Jamie Dimon - Chairman and Chief Executive Officer Mike Cavanagh - Chief Financial Officer

John McDonald – Sanford Bernstein Glenn Schorr – UBS Guy Moszkowski – Banc of America Betsy Graseck – Morgan Stanley Mike Mayo – CLSA Meredith Whitney – Meredith Whitney Advisory Jason Goldberg – Barclays Capital Moshe Orenbuch – Credit Suisse Richard Ramsden – Goldman Sachs Matthew O’Connor – Deutsche Bank Ed Najarian – ISI Group Ron Mandel – GIC Nancy Bush – NAB Research Chris Kotowski – Oppenheimer James Mitchell – Buckingham Bill Tanona - Collins Stewart Jeff Harte – Sandler O’Neill

(Operator Instructions) Welcome to the JPMorgan Chase Fourth Quarter 2009 Earnings Conference Call. I will now go live to the presentation. At this time I would like to turn the call over to JPMorgan Chase’s, Chairman and Chief Executive Officer, Jamie Dimon and Chief Financial Officer, Mike Cavanagh.

I will start up the presentation as we usually do. If you start at the beginning page one I’m going to refer you back to the legal disclaimers in the back about forward looking statements which you’ve all seen and heard many times before so take note of that. Going to page one, I’ll mention some firm wide highlights before I spend the bulk of the time really walking us through the details for each of the business lines that we have. For the full year 2009 we had net income of $11.7 billion, that’s earnings per share of $2.26 on record revenues of $108.6 billion and record pre-tax pre-provision profits of $57 billion. In the fourth quarter was net income of $3.3 billion, EPS of $0.74 on revenue of about $25 billion. Skipping down to credit costs, obviously they continue to remain pretty elevated across especially our consumer businesses. In that regard we’ve added $1.9 billion to the consumer loan loss reserve levels bringing the total firm credit reserves to $32.5 billion or 5.5% of total loans, obviously a very strong level. On the balance sheet and capital accounts, Tier 1 common capital continues to grow now at $105 billion or 8.8% as we estimated for the end of the year, which as you’ll recall, the level expected at the time of the stress test less than a year ago was 4% so we’re more than double that number obviously. I’m going to skip now pages two and three which give you the numbers I just described and go straight to the details of the Investment Bank of page four. Here you see we had earnings of $1.9 billion in the Investment Bank on revenues of about $5 billion in the quarter. I’ll take the revenue line piece by piece and give you a little bit of color there. Investment Banking fee line $1.9 billion in the fourth quarter that brings us to $7.1 billion for the full year which is a record and obviously we’ve talked about this every quarter how pleased we are with the leading position we have across all forms of capital raising in the Investment Bank and you can see that for yourself on the stats we’ll show you on the next page, which I’ll pass over. Moving on to Fixed Income Markets here revenues of $2.7 billion in the quarter down from the record levels we had in the third quarter this year. I’ll say, obviously this is reflecting the lower overall client volumes that we saw in the fourth quarter and continued narrowing of spreads across essentially all products, both of those factors generally speaking across all products. Nothing really more than that to described in Fixed Income Markets other than to say that the end of the quarter, particularly December, was weaker then the earlier part of the quarter in terms of very slow client activity levels. We see that at least in the first several weeks of January, we see client activity levels rebounding from where they were in December which is good. Equity markets at about $1 billion of revenues is solid. Moving on to Credit Portfolio, here you see negative revenues of $669 million and that’s on swings to the negative in credit valuation adjustments and then the mark to market losses on the hedges we’ve put in place against the accrual based loans we have, overwhelming the positive net interest income we have on the loans in the credit portfolio. I’ll just say obviously that’s a number driven by the swings in the mark to market items. On average you’d expect credit portfolio revenues to be couple hundred million dollar positive because over time those mark to market swings on CVA and DVA and the hedges should average out to zero leaving you with, on average, a few hundred million positive. As you think about what to expect as “normal” there. That finishes revenues so that gets you to the total $5 billion or so of revenues in the quarter in the Investment Bank. Moving to credit costs, obviously we have a positive contribution of credit costs and that’s really driven in total by the charge offs but offset by release of reserves related to the decline in loan balances both due to run off of loans and loan sale activities that amounts to the decline you see in end of period loans there on the left dropping from $85 billion a year ago to $60 billion last quarter to $49 billion at the end of the fourth quarter. Those factors together drive you to the need for less reserves yet we still carry an allowance to loan reserve in the Investment Bank north of 8%. In terms of non-performing loan balancing dropping from $4.9 billion last quarter to $3.5 billion this quarter the preponderance of that three quarters or so related to the loan sale activities during the quarter. The next piece is expenses which are obviously down significantly from year ago and benefited from the very low comp to revenue ratio in the fourth quarter of 11%. That brought the full year comp to revenue ration in the Investment Bank to 33%. Remember that level is lowered by a few factors, one is that with our organization we have to take into account the compensation that’s paid outside the Investment Bank to employees in the corporate segments and elsewhere that support the Investment Bank activities. We also took some reductions in the compensation line to offset in part at least the UK tax. In addition, we’ve raised the level of equity that’s given in compensation. That of course lowers the ratio as well. Those factors add up to a couple points depression from what that ratio otherwise would be. You can think of this ratio on a go forward basis of something in the neighborhood of 40% plus or minus. Use 40% as your baseline but obviously know that it’s going to be lower then that but stronger the performance of the business and the higher the revenues and the inverse is true as well which you’ve seen us do over the past. That’s the story on comp to revenue and compensation in the Investment Bank. If I just bring all that together before leaving the Investment Bank and wrap it up, if you look at the $1.9 billion of profits I started with and just do a couple of the adjustments I just described bring the credit portfolio revenues back to a slight positive, bring the comp to revenue expense rate into line with what I just said for normal of about 36% and bring credit costs as opposed to being a positive to a negative of about 100 basis points which is what we always talk about. That would get you to adjusted profits for the quarter of about $1.4 billion or $1.5 billion is the way I think about some of those items that I just described. Retail financial Services drivers page, the overarching comment and reminder I’d make here is just continued great progress and completion actually of the Washington Mutual acquisition is the ultimate driver of the business over the long period of time. Looking at the quarterly stats the only couple of things I’ll mention is on the retail banking side, the branch business deposit taking you see as expected some quarter over quarter continued decline in deposits from about $340 to $330 billion and that’s just letting us have the high cost Washington Mutual time deposit CDs mature and roll off which is good economics for us. Separately, you see the deposit margin expand a little bit as we continue to be a disciplined pricier of deposit spend also see some shift away from higher cost deposit products. You see the 2.99% deposit margin improve a bit to 3.06% in the quarter. Moving down into the bottom of the page, the other division within Retail is consumer lending. You see in total, consumer lending originated about $42 billion of new credit. That relates to firm wide fourth quarter credit origination of $155 billion and as you saw in the press release that’s of a total for the full year of $600 billion or so. You can read some of the comments and look at the stats of what went on in each piece, nothing particularly noteworthy to report there though. If you go to the next slide and just focus on the income statement of Retail I’ll just take this again in the same two pieces. Retail banking in the middle on the left you see net income of $1 billion or so on revenue of $4.5 billion. That revenue is flat year over year, it goes back to the shift to the benefit in wider spreads and the shift to wider spread products, offset by some declines in the fee based side of Retail banking getting you to net income you see there. At the bottom you see consumer lending continues to loose money so in this quarter was a $1.4 billion loss. Two items I’ll point out, one is the level of revenues at $3.1 billion and that’s lower then prior periods given the modest level of essentially break even, $100 million positive on MSR risk management which had been a big positive in some of the prior quarters. It normally is more like what it is this quarter. As well we had a higher repurchase reserves put up on mortgage repurchase claims. On the credit side you see $3.94 billion of credit costs and that includes a $1.5 billion addition to the allowance for loan losses. Now let’s just talk about those portfolios for a bit on page eight, same slide we always show you here giving you a little bit of detail on the top left of just the declining balances you see as these portfolios run down from $101 billion for home equity and so forth. The charge offs themselves you see are up a little bit versus last quarter but running in an increased trend that’s consistent with the outlook we have given you in the past. That outlook for $1.4 billion of quarterly losses on home equity in the next several quarters, $600 or so in prime mortgage and $500 or so in sub-prime mortgage continue to be unchanged for us as we look ahead. On the credit impaired side, the WaMu purchase portfolios there you see we added about $500 million to reflect our estimate of higher lifetime losses in the sub-portfolio of option ARMs. Card Services now on the next slide you see a net income loss of $306 million compared to a loss of $371 million a year ago. Credit again continues to be the story, not much different then what we would have expected here. You see the 8.64% charge off ratio which as we talked about last quarter benefited by about 60 basis points and the timing of this payment holiday we did and we’ll see the other side of that with an elevated charge off ratio next quarter. That is continuing to trend to the 10.5% or so percent charge off ratio that we expect to trend towards in the first half of 2010, exactly as we previously said so nothing really different going on then what we talked about before in credit. On the revenue side, end of period outstandings continue to behave in the same fashion, down a bit year over year and flattish quarter over quarter. Sales volume up a bit year over year and up 7% quarter over quarter. We think we’re gaining share, continue to gain share in card spend but those factors together with charge offs are putting pressure on overall outstandings year over year. That amounts to the modest revenue growth you see at 5% year over year. Moving on to Commercial Banking, the next slide 10, $224 million worth of profits I’ll just point out a few things here. Loan balances of $102 billion on average down a bit from last quarter so we continue to see weak demand, we continue to see utilization rates on committed credit lines be at or bounce around their lows, a little bit more indication that we might have some pipeline activity coming up but we have to wait and see. On the other side of the balance sheet you see liability balances which is cash and deposits our clients leave with us trending higher. That translates into the revenue you see above for lending and cash management products. The one other point I’d make is we talked a lot a couple years ago about the investment banking opportunity out of the commercial bank. For the full year 2009 we had just over $1.1 billion worth of Investment Banking product revenues delivered into the Commercial Bank clients and that’s a full double of where it was at the time of the Bank One – JPMorgan Chase merger several years back. That’s the goal we’ve set and so congrats to that team for getting it done this year. Credit costs in the quarter high, $494 million and the bulk of the activity there 70% or 80% is driven by vigilance around making sure all our commercial real estate activities are properly written down and that’s the driver there. Continue obviously to have very high allowance to loan losses at the end of it all north of 3% as we ended the year. Next business on slide 11 is Treasury & Securities Services. Net income down year over year substantially and a bit quarter over quarter to $237 million. If you look at the liability balance line you see the significant decline from the elevated levels we had last year as we experienced the significant influx of deposits in the height of the crisis. That, as well as the low rate environment we’re currently experiencing and the pressure that’s putting on deposit spreads is affecting the revenue this year as well as some of the other items I’ll let you read. That translates into the $1.8 billion of revenues down $400 million from a year ago and translates to $237 million of profits and Treasury and Securities Services. Last business Asset Management, net income of $424 million up substantially year over year. Revenues up versus year ago 32% and that’s on 10% increase in assets under management which at $1.2 trillion reflect a higher levels of markets as well as positive inflows over the past 12 months, $28 billion for that period and continued good investment performance. Last contributor to the income statement for the company is the Corporate segment so let me just spend a minute here on page 13. Private Equity we had pre-tax gains of $273 million in the quarter on the overall portfolio of $7.3 billion translates into net income $141 million as you see on the left. The next piece is what I call the real corporate segment that’s the treasury bank within the bank and investment portfolio activity as well as all the corporate support activities that we manage in Corporate. That amounts to an abnormally high $1.2 billion in the quarter. Think of that as benefiting from two things. It’s been consistently high for several quarters given the large size of the investment portfolio generating high net interest income. In this quarter we started to bring the size of that portfolio down and in selling some of those securities which were at gains we triggered investment securities gains. We know we’ll have more of that in the first quarter as we continue to make some adjustment to the investment portfolio. Once you get beyond the first quarter of this year you can expect to see that number be more in the range of $300 million plus or minus. Obviously we always talked about corporate being a volatile item and it will certainly be affected by how we manage the investment portfolio from here forward. Tax rate, we had a little bit of benefit in the quarter with some one time items running through. The tax rate for the company will revert to what it had looked like after the three quarters year to date and then obviously the net interest margin going forward, guidance on that is embedded in the $300 million number that I talked about as the forward earnings in corporate. Moving past the P&L to the capital section you see on page 14 the total capital position of the company, $133 billion of Tier 1 Capital, $105 billion of Tier 1 Common, for the 11.1% and 8.8% capital ratios that you see circled there. Make the point that with FAS 166/167 coming into effect this quarter that will affect us by an estimate of plus or minus 40 basis points or so to the negative. The ratios will continue to be very strong. We’re obviously keeping an eye on all the future changes that could come a year from now in terms of market risk rules as well as the further out implementation of Basel 3 and we’re going to spend time, we feel very comfortable with how we’re positioned on a capital front with everything we know but we are going to make some adjustments when we get to Investor Day to just true up and adjust the capital allocated to each of our businesses and bring them in line with our best thinking around this. More to come on that. The work we’ve already done just substantiates our view that we’re in a very strong position overall on the capital front. The next slide I will skip over just give you a sense for the strong level of loan loss reserves and how the evolution of non-performing loans ratios relates to that. Wrapping it up with the outlook, I’ll remind folks that effectively nothing is different here then what we said at the Goldman Sachs conference last month. Read it and you’ll see that it’s very much in line exactly the same as what we said. Therefore, let me just wrap it up there and operator we can open it up to questions.

(Operator Instructions) Your first question comes from John McDonald – Sanford Bernstein John McDonald – Sanford Bernstein: A question on the SLP3 portfolio what drove your change in outlook on the option ARM book?

It’s expectation of severity levels. John McDonald – Sanford Bernstein: For the loan loss reserve build in RFS how do TDRs and modifications contribute to the loan loss reserve build, is there some automatic provisioning that occurs when you do modifications?

As we’ve talked about, the foreclosure delays and modifications we’ve tried to be vigilant both in the way we recognize charge offs and the way we forecast them to not allow ourselves to get caught behind in terms of what the expected embedded loss is. We factor that into the way we forecast and put up our reserves. Nothing automatic, it’s just our forecasting embeds our best expectation of what will actually happen. John McDonald – Sanford Bernstein: The comp ratio in the Investment Bank does changes in the mix of compensation cash versus stock impact your expense accrual and comp ratio?

Yes, it did. Increasing the amount of stock in our cash/stock table across the board but especially for higher paid people drove the ratio down by a point or two what it otherwise would have been. There’s a series of items I listed earlier that was one of them that together amounted to several points. That once piece is a bit of it. John McDonald – Sanford Bernstein: Expense leverage in RFS with the cost saves from WaMu I would expect a little bit more net expense reduction in RFS including your outlook. Could you comment on what some of the offsets to the merger expenses are in RFS?

Many of the items that you see on our outlook page, its just a continued investment and growth of the business away from the shrinkage of WaMu together with continued levels of default and foreclosure related expenses.

Your next question comes from Glenn Schorr – UBS Glenn Schorr – UBS: On page seven RFS on the consumer lending comment there was something, a blurb on higher repurchase reserves. Is that a reps and warranty issue and can we talk about that issue in terms of what is the magnitude of loans being put back to you all and how big of an issue its adding up to be?

It’s early on that. Obviously it’s picked up and you read about it in the papers everyone is looking at all parties in the mortgage chain are taking a look at their rights and looking to bring claims. Its early days in that, I wouldn’t be able to give you numbers on that.

First of all, it’s a negative revenue, it’s a fairly large number and we reserve for it. Glenn Schorr – UBS: A quick comment on a reminder of if you took a very general view of your firsts and seconds over the past couple of years, what percentage was self originated versus wholesale originated? That usually, I don’t have concerns over JPMorgan documentation and dotting the i’s and crossing the t’s but some of the wholesale stuff seems to be the bigger issue these days.

Are you talking about repurchasing reserves again? Glenn Schorr – UBS: I wanted to get to the reps and warranty issue with some of the bond and shores coming back to the originators and claiming reps and warranty breaches.

They’re all doing that. Anything that was originated is subject to some repurchase type reserves. I think you can assume that the broker side will be worse. Glenn Schorr – UBS: Back to the comp issue what kind of magnitude are we talking in terms of stock cash split? Is that something that you’d be willing to share in terms of where we came from which is where we are. I’m assuming that’s more of an ongoing issue as opposed to one time even this year.

We’ve always had a high stock component. It’ll be a little bit higher this year then normal and that’s why Mike says it’s the one or two point swing this year. Higher then it’s been. It’s basically in line with all the G20 FSA IIS, Settle Reserves, FSB, and all the other names you could come up with. Glenn Schorr – UBS: I don’t know if this is too simple of a question but lots of people starting to get a little antsy on the rate outlook. I’m not sure how close to the middle you’re aligned but I’m curious on your thoughts on both rate forecast and positioning and what is more important? Is it the actual funds rate or is it the issue of stopping some of the purchase programs the various government entities?

Our interest rate exposure is high and its way down. Honestly I wouldn’t worry about it that much. Mike mentioned we’re selling parts of the portfolio and reducing it as we speak. That does not mean that we’re guessing the rates going up right away, we’re just positioning ourselves to protect ourselves from both higher rates. The far more important thing is volume, is the economy recovering? If the economy is recovering then the business will do much better. Glenn Schorr – UBS: Have you seen enough evidence there because it seems a little bit mixed?

You guys are just as good at forecasting the economy as anybody else. We see delinquencies getting a little bit better, you saw credit card spend be up a little bit. We think loans in middle market are actually starting to level off and we’ve seen small business demand actually go up. We don’t know of that’s because we’re trying to generate any bankers but are signs of some good signs out there. We don’t know.

Your next question comes from Guy Moszkowski – Banc of America Guy Moszkowski – Banc of America: Could you give us a little bit of color on how we should think about the Investment Bank balance sheet going forward? Total assets seem to have stabilized after falling for four quarters or so. The leverage ratio still runs about a little over 20 times on a gross basis. Based on prospects that you see in the business and what you can glean from the BIS release Basel 3 that you were talking about. Should we expect assets to begin to grow again and should we expect a meaningful increase in the capital that you allocate to that business?

Assets will kind of start a normal growth path at this point. Not a lot more reduction, we had a lot of reduction to the Bear Stearns, some of these are liquid assets which we’ve sold and hung loans and stuff like that. I would look at fairly normal growth. Capital will probably go up to $40 billion approximately equity capital. Basel 3 is really, really early. There’s tax that they just said, could have some peculiar effects if you’re really going to tax 15 basis points on non-deposit assets and liabilities. I know it’s on your pecking repo markets and matchbook markets. We don’t really know the effect of all that but at the end of the line business is strong. You see a lot of corporations are funding, there’s more M&A talk so the business itself is healthy and the balance sheet will reflect that to some extent.

Remember when you think about leverage ratios what we publish in our equity is equity so think of that as common equity. When you do these comparative ratios often you’re looking at an attribution of all the rest of the long term debt then sub-debt and preferreds that we have as a company in each of our businesses including the Investment Bank. Guy Moszkowski – Banc of America: As we talked about, the assets flattened out but you continued to have a pretty significant decline in trading VaR, can you help us understand how to reconcile that? I think its the first time that we saw significant decline in the trading VaR even as the assets seemed to flatten.

If I were you guys I wouldn’t focus too much on trading VaR. I’ve always said it a good one point measure day to day but it’s really not an accurate measure of risk. Remember, for a lot of products its 12 months of historical volatility of the securities. That means that every week you’re dropping out an old week and you’re adding a new week. All year, for the most part this year you’re adding a benign week and dropping out a volatile week. That probably accounts for a huge amount of it. Liquid assets are down and some of the more volatile assets are down too.

Your next question comes from Betsy Graseck – Morgan Stanley Betsy Graseck – Morgan Stanley: On the FICC line are you going to be giving the mark to market numbers, the DVA/CVA components of that?

You’ll see the stuff in the Q but we’re getting into a normal range. No need to really call out the numbers in this quarter. Betsy Graseck – Morgan Stanley: Is the normal range $2 to $3 billion is that what you would suggest?

No, in terms of the P&L swings, a couple hundred million each way is not something. Betsy Graseck – Morgan Stanley: No, I was talking about the FICC line normal range?

What I said there is just we can’t predict what the markets are going to give. The point of the $2.7 billion in FICC revenues we had obviously the December slowdown we’re seeing some reversion to more normal levels of client activity gives you some lift from the levels we ran out in the fourth quarter. That’s the backdrop, normalized spreads from where we were earlier in the year together with that and it’s probably a little bit uplift from the levels we saw but we can’t really predict the future on that one. Betsy Graseck – Morgan Stanley: On capital management, I know its a little bit complex given the moving parts in the regulatory environment. With NPLs flattening here and with reserve builds continuing, at what point do you start, with the assets coming down, how do you think about what you’re going to be doing with the capital going forward. Is there a point at which you say even though the environment is still improving only slightly maybe you have considerations to raise the dividend and what’s the way of raising the dividend?

Let me just refer to one benchmark which is Tier 1 Common. That’s an 8A it goes down this quarter by 40 basis points or so because of FASB 166 and it may drop another 30 or 40 in the first quarter next year because of new market risk roles. We don’t know that number yet, it could go up or down though still very healthy. At one point we’re going to revert to normal growth which will use capital. Once you see a recovery and earnings start to go up or start to come down there will be plenty of excess capital and that’s when you might see us do something about the dividend. The other thing to keep in mind is Basel 3 which is probably a couple years away also everyone is going to keep that in mind and how they’re going to be looking at their balance sheet because no one wants to be caught short in capital particularly if someone is going to be punitive about it. Betsy Graseck – Morgan Stanley: You want a cushion but as your NPLs are flattening out here and essentially going to be improving in the not too distant future this could become a challenge.

We’re in great shape and we’re already thinking about. We’ve never stopped investing in people and systems and data centers and branches because we know we’re going to have a lot of capital. There’s an inflection point which instead of NPLs and all these things, unit of capital as an inflection point at which they’ll be kicking off a lot of capital not just for us but for all banks, particularly when all these negative accounting things and negative regulatory things go away and earnings go back up and loss reserves come down. The industry will end up being over capitalized. We’ve always said everything is and the industry will end up with too much capital. In my opinion that will happen sometime in the middle or late 2010. Betsy Graseck – Morgan Stanley: Is there anything staying in the way of raising the dividend aside from your opinions and the Board decision, is there anything that you have to do to raise the dividends aside from that?

Not really. I think we’ve said we really want to see a real recovery before we do that because we don’t want to have to do this again. Just in case we have another dip down here. Betsy Graseck – Morgan Stanley: On the capital ratio you indicated at investor day you’re going to changing some of the allocations. Could you talk a little bit about what you’re thinking about doing there?

You hit on the big one, probably take the Investment Bank capital up from 33 to around 40. We’re still working on fine tuning these numbers. Most of the other businesses are probably in the zip code that they belong but they’ll be tweaked to those levels. The view will be our best ability to capitalize the businesses unique to their own type of activities under Basel 2 type regime with strong Tier 1 Common type of targets, business by business. That’s the framework we’re thinking of.

Then there’s the general one, which is how much capital are regulators going to set as the real standard. Use real standards which people don’t really know yet. Betsy Graseck – Morgan Stanley: In the past you’ve indicated Basel 2 was going to another positive for you. Jamie Dimon It’s about break even. If Basel 2 moves all around and basel 2 is going to change. We’ve got plenty of capital but the question is what’s the new standard. Not only are capital requirements, the rules adding to more risk rate assets and more capital but in the old days 41 Tier when the stress test took place it was 4% Tier 1 common was you had to be able to maintain through the adverse case. We have double that. That 4% could be 5% or 6% or 7% and no bank is going to want to be caught short of that because the markets and the regulators and the government becomes punitive at that point. Everyone is going to want to hold more capital.

Your next question comes from Mike Mayo – CLSA Mike Mayo – CLSA: Just to clarify the last discussion. Do you expect NPAs to go down mid or late 2010?

We don’t know when the recovery is. What I said is I think you can have an inflection point where you’re generating a lot more capital then we need even after accounting for needing more capital to make up for the accounting change and the Basel 2 change. The preferred is going up, the balance sheet levelizing and loan losses are eventually starting to come down. Mike Mayo – CLSA: For the quarter, I think you sold $1 billion of NPAs so if you hadn’t sold those on a core basis NPAs would have been up 4% which is better but still higher, is that math right?

A little less than that. Its whatever the decline was in the Investment Bank which is three quarters of that was sales.

And restructuring. A lot of loan have gone non-performing and the loss corporate world they restructured and taken out by this etc. Mike Mayo – CLSA: The bigger question as it relates to the new tax proposed what are some of the potential unintended consequences or maybe intended consequences. Would you think about de-levering some, think about foreseeing core deposits more, would you think about raising money more outside the US. What are your options to help mitigate the impact of that tax if it gets passed?

First of all, we don’t know what the real tax is yet. It seems to cover US and non-US that doesn’t help you. I think the one unintended consequence in the back of my mind is an issue how it effects the match book financing businesses etc. That really becomes a real cost in a low margin type of business. We’ll wait and see. We run the business to serve customers and grow, we don’t run it for naturally that stuff so we really have to wait and see the details of when it all sorts out. Mike Mayo – CLSA: I’m not saying I understand that tax either or agree with it. The bigger picture question is if you’re deemed to be too big to fail, I know you disagree with that, if you were deemed too big to fail or any other firm were, how should a firm like that be made to pay for that protection?

I think the real important thing is that we really don’t believe that anyone should be too big to fail. Remember the market’s never traded finance is probably like they were too big to fail; it’s either the stocks or the bonds. It traded at huge spreads and stuff like that. The model, if you were going to have something is like insurance like an FDIC type of thing or something like that and it becomes a cost of doing business for insurance type companies.

Your next question comes from Meredith Whitney – Meredith Whitney Advisory Meredith Whitney – Meredith Whitney Advisory: Of the securities sold is there a predominant asset class?

It’s mostly MBS and a couple other things. Meredith Whitney – Meredith Whitney Advisory: Agency MBS?

Yes. Meredith Whitney – Meredith Whitney Advisory: We’re reaching a critical point in terms of all the loan modification efforts and this is an industry question but then how specifically it affects your company given the fact that the industry feedback and statistics on the loan modification efforts are not good. So you question what’s the next initiative and the issue of principal forbearance how much momentum do you think that has, can you comment on what stage we are in terms of the extension, the last slug is over in February. Where you think we are in terms of the Government’s efforts to influence banks to do certain things.

Remember, we do modification our own and we do the government modifications. I do think they’re kind of new, complex and I think people will get better at it over time. We have not thought of a better way to do it then loan by loan which is does a person want to live there, can they afford to live there. We really think that payment, how much you’re paying is more important then principal. Even if you’re going to do something on principal to do it right you have do it loan by loan and effectively comes a similar kind of thing. The difficulty is the loan by loan part. We’ve asked the Government, I think they tried to streamline a little bit the HEMP programs because there’s too much paperwork involved in it. A lot of the reasons we’re not getting to final modifications half the time we don’t finish the paperwork. In other words, they were meeting the lower payments but they weren’t finishing the paperwork. We’re trying to get better at it, better streamlined. Honestly we rack our brains to see if there’s a better way to do, you could do it more macro then loan by loan. Once you start talking about macro you’re going to get involved in a lot of issues about whether people live there, whether they have the ability to pay, whether they were honest when they first told people how much their incomes were. We’re working through it. Meredith Whitney – Meredith Whitney Advisory: Do you get a sense that there’s something right behind HEMP that’s another solution from the Government or is it more your efforts?

We’re trying to have ideas, they’re trying to have ideas, but if we had a brilliant one we’d be very supportive of doing it. We want to do the right thing for the people. Meredith Whitney – Meredith Whitney Advisory: The issue of principal forbearance is not something that people should be over concerned about with respect to reserves and capital for the banks.

No, I think if there’s a macro government force on something like that it could have a fairly significant effect on loan loss reserves and losses, etc. Meredith Whitney – Meredith Whitney Advisory: Is that a real, does it have any momentum?

Honestly you probably know as well as we do.

Your next question comes from Jason Goldberg – Barclays Capital Jason Goldberg – Barclays Capital: You mentioned the 40 basis point hit for 166/167 in the first quarter. Is there any impact to the income statement or hit to retained earnings that we should expect?

Yes, basically you’re going to put up the reserves for the stuff that’s held off balance sheet. That is the 40 basis points.

It’s about $7 billion pre-tax of addition reserves. That really drives the decline in capital, gives you the basis point impact. Jason Goldberg – Barclays Capital: Will we see that in EPS?

No. It’s an accounting adjustment below the line but it does reduce book capital, the after tax amount; there’s some other adjustments in there, probably that $4 billion of capital. Jason Goldberg – Barclays Capital: To one of your earlier comments on reserve, I think the comment was you expect reserve builds to cease over the next quarter or two and then come down. Was that the interpretation?

Made no particular comments in the outlook itself, it’s going to be dependant on where the economy goes. Jamie just pointed out at some point maybe in the middle of the year you could get to an inflection point but we’re not there yet. Jason Goldberg – Barclays Capital: Any chance you can give us more granularity in terms of what was weak in Q4 within FICC and what is strong year to date or is it broad based or there are specific segments that have been stronger then others?

FICC was really across the board. There were a couple small negative one shot items which I think was clean up. So far this year its fine. We expect volumes to be good. Again, you guys you can forecast that as well as we can, you’ve got the same data we get generally industry wide. This year so far has had a nice start.

Your next question comes from Moshe Orenbuch – Credit Suisse Moshe Orenbuch – Credit Suisse: I think at the last call you had mentioned that your plan was to increase investment in the Card business despite the fact that you were planning to still run hefty losses in the first half of 2010. It looks like the revenue side came in relatively strong. Can you give us an update on your strategic thinking on that business?

The financial side, before any changes to reserves, but bearing obviously the cost of credit we’re going to lose $1 billion in the first quarter and the second. There will be a point in time in my opinion the reserves come down, it’s possibly going to go up, and there will be a time when they come down so obviously the real impact might be different then that. We took this as an opportunity to design new products. If you watch TV at all you’ve seen our Sapphire ads and our Blueprint ads and our Ink ads and new Small Business product. We think we have some great new products and we’re spending the money to roll them out. The marketing costs a lot of money in this business; you’re talking about hundred of millions of dollars. You didn’t see us reduce marketing expenses or at least we did very modest in this recession. Eventually we’ll have a turnaround in the business and we’ll have good products, good services. We’ll have done what we can, obviously don’t know the stuff we’ve got to do for the law changes; you’ll see a turn in the business.

Your next question comes from Richard Ramsden – Goldman Sachs Richard Ramsden – Goldman Sachs: Did the UK bonus tax have any material implications for the tax charge this quarter?

Nothing on the tax side. When it happens item so it could it first or second quarter of next year, we’ll see. As I said, the anticipation of that cost took some money out of our bonus pools and so you saw that in the comp to revenue ratio. Richard Ramsden – Goldman Sachs: Can you give us a rough idea of magnitude on what you think it could be?

We would prefer to book it but there is not the legislation, it’s hard to tell what legal entities or people who will relate to how it relates. We can’t but you’re talking about several hundred million dollars at one point. It could be more then that, it could be less then that, it really depends how the legislation turns out. That will be a first or second quarter item when it’s finalized. Richard Ramsden – Goldman Sachs: What drove the decision to sell NPLs in the Investment Bank, is that going to be an ongoing process or what that a one off cleanup process in the run up to the year end?

Those decisions are made asset by asset. Some of those would not sales as much as they were restructurings. We had a non-performing loans and the company that restructured raised money, moved on and balances come down, they come out of non-performing. We try to make the economic decisions, we don’t try to manage the balance sheet or MPAs or something like that, its just economics, and everything is economics. Richard Ramsden – Goldman Sachs: Back on Basel 3, was there anything in their proposal that really stood out to you as being particularly problematic or non-sensible in terms of either grossing up of derivatives or anything like that in that proposal?

I separate accounting from capital, derivatives and stuff like that wouldn’t matter as much. The initial ones that came out would require a lot more capital. We’re double counting a lot of things. Then the liquidity one I don’t personally understand what they’re looking for. I’d put that one in the category, its years away. It needs to be done right, its years away, the industry is going to have plenty of capital before we ever get to those years. I’m not going to worry about it that much. The early indications they put was a lot more capital.

Your next question comes from Matthew O’Connor – Deutsche Bank Matthew O’Connor – Deutsche Bank: You mentioned that middle market loans are leveling out and there’s some early increase in demand in small business. Do you think we start to see commercial loans actually increase in the first quarter or is this just very early indication of that trend?

I’m talking about middle market now, its possible it could level out, I’m not sure we’re going to see an increase. It’s possible and it really relates, again it’s really the economy. If you see the economy start to grow, yes I think we’re going to see those loans go up. The large corporate loans, which went down a lot that is more bond markets. The companies can finance elsewhere and they’re doing that. Matthew O’Connor – Deutsche Bank: On the small business side which obviously there was a lot of initiatives in Washington to get that going, you mentioned increased demand there. Could that be a driver of volumes overall?

Could you say it again? Matthew O’Connor – Deutsche Bank: I was following up on the small business comment. You mentioned a pick up in demand there and there are a lot of initiatives in Washington to make credit easier for them, there are some tax credits they’re proposing. I’m wondering how meaningful the pick up in small business demand can be for volumes overall.

It was pretty significant quarter over quarter in terms of pick up. What I don’t know we’re doing a lot of advertising and any bankers, I don’t know if the pick up was the whole industry and when you see other banks report you can get a better feel for that. Obviously we’ve been trying to support in every way we can the economy and any small business programs, other things that people do would be great. I think what’s going to drive small business will the same thing that drives everything else which is the return to health of the economy. That will drive most of these things. We don’t know that any more then you do. Matthew O’Connor – Deutsche Bank: You mentioned there was some cleanup within FICC in the fourth quarter that presumably was a drag. Care to say how much that was in total?

No. There are so many items that go through something like FICC. There are a couple hundred million dollars maybe. We hope to do better in FICC. I would say it was a little disappointing this quarter.

Your next question comes from Ed Najarian – ISI Group Ed Najarian – ISI Group: Related to FICC, if we expect volumes to increase from the weak volumes in the fourth quarter, is there anything about spread going forward that makes you think it should tighten even further or would you say that by the fourth quarter trading customer spread had sort of tightened to where you think they will go?

I think you’ve seen a lot of the tightening. They’re back to pretty active markets type, it’s different by product but I think you’re back to fairly competitive situations which is good for the world and the economy, obviously to not necessarily good for your trading books. Ed Najarian – ISI Group: If we have a fairly reasonably optimistic outlook that the volume will recover from the depressed fourth quarter levels you wouldn’t say that additional spread tightening would be any kind of equal offset?

No.

Your next question comes from Ron Mandel – GIC Ron Mandel – GIC: I was wondering about the newly proposed, tax that we’re calling it, but the administration is actually calling it a fee. I’m wondering what your view is as to whether it might be tax deductible.

Don’t know yet. Ron Mandel – GIC: It seems like the number they’re putting out imply it is tax deductible and they’re calling it a fee. In regard to not only the NPLs but also the critized loans and the various components were down also. I’m surprised a little bit you’re not making more of a deal with that as perhaps an inflection point.

That’s what we have you for. Ron Mandel – GIC: In terms of the loans that you sold, were they within the marks that you had?

Yes, generally. I think we had recoveries in some categories. Ron Mandel – GIC: Would you like to quantify that?

Mike mentioned before there was modest recoveries. We saw that in the release and reserve line. Its in the numbers Mike normalizes for you already. Ron Mandel – GIC: In regard to the comp ratio in the investment bank, you were running at 38% for the nine months and then as you say got it down to 33% for the year for the various factors you discussed. It seems like its going to be hard to get this 40% given where revenues seems to be. I don’t really see how you get there.

It is up to us, that’s how we get there. I would say if we were just trying to help you normalize it would probably normalize closer, maybe closer to 38%. Remember we charge for capital and expenses and its profit based all that, it could move around. I think a good rule of thumb is to expect 40%. Ron Mandel – GIC: As you say, you get a couple hundred basis point benefit for having it higher stock component but it seems to be that’s a short term benefit because eventually the stock vests and then you don’t get the benefit.

That’s right, that piece is a timing thing.

That’s the reason it might be close to 40% next year because you amortizing last year’s stuff.

Your next question comes from Nancy Bush – NAB Research Nancy Bush – NAB Research: On the tax rate, I’m assuming that rate is sort of a year end true up thing. Can you tell us what more of a normalized rate? Should we look at the third quarter as the normalized tax rate?

I would look at the third quarter year to date and that kind of rate. Ignore the fourth quarter true up. The fourth effect put it aside and think about the third quarter year to date as a good tax rate.

35% would the normal

It depends on what people look at, reported, managed, so whatever you look at, look at third quarter year to date.

Always remember when your earnings are lower then they should be that rate becomes far more volatile because there are certain tax deductions and audits and stuff like that. Nancy Bush – NAB Research: Could you update us on jumbo mortgage originations? You had started to return to that business in the third quarter. How are you looking at originating jumbos now?

Honestly, I don’t have, do you remember the number Mike? We’re doing more and we’ve gone to slightly higher LCD but it’s still very small. We’ll probably be doing more of it in the future.

Your next question comes from Chris Kotowski – Oppenheimer Chris Kotowski – Oppenheimer: I’m curious whether Senator Dodd and Representative Frank had proposed a systemic resolution fund and President Obama called this the responsibility fee and that it was to repay TARP. Is it your understanding that both are still on the table or that it’s one or the other?

You got us. We see stuff like you see it for the first time. It might surprise you, we generally agree with the concept that the industry should pay for its own clean up. TARP got extended to a lot of things other then banks like insurance companies and car companies. I don’t understand why we should pay for that, we’ve already paid for that.

Your next question comes from James Mitchell – Buckingham James Mitchell – Buckingham: Deposits were up $70 billion on a carried end basis. Was that just some hot money at the end of the quarter? It didn’t seem like it was in the retail side I guess more on the corporate side could give some color on that?

It was TSS year end corporate year end activity. James Mitchell – Buckingham: Should we expect that to roll back off?

I don’t know where we sit but it was a little bit of a spike at the turn of the year.

Your next question comes from Bill Tanona - Collins Stewart Bill Tanona - Collins Stewart: Earlier in the week you mentioned commercial real estate and I think you referred to is as being a train wreck but having already occurred. I was wondering whether that was something you were talking about specifically as it related to JPMorgan or the industry as a whole. I think there’s probably to debts that we’ve seen the worse of commercial real estate so wanted to expand upon your thoughts there.

I was not referring to JPMorgan; we don’t have a tremendous amount of real estate exposure that’s at risk, but at commercial bank a good chunk of our losses come out of the real estate side. I was referring to values already way down, that’s already happened. Different parts of the country, 20%, 30%, 40% we’ve seen new money come in and how it gets recognized on financial statements, banks some have reserved it, some its going to come, it obviously cause a lot of banks going bankrupt is because of their commercial real estate exposure. Some of its been mark to market and CMBS, some is help by pension plans, some is held by. What I’m referring to, I don’t think it’s going to be a tremendous hit to the economy from here. Its in the numbers, its in the value its in people minds and yes quite a bit more needs to be recognized on certain financial statements. Bill Tanona - Collins Stewart: As you think about the commercial segment, I know you guys had very, very strong reserves there but obviously given the up tick and the credit losses there was a little surprised that you did add a little bit more to reserves. Curious as to what it is you’re seeing specifically within that segment and why it resulted in those actions?

We just did a very good end of the year scrub on everything in that space given all the focus on it. Net of it we’re still very comfortable with 3% reserves on the total book. Bill Tanona - Collins Stewart: Certainly there’s increased regulatory pressures on you guys and as it relates to the US consumer. Curious as to does this changes your thoughts or your outlook as you look at potentially getting into international consumer businesses.

It doesn’t change anything with the international consumer businesses, which as you know we’re not in. that’s a big strategic issue that we’ll deal with over time. Bill Tanona - Collins Stewart: That’s what I meant in terms does it change your outlook for strategically how you would approach going after that business and what timeframe.

No.

Your next question comes from Jeff Harte – Sandler O’Neill Jeff Harte – Sandler O’Neill: Looking at mortgage refi’s, the FHA streamline rules have changed so that going forward you’ll have to reappraise properties, reappraise or verify income. Have you looked at that and how that will impact your origination business for mortgages in 2010?

No, I haven’t, I’ll come back to you on that.

That was our final question. I’ll now turn the call back over to management for closing remarks.

Thanks everybody for joining. Look forward to next quarter.

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