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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
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
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
"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
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.
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
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
Financial Institutions Group
Moody's Investors Service
Moody's puts negative rating outlook on JPMorgan (snr at Aa3)
Senior Vice President
Financial Institutions Group
Moody's Investors Service
No Related Data.
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