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

Business Wire, July 17, 2008

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

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

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

Key Metrics and Business Updates:

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

* Ranked #1 in Global Debt, Equity and Equity-Related; #1 in Global Syndicated Loans; #1 in Global Equity and Equity Related; #1 in Global Long-Term Debt; and #3 in Global Announced M&A; based upon volume, according to Thomson Financial for year-to-date ending June 30, 2008.

* Ranked #1 in Global Investment Banking Fees for the first half of 2008, according to Dealogic.

* Return on Equity was 7% on $23.3 billion of average allocated capital; end of period allocated capital was $26.0 billion.

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Discussion of Results:

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

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

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