As its name suggests, JPMorgan Chase is the product of many combinations involving some of the most storied names in American banking. In a 10-year stretch beginning in 1991, four of the biggest and oldest New York financial institutions — Chase Manhattan Bank (founded by Aaron Burr), Chemical Bank and Manufacturer Hanover Bank — were joined with J.P. Morgan and Company, the venerable investment bank. Then in 2004, the combined company merged with Bank One Corp., in a $58 billion deal that remains the largest of its kind.
Like all other financial institutions, JPMorgan was badly battered by the financial crisis of 2008. But it was not as deeply exposed to the mortgage market as some of its rivals, and was able to profit from others' pain: it absorbed Bear Stearns and Washington Mutual in deals brokered and supported by the federal government. The two moves allowed it to leapfrog rivals in the investment banking rankings and expand its consumer lending franchise. The bank's performance as it emerged from the credit crisis earned it a spot at the pinnacle of American finance.
After powering ahead for several quarters on the strength of its Wall Street trading operations, JPMorgan beat investor expectations for its third quarter performance in 2010 with the help of improvement in its credit card business and a gain from money it had previously set aside to cover losses from bad loans. But like other big banks, it still confronts potential losses stemming from bad home mortgages and the legal fallout from a spiraling mess over the processing of foreclosure documents. Morgan’s Chase Retail Services announced earlier that as many as 56,000 of its mortgages had documentation problems, prompting calls for an industrywide investigation and a national moratorium on foreclosures.
In January 2011, the bank kicked off the banking industry’s earnings season with news that its profits surged 48 percent in 2010 amid signs that consumers and businesses had slowly regained their balance in the aftermath of the financial crisis. The bank posted a $17.37 billion profit in 2010, up from $11.73 billion a year earlier, as losses on troubled loans eased.
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With the 2004 merger, JPMorgan came within a whisker of catching Citigroup as the world's largest financial institution by combining Bank One's vast branch retail network with JPMorgan's investment banking franchise. It also brought in Bank One's chief executive, Jamie Dimon, who had been a former rising star at Citigroup before being forced out by Sanford I. Weill, his former mentor. Mr. Dimon was named chairman and chief executive of the combined company in 2006.
While the company was formed by acquisitions, Mr. Dimon proved to be notably cautious about further big deals. And while losses from mortgage-related securities drove profits down at the end of 2007, JPMorgan in early 2008 appeared to have avoided the worst of the battering damaging its competitors. The company was in a good position to move quickly when Bear Stearns came face to face with bankruptcy in March 2008. Known as a tough negotiator, Mr. Dimon struck a bargain that had Wall Street gasping when it was announced on March 16, buying Bear Stearns for a mere $2 a share — a tenth of its closing price — together with a Federal Reserve loan for $30 billion secured by Bear Stearns's shaky portfolio.
With the advent of the credit crisis, Washington Mutual, a giant savings and loan that had been hobbled by bad mortgages, teetered on the brink of collapse. Federal regulators called a familiar number: James Dimon's. The head of the Federal Deposit Insurance Corporation told him the F.D.I.C. was about to seize WaMu — and then sell it to JPMorgan. JPMorgan paid $1.9 billion to the F.D.I.C. to acquire all of WaMu's assets, branches and deposits. With WaMu, JPMorgan has $905 billion in deposits and 5,400 branches nationwide, rivaling Bank of America in size and reach. But the bank was also responsible for absorbing $31 billion in losses tied to WaMu's troubled loans. WaMu shareholders and certain bondholders were wiped out, but a taxpayer funded WaMu bailout was avoided.
JPMorgan was one of the companies that received money under the federal bailout package in late 2008; it received $25 billion. On June 17, 2009 it became one of 10 banks to repay its share of bailout funds. The bank was allowed to repay the money after it had passed a stress test given by government regulators. JPMorgan's strong showing since then may put to rest some worries that the bank was allowed to pay back taxpayer investment too early. But its quick resurgence in earnings, along with Goldman Sachs's announcement of a $3.4 billion quarterly profit, raised fresh concerns about soaring pay levels and growing influence in Washington.
JPMorgan's cheery figures for 2009 were accompanied by news that it had earmarked $26.9 billion to compensate its workers, much of which will be paid out as bonuses. That is up about 18 percent, with employees, on average, earning about $129,000. Workers in JPMorgan's investment bank, on average, earned roughly $380,000 each. Top producers, however, expect to collect multimillion-dollar paychecks.
The strong results — coming a day after the Obama administration, to howls from Wall Street, announced plans to tax big banks to recoup some of the money the government expects to lose from bailing out the financial system — underscored the gaping divide between the financial industry and the many ordinary Americans who were still waiting for an economic recovery.
JPMorgan's first-quarter income in 2010 was $3.3 billion over all, or 74 cents a share. That compared with income of $2.1 billion, or 40 cents a share, the year earlier as profit surged in the months after the crisis. Revenue on a managed basis, at $28.2 billion, exceeded forecasts.
In JPMorgan’s results, investors saw trends showing fewer consumers falling behind on their mortgage and credit card payments to big corporate borrowers seeking new loans. More qualified small-business customers were filing applications for new loans, too.
Mr. Dimon has been aggressive in dealing with Washington. JPMorgan's 12-person Washington office has spent more than $7.7 million on lobbying over the last five quarters, more than any other bank, according to the Center for Public Integrity.
The strategy has helped influence the landmark financial overhaul that pased in July. The legislation will enable the industry to press on pretty much as it has done. JPMorgan, for example, will be allowed to retain its giant hedge fund unit, Highbridge Capital Management, and its status as a derivatives powerhouse.
In January, the bank handily beat Wall Street estimates with earnings up 47 percent, to $4.83 billion, or $1.12 a share, from $3.28 billion, or 74 cents a share, in the quarter a year earlier. The rosy report could pave the way for JPMorgan to increase its dividend by as much as a dollar.
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