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Rating Action:

Moody's puts negative rating outlook on JPMorgan (snr at Aa3)

04 Mar 2009

New York, March 04, 2009 -- Moody's Investors Service changed its rating outlook on JPMorgan Chase & Co and subsidiaries to negative from stable. JPMorgan Chase & Co.'s (JPM) senior debt is rated Aa3 and the ratings on its lead bank, JPMorgan Chase Bank N.A., are B for bank financial strength (BFSR) and Aa1 for long-term deposits. Moody's BFSRs represent Moody's opinion of a banks intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements.

The change to a negative outlook reflects Moody's expectations that JPM's results will continue to be saddled by sustained high provisions and credit costs for the coming four-to-six quarters, due to increasing financial strains for U.S. consumers and the global recession. As a result, JPM's capital generation could be modest at best.

However, the ratings continue to reflect JPM's comparatively strong capital position, which is further supported by the company's recent decision to cut its quarterly common dividend by approximately $1.25 billion; prudent liquidity; and a broad franchise that generates strong pre-tax, pre-provision income.

Recently, Moody's made some recalibration of the weights and relative importance attached to certain rating factors within its current rating methodologies. Capital adequacy, in particular, takes on increasing importance in determining the BFSR. Meanwhile, debt and deposit ratings will reflect the fact that Moody's assumptions remain strong concerning governmental support for systemically important institutions during this global financial crisis. (Please see Moody's special comment "Calibrating Bank Ratings in the Context of the Global Financial Crisis")

In the current recession, Moody's is assuming JPM will not generate sizable amounts of capital because: 1) The recession, coupled with continued capital market illiquidity, could continue to dampen investment banking revenue, which remains an important revenue contributor to JPM. 2) An ailing housing market and higher unemployment have increased loss estimates on JPM's residential mortgage portfolio. In particular, it has become more likely that additional charges will need to be taken against legacy WaMu's $145 billion residential mortgage portfolio beyond JPM's $30 billion marks taken against that portfolio. 3) Increased credit costs taken against JPM's credit card portfolio are also very likely.

Moody's still assumes that JPM's credit card portfolio will perform better than peers' portfolios. Nevertheless, Moody's is assuming that annualized charge-off rates could rise to more than 8%.

JPM enters 2009 with a Tier 1 ratio of 10.2% and an adjusted tangible-equity ratio of 7.9%, both of which are high. The adjusted tangible-equity ratio gives some credit to hybrid capital securities and the ratio is based on risk-weighted assets.

"This level of capital gives JPMorgan flexibility to take heightened credit costs and still maintain good capital ratios," said Moody's Senior Vice President Sean Jones.

In addition to strong capital ratios, JPM's bank financial strength rating of B is supported by JPM's valuable franchise, which the credit crunch has not impaired.

"Its sustainability in its major business lines are supported by high market share and good execution," said Moody's Mr. Jones.

Moody's said that the most likely reason for JPM's rating to be downgraded would be that its adjusted tangible equity ratio falls towards 5% from its current level of approximately 7.9%. For this to occur in the medium-term, losses would need to be greater than Moody's expects.

"If JPM's capital ratios deteriorate more than anticipated, expect greater downward pressure on its standalone bank financial strength rating than on its deposit and senior and subordinated debt ratings, which incorporate systemic support," Moody's Mr. Jones concludes.

Moody's last rating action on JPM was on January 15, 2009, when it downgraded JPMorgan Chase & Co.'s senior debt to Aa3 from Aa2, and downgraded JPMorgan Chase Bank N.A.'s bank financial strength rating to B from B+ and its deposit ratings to Aa1 from Aaa. The rating outlook then was stable.

The principal methodologies used in rating this issuer were "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

Moody's actions had no impact on the FDIC-guaranteed debt issued by JPMorgan Chase & Co. That debt remains rated at Aaa with a stable outlook.

JPMorgan Chase & Co is headquartered in New York City. Its reported asserts were $2.2 trillion as of December 31st 2008.

New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sean Jones
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's puts negative rating outlook on JPMorgan (snr at Aa3)
No Related Data.
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