Michael Cavanagh – CFO James L. "Jamie" Dimon – President & CEO

Guy Moszkowski - BAS-ML John McDonald - Sanford C. Bernstein & Co., LLC Mike Mayo - CLSA Meredith Whitney - Meredith Whitney Advisory Group Betsy Graseck - Morgan Stanley Jeff Harte - Sandler O'Neill & Partners L.P. Christopher Kotowski - Oppenheimer & Company James Mitchell - Buckingham Research Jason Goldberg - Barclays Capital Matt Burnell - Wachovia

Good morning, ladies and gentlemen. Welcome to the JPMorgan Chase first quarter 2009 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. Such statements are based upon the current beliefs and expectations of JPMorgan Chase management and are subject to significant risks and uncertainties. Factors that could cause the firm's actual results to differ materially from those described in the forward-looking statements can be found in the firm's filings with the Securities and Exchange Commission and you are referred to these filings. The firm's filings with the SEC are available on both JPMorgan Chase and the Securities and Exchange Commission's website. JPMorgan Chase does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. Please also note today's presentation may include references to non-GAAP financial measures and you should refer to the information contained in the written slides accompanying this web presentation for information about their calculation. These slides are also available on JPMorgan Chase's website. (Operator Instructions) At this time, I would like to turn the call over to JPMorgan Chase Chairman and Chief Executive Officer Jamie Dimon, and Chief Financial Officer Mike Cavanagh. Mr. Cavanagh, please go ahead.

Okay. Good morning, everybody. Thanks for joining us here. Let's jump right into the slide presentation that hopefully you all have in front of you. I'll start with some of the key points off the highlights that you see on Page 1, so starting with overall profit number, $2.1 billion or $0.40 earnings per share in the quarter. That's on record firm-wide revenues of $27 billion or so and record quarterly pre-tax pre-provision profits of about $13.5 billion. I wanted to make one point up front on the changes in accounting rules. There was essentially no impact from the accounting rule changes on fair value accounting or impairment, so we had no P&L impact, no P&L benefit and no improvement in capital through the OCI account from any of those rule changes in the quarter, just to be clear. What went on to generate those results we're going to see business by business in a second, but obviously an outstanding quarter in the Investment Bank with record revenues and profitability and also the WaMu integration really benefiting the Retail Banking business, which you'll see again in a few slides further back. On the balance sheet, we feel very good about the strengthening of our balance sheet with $87.2 billion of tangible common equity. That's up a couple of billion dollars from last quarter, obviously on these earnings. And with the benefit of retaining capital after reducing our dividend that amounts to 7.2% of risk-weighted assets, so the component of Tier 1 capital made up of tangible common equity all by itself exceeds the 6% well capitalized level of which preponderance is intended to be common equity. So we feel great about the capital position. And then including preferred, Tier 1 capital is 11.3%; if you were to exclude the TARP capital, at 9.2%. And remember, we always guided and manage towards an 8% to 8.5% Tier 1 capital level, so at these very high levels we feel very, very good about the capital position of the company. Lastly here, we added $4.2 billion to the allowance for loan loss reserves. The total is at $28 billion; coverage ratio to loans of 4.53%. You'll see some staggeringly high coverage ratios when you go through the businesses, with the Investment Bank nearing 6%, so obviously very strong reserves. The backdrop there - I'll just make a comment here - is that you'll see that net chargeoffs did worsen in the quarter, but in line with what our expectations were back at Investor Day. And also our forward view on where losses go from here is upward but, again, generally consistent with what we were talking about last time. So now, moving on, I'm going to skip Page 2, which I just referred to, all the important numbers, so now let's dive into the Investment Bank on Slide 3. So here again you see the extremely strong results we had in the Investment Bank in the quarter. Record net income - you see it circled - of $1.6 billion on record revenue of $8.3 billion. Walking down some of the lines here you see that we had investment banking fees of $1.4 billion, up year-over-year on the strength of the very strong quarter in debt underwriting, and that fee number - $1.4 billion - is number one on the Street in fees earned for the quarter. And, again, you'll see on the next slide the outstanding lead table standings we have across our Corporate Finance franchise. Moving down you see fixed income markets, $4.9 billion of revenues. That does include $400 million or so of benefit to our spread widening, but even net of that we cleared the previous record quarter by a wide margin. And so those results really coming across the board, with record results in credit trading, emerging markets and rates; also very strong currencies, commodities and so forth. We had markdowns - and you'll see the slides here - on our risky assets of about $700 or so million on the legacy leveraged loan commitments, and that included some markdowns on our auto positions. There are also auto markdowns and reserve builds in other parts of the Investment Bank results here. And in addition, in fixed income markets, about $200 or so million of markdowns related to the mortgage positions, which you'll see in another slide or two. Moving on the Equities, again, record revenues of $1.8 billion; that includes about $200 million of spread widening benefit. But still, the $1.6 all by itself that would be left still a record result and that's coming across the board - cash, derivatives and prime services, where we continue to gain share in these businesses across the board, seeing the benefits of everything we've done, including the benefit of the Bear merger coming through. Moving on to credit costs out of revenues, you see we had $1.2 billion of credit costs in the Investment Bank. Virtually all of that was reserve building; just $36 million or 21 basis points of actual losses in the quarter. And as I said earlier, the loan loss coverage ratio here, 6.68% in the first quarter of reserves to loans, so an outstandingly high number that we haven't seen before. And that is it for the Investment Bank's P&L. Now let me move on. And you see on Slide 4 - you can read this for yourself - but it just demonstrates the outstanding performance in our Corporate Finance franchise as you look down the page and see us maintain very, very high rankings across the board in investment banking. Slide 5 just gives you a recap. We're getting to the level now in our investment banking risk exposures that we've talked about that are getting to be much less noteworthy than when we started doing this, but nonetheless let me just touch on them. We marked down our leveraged loans by another $700 million in the quarter. That leaves us with $11.5 billion of face value commitments from a peak of $44 billion when you include what we took on from Bear Stearns. Those loans now marked down by $6 billion or 52% to a carrying value of $5.5 billion, so on average $0.48 on the dollar. Moving on to Slide 6 you have our mortgage-related exposures in the Investment Bank and here, as we've said before, I'll just point out that this is everything we have in these mortgage categories, including both what is our ongoing sales and trading inventory in these businesses as well as our legacy assets. So when you look at the table in the upper left, at the bottom you see the circled number. That exposure's down by $2 billion in the quarter to $12.7 billion or about 14% in the quarter. Again, no impact from the fair value accounting changes here. With that $2 billion of exposure reduction, $1.8 billion was sales activity sold at or around our marks and the remaining $200 million of reduction was the markdown that I described. Moving on now to Slide 7, we'll shift gears to Retail Financial Services. So to start at the top, these are some of the key drivers of what drives the P&L that we'll look at in another second. So $346 billion of deposits, obviously up dramatically year-over-year on the benefit of having the WaMu transaction done. The WaMu balance, just to note deposit balance, is remaining stable despite the fact that we continue to not be a price chaser on deposits. And so overall deposits up 2% for the whole business, with stability in WaMu. And then when you look down some of these other statistics that show activity through our branches, we continue to invest in the branches and so you see the sales activity and checking accounts - 25 million checking accounts now, up about half a million accounts just in the last quarter alone - and then great growth in credit card sales and mortgage originations through the branches. Consumer lending at the bottom, you see in these categories they show here a total of $46 billion of loan originations in the quarter. For total Retail, when you include small business - which is in the Retail Banking segment - we had more than $60 billion of originations of loans, new loans extended; more than $150 billion in the quarter for the firm including the commercial side. Obviously, mortgage loan originations down themselves year-over-year and up quarter-over-quarter at $38 billion, and that both reflects the benefits of the refi activity offset in part by our moving away from the broker channel on a risk basis; auto share going up with $6 billion of originations there. So we'll come back to credit stats in the consumer lending side in a minute, but let's first go now to Slide 8 and look at the P&L for retail financial services for one second. If you look on the left side, the circled numbers show overall profits in Retail of $474 million and that breaks down to profits of nearly $900 million in the retail banking side, up $300 or so million from last year and a $389 million loss in the consumer lending side. So just talking through those a bit, in Retail Banking, profit's up dramatically. Again, that's on revenues of $4.3 billion in total, the big drivers versus a year ago being the benefit of having the WaMu deal done plus wider deposit spreads and higher fees in the system there. A little bit of addition to credit costs and reserves on the business banking portfolio - that's in Retail Banking - and then expenses, a little bit of growth there. That includes, and you'll see this in many businesses so I'll just mention it once, the higher fees we're paying for FDIC insurance premiums. In consumer lending, the loss that's on $4.5 billion of total revenue, again, the WaMu transaction being the biggest year-over-year change. In addition, in the quarter we had $1 billion of MSR risk management results and some wider loan spreads on the mortgage lending activity. Credit cost is a big story, though, in consumer lending and you'll see that on a few slides, but the one thing I'll mention here is of the total $4.2 billion of reserve adds at the firm, $1.6 billion relates to this consumer lending activity shown here in total. So now let's go to a few of the big portfolios as we usually do. Start with home equity on Slide 9. So, again, what you're looking at here is the total. I'll just note that all these slides exclude WaMu credit impaired loans, with that portfolio behaving in line with our expectations, so there's been no impact on our results related to the marked portfolios we took on from WaMu in the quarter. So focusing on what's aside from that, the non-credit impaired loans, here you see in the upper right box $112 billion or so of end of period portfolio, down a bit from last quarter, so this would be trending lower over time; chargeoffs of just about $1.1 billion in the quarter, obviously up dramatically from last quarter, but in line with the expectations we talked about going back to Investor Day. Down at the bottom, no real noteworthy comments on where the losses come from that are different from before or our tightened underwriting standards. And then in terms of guidance, again, we'll likely see this start to increase, maybe by a couple hundred million dollars, into next quarter, trending towards a level as high as $1.4 billion per quarter, which is consistent with what Charlie talked about at Investor Day. Moving on now to Slide 10, prime mortgage. So here's a small portfolio that's concentrated in a few more recent vintage years, $65.4 billion of balances, about flat to last quarter. Again, in the upper right, dollar chargeoffs in the quarter of $312 million, up, again, from last quarter. And then down at the bottom, our guidance here is losses could be as high as $500 million over the next several quarters coming up, and that's at the high end, a touch higher than the high end that we talked about at Investor Day of $475 million. In subprime, then, in Slide 11, not much new here at all; it's a runoff portfolio. The $15.3 billion from last quarter trending down to just under $15 billion, $364 million of dollar chargeoffs, and that's going to be in this range that we talk about at the bottom of $375 to $475 million in the coming quarters, completely consistent with what we talked about at Investor Day. WaMu integration, now, on Slide 12 to finish up Retail; I said earlier that we're doing fine on the stability of deposit balances here. And then just the major phases of getting WaMu fully integrated by the end of the year - I get to use pictures for the first time in one of these - you see the pictures at the bottom showing the rebranding we just did last weekend of all of our branches in California. And then we continue to be on track with the cost saves that we talked about - substantial cost saves, higher than what we originally modeled in the deal, nearly $3 billion - offset in part by substantial investments in salespeople, the facilities coming over from WaMu and so forth of nearly $0.75 billion. So we continue to invest and grow in this franchise and it's performing well for us in the overall P&L as well, in line with our expectations in terms of its income contribution in Retail. Moving on to Slide 13, Credit Card, I'll remind you again here this business includes the runoff WaMu subprime card portfolio in the overall business here in the P&L, but when I talk about all the statistics, I'll focus on the legacy Chase, the core Chase portfolio for consistency's sake, but overall, a loss of $547 million. Just moving down to some of the circled numbers and the key stats again for Chase alone, you see that we had $150 billion of end of period outstandings, about flat year-over-year and down a touch seasonally, as you would expect, quarter-over-quarter. Total sales volume on cards obviously coming down in this environment, but we believe we're gaining share. So a 16% decline quarter-over-quarter and 9% year-over-year, the share gains coming from our focus on partner programs and reward activities that, again, we talked about on Investor Day. So those two things combined drive the $5.1 billion of revenues you see at the top. But what's really driving, again, the bottom line is credit costs, so total credit costs, inclusive of WaMu, $4.7 billion in the first quarter. That includes a $1.2 billion addition to loan loss reserves. Chargeoffs themselves - and I'll talk Chase only - a 6.86% chargeoff ratio in the quarter, up from last quarter and just inside of the 7% for first quarter guidance that we gave going back to the beginning of the year at Investor Day. And that Chase-alone number, again, as we look toward the end of the year, we'll follow where unemployment goes. Just as a for instance - you've got to pick that, but as a for instance - we said if we end the year at 9% unemployment we would expect that we could be in a Chase chargeoff range of 9% to 9.5% and we'll probably move up 200 basis points from where we are this quarter in the second quarter. WaMu itself will go up from levels more in the high teens to low 20% rates from where they are now, which is around 12%, because it's still benefiting from some purchase accounting. Commercial Banking now on Slide 14, here you see profits of $338 million. That's a return on equity of 17% in the quarter, where we're starting to get back to more normalized chargeoff rates of 48 basis points overall. And we added a little over $100 million to loan loss reserves in the Commercial Bank, bringing total loan loss reserves to nearly $3 billion and a coverage ratio of reserves to loans of 2.59%, liability balances at $115 billion and loans and leases at $114 billion, together driving revenues of $1.4 billion. I will just note that inside the revenues for the quarter in the Investment Bank, non-interest revenue - so what we get from fees of all sorts, non-lending and non-deposit-related revenues are at a record level. We've always talked about the importance of making this a deep share of our customer's activities, including fees, and so I feel good about the revenue line in the business, a little bit off from last quarter on a decline in spreads in some of the deposit products. Moving on to Slide 15, Treasury & Securities Services, here we had net income of [$308 million], down 24% year-over-year and down substantially quarter-over-quarter. I'll just take you to the liability balances, the deposit balances - you see the circled numbers - $277 billion. That's off from the fourth quarter levels, where we saw the very high activity in terms of client deposits coming in in the fourth quarter given all the market turbulence at the end of 2008, so as that's come off you see that flowing through the revenue side across both pieces of the business here; assets under custody about flat quarter-over-quarter. And so when you get, then, to revenues of $1.8 billion, down close to 20% quarter-over-quarter, the big driver of that is in the Securities Services, so the securities lending businesses. There we both had activity levels and spreads in securities lending come off as those business activities for the market have eased off the levels they were running at, and then together with the lower liability balances, lower deposit balances I just referred to, and lower spreads in a low interest rate environment gets you to that level of revenues. Just a little guidance on where to go from here. We would expect this level, plus or minus $2 billion, of quarterly revenues in Treasury & Securities Services is a reasonable expectation given what we've seen in this first quarter here coming out of the end of last year. Then on Slide 16, let's go to Asset Management. Here, starting at really the assets under management, $1.1 trillion, down year-over-year a bit. That's market declines driving assets under management down by close to $200 billion, but positive inflows of about $120 billion year-over-year offsetting that in part, albeit in a greater balance of liquidity projects, which are obviously lower margin. That gets you, then, to the 10% year-over-year decline in revenues, to $1.7 billion coming off of everything I just said, and that drops you down to net income for the business of the $224 million that you see here. Finally, on the income statement, we have the last piece which is on 17, the Corporate segments. So here you see we had bottom line losses of $280 million in private equity. That's on $462 million of writedowns in the quarter; our Corporate segment, $252 million of profit. Obviously, there's lots of ins and outs in Corporate that I won't go through. I'll just say that we expect that to trend higher going into the second quarter by a few hundred million dollars given the benefits that will accrue from the investment portfolio, which is obviously larger, as we talked about back at Investor Day. And then lastly, we run our WaMu and Bear Stearns-related merger costs, which are in line with what we expected, through the Corporate segment here and that's $234 million after tax or about $0.06 that's embedded in our $0.40 overall profit number, so $0.46 before the cost of the merger-related items. Now moving on and just recapping again on capital, Slide 18, here you see the $87 billion of tangible common equity, up several billion dollars from last quarter. The circled number above that, $112 billion, is what we have given the preferreds we have outstanding and qualified trust preferreds that are normally there. And that's, again, ex-TARP; it's $137 billion with TARP. When you move down to the ratios, I've already hit these, but it's 11.3% Tier 1 ratio in total, 9.2% just using the non-TARP-related Tier 1 and 7.2% in tangible common equity to risk-weighted assets. And then finally I'll just show you again the loan loss reserve build, which is obviously largely numbers here, so $27 billion of loan loss reserves to loans, up $20 billion from $7.3 billion two years ago, end of first quarter of '07. Obviously, you see that in the green stacked bars, the total bar, on these slides, coming up from left to right in the upper half. You see the line just showing how we've been improving the loan loss reserve to loans ratio, which is now standing at 4.53%. And as we move through the credit cycle, you see in the blue bar in the top table our NPLs, as we move through a cycle, coming up and therefore just [inaudible] at the NPL to - reserve to NPL ratio trending lower, now sitting at 241%. In the bottom right - you can look at this yourself - but you see - sorry, bottom left - you see how we stack up at the end of last quarter versus peers, so we obviously feel very strongly reserved when you look at the peers here. So finally, then, outlook slide, I think I hit basically everything that's on here already. I will just point out that in the overall box in the bottom right we do have ahead of us in the latter part of the year an FDIC assessment coming that's still being finalized, but that could be in the range of $0.75 billion to $1.5 billion on top of the actual ongoing FDIC charges, which are higher all by themselves year-over-year and already running through our first quarter numbers. So with that, I will hand it over to Jamie - or, actually, we'll just open it up for questions, Operator.

(Operator Instructions) Your first question comes from Guy Moszkowski - BAS-ML. Guy Moszkowski - BAS-ML: A question for you, first of all, just on TARP. Now that Goldman Sachs has raised capital and signaled that they very much want to repay the TARP capital if permitted, maybe you could update us on your thinking along the same lines. James L. "Jamie" Dimon: I think we've been fairly consistent on TARP, which is we'd like to repay it as soon as possible. We're waiting for guidance from the government of the United States. We want to do what's in the interest of the United States in addition to what's in the interest of JPMorgan. And obviously we have the wherewithal. Mike mentioned we have 7.2% tangible common equity to risk-weighted assets. That's a higher number than a lot of people have Tier 1 capital to risk-weighted assets, which is now over 9%, not including TARP. So that 9% and the 7% wouldn't change if TARP were repaid, and so obviously we're in a pretty strong position with that. And we don't think we need more capital. But we obviously will await the results of the stress test and guidance from the government and see what happens. Guy Moszkowski - BAS-ML: So again, just to clarify, you don't believe that in order to repay it you would need to do an equity issuance. James L. "Jamie" Dimon: I don't know what we need to do because it may not be solely up to us. I don't think we need it. I don't see why a company with that kind of capital would have to raise capital. We could raise it. And what Goldman did is what Goldman did; it has nothing to do with us. Guy Moszkowski - BAS-ML: Let me ask something that's much more granular. Your equity VAR was up very substantial versus any of the recent prior quarters. Maybe you can give us a sense for what was driving that? James L. "Jamie" Dimon: You all know that I don't pay that much attention to VAR, but a lot of that is just hedge positions. Guy Moszkowski - BAS-ML: So it doesn't signal a big significant increase in equity derivative exposure or anything like that? James L. "Jamie" Dimon: No. If you look at the balance sheet of the Investment Bank, it's about the same size that it was before we bought Bear Stearns. And I would say the real risk is lower because the legacy loans are dramatically lower, mortgage [inaudible] is dramatically lower, and so it's in pretty good shape.

And not just down year-over-year but also down something like 15% quarter-over-quarter, so it continues to be a focus. Guy Moszkowski - BAS-ML: Just a clarification question on the FASB comment you made. You said that there was no change because of the change in fair value from FASB. Is that because you didn't adopt it for the first quarter or because there really was just fundamentally no impact on your business?

It's the latter, fundamentally no impact. James L. "Jamie" Dimon: It was adopted and it had no impact. The whole thing was a big hullabaloo about nothing, in my opinion. Guy Moszkowski - BAS-ML: Maybe you can talk a little bit about your auto industry exposure in the Investment Bank and elsewhere to the extent that, say, you bank suppliers in the Commercial Bank and how you are reserved or marked, depending on what's relevant for your exposure to the industry? James L. "Jamie" Dimon: Okay. So the three auto companies' direct exposure - and remember, I think Mike mentioned that in the quarter obviously there were both reserves and marks in the quarter and in prior quarters relating to auto - but of the three companies, our total exposure - in other words, how much can we possibly lose at the far end - it would be well less than $1 billion. We have exposure to the finance companies, mostly collateralized. We could lose money there; it really depends. There the situation gets bad under Chapter 7s, not under Chapter 11s. But it really remains to be seen [inaudible]. And like I said, it's collateralized. We can lose money there, but we'll see. And obviously we have exposures to suppliers, both in the Commercial Bank and the Investment Bank, but you've basically already seen a lot of that stress in the balance sheet. Guy Moszkowski - BAS-ML: Can you talk about the NCO rate for the - James L. "Jamie" Dimon: Guy, maybe you should let someone else ask a question, too? Guy Moszkowski - BAS-ML: Okay, I will.

Your next question comes from John McDonald - Sanford C. Bernstein & Co., LLC. John McDonald - Sanford C. Bernstein & Co., LLC: I wanted to just ask about Credit Card. The 9% chargeoff rate guidance for 2Q, I understand it's just a guess. Is it based partly on your roll rates and delinquencies or also really just more about assumptions about unemployment and perhaps some decoupling? James L. "Jamie" Dimon: It's a lot less than a guess, okay, because we do have real visibility into the second quarter already. It is based upon real roll rates and real delinquencies.

Beyond that, you've got to make your own assumption about where unemployment goes and you can just go back - the point I was making about the latter end of the year is we showed a bunch of different relationships of where our losses might be on the Chase portfolio relative to unemployment and so that stands. But, as Jamie, said, about 200 basis points of increased quarter-over-quarter for Chase is what we can see looking ahead to the second. James L. "Jamie" Dimon: If I were you, I'd just plug that into my model. John McDonald - Sanford C. Bernstein & Co., LLC: And what is it about the WaMu card book that is so much worse? James L. "Jamie" Dimon: Well, it's subprime and it's part of the cost of getting the WaMu deal. And that's our expectations for it. John McDonald - Sanford C. Bernstein & Co., LLC: Are there any concerns in Card about master trust excess spreads hitting either cash trapping or early [inaudible] triggers in either your trust or if there's any remaining WaMu trust?

We're not immediately concerned about that stuff, John - paying attention to it, but not an immediate concern. James L. "Jamie" Dimon: And fixable, if we want to. John McDonald - Sanford C. Bernstein & Co., LLC: And a last thing on Card, are the effects of any repricing you've done already in your numbers in Card or is there any benefit ahead potentially for the [inaudible] margin there. James L. "Jamie" Dimon: I think you should expect the [inaudible] margin to be approximately the same going forward. And there's been some repricing, but it's not going to have a dramatic effect.

Your next question comes from Mike Mayo - CLSA. Mike Mayo - CLSA: The comp to revenue in the Investment Bank seemed kind of low. Should we assume that will be the rate going forward? James L. "Jamie" Dimon: No. We don't accrue comp to revenue, comp as a percent of revenue. It's accrued by line of business, risk adjusted, capital adjusted and all that, and that was the number. If it was higher or lower, that would be fine with us. But if you look at the actual accrual amount, it was pretty high. Mike Mayo - CLSA: No change in pay practices of anything like that? James L. "Jamie" Dimon: No, no. It's just the first quarter. I mean, obviously you don't pay comp until you get to the end of the year.

The comp to revenue is just an expression of the outcome, Mike; it's not the driver of how we think about it. So consistent to the way we've done it before, in a strong quarter like this the percentage comes out the way it did. Mike Mayo - CLSA: And then the Credit Card losses - I asked this at the Investor Day - is it going more nonlinear relative to the increase in unemployment in certain markets, like in California, and how nonlinear is it getting? James L. "Jamie" Dimon: Well, I don't know about nonlinear, but in any market where unemployment is up - and actually we had charts at the analysts meeting for this, just take them out; I think it's approximately the same today that it was then - that wherever unemployment goes up, chargeoffs are going up, wherever home prices go down, chargeoffs are going up; and where both are happening, chargeoffs are going up even more. So if you do a correlation, they would be directly correlated to unemployment and home prices, too, so it's hard to tease them out. But chargeoffs in Card are clearly higher than you expect just based upon unemployment and that's because of housing. Mike Mayo - CLSA: Foreclosure moratorium, can you give any concrete information on what impact that had or maybe just qualitative and the impact that might have going forward, the lifting of the moratorium? James L. "Jamie" Dimon: You know, if you look at prime mortgage, it distorted delinquencies a little bit. But we're going to try to do the mod program. It's hard to really tell, Mike. I think it's a good thing for the country to go ahead and do that, but we don't exactly know what the impact will be. Obviously, there'll be more foreclosures going forward, but there will also be a lot more people who are able to do a modification or a refi.

Group.: Meredith Whitney - Meredith Whitney Advisory Group: I have two questions, one is separate, which is could you elaborate on your MSR assumptions that caused you to have a gain this quarter? And then my second question is on subprime. Do you want me to ask them all at once? James L. "Jamie" Dimon: No. Well, let me just do MSR real quick. First of all, we like to be fairly conservative in how we do stuff, so I think we're [fairly conservative] with MSR, too. But in general over time certain prepayment fees have slowed and [inaudible] turnover's gone down a little bit - not a little bit, I think it's gone down a lot - so it's things like that. And there's obviously a lot of things in that model. We don't expect to see a $1 billion benefit every quarter on what we call the risk management side of the MSR. But, you know, the MSR is a real earning asset. Meredith Whitney - Meredith Whitney Advisory Group: Specific to subprime, your guidance on subprime has been in line and my question is you guys are running off the Providian portfolio, HSBC shuttered their business. There seems to be almost no lending for the subprime sector. Does that squeeze then or alter some of your assumptions and then some of everyone's assumptions in terms of setting up for another leg down in subprime? And then what derivative impacts does that have or could that have on the prime market? James L. "Jamie" Dimon: Well, relative to us alone it's really not that big a deal, okay, because subprime is $13 billion in mortgage and the whole Providian book is $26 billion. And remember, Meredith, I really think that happened a year ago that subprime markets were, in essence, closed down. So I think you're seeing the full effect of the impact of that now.

Which is why I think we've been more on track there with forecasting. Meredith Whitney - Meredith Whitney Advisory Group: And then the last question is - and forgive me if you already mentioned this - do you expect to be profitable in Card this year? James L. "Jamie" Dimon: No.

And that's not news - have said that before.

(Operator Instructions) Your next question comes from Betsy Graseck - Morgan Stanley. Betsy Graseck - Morgan Stanley: A couple of questions on NIM. Nice expansion in the quarter. How much of that was driven by LIBOR versus fed funds normalizing?

I'd kind of point to - overall we're getting comments on NIM - get a little bit of spread compression in deposits in some of the businesses and then the benefit of the larger investment portfolio, so just benefiting from a low interest rate environment there. That's the aggregate story. It continues to be the story looking ahead for at least a little while until we have a different view on rates. James L. "Jamie" Dimon: And year-over-year was pretty much the addition of WaMu, a big difference. Betsy Graseck - Morgan Stanley: And then on capital ratios, in the past diversified business models have benefited from an expectation that there's less correlation and so you can carry less capital than maybe stand-alone peers. I'm wondering about the degree to which that thought is under debate in rating agencies and internally in your shop given that correlations have obviously been higher than I think what people had anticipated. James L. "Jamie" Dimon: I think we're different than most because we want each company to be properly capitalized and we didn't, in effect, subsidize any company by looking at the whole company. And the whole company itself wasn't overleveraged. So we don't expect our position will change very much going forward.

And remember, we also always targeted, as I said earlier, a Tier 1 ratio of 8% to 8.5%, well above the 6%, in light of times could get tougher, so we had some of the pro-cyclicality, some of that stuff, taken out by ourselves. Also we were always very conscious of how much we wanted to rely on other than tangible common equity as a source of regulatory capital. Think about the 15% bucket for trust preferreds as an example of something we availed ourselves of but not much more, which is why you see such a strong quality of our capital today. James L. "Jamie" Dimon: I think it's fair that there will be less leverage in the financial system going forward in general. That'll be true for diversified companies and less-diversified companies. Betsy Graseck - Morgan Stanley: How are you thinking about the PPIP and the other bad asset vehicles that are out there and would you be interested in either using them as a seller or an investor or how are you thinking through whether or not to even use them? James L. "Jamie" Dimon: We have no intent on using PPIP at all. We don't need it. We have our own assets. If we want to sell them, we'll sell them. We mark them properly. If we want to buy them, we'll buy them. We're certainly not going to borrow from the federal government because we've learned our lesson about that. But I do think that if PPIP is properly executed it could be good for the system because it could give some prices to certain loans and help some companies do things they might not otherwise have been able to do. But I don't think it in and of itself is that critical to the success of all the programs that the Treasury's doing. If you look at the programs the Treasury and Fed and the government, the stimulus package, there's an extensive amount of programs. That's only one of them. Betsy Graseck - Morgan Stanley: And then just last question, cost of debt relative to pre-crisis times obviously - yes. James L. "Jamie" Dimon: I can point out, too, I don't think toxic assets is the problem. I mean, you know, we hear this endless chatter about it, but the banks who are in business are lending. They're lending pretty much like they did in the past. Obviously, there are banks not in business. You know, banks have always had a portion of assets that are nonperformers, something like that, and obviously those proportionately will be going up. But I also remind people that banks are 25% of the system. They're not 100% of the system. And the rest of the system, you know, is hedge funds and money market funds and bond funds and pension plans and insurance companies and direct investor, investing consumers, and that's where you have this enormous flow of funds taking place which is very different than you had 50 years ago. Betsy Graseck - Morgan Stanley: So how do you think about getting the cost of debt down for the company? I mean, TLGP's going to end soon if it doesn't get extended. James L. "Jamie" Dimon: Well, remember, TLGP had asymmetric benefits for people, okay? And when that all happened, I would say that some people couldn't fund at all and were able to and some people were able to fund a lot cheaper than they were able to fund. It wasn't a lot cheaper. I think it's maybe 100 basis points.

In the short end, our issuance has come in a lot relative to what unguaranteed issuance would be versus guaranteed obviously. James L. "Jamie" Dimon: Our cost will be 100 basis points higher or something like that.

Yes, even less, I think. James L. "Jamie" Dimon: We did an unguaranteed deal and those markets will come back eventually. You've seen January, February and March were some of the biggest bond months ever, which includes now high-yield debt, double B, single B, some IPOs. So the capital markets will eventually get healthy again and people will finance.

That doesn't necessarily mean spreads come all the way back to where they were, but that we don't necessarily need or expect that to happen. Betsy Graseck - Morgan Stanley: And there's nothing you're doing outside of running your business in the way you're running it to address that spread? James L. "Jamie" Dimon: No, because it's not that big a deal for us. Betsy, we have $1 trillion of deposits and $700 billion of loans, so if our non-deposit costs go up a little bit, that just will change how you price stuff or manage stuff going forward. But I would say it's not a tremendous deal for us. It could be a tremendous deal for some other people. They either won't get the money or it's going to cost them 500 basis points more. That basically eliminates profit.

Your next question comes from Jeff Harte - Sandler O'Neill & Partners L.P. Jeff Harte - Sandler O'Neill & Partners L.P.: The one credit piece that we seem to be perpetually questioned about that I don't know if I've seen much here and I was hoping you'd give us some more color on - and I know this is a big bucket but what you're seeing in the commercial real estate markets for credit quality. James L. "Jamie" Dimon: In the big picture, it isn't a big deal for us either. But I think - and we've given this number at the Investor Day - was it $12 billion in total?

Yes. It was $7 billion or so from legacy Chase and then we picked up another $5 billion or so from WaMu in commercial. James L. "Jamie" Dimon: Right. And I think in general there the losses are going up. And I think if you talk about the whole system, in my opinion you are going to see rapidly rising chargeoffs in real estate loans. It'll be idiosyncratic because all banks did them differently and had different standards and they even define them kind of differently. We also had the multi-family lending, which is like over $30 billion out of WaMu. Losses are extremely low. I would completely separate that. I would expect those losses to go up, but they're not going to be nearly on the category of commercial real estate.

So a lot of it's going to be when you look at commercial, what's the mix. So as we talked about, that totals $14-ish billion. The loss rates are trending higher, but probably not as high in some of the weakest lending into that space. So that is something to be watchful of, but I think it's our size and mix that's the reason we feel good. Jeff Harte - Sandler O'Neill & Partners L.P.: On the mortgage servicing rate questions that pop up, am I reading this correctly to say you had $1ish billion in hedging gains but that essentially offset what were marks to the actual asset itself? James L. "Jamie" Dimon: No. We had a net billion dollar gain on the risk management of the MSR. That will not repeat.

It's the net of those. It's the net of us hedging the expected change in the asset, so however you want to say it. James L. "Jamie" Dimon: You've seen that. That is a very volatile number by quarter. Obviously, it's been a positive recently, but we don't expect it to continue.

Your next question comes from Christopher Kotowski - Oppenheimer & Company. Christopher Kotowski - Oppenheimer & Company: I wonder if you can comment a little bit on the sources and perhaps durability of the strength in fixed income and trading? And I guess I'm thinking about it in terms of volume versus market share versus spreads. James L. "Jamie" Dimon: Right. I think the first thing to point out is the Investment Bank, both on the corporate finance side and the sales and trading side, has been doing extremely well. And some of that is really just gaining share. It's hard to tell you're gaining share in the short run in fixed income, etc. Very good results in emerging markets, FX, currencies. Obviously, the corporate bond business has come back in a way. [inaudible] is back in a big way. And spreads are way up. So spreads are way up, volumes have gone up, people obviously still need to service this, so we think we've gained share. I wouldn't expect to see them at these high levels continuing going forward. I mean, I think the first quarter was an historically high quarter and if you were looking at it it's not reasonable to expect to continue at that level. We hope the share we've gained we're going to hold. Christopher Kotowski - Oppenheimer & Company: And then just as a follow up to that, how do you look at reserve adequacy now? I mean, in the last cycle we always looked at reserves to nonperforming loans. This is a much more consumer-driven kind of cycle, so the nonperforming loans don't pile up in the same way. Should we look more at reserves to run rate of chargeoffs, something like that? And how do you assess the adequacy? And just given that incredible strength in fixed income trading, why not pop everything into the reserve for this year so far? James L. "Jamie" Dimon: Well, you've mixed a whole bunch of things in there, but we added $4 billion to reserves, okay? A billion of that was in the Investment Bank. And remember, the Investment Bank, we added $1 billion to reserves and also took $1 billion of various marks on loans and mortgages. But they had a billion dollar gain in DVA. So you add it all together, in other words, the underlying [inaudible] was better than what you're seeing here on their own. But, look, we reserve each book of business according to accounting rules for that book of business. And in general on the consumer side as you're looking forward expect a loss over the next 12 months. Eventually they will peak, but they've been going up consistently. We've shown you here that they're going to go up even more. They're going to continue to go up in all the home lending areas, mortgage and home equity. In credit card, they're going to continue to go up. So as long as they continue to go up, reserves will probably have to be added to. Once they stop going up, you don't have to add to reserves anymore. That will be a joyous quarter. And it may happen sooner than you think and it may take a little bit longer.

Your next question comes from James Mitchell - Buckingham Research. James Mitchell - Buckingham Research: A quick question on the Investment Bank balance sheet. The average balance sheet was down $130 billion or 16%. Was that just sort of the repo book or is there anything more significant going on there? I mean obviously it's historically, as you point out, Jamie, an active quarter. I'm surprised it went down as much as it did.

Well, I don't know which number you're looking at, James, but if you look at adjusted assets, taking out the match book, you're down quarter-over-quarter 14%, I think it is. So it's the combined set of activities - making sure we're getting paid for the risk we take and discipline to manage the balance sheet and getting the Bear balance sheet integrated, all those factors drive quarter-over-quarter decline and back to levels of a year ago. James L. "Jamie" Dimon: I think [inaudible] was down $30 billion, too, which is a huge number. Remember, that bounces all over the place. James Mitchell - Buckingham Research: And maybe just following up on the reserve question, understandably it's formulaic today as loss rates go higher you add to reserves, but I've asked this question before - it's a bit of a pet peeve but at what point does the law of large numbers start coming into play? While it's great to have great big reserves, you're also taking after tax about $2.5 billion of common equity and putting it into reserves that you're never going to be able to use until things get better. At what point is there some pushback with regulators that hey, it doesn't make sense for our shareholders to be adding when you have $30 billion in reserves? James L. "Jamie" Dimon: Well, listen, you made the point as well as anyone can make it. At one point, it's sufficient. And I think loan loss reserving as a matter of policy really needs to be reviewed in the future. I mean, it's very pro-cyclical. It doesn't in my opinion match revenues and expenses. But a lot of it recognizes real losses that are coming. But at one point those loan losses will come down. So we agree with you, as a policy matter, it really needs to be reviewed. But that's not up to us. And I think the market looks right through it.

But that's why it's important to look at the quality of your capital in light of the quality and size of the loan loss reserve relative to forward exposures. James Mitchell - Buckingham Research: Fair enough. I just was wondering if there's any kind of elevated discussions going on about your criticism and my agreement on the reserving policy with regulators. James L. "Jamie" Dimon: No elevated conversations. I wouldn't expect to see much take place in this, at least in the short run.

Your next question comes from Jason Goldberg - Barclays Capital. Jason Goldberg - Barclays Capital: I don't know if you can do it specifically, but if you can't at least high level - could you just update us where we are with respect to these stress tests in terms of I suspect you've given something to regulators, have you heard back? When do you expect to hear back? What [inaudible] disclose, etc.?

We kind of know what you know. We haven't heard back from the government. They're targeting toward the end of the month, as you read in the papers, and that's kind of where I'd leave it. We talked about on Investor Day our own stress work which, as we talked about, put us in good stead, maintaining our capital at levels like we currently have on the back of earnings and profits, even in our own scenarios. And I still feel good about our own scenarios for what they were, having done all the work involved in submitting our government stress test. So that's where I'd leave it for now. But as Jamie said, we've got to wait to hear what the government thinks of it all things considered on their side in a few weeks, I gather. Jason Goldberg - Barclays Capital: And then with respect to Credit Card losses, I guess you mentioned 9% in the second quarter and the guidance toward the end of the year was 9% to 9.5%, so you get a 200 bip jump next quarter and then a much lower increase after that? James L. "Jamie" Dimon: Right now it looks like it will just creep up from there, but we really don't know because we don't have that much visibility, particularly like in the third or fourth quarter.

Your next question comes from Matt Burnell - Wachovia. Matt Burnell - Wachovia: I just have a quick question, I guess maybe a clarification, on your prime portfolio, where the losses are obviously coming from California and Florida. We're hearing anecdotally that there may be some bottoming in the California market. I'm just wondering if you're seeing any of that in your prime or your home equity portfolios? James L. "Jamie" Dimon: There is no question that the home markets are much more active in California, that the affordability to pay is at all-time records there. The home prices are already down 40% or 50%, depending what market you're in. And we know from our own experience that homes are moving much faster, there are more bids on them, the prices are much closer to the offer price, so those are all very positive signs in California. But we'll see what actually happens to home prices over time. Matt Burnell - Wachovia: So it sounds as if those activities are not really impacting your view of losses in those portfolios in the next quarter? James L. "Jamie" Dimon: No, because remember, a lot of those losses are, I would say, almost embedded in the fact that home prices are down 40% or 50% and unemployment is going up, and so some of those losses are embedded. But obviously the sooner home prices stabilize, the better it will be for losses in our home lending portfolios.

Your last question comes from John McDonald - Sanford C. Bernstein & Co., LLC. John McDonald - Sanford C. Bernstein & Co., LLC: Just a quick follow up on the equity markets revenues, can you comment how much of the strength and the jump of revenues was attributable to the prime brokerage ramp versus just a strong quarter?

It was pretty much spread across all pieces, John. So prime services did improve some, but it's not the totality by any stretch in the revenue increase. James L. "Jamie" Dimon: Remember, year-over-year, we didn't have it last year. And we really don't talk about this a lot, but the Bear Stearns equity business was very strong. It also helped that the cash equity side and the prime brokerage side, where we think we've gained share, if you look at all the [inaudible] numbers and stuff like that, somewhat off the back of Bear Stearns, too. Obviously, we were already strong in the equity derivative side. John McDonald - Sanford C. Bernstein & Co., LLC: And one quick purchase accounting question, Mike, on WaMu. Are you already experiencing chargeoffs and provisioning for the non-credit-impaired WaMu loans or is there some timing benefit to having recently tested those for credit impairment even though they weren't credit impaired?

I would just say actually in the home lending side, it's just low levels of losses period, as we showed at Investor Day, just given that anything that was low quality was put into credit impaired and marked. So you just have a much higher credit quality in mortgage and so forth that stayed in the accrual books. And then in Card, as I said, you do have, because of the quick revolve of the balances, you take the losses in the initial purchase accounting there. But, as I said, normalized this quarter we had about 12% - 13% chargeoff rate on WaMu Card. That benefits the last quarter a little bit, the benefit of booking losses upfront, so that normalized would have been more like 16% - 17% and that's why next quarter it'll be something like 18% on that $26 billion alone, which is mostly the benefit of initial purchase accounting going away.

And there are no further questions.

Okay. James L. "Jamie" Dimon: Okay, folks.

Thank you, everybody. James L. "Jamie" Dimon: Thank you.

This concludes today's conference call. You may now disconnect.