Michael J. Cavanagh - Chief Financial Officer James Dimon - Chairman of the Board, President, Chief Executive Officer

Guy Moszkowski - Merrill Lynch Glenn Schorr - UBS Michael Mayo - Deutsche Bank Betsy Graseck - Morgan Stanley Jeffrey Harte - Sandler O'Neill & Partners L.P. Meredith Whitney - Oppenheimer

Good morning, ladies and gentlemen. Welcome to the JPMorgan Chase first quarter 2008 earnings call. This call is being recorded. Today's presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements speak only as of the date hereof and reflect management's current beliefs. These statements are by their nature subject to significant risks and uncertainties, and the firm's actual returns could differ materially from those described in the forward-looking statements. Please refer to JPMorgan Chase's filings with the Securities and Exchange Commission, including its most recent Form 10K and Forms 10Q for a description of the risk and factors that could cause the firm's results to differ materially from those described in the forward-looking statements. At the conclusion of the presentation, you'll have an opportunity to ask questions. (Operator Instructions) And at this time, I'd like to turn the call over to JPMorgan Chase's Chairman and Chief Executive Officer Jamie Dimon and Chief Financial Officer Mike Cavanagh. Mr. Cavanagh, please go ahead, sir. Michael J. Cavanagh: Great. Good morning. Thank you, Operator. Good morning, everyone. You've got Mike here and Jamie as well. As usual, we'll run through a presentation that you can pull off the web to run through. I'll run through the numbers and Jamie will make some comments, and then we'll take Q&A for a bit. So hopefully you have the presentation in front of you. If you go to the first page, Financial Highlights, this is the highlights exactly as - yeah, headlines from our press release - so I'm not going to sit here and read it verbatim for you. But I guess I would just make the general couple of comments that you do see from the diverse earnings sources that we've got, resulting in $2.4 billion of earnings for the quarter inclusive of the $2.6 billion in markdowns in the investment bank that I'll get to, as well as the strengthening of credit reserves by $2.5 billion in the quarter on top of the higher level of actual credit losses in the quarter, net of the benefit of the $1.5 billion, all that washing through given the broader sources of earnings we have to create the positive earnings of $2.4 billion. Which really gets to my next point, which is really that the earnings helped build and strengthen capital, with Tier 1 capital actually increasing again in the quarter to just around $90 billion. It maintains our 8.3% Tier 1 ratio, which we feel very good about. But more broadly in light of - and that's with some growth in the balance sheet - so meeting the franchise needs of our clients as we operate through these tougher times along with the strength and the liquidity [in] place and the $12.6 billion in overall credit reserves, I feel like the balance sheet and capital position is all in good shape and proud of how we managed through the difficult couple of quarters we had in a row and maintain strength there. And then I guess the last point I'd make here is that we are dealing in tough times, but it's been very important to the team here that we maintain our focus on the underlying business momentum. And you really see it across the businesses. You can see a summary of it down here at the bottom, that revenue growth of 15% in Retail, the strong rankings we maintain in investment banking fee side and the market share gains we've taken there, and really in many of our other businesses and the strong profit growth in TSS. So we spend a lot of time focused on it and feel very good about the continued ability to drive underlying growth there. Flipping now to the second slide, not much to add versus the first page but you do see at a high level the firm's kind of GAAP P&L, the $2.4 billion of reported net income and EPS of $0.68, obviously down substantially from the very strong conditions we operated in and the record results of the first quarter last year. You can see on a net basis, revenues and expenses down together, and the substantial story is obviously the big increase to $5.1 billion worth of credit costs which, as I said, is about $2.5 billion of increase in allowance in the quarter along with charge-offs ticking higher through prior year quarter and last quarter into this quarter. So now if we - we'll move to the businesses; I'll start with the Investment Bank on Page 3. So here you see, starting with profits, we had a loss of $87 million in the quarter inclusive of a very tough month of March in the first calendar quarter of the year. But working down the revenue pieces you see that we had a $1.206 billion of investment banking fees which, while it's down, we feel very good about it because, as I said at the top, the strong rankings we have in investment banking fees - number one, with market share growth versus a year ago as well as the top ranking we had in debt, equity and equity related underwritings for the first time - we feel very good about the momentum we have serving clients in the investment banking space. Moving along to Fixed Income Markets, here you see a substantial decline in Fixed Income Markets revenues to $466 million, and that's really where you see the $2.6 billion worth of markdowns across a variety of asset classes. I'll take you through the details, but it's $1.2 billion across mortgage-related categories and $1.1 billion in leveraged lending and a little bit of the remaining corporate loan positions we have in our warehouses make up the balance there. When you really think about all other areas, though, results included some records in rates and currencies, strong in areas like emerging markets, commodities and credit trading, and pretty much it would throw the rest into the basket of mixed results generally, aside from that. I will just - we've pointed this out before, the gain on the widening of our credit spread as it relates to structured notes issued out of our Fixed Income Markets and Equity Markets businesses of 662 in Fixed Income Markets and 287 in Equities - I will just make the note that, while that's spread widening on the structured note liabilities, we of course do have derivative-related liabilities and payables that also change in value quarter to quarter by changes in credit spreads of ourselves and our counterparties. And across the IB, that was actually several hundred million to the negative as spreads on some of our counterparties widened more than we did, putting a little pressure actually on overall revenue. So just to put the 662 and 287 in proper context. Moving on then to Equity Markets, just shy of $1 billion of revenues; relatively weak trading results, but strong client flows in the Equities business. And then lastly in the P&L for the Investment Bank, credit costs of $618 million, which includes the addition to reserves that we talked about at Investor Day making up the preponderance of that as we moved $4.9 billion of our leveraged loans, which I'll talk about on the next page, into held for investment as it's our intention to at the levels they're at continue to hold onto those. Commenting on the outlook in the Investment Bank P&L, we expect looking ahead continued good market share on the investment banking fee side, but probably a continuation of this lower absolute level of fees versus the levels we were operating at in 2007. And in general, near-term expectations for trading should also be lower just given the difficult conditions we're operating with. But obviously that could change quite quickly if markets open up some. And then credit, the last driver of the P&L, we feel like obviously we have very strong reserves. You see the 255 allowance to - loan losses to average loans. Very strong, but remember losses in investment banking can be pretty idiosyncratic on the credit side. Now moving on to just some of the risk classes in the Investment Bank, on Page 4 you see leveraged lending the same page we've showed you for a couple of quarters now - so here again we took $1.1 billion of write-downs and we have remaining commitments of $22.5 billion. In the second bullet on the page, you can see we just walk forward from where we ended last quarter, $26.4 billion, down to the 22.5. Really $2.3 billion closed or distributed or otherwise reduced during the quarter. We added, and this is worth noting and pointing out, that we are capturing here all new commitments as well. Obviously, new commitments of $3.3 billion done at market terms, i.e., not covenant like, not over leveraged, so capable of being distributed and therefore not related to the markdowns we've taken in the quarter which relate to some of the stuff that got stuck from last summer. And then, of course, we transferred the $4.9 billion to held for investment that I talked about on the prior page. So all in all on average we've got an 11% write-down on the balances there, but that obviously widens out when you really consider that it's - the new commitments that are part of the denominator there don't require a mark against them. So we're more in the mid-80s when you really think about it for the troublesome deals in terms of where we're marked. Still obviously a large risk for us, though, at $22.5 billion of leveraged loans on the balance sheet. Now moving on to Page 5 - the remaining areas that we've talked about before - start with mortgage-related, so you see not a lot of movement here in balances, and let me just comment on it quickly. Prime and Alt-A mortgages in the mortgage trading areas, $13.7 billion the balance is last quarter, down to $12.8 billion this quarter largely due to the $1.1 billion of markdowns we talked about and took in the quarter. Subprime exposures were $2.7 billion gross last quarter down to $1.9 billion gross with markdowns net of hedges of $152 million. Exposure here is hedged with $1.6 billion against the gross positions, so we do continue to feel we're well covered in the subprime space, as we've talked about in prior quarters. And lastly in mortgage, CMBS exposure of $13.5 billion, down from 15.5, and this is one - we had some modest markdowns here, but we're not breaking that out given that we really consider this to be kind of normal trading activity at this stage relative to some of the other areas where we're capturing some more warehouse positions that we're stuck with. Collateralized debt obligations - which, as we talked about before, is not subprime related at all; this is corporate debt largely in these CLO warehouses - $5.5 billion in those warehouses last quarter down to 4.4 and $266 million of marks. So that's the areas away from leveraged loans where we took some significant marks in the quarter. And last comment, a little bit of increase - from 5% to 6% would be my estimate - in terms of Level 3 assets for the firm for the quarter, so not something that gives me any pause. Moving ahead now onto the Retail business, Slide 6, so here as usual we just, before talking about the P&L, just point out some things about the health of the business and the drivers of the P&L overall. So you see $214 billion worth of deposits, up 4% from a year ago, 11.1 million checking accounts, up 9% from a year ago, which then drives all the increased - sales and investments in product and sales force in the branches drive the rest of the stats that you then see related to the branches. Moving to the loan origination side you see, given the tightening of underwriting standards in home equity, a 47% decline from a year ago to $6.7 billion of originations in home equity in the quarter. And then moving on to mortgages, $47.1 billion of originations, up - the bulk of that is in the conforming space. Now moving on to Slide 7, we get to the P&L for Retail, so loss inclusive of all the credit costs and the reserving done of $227 million for the quarter. But again, starting at the top, you've got the $4.7 billion worth of revenues, up 15% from a year ago, which is fundamentally organic. There's no acquisitions added in in this period versus the prior period. And so when you really skip down a little bit and look at the Regional Bank, which earned - in the consumer and business banking portion of it - earned $545 million, the revenue there is up 11% on higher loan balances and higher deposit balances and wider spreads as well as higher levels of deposit-related fees. So, given this, great revenue momentum in the retail banking business for the reasons we talked about on the prior page, as well as revenues up overall with growth in production in Mortgage Banking, as you saw from the prior page. On the credit side, I'll get into it in the next few slides but total P&L impact in credit costs, you see the number circled of $2.5 billion. So that's $800 million worth of charge-offs, $1.7 billion of addition to allowance, with $1.1 billion of increase in reserves in the home equity space as we had talked about at Investor Day, as well as about $400 million in subprime and some in the prime space as well. You see, before we leave this page, overall for Retail related to credit costs, the allowance to loan losses - to loans - improves again to 2.28%. Now moving on to the next slide on home equity, here we took you through a lot of detail on Investor Day, Charlie did, about what really - very much the details, what's driving the trends that we're seeing here - so I won't repeat all that, but I would say we just continue to see those credit trends degrade as we had said at the time, continuing to have bad roll rates in credit as well as high severities. So we're not yet ready to predict where this peaks but, as we had talked about, if you just look at the box in the upper right you see charge-offs up to $447 million. We'd talked about 450 or so for the quarter when we were at Investor Day, and we also said at Investor Day that, given the trends we see, we could reasonably see that number doubling by the time we get to the fourth quarter, so the 450 becoming potentially $900 million for the outer part of the year. It's still hard to exactly predict, but we would continue to say that that's in the realm of the potential outcomes there. So trends continue to be as we talked about here during Investor Day. So moving down to the bottom, you just see that as a result we've increased the loan loss reserves as we suggested we would by $1.1 billion here, taking us to a level of future losses covered, so to speak, by that reserve of amounting to $2.6 billion on an annual basis. Obviously higher than the level that we are currently running at but, in light of what I've said in terms of expectations of higher levels, the reserve needs to go up. And just to comment - and this is true for the way we think about loss forecasts and reserves - I'll just that what we have embedded in there is - certainly affecting our loss forecast - is home price appreciation declines. We're expecting declines nationally for this year, on top of what we've seen already, in the high single digits, which translates to - peak to end-of-year losses. In some of the tougher markets - Arizona, California, Florida - in the mid20s peak to end-of-year. And so that's what's contemplated in terms of home prices. Obviously, as we talked about, we just continue to roll forward, carryforward the bad loss roll rates as the various vintages age. We don't assume improvement in roll rates. We're not relying on FICO scores as we do our work there. And then, again, in terms of the broader economy, we don't contemplate anything getting materially better nor worse from here. So those could be some of the factors that would affect us as we do losses in future quarters. Moving on now to subprime mortgage on the next page, I'll be quicker with these, so you just skip to the upper right. So you see we have certainly higher than we expected roll rates of dollars of balances moving from the late delinquency buckets to charge-off and loss. Beyond what we talked about last quarter, where we saw $71 million of charge-offs, we now jump to 149. And as you recall, we had set up reserves to cover on average $75 million of losses per quarter. So with this degradation, we've added $400-plus million to reserves here which covers for annualized losses to the tune of about $700 million. Obviously tightening underwriting standards across all areas, very much so, and at this stage in subprime the tightening that we've done left us with almost no subprime production in the month of March. And then lastly on the next slide, Slide 10, prime mortgage, you see the upper left, the 30day delinquency trend even moving into the prime space and as a result - which is really just the effect of home price declines bleeding into the prime mortgage portfolio - so you see net charge-offs of $50 million, up from 17 last quarter. So here again, higher losses as well as about $250 million of additions to reserves. And given we hold much of the balances here, as you see in the upper right, in corporate, where we also hold mortgage securities. Now moving on - I finished up with Retail there - let's move on to Card Services on Slide 11. So starting with profits of $609 million, down from a year ago, again driven by the $1.670 billion of credit costs, which is all charge-offs. No changes in reserves here. The charge-off rate you see down at the bottom circled of 437 basis points behaving consistently with - what we said in the second half of last year looking into this year is that we did see and expect to see a normalization, and that the first half was expected to be, in our minds, around a 450 charge-off rate with likelihood but not yet visibility into the second half of the year as we started this year that we could be approaching 5 by the end of the year. So I think at the 437 we're at now, looking ahead we do expect to see us progress towards something in the neighborhood of a 5% charge-off rate as we get to the back end of this year. On the revenue side, $3.9 billion and up 6% from a year ago. And a couple of pieces there - 3% growth in outstandings from a year ago. Charge volume of 5% overall increase, which includes a 10% increase in sales volume. Remember, we've tightened up on balance transfer offers and other promotional offers which deflate the amount of charge volume that we get from balance transfers. And then the last piece there, second bullet from the bottom, the net interest margin continues to widen a little bit to 834, which includes the shift away from low rate intro balances. Outlook, as I've said, 4.5% to 5% full year losses trending higher as we get through the rest of the year. And probably a little bit of an effective slowing card spend, which is what we've seen in the past couple of weeks. Commercial banking - on the next slide, Slide 12 - we see profits of $292 million, down a touch from a year ago. On the revenue side, up 6% from a year ago primarily driven by treasury services and lending growth which are associated with, as you see, the $68 billion and $90 - almost $100 billion of loan balances and deposit balances, respectively, which are up 18% and 22% year-over-year each, just demonstrating the growth in the client franchise there and the growth in the balance sheet and the revenues associated with that. Expenses relatively flat, so nice expansion of operating margin in the business as the team there does quite a good job. Credit costs, you see $101 million. A 48 basis point charge-off rate as we get some normalization here. In particular this quarter you see a good scrubbing of our homebuilder real estate portfolio making up the preponderance of the movement that we see into nonperformers and charge-offs in the quarter. And the outlook here, I would say it's just continued underlying growth as we've seen and credit continuing to normalize though I would say that, if you'll look at the 265 basis points of allowance to loans - to average loans among the tops in the industry. So we feel very good about the reserve levels in the Commercial Bank. Moving on to Treasury Services - next slide - profits of $403 million, up 53% from a year ago with strong pre-tax margins. The customer balances on the Treasury Services side primarily up 21% to $250-plus billion and assets under custody of nearly $16 trillion, up 7% from a year ago gets us to the 25% revenue growth we had from a year ago, which is double-digit growth in both of those businesses. And we'll just point out we do in fact benefit in this business from some of the market volatility, wider spreads on securities lending and some of the product areas helps here. So again outlook here, we would expect to see continued good growth in the business, seeing a nice flight to JPMorgan in some of the balances that our customers bring to us. And, as I said, we continue to - so long as market conditions continue to be challenged, we'll benefit from some of the market volatility on the revenue side. Last of the businesses, Asset Management on Slide 14, you see profits down for - the first time we've seen this picture in awhile - $356 million, so let me spend a minute on the story here. Revenue's down to $1.9 billion. Let me just focus for a second on the quarter-over-quarter explanation. The major component is the fact of seasonality of when we actually bill and recognize performance fees. We have a seasonal spike in the fourth quarter related to some of the hedge fund billing that we do. That, together with the decline in market levels we've seen - which is really the basis for the management fees we collect on the rest of the money management that we do - are the two factors that really bring the revenues down quarter-over-quarter. The story there I guess outlook-wise is at these levels of markets - indices and so forth - we would expect that kind of run rate of revenues is where we should expect to be barring seasonal spikes in performance fees, which we won't see again until the fourth quarter of the year. So I think there's a good level of revenues to be working with as we look ahead. Assets under management, you see $1.2 trillion of assets under management. I will just point out the very strong liquidity flows - $68 billion of liquidity flows into the business - and then other flows in the Private Bank, Private Client space, about $22 billion of flows into our client business in the first quarter, which is tremendous; obviously, much of that in liquidity as well. So while you see assets under management holding up actually up yearoveryear and flattish versus last quarter, given the mix from higher fee to lower fee liquidity products that presents an opportunity over time to move our clients into other products that give us bigger revenues. But for now, it goes back to the comments I made on revenue as we look ahead. But we do as well expect, with the hustle that we've got on the asset inflow side to see asset inflows continue. Lastly, for profits, let's talk about Corporate on Slide 15. So you see the three pieces. We've broken out the Visa gain here, so we've got - I'll start with Private Equity - after-tax profits of $57 million on Private Equity gains of $189 million. The outlook here will certainly continue to be volatile, as we've already said. I would just additionally say that I don't have much of a visible pipeline in terms of the likelihood of very many deals, though there's several that could fall into the remaining quarters of this year. But just not the same kind of visibility we had in a year like 2007, which was obviously very strong for us. But a lot of that is subject to things we don't control and what the markets allow for in terms of exits of investments. So a word of caution in predicting that. Then in Corporate, I'll just start with the Visa gain, so you see $955 million after tax. That's on the $1.5 billion of sale proceeds that come from the sale of the portion of the 50% of our ownership that we sold, net of an amount of shares that were retained by Visa to fund litigation escrow. Then we of course do have another 50% that we still own and hold on our books at cost, which is essentially zero. Corporate excluding Visa, profits of $15 million ex the sale of Visa. Lots of swing items in there. What I will do is just kind of point you to the outlook ahead, where we typically talk about $50 to $100 million negative, and I would just continue to give that as my best estimate of how to think about that on average through time though, again, that's going to be a pretty volatile line item, as you see this quarter. Moving on to Slide 16, you see capital and balance sheet, so again, a Tier 1 ratio of 8.3%, tangible common equity of $74 billion - up by about $2 billion from last quarter - growth in Tier 1 capital, all accommodating a several percentage point increase in risk weighted assets as we serve client needs. I would again say the liquidity and funding position is very strong. I don't need to repeat myself there. And then you see on a summary basis at the bottom here the allowance coverage ratios for each of our businesses which - you can check yourself match up very strongly for total credit reserves of $12.6 billion. So the sum picture there is a very strong balance sheet and funding position for the firm, which we feel good about. Let me just give one last page before I hand it over to Jamie, just some of the technicals on the accounting side and timing related to Bear Stearns. So we do expect the deal to close by a June 30th calendar we're hoping to hit. I'll just say now administratively we do expect that the month of June will be our first close of the books with Bear Stearns in it, so as a result, in looking at the tight calendar we have in July, we're going to be doing our earnings on July 22nd, a Tuesday, versus the usual Wednesday prior that we would normally do it. But too tight to do it on that timeframe, so just a heads up now. In terms of what's going to happen at the time of the close on the accounting front, we do expect I'm just summarizing the S4 that was filed, the merger proxy, so you can go back and then come back with any questions through IR - but to summarize it for those of you who haven't pored through it, we expect at a midpoint range that we put in the S4 to have an increase in our book equity, our capital, of about $5 billion, plus or minus a little bit. All these numbers are still moving and just estimates subject to change. But that's incorporating the results, estimates of results, for Bear through the - now to the close. The cost of the deleveraging that we talked about as well as various purchase accounting adjustments or structuring costs, litigation, et cetera, are all wrapped up in that. The other item you should understand is that that more or less will be the amount that - a similar amount will run through our P&L in the second quarter as an extraordinary gain, so below the line but affecting net income and that's how it gets into the capital account. Once we get beyond the second quarter, we do expect some amount of the overall deal costs, merger costs, to still be borne in the second half of the year. That could - rough numbers - could be in the range of $500 million to $1 billion after tax in the second half of the year. And then lastly, capital ratios, as we've said before, we expect them to remain strong after we do the Bear Stearns deal. And as we've said on that score, we do plan on reducing the Bear balance sheet in an orderly way. That's already under way, and it's part of the objective of the overall deal. As such, we've gotten some regulatory relief for the Bear Stearns assets that we'll be bringing on as we calculate our regulatory ratios for the next several quarters, but I'll go through all that detail when we actually put out our second quarter results in July. So with that, let me hand it over to Jamie.

So hello, everybody. Let me - I'm going to just do two quick things. One is give you a little update on the Bear integration, and then also just an overall comment. So, you know, Bear Stearns, obviously a deal's really never been done exactly like this, but now we're in full merger mode. We have a full merger integration office. It's kind of like a military operation; hundreds, maybe even a thousand people are now involved. We've been through all the major real estate, all the major data centers, the Investment Bank will occupy all of 383 Madison, which we think is a great building. We'll be building two new brandnew trading floors there, which we think will be best in class. They already have five, so there will be seven in total. The management team - and I really should say here, the really heavy lifting - is being done by Steve Black and Bill Winters and the whole management team of JPMorgan Investment Bank, now including several members from Bear Stearns, who really are pretty much working around the clock. The next round of things is to be announcing by business - so for Equities, Fixed Income, et cetera - who the management teams are so we can go about the people selection process. We are treating it as a real merger. We're trying to get the best people to make sure we capture all the things we want to capture. All 14,000 people we hope will be informed about their future some time before the close, which we hope will happen before June 30th. And we think the better we can people - the sooner we can tell people, the better. I do want to point out that we have a talent network office set up. It's to be fully staffed. We have put a freeze on hiring for JPMorgan in New York City, not because we're afraid or anything like that because of recession but because we have a lot of open [recs], a lot of temps, a lot of consultants, and we want to give those jobs first to anyone who's dislocated in this process, whether a Bear Stearns employee or a JPMorgan employee, because some of the pain unfortunately will be also borne at JPMorgan. We'll be contacting a lot of your firms. I'll let you know that we've got some really talented people who would like to continue working, so we're really going to try to do an unbelievable job to place as many of those people as possible in New York City if they can't get something here. We have, on the systems side, we've already pretty much selected most of the major applications so we know what we're doing there. We'll start moving people in short order, in the next month or so. And we've kind of consolidated all the risk positions into one risk format. We are already deeply engaged in making sure we're looking at consolidated risk and understanding it and starting to derisk a little bit the added risk positions that come on from Bear Stearns. If you asked, I'd say it's probably down about 20% or so from the time the transaction was done. So the teams are working well together. We still think that this could be a very good thing for shareholders and that we can capture $1 billion or more of profit as we consolidate Bear Stearns in. And for the Bear Stearns folks, I just want to remind people, a lot of great talent there, a lot of really great talent. And we've been getting to know the folks, and we do nothing but get more excited about the possibilities across virtually all of our businesses. And then overall, we feel pretty good about where we are. I just want to emphasize and I'm a little bit of a contrarian, great underlying numbers, again. The underlying numbers - deposits, loans, growth, bankers, assets under management, custody - are what are going to really drive the future of this company, and we really feel good about what we see. And the Investment Bank - Mike mentioned it; I just want to emphasize it - number one, global debt and equity and [eq-related payables] for the first time ever. So congratulations to the folks who accomplished that. And with that, we will turn it over to you all for questions.

Thank you, sir. (Operator Instructions) We'll take our first question from Guy Moszkowski with Merrill Lynch. Guy Moszkowski - Merrill Lynch: Good morning.

Hi, Guy. Guy Moszkowski - Merrill Lynch: I just wanted to follow up on the Bear Stearns discussion. First of all, just some clarity - you said risk position's down about 20%. Would we be able to apply that number to the $30 billion or so of assets which the Fed was helping you fund?

No. That's a completely separate thing. Guy Moszkowski - Merrill Lynch: So that 20% would be some kind of a risk adjusted notional number that you're thinking about?

Yeah. I'm using 20% because it's really complicated. [inaudible] like a balance sheet risk, hedging. We're just trying to get a little bit small, a little bit more de-risk as we put it on our balance sheet. So don't use that number too specifically. Guy Moszkowski - Merrill Lynch: And are you still comfortable with the idea of around $1 billion of earnings run rate there?

Yeah. Yes. Guy Moszkowski - Merrill Lynch: What would you say have been the biggest surprises and the biggest disappointments, if any, as you've kind of looked through the businesses and the risk management there?

Initially, when we did the transaction, we really worried much more about the downside than the upside. And now we're getting to meet the people and see all the other possibilities there. So there are very few real negatives in addition to the things we worried about before, and the positives are across most of the businesses. Some very good people [inaudible] equities, prime brokers, correspondent commodities, fixed income, mortgages, research we just see a lot of good things there. So we're working hard to try to capture all that as fast as we can. Guy Moszkowski - Merrill Lynch: Are you going to run prime brokerage as a joint venture between the Investment Bank and TSS?

Right now it's going to stay in investment banking in the Equities business. Guy Moszkowski - Merrill Lynch: And just switching gears to the CMBS exposure that you talked about, as you mentioned, you didn't highlight any write-downs there. Would that be on a gross basis or because hedges helped you out there? And could you talk about how hedging helped you in that portfolio, in particular during the quarter and maybe how that might have changed since the first of April?

We lost a little bit of money there, and so we're not going to get into too much specifics. There you are able to hedge because there are places you can edge in CMBS et cetera, unlike Alt-A, where it's really hard to hedge AltA. So we feel pretty comfortable with those exposures. And actually - and Mike mentioned April - things started to trade a little bit more in Alt-A [land] and CMBS - in the cash side of CMBS, not just the derivative side. Guy Moszkowski - Merrill Lynch: Thanks for that. Just a question on whether you're seeing anything that would give you some signs of stabilization of the loss and delinquency rates in the home equity portfolio?

No. It's exactly what we saw - higher - more houses are going negative equity, roll rates are high, home prices we expect to still go down. We have not seen it. Now we'll see it eventually, but we have not seen it yet. Guy Moszkowski - Merrill Lynch: And just back to the Investment Bank for a moment, is there any change in your compensation structure that you're anticipating for this year, early as it is, in terms of stock, cash mix or anything like that that would have driven a lower percentage accrual than what we usually would see for you guys?

No, the accrual is pretty close to what it's always been, which is for us 42%. And we make a whole bunch of adjustments; it's close to 46% if you compare it to other investment banks. The answer's no. It's really early in the year. Guy Moszkowski - Merrill Lynch: Okay. And then I'm just going to revisit this issue - this is the last question - revisit this issue of your putting some of these leveraged finance assets into held to maturity or held for investment, as you called it. Obviously you're putting these assets in at a significantly marked down price, and on top of that you reserved at what's pretty close to a 10 percentage point rate. And I guess the question I have is: Is that strictly a matter of accounting mechanics, that you really can't take into account the fact that you're already buying the loan at a discount, essentially buying the loan into that portfolio at a discount to face? It just seems like you're building pretty massive reserves for that portfolio.

Yeah, so two things. One is, the accounting rules are you move it at fair value; you calculate what the reserve would have been. If the reserve is more than the discount, you add it up. You have to add it back in. So obviously, it's conservative. It was bigger than the mark. On the other hand, we like conservative loan loss reserves, so that wasn't a negative to us because we like building loan loss reserves for rainy days. Guy Moszkowski - Merrill Lynch: Yeah, I know. The economics are what they are, but clearly the net impact is what you just said, that they

Right. If we had not done it, we wouldn't have put up the $500 million as of that date. Those loans would change in value after that date. Michael J. Cavanagh: Yeah, that's the issue, guys. We took action before some degradation in spreads, and so we would have taken more marks during the quarter. So there's a little bit of difference - a little bit of incremental cost in the quarter related to that move, a couple hundred million dollars.

Yeah. Guy Moszkowski - Merrill Lynch: That's fair. Okay, thanks very much for all the information. I appreciate it.

No problem.

We'll go next to Glenn Schorr with UBS.

Hey, Glenn. Glenn Schorr - UBS: Hey, what's going on? On home equities, just finishing that thought up, have you had any success in reducing the nondraw lines, and can you remind us how big they are right now? Michael J. Cavanagh: We do what we can do, but Charlie's answer at Investor Day and just talking to it, I wouldn't point you to it being a substantial impact despite what we've all read in newspapers about there being - the rules don't really easily allow for you to preemptively bring lines down. So I wouldn't say that there's been substantial change in risk profile as a result of doing that, though I would say we're as focused as we can be on that. I don't have the open line number off the top of my head. Glenn Schorr - UBS: No worries. And just off the top of your head, have people been pulling them down or are they just kind of hanging out there? Michael J. Cavanagh: Well, the losses you see include - tend to be pulled-down lines at the time we're losing money. Glenn Schorr - UBS: Got it. Got it. [inaudible] A quickie on the outflows in Asset Management, around $21 billion across equities balance and alternatives. Any color there that I might have missed on the prepared remarks? Michael J. Cavanagh: No, but it is a little bit in Europe, in our retail distribution to third parties in Europe, where - that we and others lost a little ground there. So that's where you've seen some of the preponderance of outflows. And like I was saying earlier, though, significant inflows, though at different revenue per asset levels into liquidity products was very strong, as well as great inflows into the global Private Bank franchise. Glenn Schorr - UBS: Okay. Last one for both of you all is: Obviously, the Bear transaction's pretty involved and tapping a lot of people's time, but it doesn't really impact the retail banking side of the house. Given your [inaudible] ratios, given that in a weird way this is the environment you've been waiting for and a lot of - it feels like properties are getting cheaper and available, do you have the bandwidth to take on something if something was attractive now?

Yep. Michael J. Cavanagh: Yep. Glenn Schorr - UBS: Enough said. All right. Thanks, guys.

We'll go next to Mike Mayo with Deutsche Bank. Michael Mayo - Deutsche Bank: Good morning.

Good morning, Mike. Michael Mayo - Deutsche Bank: Can you elaborate on the commercial and wholesale NPAs, which were up by over half? And I recognize that loans to homebuilders are going bad, but what else is causing the increase in those out there?

I guess it's up by half from a very low level, so a few hundred million dollars of increase in nonperformers on, what, a $60, $70 billion portfolio I would say more in the category of getting a little bit of normalization. But I would say the largest explanation is we've got about $1.5 billion of loans to homebuilders. Todd and Team Maclin have scrubbed that portfolio hard given everything that's going on. As a result, some charge-offs and movement of like half or a little more of the change in nonperformers and a little bit more of the charge-offs relate to just that activity. The rest is just generally spread around. Michael Mayo - Deutsche Bank: And I guess the bigger question is: Are the problems from homebuilders and homes spreading more to commercial? Is it more than simply normalization? Michael J. Cavanagh: It's real estate is getting worse, yes. Michael Mayo - Deutsche Bank: And your bread-and-butter commercial companies? Michael J. Cavanagh: Not much more than normalization there. Michael Mayo - Deutsche Bank: Okay. And as it relates to the Bear transaction, what will your pro forma book value or tangible book value be?

That $5 billion that Mike gave will go right directly to the equity account. Michael Mayo - Deutsche Bank: And you said capital ratios afterwards would be strong. Can you give any [bents] relative to your 8.3% Tier 1 ratio? Michael J. Cavanagh: Yeah, our intent is to maintain similar strong ratios going forward, so with Bear Stearns, we're getting some equity. We also get some preferred. We get a lot of long-term debt. We're still working on making sure the risk grade assets are coming down a little bit. But when all is said and done, quarter by quarter we will have pretty strong ratios. Michael Mayo - Deutsche Bank: And then lastly, prime mortgage loan losses went up, too. I mean that's, to some degree, expected, but we heard a lot about subprime and Alt-A and home equity. Can you elaborate on prime mortgages?

They're getting worse, Mike. Michael J. Cavanagh: It's home prices burning through whatever underlying - whatever lies under the prime mortgage, and then the same dynamics. Michael Mayo - Deutsche Bank: All right. Thank you.

We'll go next to Betsy Graseck with Morgan Stanley. Betsy Graseck - Morgan Stanley: Thanks. A couple questions, one on Bear. The billion dollar run rate that you're expecting there, given the expectation that you're de-risking the portfolio I would think that means that we should assume that the revenue run rate should come down so you're hitting the billion number with the cost saves. Is that a fair way of thinking about it? Michael J. Cavanagh: Yeah, all in. Yes. That's a fair way to think about it. Betsy Graseck - Morgan Stanley: Okay. Michael J. Cavanagh: It may take a little bit of time to get that, but that's what we do expect still. Betsy Graseck - Morgan Stanley: Yeah, because - Michael J. Cavanagh: And possibly better, by the way. We're not saying it can't be better because we're still working on all the issues. Like I said, this was not a merger done in an ordinary course. Betsy Graseck - Morgan Stanley: Right. I mean, it's just the 8-K - the Bear 8-K that was put out last week indicated the degree to which revenues were hit recently. Maybe you could comment a little bit as to what you think the run rate of revenues is relative to what they'd indicated in the 8K?

We really can't because we didn't spend much time reconciling all that. Betsy Graseck - Morgan Stanley: Yeah, okay.

I'd like to just mention, in terms of - someone asked about the bandwidth of our ability to do a retail deal and Bear Stearns, and one of the reasons we were able to do something like Bear Stearns is because we have the management teams who can actually execute it. And we've spoken before in the past about price has to be right, the ability to execute, and so we also have a management team in Retail that can execute it, people who have already consolidated systems. They're on top of what they've done. We did the Bank of New York transaction. So we actually have the management teams and the systems and the back office who can execute things like this, and that's what makes it possible. I would tell you several years ago, it would not have been possible. Betsy Graseck - Morgan Stanley: And there was some speculation that you had been involved in looking at the WaMu transaction. Is that something that you can comment on? Michael J. Cavanagh: We're not going to comment on it, but you should assume we look at everything. Betsy Graseck - Morgan Stanley: Right. Okay. On just the loan growth and the asset growth generally, I mean, when I look on a consolidated basis, the Q-onQ growth rates are slowing. But when I look at specific - you know, there's obviously some specific pockets of acceleration, like in commercial loans, not only in the Investment Bank but also in the Commercial Bank and then, you know, your trading assets, in particular derivative receivable trading assets - could you comment a little bit as to what's driving the growth rates in those categories and whether that's proactive on your part, the degree to which it is proactive on your part versus customers drawing down lines or utilizing your balance sheet?

I'll comment on the derivative one. Maybe Mike will do the loan one. On the derivative side, remember, that number bounces all over the place because they're marked to market, and what starts with no receivable can become a very large receivable depending on how things move. Remember, a lot of those are fully collateralized, so it isn't like you have that kind of exposure on all of that. So that's always going to bounce around. And obviously as you grow your business, the chance of that volatility - of that asset moving around and growing is higher. Michael J. Cavanagh: And then on the loan side, I'll just tackle Commercial Bank because I think it's indicative of other places. We think this is a great window of time to be there for our clients, so yeah, there is a degree to which it's existing clients that we're providing capacity to. I would say, just going back to the real estate comments, it's general, commercial and industrial more so than it is commercial real estate there, as a point. Yeah, government not-for-profits for some of the dislocations in the muni space. There's activity going on there. But also this is a great window of time to go after the prospects that we have in middle-market banking, for example, around the country, and that is what our folks are actively doing. And it's true there. It's true in the Private Bank that it's a - we definitely [go in commenting] on it. We want to use this time to build our franchise, so to be there and use our balance sheet in a smart way to build the franchise for the long term and take market share and get new business as well as cement existing relationships I would say is the general nature of the loan growth.

And Mike mentioned it, but I should add that on that slide on leveraged loans, there's $3 billion of new loans. That included one fairly large one, but it also included 10 or so much smaller ones. We're still in business, and we're still willing to do that. We still want to facilitate clients. And so we look at that as a positive sign to indicate leveraged finance was still there. Give us a call. Betsy Graseck - Morgan Stanley: So when you're thinking about the capital ratios that you want to be holding, and I know you've talked long about having a fortress balance sheet and your changeable equities - definitely highest in the peer group - how do you think about the opportunities to grow, given the size of the balance sheet you've got today, what you've got coming on from Bear, relative to peers? Because you do live in a relative world, and you do have some peers that are increasing capital ratios to deal with deteriorating credit and extending duration on their assets. Michael J. Cavanagh: I guess, Betsy, I'm not worried about us falling out of the place we hold on a relative through time. But I would say that the important thing is, well, we use this as an opportunity to really make sure we maintain efficiency of the balance sheet. So all of our businesses understand the importance of maintaining strong capital position and how it's benefiting the business broadly, so are actively working hard to use tougher times to make sure we eliminate wasteful use of the balance sheet so we can re-deploy it in normal course without having to see our capital ratios degrade. So that's the general dynamic. Beyond that, the last thing we want to do is close down for ongoing business. It would hurt the franchise, and that's not the point of trying to - it wouldn't be the point to try to maintain strong capital position at the expense of the franchise.

Yeah, and look. We've been adding - I think we started early, but we've been adding jumbo loans to the balance sheet. We're growing the mortgage business. We're growing loans and deposits in the Private Bank. We're growing - I mean, we're not - we haven't scrimped. We want to grow and have the ability to grow intelligently. If you ever do a really big transaction, you can always finance that, too. You don't have to try to do it off your own balance sheet. Betsy Graseck - Morgan Stanley: Okay. Thanks.

(Operator Instructions) We'll go to Jeff Harte with Sandler O'Neill. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Good morning, guys.

Hey, Jeff. Jeffrey Harte - Sandler O'Neill & Partners L.P.: You talked a little bit about prime mortgage and that it's definitely getting worse, but I look at a 48 basis point charge-off ratio in prime mortgage and say, "Wow, that's pretty bad." I mean, from that as a base, how much worse do you envision it getting or could it get? Michael J. Cavanagh: First of all, the risk factors in prime mortgage are exactly the same you've seen elsewhere, which is negative home prices, high LTV, things like that. And I think it'll probably get a little bit worse. And we probably owe you a better answer than that - we did not - but it's hard in almost all these mortgage areas to say exactly what's going to happen to behavior, and you and I - you can guess as easily as we can what's going to happen to home prices. We expect they'll go down another 7%, 8%, 9% in '08. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Okay. And in Asset Management, just doing back-of-the-envelope math, I mean, looking at revenues, annualizing them and looking at the assets under management, I'm getting something like a 48 basis point fee yield. That seems kind of low. I understand there's a lot of stuff going on. Were there any fee reversals of previous incentive fees or anything like that in the quarter, previously recorded incentive fees? Michael J. Cavanagh: Nope. Nope. Like I said, the timing of all the kind of performance-driven fees is unfortunately not smooth over time. So you obviously have the issue of what is performance, but that wasn't the issue in this case so much as a fourth quarter spike. We come off that at the same time we have asset levels due to markets coming down and bringing so there was - you had a double effect. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Okay. And in Commercial, commercial lending specifically, as we look forward, I guess looking at a 38% year-over-year loan growth, it makes me a little concerned if we're seeing mass credit deterioration. Some of these loans you're putting on today, you may wish you didn't have them six, eight months from now if credit goes the wrong way. How comfortable are you with overall kind of commercial credit quality and where we're heading?

Well, assuming that we have the exact same concerns you have, we have been very careful. So assume that we think we're getting good credits. And Mike mentioned government not-for-profits, that's a big piece of the recent growth. And we think the people we're doing business with are good credit, so we're being careful. And, as you know, a lot of it is not real estate. That portfolio's gone down. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Okay. Thank you.

And we'll go next to Meredith Whitney with Oppenheimer. Meredith Whitney - Oppenheimer: Hi. Good morning.

Hi, Meredith. Meredith Whitney - Oppenheimer: My questions are all around consumer. I wanted to get some comments on what you're seeing in auto, why you're growing that portfolio. And then more broadly on your funding strategy with respect to consumer, the higher cost of funding and securitization market - has your strategy for funding any of your consumer buckets changed? And then competitively, as it's changed for your competitors, what do you see the outlook there in terms of market share gains or potential problems because of a slowdown in available credit for consumers at large? If you could comment on that, that'd be great. Michael J. Cavanagh: I guess in funding consumer, you know, non-card - obviously our name in the card funding space is a strong issuer of securitization on the card funding side. We'll continue to do that as a main source of funding. I think when we look at the other categories of consumer assets, the securitization markets tend to be more expensive than us just raising the natural sources we have coming through the deposit side, particularly of the Retail business itself but the firm more broadly. We don't have that as a - we have a wealth of deposits, so we're not a price leader in terms of ratcheting deposit prices higher, so we do need to be conscious of what we see going on with competitors in the regional markets that we operate in on the deposit side having fewer sources of funding and thus pushing deposit pricing up. So we're mindful of that as the major source that we have for consumer funding. And I guess --

But strategically, we're always better off. We have all the options - our cost of funds are lower, we have multiple sources of funding, so whatever happens, we're still better off than the competitors. Michael J. Cavanagh: Did that help, Meredith? Meredith Whitney - Oppenheimer: Well, to the extent that - yeah, you're better off and you benefit on one level because you have more access to funding. On the other side, though, you're hurt in a way because, as the consumers get squeezed and lines are pulled from those who can't access securitization and don't have as ready a deposit base, how do you see that impacting your business, just a broad base? And then not to forget the auto outlook, please

Yeah, the auto outlook - and we're still in the auto business, and we try to do credit right; we're not going to stop making loans because people think things might get worse. So we're growing the auto business carefully. We've tightened up standards there just like we've tightened them up everywhere else. And it may be that we're just we're still in business, which is why the business is growing like that. The other thing about how it affects us because other people are pulling lines, that's more of a question about how bad the recession will get. Obviously, the worse the recession gets, the worse it is for us. But we're not going to sit here and spend a lot of time worrying about what other people are doing. We're going to just build our own business. In a lot of these areas, we've been gaining a little bit of share. We're still open for business in the mortgage side - jumbo, Alt-A, subprime, even though we're doing very little of it - because we're here for business, you know? We're not - we're here for clients, ultimately. These franchises are great franchises that we want to grow for decades, not flip and flop every time the economy sneezes. Meredith Whitney - Oppenheimer: All right. Thanks.

Mr. Dimon and Mr. Cavanagh, there are no further questions at this time.

Wow. Michael J. Cavanagh: Okay, great. Thanks, everyone. Look forward to talking to you next quarter.

Thank you. Michael J. Cavanagh: Thanks.

That does conclude today's call. Thank you for your participation. Have a good day.