years Total Total

Lending-related Consumer: Home equity - senior lien 344 1,908 5,830 10,788 18,870 19,246 Home equity - junior lien 688 4,650 11,978 18,337 35,653 37,231 Prime mortgage 1,136 - - - 1,136 1,654 Subprime mortgage ------Option ARMs ------Auto loans 6,070 175 5 - 6,250 5,467 Credit card 556,207 - - - 556,207 569,113 All other loans 8,941 293 106 994 10,334 11,229 Total consumer 573,386 7,026 17,919 30,119 628,450 643,940

Wholesale: Other unfunded commitments to extend credit 63,914 104,584 19,128 4,627 192,253 192,145 Asset purchase agreements - - - - - 22,685 Standby letters of credit and other financial guarantees 26,886 46,388 14,812 2,278 90,364 91,485 Unused advised lines of credit 33,782 4,993 100 202 39,077 35,673 Other letters of credit 3,915 965 342 5 5,227 5,167 Total wholesale 128,497 156,930 34,382 7,112 326,921 347,155

Total lending-related 701,883 163,956 52,301 37,231 955,371 991,095

Other guarantees and commitments Securities lending guarantees 171,529 - - - 171,529 170,777 Derivatives qualifying as guarantees 17,621 17,866 11,681 34,678 81,846 87,191 Equity investment commitments 1,423 9 13 955 2,400 2,374 Building purchase commitment 670 - - - 670 670 Source: Company Filings.

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114 July 12, 2010 JPMorgan Chase & Co.

Funding Overview As with most banks, JPMorgan derives most of its funding from deposits, which have dropped to 58% as of the first quarter of 2010 from 63% of total funding. The company also utilizes Fed Funds and Repos as the primary source of short-term funding (19% of funding) with commercial paper making up 3% of funding for the first quarter of 2010. Other borrowed funds primarily consist of Federal Home Loan Bank (FHLB) Advances and provide 3% of overall first-quarter 2010 funding. The spike of other borrowed funds in fiscal 2008 is representative of the unique situation of that moment when the financial markets froze. Other borrowed funds for that period consisted of approximately $70 billion in FHLB Advances, $11 billion from the Federal Reserve Board of Boston (FRBB) and $51 billion in other sources. The FRBB funds were established to provide liquidity to U.S. money market mutual funds (MMMFs). Under the lending facility, banking organizations were required to use the loan proceeds to finance purchases of eligible, high-quality, asset-backed commercial paper from MMMFs. The $51 billion in other sources contained $30 billion from the Term Auction Facility (TAF). This facility was one of many programs conducted by the Fed and Treasury to improve liquidity when the markets froze.

Exhibit 50: Funding Source Historical Funding Breakout 1Q10 Funding Breakout 100% Long-term 90% debt (incl 80% TRUPS) Other 70% 17% borrowed 60% funds 3% 50% $ Millions $ 40% Commercial paper 30% 3% Deposits 20% 58% 10% FF Purchased & 0% Repos FY07 FY08 FY09 1Q10 19%

Deposits FF Purchased & Repos Commercial paper Other borrowed funds Long-term debt (incl TRUPS)

Source: Company Filings.

Deposit Composition JPM has a solid source of core deposits. As of the first quarter of 2010, 88% of the company’s deposits were non-time deposits. Of the 88%, 30% are foreign, 50% are money-markets and savings accounts, and the remaining 8% are demand deposits and Negotiable Order of Withdrawal (NOW) accounts. Exhibit 51 shows the historical deposit composition of the company. The spike in 2008 was due to the Washington Mutual acquisition, which added approximately $180 billion in deposits. The company’s reliance on time deposits has declined from an average of 21% of total deposits in years prior to 2009 to 12% in the first quarter of 2010, and has been replaced with MMDA and Savings accounts which currently make up 50% of total deposits compared to the 2006-2008 average of 41%. We believe that company’s solid depository funding source gives the company a great advantage over other pure broker/dealers and investment banks that rely more on wholesale funding. Dodd-Frank Act Effect on Deposits : As mentioned earlier, Sec. 627 of the Dodd-Frank Act seeks the repeal of Section 19(i) of the Federal Reserve Act (12 U.S.C. 371a), which stated that “No member bank shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit which is payable on demand.” This provision would be in effect one year after enactment of the Dodd- Frank Act. The immediate potential effect could be compression of the net interest margin due to competitive forces; however, this provision may also drive new business for those banks that could not compete with other financial institutions that did not have this restriction.

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115 July 12, 2010 JPMorgan Chase & Co.

Exhibit 51: Deposit Composition 1,200 1Q10:

Demand 1,000 NOW / Deposits Transaction 6% Accts 800 Foreign 2% Deposits 600 30% $Billions

400

200

- MMDA &

2006 2007 2008 2009 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Time Deposits Savings 12% 50% Demand Deposits NOW / Transaction Accts MMDA & Savings Time Deposits Foreign Deposits

Source: SNL Financial, LC

Regulatory Capital We believe that the JPM management team has done a very good job preserving capital in light of the financial events and compared to its peers. Exhibit 52 shows JPM’s current capital position. JPM well surpasses the minimum standard for ‘well capitalized’ status, with a Tier 1 Leverage ratio of 6.31%, Tier 1 Common ratio of 9.06%, Tier 1 Equity ratio of 11.45% and a Total Capital ratio of 15.11% for the first quarter of 2010.

Exhibit 52: Latest Three Quarters Regulatory Capital 3Q09 4Q09 1Q10 Tier 1 Leverage 6.37% 6.72% 6.31% Tier 1 Common 8.19% 8.79% 9.06% Tier 1 Equity 10.22% 11.10% 11.45% Total Capital 13.88% 14.78% 15.11% Total GAAP equity / assets 7.95% 8.14% 7.71% Tangible common / tangible assets 5.08% 5.27% 4.98% Tangible common / Risk-weighted assets 8.15% 8.70% 9.05% Source: SNL Financial, LC

Out of all the ratios, we believe that the Tier 1 Common ratio is perhaps the most followed ratio currently in terms of assessing adequate capitalization. The ratio was created as a result of the 2009 Supervisory Capital Assessment Program test, which was conducted by the Fed and applied to the largest-19 banks in the US. Tier 1 Common capital starts with Tier 1 equity and strips out all non-common equity forms of capital, such as preferred equity and hybrids like trust preferred securities. Many investors view this capital as ‘pure, quality’ capital. The only issue thus far is that it still is somewhat murky because regulators have not explicitly stated a well capitalized threshold. Presently, in the regulatory statutes and as a result of the SCAP Test, ‘well capitalized’ is defined as 4% Tier 1 Common and 6% Tier 1, but we believe that, for the largest U.S. banks, the Tier 1 Common Ratio will be increased to 7% or 8% and the Tier 1 Equity Ratio will be increased to 10% to 12%. The vagueness, however, leaves many banks unclear of the risks, and therefore they tend to err on the conservative side by not deploying their capital in an efficient way. Exhibit 53 shows a comparison of JPM’s Tier 1 Common ratio compared to the other top-5 banking institutions in the US. Clearly, JPM has consistently been well capitalized during the crisis raising capital twice. The first capital raise of $11.5 billion in September 2008 was more of an offensive

40

116 July 12, 2010 JPMorgan Chase & Co. capital raise in order to facilitate the acquisition of Washington Mutual. The second capital raise of $5.8 billion in June 2009 was related to the company’s full redemption of $25.0 billion in TARP preferred securities. The company had issued TARP preferred securities in October 2008 not out of need because the company was still adequately capitalized with a Tier 1 ratio of 8.4% and a Tier 1 Common ratio of 7.0%, but JPM accepted the TARP funds out of a request from the government to help keep the identities of those institutions that did need the capital unknown, thereby not causing a potential run on the banks, in our opinion. Of course, the perception of TARP has drastically changed, and JPM recognized this and redeemed the TARP funds in 2009. The current Tier 1 Common ratio stands at 9.06%. Two quarters ago, it stood at 8.19%, and a year ago, it was 7.28%. If the unofficial threshold for Tier 1 Common is 8%, then the company is well capitalized currently. We believe that the earnings power of the company will continue building capital at a rate of 50 to 100 basis points every two quarters. At this rate, the company could break 10% Tier 1 Common by the end of the year and be over capitalized in 2011. We believe that management will have to do something with the excess capital, most likely increase the dividend to a level closer to the historical norm of 30% of earnings or possibly a stock buyback or acquisition. We expect the company to increase its common stock dividend in 2011.

Exhibit 53: JPM Tier 1 Common Capital vs. Other Top-Five Institutions 12

10

8

% 6

4

2

-

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Bank of America Corporation Citigroup Inc. U.S. Bancorp Wells Fargo & Company JPMorgan Chase & Co.

Source: Company reports, SNL Financial, LC

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117 July 12, 2010 JPMorgan Chase & Co.

Lines of Business Overview JPM operates six business lines and operates a seventh vertical to manage its daily operations and investment portfolio (Exhibit 54).

Exhibit 54: JPM Business Lines

Source: Company reports • Investment Bank (IB): JPM’s IB division J.P. Morgan is one of the world’s leading investment banks. IB’s clients are corporations, financial institutions, governments and institutional investors. IB 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, research and thought leadership. IB also commits the firm’s own capital to principal investing and trading activities on a limited basis. • Retail Financial Services (RFS): RFS is JPM’s retail banking arm and is broken down into three-major reporting segments as of the first quarter of 2010: 1) Retail Banking, 2) Mortgage Banking & Other Consumer Lending and 3) Real Estate Portfolios. The first two segments serve consumers and businesses through personal services at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices, with more than 5,100 bank branches (third-largest nationally) and 15,400 ATMs (second-largest nationally), as well as online and mobile banking around the clock. The third segment encapsulates RFS’s real estate portfolio holdings, which has deteriorated significantly since 2008, in order to properly assess the performance of the real estate portfolio and non-real estate portfolio segments. • Card Services (CS) : CS is one of the nation’s larger credit card issuers, with more than 145 million credit cards in circulation and more than $163 billion in managed loans. In 2009, CS’s customers ran more than $328 billion of their expenses through CS’s various products. CS also has a merchant acquiring business, Chase Paymentech Solutions, which is one of the leading processors of credit-card payments. • Commercial Banking (CB) : CB serves nearly 25,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and more than 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 (TSS) : TSS is a global leader in transaction, investment and information services. TSS is one of the world’s larger cash management providers and a leading global custodian. TSS has two divisions within the group, Treasury Services and Worldwide Securities Services (WSS). Treasury Services (TS) provides cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multi-national corporations, financial institutions and

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118 July 12, 2010 JPMorgan Chase & Co.

government entities. TS partners with the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients firm wide. As a result, certain TS revenue is included in other segments’ results. WSS holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and it manages depositary receipt programs globally. • Asset Management (AM) : AM, with assets under supervision of $1.7 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. • Corporate/Private Equity (CP) : The CP sector comprises Private Equity, Treasury, the Chief Investment Office, corporate staff units and expense that is centrally managed. Treasury and the Chief Investment Office manage capital, liquidity, interest rate and foreign exchange risk and the investment portfolio for the Firm. The corporate staff units include Central Technology and Operations, Internal Audit, Executive Office, Finance, Human Resources, Marketing & Communications, Legal & Compliance, Corporate Real Estate and General Services, Risk Management, Corporate Responsibility and Strategy & Development. Other centrally managed expense includes the Firm’s occupancy and pension-related expense, net of allocations to the business. Leading Franchises : Through continual reinvestment in its people and infrastructure and a financial crisis that has left many of its competitors weakened or gone, JPM has developed a leading franchises in all of its lines of business. The company consistently ranks in the top-three positions in many categories (Exhibit 55). We believe that this best in class status opens the door to many business opportunities, creates a larger business pipeline and gives the company higher pricing leverage than most other firms. As the company looks to expand into foreign markets, the JPMorgan name will be a critical piece in winning business from other global firms.

Exhibit 55: Leadership Positions in JPM’s Business Lines

Source: Company reports One of the key differentiators that separate JPM from other firms is the earnings stream from its different segments. Exhibit 56 lists the quarterly breakout of revenues from the different lines of business. We can see that IB and CP are very volatile with IB revenues

43

119 July 12, 2010 JPMorgan Chase & Co. for the fourth quarter of 2008 showing no revenues (the unit actually recorded a loss for the quarter of $3.7 billion for non-interest revenues), and it was similar for CP in the fourth quarter of 2008 and the first quarter of 2009.

Exhibit 56: Revenue by Line of Business 30,000 1Q10:

Corp/Priv Eq 25,000 Asset Mgmt 8% 8% Investment 20,000 Bank TSS 29% 15,000 $ Millions $ 6%

10,000 Commercial Banking 5,000 5%

0 Retail Fin'l Card Svcs Svcs Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 16% 28% Investment Bank Retail Fin'l Svcs Card Svcs

Commercial Banking TSS Asset Mgmt Corp/Priv Eq

Source: Company reports

Exhibit 57 shows the line of business income/expense contributions to the consolidated entity in a heat map format for full-years 2008 and 2009, and the first quarter of 2010. Major highlights: • 2008 • IB recorded a net loss of $1.2 billion primarily due to a loss of $7.0 billion in principal transactions revenue. • RFS and CS produced modest results due to their higher than normal provision levels of $9.9 billion and $10.1 billion, respectively, offsetting their solid net revenues of $23.5 billion and $16.5 billion, respectively. • CB, TSS and AM had a solid, consistent year. • CP recorded ‘normal’ earnings; however, the unit recorded a $3.6 billion loss in its Private Equity unit but also recognized an extraordinary gain of $1.3 billion due to the Washington Mutual acquisition, which JPM acquired on very favourable terms. • 2009 • IB had an excellent year with net income of $6.9 billion driven by strong investment banking fees revenue and principal transactions. • RFS and CS had a horrible year. RFS barely made profit because revenues of $32.7 billion were offset by higher provisions expense of $15.9 billion. CS had an even worse year recording a net loss of $2.2 billion primarily due to its higher provision of $18.5 billion. • CB, TSS and AM had another solid, consistent year. • CP rebounded very well with a net profit of $3.0 billion due to gains of $1.6 billion and $1.1 billion in principal transactions and securities gains. • The first quarter of 2010 • IB had a great quarter driven by strong performance in investment banking with fees of $1.4 billion and principal transactions revenue of $3.9 billion. • Another horrible period for RFS and CS because provisions of $3.7 billion and $3.5 billion, respectively, weighed down on revenues resulting in net losses of $131 million and $303 million. • CB, TSS and AM continued to perform consistently. • CP showed a modest profit of $228 million due to a tax benefit of $224 million.

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120 July 12, 2010 JPMorgan Chase & Co.

Exhibit 57: Line of Business Income/Expense Contributions to Consolidated 1Q10

INCOME STATEMENT Consolidated IB RFS CS CB TSS AM CP

REVENUE Consolidated Adj Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Investment banking fees 1,461 15 1,446 99% - 0% - 0% - 0% - 0% - 0% - 0% Principal transactions 4,548 70 3,931 86% - 0% - 0% - 0% - 0% - 0% 547 12% Lending & deposit-related fees 1,646 15 202 12% 841 51% - 0% 277 17% 311 19% - 0% - 0% Asset mgmt, admin and commissions 3,265 46 563 17% 452 14% - 0% 37 1% 659 20% 1,508 46% - 0% Securities gains 610 - - 0% - 0% - 0% - 0% - 0% - 0% 610 100% Mortgage fees and related income 658 3 - 0% 655 100% - 0% - 0% - 0% - 0% - 0% Credit card income 1,361 98 - 0% 450 33% 813 60% - 0% - 0% - 0% - 0% Credit reimbursement to IB from TSS - 30 - NM - NM - NM - NM (30) NM - NM - NM Other income 412 (688) 49 12% 354 86% (55) -13% 186 45% 176 43% 266 65% 124 30% Noninterest revenue 13,961 (411) 6,191 44% 2,752 20% 758 5% 500 4% 1,116 8% 1,774 13% 1,281 9%

Net interest income 13,710 (90) 2,128 16% 5,024 37% 3,689 27% 916 7% 610 4% 357 3% 1,076 8%

TOTAL NET REVENUE 27,671 (501) 8,319 30% 7,776 28% 4,447 16% 1,416 5% 1,726 6% 2,131 8% 2,357 9%

Provision for credit losses 7,010 - (462) -7% 3,733 53% 3,512 50% 214 3% (39) -1% 35 0% 17 0%

NONINTEREST EXPENSE Compensation expense 7,276 - 2,928 40% 1,770 24% 330 5% 206 3% 657 9% 910 13% 475 7% Occupancy expense 869 869 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Technology, communications and equipment exp 1,137 1,137 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Professional and outside services 1,575 1,575 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Marketing 583 583 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Other expense 4,441 4,441 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Noncompensation expense 8,605 (1,185) 1,910 22% 2,402 28% 949 11% 324 4% 650 8% 514 6% 3,041 35% Amortization of intangibles 243 5 - 0% 70 29% 123 51% 9 4% 18 7% 18 7% - 0% Merger costs - - - NM - NM - NM - NM - NM - NM - NM Subtotal 16,124 (1,180) 4,838 30% 4,242 26% 1,402 9% 539 3% 1,325 8% 1,442 9% 3,516 22% Net expense allocated to other businesses (CP) - 1,180 - NM - NM - NM - NM - NM - NM (1,180) NM TOTAL NONINTEREST EXPENSE 16,124 - 4,838 30% 4,242 26% 1,402 9% 539 3% 1,325 8% 1,442 9% 2,336 14%

Inc/(loss) before tax exp/(benefit) & extra. Item 4,537 (501) 3,943 87% (199) -4% (467) -10% 663 15% 440 10% 654 14% 4 0% Income tax expense (benefit) 1,211 (501) 1,472 122% (68) -6% (164) -14% 273 23% 161 13% 262 22% (224) -18% Income/(loss) before extraordinary gain 3,326 - 2,471 74% (131) -4% (303) -9% 390 12% 279 8% 392 12% 228 7% Extraordinary gain - - - NM - NM - NM - NM - NM - NM - NM NET INCOME/(LOSS) 3,326 - 2,471 74% (131) -4% (303) -9% 390 12% 279 8% 392 12% 228 7% 2009

INCOME STATEMENT Consolidated IB RFS CS CB TSS AM CP

REVENUE Consolidated Adj Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Investment banking fees 7,087 (82) 7,169 101% - 0% - 0% - 0% - 0% - 0% - 0% Principal transactions 9,796 68 8,154 83% - 0% - 0% - 0% - 0% - 0% 1,574 16% Lending & deposit-related fees 7,045 46 664 9% 3,969 56% - 0% 1,081 15% 1,285 18% - 0% - 0% Asset mgmt, admin and commissions 12,540 (176) 2,650 21% 1,674 13% - 0% 140 1% 2,631 21% 5,621 45% - 0% Securities gains 1,110 (29) - 0% - 0% - 0% - 0% - 0% - 0% 1,139 103% Mortgage fees and related income 3,678 (116) - 0% 3,794 103% - 0% - 0% - 0% - 0% - 0% Credit card income 7,110 1,863 - 0% 1,635 23% 3,612 51% - 0% - 0% - 0% - 0% Credit reimbursement to IB from TSS - 121 - 0% - 0% - 0% - 0% (121) 0% - 0% - 0% Other income 916 (1,641) (115) -13% 1,128 123% (692) -76% 596 65% 831 91% 751 82% 58 6% Noninterest revenue 49,282 54 18,522 38% 12,200 25% 2,920 6% 1,817 4% 4,626 9% 6,372 13% 2,771 6%

Net interest income 51,152 (8,267) 9,587 19% 20,492 40% 17,384 34% 3,903 8% 2,597 5% 1,593 3% 3,863 8%

TOTAL NET REVENUE 100,434 (8,213) 28,109 28% 32,692 33% 20,304 20% 5,720 6% 7,223 7% 7,965 8% 6,634 7%

Provision for credit losses 32,015 (6,443) 2,279 7% 15,940 50% 18,462 58% 1,454 5% 55 0% 188 1% 80 0%

NONINTEREST EXPENSE Compensation expense 26,928 - 9,334 35% 6,712 25% 1,376 5% 776 3% 2,544 9% 3,375 13% 2,811 10% Occupancy expense 3,666 3,666 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Technology, communications and equipment exp 4,624 4,624 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Professional and outside services 6,232 6,232 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Marketing 1,777 1,777 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Other expense 7,594 7,594 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Noncompensation expense 23,893 (5,005) 6,067 25% 9,706 41% 3,490 15% 1,359 6% 2,658 11% 2,021 8% 3,597 15% Amortization of intangibles 1,050 11 - 0% 330 31% 515 49% 41 4% 76 7% 77 7% - 0% Merger costs 481 - - 0% - 0% - 0% - 0% - 0% - 0% 481 100% Subtotal 52,352 (4,994) 15,401 29% 16,748 32% 5,381 10% 2,176 4% 5,278 10% 5,473 10% 6,889 13% Net expense allocated to other businesses (CP) - 4,994 - 0% - 0% - 0% - 0% - 0% - 0% (4,994) 0% TOTAL NONINTEREST EXPENSE 52,352 - 15,401 29% 16,748 32% 5,381 10% 2,176 4% 5,278 10% 5,473 10% 1,895 4%

Inc/(loss) before tax exp/(benefit) & extra. Item 16,067 (1,770) 10,429 65% 4 0% (3,539) -22% 2,090 13% 1,890 12% 2,304 14% 4,659 29% Income tax expense (benefit) 4,415 (1,770) 3,530 80% (93) -2% (1,314) -30% 819 19% 664 15% 874 20% 1,705 39% Income/(loss) before extraordinary gain 11,652 - 6,899 59% 97 1% (2,225) -19% 1,271 11% 1,226 11% 1,430 12% 2,954 25% Extraordinary gain 76 - - 0% - 0% - 0% - 0% - 0% - 0% 76 100% NET INCOME/(LOSS) 11,728 - 6,899 59% 97 1% (2,225) -19% 1,271 11% 1,226 10% 1,430 12% 3,030 26%

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121 July 12, 2010 JPMorgan Chase & Co.

2008

INCOME STATEMENT Consolidated IB RFS CS CB TSS AM CP

REVENUE Consolidated Adj Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Amount % Total Investment banking fees 5,526 (381) 5,907 107% - 0% - 0% - 0% - 0% - 0% - 0% Principal transactions (10,699) (69) (7,042) 66% - 0% - 0% - 0% - 0% - 0% (3,588) 34% Lending & deposit-related fees 5,088 79 463 9% 2,546 50% - 0% 854 17% 1,146 23% - 0% - 0% Asset mgmt, admin and commissions 13,943 119 3,064 22% 1,510 11% - 0% 113 1% 3,133 22% 6,004 43% - 0% Securities gains 1,560 (77) - 0% - 0% - 0% - 0% - 0% - 0% 1,637 105% Mortgage fees and related income 3,467 (154) - 0% 3,621 104% - 0% - 0% - 0% - 0% - 0% Credit card income 7,419 3,712 - 0% 939 13% 2,768 37% - 0% - 0% - 0% - 0% Credit reimbursement to IB from TSS - 121 - NM - 0% - 0% - 0% (121) 0% - 0% - 0% Other income 2,169 (1,346) (341) -16% 739 34% (49) -2% 514 24% 917 42% 62 3% 1,673 77% Noninterest revenue 28,473 2,004 2,051 7% 9,355 33% 2,719 10% 1,481 5% 5,075 18% 6,066 21% (278) -1%

Net interest income 38,779 (7,524) 10,284 27% 14,165 37% 13,755 35% 3,296 8% 2,938 8% 1,518 4% 347 1%

TOTAL NET REVENUE 67,252 (5,520) 12,335 18% 23,520 35% 16,474 24% 4,777 7% 8,013 12% 7,584 11% 69 0%

Provision for credit losses 20,979 (3,612) 2,015 10% 9,905 47% 10,059 48% 464 2% 82 0% 85 0% 1,981 9%

NONINTEREST EXPENSE Compensation expense 22,746 - 7,701 34% 5,068 22% 1,127 5% 692 3% 2,602 11% 3,216 14% 2,340 10% Occupancy expense 3,038 3,038 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Technology, communications and equipment exp 4,315 4,315 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Professional and outside services 6,053 6,053 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Marketing 1,913 1,913 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Other expense 3,740 3,740 - 0% - 0% - 0% - 0% - 0% - 0% - 0% Noncompensation expense 19,059 (4,655) 6,143 32% 6,612 35% 3,356 18% 1,206 6% 2,556 13% 2,000 10% 1,841 10% Amortization of intangibles 1,263 14 - 0% 397 31% 657 52% 48 4% 65 5% 82 6% - 0% Merger costs 432 - - 0% - 0% - 0% - 0% - 0% - 0% 432 100% Subtotal 43,500 (4,641) 13,844 32% 12,077 28% 5,140 12% 1,946 4% 5,223 12% 5,298 12% 4,613 11% Net expense allocated to other businesses (CP) - 4,641 - NM - 0% - 0% - 0% - 0% - 0% (4,641) 0% TOTAL NONINTEREST EXPENSE 43,500 - 13,844 32% 12,077 28% 5,140 12% 1,946 4% 5,223 12% 5,298 12% (28) 0%

Inc/(loss) before tax exp/(benefit) & extra. Item 2,773 (1,908) (3,524) -127% 1,538 55% 1,275 46% 2,367 85% 2,708 98% 2,201 79% (1,884) -68% Income tax expense (benefit) (926) (1,908) (2,349) 254% 658 -71% 495 -53% 928 -100% 941 -102% 844 -91% (535) 58% Income/(loss) before extraordinary gain 3,699 - (1,175) -32% 880 24% 780 21% 1,439 39% 1,767 48% 1,357 37% (1,349) -36% Extraordinary gain 1,906 - - 0% - 0% - 0% - 0% - 0% - 0% 1,906 100% NET INCOME/(LOSS) 5,605 - (1,175) -21% 880 16% 780 14% 1,439 26% 1,767 32% 1,357 24% 557 10% Source: Company reports

Investment Bank Review The IB division is perhaps the crown jewel of JPM. The revenue stream can be extremely volatile with giant swings from quarter to quarter. In a normal to good operating environment, one could expect IB to contribute 25% to 30% to overall revenues. Within IB, there are three major revenue sources: 1) Investment banking fees, which consists of advisory fees, equity underwriting fees and debt underwriting fees; 2) Fixed income markets (FICC) and 3) Equity markets. 2009 was an excellent rebound year from the depths of the financial crisis in 2008 for IB. Total revenues more than doubled to $28.1 billion in 2009 from $12.3 billion in 2008. The biggest contributor in the rebound comes from FICC, which saw revenues jump to $17.6 billion in 2009 from $2.0 billion in 2008. On a quarterly basis, the fourth quarter of 2008 showed negative revenue with FICC and equity markets showing losses offset with stable investment banking fees. The most recent quarter saw a 69% sequential jump in revenues from the prior quarter to $8.3 billion. Investment banking fees have been subdued from the prior three quarters to $1.5 billion, but FICC and equity markets showed strong gains to revenues of $5.5 billion and $1.5 billion, respectively. What stands out for the most recent quarter is FICC’s strong performance, primarily stemming from trading revenues in our view. Although FICC has shown to be the most volatile of the group, a $5 billion revenue run-rate does not seem implausible. Looking at the geographic dispersion in revenue, approximately 55% of revenues come from the Americas, 35% from Europe, Middle East and Africa (EMEA) and 10% from Asia-Pacific. Revenues from the Americas showed the biggest volatility during the crisis, while revenues from EMEA and Asia-Pacific fell within a normal range. Looking at the performance highlights, IB is a 20% ROAE business in ‘normal’ operating environments, although management has recently lowered its ROAE performance target to 17% going forward due to the additional capital level allocated to IB. IB’s efficiency ratio of 55 – 60% is in line with expectations for the industry. Compensation to total revenue is generally in the 35 – 40% range, which is quite good compared to certain bulge-bracket investment banking peers. League table rankings show that JPM has consistently ranked in the top-three for advisory and debt, equity and loan syndication underwriting. Market share for virtually all categories was 10% or greater. Although earnings suffered during the 2008 financial crisis, it is our view that JPM was a big beneficiary in this period because several competitors were weakened severely or disappeared, leaving JPM bigger, stronger and better in the weakened landscape.

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122 July 12, 2010 JPMorgan Chase & Co.

Exhibit 58: Investment Bank Profit & Loss INCOME STATEMENT (in $Millions) 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Investment banking fees 1,206 1,735 1,593 1,373 1,380 2,239 1,658 1,892 1,446 5,907 7,169 Principal transactions (798) 838 (922) (6,160) 3,515 1,841 2,714 84 3,931 (7,042) 8,154 Lending- and deposit-related fees 102 105 118 138 138 167 185 174 202 463 664 Asset management, admin and commissions 744 709 847 764 692 717 633 608 563 3,064 2,650 All other income (36) (196) (248) 139 (56) (108) 63 (14) 49 (341) (115)

Noninterest revenue 1,218 3,191 1,388 (3,746) 5,669 4,856 5,253 2,744 6,191 2,051 18,522 Net interest income 1,823 2,309 2,678 3,474 2,702 2,445 2,255 2,185 2,128 10,284 9,587

TOTAL NET REVENUE 3,041 5,500 4,066 (272) 8,371 7,301 7,508 4,929 8,319 12,335 28,109

Provision for credit losses 618 398 234 765 1,210 871 379 (181) (462) 2,015 2,279

NONINTEREST EXPENSE Compensation expense 1,241 3,132 2,162 1,166 3,330 2,677 2,778 549 2,928 7,701 9,334 Noncompensation expense 1,312 1,602 1,654 1,575 1,444 1,390 1,496 1,737 1,910 6,143 6,067

TOTAL NONINTEREST EXPENSE 2,553 4,734 3,816 2,741 4,774 4,067 4,274 2,286 4,838 13,844 15,401

Income before income tax expense (130) 368 16 (3,778) 2,387 2,363 2,855 2,824 3,943 (3,524) 10,429 Income tax expense (43) (26) (866) (1,414) 781 892 934 923 1,472 (2,349) 3,530

NET INCOME (87) 394 882 (2,364) 1,606 1,471 1,921 1,901 2,471 (1,175) 6,899

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE -2% 7% 14% -29% 19% 18% 23% 23% 25% -5% 21% ROAA -0.05% 0.19% 0.40% -1.09% 0.88% 0.83% 1.13% 1.13% 1.46% -0.14% 0.99% Efficiency Ratio 84% 86% 94% NM 57% 56% 57% 46% 58% 112% 55% Compensation/Total Revenue 41% 57% 53% NM 40% 37% 37% 11% 35% 62% 33%

REVENUE BY BUSINESS (in $Millions) 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A Investment Banking Fees: Advisory 483 370 576 579 479 393 384 611 305 2,008 1,867 Equity underwriting 359 542 518 330 308 1,103 681 549 413 1,749 2,641 Debt underwriting 364 823 499 464 593 743 593 732 728 2,150 2,661

Total investment banking fees 1,206 1,735 1,593 1,373 1,380 2,239 1,658 1,892 1,446 5,907 7,169 Fixed income markets 466 2,347 815 (1,671) 4,889 4,929 5,011 2,735 5,464 1,957 17,564 Equity markets 976 1,079 1,650 (94) 1,773 708 941 971 1,462 3,611 4,393 Credit portfolio 393 339 8 120 329 (575) (102) (669) (53) 860 (1,017) Total net revenue 3,041 5,500 4,066 (272) 8,371 7,301 7,508 4,929 8,319 12,335 28,109

REVENUE BY REGION 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A Americas 536 3,165 1,052 (2,203) 4,316 4,118 3,850 2,872 4,562 2,610 15,156 Europe/Middle East/Africa 1,641 1,512 2,509 2,026 3,073 2,303 2,912 1,502 2,814 7,710 9,790 Asia/Pacific 834 793 474 (95) 982 880 746 555 943 2,015 3,163 Total net revenue 3,011 5,470 4,035 (272) 8,371 7,301 7,508 4,929 8,319 12,335 28,109

Source: Company reports

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123 July 12, 2010 JPMorgan Chase & Co.

IB plans to grow in the following areas: 1) Emerging Markets, 2) Commodities, 3) Global Corporate Bank and 4) Technology.

Emerging Markets In 2009, IB reopened Hong Kong IPO, Asia High Yield and LBO businesses. IB also led eight of the 10-largest Asian primary equity deals and was involved in sovereign-debt issuances for Brazil, Mexico, Qatar and South Africa. For 2010, IB is looking to expand its local client coverage; add onshore bankers; build cash equities and derivatives in Russia, Brazil, China, India, Taiwan and Korea; focus on local debt and Fixed Income flows; and deliver the firm through cross-selling and Global Corporate Banking

Commodities IB’s commodities business offers services related to trading and warehousing of commodities to its clients. As world economies continue to grow, the demands for commodities at certain points in time offer significant opportunities, both in trading and realized gains, in our view. Since 2006, IB’s commodities business has more than doubled its revenues. In February 2010, IB agreed to purchase the global metals, global oil and European power and gas assets of RBS Sempra Commodities. The $1.7 billion transaction was completed on July 1. The transaction is expected to be profitable immediately after closing, is complementary to IB’s existing Global Commodities business, nearly doubles the number of corporate clients and diversifies IB’s fixed income earnings.

Global Corporate Bank More than three-years ago, IB and TSS formed a joint venture to create Global Corporate Bank. With a team of more than 100 corporate bankers, the Global Corporate Bank serves multi-national clients by giving them access to certain IB and TSS products, including derivatives, foreign exchange and debt. IB and TSS intend to expand the Global Corporate Bank aggressively in the next several years by opening 20 – 30 locations and adding 150 corporate bankers, covering approximately 1,000 new clients (3,100 total, up from 2,100). We believe this joint venture has the potential to be very successful for the company.

Technology IB has set aside $1 billion in 2010 for technology upgrades and innovations. The top priorities for 2010 are as follows: 1. Execute three-year Strategic Reengineering Program focused on: • Next-generation, front-end, derivative and emerging market, trading platforms, • OTC clearing requirements and • Core processing infrastructure. 2. Build-out electronic and algorithmic trading infrastructure for equities. 3. Implement Prime Services offering globally, including Synthetic Prime Brokerage. 4. Implement global location strategy. Our outlook for IB is positive because we see investment banking fees continuing its trend with advisory fees picking up later in the year or 2011 due to increased M&A activity. We also believe that FICC will continue to have a strong year, although not at the same levels seen in the past three or so quarters.

Retail Financial Services Review RFS is the retail banking arm of JPM and represents approximately 30% of JPM’s revenues in a normalized environment. As with other major providers of consumer products to the US, RFS has seen credit deteriorate significantly in 2009 dragging earnings down during the year and into 2010 (see Exhibit 59). Net income for 2009 fell to $97 million from $880 million in the prior year. Sequentially, the first quarter of 2010 showed an improvement with a loss of $131 million compared to a loss of $399 million in the prior quarter, however, down from a net profit of $474 million in the year-ago quarter. The performance is mainly attributable to the high levels of provisioning for credit losses; nevertheless, provisions declined 12% in the latest quarter to $3.7 billion from $4.2 billion in the prior quarter, perhaps signalling management’s brighter outlook on credit. The unit’s operating costs have edged up slightly with an efficiency ratio of 54% as of the first quarter of 2010 from a low in the fourth quarter of 2008 of 45%, primarily due to an increase in compensation expense, which includes the addition of approximately 1,000 personal bankers in 2009 from the prior year. In assessing performance of RFS’s key functions, management sub-divided RFS into three reporting subunits: 1) Retail Banking, 2) Mortgage Banking & Other Consumer Lending and 3) Real Estate Portfolios. The subdivisions encapsulate the credit issues related to the real estate portfolios, allowing for more clarity to the profitability of RFS’s products and services.

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124 July 12, 2010 JPMorgan Chase & Co.

Exhibit 59: Profit & Loss and Performance Highlights INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Lending & deposit-related fees 461 497 538 1,050 948 1,003 1,046 972 841 2,546 3,969 Asset management, administration and commissions 377 375 346 412 435 425 408 406 452 1,510 1,674 Mortgage fees and related income 525 696 438 1,962 1,633 807 873 481 655 3,621 3,794 Credit card income 174 194 204 367 367 411 416 441 450 939 1,635 Other income 152 198 206 183 214 294 321 299 354 739 1,128

Noninterest revenue 1,689 1,960 1,732 3,974 3,597 2,940 3,064 2,599 2,752 9,355 12,200 Net interest income 3,074 3,150 3,231 4,710 5,238 5,030 5,154 5,070 5,024 14,165 20,492

TOTAL NET REVENUE 4,763 5,110 4,963 8,684 8,835 7,970 8,218 7,669 7,776 23,520 32,692

Provision for credit losses 2,688 1,585 2,056 3,576 3,877 3,846 3,988 4,229 3,733 9,905 15,940

NONINTEREST EXPENSE Compensation expense 1,160 1,184 1,120 1,604 1,631 1,631 1,728 1,722 1,770 5,068 6,712 Noncompensation expense 1,312 1,396 1,559 2,345 2,457 2,365 2,385 2,499 2,402 6,612 9,706 Amortization of intangibles 100 100 100 97 83 83 83 81 70 397 330

TOTAL NONINTEREST EXPENSE 2,572 2,680 2,779 4,046 4,171 4,079 4,196 4,302 4,242 12,077 16,748

Inc/(loss) before inc tax exp (benefit) & extra gain (497) 845 128 1,062 787 45 34 (862) (199) 1,538 4 Income tax expense (benefit) (186) 342 64 438 313 30 27 (463) (68) 658 (93) NET INCOME/(LOSS) (311) 503 64 624 474 15 7 (399) (131) 880 97

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE -7% 12% 2% 10% 8% 0% 0% -6% -2% 5% 0% Efficiency Ratio 52% 50% 54% 45% 46% 50% 50% 55% 54% 50% 50% Compensation/Total Revenue 24% 23% 23% 18% 18% 20% 21% 22% 23% 22% 21% Source: Company reports

Retail Banking Retail banking has been profitable throughout the financial crisis and beyond (Exhibit 60). Revenues ranged between $4.3 billion to $4.5 billion, while non-interest expense ranged between $2.5 and $2.6 billion for the latest six quarters. Noticeably declining for the subunit was provisions that peaked in the second quarter of 2009 at $361 million declining 47% to $191 million for the latest quarter. The efficiency ratio hovered around 55% for the latest six quarters with a slight increase to 58% in the latest quarter. Overall, retail banking has performed consistently well and the continuing lower provisions are a positive sign of the current and forward business of the unit from a credit perspective. Looking forward, we see some potential headwinds regarding consumer protection legislation on fees charged for insufficient funds (Regulation E), which the company anticipates will lower net income by approximately $500 million per year. Aside from the ongoing regulatory risk, we see the retail banking segment bouncing back as the overall economy gains momentum and consumers return to their traditional spending habits.

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125 July 12, 2010 JPMorgan Chase & Co.

Exhibit 60: Subunit – Retail Banking Profit & Loss RETAIL BANKING 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A INCOME STATEMENT Noninterest revenue 966 1,062 1,089 1,834 1,718 1,803 1,844 1,804 1,702 4,951 7,169 Net interest income 1,545 1,671 1,756 2,687 2,614 2,719 2,732 2,716 2,635 7,659 10,781

Total net revenue 2,511 2,733 2,845 4,521 4,332 4,522 4,576 4,520 4,337 12,610 17,950 Provision for credit losses 49 62 70 268 325 361 208 248 191 449 1,142 CDI Amortization 99 99 99 97 83 82 83 80 70 394 328 Other noninterest expense 1,463 1,458 1,481 2,436 2,497 2,475 2,563 2,494 2,507 6,838 10,029 Total noninterest expense 1,562 1,557 1,580 2,533 2,580 2,557 2,646 2,574 2,577 7,232 10,357

Income before income tax expense 900 1,114 1,195 1,720 1,427 1,604 1,722 1,698 1,569 4,929 6,451 Income tax expense (benefit) 355 440 472 680 564 634 679 671 671 1,947 2,548 Net income 545 674 723 1,040 863 970 1,043 1,027 898 2,982 3,903 Effective tax rate 39% 39% 39% 40% 40% 40% 39% 40% 43% 40% 39%

Efficiency Ratio 58% 53% 52% 54% 58% 55% 56% 55% 58% 54% 56% Source: Company reports

Mortgage Banking & Other Consumer Lending (MBOCL) MBOCL consists of mortgage banking and non-real estate consumer lending. Revenues for the unit peaked in the fourth quarter of 2008 and the first quarter of 2009 to $2.8 billion and $2.7 billion, respectively, reflecting high levels of non-interest income due to the refinancing activity at the time. Revenues have fallen to a run-rate of approximately $1.8 billion to $2.0 billion. Non-interest expense has remained relatively flat during the prior five periods, and the latest quarter showed sequential increase of 7% to $1.25 billion. Provisions peaked in the first quarter of 2009 to $405 million and have steadily fallen to $217 million, a positive sign of improving credit in this unit. Profitability has declined to $257 million in the latest quarter from a peak of $730 million in the first quarter of 2009. Although the improving credit costs will help the bottom line, revenue growth will be subdued going forward because the First-Time Homebuyer Tax Credit expired at the end of April 2010 and unemployment is still high, leaving many potential homebuyers on the sidelines for now. In addition, we anticipate interest rates will start to climb toward the latter half of 2011 (18 to 24 months from the estimated recession trough in the third quarter of 2009), based on the recessions of the past three decades.

Exhibit 61: Subunit – Mortgage Banking & Other Consumer Lending Profit & Loss MORTGAGE BANKING & OTHER CONSUMER LENDING 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A INCOME STATEMENT Noninterest revenue 853 927 688 2,221 1,921 1,134 1,201 801 1,018 4,689 5,057 Net interest income 561 562 613 543 808 721 834 802 893 2,279 3,165

Total net revenue 1,414 1,489 1,301 2,764 2,729 1,855 2,035 1,603 1,911 6,968 8,222 Provision for credit losses 200 132 175 388 405 366 222 242 217 895 1,235 Noninterest expense 834 922 1,023 1,177 1,137 1,105 1,139 1,163 1,246 3,956 4,544

Income before income tax expense 380 435 103 1,199 1,187 384 674 198 448 2,117 2,443 Income tax expense (benefit) 148 169 42 472 457 149 262 (68) 191 831 800 Net income 232 266 61 727 730 235 412 266 257 1,286 1,643 Effective tax rate 39% 39% 41% 39% 39% 39% 39% -34% 43% 39% 33%

Efficiency Ratio 59% 62% 79% 43% 42% 60% 56% 73% 65% 57% 55% Source: Company reports

Real Estate Portfolios: Real Estate Portfolios is the third and last subunit of RFS, and as previously discussed in the Asset Quality section, is the one that has haemorrhaged the most. Although fairly conservative and diligent, JPM partook in the lucrative lending activities of the real estate bubble in the early to mid-2000s, which we believe the company now regrets. The current results stem from the company’s departure from traditionally conservative lending standards. Specifically, JPM loosened its 80% LTV limits, offered ‘no-doc’ loans and relied on wholesale origination channels to fuel growth. As with most lenders today, LTV limits are back to 80%, and all loans now require full income documentation. JPM has also closed all wholesale origination channels, which represented approximately 30% of the total real estate portfolio and produce two to three times the credit losses as traditional in-house originations. Exhibit 62 shows the quarterly profit and loss for the subunit going back to the beginning of 2008. As one can see, this

50

126 July 12, 2010 JPMorgan Chase & Co. segment has not turned a profit for the nine periods available under this segmentation, due to the extremely elevated provisioning levels, which have not subsided at all. The latest quarter provisioning level is more than double that of total revenues. We anticipate provisioning levels for this subunit to remain materially high for several quarters. Although an improving economy will ease the strain, the central issue still remains that the portfolio contains a good amount of unqualified borrowers and will still struggle with improving conditions. Therefore, the company’s best and only option is to continue to let the hemorrhage portion of the portfolio run- off. Exhibit 63 shows the historical real estate portfolio and breakout. The spike in the third quarter of 2008 is due to the Washington Mutual acquisition, which significantly increased the company’s home equity and prime portfolios, and brought on the option ARMs portfolio. The portfolio peaked on the Washington Mutual acquisition in the third quarter of 2008 at $291 billion and has steadily declined to a current level of less than $250 billion. We anticipate continual run-off in the mortgage segments of the Real Estate Portfolio while unemployment remains high.

Exhibit 62: Subunit – Real Estate Portfolios REAL ESTATE PORTFOLIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A INCOME STATEMENT Noninterest revenue (130) (29) (45) (81) (42) 3 19 (6) 32 (285) (26) Net interest income 968 917 862 1,480 1,816 1,590 1,588 1,552 1,496 4,227 6,546

Total net revenue 838 888 817 1,399 1,774 1,593 1,607 1,546 1,528 3,942 6,520 Provision for credit losses 2,439 1,391 1,811 2,920 3,147 3,119 3,558 3,739 3,325 8,561 13,563 Noninterest expense 176 201 176 336 454 417 411 565 419 889 1,847

Inc/(loss) before inc tax exp/(benefit) (1,777) (704) (1,170) (1,857) (1,827) (1,943) (2,362) (2,758) (2,216) (5,508) (8,890) Income tax expense (benefit) (689) (267) (450) (714) (708) (753) (914) (1,066) (930) (2,120) (3,441) Net income/(loss) (1,088) (437) (720) (1,143) (1,119) (1,190) (1,448) (1,692) (1,286) (3,388) (5,449) Effective tax rate 39% 38% 38% 38% 39% 39% 39% 39% 42% 38% 39%

Overhead ratio 21% 23% 22% 24% 26% 26% 26% 37% 27% 23% 28% Efficiency Ratio (RBC calc'd) 21% 23% 22% 24% 26% 26% 26% 37% 27% 23% 28% Source: Company reports

Exhibit 63: Real Estate Portfolio Nine Quarter Historical: 1Q10: 350 Option ARMs Other 300 15% 0%

Subprime 250 mortgage

200 8% Home equity 50% $ Billions $ 150

100

50 Prime mortgage - 27% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Home equity Prime mortgage Subprime mortgage Option ARMs Other

Source: Company reports

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127 July 12, 2010 JPMorgan Chase & Co.

Repurchased Loans : In addition to the credit challenges of the real estate portfolio, there have been waves of repurchases for agency- guaranteed mortgages, as discussed in the Repurchase Loan Risk from Reps & Warrants section. Repurchase demands have averaged approximately $1 billion per quarter in 2009, and repurchase expenses totalled $1.6 billion for full-year 2009. For full detail of the liability and effect to earnings, refer to the Repurchase Loan Risk from Reps & Warrants section. HAMP and 2MP Programs : JPM participates in the government’s Making Homes Affordable (MHA) program, which includes the Home Affordable Modification Program (HAMP) and the Second Lien Modification Program (2MP). As the names suggest, both programs offer loan modifications to troubled borrowers that are qualified for first and second liens. These programs are based on a standardized framework, as opposed to a case-by-case basis, with the general goal of minimizing loss to the company while offering an alternative to foreclosure to the borrower that is sustainable. JPM started the HAMP in July 2009 with the first completed permanent modification in September 2009. The program offers several concessions to qualified borrowers, such as term or payment extensions, interest rate reductions and deferral of principal payments. In general, JPM does not offer concessions on principal forgiveness. Exhibit 64 is the monthly HAMP report from Financialstability.gov . It shows that as of May 2010, JPM had started approximately 198,000 HAMP trials with 47,000 maintaining permanent modification status, suggesting a success rate of 24%, which is slightly below the program total of 27%. Since the beginning of 2009, JPM has offered 750,000 modifications (including non-MHA) with 127,000 achieving permanent modifications, suggesting a success rate of approximately 17%. Since July 1, 2009, JPM’s modifications (MHA and non-MHA) included 66% from interest rate reductions, 42% included term or payment extensions and 10% included in principal deferment. JPM started participating in the 2MP in phases beginning in May 2010. The program offers borrowers a way to modify second liens, instead of having them completely written off. Generally, if a first lien is modified, it would imply that collateral dependent second lien to be worthless. The 2MP works in conjunction with the HAMP to help borrowers achieve permanent modifications when they have first and second liens. For amortizing second liens modified under 2MP, the interest rate will be reduced to 1%, while interest only second liens will be reduced to 2%. After five years, the interest rate on these modified second liens will reset to the then-current interest rate on the HAMP-modified first lien. For home equity lines of credit, future lending commitments related to the modified loans are cancelled. Except for loans modified under 2MP where the borrower is current, borrowers must make at least three payments under the revised contractual terms during a trial modification and be successfully re-underwritten with income verification before a loan can be permanently modified. Success for both HAMP and 2MP depend on many factors. One key factor is the debt-to-income ratio. Exhibit 65 from Financialstability.gov shows the debt-to-income ratio for all HAMP participants. What is glaring is the back-end debt-to-income ratio, which is the ratio of total monthly debt payments (including insurance, taxes, fees, etc.) to income. The median back-end debt-to- income ratio prior to modification was an astounding 80%. These borrowers had to pay out 80% of their income just to service the debt and fees on their property (and this is only the median). After modification, the ratio falls to 64%, which still has a high degree of re-default, in our view. For JPM, modifications of serviced loans (including non-MHA) completed since July 1, 2009 showed a re- default rate of 15 – 20%. Management believes that the re-default rate will rise in time as the modified loans season, but it is unclear as to where they will level off.

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128 July 12, 2010 JPMorgan Chase & Co.

Exhibit 64: HAMP Modification Statistics

Source: Financialstability.gov , Making Home Affordable Program report for May 2010

Exhibit 65: HAMP Loan Characteristics

Source: Financialstability.gov , Making Home Affordable Program report for May 2010

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129 July 12, 2010 JPMorgan Chase & Co.

Growth Initiatives: RFS will focus on building out the Washington Mutual footprint as well as adding another 120 branches in 2010. The unit also plans to target more affluent clients and further to develop certain technologies, such as mobile banking, to engage its clients further. Our outlook for RFS as a whole is still cautious because the unit is still hamstrung with credit losses and portfolio runoff stemming from its consumer mortgages and is facing an acerbic legislative environment. Regulation E is expected to cost the unit approximately $500 million in net income per year.

Card Services Review Card Services is the credit card issuing arm of JPM and one of the larger in the country with 145 million credit cards in circulation and more than $163 billion in managed loans. The unit currently staffs a little more than 22,000 employees. Historically, the unit contributes approximately 20% to overall firm revenues and provides a return on allocated capital in the high teens. The past two years, however, have been difficult for the unit because it faced severe credit deterioration from a slumping economy and high unemployment to legislative restrictions curtailing what it can charge on fees and rates. The credit card legislation of 2009 has made it more difficult for credit card companies to raise rates on all clients, including riskier clients, and curtailed other methods of producing fee income. The effect has forced JPM, as well as other card issuers, to limit the low introductory balance transfers substantially, reduce the amount of credit cards offered, and reduce the credit limit or cancel the account all together. All told, JPM anticipates a loss in after-tax revenue of approximately $500 million to $750 annually. Additionally, through a combination of the recent legislation and reduced demand, total credit card receivables are expected to decline by upward of $30 billion in 2010, in our opinion. All told, we anticipate net income to be adversely affected by $850 million from the legislation and portfolio runoff. Exhibit 66 shows the historical profit and loss of CS since 2008. The unit has incurred a net lost for the past six quarters, representing a full-year 2009 loss of $2.2 billion compared to a profit of $780 million in the prior year. Not surprisingly, the loss was primarily driven by a near doubling in the credit provisions to $18.5 billion. We expect this elevated provisioning level to continue during the year, although we feel that the credit costs will continue to trend downward. We anticipate CS will be unprofitable for full-year 2010; however, we believe that the unit will return to profitability sometime in the second half of 2010. Although it is still too early to tell, Exhibit 67 displays the early stage delinquency rates, which have dropped slightly from the prior quarter and remained steady from the three quarters before that. What will be critical is the unemployment level for the remainder of the year.

Exhibit 66: Card Services Profit and Loss INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Credit card income 600 673 633 862 844 921 916 931 813 2,768 3,612 Other income 119 91 13 (272) (197) (364) (85) (46) (55) (49) (692)

Noninterest revenue 719 764 646 590 647 557 831 885 758 2,719 2,920 Net interest income 3,185 3,011 3,241 4,318 4,482 4,311 4,328 4,263 3,689 13,755 17,384

TOTAL NET REVENUE 3,904 3,775 3,887 4,908 5,129 4,868 5,159 5,148 4,447 16,474 20,304

Provision for credit losses 1,670 2,194 2,229 3,966 4,653 4,603 4,967 4,239 3,512 10,059 18,462

NONINTEREST EXPENSE Compensation expense 267 258 267 335 357 329 354 336 330 1,127 1,376 Noncompensation expense 841 763 773 979 850 873 829 938 949 3,356 3,490 Amortization of intangibles 164 164 154 175 139 131 123 122 123 657 515

TOTAL NONINTEREST EXPENSE 1,272 1,185 1,194 1,489 1,346 1,333 1,306 1,396 1,402 5,140 5,381

Inc/(loss) before inc tax exp (benefit) and extra gain 962 396 464 (547) (870) (1,068) (1,114) (487) (467) 1,275 (3,539) Income tax expense (benefit) 353 146 172 (176) (323) (396) (414) (181) (164) 495 (1,314)

NET INCOME/(LOSS) 609 250 292 (371) (547) (672) (700) (306) (303) 780 (2,225)

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE 17% 7% 8% -10% -15% -18% -19% -8% -8% 5% -15% Efficiency Ratio 28% 27% 27% 27% 24% 25% 23% 25% 29% 27% 24% Compensation/Total Revenue 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% 7% Source: Company reports

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130 July 12, 2010 JPMorgan Chase & Co.

Exhibit 67: Early Stage Delinquency Rates 7%

6%

5%

4%

3%

Delinquency Rate 2%

1%

0%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

30+ Days Delinquent 90+ Days Delinquent

Source: Company reports

Commercial Banking Review The Commercial Banking unit serves more than 25,000 clients ranging from municipalities and non-profits to multi-national corporations and contributes approximately 5% to JPM’s overall revenues. CB is divided into four primary client segments: 1. Middle Market Banking: This segment focuses on corporate, municipal, financial institution and not-for-profit clients, with annual revenue generally ranging between $10 million and $500 million. 2. Commercial Term Lending: This segment was acquired in 2008 through the Washington Mutual acquisition and primarily provides term financing to real estate investors for multi-family properties as well as financing office, retail and industrial properties. 3. Mid-Corporate Banking: This segment focuses on clients with annual revenue ranging between $500 million and $2 billion and offers investment banking products to its clients. 4. Real Estate Banking: This segment caters to investors and developers of institutional grade real estate properties. Exhibit 68 shows the loan breakout by client segmentation. As mentioned, the Washington Mutual acquisition brought on the Commercial Term Lending segment of approximately $37 billion in 2008, which was the peak year in average loans outstanding for CB at $118 billion. Since then, the portfolios have steadily run off by about 18% from the peak, which is consistent with overall Commercial & Industrial loans for the banking industry. We anticipate this decline to continue for the next year or two as has been the case in prior recessions.

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131 July 12, 2010 JPMorgan Chase & Co.

Exhibit 68: Commercial Banking Average Loans by Client Segmentation 140,000 1Q10:

120,000 Real Estate Other Banking 4% Middle Market 100,000 11% Banking Mid-Corporate 35% 80,000 Banking 13%

$ $ Millions 60,000

40,000

20,000 Commercial Term Lending - 37%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Middle Market Banking Commercial Term Lending Mid-Corporate Banking Real Estate Banking Other

Source: Company reports

Exhibit 69 shows the profit and loss for CB since 2008. Although the unit only contributes roughly 5% to overall revenues, it has been consistently profitable throughout the downturn. Provision for credit losses approximately tripled from 2008 to 2009. Most of the provisioning was related to continued weakness in the real estate segment. While we expect the real estate segment to be weak for quite some time, the other segments appear to have improved with provisioning for the latest quarter falling by less than half to $214 in the first quarter of 2010 from $494 million in the prior quarter. Also, net charge-offs as mentioned earlier have declined to 0.95% of average loans in the first quarter of 2010 compared to the prior quarter of 1.93%. Revenues were able to keep pace with the increasing credit costs allowing the unit to remain profitable thus far. Key to the increase in revenues is CB’s relationship with other business units to cross-sell products. Cross-selling highlights include the following: • TSS: CB clients generate $2,642 million in deposit and Treasury Services product revenue. • RFS: More than 25 million transactions conducted at retail branches by CB clients and greater than $650 million in loan commitment referrals came from Business Banking. • AM: CB generated more than $275 million in Private Banking and Investment Management revenue. • CS: CB generates more than $150 million in Commercial Card and Paymentech revenue. Paymentech was a global payments and merchant acquiring joint venture between JPM and First Data Corporation, which was recently dissolved. Currently, CB holds leading positions in the markets of New York, New Jersey, Texas and Illinois. CB is looking further to expand into Florida, California and Oregon.

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132 July 12, 2010 JPMorgan Chase & Co.

Exhibit 69: Commercial Banking Profit & Loss INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Lending & deposit-related fees 193 207 212 242 263 270 269 279 277 854 1,081 Asset management, administration and commissions 26 26 29 32 34 36 35 35 37 113 140 Other income 115 150 147 102 125 152 170 149 186 514 596

Noninterest revenue 334 383 388 376 422 458 474 463 500 1,481 1,817 Net interest income 733 723 737 1,103 980 995 985 943 916 3,296 3,903

TOTAL NET REVENUE 1,067 1,106 1,125 1,479 1,402 1,453 1,459 1,406 1,416 4,777 5,720

Provision for credit losses 101 47 126 190 293 312 355 494 214 464 1,454

NONINTEREST EXPENSE Compensation expense 178 173 177 164 200 197 196 183 206 692 776 Noncompensation expense 294 290 298 324 342 327 339 351 324 1,206 1,359 Amortization of intangibles 13 13 11 11 11 11 10 9 9 48 41

TOTAL NONINTEREST EXPENSE 485 476 486 499 553 535 545 543 539 1,946 2,176

Inc/(loss) before inc tax exp (benefit) and extra gain 481 583 513 790 556 606 559 369 663 2,367 2,090 Income tax expense (benefit) 189 228 201 310 218 238 218 145 273 928 819

NET INCOME/(LOSS) 292 355 312 480 338 368 341 224 390 1,439 1,271

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE 17% 20% 18% 24% 17% 18% 17% 11% 20% 20% 16% Efficiency Ratio 44% 42% 42% 33% 39% 36% 37% 38% 37% 40% 37% Compensation/Total Revenue 17% 16% 16% 11% 14% 14% 13% 13% 15% 14% 14% Source: Company reports

Treasury & Securities Services Review Treasury & Securities Services (TSS) provides global custody, corporate cash management, corporate card services and trade services to more than 40,000 clients all over the world in 60 global locations. TSS operates under two divisions: Treasury Services and Worldwide Securities Services. Treasury Services offers cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multi-national corporations, financial institutions and government entities. Worldwide Securities Services holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers and manages depositary receipt programs globally. The unit generally contributes about 8% to overall revenues with approximately 50% of the revenues being generated outside the US. TSS has historically generated a return on allocated capital of an amazing 30% to 50% consistently. The unit is currently allocated $6.5 billion in equity, which would imply expected annual earnings of $1.5 billion to $2.0 billion. Due to market conditions, TSS is currently falling short of that expectation as Exhibit 70 displays. The latest two quarters generated a return on capital of less than 20% and full-year 2009 had a return on capital of 25% compared to 47% in the prior year. The year-over-year decline was primarily driven by market factors. On the Treasury Services side, revenues declined to $3.70 billion in 2009 from $3.78 billion in 2008 primarily due to spread compression on flat balances due to the low rate environment. On the WSS, the decline in revenues was attributable to a few factors: 1) balances and spreads were lower, 2) securities lending on-loan balances and spreads were down, 3) a decrease in foreign exchange volatility and 4) a decline in the asset values of assets under custody. We anticipate market conditions to improve for TSS in most areas, although we remain cautious on securities lending revenue because it remains unclear if that business will ever come back to its historical highs leading up to the crisis. This business as a whole is still extremely attractive with high returns on capital, low volatility and large barriers to entry. Looking forward, TSS plans to grow through continual organic growth by following the demands of its clients. TSS is also aggressively working with IB to develop the Global Corporate Bank, which is a joint venture between the two business units. The goal is to serve 3,000 of the world’s largest companies properly by combining TSS and IB products effectively under the Global Corporate Bank umbrella. The specific products offered will include: Cash Management, Trade Finance, Working Capital and Syndicated Lending, Foreign Exchange, Derivatives, Commodities, Debt Capital Markets and Local Currency Services.

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Exhibit 70: Treasury & Securities Services Profit & Loss INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Lending & deposit-related fees 269 283 290 304 325 314 316 330 311 1,146 1,285 Asset management, administration and commissions 820 846 719 748 626 710 620 675 659 3,133 2,631 Other income 200 228 221 268 197 221 201 212 176 917 831

Noninterest revenue 1,289 1,357 1,230 1,320 1,148 1,245 1,137 1,217 1,146 5,196 4,747 Net interest income 624 662 723 929 673 655 651 618 610 2,938 2,597

TOTAL NET REVENUE 1,913 2,019 1,953 2,249 1,821 1,900 1,788 1,835 1,756 8,134 7,344

Provision for credit losses 12 7 18 45 (6) (5) 13 53 (39) 82 55 Credit reimbursement to IB (30) (30) (31) (30) (30) (30) (31) (30) (30) (121) (121)

NONINTEREST EXPENSE Compensation expense 641 669 664 628 629 618 629 668 657 2,602 2,544 Noncompensation expense 571 632 661 692 671 650 633 704 650 2,556 2,658 Amortization of intangibles 16 16 14 19 19 20 18 19 18 65 76 TOTAL NONINTEREST EXPENSE 1,228 1,317 1,339 1,339 1,319 1,288 1,280 1,391 1,325 5,223 5,278

Inc/(loss) before inc tax exp (benefit) and extra gain 643 665 565 835 478 587 464 361 440 2,708 1,890 Income tax expense (benefit) 240 240 159 302 170 208 162 124 161 941 664 NET INCOME/(LOSS) 403 425 406 533 308 379 302 237 279 1,767 1,226

REVENUE BY BUSINESS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A Treasury Services 813 852 897 993 931 934 919 918 882 3,555 3,702 Worldwide Securities Services 1,100 1,167 1,056 1,256 890 966 869 917 874 4,579 3,642

TOTAL NET REVENUE 1,913 2,019 1,953 2,249 1,821 1,900 1,788 1,835 1,756 8,134 7,344

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE 46% 49% 46% 47% 25% 30% 24% 19% 17% 47% 25% Efficiency Ratio 64% 65% 69% 59% 73% 68% 72% 76% 76% 64% 72% Compensation/Total Revenue 34% 34% 35% 28% 35% 33% 36% 37% 38% 32% 35% Pretax margin ratio 34% 33% 29% 37% 26% 31% 26% 20% 25% 33% 26% Source: Company reports

Asset Management Review The Asset Management unit is one of the larger asset managers in the world with $1.2 trillion in AUM, $1.7 trillion in AUS and more than 15,000 employees. AM operates under two primary businesses. The first is Investment Management, which offers products and services to institutional and retail investors worldwide to help manage their cash, provide equity, fixed income and alternative investment strategies, and administer 401(k) services. The second primary business is Private Banking, in which 1,900 private bankers offer investing, portfolio structuring, capital advisory, philanthropy and banking services to the most affluent individuals and families to help them grow, manage and sustain their wealth. Similar to TSS, AM contributes approximately 8% to overall revenues but has consistently performed throughout the crisis and offers very high returns relative to allocated capital. Exhibit 71 shows that the lowest return on capital came in the first quarter of 2009 at 13%. Historically, the unit returns almost 40% of capital annually. AM has grown significantly during the years, doubling in size from 2001 with $605 billion in AUM to $1.2 trillion today. In 2009, the company acquired 100% of the ownership of Highbridge Capital Management, one of the larger alternative asset managers in the US, with $21 billion in client assets. As we mentioned earlier in the Dodd-Frank Act Effect section, we believe that, based on the current language, the company will need to divest Highbridge. Looking forward, AM plans to implement global strategies for its growth, which includes development of funds focused on maritime investments, commodities, distressed debt and China.

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Exhibit 71: Asset Management Profit & Loss INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Asset management, administration and commissions 1,531 1,573 1,538 1,362 1,231 1,315 1,443 1,632 1,508 6,004 5,621 Other income 59 130 43 (170) 69 253 238 191 266 62 751

Noninterest revenue 1,590 1,703 1,581 1,192 1,300 1,568 1,681 1,823 1,774 6,066 6,372 Net interest income 311 361 380 466 403 414 404 372 357 1,518 1,593

TOTAL NET REVENUE 1,901 2,064 1,961 1,658 1,703 1,982 2,085 2,195 2,131 7,584 7,965

Provision for credit losses 16 17 20 32 33 59 38 58 35 85 188

NONINTEREST EXPENSE Compensation expense 825 886 816 689 800 810 858 907 910 3,216 3,375 Noncompensation expense 477 494 525 504 479 525 474 543 514 2,000 2,021 Amortization of intangibles 21 20 21 20 19 19 19 20 18 82 77 TOTAL NONINTEREST EXPENSE 1,323 1,400 1,362 1,213 1,298 1,354 1,351 1,470 1,442 5,298 5,473

Inc/(loss) before inc tax exp (benefit) and extra gain 562 647 579 413 372 569 696 667 654 2,201 2,304 Income tax expense (benefit) 205 252 228 158 148 217 266 243 262 844 874 NET INCOME/(LOSS) 357 395 351 255 224 352 430 424 392 1,357 1,430

REVENUE BY CLIENT SEGMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A Private Bank 596 708 631 630 583 640 639 723 698 2,565 2,585 Institutional 490 472 486 330 460 487 534 584 566 1,778 2,065 Retail 466 490 399 327 253 411 471 445 415 1,682 1,580 Private Wealth Management 349 356 352 265 312 334 339 331 343 1,322 1,316 JPMorgan Securities - 38 93 106 95 110 102 112 109 237 419 Total net revenue 1,901 2,064 1,961 1,658 1,703 1,982 2,085 2,195 2,131 7,584 7,965

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A ROAE 29% 31% 26% 15% 13% 20% 25% 24% 24% 24% 20% Efficiency Ratio 68% 67% 68% 72% 75% 67% 64% 66% 67% 69% 68% Compensation/Total Revenue 43% 43% 42% 42% 47% 41% 41% 41% 43% 42% 42% Pretax margin ratio 30% 31% 30% 25% 22% 29% 33% 30% 31% 29% 29% Source: Company reports

Corporate/Private Equity Review The last segment is the Corporate/Private (CP) Equity segment. CP consists of Private Equity, Treasury, the Chief Investment Office, corporate staff units and expenses that are centrally managed. Treasury and the Chief Investment Office manage capital, liquidity, interest rate and foreign exchange risk and the investment portfolio for the Firm. The corporate staff units include Central Technology and Operations, Internal Audit, Executive Office, Finance, Human Resources, Marketing & Communications, Legal & Compliance, Corporate Real Estate and General Services, Risk Management, Corporate Responsibility and Strategy & Development. Other centrally managed expenses include the firm’s occupancy and pension-related expense, net of allocations to the business. Exhibit 72 shows the historical profit and loss for the unit since the beginning of 2008. In 2008, the unit recorded a loss $557 million compared with $3.0 billion in 2009. The large difference can be partially attributed to Private Equity, which lost $690 million in 2008 while only losing $78 million in 2009 (Private Equity recorded a net gain of more than $4 billion in 2007). In addition, the corporate investment portfolio included securities that were trading at a large discount. In the beginning of 2009, the pre-tax unrealized gain of this portfolio went from a loss of $3.4 billion at the beginning of 2009 to a gain of $3.3 billion at year end. Going forward, we would expect these abnormal returns to normalize to around $300 million annually, and the Private Equity unit can be expected to return 20% in more normalized environments. The Volcker Rule’s limitation on private equity holdings (3% of Tier 1 capital, or approximately $4 billion based on JPM’s first-quarter 2010 Tier 1 capital level) will require JPM to divest approximately $3 billion of its $7.3 billion portfolio. We remain more cautious in this area.

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Exhibit 72: Corporate/Private Equity Profit & Loss INCOME STATEMENT 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A REVENUE Principal transactions 5 (97) (1,876) (1,620) (1,493) 1,243 1,109 715 547 (3,588) 1,574 Securities gains 42 656 440 499 214 366 181 378 610 1,637 1,139 Other income 1,641 (378) (275) 685 (19) (209) 273 13 124 1,673 58

Noninterest revenue 1,688 181 (1,711) (436) (1,298) 1,400 1,563 1,106 1,281 (278) 2,771 Net interest income (349) (47) (125) 868 989 865 1,031 978 1,076 347 3,863

TOTAL NET REVENUE 1,339 134 (1,836) 432 (309) 2,265 2,594 2,084 2,357 69 6,634

Provision for credit losses - 37 1,977 (33) - 9 62 9 17 1,981 80

NONINTEREST EXPENSE Compensation expense 639 611 652 438 641 655 768 747 475 2,340 2,811 Noncompensation expense (84) 689 563 673 345 1,319 875 1,058 3,041 1,841 3,597 Merger costs - 155 96 181 205 143 103 30 - 432 481

Subtotal 555 1,455 1,311 1,292 1,191 2,117 1,746 1,835 3,516 4,613 6,889 Net expense allocated to other businesses (1,057) (1,070) (1,150) (1,364) (1,279) (1,253) (1,243) (1,219) (1,180) (4,641) (4,994) TOTAL NONINTEREST EXPENSE (502) 385 161 (72) (88) 864 503 616 2,336 (28) 1,895

Inc/(loss) before inc tax exp (benefit) and extra gain 1,841 (288) (3,974) 537 (221) 1,392 2,029 1,459 4 (1,884) 4,659 Income tax expense (benefit) 730 31 (1,613) 317 41 584 818 262 (224) (535) 1,705

Income/(loss) before extra gain 1,111 (319) (2,361) 220 (262) 808 1,211 1,197 228 (1,349) 2,954 Extraordinary gain - - 581 1,325 - - 76 - - 1,906 76 NET INCOME/(LOSS) 1,111 (319) (1,780) 1,545 (262) 808 1,287 1,197 228 557 3,030

FINANCIAL RATIOS 1Q08A 2Q08A 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A FY08A FY09A AVERAGE EQUITY 55,980 56,421 53,540 46,257 43,493 47,865 56,468 63,525 52,094 53,034 52,903 ROAE 8% -2% -13% 13% -2% 7% 9% 8% 2% 1% 6% Efficiency Ratio NM 172% NM NM 95% 32% 15% 28% 99% NM 21% Compensation/Total Revenue 48% 456% NM 101% NM 29% 30% 36% 20% 3391% 42%

PRIVATE EQUITY Private equity gains/(losses) Direct investments

Realized gains 1,113 540 40 24 15 25 57 12 113 1,717 109 Unrealized gains/(losses) (881) (326) (273) (1,000) (409) 16 88 224 (75) (2,480) (81)

Total direct investments 232 214 (233) (976) (394) 41 145 236 38 (763) 28 Third-party fund investments (43) 6 27 (121) (68) (61) 10 37 98 (131) (82) Total private equity gains/(losses) 189 220 (206) (1,097) (462) (20) 155 273 136 (894) (54) Source: Company reports

Management Team James Dimon, Chairman and Chief Executive Officer Mr. Dimon became Chairman of the Board on December 31, 2006, and has been Chief Executive Officer and President since December 31, 2005. He had been President and Chief Operating Officer since JPMorgan Chase’s merger with Bank One Corp. in July 2004. At Bank One, he had been Chairman and Chief Executive Officer since March 2000. Prior to joining Bank One, Mr. Dimon had extensive experience at Citigroup Inc., the Travelers Group, Commercial Credit Company and American Express Company. Mr. Dimon graduated from Tufts University in 1978 and received an MBA from Harvard Business School in 1982. He is a director of The College Fund/UNCF and serves on the Board of Directors of The Federal Reserve Bank of New York, The National Center on Addiction and Substance Abuse, Harvard Business School and Catalyst. He is also on the Board of Trustees of New York University School of Medicine.

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Doug Braunstein, CFO Doug Braunstein, started serving this position on June 22, 2010. Prior to this, Mr. Braunstein was head of Investment Banking, Americas. Mr. Braunstein joined JPMorgan Chase & Co. in 1997 in its M&A division. Prior to this, Mr. Braunstein held positions at Merrill Lynch & Co.

Michael Cavanagh, CEO of Treasury & Securities Services (former CFO) Mr. Cavanagh started serving this position on June 22, 2010. Prior to this, Mr. Cavanagh served as CFO since September 2004. Prior to which he had been Head of Middle Market Banking, and prior to the merger, he had been Chief Administrative Officer of Commercial Banking and Chief Operating Officer of Middle Market Banking at Bank One Corp.

Frank J. Bisignano, Chief Administrative Officer Mr. Bisignano has been Chief Administrative Officer since December 2005. Prior to joining JPMorgan Chase, he had been Chief Executive Officer of Citigroup Inc.’s Global Transaction Services.

Steven D. Black, Vice Chairman Mr. Black has served as Vice Chairman since January 2010. He had been Executive Chairman of the Investment Bank since September 2009, prior to which he had been Co-Chief Executive Officer of the Investment Bank from March 2004 until September 2009.

Stephen M. Cutler, General Counsel Mr. Cutler has served as General Counsel since February 2007. Prior to joining JPMorgan Chase, he was a partner and co-chair of the Securities Department at the law firm of WilmerHale since October 2005. Prior to joining WilmerHale, he had been Director of the Division of Enforcement at the U.S. Securities and Exchange Commission since October 2001.

William M. Daley, Head of Corporate Responsibility Mr. Daley has served in the current position since June 2007 and was Chairman of the Midwest Region since May 2004.

John L. Donnelly, Director of Human Resources Mr. Donnelly has served in the current position since January 2009. Prior to joining JPMorgan Chase, he had been Global Head of Human Resources at Citigroup Inc. since July 2007 and Head of Human Resources and Corporate Affairs for Citi Markets and Banking business from 1998 until 2007.

Ina R. Drew, Chief Investment Officer Ms. Drew has served as Chief Investment Officer since February 2005.

Mary Callahan Erdoes, Chief Executive Officer of Asset Management Ms. Erdoes has served in the current position since September 2009. From March 2005 to September 2009, she was Chief Executive Officer of Private Banking. Prior to 2005, she was responsible for investment solutions and strategy for private banking clients worldwide.

Samuel Todd Maclin, Chief Executive Officer of Commercial Banking Mr. Maclin has served in the current position since July 2004, prior to which he had been Chairman and CEO of the Texas Region and Head of Middle Market Banking.

Jay Mandelbaum, Head of Strategy and Business Development Mr. Mandelbaum has served in the current position since the Bank One Corp. merger. Prior to the merger, he had been Head of Strategy and Business Development since September 2002 at Bank One Corp. Prior to joining Bank One Corp., he had been Vice Chairman and Chief Executive Officer of the Private Client Group of Citigroup Inc. subsidiary Salomon Smith Barney.

Heidi Miller, President of International Business (former CEO of Treasury & Securities Services) Ms. Miller started serving the current position on June 22, 2010 when the group was formed. Prior to this new appointment, Ms. Miller served as CEO of TSS since the Bank One Corp. merger. Prior to the merger, she had been CFO at Bank One Corp. since March 2002. Prior to joining Bank One Corp., she had been Vice Chairman of Marsh Inc. from January 2001 until March 2002, and prior to this had held several executive positions at Priceline.com and at Citigroup Inc., including CFO.

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Charles W. Scharf, Chief Executive Officer of Retail Financial Services Mr. Scharf has served in the current position since the Bank One Corp. merger. Prior to the merger, he had been Head of Retail Banking from May 2002, prior to which he was Chief Financial Officer from June 2000 at Bank One Corp. Prior to joining Bank One Corp., he had been Chief Financial Officer at Citigroup Global Corporate and Investment Bank.

Gordon A. Smith, Chief Executive Officer of Card Services Mr. Smith has served in his current position since June 2007. Prior to joining JPMorgan Chase, he was with American Express Company for more than 25 years. From August 2005 until June 2007, he was president of American Express’ global commercial card business. Prior to that, he was president of the consumer card services group and was responsible for all consumer card products in the US.

James E. Staley, Chief Executive Officer of the Investment Bank Mr. Staley has served in the current position since September 2009, prior to which he had been Chief Executive Officer of Asset Management.

Barry L. Zubrow, Chief Risk Officer Mr. Zubrow has served in the current position since November 2007. Prior to joining JPMorgan Chase, he was a private investor and has been Chairman of the New Jersey Schools Development Authority since March 2006.

Peer Group Bank of America Corporation (NYSE: BAC; $15.11; Outperform; Average Risk) Citigroup Inc. (NYSE: C; $4.04; Not Rated) Wells Fargo & Company (NYSE: WFC; $27.00; Outperform; Average Risk)

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Valuation • Credit Metrics should reach close to normalized levels in 2012. • Our normalized 2012 estimate assumes normalized credit and quantifies the legislative and other impact. • Our analysis suggests a 2012 EPS range between $5.18 and $5.68 per share. • Our valuation based on an 8.0x P/E and historical median dividend yield suggests a current fair value of $45 per share. • Our $45 price target is 1.12x estimated 2Q10 book value and 1.66x 2Q2010 tangible book value. Price Target Impediment • Legislation Risk: The final Dodd-Frank Act has brought some clarity to the political uncertainty that had weighed on banks for the past year. The risk, however, is still high because many parts of the bill are vague and open to further interpretation and quantification. If the enacted legislation becomes more onerous, then our price target may be negatively affected. • Regulation Risk: If regulatory rules require much higher capital, then normalized dividends may be further away and our price target may be negatively impacted. • Geographic Risk: The company has exposure to both local and international clients, and as such it may be materially affected by events in those areas. Even if there is no direct exposure, the interconnectedness of the markets and the size of the company present a geographic risk. Should there be an economic downturn where the company conducts business, then our price target may be negatively impacted. • Consumer Loan Portfolio: If credit costs escalate further than anticipated for this portfolio, then the company's earnings may be materially affected as JPM's primary consumer business lines, Retail Financial Services and Card Services, make up approximately 45% of total earnings. • Litigation Risk: There may be ongoing litigation risk related to the products and services offered by the major financial firms prior to the financial crisis. Any litigation may negatively affect our price target. • Loan Repurchase Risk: Although the company has placed $1.7 billion in reserves for expenses related to loan repurchases, the reserves may not be sufficient and require higher provisioning, which may negatively affect our price target. Company Description JPMorgan Chase & Co. is a leading global financial services firm and the second-largest banking institution in the US in assets with $2.1 trillion in assets, more than 5,100 branches nationwide and operations in more than 60 countries as of March 31, 2010. The company markets under two brands: 1) Chase and 2) J.P. Morgan. The Chase brand focuses on the consumer and commercial clients, offering a wide range of financial products and services from retail banking and traditional mortgages to credit card products and equipment finance. The J.P. Morgan brand targets affluent individuals, major corporations, governments and institutional investors, offering investment banking products and services, cash management and clearing services, and asset management products and services. The J.P. Morgan brand is a leader in its space, often ranking in the top-three positions in many categories.

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JPMorgan Chase & Co. JPM ($ millions, except per share data) Gerard Cassidy (207) 780-1554

INCOME STATEMENT FY07A FY08A 1Q09A 2Q09A 3Q09A 4Q09A FY09A 1Q10A 2Q10E 3Q10E 4Q10E FY10E FY11E Net Interest Margin (FTE) 2.39% 2.87% 3.29% 3.07% 3.10% 3.02% 3.12% 3.32% 3.27% 3.25% 3.22% 3.22% 3.26%

Net Interest Income (FTE) 26,783 39,358 13,463 12,757 12,826 12,436 51,482 13,800 13,235 12,809 12,358 52,202 50,912 Provision for Credit Losses 6,864 20,979 8,596 8,031 8,104 7,284 32,015 7,010 6,218 5,658 5,119 24,005 15,252 Total Noninterest Income 44,966 28,473 11,658 12,953 13,885 10,786 49,282 13,961 11,710 11,853 12,118 49,642 51,951 Total Revenues 71,372 67,252 25,025 25,623 26,622 23,164 100,434 27,671 24,854 24,572 24,386 101,484 102,503 Total Noninterest Expenses 41,703 43,500 13,373 13,520 13,455 12,004 52,352 16,124 13,939 13,633 13,760 57,455 57,819 Pretax Income 22,805 2,773 3,056 4,072 5,063 3,876 16,067 4,537 4,698 5,281 5,507 20,023 29,433 Taxes 7,440 (926) 915 1,351 1,551 598 4,415 1,211 1,503 1,690 1,762 6,167 9,713 Pref Div, Min Int & Other - 863 622 537 348 326 1,842 352 352 352 352 1,408 1,408 Discontinued Operations ------Extraord. Gain/(Loss) - 1,906 - (1,112) 76 - (1,036) ------Reported NI to Common 15,365 4,742 1,519 1,072 3,240 2,952 8,774 2,974 2,842 3,239 3,393 12,449 18,312 One-time Gain/(Loss) ------Core NI to Common 15,365 2,836 1,519 2,184 3,164 2,952 9,810 2,974 2,842 3,239 3,393 12,449 18,312 Reported EPS $4.37 $1.36 $0.40 $0.28 $0.82 $0.74 $2.25 $0.74 $0.71 $0.81 $0.85 $3.12 $4.58 Core EPS $4.37 $0.83 $0.40 $0.57 $0.80 $0.74 $2.52 $0.74 $0.71 $0.81 $0.85 $3.12 $4.58 Yr/Yr Change 14% -81% -40% 7% -1146% -354% 202% 84% 25% 2% 14% 24% 47% Avg FD Common Shares 3,445 3,522 3,759 3,824 3,962 3,974 3,880 3,995 3,995 3,995 3,995 3,995 3,995 Net Share Repurchases (Issuance) ------Dividends Per Share 1.44 1.52 0.38 0.05 0.05 0.05 0.53 0.05 0.05 0.05 0.05 0.20 0.65 Book Value Per Share $36.59 $36.15 $36.78 $37.36 $39.12 $39.88 $39.88 $39.38 $40.05 $40.81 $41.62 $41.62 $45.57

RATIOS Core ROAA 1.06% 0.16% 0.29% 0.43% 0.63% 0.59% 0.48% 0.58% 0.57% 0.66% 0.71% 0.63% 0.96% Core ROACE 12.9% 2.2% 4.5% 6.2% 8.5% 7.5% 6.7% 7.6% 7.2% 8.1% 8.3% 7.8% 10.6% 2 Efficiency Ratio 58.3% 67.9% 56.4% 54.1% 51.6% 52.6% 53.6% 60.1% 57.8% 57.3% 58.4% 58.5% 58.3% 2 Op. Fees/Op. Revenues 61.8% 37.7% 42.4% 48.3% 50.2% 44.6% 46.5% 48.1% 44.5% 45.5% 47.0% 46.3% 48.1%

BALANCE SHEET FY07A FY08A 1Q09A 2Q09A 3Q09A 4Q09A FY09A 1Q10A 2Q10E 3Q10E 4Q10E FY10E FY11E EOP Loans 519,374 744,898 708,243 680,601 653,144 633,458 633,458 713,799 699,523 685,533 671,822 671,822 702,891 EOP Earnings Assets 1,369,933 1,932,930 1,853,384 1,778,665 1,815,971 1,790,565 1,790,565 1,907,456 1,857,370 1,808,644 1,761,240 1,761,240 1,751,028 EOP Total Assets 1,569,300 2,181,904 2,085,738 2,033,202 2,047,845 2,039,314 2,039,314 2,135,796 2,088,505 2,042,142 1,997,114 1,997,114 1,998,751 EOP Deposits 740,728 1,009,277 906,969 866,477 867,977 938,367 938,367 925,303 929,930 934,579 939,252 939,252 958,178 EOP Common Equity 123,221 134,945 138,201 146,614 154,101 157,213 157,213 156,569 159,213 162,253 165,447 165,447 181,175 EOP Intangibles 51,369 53,608 53,550 53,370 53,196 52,978 52,978 51,589 51,346 51,103 50,860 50,860 49,888 EOP Tangible Common Equity 71,852 81,337 84,651 93,244 100,905 104,235 104,235 104,980 107,867 111,150 114,587 114,587 131,287 EOP Total Equity 123,221 166,884 170,194 154,766 162,253 165,365 165,365 164,721 167,365 170,405 173,599 173,599 189,327

RATIOS EOP Loans/Deposits 70.1% 73.8% 78.1% 78.5% 75.2% 67.5% 67.5% 77.1% 75.2% 73.4% 71.5% 71.5% 73.4% EOP Common Equity/Assets 7.85% 6.18% 6.63% 7.21% 7.53% 7.71% 7.71% 7.33% 7.62% 7.95% 8.28% 8.28% 9.06% TCE Ratio 4.73% 3.82% 4.17% 4.71% 5.06% 5.25% 5.25% 5.04% 5.29% 5.58% 5.89% 5.89% 6.74% Tier 1 Common Ratio 7.01% 6.98% 7.28% 7.69% 8.19% 8.79% 8.79% 9.06% 9.21% 9.30% 9.40% 9.40% 10.76% Tier 1 Ratio 8.44% 10.94% 11.36% 9.69% 10.22% 11.10% 11.10% 11.45% 11.55% 11.59% 11.65% 11.65% 13.01%

ASSET QUALITY FY07A FY08A 1Q09A 2Q09A 3Q09A 4Q09A FY09A 1Q10A 2Q10E 3Q10E 4Q10E FY10E FY11E Net Charge-Offs 4,538 9,835 4,396 6,019 6,373 6,177 22,965 7,910 7,106 6,094 5,545 26,655 19,080 Nonperforming Loans (incl 90PD) 5,333 13,214 15,330 18,995 21,507 24,696 24,696 25,338 23,347 21,771 20,270 20,270 13,836 ORE 651 3,761 3,253 2,732 2,595 2,177 2,177 1,969 1,969 1,969 1,969 1,969 1,969 Total NPAs (incl 90PD) 5,984 16,975 18,583 21,727 24,102 26,873 26,873 27,307 25,316 23,740 22,239 22,239 15,805 Loan Loss Reserve 9,234 23,164 27,381 29,072 30,633 31,602 31,602 38,186 37,298 36,862 36,436 36,436 32,607

RATIOS Reserve/loans 1.78% 3.11% 3.87% 4.27% 4.69% 4.99% 4.99% 5.35% 5.33% 5.38% 5.42% 5.42% 4.64% Reserve/NPAs 154% 136% 147% 134% 127% 118% 118% 140% 147% 155% 164% 164% 206% NPAs/(loans+ORE) 1.15% 2.27% 2.61% 3.18% 3.68% 4.23% 4.23% 3.82% 3.61% 3.45% 3.30% 3.30% 2.24% NCOs/Avg loans 0.95% 1.67% 2.42% 3.45% 3.83% 3.85% 3.36% 4.36% 4.00% 3.50% 3.25% 3.79% 2.81% LLP/Avg Loans 1.43% 3.56% 4.73% 4.60% 4.87% 4.54% 4.69% 3.87% 3.50% 3.25% 3.00% 3.41% 2.25%

GROWTH RATES YR-to-YR YR-to-YR Q-to-Q Q-to-Q Q-to-Q Q-to-Q YR-to-YR Q-to-Q Q-to-Q Q-to-Q Q-to-Q YR-to-YR YR-to-YR Average Loans 5.5% 22.7% -3.4% -4.0% -4.7% -3.5% 16.0% 12.9% -2.0% -2.0% -2.0% 3.0% -3.5% EOP Loans 7.5% 43.4% -4.9% -3.9% -4.0% -3.0% -15.0% 12.7% -2.0% -2.0% -2.0% 6.1% 4.6% Average Earning Assets 12.4% 22.8% -1.8% 0.5% -1.5% -0.4% 20.2% 3.2% -2.6% -2.6% -2.6% -1.6% -3.8% EOP Deposits 16.0% 36.3% -10.1% -4.5% 0.2% 8.1% -7.0% -1.4% 0.5% 0.5% 0.5% 0.1% 2.0% Operating Revenues 16.2% -5.8% 45.3% 2.4% 3.9% -13.0% 49.3% 19.5% -10.2% -1.1% -0.8% 1.0% 1.0% Net Interest Income 24.7% 47.0% -3.4% -5.2% 0.5% -3.0% 30.8% 11.0% -4.1% -3.2% -3.5% 1.4% -2.5% Total Non-Interest Income 11.9% -36.7% 243.5% 11.1% 7.2% -22.3% 73.1% 29.4% -16.1% 1.2% 2.2% 0.7% 4.7% Total Non-Interest Expense 8.9% 4.3% 18.8% 1.1% -0.5% -10.8% 20.3% 34.3% -13.6% -2.2% 0.9% 9.7% 0.6% Reported Net Income 6.4% -69.1% 554.7% -29.4% 202.2% -8.9% 85.0% 0.7% -4.4% 14.0% 4.7% 41.9% 47.1% EPS - Reported 8.2% -69.0% 551.0% -30.6% 191.7% -9.2% 65.5% 0.2% -4.4% 14.0% 4.7% 38.8% 47.1% EPS - Core 14.5% -80.9% -238.2% 41.3% 39.8% -7.0% 201.9% 0.2% -4.4% 14.0% 4.7% 23.8% 47.1% Notes 1) Nonperforming assets include loans 90+ days past due 2) Operating revenues excludes gains on sale of loans and investments. Operating expenses excludes intangible amortization. Source: Company filings and RBC Capital Markets estimates

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Required Disclosures Conflicts Disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from JPMorgan Chase & Co. during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-investment banking securities-related services to JPMorgan Chase & Co.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from JPMorgan Chase & Co. during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to JPMorgan Chase & Co.

RBC Capital Markets is currently providing JPMorgan Chase & Co. with non-investment banking securities-related services.

RBC Capital Markets is currently providing JPMorgan Chase & Co. with non-securities services.

RBC Capital Markets has provided JPMorgan Chase & Co. with non-investment banking securities-related services in the past 12 months.

RBC Capital Markets has provided JPMorgan Chase & Co. with non-securities services in the past 12 months.

The author is employed by RBC Capital Markets Corp., a securities broker-dealer with principal offices located in New York, USA.

Explanation of RBC Capital Markets Equity Rating System An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Ratings Top Pick (TP): Represents best in Outperform category; analyst's best ideas; expected to significantly outperform the sector over 12 months; provides best risk-reward ratio; approximately 10% of analyst's recommendations. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Qualifiers (any of the following criteria may be present): Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; no significant cash flow/financing concerns over coming 12-24 months; fairly liquid. Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; may not be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float. Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of being delisted. Distribution of Ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

Distribution of Ratings RBC Capital Markets, Equity Research Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent

BUY[TP/O] 639 50.80 186 29.11 HOLD[SP] 565 44.90 127 22.48 SELL[U] 53 4.20 8 15.09

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Rating and Price Target History for: JPMorgan Chase & Co. as of 07-09-2010 (in USD)

02/27/09 05/29/09 05/28/10 RL 7 Off RL 7 On RL 7 Off

50

40

30

20

10 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 2008 2009 2010

Legend: TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage; NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date a security was removed from a recommended list.

Created by BlueMatrix References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by a business unit of the Wealth Management Division of RBC Capital Markets Corporation. These Recommended Lists include the Prime Opportunity List (RL 3), a former list called the Private Client Prime Portfolio (RL 4), the Prime Income List (RL 6), the Guided Portfolio: Large Cap (RL 7), and the Guided Portfolio: Dividend Growth (RL 8). The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. Conflicts Policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

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